How Will the U.S. Withdrawal from the Iran Nuclear Accord Affect the Aviation Industry?
On May 8, President Donald Trump announced that the United States is withdrawing from the multilateral nuclear accord with Iran known as the Joint Comprehensive Plan of Action (JCPOA). The U.S. will reimpose sanctions suspended under the JCPOA subject to certain 90-day and 180-day wind-down periods. Further, the U.S. Treasury Department Office of Foreign Assets Control (OFAC) will withdraw certain authorizations granted as part of the JCPOA. Our initial take is that these actions will have the following effect on the aviation industry:
- The United States is essentially ending the favorable licensing policy for the sale or lease of civil passenger aircraft to Iran. OFAC will likely revoke licenses already issued to a few major aircraft manufacturers for sales of aircraft, engines, and parts to Iran, and return without action scores of pending applications. Further U.S. persons will only be able to engage with Iranian counterparts for the purposes of winding down/terminating existing obligations.
- Effective immediately, OFAC will only consider applications for aviation items related to safety of flight. Companies will have to resubmit applications returned without action with arguments as to why the exports/reexports are critical for safety of flight.
- On Nov. 5, 2018, OFAC will revoke the current general license (GL-H) which allows non-U.S. entities owned or controlled by U.S. persons to engage in transactions related to Iran consistent with the JCPOA. In other words, foreign subsidiaries of U.S. lessors will be subject to the same restrictions on facilitating transactions with Iran as their U.S. parent. This may affect certain insurance coverage, as insurers/syndicates owned or controlled by U.S. persons would be unable to cover claims arising out of flights to Iran without obtaining separate OFAC authorization.
- There is no indication that OFAC will revoke the OFAC general license (GL J-1), which allows non-U.S. airlines to make international flights to Iran operating aircraft subject to U.S.-export jurisdiction and to engage in certain code-share arrangements with Iranian airlines. However, in 180 days the U.S. will likely redesignate Iran Air, and other Iranian government-owned airlines as Specially Designated Nationals (SDN) effectively prohibiting code-sharing and similar arrangements with those designated Iranian carriers.
As discussed in the Holland & Knight Client Alert of 9 May: The U.S. Will Reimpose Sanctions on Iran: What Companies Need to Know, the November reimposition of “secondary” sanctions on non-U.S. insurers, non-U.S. banks, and other foreign financial institutions who engage in or facilitate certain significant transactions with Iran (regardless of U.S. nexus), will likely have a major chilling effect on aviation transactions related to Iran.
Jonathan Epstein is a partner in the Washington D.C. office of Holland & Knight LLP (he can be contacted at 1.202.828.1870 or firstname.lastname@example.org)