118 Airbus and Six Questions

Hassan Rouhani, the President of the Islamic Republic of Iran, concluded his four-day visit to Italy and France on Thursday, January 28, during which he signed many documents in the form of contracts and preliminary agreements with the most prominent companies in these two important EU countries. However, the most talked-about document that everyone was waiting for was the one signed with the European company 'Airbus', which, in addition to its significant financial weight, also holds symbolic importance. In fact, from both the perspective of Iranians and international public opinion, the decline of Iran's civilian aviation fleet since the Islamic Revolution has become one of the most important and simultaneously painful consequences of the country's isolation. By ordering a significant number of aircraft, the head of the executive branch of the Islamic Republic likely aimed to demonstrate his decisive and irreversible decision to rebuild the lost capabilities of his country, including in the field of air transport. The 'Homa' (Iran Air) was the most powerful airline in the Middle East before the revolution and was also among the top in Asia. With the revolution, war, isolation, and ultimately sanctions, Iran's civilian aviation fleet was deprived of access to the products of the two giants of aircraft manufacturing (Boeing and Airbus) and other smaller Western companies, and found no alternative but to purchase aircraft from Russia and lease or buy a few second-hand planes under difficult conditions. As a result, of about 256 aircraft in the 'Homa' fleet and seventeen other airlines established after the Islamic Revolution, with an average age exceeding twenty years, only 150 aircraft can fly, and it seems that eighty percent of these 150 aircraft do not meet the necessary safety standards for flight according to norms in advanced countries. This aging is the main cause of air accidents in Iran, which reportedly have reached about two hundred in the past 25 years, resulting in 2000 casualties. In this situation, almost the entire Iranian aviation fleet needs to be rebuilt, a task made possible by the signing of the 'Joint Comprehensive Plan of Action' (JCPOA) last July and the beginning of the sanctions relief process in January of this year. The most important initiative of Hassan Rouhani during his recent trip to Europe was dedicated to this rebuilding. Regarding Iran's needs in the field of civilian aviation, and the document signed on Thursday, February 28, by representatives of the Islamic Republic and the European company Airbus, several questions arise: One) Based on the current situation and needs for the next few years, how many aircraft does Iran need? According to Abbas Akhoundi, the Minister of Roads and Urban Development, one of the most active ministers in Rouhani's government and the main strategist behind the Airbus purchase, Iran needs four hundred aircraft for its long and medium-range fleet and at least one hundred aircraft for its short-range fleet for use in small domestic airports. This total of five hundred long, medium, and short-range aircraft, according to Mr. Akhoundi, who accompanied Rouhani on his Paris trip, will cost fifty billion dollars. On the other hand, based on assessments by Airbus experts, air traffic in Iran is growing at about five percent annually. This growth should also be taken into account in evaluations. Two) How much of Iran's needs will be met by purchasing aircraft from Airbus? On Thursday, October 28, it was announced that Iran has ordered 118 aircraft from Airbus: 12 wide-body A380s, 16 A350s, 45 A330s, and 45 A320s. Given the current needs and the foreseeable growth of air traffic in Iran, this number of Airbus aircraft will meet less than twenty percent of Iran's needs in the next twenty years. Three) What is the nature of the document signed between Iran and Airbus? Based on data published by French sources, representatives of Iran and Airbus signed not a contract but a memorandum (protocol) for the discussed aircraft. This is essentially a preliminary agreement that must be converted into a final order through further discussions in the future. Four) How will the financing of this memorandum be carried out? The total value of the aircraft to be delivered to Iran is estimated at 25 billion euros. This is one of the heaviest orders in the history of Airbus's operations. How will Iran finance this cost? Given Iran's current financial difficulties, a cash purchase is obviously impossible. Previously, Abbas Akhoundi had stated that the country does not have such funds and therefore will use the lease-to-own method to acquire its needed aircraft. However, two days before the signing of the contract, Seyed Kamal Seyed Ali, the CEO of the Iranian Export Guarantee Fund, stated regarding the financing of the Airbus order that European banks would 'pay for Iran's Airbus and Iran would pay the installments over fifteen to twenty years.' Mr. Seyed Ali added that the credit of European banks to Iran would be covered under 'SACE' (the Italian credit insurance agency). Five) Which banks will participate in financing the Airbus deal with Iran? The names of the banks participating in financing this deal have not yet been published. It seems that many European banks, fearing U.S. financial penalties, are still hesitant to participate in transactions involving Iran. In fact, a significant portion of U.S. sanctions against Iran, which are outside the scope of the nuclear issue and relate to terrorism or human rights, still remain in effect. The legal analysis and interpretation of such American laws are very difficult, and banks prefer not to take risks until issues are clarified. Let us not forget that recently, the French bank BNP was fined about nine billion dollars by the U.S. for participating in transactions with Iran and Sudan. The reluctance of European banks (or at least many of them) to participate in financing foreign transactions of the Islamic Republic is currently causing problems in the relationships of EU member countries with Iran. It seems that Airbus is using the services of a small Swiss bank affiliated with it, known as Salsburg Munchen, to solve the financing problem of the deal with Iran and find an acceptable assembly. Six) When will the ordered Airbus be delivered to Iran? If the final contract with Airbus begins soon, the delivery of the first aircraft ordered by Iran will likely start in 2019. It should also be noted that the entry of 118 aircraft into the aviation fleet requires preparations such as the provision of infrastructure and training of crew. Currently, even Imam Khomeini Airport in Tehran lacks the necessary infrastructure for the landing of the wide-body A380 aircraft. Therefore, alongside the document signed in Paris for the order of Airbus, the development of Imam Khomeini Airport in Tehran was entrusted to 'Paris Airports' and 'Boeing', while the 'Vinci' company was tasked with the development of the airports in Mashhad and Isfahan.