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Iran Sanctions Changes: Impact on the Aviation Sector

With “Implementation Day” came the lifting of certain key U.S. and EU sanctions on the civil aviation industry. However, many prohibitions still remain, and licensing requirements may attach to U.S. persons or non-U.S. persons who seek to do business in Iran or operate airline services to/from Iran. Companies must continue to navigate this complex sanctions framework if seeking to engage in Iran’s aviation sector.

Sale or Lease of Commercial Passenger Aircraft

On January 16, 2016 the Treasury Department’s Office of Foreign Assets Control (OFAC) issued a Statement of Licensing Policy (SLP) establishing a favorable licensing policy towards the export, reexport, sale, lease or transfer of commercial passenger aircraft and related parts and services to Iran, provided such transactions do not involve any person on OFAC’s Specially Designated Nationals List (SDN List). Prior to this SLP, U.S. persons were restricted from engaging in such transactions with Iran or Iranian entities. Additionally, non-U.S. persons were subject to the same prohibitions where the aircraft or related components or technology incorporated 10% or more U.S.-origin controlled content by value. Even for aircraft containing less than 10% U.S.-origin controlled content, these prohibitions applied to reexports of U.S.-origin spare parts and technical data.

Following Implementation Day, U.S. persons as well as non-U.S. persons selling aircraft where there is a nexus to U.S. jurisdiction (e.g., aircraft containing more than 10% U.S.-origin controlled content) need to apply for an OFAC license to sell or lease such commercial aircraft to non-designated Iranian entities. The types of aircraft that may be approved under the SLP include wide-body, narrow-body, regional, and commuter aircraft used for commercial passenger aviation. Ineligible aircraft include cargo aircraft, state aircraft, unmanned aerial vehicles, military aircraft, and aircraft used for general aviation or aerial work.

The SLP also applies to associated services where there is a nexus to U.S. jurisdiction, including the supply of parts, warranty service, brokering, insurance and financing, as well as the involvement of individual U.S. persons in the transaction. In addition, under the Iranian Transactions and Sanctions Regulations (ITSR), persons who receive a license from OFAC are authorized to engaged in transactions “ordinarily incident” to the licensed activity. In this context, “ordinarily incident” transactions may include transportation, legal, insurance, shipping, delivery, and financial payment services provided in connection with the licensed export. However, OFAC has made clear in FAQ’s that the transaction must relate to the licensed export. For example, OFAC states that insuring the shipment of a licensed component to an Iranian customer would be “ordinarily incident” to a licensed export, but that providing insurance to cover the component for a period of years after the original export would require a separate authorization.

While not specifically addressed by OFAC in the Joint Comprehensive Plan of Action (JCPOA) guidance documents, OFAC does not make a distinction between sales and leases (whether dry or wet) in its SLP. The U.S. Government has continued to treat leases as exports/reexports subject to U.S. jurisdiction requiring authorization. For example, on November 23, 2015, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced a settlement with EGYPTAIR Airlines Company for $140,000 related to the lease of two Boeing 737-566 aircraft to Sudan Airways (which is also an SDN) without required licenses from BIS.

U.S. and Non-U.S. Airline Operations

Implementation Day does not impact the prohibition on U.S. persons from operating flights to or from Iran. Therefore, U.S. airlines still may not offer flights to or from Iran.

Whether or not non-U.S. airlines will be expressly authorized to operate their own flights to Iran is yet to be clarified. It is nonetheless clear that non-U.S. persons who engage in significant transactions with persons and entities that remain on the SDN List will be subject to “secondary sanctions.” Unlike “primary sanctions” which attach to U.S. persons, secondary sanctions apply where there is no nexus to U.S. jurisdiction. Secondary sanctions may include prohibitions from engaging in the U.S. financial sector, restrictions on receiving U.S.-origin goods, and/or the non-U.S. person itself being designated as an SDN.

Under the JCPOA, several individuals and entities were removed from the SDN List, including Iran Air. However, other airlines, such as Mahan Air, remain designated. Dealings with such SDNs could expose non-U.S. persons to secondary sanctions, even when there is no relationship to U.S. jurisdiction (for example, no involvement of U.S. persons or U.S.-origin items or technical data.)