Friday, January 29, 2016

No Quick Takeoff for Iran’s Lofty Aviation Plans: Financial restrictions and aging infrastructure seen hindering redevelopment of air-travel, cargo sectors



The Wall Street Journal
By Robert Wall
Updated Jan. 28, 2016 1:21 p.m. ET


TEHRAN—After a flurry of big deals aimed at revamping Iranian commercial aviation, officials and executives here face a host of obstacles that could keep many of their biggest ambitions grounded for some time to come.

Iranian officials have been eager to court Western buyers for the nation’s crude oil and natural gas, but they have signaled that civil aviation is also a priority. ​

Iran has committed to buying 118 commercial jets from Airbus Group SE—an order of about $27 billion at list price—to help replace its aging fleet of jetliners, some bought before the Iranian Revolution in 1979. Tehran has also signed deals this week with a handful of French firms to revamp Tehran’s Imam Khomeini International Airport.

But residual financial sanctions, capital restrictions, aging infrastructure and limits on Iranian flights abroad could slow growth, Iranian and foreign officials warn. ​

“Our infrastructure at this moment isn’t enough,” said Bagherian G. Hossein, deputy chief executive at the Iran Airports Co.

Revamping Iran’s airports and commercial fleet would be crucial to help the country open up to foreign business travelers eager to take advantage of the removal of sanctions. It could eventually help boost tourism, another potential new revenue stream. A new fleet of commercial jets and a revamped international gateway could go some way in demonstrating to everyday Iranians the economic benefits of Tehran’s nuclear deal with international powers.

“Developing the infrastructure, building new airport facilities, cargo villages, a railway line to the airport from the city, all will have direct and indirect impact on the economy,” said John Grant, executive vice president at British aviation consultancy OAG.

So far, the aviation industry has appeared to be the single biggest beneficiary of the lifting of a set of broad international sanctions against Tehran.

Iran Air is the first airline to benefit from sanctions relief, agreeing to a deal with Airbus for 118 new jetliners. The deal was announced Thursday during the current visit of Iranian President Hassan Rouhani to Paris.

The order includes some of Airbus’s biggest planes—as many as 12 A380 superjumbos and 16 A350 long-range jets. Deliveries of some A320 single-aisle planes and A330 widebodies, which are part of the transaction, are due to start this year, said Fabrice Brégier, the head of the European plane maker’s jetliner unit.

No one is expecting those planes to show up on the tarmac right away. Airbus and rival Boeing Co. , whose planes Tehran is also interested in buying, are working through record backlogs, so new planes ordered today might not show up until after 2020.




Another obstacle: Most airplane purchasing and finance deals are in dollars. Executing those deals amid U.S. banking restrictions would be difficult, especially for nonstate-owned airlines. Deputy Transport Minister Asghar Fakhrieh Kashan told an audience of international aviation executives at a conference here this week that Iran’s central bank is engaging with the U.S. Treasury Department’s Office of Foreign Assets Control, which enforces sanctions, to address the issue.

“The banking sanctions limit our growth vision,” said Iraj Ronaghi, vice president of Meraj Airlines, an independent airline that operates domestic flights and some to neighboring states.

Airbus may provide financing for early deliveries in the Iran Air deal until financial institutions that typically back such transactions re-establish dealings with Iran, said Mr. Brégier. The financial exposure to Airbus would be limited, he said.

Iran was suspended in 2011 from the global aviation-payment system run by the International Air Transport Association. Iran Air Chairman Farhad Parvaresh said the airline is hoping to be readmitted, a move that would make international ticketing easier.

Mr. Kashan, the deputy transport minister, said Tehran has also started the process of joining the so-called Cape Town Convention. The multinational agreement smooths the process of repossessing planes, in case of default. Membership is typically a key component of any plane financing or leasing agreement.

The European Union has imposed limits on Iran Air’s operations because of the age of its fleet, limiting the carrier’s opportunity to add more slots at other global destinations. That could put the carrier at a disadvantage compared with international carriers, particularly those based elsewhere in the Persian Gulf.

Emirates Airline, the world’s largest by international traffic, already has plans to expand flights to Iran and link the country to the Dubai-based carrier’s vast network. British Airways and Dutch carrier KLM are considering reviving Tehran flights.

Direct flights to the U.S. aren’t likely soon. That would require a new bilateral treaty between the U.S. and Iran, and safety inspections by U.S. regulators. All that could take time. Delta Air Lines Inc. said U.S. policy doesn’t allow it to operate directly to Iran, though an airline spokeswoman said the carrier will offer tickets for connecting passengers traveling to Tehran with partner carriers.

An Iranian government official said the country would likely seek first to establish trans-Atlantic flights to Canada, while issues with the U.S. are sorted out.

--Doug Cameron in Chicago contributed to this article. 

Original article can be found here:  http://www.wsj.com<

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