Economy, Business And Markets

Boeing-Iran Air Deal: Walking the Line

Boeing-Iran Air Deal: Walking the Line
Boeing-Iran Air Deal: Walking the Line

The Joint Comprehensive Plan of Action between Iran and world powers was finalized on July 15, 2015, adopted on October 19, 2015 and implemented on January 16, 2016 (Implementation Day).

The JCPOA led to the removal of nuclear-related sanctions against the country in exchange for imposition of temporary curbs on its nuclear program.

As a key element of its various agreements under the JCPOA, the United States committed to allow for the sale of commercial passenger aircraft and related parts by US entities to Iran beginning on Implementation Day, reads an article published by the American legal news website The National Law Review. Below are excerpts:

The civil aviation commitment was achieved by the issuance of a Statement of Licensing Policy by the Office of Foreign Assets Control of the US Department of the Treasury. The SLP announced a “favorable” licensing policy under which US and non-US persons could request authorization from OFAC to engage in otherwise prohibited transactions for the sale of commercial passenger aircraft to Iran.

The SLP stated that as of Implementation Day, “specific licenses” could be issued on a “case-by-case” basis to US persons and, where a jurisdictional nexus to the United States otherwise existed, non-US persons, to engage in the following activities:

1. Export, reexport, sell, lease or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use,

2. Export, reexport, sell, lease or transfer to Iran spare parts and components for commercial passenger aircraft, and

3. Provide associated services, including warranty, maintenance and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation.

The favorable licensing climate created by the SLP is limited to certain types of aircraft. Thus, aircraft that may be approved “include” wide-body, narrow-body, regional and commuter aircraft used for commercial passenger aviation. Aircraft that are ineligible for licensing under the SLP “include” cargo aircraft, state aircraft, military aircraft and aircraft used for general aviation purposes.

The use of the term “include” to designate both eligible and ineligible aircraft suggests that each list has a built-in accordion feature by which additional aircraft types may be added.

On March 24, 2016, in order to facilitate trade deals contemplated by the JCPOA, OFAC issued a general license (General License I) that allowed US persons to “enter into, and to engage in all transactions ordinarily incident to the negotiation of and entry into, contracts for activities eligible” for licensing under the SLP.

By issuing General License I, OFAC gave persons seeking to engage in licensed transactions the corresponding right to negotiate them.

In June 2016, Iran Air and Boeing announced that they had reached a landmark deal by which Boeing would sell to Iran Air 80 commercial passenger aircraft with a list price value of $17.6 billion and deliveries starting in 2017. The memorandum of agreement between the parties further expressed Boeing’s intent to lease 29 new Boeing 737s to Iran Air.

Negotiated under the umbrella of General License I, and in close coordination with the US government, the terms of the deal will undergo extensive governmental scrutiny and deal completion will be subject to the terms of any specific license granted by OFAC pursuant to the SLP.

  Political Opposition

Although touted by the State Department as the “type of permissible business activity envisioned” by the JCPOA, the Boeing-Iran Air deal has not been uniformly welcomed in the United States as a JCPOA success story.

Almost as soon as it was announced, the deal was denounced by various think tanks and political leaders who were previously on record as opposing the JCPOA.

On July 7, 2016, the Monetary Policy and Trade Subcommittee of the House Financial Services Committee held hearings on the deal entitled “The Implications of US Aircraft Sales to Iran.” Several bills were quickly introduced in Congress aimed at suppressing the deal or making it off-limits to US EXIM Bank financing or financing by US financial institutions. Three such measures were approved by the House Financial Services Committee on July 13, 2016.

On July 7, 2016, the Financial Services and General Government Appropriations Act, 2017, passed the House by a vote of 239–185. Two amendments to the bill, also aimed at blocking the deal and introduced by Representative Roskam, passed by voice vote.

So what is going on? Although the commercial and economic importance of the Boeing-Iran Air deal for both parties is clear, as is the need for the United States to deliver on its JCPOA commitments, political opposition to the deal has gathered steam since the deal was announced in June.

At this time, it remains to be seen whether Congressional blocking efforts will be successful or whether they will survive presidential veto.

However, given the difficult political and legal environment through which the deal must inevitably travel, Boeing will be forced to walk the line between the permissible and impermissible, and the certain and uncertain, even if the deal is eventually approved.