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The real reason Boeing, Airbus deals with Iran matter

Beyond being the first major aircraft sales with Iran in decades, the Boeing and Airbus deals are groundbreaking because they may entice major Western banks to resume dealings with the Islamic Republic.
EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran.FILE PHOTO: A IranAir Boeing 747SP aircraft is pictured before leaving Tehran's Mehrabad airport September 19, 2011. REUTERS/Morteza Nikoubazl/File photo - RTX2GZM9

Soon after the US Treasury Department granted licenses to Boeing and Airbus to sell passenger planes to Iran, Tehran welcomed the move as a fulfillment of American obligations under the nuclear deal. On Sept. 24, three days after the licenses were issued, Iranian Foreign Minister Mohammad Javad Zarif confirmed that Iran had received the green light to purchase 80 out of the 88 aircraft it had sought to buy from Boeing, adding, “Out of 118 Airbus jetliners, the license for selling 17 has been issued.”

Airbus and Boeing had previously agreed to sell or lease more than 200 passenger planes to Iran, which has sought to revamp its aging air fleet after the signing of the July 14, 2015, Joint Comprehensive Plan of Action (JCPOA). After the formal Jan. 16 Implementation Day of the nuclear deal, the US Treasury’s Office of Foreign Assets Control (OFAC) issued documents declaring that all US institutions wishing to sell or lease aircraft, spare parts or maintenance and safety services to Iran could apply for licenses on a case-by-case basis. OFAC guidelines further stipulated that non-US institutions also need licenses for selling and leasing aircraft to Iran if more than 10% of the components of their products are American made.

Beyond the issue of securing licenses to sell the aircraft is the challenge of financing the deals. Hinting at this problem, Zarif told the Council on Foreign Relations in New York Sept. 23, “The US Treasury’s Office of Foreign Assets Control … tells international banks that it’s OK to do business with Iran but — and the buts and ifs are so long — I mean there is one sentence that it is OK to do business with Iran and five pages of ifs and buts. So at the end of the day, these banks say we will take the safe road. We will forget about Iran. And that has been the outcome. No major European bank has started doing business with Iran now, eight months after the deal. And we believe that’s a shortcoming.”

According to what has been reported so far, the Boeing and Airbus passenger planes are not going to be bought in cash but rather financed. In practice, this means that Iran will buy the aircraft with loans and will repay the debt through revenue generated from operating the planes. Thus, not only is a bank or other financial institution needed to make the deal happen, but the loans must be long term. The broader implication is that if Iran is able to purchase aircraft through external financing, it could also do so with regard to other projects.

While negotiations to finalize the aircraft deals are still ongoing, Iranian officials say they have made good progress. Indeed, things appear to be particularly moving forward on the crucial issue of financing. On Oct. 14, Tasnim news agency quoted a source in the Iranian government as saying, “Boeing and an American bank are reaching an agreement to finance Iranian purchase of the airliners through a Japanese bank.” Prior reports said that issues related to financing of the Airbus deal had also been solved. On Sept. 24, Iranian Deputy Minister of Roads and Urban Development Asghar Fakhrieh Kashan told the Iran newspaper, “A financing agreement between Airbus and a big financial institution has been finalized that has remained a secret in order to avert some enemies’ plots.”

Some experts are of the view that the OFAC licenses to Boeing and Airbus are a promising sign that serious banking cooperation between Iran and Europe is around the corner. This would be an important development since major European banks have remained wary of remaining US sanctions and thus refrained from resuming banking ties with Iran — even after the formal implementation of the nuclear deal. As such, Tehran has so far relied on cooperation with smaller European banks while continuing dialogue with the bigger ones. Given the scale of the Boeing and Airbus deals and the need for financing to be long term, it is evident that small banks will not be able to finance the contracts. One can thus expect that major players are involved in the financing, and that the deals may help jump-start business between Iran and major Western banks in the near future. Indeed, beyond authorizing two major deals, OFAC’s licensing of aircraft sales to Iran is giving assurance to the world's major businesses that it is now possible to resume dealings with the Islamic Republic.

Prominent Tehran economist​ Saeed Leylaz told Al-Monitor, “The OFAC licenses will have a big psychological impact on major investors and financial enterprises. This matters especially because under immense pressure from Iran and Its European trading partners, the United States now has to abide by its obligations under the JCPOA.” Leylaz added, “Serious cracks have emerged in the most complex and oldest sanctions and this will impact non-nuclear sanctions as well. In as much as Boeing is one of the biggest financial enterprises in the world and the United States, its financial transactions with different US economic sectors will spread to other sectors.”

Al-Monitor also spoke with Tehran-based economist Tahmasb Mazaheri. He agreed that OFAC’s granting of licenses to Boeing and Airbus to deal with Iran is a good sign of the full implementation of the nuclear deal — but argued that the United States has only facilitated the latter after having in effect been forced to do so. Pointing to Iran’s deep and lingering mistrust of the United States, Mazaheri added, “Despite this good sign, we cannot trust the United States to fulfill its promises because in order to be assured of these promises, they must be credible — but the United States is not trustworthy. The United States has so far shown that it doesn’t want to fully implement the JCPOA and its acceptance of its obligations has always been accompanied with strict conditions.”