Iran Jet Licenses Held Up by Delayed OFAC Designations

EghtesadOnline: Iran Aseman Airlines says the pending designation of specific roles inside the US Treasury Department’s Office of Foreign Assets Control has held up licenses for the sales of the jets the airline has purchased from global planemakers.

News ID: ۷۴۳۴۸۰

26 August 2017

“From what we have heard, there are specific roles inside OFAC whose officials need to be appointed before licenses for the planes are issued,” Aseman’s deputy for planning and fleet expansion, Mohammad Gorji, said.

He said OFAC “has to” issue the licenses once the roles associated with the matter are filled, regardless of the political orientation of the individuals who will be appointed, according to Financial Tribune.

“[Anyone taking charge] might be stricter and ask more questions, but in the end they must issue the permits,” Financial Tribune quoted him as saying. “The law of the United States only limits doing business with [people and] companies who are under sanctions.”

Gorji said Aseman’s purchase of an Airbus A340—which is currently a property of the European company—has remained in limbo since April 2016 when it signed a memorandum of understanding with the airline.

Aseman also concluded a contract with the US aircraft manufacturer Boeing in June for the purchase of 30 B737Max jetliners worth $3 billion. The contract is extendable for another 30 planes of this type.

The airline said back then that it expected Treasury permits to come as soon as a few weeks. However, the licenses for this order, as well as others whose agreements have been signed or are soon to be signed with Boeing, Airbus and other global aircraft manufacturers are still awaiting a go-ahead by the US.

Gorji told us that Boeing has said it will receive OFAC permitsfor the sales by the end of September this year.

Non-American companies need US permission for selling planes to Iran if they use US-built components constituting for more than 10% of the aircraft they produce.

During former US President Barak Obama’s last weeks in office, OFAC officially allowed Boeing and Airbus to deliver a number of jets to Iran, as part of their massive deals to supply 180 planes to state-carrier Iran Air. Nonetheless, not a single plane has won a permit ever since.

Much as analysts believed the fate of the jet deals would face uncertainty after Donald Trump moved to the White House in January, Boeing has repeatedly said with due confidence that it will proceed with deliveries to Iran Air.

Uncertainty has been growing recently, though, after Trumprevealed his intention to withdraw from a deal Iran signed in 2015 with six world powers to resolve a dispute over its nuclear program. In January 2016, the implementation of the accord—known officially as the Joint Comprehensive Plan of Action(JCPOA)—led to the removal of sanctions which had kept Iran’saviation industry under boycott for decades.

“Acting” Roles

The Trump administration has yet to decide on numerous roles involved in this matter, a number of sanctions experts, whom Financial Tribune discussed the issue with, say, adding that most of the current designations bear the word “acting,” which is used for officials who temporarily act in a role.

OFAC’s workings are mysterious and unknown. Early March, when Treasury appointed OFAC’s incumbent acting chief, John E. Smith, as the permanent director of the office, the Treasury did not even publish a press release.

What sanctions experts do know about OFAC, however, is the office is currently understaffed compared to the multitude of the applications they have been receiving following the lifting of the sanctions.

Assessing foreign trade dealings is a highly technical task. Applications need to go to the state for screening against the International Traffic in Arms Regulations and other military-related lists, the sanctions experts say.

Gorji told us his company has been informed that some of their OFAC applications have already been sent to the state for further review.

The licensing process is lengthy and time-consuming. However, there are rumors that OFAC has been told to sit on all Iran airplane applications, pending the policy review, experts say.

Beyond JCPOA

In choosing aircraft for its post-sanctions fleet renovation plans, Aseman thinks beyond the existing opened-up atmosphere provided by the JCPOA.

Aseman prefers the B737Max because it is produced in massive numbers, which facilitates access to spare parts in case the manufacturer decides to cease cooperate for one reason or another, Gorji says.

“If something happens [sanctions snap back], obtaining parts for the European planes will be too difficult.”

He says the airline has so far been content with the extent of Boeing cooperation. “They contacted us … they held workshops to introduce their planes.”

Boeing has also offered a good deal in terms of financing. Aseman says 95% of its order will be financed by the US company.

“[in addition to OFAC licenses], the US also needs to allow banking transactions,” Gorji said.

Ever since JCPOA went into effect, Iran has signed deals worth billions of dollars with international companies, including with world planemakers. Yet, many of the deals are pendingfinancing which needs to be carried out via banks.

Even the orders placed by Iran Air—which has so far received three Airbus and four ATR planes—have yet to be backed by concrete financing contracts. The flag carrier is confident that the issue will be resolved soon

US Exim Bank

While it is unclear how Boeing’s sales to Iran Air and Aseman will be financed, the planemaker’s ability to use government export credit through Export-Import Bank of the United States is in doubt.

“It’s a matter of public record that it [Exim Bank] is barred from providing export credit financing to Iran’s airlines,” Boeing replied to an email inquiry by the Financial Tribune.

Although Trump was initially against the bank as a whole, it later showed a shift in tone. Yet, the issue became more complex when he nominated two anti-Exim Bank senators for the bank’s leadership.

“It's a contentious issue … Nobody quite knows what this means,” Richard Aboulafia, Vice President for analysis at Teal Group, told us.

In a tweet posted in June last year, Scott Garrett, Trump’s nominee to lead the bank, said Boeing’s deal with Iran Air “proves that crony capitalism is alive and well in DC.”

“I don't think Exim is crucial for Boeing, but it does enhance their profitability,” Aboulafia said. “And in Iran, it is crucial, because the country has not signed the Capetown Convention.  Thus, financing is very expensive without some kind of backstop agreement.”

The Convention on International Interests in Mobile Equipment was concluded in Cape Town on November 16 2001, with a primary aim of resolving the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.

Perhaps OFAC and Exim Bank come as a second priority for the White House which has seen significant changes in highest-ranking roles in the past few weeks.

“Given the high profile sackings in and around the White House lately, America’s highest office has descended into a bit of a farce,” Saj Ahmad, Chief Analyst at the Dubai-based StrategicAero Research told the Financial Tribune. “So it is not clear what is happening because things are changing so fast!”