{"id":24598,"date":"2017-11-15T18:19:28","date_gmt":"2017-11-15T23:19:28","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/iran-air-sanctions-and-sanction-relief\/"},"modified":"2017-11-15T18:19:28","modified_gmt":"2017-11-15T23:19:28","slug":"iran-air-sanctions-and-sanction-relief","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/iran-air-sanctions-and-sanction-relief\/","title":{"rendered":"Iran Air: Sanctions and Sanction Relief"},"content":{"rendered":"

As a flag carrier airline, Iran Air is materially exposed to the vagaries of international politics and security developments.\u00a0 Iran\u2019s aviation industry has faced international sanctions since 1979, the year of the Iranian nationalist and religious revolution.\u00a0 Specifically, over the last decade, the United States and European Union have imposed a tighter sanctions regime on Iran in response to Iranian policies deemed contrary to American and European national interests, in particular the possible military dimensions of Iran\u2019s nuclear program.[1]<\/a>\u00a0 The sanctions have blocked Iran Air from obtaining new aircrafts and spare parts.\u00a0 Without the ability to import foreign aircrafts, Iran Air has struggled to maintain a fleet to support customer demand in terms of quality and scope of service.\u00a0 The central issue facing the management of Iran Air is how to avoid the progressively increasing threat of a major accident.<\/p>\n

Foreign isolationist measures have forced Iran Air, as well as other Iranian carriers, to operate some of the oldest fleets in the world.\u00a0 Iran Air Chairman, Farhad Parvaresh, said that his primary challenge was to \u201ckeep the company alive\u201d in dealing with the problems arising from operating an elderly fleet.[2]<\/a>\u00a0 The lack of access to spare parts has grounded approximately 130 aircrafts in the nation\u2019s fleet, the majority of these belonging to Iran Air.\u00a0 Maintenance, repair and overhaul expenses account for approximately 25% of total costs of Iranian airlines, compared to the global industry benchmark of 10-15%.\u00a0 Due to Iran Air\u2019s shortage of long range jets, its current network is geographically limited to destinations within a six to seven hour flight radius.\u00a0 Overall, operational costs have been rising, the performance constraints of an aging fleet cannot meet the growing demands of a developing country, and, most importantly, the operational risks that arise pose massive safety concerns.\u00a0 Since 2009, Iranian airlines have suffered several fatal accidents.\u00a0 Iran Air Flight 277 was a highly publicized crash in 2011 that killed at least 77 passengers onboard.[3]<\/a><\/p>\n

In 2016, Iran Air benefitted from sanctions relief.\u00a0 Under general license J-1, the US Treasury filed an amendment to the Iranian Transactions and Sanctions Regulations \u201cauthorizing the Reexportation of Certain Civil Aircraft to Iran on Temporary Sojourn and Related Transactions.\u201d[4]<\/a>\u00a0 Iran Air immediately concluded two parallel deals for aircrafts with the world\u2019s two leading aircraft suppliers; Boeing of America and Airbus of the European Union in December 2016. \u00a0Both contracts were huge.\u00a0 Boeing announced a $16 billion agreement for 80 aircraft that would provide nearly 100,000 jobs in the US economy.\u00a0 The first planes under these terms are scheduled for delivery in 2018.[5]<\/a>\u00a0 Similarly, Airbus recorded 98 firm orders placed by Iran Air. \u00a0The first Airbus aircraft was delivered in March 2017.[6]<\/a>\u00a0 Iran Air\u2019s managers are pursuing a short and medium term aggressive purchasing strategy that is almost entirely dependent on these contracts remaining legal.\u00a0 However, the Trump Administration has stated that a return to the formerly held isolationist policy may be imminent.[7]<\/a>\u00a0 The potential snapback of sanctions would bar both Boeing and Airbus from doing business with Iran Air.\u00a0 Airbus requires a US license to trade with Iran due to the aircraft\u2019s reliance on US parts.[8]<\/a><\/p>\n

In an effort to head off the imposition of new sanctions and realize the large numbers of aircraft orders, Iran Air should work intensely and closely with Boeing.\u00a0 Boeing\u2019s influential and well-connected lobbyists on Capital Hill are in constant contact with Senators and Congressmen. \u00a0The purpose of this approach is to ascertain which, if any, Iranian government statements or acts could sway congressional votes in the matter \u2013 and then pass on such recommendations to the Iranian government.\u00a0 Secondly, Iran Air should place any politically required commercial orders regardless of economic cost with manufacturers in swing vote congressional districts.\u00a0 \u00a0Again, this should be done in close coordination with Boeing, which has so much to lose financially if Congress imposes sanctions. \u00a0However, any acts by Iran Air to save its orders for Boeing or Airbus jets may, in the end, prove ineffective given the strength of the political forces in play.<\/p>\n

Some questions remain.\u00a0 Could Iran Air coordinate Airbus and Boeing\u2019s support to effectively have European governments address American congressional concerns directly through their Washington Embassies?\u00a0 Could exposure in media be pursued to highlight the benefits of the Boeing deal as it bears on the United States economy?<\/p>\n

 <\/p>\n

[Word Count: 716]<\/p>\n

 <\/p>\n

References:<\/span><\/p>\n

[1]<\/a> Adebahr, Cornelius. Europe and Iran: the Nuclear Deal and Beyond<\/em>, Routledge, Taylor & Francis Group, pp60, (2017).<\/p>\n

[2]<\/a> Centre for Aviation, CAPA, Iran Air’s Fleet Order Signals Serious Intent for the Iranian Aviation Industry<\/em>, (2016), https:\/\/centreforaviation.com\/insights\/analysis\/iran-airs-fleet-order-signals-serious-intent-for-the-iranian-aviation-industry-266339<\/a><\/p>\n

[3]<\/a> Centre for Aviation, CAPA, Iran, with an Educated Populace of 80 Million, Becomes a Potentially Major Aviation Force<\/em>, (2016) https:\/\/centreforaviation.com\/insights\/analysis\/iata-iran-with-an-educated-populace-of-80-million-becomes-a-potentially-major-aviation-force-282989<\/a><\/p>\n

[4]<\/a> Department of the Treasury, Office of Foreign Assets Control, Iranian Transactions and Sanctions Regulations 31 C.F.R. Part 560,<\/em> (2016)<\/p>\n

[5]<\/a> Boeing, Boeing, Iran Air Announce Agreement for 80 Airplanes<\/em>, (2016) http:\/\/boeing.mediaroom.com\/2016-12-11-Boeing-Iran-Air-Announce-Agreement-for-80-Airplanes<\/a><\/p>\n

[6]<\/a> Airbus, 2016 Annual Report<\/em>, pp31 (2017)<\/p>\n

[7]<\/a> Bloomberg, Trump’s Iran Decision Throws Uncertainty Into Business Plans<\/em>, (2017), https:\/\/www.bloomberg.com\/news\/articles\/2017-10-12\/trump-s-iran-decision-throws-new-uncertainty-into-business-plans<\/a><\/p>\n

[8]<\/a> Reuters, Treasury chief says reviewing Iran’s aircraft licenses<\/em>, (2017), https:\/\/www.reuters.com\/article\/us-usa-iran-sanctions\/treasury-chief-says-reviewing-irans-aircraft-licenses-idUSKBN18K2U4<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Managing against US sanctions is a supremely difficult task, requiring political rather than commercial skills. For the last three decades, sanctions have blocked Iran Air from obtaining new aircrafts and spare parts. On the cusp of finally obtaining modern aircrafts, Iran Air faces the imminent possibility of dashed hopes.<\/p>\n","protected":false},"author":9605,"featured_media":24599,"comment_status":"open","ping_status":"closed","template":"","categories":[1387,943,3827,3239,3828],"class_list":["post-24598","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aircraft","category-airplane","category-iran","category-isolationism","category-sanction","hck-taxonomy-organization-iran-air","hck-taxonomy-industry-air-transportation","hck-taxonomy-country-iran-islamic-republic-of"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nIran Air: Sanctions and Sanction Relief - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/iran-air-sanctions-and-sanction-relief\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Iran Air: Sanctions and Sanction Relief - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Managing against US sanctions is a supremely difficult task, requiring political rather than commercial skills. 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