On July 29, 2016, the U.S. Treasury Office of Foreign Assets Control (OFAC) cleared the runway for non-U.S. operators of civil aircraft to send flights into Iran. New “General License J” authorizes many Boeing, Airbus, and other civil aircraft containing U.S.-origin materials to fly to Iran on “temporary sojourn.” The General License provides a great opportunity for non-U.S. aircraft owners and operators. However, a series of complex conditions may complicate ground handling agreements, damp or dry lease arrangements, code sharing, or other transactions related to providing service to Iran.
Sit Back and Enjoy the Flight: What is Permitted Under GL-J
Aircraft. General License J allows non-U.S. persons, including the non-U.S. subsidiaries of U.S. companies, to reexport U.S. origin aircraft or non-U.S. origin aircraft with more than 10% U.S.-origin content to Iran for “temporary sojourn” (more on that point in a moment). That means that most civil aircraft produced by the major aircraft manufacturers will be eligible to be flown into Iran.
In order to be eligible, the aircraft must be (1) a fixed-wing civil aircraft (U.S. Export Control Classification Number (ECCN) 9A991.b) that is (2) registered in a country other than the United States or Iran, North Korea, Syria, or Sudan.
Supplies and Equipment. Along with the listed civil aircraft, GL-J also authorizes the reexport by a non-U.S. person of “industry standard” on-board supplies of equipment, spare parts, components, and technology for the ordinary and proper operation of the aircraft. If those equipment and components are U.S. origin, they must be classified under ECCN 9A991.c, d, or e, or 9E991.
Just Passing Through: What Constitutes a “Temporary Sojourn”
In order for a non-U.S. operator’s flight into Iran to qualify under the authorization of General License J, the operator and the aircraft must meet certain conditions.
The Aircraft. General License J requires the following conditions to be met for an aircraft to be eligible:
The place of registration of the Eligible Aircraft will not change to Iran;
The Eligible Aircraft will not bear the color, livery, or logo of any Iranian air carrier;
The Eligible Aircraft will not carry a flight number issued to an Iranian air carrier
The Eligible Aircraft will not be equipped with, or used to transport
i. arms or related materiel;
ii. any item that is or would be controlled under “600 series” ECCNs; or
iii. items used to facilitate the development or production of a chemical or biological weapon or other weapon of mass destruction and their means of delivery.
The Operator. General License J requires the non-U.S. person operator to:
Retain the right to hire and fire the cockpit crew
Retain the right to dispatch the Eligible Aircraft;
Retain the right to determine the Eligible Aircraft’s routes;
Retain the right to perform or obtain the principal maintenance on the Eligible Aircraft. Additionally, that principal maintenance will take place outside of Iran under the control of a party who is not an Iranian national ordinarily resident in Iran; and
Ensure that there is no transfer of technology to an Iranian national ordinarily resident in Iran.
Federal Law Requires Compliance with All Lighted Signs: What is Not Permitted Under GL-J
General License J authorizes a broad range of activity. However, certain otherwise straightforward transactions may be complicated under the terms of the GL:
Ground Handling Agreements. The requirement that the non-U.S. operator maintain the right to perform “principal” maintenance appears to leave open the possibility that some routine maintenance and other ground handling services may be performed by Iranian persons. However, agreements for ground handling activities will need to be carefully drafted so they do not give away any right that the General License requires the operator to maintain.
Leasing. Reviewing the limitations on the operator listed above, it should be clear that dry-leasing an aircraft to an Iranian entity (i.e., a lease without crew or ground staff) would not be authorized. Terms of any wet lease (i.e., aircraft, flight crew, cabin crew, maintenance, and insurance) or damp lease (i.e., aircraft, flight crew, maintenance) would have to be carefully tailored to maintain the lessor’s rights required for authorization under General License J.
Code Sharing. Because General License J does not permit an eligible aircraft to bear the livery of an Iranian carrier, carry a flight number issued to an Iranian carrier, or have its routes determined by a person other than the non-U.S. person operator, codeshare agreements with Iranian carriers may be impossible. However, we expect that future guidance from OFAC will clarify whether and how such agreements may be made.
Seats and Tray Tables Up: A Conclusion
General License J authorizes non-U.S. commercial airlines to undertake most transactions required to provide flights to Iran from a base outside of Iran or the United States. However, the conditions in the General License should cause operators to pause and review with their compliance personnel or counsel, making sure they are cleared for landing.