We sent the following questions to a senior manager at an Iranian airline. The purpose of these questions to better understand what has been going on inside the country in the past few years and what the future looks like. Our interests are not of a political nature, though obviously, anything regarding Iran and sanctions is political. The responses to our questions are eye opening in their frankness and provide a better understanding of how one Iranian airline manager sees things.
- Many of Iran’s airlines are less than ten years old. How come so many started up in the midst of sanctions, when conditions must have been very tough?
First of all, please allow me to explain that the number of Iranian airline companies has not increased but rather undergone a decrease from 15 to 13 throughout the last ten years and fewer airlines have been founded to replace those that were liquidated (please refer to table below). Yet the entry of multiple investors into the airline industry within the period you have referred to could well be due to shortages in aircraft, higher than expected maintenance requirements, increased demand for air travel to various cities and countries for both religious and entertainment purposes, and last but not least the attractiveness of the industry itself. On the other hand the establishment of an airline in Iran for commercial purposes is possible through reasonable capital and resources which is further elaborated in response to the third question.
Sanctions have always been enforced against Iran, yet its highest impact has been in the last 4-5 years. In the previous eras the major problem was the purchase of aircraft and spare parts, and sanctions did not focus merely on the airline industry, therefore the effect has been twofold within recent years.
Following is a list of currently active national airlines and their fleet:
- When running an airline in Iran, what has been more of a problem? Finding equipment (aircraft, spares, etc.) or qualified people?
Qualified human resources have never been an issue although providing adequate training and motivation is an area that needs further development.
A common problem faced by airline operators in Iran has been limitations in receiving support by manufacturers specifically in general aircraft, engines and spare parts procurement for each type of aircraft, which I attribute to the sanctions that were imposed. Other areas thus affected included bank transactions, IATA Clearing House interactions (for all member airlines), reservations and etc.
Aside from these, for airlines depending on a long-term outlook, there are still certain problems prevailing in the provision of capital for purposes such as aircraft purchase and mobilization towards self-sufficiency in complimentary activities such as aircraft maintenance, catering and airport services. The chaotic influx of numerous airlines especially regional ones in international air travel is another critical issue in the present situation when domestic airlines are facing certain complications.
- Iran has many airlines that are not state owned – how have non-state airlines been able to secure capital, since airlines are highly capital intensive.
Major investments have taken place in our country within the last few years compared to which investments made in the airline industry are considered insubstantial; but as mentioned in the previous question, there are still numerous problems that domestic airlines face regarding capital and infrastructure. Throughout the past ten years, considering the prevailing situation, national airline companies have had to manage numerous aspects with the limited capital available.
We strongly believe that, with the removal of sanctions, we shall witness major growth in investments in the industry by both domestic and foreign sources in the foreseeable future.
- With sanctions in place, how did Iranian airlines manage to secure reasonably modern aircraft and spares? i.e. I realize this very sensitive. But any stories (no names or brands need be mentioned) would be fascinating to hear about.
Iranian airline companies are mostly private and as compared to public companies, embargoes were enforced on them with less intensity as compared to public companies.
Most purchased aircraft were manufactured in the 90s and more than 10 years had passed since its date of manufacture, hence general sanctions did not apply, yet overall aircraft or spare part requirements were never fully met, neither for public nor private airlines and in general, it was more of a challenge in conforming to the situation imposed on the country.
- Airline fleet managers looking at aircraft replacements at present have no Boeing option. How does this impact fleet planning? Can you live without Boeing?
Boeing aircraft manufactured in the 90s are still entering the country, and at the same time we have a significant number of MDs and 737s at hand. Airlines can still continue without Boeing but the question lingers in one’s mind: why does it have to be so? Was it the sanctions that prevented the entry of these aircraft into the country?
Some Iranian airliners are at present, negotiating purchase of aircrafts manufactured by Boeing with the company itself. There are obviously certain obstacles in the process, including a long history of distrust among the two nations owing to decades of enmity. Naturally, thawing the ice in commercial relations and a significant issue such as aircraft purchase would not be easily achieved in such short time. Another issue is the future presidency elections in the US which will certainly have an impact on foreign transaction policies; it is possible that all plans would have to be rearranged and in the process major companies would not want to attract political derision. On the other hand, governmental bodies in the US have yet to issue a valid statement authorizing American companies to engage in transaction and companies such as Boeing are to some extent concerned about heavy penalties resulting from misinterpreting business relations.
Yet there are numerous airlines globally procuring their requirements from either of the two aircraft manufacturing giants –Airbus or Boeing- without any major issue in offering services, mainly because both companies offer parallel diversity and technology in their products, however different in their approaches to valuations and sales support services.
- Iran’s airlines have always been able to buy from Russia. Yet no Iranian airline has bought the Superjet. It is the best Russian aircraft – why no Iran buyers?
The Superjet is a Russian made aircraft with European components and was not offered to Iran for the exact same reason, i.e. limitations in receiving support from manufacturers.
There may have been some reluctance on the part of a number of national airlines in acquiring Russian aircraft maybe due to the widespread mindset of the public throughout the 8 year imposed war (Iran-Iraq), when the Sukhoi referred to generally military used aircraft, yet the major issue relates to the incompatibility of engine design and spare parts’ specifications with weather conditions in Iran which is mainly a dry, high and hot region, creating complex technical issues in the landing and take-off of aircraft and the burden it places on the engines.
Another issue that may influence the reluctance of Iranian airlines in purchasing the Superjet Sukhoi 100 is the fact that the total number of orders and deliveries of this aircraft reaches 98 across the globe, while ordered and delivered aircraft from either one of the aforementioned manufacturers (Airbus and Boeing) reaches numbers beyond thousands.
Yet Iranian airlines will respond positively to the Sukhoi Superjet 100 if all requirements including operation in hot and high conditions are met. The same approach shall be taken with all regional aircraft manufacturers and we shall welcome suitable offers made.
7. Looking out ten years, Iran could compete with Dubai/Abu Dhabi/Doha for connecting traffic. How much of an impact will Iran’s airlines have on the Gulf competition? i.e. approximately how much market share might they lose? 10%, 20%?
Iranian background in regional competition within connecting flights translates into the necessity to establish hub airports nationwide; a project dating back to 50 years and initiated with the construction of the Imam Khomeini Airport in the Southern district of Tehran in a period when none of the countries in the region had even started on the development process. Regional airlines then started investing a huge sum in developing their own airport hubs. As an example, Dubai invested 7.8 billion US dollars to increase passenger travel from 66 to 90 million, Istanbul made an investment of 7 billion US dollars in raising its capacity from 44.5 million to 150 million in annual passenger travel and Qatar invested 15.5 billion US dollars in the establishment of an airport-city to increase travel from 30 to 50 million passengers per year. It should be noted that the United Arab Emirates is currently in process of constructing a new international airport – the “Al-Maktoum World Center”- with a projected annual capacity of at least 160 million passengers and 12 million tons of freight; while the Dubai international airport is among the best in the world. It is also the third busiest in passenger traffic and sixth busiest in cargo and freight transport across the globe.
Evidently with all the heavy investments made in airports, airlines and infrastructure in these countries, as well as the attractiveness of the hubs thus gained, it would be very difficult to win back a share of the market. Meanwhile, we can develop and focus on expanding other phases of the Imam Khomeini International Airport through heavy investments and provision of more facilities.
We strongly believe that the Iranian airline industry shall revert back to its position with the support of domestic resources and do realize that the IKA has a geographical advantage compared to the others, including the Dubai and Doha airports. It is quite evident that foreign airlines in the region are incurring high costs providing for human resources and will eventually be looking for other markets. National airlines can meanwhile rely on professionals and experts, use the opportunity to provide long range fleet, make tactful advertisements and upgrade the quality of their serves in order to attract more passengers. Yet, considering the heavy investments required to be made in this sector as well as the ambiguity of macro-economic policies regarding tourism and inefficient economic-political competition within the region it is difficult to project the percentage of share of the market that will be taken over by Iranian airlines.