The Joint Comprehensive Plan of Action (the JCPOA) between Iran, the P5+1 and the European Union created a framework for the easing of international nuclear-related sanctions against Iran in exchange for commitments by Iran to impose meaningful limits on the development of its nuclear program.1 The JCPOA was finalized on July 15, 2015, adopted on October 19, 2015, and subsequently implemented on January 16, 2016 (Implementation Day).2 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 U.S. persons to Iran beginning on Implementation Day.3
The civil aviation commitment was achieved by the issuance of a Statement of Licensing policy (the SLP) by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC). The SLP announced a "favorable" licensing policy under which U.S. and non-U.S. 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"4 could be issued on a "case-by-case" basis to U.S. persons and, where a jurisdictional nexus to the United States otherwise existed, non-U.S. persons, to engage in the following activities:
- export, re-export, sell, lease or transfer to Iran commercial passenger aircraft for exclusively civil-aviation end-use,
- export, re-export, sell, lease or transfer to Iran spare parts and components for commercial passenger aircraft, and
- 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.5 Aircraft that are ineligible for licensing under the SLP "include" cargo aircraft, state aircraft, military aircraft and aircraft used for general aviation purposes.6 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 U.S. 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 Air7 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 2017.8 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 U.S. 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.
Although touted by the State Department as the "type of permissible business activity envisioned" by the JCPOA,9 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.
Representatives Jeb Hensarling, a Republican from Texas, and Peter Roskam, a Republican from Illinois, wrote a letter to Boeing on June 16, 2016, stating that American companies "should not be complicit in weaponizing the Iranian regime," and seeking additional information to determine the national security implications of the deal.10 Of specific concern to the Congressmen was the prospect that aircraft sold to Iran Air could be used for impermissible purposes or sold, leased or transferred to persons or Iranian governmental units with whom commercial activity remains off limits.11 In a similar vein, Representative Brad Sherman, a Democrat from California, separately urged the Obama administration to block the sale until Iran "gets out of the business of supporting terrorism."12
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 U.S. Aircraft Sales to Iran." Several bills were quickly introduced in Congress aimed at suppressing the deal or making it off-limits to U.S. EXIM Bank financing or financing by U.S. financial institutions. Three such measures were approved by the House Financial Services Committee on July 13, 2016.13 Meanwhile, on July 7, 2016, the Financial Services and General Government Appropriations Act, 2017,14 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.15
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.
For starters, unlike Cuba, Iran remains a State Sponsor of Terrorism in the eyes of the United States government,16 and this fact sticks out like a sore thumb since the designation carries with it enhanced sanctions and controls over dual use items such as commercial aircraft. Optically, it does seem strange that a State Sponsor of Terrorism, such as Iran, should benefit from a favorable licensing policy involving commercial aircraft. Indeed, when asked whether the United States had ever authorized aircraft sales to a State Sponsor of Terrorism, State Department spokesman John Kirby said that he was not aware of any precedent.17
Second, in the complex alignment of nations, non-state actors, factions and interests in the Middle East, Iran very much remains an adversary of the United States and its allies, principally Israel. The embarrassing incident occurring just days before Implementation Day in which members of the Islamic Revolutionary Guard Corps captured and released American sailors in the Persian Gulf provides one striking example.18 Iran's recent tests of ballistic missiles capable of reaching Israel provides another.19 For many, the very thought of selling commercial aircraft to a dangerous adversary seems incomprehensible.
Third, the JCPOA left in place all U.S. legal authorities, non-nuclear sanctions, embargoes and export controls involving Iran, other than those specifically addressed by the JCPOA.20 Moreover, the JCPOA does not preclude the imposition of additional non-nuclear sanctions in the future. Accordingly, the Boeing-Iran Air deal will be surrounded on all sides by non-terminated sanctions (as well as any newly imposed sanctions) that will require skillful maneuvering. For example, although "financial payment services" may be considered "ordinary and incident" to a licensed deal, 21 and although OFAC may consider license applications for a U.S. financial institution "to finance the sale of a particular commercial passenger aircraft,"22 it is somewhat uncertain as to how such services or financing can be achieved if "U-turn" transactions are prohibited and the deal cannot be "dollarized" through access to the U.S. financial system.
Fourth, as is clear from the SLP, any specific license issued in connection with the Boeing-Iran Air deal will include "appropriate conditions to ensure that licensed activities do not involve, and no licensed aircraft, goods or services are re-sold or re-transferred to, any person on [OFAC's list of Specially Designated Nationals] (the SDN List). Although Iran Air is no longer on the SDN List, the concern for some is that future events may cause OFAC to re-designate Iran Air, or that Iran Air may decide to transfer the aircraft to any one of the hundreds of entities, including some airlines, which remain on the SDN List, in breach of transfer restrictions contained in the licensed deal documents.
The United States has expressly stated that should it "determine that licensed aircraft, goods or services have been used for purposes other than exclusively civil aviation end-use, or have been re-sold or re-transferred to persons on the SDN List, the United States would view this as grounds to cease performing its commitments under Section 5.1.1 [of Annex II to the JCPOA] in whole or in part."23 In other words, if Iran Air gets caught violating the terms and conditions under which a specific license is issued, the United States could presumably undo the deal by revoking any license previously issued to Boeing; depending on a number of factors, including timing, such action could result in substantial financial jeopardy to Boeing and other U.S. interests.24
The JCPOA celebrated its one-year anniversary on July 15th. In commemoration of the event, Secretary of the Treasury Jack Lew stated that the United States is meeting its commitments under the deal, but remains "clear-eyed" that the JCPOA did not resolve, and was not intended to resolve," concerns outside of the nuclear arena."25 It is these other "concerns" that are at the root of the current political opposition to the Boeing-Iran Air deal. However, as the deal was obviously intended as a major deliverable by the United States under the JCPOA, and as it does have the support of the Obama Administration, the deal is expected to survive the political crucible and obtain required governmental approvals. Boeing, meanwhile, will be walking across a treacherous field filled with obstacles that could delay and threaten the deal.26