The US House has voted to block aircraft sales to Iran. Putting aside the politics, what does this mean? Ali Akbar Velayati, a senior adviser to Iranian Supreme Leader Ayatollah Ali Khamenei, is quoted as saying Iran does not need American airplanes. Is this realistic?
We do not think so. This is based on the rules followed by the US treasury Department’s OFAC. Any aircraft sales require approval from OFAC licenses if at least 10% of the parts used in the aircraft are made in the US. The rules are extensive and Iran has a special area of attention.
Iran has taken delivery of several ATRs since aircraft exports to Iran were eased. ATR advised us their aircraft are at “slightly over 10%” US components. Here is a list of their suppliers.
There have also been several Airbus deliveries. These deliveries were also subject to US scrutiny. Complicating the matter is also the financing of aircraft. The US EXIM Bank will struggle to get approval for any deal over $10m. US federal law prohibits the EXIM bank from financing exports to Iran since it still designated by the US as a state sponsor of terrorism. Any bank, anywhere, must tread very carefully in financing a deal in Iran. Being caught up in US banking regulations could mean fines and even being cut off from the US banking system. The fear of being caught on the wrong side of US banking system lead to some UK banks even closing personal accounts.
This situation is clearly not as easy as Mr. Velayati says. The aerospace supply chain is US-biased and, adding the OFAC issue makes acquiring aircraft beyond the reach these rules difficult. If we remove Boeing from the equation, what options does Iran have? (Bombardier and Embraer, though not focused on here, are subject to the same hurdles)
Take the Chinese C919 – if Iran could get deliveries – and we can see US inputs are substantial. So, this is not going to be an option, even if deliveries were possible.
What about more Airbus aircraft? As we have seen OFAC must approve deals. The next chart also shows how dependent Airbus is on US-based suppliers. Iran will not get any Airbus deliveries without OFAC scrutiny and approval. If Airbus could deliver without restrictions, it would be doing so.
How about Russia? Their Superjet is certainly an aircraft that Iran’s airlines could use. But even this aircraft has US-sourced components. We understand the SSJ has slightly over 10% of its components being US-sourced. Russia’s MS-21 is also a great candidate for Iran, but the test article has US-made engines and also other US-sourced components. Like the C919 it is not yet available.
Iran’s annoyance at the US House of Representatives can be understood. But the House’s reach cannot be evaded. It’s nearly impossible to find a commercial aircraft free enough of American content to escape OFAC.
