LegiStorm

Summary:

The Pending Sale and Implications A potential sale of Boeing passenger aircraft to Iran's large state-owned airline, Iran Air, raises significant questions for Congress as it oversees implementation of the Iran nuclear agreement, including some sanctions relief. On June 21, 2016, Iran Air announced an intent to purchase 80 and lease 29 of The Boeing Company's passenger aircraft, at an estimated total cost of about $25 billion. In February 2016, Iran Air agreed to buy 118 commercial aircraft from Airbus, Boeing's main commercial competitor, at an estimated value of $27 billion. Subsequently, the airline agreed to purchase 40 passenger aircraft from France-Italy manufacturer ATR. The proposed Boeing sale raises questions about the potential use of the planes, possible U.S. participation in the financing of the sale, and impact on U.S.-Iran relations. The announcement represents implementation of a U.S. commitment in the July 14, 2015 multilateral Iran nuclear agreement (Annex II, Section B, Paragraph 5.5.1 of the "Joint Comprehensive Plan of Action," JCPOA) to "allow for the sale of commercial passenger aircraft and related parts and services to Iran.... " Administration officials characterized the JCPOA provision as primarily humanitarian: Iran's aircraft fleet had deteriorated, in part because of U.S. sanctions and despite regulations allowing for the U.S. sale of passenger aircraft spare parts. There have been reportedly more than 200 aircraft accidents in Iran since 1990, killing over 2,000 persons. At the same time, the U.S. commitment to sell aircraft to Iran might represent an effort by the Administration to institutionalize the JCPOA by demonstrating the economic benefits of the deal to the U.S. economy and a major U.S. industry. The announced sale, if completed as planned, has an estimated value of nearly 100 times the total amount of U.S. exports to Iran for all of 2015 ($281 million). The sale has the potential to contribute to a U.S.-Iran rapprochement, which Administration officials asserted was a hoped for, although not necessary, outcome of the JCPOA. The Boeing sale to Iran Air raises concerns among some observers, including some Members of Congress, about the potential misuse of the aircraft. In June 2011, the Department of the Treasury named Iran Air as a Specially Designated National, under Executive Order 13382, for shipping military equipment and items that could have military applications on behalf of Iran's Islamic Revolutionary Guard Corps (IRGC) and Ministry of Defense and Armed Forces Logistics (MODAFL). According to the Treasury designation, "Iran Air flights have also been used to transport missile or rocket components to Syria." The latter activity apparently was in support of Iran's policy to support the regime of Syrian President Bashar Al Asad against an armed rebellion that began in 2011. Upon formal implementation of the JCPOA (January 16, 2016), this designation of Iran Air was revoked, in accordance with U.S. commitments in the JCPOA. However, it is not clear whether Iran Air has ceased the activity for which it was sanctioned in 2011, and some have raised the potential for Iran Air to retransfer the aircraft to sanctioned Iranian airlines such as Mahan Air. Neither Boeing nor the Administration have announced whether, and if so how, the end use of the aircraft would be monitored. Restrictions and Licenses Significant restrictions on U.S. trade and transactions with Iranian entities remain because of Iran's disruptions to regional stability, missile proliferation, violations of human rights standards, and money laundering. In addition, the Secretary of State has designated the Government of Iran as a state sponsor of international terrorism. The Department of the Treasury's Office of Foreign Assets Control requires that U.S. exporters to Iran of commercial passenger aircraft, related parts, and services first obtain a specific license, for which they verify that no Specially Designated National is involved in the transaction, and that the deal does not contribute to Iran's ability to acquire goods or technology that could materially contribute to weapons proliferation or acquisition. Treasury, however, issued a general license for U.S. persons to enter into negotiations and contingent contracts to sell commercial aircraft on March 24, 2016. The general license also authorizes U.S. persons (including U.S. banks) "to engage in all transactions ordinarily incident to the negotiation of and entry into" contracts to export commercial aircraft to Iran. Potential Role of Export-Import Bank Some Members of Congress have raised questions about the potential role of the Export-Import Bank (Ex-Im Bank or Bank) in financing the deal. Boeing has been a major beneficiary of the Bank; in FY2015, over 40% of Ex-Im Bank's authorizations were of long-term guarantees of loans for foreign purchases of Boeing aircraft. Although multiple aircraft finance sources exist, government-backed export financing can be critical to mitigate risks for certain transactions, such as in developing countries. The Bank presently does not provide any type of support for transactions in Iran in either the public or private sector because of legal prohibitions: both the Foreign Assistance Act of 1961 and annual foreign operations appropriations prohibit the Bank from obligating or expending funds for direct loans, credits, insurance and guarantees related to Iran (the latter restricts programs with the government), and the Bank's charter also includes restrictions. The Bank's understanding is that the Foreign Assistance Act prohibits it from financing any transactions involving state sponsors of terrorism, including end-users in those countries. In 2015, Ex-Im Bank's Chairman wrote to Congress that he "did not anticipate any scenario" in which the Bank would seek a waiver for transactions involving state sponsors of terrorism. While some raise the possibility that Ex-Im Bank nevertheless could support the Boeing sale by guaranteeing a loan to a non-Iranian financial intermediary, others hold that the Bank's authorities do not permit it to participate because the end-user (Iran Air) is in Iran. The Chairman has reiterated that Ex-Im Bank is "not stepping into Iran" so long as the country is a state sponsor of terrorism. In response to a congressional inquiry about the deal, Boeing reportedly wrote that it has reached no decisions on how to finance the sale and Ex-Im Bank is not an option. Moreover, due to the Ex-Im Bank Board of Directors' apparent lack of a quorum, it currently cannot approve any medium- or long-term transactions over $10 million.