Iran’s aerospace market restarts


With the lifting of international sanctions against Iran being lifted two weeks ago, Hassan Rouhani is touring Western capitals to revive trade and try to modernize his country, including the aerospace sector, as the desperate state of Iran’s commercial airline fleet is notorious.

On Jan. 24, during the Iran Aviation Summit (IAS) – the country’s first post-sanctions business gathering – the Minister of Transports Abbas Akhoundi announced that local carriers would need a total of 400 wide-body aircraft and 100 narrow-body aircraft to compensate for the decades during which Western manufacturers weren’t authorized to sell Iran aircraft or parts. A grand total of 500 units in the coming decade, consistent with the Center for Aviation (CAPA)’s estimation of 300 new aircraft in the next 5 years and then a further 200, but mitigated by FlightGlobal which forecast only 300 units.

Today, only 150 out of 256 airliners in Iran are operational, and they are 29.9 years old in average (the world’s average is around 10). Iran Air, the flagship carrier, operates only 43 aircraft, some of them are now 40 years old and its 4 B747-200/SP and 8 A300B2/B4 need to be urgently replaced. Furthermore, the local airline landscape is heavily fragmented for a market of its size: with 14 carriers, mostly of small size, a fall in domestic capacity (-20% since 2011), the Iranian market is very volatile (+10 in 2014, but -13% in 2015). As a result, the flagship carrier, Iran Air has only a 22% marketvshare. Other companies are even smaller, with 5 of them having a share between 10-15% (Ata Airlines, Zagros Airlines, Kish Air, Iran Air Tours, and Iran Aseman Airlines). Lately, the trend was even to leave domestic routes increasingly, and focus on international flights, to avoid a weak domestic market.

On Jan. 25, coming from Italy, Iran’s President Rouhani arrived in Paris, where he was widely expected to sign a set of contracts, including a massive deal with Airbus. The European OEM was in prime position for the renewal of the country’s fleet. It finally signed a prior agreement – not a final contract since the sanctions have not been fully lifted – worth around $25 billion, to deliver 118 aircraft including 45 A320, 45 A330, 16 A350 and 12 A380 airliners. They will be delivered in the next 8 years, with already 8 of them this year. The contract also includes pilot training, airport operation, and air traffic control.

Tehran also announced it would order more than 100 aircraft fromo Boeing, but the Chicago-based OEM currently sits on the sidelines, “because of problems existing in negotiations with the US,” Akhoundi said.

Actually, the reason why it has been more complicated for American companies than their European competitor is the remaining barriers imposed by the US Treasury, which hasn’t authorized negotiations to take place. Meanwhile, the Vice Minister of Transports has started discussions with international jet makers such as Bombardier, ATR (which hopes to sell 40 aircraft to Iran Air), Embraer, Sukhoi, COMAC, and Mitsubishi.

The country’s obsolete transport infrastructures desperately need foreign investments to prepare for the forthcoming rise of air traffic. “Our infrastructure at this moment isn’t enough,” euphemistically said Bagherian G. Hossein, Deputy Chief Executive of Iran Airports Co. At the CAPA Summit, Mr. Akhoundi explained that “the navigation systems of the Iranian airports require $250mn investment to be updated.” Besides, the country has only 9 usable airports out of 67. Letters of Intention (LoI) have been inked by Aéroports de Paris (ADP) and Bouygues for the construction of a new terminal at Tehran’s Imam Khomeini airport, and by ADP, Airbus and Vinci for airports in Mashhad and Isfahan, worth $12bn.

Finally, the lifting of sanctions gives new prospects to Iranian airlines, which will be allowed to operate across the world, as well as western carriers. In Iran, the doubling of international air transport passengers in 10 years has enabled the creation of a dozen private companies, such as Kish Airlines (which is talking with Airbus to buy 6 A321s), Qeshm Air or Caspian Airlines. One of them, Mahan Airlines, has even grown bigger than the flagship carrier Iran Air. They now intend to take full advantage of the country’s strategic geographic position – between Europe and Asia – and compete with the Gulf’s airlines. British Airways, Air France-KLM and Norwegian Air Shuttle have also showed interest in entering the Iranian market.

Iran is also reportedly preparing itself to lease or buy commercial satellites and related technologies. The Ministry for Information & Communications Technology (MICT) said Iran was interested to cooperate in the satcom area. Eutelsat Communications SA is already engaging talks with the Iranian Space Agency (ISA) to deliver communication capabilities for the Near East. Talks with Airbus D&S and Orange were also mentioned.

But some obstacles remain, such as the fragile solvability of Iran, legal uncertainties and the Western banks’ reluctance to fund businesses that could theoretically be interrupted overnight in case of “snapbacks” – the nuclear deal’s provision that restore sanctions immediately, if Tehran restart its nuclear program. Yet, since the Supreme Leader of the Islamic Republic, Ali Khamenei, himself gave his approval to the agreement, it seems less likely that such turn-around occur.

Written by ADIT – The Bulletin and republished with permission.