January 16 2016 was 'Implementation Day' under the July 14 2015 Joint Comprehensive Plan of Action (JCPOA) between the United States, Iran, the European Union and the 'P5+1' countries.(1) Under this agreement, the United States has agreed to lift certain sanctions targeting Iran, including sanctions on the sale and export of commercial passenger aircraft, parts, components and associated services to Iran.
As of January 16 2016, US persons and entities can obtain licences from the US Treasury Department Office of Foreign Assets Control (OFAC) to sell or lease commercial passenger aircraft to certain Iranian airlines and nationals. Given the outdated and poor condition of much of Iran's current fleet of commercial aircraft, the lifting of these sanctions is expected to open a market in great need of financial investment and may provide opportunities for US entities in the commercial aircraft industry. Those seeking to do business with Iran should ensure that they meet the strict conditions imposed by OFAC to obtain the authorisations necessary to proceed.
Implementation Day was triggered by an International Atomic Energy Association report that Iran had fulfilled its nuclear-related commitments under the JCPOA. The list of industries targeted for sanctions relief under the JCPOA is significant; however, most of the sanctions lifted under the JCPOA are those imposed on non-US persons. US persons and entities continue to be broadly prohibited from engaging in transactions, directly or indirectly, with Iran or its government.
Licensing of civil aircraft transactions
One of the sanctions lifted for US persons provides for the licensing of transactions with certain entities in Iran for commercial passenger aircraft and related parts and services.(2) In response to the announcement of Implementation Day, OFAC issued a statement of licensing policy adopting a favourable approach to licensing civil aircraft transactions.(3) Specifically, OFAC will allow the following kinds of transaction:
- the export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft exclusively for civil aviation end use;
- the export, re-export, sale, lease or transfer to Iran of spare parts and components for commercial passenger aircraft; and
- the provision of associated services exclusively for commercial passenger aviation, including warranty, maintenance and repair services and safety-related inspections.
Under the policy, permission from the US government is still required before a transaction can proceed.
Any US person wanting to engage in commercial aircraft sales with Iran must first apply for a licence from OFAC and provide all relevant details of the proposed transaction. Applicants should include details of:
- all parties involved in the transaction;
- the intended end uses by the Iranian entity of the aircraft, part or service;
- any related transactions associated with the transaction, such as the provision of warranty, maintenance, repair services, inspections or training; and
- other information relevant to whether the licence should be granted.
OFAC will analyse each application and determine whether to grant a licence on a case-by-case basis. OFAC is not expected to grant exporters blanket licences to engage in multiple transactions.
Licences may be issued for the sale of US-origin commercial passenger aircraft and commercial passenger aircraft that contain 10% or more US-controlled content. The types of aircraft that may be approved under the policy include wide-body, narrow-body, regional and commuter aircraft used exclusively for commercial passenger aviation. Cargo aircraft, state aircraft, unmanned aerial vehicles, military aircraft and aircraft used for general aviation or aerial work are not covered by the policy. This may raise questions – for example, where customers are seeking to purchase aircraft specially outfitted for hybrid passenger and cargo operations. Such situations should be carefully analysed.
Other OFAC general licences currently authorise transactions that are 'ordinarily incident' to, and necessary for, a licensed transaction – including transactions providing for transportation, legal, insurance, shipping, delivery and financial payment services provided in connection with a licensed export. For example, while a US person would be authorised to provide insurance to cover the export shipment of a licensed aircraft or part to an Iranian customer, this general licence would not authorise the provision of continuing warranty services for the aircraft or part for a period of time after its exportation to Iran. Such cases will require a separate licence application to OFAC.
Blocked party lists
Those seeking to do business with Iran's commercial aircraft industry must know their customer and the intended end use of the merchandise or services provided. Parties must also continue to heed all restrictions on dealing with parties on the OFAC Specially Designated Nationals (SDN) List and other blocked party lists (eg, Mahan Air in Iran continues to be a blocked party under the SDN List), as well as the Denied Persons and Entity Lists published by the Department of Commerce Bureau of Industry and Security (BIS) and the List of Statutorily Debarred Parties published by the US State Department Office of Defence Trade Controls. Similarly, parties must continue to address all licensing and other requirements under other export control laws and regulations, if the transaction involves goods or technology that would require a licence from BIS.
The relationship between Iran and the United States is continually evolving. While Implementation Day marks a potential step towards an opening of Iran's market, the next day saw the imposition of new sanctions on individuals and entities involved in Iran's ballistic missile tests in December 2015. Given the volatility of US-Iranian relations, the extent to which new sanctions may be imposed or old sanctions phased out is also unpredictable.
In light of this unpredictability, the JCPOA has an important carve-out: should the United States determine that aircraft, goods or services licensed to Iran under the new policy have been used for purposes other than commercial passenger aviation, or have been resold or retransferred to persons on the SDN List, it has the right to cancel the licensing policy. Also, any US person found to be in violation of any OFAC sanctions, or to have provided false information in order to obtain a licence to engage with Iranian entities for commercial aircraft, will continue to be subject to strict civil and criminal penalties. Thus, those looking to take advantage of new opportunities to sell or lease commercial aircraft, parts or components to Iran should proceed carefully and ensure that their proposed transactions conform to OFAC's licence requirements.
For further information on this topic please contact Timothy J Lynes, Stewart B Herman or Thomas E Healey at Katten Muchin Rosenman LLP by telephone (+1 202 625 3500) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Katten Muchin Rosenman LLP website can be accessed at www.kattenlaw.com.
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