The Covid-19 pandemic has resulted in disaster for many global industries. After the turmoil it caused in the Oil market, Air travel is possibly the second most affected by the lockdown in the long term: the impossibility for travellers to fly has led all the airlines in the world to halt business and park their planes wherever possible, some of them probably to never return to service again. The financial strain on the airlines globally is tremendous, many of them have already been cancelling orders for new airplanes both from Boeing and Airbus, the world’s two largest manufacturers of commercial airplanes.
The new world that will emerge after the Covid-19 pandemic will be a world where airlines will need to restructure and refit, sadly but inevitably laying off employees and getting rid of surplus materials, including airplanes that are not nearly close to the end of their lifetime.
Conversely, commercial airplanes are still being manufactured. Although both the European Airbus and the American Boeing have significantly cut production, neither of them has completely stopped manufacturing airframes despite orders being cancelled by many airlines. Boeing is also in a worse shape than its European competitor, due to the accidents related to their new 737-MAX, which already resulted in a massive downturn for the company. This might cause Boeing to definitely sink into bankruptcy, something that would be of great damage not only for the American economy, but also for the national pride.
The drop of demand in the commercial aviation market will inevitably leave the manufacturers to seek new ways to sell their airplanes, including looking at potential new markets. But how will it possible to find bulk-buyers in a market in which multi-billion dollars deals are being cancelled or put on a halt, possibly to never see light again for the years to come? There is in fact one specific market that badly needs these airplanes and which might represent an enormous relief on the market of commercial aviation and an injection of cash that all the world’s national economies will need after the pandemic.
The hostage crisis of 1979 marked the start of United States, UN and Europe’s restrictions over the aviation industry of the Islamic Republic of Iran, which were increased and became more systematic in 2007. Furthermore, since the sanctions cover any manufactured good that includes more than 10 percent of US-origin parts, it is impossible for Iran to purchase airplanes from other countries, such as Russia, which also relies on US- made parts for the production of its own airplanes. However, Iran still needed (up to today) to fly its airplanes and, as a consequence, Iran’s aviation industry has chronically suffered from lack of new commercial airplanes and spare parts for the existing ones. Using old Fokkers and Boeing MD aircrafts that are long due to be retired has since caused heavy damages not only to the aviation industry of Iran but also to human life due of the many air accidents caused by obsolescent planes and scarce spare parts.
The Iranian Transport Minister Abbas Akhoundi had estimated back in 2016 that his country will need 400 medium and long-range planes, and 100 short-haul jets, in the next few years. The sanctions that were supposed to be lifted after the Joint Comprehensive Plan of Action, or “Iran deal” in 2015, under the Obama administration, have been immediately reinstated when President Donald Trump was elected effectively freezing a market that is not only still very attractive for both Airbus and Boeing, but also now badly needed. As soon as the sanctions were being lifted in 2016 before the advent of the Trump administration, including the import of new commercial airplanes and parts, the Iranian president Hassan Rouhani in his visit to Europe had immediately sealed a deal with Airbus for the purchase of 118 brand new airplanes and the value of 25 billion dollars, one of the biggest ever placed with a single stroke of pen. A financial deal that inevitably favored the European economy over the American one. From such a business perspective, even though not exclusively, it is not surprising that President Donald Trump called the JCPA “the worst deal ever” for America. He also said that his administration was not really willing to cancel any possibility of a deal with Iran, but rather that further negotiation would depend on whether a new deal would be good for America. If in the past Airbus was the winning competitor over the huge order placed by Iran, there is still a possibility that tables might turn in favor of Boeing and the American economy: Iran needs airplanes, America has plenty of them, and they will need to be sold. Of course, this comes with a caveat.
In fact, apart from the economic benefit of a potential redesign of the Iran Deal in the post Covid-19 era, another aspect that also remains vague is which ones of Iran’s local airlines would be allowed to operate the new airplanes. The goal of the heavy sanctions over Iran’s commercial aviation industry is not simply to put pressure over Iranian economy, but also to control the ambitious activities of the country’s establishment Middle East, which are mostly a threat to the national security of Trump’s administration allies in the region. This might now be the good occasion for both actors to win the game. Might a shift in the decision of who to buy from help to tip the balance between a good and a bad deal for America, in President Trump’s terms, hence helping rekindle talks and negotiations on with Iran also on a political level?
(You can read the last article by Ghazal Poorhasan and Alessandro Tomat here)