Dubai Airshow

Iran Uses Work-arounds To Counter Aerospace Sanctions

 - November 18, 2013, 10:00 AM

Any potential thaw in U.S.-Iran relations is unlikely to relax long-standing economic sanctions that have hobbled the latter’s commercial and defense aviation sectors for decades. Most recently, United Nations’ Resolution 1696, in force since 2006 and in response to Iran’s nuclear ambitions, has limited Iran’s ability to obtain approved spare and replacement aircraft components and to conduct international financial transactions.

Sanctions against Iran have also been imposed by the European Union and bilaterally by individual countries including the U.S. Even countries without a formal Iranian sanctions policy have honored sanctions imposed by other nations.

U.S. sanctions prohibit exporting almost all goods and services, including U.S.-produced aircraft and components to Iran, and American citizens are barred from facilitating any prohibited transaction with Iran, regardless of country of origin or transit.

While U.S. President Obama and Iran’s new president, Hassan Rouhani, have had brief conversations in recent months, other branches of the U.S. government appear unwilling to move toward a normalization of relations any time soon. Former U.S. Vice President Richard Cheney, now considered the standard-bearer for the conservative wing of the Republican Party, threw cold water on any potential U.S.-Iran rapprochement, warning in late October, “I doubt very much that diplomacy will be effective.” In the U.S. House of Representatives, majority leader Eric Cantor was also skeptical, saying, “We all want negotiations to succeed, but time is running out.” Underscoring Cantor’s position, in July, by a broad bipartisan margin, the House voted 400-20 for new sanctions on Iran.

From a macro-economic perspective, Western sanctions on Iran have placed severe strains on the country: Iran’s currency, the rial, has lost 80 percent of its value since 2011 and the current annual inflation rate is running 30 to 40 percent. Last year, Iran’s gross domestic product dropped by 8 percent and the government ran its largest budget deficit in 14 years. Government revenues are running more than 40 percent below projections and the Parliament is pondering a tax increase of up to 38 percent. Within the country there are widespread shortages of goods and services.


Aerospace Sanctions

Sanctions’ impact on Iran’s aerospace sector has been particularly severe: Iranian airlines operate one of the oldest commercial fleets in the world–with an average aircraft age of 22 years–and it was the last country with an airline with regularly scheduled Boeing 707 service. According to the country’s airline officials, at any given time 60 percent of the commercial fleet is out of service due to the maintenance issues. A rash of crashes over the last decade have killed more than 1,200, several of them blamed on maintenance-related causes. Iran’s current commercial fleet consists largely of ancient Boeing and Airbus aircraft–747SPs, 727s and A300s. The country also manufactures the Russian An-140 turboprop under license and until recently operated Tu-154 aircraft.

Iran has set an ambitious goal of more than doubling the size of its commercial aircraft fleet to 550 by 2025 and quintupling its export of aerospace parts to $500 million by 2017. Last month government officials said there were plans to develop indigenously manufactured narrowbody and widebody jets as well as gaining manufacturing licenses for additional designs, including the Chinese Comac C919 and the Russian Irkut MC-21. The first flight of an indigenous narrowbody could come as early as 2017. For now, Iran appears to be using a trio of strategies to circumvent sanctions relating to aerospace: smuggling, counterfeiting and indigenous production.

Smuggling takes the form of outright violation of sanctions of use of third-party intermediaries as workarounds. Some of the schemes are very sophisticated and employ an international web of holding companies and middlemen who are able to obtain very high-profile items–so far this year Iran claims to have added 22 Airbuses to its commercial fleet, including a pair of A321s. An Airbus A310-304, once used by German Chancellor Angela Merkel, ended up in the fleet of Iranian airline Mahan after the German government sold it for 3.1 million euros to Ukranian investor through a shell corporation in Gibraltar, transferred to a buyer in Kiev and then resold into Iran. However, not all such attempts are so elaborate and not all of them succeed. Some of the more recent high-profile cases involving smuggling aerospace components and aircraft to Iran include:

• In October, an American Airlines mechanic from Texas, Diocenyr Ribamar Barbosa-Santos, was sentenced to two years in prison for trying to broker a deal, using Swiss and Chinese intermediaries, for the sale to Iran Air of seven used Airbus A300s and a C130 cargo plane worth $136.5 million.

• In March, Reza Olangian, an American citizen, was extradited from Estonia to the U.S. on charges of attempting to acquire and transfer anti-aircraft missiles and Bell 412 helicopters to Iran.

• In December 2012, two German nationals were charged with attempting to smuggle 61 engines into Iran for its fleet of Ababil III military attack drones.

• Also in 2012, Alfredo Guerrero Espartiro, 41, a Filipino national employed by a Florida aeroparts company, pled guilty to charges of attempting to illegally export parts for Iranian F-4 and F-5 fighters and C130 cargo aircraft–all airplanes of U.S. origin. He was sentenced to 18 months in prison.

• In 2010, Balli Aviation Ltd. in the UK was fined $17 million for illegally exporting three Boeing 747s to Iran in 2008.

• On March 14, 2009, U.S. federal agents arrested Hossein Ali Khoshnevisrad, an Iranian citizen, and charged him with attempting to smuggle 17 Rolls-Royce 250 turboshaft engines, the same kind that power the Bell 206, into Iran. Federal agents also are investigating a plot to smuggle Bell 412s into Iran via Mexico and Italy. One of those helicopters was equipped with night-vision goggles.

• Mac Aviation, an Irish company, stands accused of illegally exporting more than $120 million in aircraft parts, including those for F-5 fighters, to Iran since 2005.

• A San Diego federal grand jury has indicted a pair of Belgians, Willy De Greef and Frederic Depelchin, of smuggling U.S. aircraft parts to Iran.

Counterfeiting parts for a wide variety of aircraft also is a large component of Iran’s strategy to mitigate sanctions. The most notorious example involves Bell Helicopter. Since the 1990s, Iran has reverse-engineered parts, assemblies and, in some cases, whole aircraft, including the Bell 205, 206 and 214. The work is being done by Iran Aircraft Manufacturing (HESA) and Iran Helicopter Support and Renewal (Panha). The knockoffs are being marketed under the names Shahed 276 and 278, and Shabaviz 275 and 2061 and Panha 2091, a remanufactured AH-1J Cobra. A light gunship derived from the Bell 206, the Shahed 285, was unveiled in 2009. Many of these helicopters use components manufactured in Iran and from a variety of Chinese and Russian sources. To the naked eye, the Iranian copies are virtually indistinguishable from the Bell originals.