Licenses the U.S. government granted to Airbus and Boeing last fall to sell airliners to Iran Air could be “amended, modified or revoked at any time,” a provision that renders the transactions vulnerable at a time of political upheaval in Washington, D.C. During his successful campaign for the presidency, Republican Donald Trump denounced the July 2015 nuclear agreement with Iran that made the sales possible, and the previous Republican-ruled House of Representatives—now still under Republican control—voted to block any financing of aircraft sales to Iran.
“Yes, those licenses could be revoked or modified even after they’ve been granted,” said Eric McClafferty, an attorney specializing in international trade with the law firm Kelley Drye. He was referring to licenses the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) granted to the manufacturers in September and November for separate sales to Iran Air, that nation’s state-owned flag carrier. Authorization from the OFAC is required to export or re-export commercial aircraft to Iran containing more than 10 percent U.S. technology content.
While a broad prohibition of U.S. sales to Iran still applies, the multinational Joint Comprehensive Plan of Action (JCPOA) concluded in July 2015 to ensure that Iran’s nuclear program remains peaceful allowed for exports to that country of commercial passenger aircraft and related parts and services. As of the “Implementation Day” of the accord on Jan. 16, 2016, the OFAC implemented a “favorable licensing policy” allowing civil aircraft sales to Iran provided the transactions do not involve persons on its Specially Designated Nationals and Blocked Persons (SDN) list.
Last month, Boeing and Iran Air announced a contract agreement calling for the delivery of 50 narrowbody 737s and 30 widebody 777s valued at $16.6 billion at list prices. The sale will support nearly 100,000 U.S. jobs, Boeing said. Airbus and Iran Air confirmed an agreement for 46 narrowbody A320s and 54 widebody A330s and A350 XWBs.
But the OFAC authorizations underpinning those transactions remain subject to the vicissitudes of politics in Washington. A 1998 provision of regulatory code that governs the agency—31 CFR 501.803—applies, McClafferty said; it states that “any rulings, licenses (whether general or specific), authorizations, instructions, orders, or forms issued thereunder may be amended, modified or revoked at any time.” Any such change would be made at the discretion of the secretary of the Treasury, who will change with the incoming administration. President-elect Trump has proposed hedge fund co-CEO and former Goldman Sachs partner Steven Mnuchin for the cabinet position, an appointment that requires Senate confirmation.
During his campaign for the presidency, Trump, who is set to take office on January 20, portrayed the JCPOA with Iran as “disastrous” and promised to dismantle the agreement. While the fate of the resulting aircraft export licenses may be the Treasury secretary’s call, “my guess is that if the President wanted to say ‘we’re rescinding this license,’ he could convince the secretary of the Treasury to do that,” McClafferty said. He noted that in mid-November, during the term of the previous, 114th Congress, the House passed legislation introduced by Rep. Bill Huizenga (R-Mich.) that would have prohibited the Treasury department from allowing U.S. financial institutions to support aircraft sales to Iran. The Senate had earlier failed to pass similar legislation, which faced a veto threat from President Barack Obama.
It is conceivable—but not likely—that an OFAC license could be revoked sometime after the deliveries to Iran have started, McClafferty said. “That can get complicated because a variety of different things can happen,” he advised. “The problem is, once you’ve delivered an aircraft to the Iranians it’s not like you’re going to get it back. But the more difficult thing for Boeing in particular would be the payments issue.” The government “can withdraw the authority to proceed under the license, which means that they might deliver (an aircraft) and not get the payment. That generally doesn’t happen. The Trump administration is unlikely to allow Boeing to have delivered an aircraft and not get paid for it.”
Uncertainty over the U.S. position with Iran has left the industry unsettled. “I think everybody’s a little bit nervous about what the future holds for that,” said Aerospace Industries Association president and CEO Dave Melcher, when asked about the prospects of commercial trade with Iran in early December. “I think everybody’s just sort of taking a breath and a pause to say: what will be the nature of this relationship going forward? If it’s within the bounds of diplomatic proprietary, if it is something that we agree as a nation we want to do, than we ought find a way to allow those deals to happen if it’s in our national interest."
In a statement provided to AIN, a Treasury spokesperson said: “Under the JCPOA, the United States committed to license the export of commercial passenger aircraft to Iran, and the U.S. continues to fulfill its commitments under the deal, including by issuing such licenses. While I cannot comment on specific licenses, these licenses consistently contain strict conditions to require that the planes will be used exclusively for commercial passenger use and that they are not resold or retransferred to a designated entity.
"As we have said previously, in the text of the JCPOA, the U.S. government reserved the right to cease performing the commitment to license the export of commercial passenger and related parts and services if we determine that licensed aircraft, goods, or services have been used for purposes other than exclusively commercial passenger aviation end-use, or have been resold or re-transferred to persons on the SDN list. Beyond that, I cannot speculate on hypothetical situations.”