An Opportunity in Iran’s Latest Tragedy

Iran has sought international assistance in the investigation of the crash of Ukraine International Airlines Flight 752, which killed all 176 people onboard on Wednesday. But the ongoing tensions between Washington and Tehran threaten to prevent the involvement of American experts in the investigation of what brought down the Boeing 737-800 aircraft.

The U.S. National Transportation Safety Board faces two quandaries. It must determine whether the Trump administration’s sanctions on Iran prohibit engagement with Iranian authorities in the investigation, and whether it is safe to send investigators to the crash site at a time when the two countries are in a heightened state of confrontation.

NTSB experts are widely recognized as among the best crash investigators in the world and they regularly participate in investigations at the behest of foreign governments, under a process outlined in Annex 13 of the Convention on International Civil Aviation.

Boeing Co. has said it is ready “to assist in any way needed,” but the airplane maker, too, must reckon with sanctions restrictions.

American sanctions on Iran require NTSB investigators to procure a license from the Treasury Department in order to work with Iranian counterparts—such clearances can take as long as a year to be issued.

The tragedy presents the Trump administration an opportunity to demonstrate its often-stated goodwill toward the Iranian people by immediately issuing the licenses. In return, the U.S. should seek public assurances about the safety of American experts who would travel to Iran, and for these experts to be provided access to the plane’s black boxes—which Iranian officials are reportedly reluctant to provide. 

Part of this reluctance stems from the fact that Iranian civil aviation officials believe their own efforts to improve the safety of Iran’s airlines have been significantly hampered by the Trump administration’s “maximum pressure” sanctions policy. Boeing’s contracts to sell 100 aircraft to Iranian airlines were cancelled when the U.S. withdrew from the Iran nuclear deal in May 2018—Iranian airlines fly some the oldest aircraft still in service anywhere in the world. The reimposition of secondary sanctions also blocked Iran’s ability to purchase spare parts from U.S. suppliers for its existing fleet, and even prohibited the sale of training manuals and technical documentation.

The International Civil Aviation Organization, a United Nations body, has long gathered evidencedemonstrating that U.S. sanctions hamper the safety of the Iranian aviation industry. A 2010 ICAO Universal Safety Audit found that “Iranian carriers are unable at present to fulfill most requisite ICAO aviation safety and maintenance standards and recommended practices (SARPs)… because they were denied access to updated aircraft and aircraft spare parts and post-sale services around the world.” The rate of passenger fatalities in Iran is 5.5 times higher than in the rest of the world.

As a foreign carrier, the safety of the Ukraine International Airlines flight is unlikely to have been impacted by these sanctions issues. But the death of over 100 Iranian nationals in the crash has compounded the grief for a country where planes all-too-regularly experience catastrophic accidents.

When issuing licenses to enable U.S. participation in the investigation, the Trump administration should also respond to the wider concerns around aviation safety in Iran by issuing licenses for planemakers such as Airbus SE, Boeing and ATR to resume sales of safety-related materials, including flight manuals used in pilot training and schematics used in aircraft maintenance. These limited licenses would in no way undermine the Trump administration’s “maximum pressure” policy, but could generate some trust between American and Iranian authorities seeking to de-escalate tensions.

This would not be the first time that the U.S. has sought space for understanding and cooperation with Iran under tragic circumstances. In the aftermath of the devastating 2003 Bam Earthquake, American search and rescue teams traveled to Iran to provide disaster aid and medical assistance to survivors—without in any way compromising the U.S. position on Iran’s nuclear program.

This is another moment for that kind of cooperation.

Photo: IRNA

For Iranian Passengers, Old Planes and Few Parts Make Air Travel 5.5 More Times Deadly

In November, Kim Hjelmgaard of USA Today reported on the misery and danger faced by Iran’s air travelers as US sanctions return. Hjelmgaard’s interviewed with former airline pilot Houshang Shahbazi who heroically “saved the lives of more than 100 passengers and crew in 2012 when he successfully landed a 747 commercial airplane with a disabled wheel carriage.” His report also included data on aviation safety in Iran complied by Bourse & Bazaar. A closer look at that data is presented here.

To measure the risks posed to air travelers in Iran, it is possible to look to deaths per passenger journey. This is considered the “most accurate measure” for the mortality risks posed by flying as it accounts for the difference between long and short haul flights, which operate different types of aircraft.

Passenger journeys are tabulated by the International Civil Aviation Organization, and accessible via the World Bank’s data portal. Air accidents and fatalities in Iran are recorded by the Air Safety Network, an industry database. For the purposes of this analysis, we will compare global fatalities with passengers fatalities from accidents involving Iranian-registered commercial aircraft within Iran.

The period examined is 1997 to 2017, a 20 year period which includes the most recent available data. This is also the period which covers the intensification of international sanctions on Iran, beginning with the Iran Libya Sanctions Act signed into law by the Clinton administration in 1997. The International Civil Aviation Organization (ICAO), a United Nations body, has long gathered evidence which suggests that US sanctions contribute to the poor safety record of Iran’s aviation industry. A 2010 ICAO Universal Safety Audit found that “Iranian carriers are unable at present to fulfill most requisite ICAO aviation safety and maintenance standards and recommended practices (SARPs)… because they were denied access to updated aircraft and aircraft spare parts and post-sale services around the world.”

Looking to the data on risk of death, Iran’s 20 year average is 1.89 deaths per 1 million passenger journeys. The same figure for the rest of the world is 0.34 deaths. By this measure, flying in Iran is on average 5.5 times more deadly than flying in the rest of the world, in aggregate. Notably, this does not include 2018 figures, a year where Iran has had 66 fatalities.

When depicted in a chart, the ratios help illustrate the frequency with which Iran experiences serious air accidents. There have been accidents in 18 of the last 20 years, with an average of 2 accidents per year. Accidents do not always lead to fatalities. Fatalities are recorded in 9 of the last 20 years. But deaths can quickly mount when accidents occur at higher than normal levels. In 2009, Iran tragically experienced 7 aviation accidents, resulting in 189 deaths.

Statistically speaking, air travel in Iran is still safe. This is in large part due to the efforts of Iranian pilots and maintenance crews to keep aircraft operable despite limited resources. But even if the overall risk of an accident remains statistically low, the risk still far exceeds expected levels. Over the last 20 years, Iran has witnessed 41 accidents, accounting for 6 percent of the global total. But the country accounts for just 0.6 percent of passenger journeys made worldwide in the same period. By this measure, the frequency of accidents in Iran is 10 times higher than the global norm.

To help put the risk of death in context, one French study found that the rate of fatalities for motorcyclists in France is 1.26 deaths per million journeys. By this jarring measure, a journey on a commercial flight in Iran is more dangerous than a journey on a motorcycle. Iranian passengers put up with these risks because they must—it is the only way to visit family, conduct business, or travel for pleasure. But the situation remains unacceptable.

As Shabazi poignantly told Hjelmgaard, "Everybody knows the risks Iranians face in the air… and everybody's scared."

Photo Credit: IRNA

International Airlines Are Leaving Iran. Here’s Why.

Iranians reacted with anger and frustration to the news that British Airways will suspend its service to Iran from September 23. Soon after, news came that Air France would axe its service on September 18. As reported by the Washington Post, some Iranians expressed a feeling of being “imprisoned in the country” as they learned that international airlines were leaving Iran. Hamid Baeidinejad, Iran’s Ambassador to the United Kingdom, responded to British Airway's withdrawal more pragmatically, noting his hope that “Iran Air, with its three weekly direct flights to London, can seize the opportunity and fill the gap.”

The news appears to reflect further instances of multinational companies withdrawing from Iran in the face of returning U.S. sanctions while bowing to the political pressure exerted by the Trump administration. Israeli Prime Minister Benyamin Netanyahu took this view, stating about the withdrawals, "That's good. More should follow, more will follow, because Iran should not be rewarded for its aggression in the region.”

But the airlines have communicated that commercial and not political factors were paramount in the decision to withdraw. The British Airways statement described their London to Tehran route as "currently not commercially viable.” Air France echoed “poor commercial viability.” KLM has pointed to "negative results and financial outlook.” Some Iranians, observing regularly full flights, have questioned the honesty of these statements.

To better understand whether commercial or political considerations are driving these decisions, Bourse & Bazaar spoke to an executive of one of the international airlines now withdrawing from Iran. The executive asked not to be named given the sensitivity of the issues at hand. 

The executive’s account provides a more precise picture of why numerous airlines have determined that flying to Tehran is no longer commercially viable. These claims are not a fig leaf for politically motivated decisions, nor attempts to downplay legal barriers posed by returning sanctions (which are minimal). Instead, over the last few months, larger economic forces arose that made routes operating at high passenger loads unattractive, at least relative to the option of redeploying aircraft other routes worldwide.

As Amir Noorbaksh has written for Bourse & Bazaar, the influx of international carriers into Iran led to increased competition. Such competition depressed airfares in the short term. Airlines knew that it would be “difficult to become profitable quickly" and had expected to “wait at least two years in order to break even,” the executive explains. But by early 2018, the break-even point remained out of reach.

International carriers had expected that the growth in business and tourist travel to and from Iran would boost demand and help drive airfares upward over time. But the stalling post-sanctions economic recovery, slowed in part by President Trump’s decision to decertify the Iran nuclear deal in October as well as domestic factors, meant that the projected growth in passenger numbers was failing to materialize.

In response, as the first quarter of this year came to a close, most international carriers active in Iran began to plan reductions in their service in order to better match supply with demand. Austrian Airlines pursued a realignment of the airline’s portfolio by suspending flights to Esfahan and Shiraz. KLM planned to suspend its flights and Air France opted to run a reduced service after switching the operation of the Paris-Tehran route to Joon, a subsidiary. British Airways likewise planned to reduce the frequency of its flights. 

These adjustments should have enabled the international airlines to increase airfares in the market by addressing oversupply, bringing profitability back within reach for the sector. But the adjustments coincided with President Trump’s withdrawal from the Iran nuclear deal and an acceleration in Iran’s currency crisis.

The falling value of the rial had two important effects for international airlines. First, it significantly decreased demand. Not only were airfares more expensive as the purchasing power of the rial declined, but Iranians were also struggling to get reliable access to the hard currency they need in order to spend freely when abroad. Majid Nejad, CEO of Alibaba.ir, Iran’s leading online travel website, told the Washington Post that “compared with the same period last year, bookings to foreign destinations from Iran have fallen by half.”

Second, as the rial lost value, the revenues accrued by international airlines in Iran also lost value. In order to mitigate the foreign exchange risk, some international airlines began to market tickets locally only at the highest booking classes (an airline industry price categorization). Those few Iranians with access to foreign banks cards could still purchase tickets at any booking class online, accessing cheaper fares. Nonetheless, the move to increase prices hit demand.

But even if higher fares could protect revenues from devaluation in the short-term, the airlines faced long-standing issues around repatriation of revenues. Last week, the Iranian Civil Aviation Organization announced that international airlines would need to buy euros at the market rate, contradicting an earlier assurance provided by the Central Bank of Iran that foreign currency would be available to the airlines at the lower government exchange rate. The executive notes that a “lack of clear communication from the central bank and aviation authority proved one of the most frustrating aspects of the whole episode.”

In any case, airlines struggled to convert their rial holdings into foreign currency at whatever the rate. The airlines executive believes that when airlines sought to convert their rial holdings in accounts at banks such as Saman Bank and Parsian Bank, the central bank failed to make the foreign currency available because they either “did not have sufficient foreign currency on hand” or “were opting to build up reserves for more critical industries like the pharmaceutical sector.” As rial-denominated revenues languished in Iran, airlines saw their losses mount, and the routes were no longer commercially viable. 

For context, the executive impresses that “business is good in the aviation industry worldwide right now” and that for airline executive committees dealing with the headache of operating in Iran, the option to simply reassign an aircraft and flight crew to another more profitable route became increasingly appealing.

For now, Lufthansa and Alitalia are continuing their services to Iran. For these European holdouts, the withdrawal of their competitors could offer a reprieve, reducing competition and perhaps helping to stabilize airfares. European governments, which have been actively involved in the challenges faced by their national carriers since January, remain politically supportive. Of course, Iran Air will benefit. Iran's national carrier announced route expansions in May in an effort to win back market share from the international players. 

No doubt, sanctions contributed to the withdrawal of international airlines out of Iran, but not for the political or legal reasons readily assumed. Rather, international airlines would have persisted in their service to Iranian destinations, emboldened by political support from European governments, had it not been for the intractable issues surrounding commercial viability.

While the withdrawal from Iran essentially came down to fundamental commercial calculations, the executive makes sure to relay that the decision to cease operating in Iran was nonetheless difficult to make. In his words, nothing was more painful than “how deeply unfair the whole situation is for our team members in Iran.” Like many other young and talented Iranians, those let go by the international carriers will be wondering "what next?"

Photo Credit: Wikicommons

Increased Competition Squeezes Air France in Iran

Air France recently announced the reduction of its flights from Paris to Tehran after first switching the service on the route to its subsidiary airline JOON. At a time of uncertainty surrounding the future of the Iran nuclear deal, the reduction of flights led to speculation that the move may have been influenced by the return of sanctions. But a look to the current competitive environment shows other significant changes to the market to which Air France was forced to react. 

Starting in October 2018, Air France flights will only operate on the Paris-Tehran route during the summer season. A statement from the airline said: "After two years of operations and faced with a weak economic and commercial performance, Air France took the decision to adjust this route's flight schedule to be in line with demand."

The Iranian travel market has changed considerably from when Air France resumed its flights in April 2016, first operating flights three times a week with Airbus A340 aircraft and a seating capacity for 255 passengers. At the time, Air France was the only airline flying between Paris Charles de Gaulle Airport and Tehran and the only competition facing the French national carrier was Iran Air’s weekly flight out of Paris Orly Airport.

A few months later, Mahan Air began flights to Paris three times a week with its own A340 aircraft. Just recently, Iran Air moved its flights from Paris Orly to Paris Charles de Gaulle Airport, while also upgrading its aircraft to a brand new A330. In January, Mahan Air announced that it will increase its frequencies to Paris from three weekly flights to four for the summer 2018 season.

Looking to the new competition, travelers journeying between Paris and Tehran have more options than ever before. With Iran Air and Mahan Air flying to Paris with higher frequencies and lower prices, Air France has definitely felt the competitive pressure.

According to figures from the French government, 107,317 passengers travelled between Paris and Tehran on the relaunched service in 2016, a 178 percent increase from the previous year. The following year, the number of passengers further increased to 145,896, up 36 percent. Much of this growth can be attributed to Air France's connecting passengers, traveling from Paris to other destinations. 

The impending return of sanctions is likely to reduce demand from tourists and business travelers on Paris-Tehran route, making the impact of Iran Air's capacity increases and the new Mahan flights more acutely felt. The recent increase in departure taxes and currency restrictions may affect outbound travel from Iran to foreign destinations including France.

Moreover, the expansion of Iranian airlines is also in doubt as European growth is dependent on the arrival of its new aircraft. Iran Air's deals with Airbus and Boeing are now in jeopardy after President Trump withdrew from the nuclear deal, canceling licenses for aircraft sales. 

Nevertheless, Air France also faces more competition with European airlines than it did in 2016. British Airways and KLM resumed flights to Tehran in late 2016, while Austrian Airlines increased its presence in Iran with additional flights to Tehran, Isfahan, and Shiraz, focusing more on Iran’s tourism industry. Aegean Airlines and Ukrainian International Airlines are attracting more connecting passengers and have also increased their presence in Iran.

With more than two years for foreign airlines to observe the Iranian market since 2015, flight adjustments and schedule changes are quite normal to react to over estimations in demand. British Airways and Alitalia have adjusted their schedules with slight decreases in frequencies or capacities to better meet the demand as Iran Air has grown its presence in both London and Rome. 

Air France has been flying to Iran since 1946 with few suspensions. Despite the recent adjustments, 2018 will certainly not be the last year of a full service between Paris and Tehran. 

Photo Credit: Wikicommons

Iran Air Expands Routes Amid Uncertainty

Despite recent uncertainty surrounding the 2015 nuclear deal, Iran Air has been moving forward with its expansion efforts. The airline's CEO, Farzaneh Sharafbafi, attended last Friday's meeting of the JCPOA Joint Commission. Her presence indicated the significant political efforts being made to facilitate the acquisition of new aircraft which the airline needs to successfully maintain its growth.

Celebrating its 57th anniversary this year, Iran Air began flights from Tehran to Belgrade and Tbilisi on March 10 and is planning to start flights to Budapest, Malmö, and Saint Petersburg later this year. 

With visa restrictions being lifted in Serbia, further optimism points to India. In a joint statement by President Rouhani and Prime Minister Modi in February, Iran and India committed to the opening of e-visa facilities for their citizens. In 2016, neighboring Armenia and Georgia lifted visa requirements for Iranians, leading to the overall flight increases between the two countries and the addition of Tehran-Tbilisi flights to Iran Air’s schedule.

Although Iran Air does not publish passenger statistics and load factors on its routes, its performance can be estimated based on frequency increases on many of its European routes in the last year. Flights to Frankfurt, Gothenburg, Stockholm, and Vienna have all seen the addition of more weekly flights and higher capacities. The Tehran-Belgrade flights, have already sold out through the summer of this year. The airline has also begun codeshare flights on Lufthansa’s Tehran flights, and expanded its codeshare services with Turkish Airlines.

Iran Air's network has grown significantly since 2015, but remains much smaller than that of a decade ago. In 2002, the airline was serving 18 European destinations, compared to 13 destinations today. Iran Air’s Asian flights to Beijing, Bangkok, Kuala Lumpur, Seoul, and Tokyo, have not been in operation for a several years.

By re-establishing these routes, Iran Air could capitalize on a hub and spoke system used by most global airlines. Better geographically positioned in the Middle East than any other Persian Gulf carrier, Tehran could serve as a connecting point for passengers traveling to East Asia and Australia from Europe and North America.

With neighboring Qatar Airways, Emirates, and Etihad Airways experiencing financial difficulties due to political tensions, increased competition, and investments in struggling European airlines, now would be an ideal time for Iran Air to revitalize its own hub and spoke strategy in order to grab market share. 

However, despite the opening of new routes planned for this year, Iran Air faces an uphill battle in sustaining its growth. Because the airline's network remains limited, the success of newly launched routes is initially dependent on Iranian tourists. Economic pressures could see Iranian tourist figures fall. The Iranian departure tax may rise later this year and current proposals show increases from USD 15 to USD 45, which must be paid by all passengers departing Iran.

Furthermore, due to the existing sanctions on financial transactions, Iran Air tickets are not sold on various travel websites. Tickets are sold only through Iran Air offices or travel agents, making it difficult for those booking online from outside of Iran. This hinders growth for connecting passengers and makes competing airlines more attractive, which have already increased their Iran services. In the last two years alone, Iran Air has faced new competition from Air France, Austrian Airlines, British Airways, and KLM, all of which have resumed services or increased the number of seats on Iranian flights. 

Nonetheless, Iran Air has revitalized its domestic flights with the creation of a new regional service using newly acquired ATR aircraft. Iran Air is projecting a significant rise in revenue. At the height of economic pressure in 2013, the company’s revenue was approximately USD 330 million. The airline hopes to earn around USD 1 billion annually once its new fleet has been put into service over the next decade. Plans to begin flights to many intercontinental destinations depend on the arrival of new long-haul aircraft. 

The airline currently has fifteen Boeing 777-300ERs on order, most of which will be used for intercontinental flights. During a press conference in Paris, the airline’s CEO, Farzaneh Sharafbafi, confirmed that upon receipt of the Boeing aircraft, Iran Air would start or resume flights to Adelaide, Bangkok, Kuala Lumpur, and Sydney, further expanding its reach into Asia and Australia. On these planned routes, Iran Air faces little to no competition from Asian carriers. 

Sharafbafi reassured all that Boeing would remain committed to its landmark contract. She also said that there are no problems in financing the orders and that Boeing and Airbus jets would be delivered in late 2018 and 2019 respectively.

But while the licenses issued by the U.S. government allowing for the sale of Airbus, Boeing, or ATR aircraft remain valid, the Trump administration continues to threaten to pull out of the Iran nuclear deal. Ultimately, the growth of Iran Air significantly depends on American adherence to the deal and the delivery of the new aircraft. It remains to be seen whether Sharafbafi will have the opportunity to pursue Iran Air's ambitious reintegration in the global airline industry.

Photo Credit: Alireza Izadi