The Sanctions on Iran’s Civil Aviation

Iranian civil aviation continues to generate profits but is far from thriving due to the sanctions.

Iranian civilian aviation has been subject to unilateral and international restrictions due to its operational habits of using aircraft interchangeably for civilian passenger flights and military-related activities. Iranian airlines (both state-owned and privately held) have transported weapons and military personnel outside the country, especially in times of conflict in the Middle East, where Iran’s interests did not coincide with the strategies of more powerful states who intervened in the region and used their political and economic dominance to counter Iran’s behaviour.

Due to the escalated tensions between the Islamic Republic of Iran and the international community because of the former’s nuclear programme, Iran Air – the biggest state-owned airline and the flag carrier of Iran – was mentioned in both UN Security Council Resolutions 1803 (2008) and 1929 (2010) as an entity, whose aircraft cargo to and from Iran should be inspected by member states. In this regard, if they suspect UNSC restrictive measures are violated, including re-registering or re-naming of aircraft, they should be communicated to the UN. The implied meaning of the provisions is that Iran had already attempted to engage in such sanctions evasion activities.

In July 2010, restrictions were imposed at a regional level by the European Union (EU) – cargo flights operated by Iranian carriers or originating from Iran were banned from accessing EU airports. Although some of the EU restrictions have been lifted, others remain in place for individual airlines and countries for political and safety reasons.

At a unilateral level, the US sanctions on Iran’s civil aviation remain the most complex ones and the ones that still pose serious challenges for Iranian air carriers, especially in the context of the COVID-19 pandemic, which has had a devastating effect on all air companies globally. Goods, services, and technologies used to ensure the safe operation of commercial passenger aircraft of US origin are generally allowed by the USA under a licensing rule. This has been disputed by Iranian pilots who argue that Washington’s restrictions have compromised the safety of the aircraft operated by Iranian airlines due to the lack of spare parts.

Between 2011 and 2016, Iran Air and other Iranian airlines were sanctioned under US Executive Orders 13382 (which aims to isolate financially proliferators of weapons of mass destruction and their supporters) and 13224 (issued as a response to the 9/11 attacks to curb terrorist financing and activities). Among the blacklisted entities were Mahan Air (designated in October 2011 for its support to the Islamic Revolutionary Guard Corps's (IRGC) Quds Force, Caspian Air, Meraj Air, Pouya Air (all designated in August 2014). As a result, the sale of spare parts became prohibited. After the Joint Comprehensive Plan of Action (JCPOA) entered into the force, Iran was permitted to buy finished commercial aircraft, and Iran Air was taken off the US sanctions list. In March 2016, a general license was issued for these sales. It was revoked in 2018 with the USA’s exit of the JCPOA and the re-imposition of its primary and secondary sanctions on Iran. In November 2018, Iran Air was blacklisted again, and the Office of Foreign Assets Control (OFAC) added to the Specially Designated Nationals and Blocked Persons (SDN) List 67 aircraft operated by it.

Despite these difficulties, Iran’s civil aviation is not grounded, but its fleet is aged and needs to be replaced with modern aircraft. Maintenance of the existing airplanes is costly and, in many cases, ineffective.

During the sanctions periods, Iranian air carriers could not buy spare parts from the open market directly, this is why some companies sought to source them via intermediaries and front entities, acting on their behalf. Usually, this was done by Mahan Air, which expanded its operations in Asia and Europe and, more recently – in April 2019 – launched its first direct flights to Venezuela. The scheme involves a legitimate entity (sometimes doing business in a totally different sector) that would purchase the aviation parts and transport them to another country, listing it as the final destination. The parts, including such that were subject to US export-control licensing, would then be forwarded to Mahan Air.

Sometimes the intermediaries are registered in free trade zones, which as a rule are organised to be areas that stimulate foreign investment and are popular with lenient custom controls and loose compliance regulations. Due to its geographic proximity to Iran and its character as the financial and trade hub of West Asia, Dubai has served as one of Iran's most important sanction-evasion channels. Evidence for this can be found in the civil aviation sector, among others. In February 2014, two Dubai free zone establishments – Blue Sky Aviation Co and Avia Trust – were sanctioned by OFAC for acting on behalf of Mahan Air – one as a payment channel and the other – as a tool to supply aircraft parts and equipment with US origin. Avia Trust is believed to have been used by IRGC to bypass UAE customs inspections for Iran-bound cargo.

Iranian air companies have also bought US spare parts from suppliers in Europe and South America using third-party vendors in Europe, East Asia and other countries in the Middle East who even had offices in Tehran. The payments for such transactions are settled through accounts in third countries.

One of the operational tactics widely used by Iranian carriers, mostly Iran Air and Mahan Air, is to circumvent the restrictions on the sales of new aircraft either by taking leases from partner airlines or directly buying new airplanes through them. This tactic has proven to be effective, but it has exposed many companies from all over the world to the risk of being sanctioned by name due to their business relations with Iranian counterpartes. It is important to note in this context that US legislation prohibits foreign companies and individuals from re-exporting to Iran items exported from the USA if they are aware that Iran is the final destination of the re-export and the items are subject to US licensing rules. These requirements are applicable to foreign-made items if they incorporate controlled US goods, services, or technologies with a value of ten percent or more of the total value of the item.

There are many examples of companies that have entered into such relations and have been sanctioned by OFAC. The now-defunct Ukrainian Bukovyna Airlines was targeted in May 2013 because it was leasing its McDonnell Douglas MD-80 aircraft to Iran Air. Ukrainian-Mediterranean Airlines (Um Air) and its director and owner were also blacklisted the same month for leasing BAe-146 Avro RJ100 aircraft to Mahan Air and helping train and certify Mahan Air pilots and engineers on the leased airplanes. Since 2010 up until their designation, both Bukovyna Airlines and Um Air had exported dozens of aircraft to Iran and as of May 2013, they had more than twenty-five aircraft in Iran that were registered in their names.

Kyrgyz Trans Avia (KTA) was also blacklisted in May 2013 for leasing aircraft to Mahan Air and acting as an umbrella company set up to import airplanes to Iran – between 2009 and 2010, it facilitated the purchase of eight aircraft by Mahan Air. The latter used a front company to fund the deals.

It is worth mentioning that some aircraft provided by KTA and Bukovyna were used by Mahan Air for flights to Syria on multiple occasions during the war there, in which the USA and Iran supported conflicting parties.

Mahan Air has also relied on third-party intermediaries to disguise its collaboration with Syrian Air, which was sanctioned by the USA and Europe at the time the dealings took place. The Syrian entity received from its Iranian partner aircraft aviation-related goods and maintenance services.

Another type of companies that were penalised for dealing with Mahan Air are general sales agents in Malaysia, Thailand and Armenia. Usually, such agents are branded with the logo of the airline and provide a wide array of services such as sales, marketing, freight handling, procurement of spare parts, and refueling of aircraft. Mahan Air’s partners have acted on its behalf for financial transactions and spare part purchase deals.

When Iranian air companies don’t have access to such complex services, they would re-name themselves multiple times in order to continue operations. One such example is with Pouya Air.

Despite the restrictions, Iranian civil aviation continues to function and generate profits. Like other sectors of Iran’s economy, such as oil and shipping, it operates in a “resistance economy” mode but is far from thriving. The COVID-19 pandemic has made the situation even worse, and only the lifting of US sanctions can bring about improvement. The ongoing negotiations on Iran’s nuclear programme give hope that an agreement will be reached and most of the above-mentioned tactics will become unnecessary.

civil aviation, sanctions circumvention, Iran, sanctions evasion

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