Iranians annually buy up to $4 billion worth of plane tickets from foreign airlines, the minister of roads and urban development said.
“Due to the awful state of Iran’s air fleet, we have not been able to exploit this potential,” Abbas Akhoundi was quoted as saying by IRNA.
Seventeen airlines are active in Iran, owning an aggregate of 273 aircraft with an average age of 23.74 years, including 266 passenger and seven cargo planes, only 163 of which are currently operational, based on newly-released data by the Ministry of Roads and Urban Development.
The average age of the operational feel stands at 22.9 years.
“The cost of maintenance and spare parts is very high. Some parts are not available anymore. These planes also have excessive fuel consumption,” Akhoundi said.
Iran’s dilapidated fleet has meant falling behind in regional competition, much to the advantage of airlines the like of UAE’s Emirates and Turkish airlines.
“Our passengers are flown from Tehran to Dubai, whereby they are transported to other places across the world,” he added.
The minister believes that in view of its strategic location in the region, Tehran has the potential to turn into a regional hub for international flights.
“Several attributes would give Tehran a competitive edge over its regional rivals,” Iraj Ronaghi, commercial VP of Meraj Airlines, said. The capital’s high altitude and temperate climate provide clear technical benefits, while its geographical location offers more direct routings on flights between Europe and southeast Asia. A large, highly-skilled indigenous workforce also guarantees low labor costs.
“We don’t have problems with manpower. Our engineers are skilled, our pilots are well-trained. Most of them can communicate in English,” he added.
Fleet Renewal
The first step taken by Iran Air in the long road to exploiting this potential was to order new aircraft from major planemakers. The flag carrier currently operates 50 passenger planes whose average age exceeds 27 years.
The airline recently reached a deal to purchase aircraft from American planemaker Boeing.
Under the preliminary agreement, Boeing will supply a total of 109 aircraft to Iran, including small and large jetliners worth $20.37 billion at list prices, both through direct sale and leasing.
The agreement, which is yet to be finalized by both Iranian and the US governments, includes 80 aircraft worth $17.58 billion to be sold directly by Boeing, including 34 wide-body jets: 15 each of the 777-300ER and 777-9 models and four of the 747-8. It also includes the direct sale of 46 narrow-body jets: 40 of the upcoming 737 MAX model and six of the current 737NG model.
Under the same provisional deal, Boeing will arrange for Iran Air to acquire a further 29 737NG aircraft through leases. Deliveries of the purchased jets are scheduled to start in 2017 and run through 2025.
This came after a January landmark deal with Boeing’s French rival Airbus to buy 118 passenger planes worth $25-27 billion at list prices.
The Airbus accord covers 45 single-aisle planes comprising 21 from the current generation of A320 family and 24 re-engined A320neos. There are also 73 wide-body aircraft, including 27 A330s, 18 A330neos and 16 of Airbus’s latest A350s.
Based on the draft agreement, Iran also has the option to add up to 12 A380s to these purchases in the upcoming years.
A380 is a double-deck, four-engine jet airliner with 525-853 seats and has a design range of 15,700 kilometers, sufficient to perform nonstop intercontinental flights. To accommodate the wide-body A380, Iran will also need to upgrade its airport facilities.
However, Iran has recently signaled that it is having second thoughts on the A380.
“We have freedom to choose ... We have no obligation and commitment to buy A380 planes,” Akhoundi said a few days ago.
Under another deal, Airbus has agreed to provide Iran with information regarding airport upgrades.
Based on the agreement, Airbus will support the modernization of Iran’s air traffic control services, airport operations and aircraft maintenance, and assist regulatory harmonization and technical and academic training of Iranian airmen.
Also in January, Iran Air signed an agreement to buy up to 40 short-haul passenger airliners from French-Italian plane manufacturers ATR.
According to Akhoundi, to become an aviation center point, Iran needs more than 400 mid- and 100 short-range planes in the next 10 years, which calls for an investment of about $50 billion.
Grand Plans for IKIA
Plans are underway to transform Tehran’s Imam Khomeini International Airport into a sixth-freedom mega-hub that can rival any of its neighbors.
Two French companies Aeroports de Paris and Bouygues have signed a memorandum of understanding aimed at lifting IKIA’s annual capacity to 34 million passengers by 2020.
The gateway handled just 7.2 million passengers last year, while another 13.5 million people passed through Mehrabad International Airport, Tehran’s domestically-focused gateway.
By way of comparison, Dubai International Airport processed more than 78 million passengers last year.
According to Ronaghi, the government has always intended IKIA to function as an intercontinental sixth-freedom connector. He attributes the runaway success of rival hubs in the Persian Gulf partly to the debilitating impact of sanctions on Iran’s aviation sector.
“IKIA was planned for these activities,” Ronaghi said of the airport, which opened its doors in 2004. “But because of what happened and all the sanctions, it [the flow of traffic] moved gradually to the south and also to Istanbul.”
Boeing Deal to Smooth Path for Int’l Firms in Iran
There are still skeptics and lots of potential problems, but a tentative airplane deal between Boeing and Iran seems to be moving forward.
A provisional agreement has been signed for the sale or lease of more than 100 Boeing aircraft to Iran’s national carrier over the next decade. The price tag is $20.37 billion at list prices.
If it goes through—and there are still unresolved questions—the deal could bring a windfall to Boeing, provide badly needed commercial jets to Iran Air and encourage international companies still wary of doing business with the Islamic Republic, wrote US media organization the National Public Radio on its website.
The Chicago-based air manufacturer is the first major US company to engage with Iran since western sanctions were lifted earlier this year in exchange for temporary curbs on Iran’s nuclear program.
The US keeps other non-nuclear sanctions in place. Many US and foreign banks are skittish about violating those remaining US sanctions.
Elizabeth Rosenberg, who worked on Iran sanctions for several years at the US Treasury Department, says the Boeing deal could help attract other companies to invest in Iran.
“I do think that it will give optimism, confidence and renewed enthusiasm for potential investors in Iran,” says Rosenberg, now with the Center for a New American Security in Washington.
“Having this kind of very large deal go through with a lot of support from the US Treasury, it becomes a measure of insurance for longevity for the nuclear deal.”
Commercial aircraft are one of the very few products US companies are allowed to sell to Iran. Even so, a deal has to be done without using American dollars or the US financial system. This creates a problem even for international companies wanting to sell to Iran because most foreign banks have partnerships with American banks.
Rosenberg says that’s why all eyes are on Boeing to see if it can find innovative ways to pick through this financial minefield.
“The real test will be to see if Boeing is able to carry this deal through, will they be able to work out the financing. That’s a huge ‘if’ that’s probably the hardest part of this,” she says.
Analysts say financing options could include using euros or conduits for US financial institutions.
Adam Pilarski, a senior vice president with Avitas, an aviation consultancy group, says the US government will likely guide Boeing through myriad restrictions.
“Boeing is a huge company. It has meaning to the US economy, it has meaning to labor and Boeing also has many lawyers and the funds to push stuff through,” he says.
Boeing says it will be scrupulous about following regulations and a final agreement will have to be approved by the Treasury Department. It says the first aircraft is expected to be delivered to Iran Air in 2017.
