Site icon The Business Year

An air battle for the Gulf

An economic battle for dominance of the skies is likely to break out over the Gulf. One of the major moves of Iran to regain its regional leadership takes part 30,000 feet over the ground with the Islamic Republic’s decision to invest USD27 billion in an airline fleet capable of taking on the Middle East’s supercarriers.
Following the implementation of the JCPOA, Iran Air and Airbus agreed to a historic deal for 118 airliners worth USD25 billion. As if this were not enough, June welcomed another remarkable agreement, after the flag carrier purchased 109 Boeing aircraft. The acquisition of almost 230 planes will create a fleet three-quarters the size of British Airways’ and larger than Abu Dhabi-based Etihad Airways. Most of the jets on order will be delivered before 2020 and are likely to replace older aircraft that have been affected by a ban on international transactions over the last four years.

The investment points to a strategy to take part in the globalization of the transport industry alongside its regional rivals. The Iranian capital shares a similar geographical advantage, located at a crossroads between Europe, Asia, Africa, and the Middle East, with most of the Americas also in range. The deals signed this year, which include orders for some of the world’s largest aircraft such as the Airbus A380 and Boeing 747, elude to Tehran’s intention of building an international transfer hub, emulating the model established in the region by Emirates of Dubai and followed by Qatar Airways, Etihad, and Turkish Airlines.

Iran, however, has a competitive advantage, as it comprises a population of 80 million plus a diaspora of 5 million, both significantly larger than any of its Gulf competitors. In the context of serving the domestic market, European carriers such as Air France-KLM and Lufthansa have shown eagerness to hang on to this lucrative market. Since Iran’s hub ambitions will not bear fruit any time soon, the country is focusing on rebuilding a busy domestic network and catering to business and leisure tourism.

During his visit to Europe less than two weeks after sanctions were lifted, President Hassan Rouhani signed a USD2.8 billion contract with French industrial group Bouygues along with Aéroports de Paris to expand the main Tehran airport. The Imam Khomeini International Airport will have a new terminal with the capacity to handle 20 million passengers per annum and is expected to be completed by the end of 2017.

The Iranian government is also eyeing the expansion of secondary airports, in order to boost travel to less-visited destinations, such as Mashhad and Isfahan, with the signing of an MoU with French VINCI Airports. With tourism increasing more than 35% in 2014, flight connections to other cities represent another field of competition for air carriers, and Turkish Airlines has predicted demand for tourism to Iran to double within two years. Based on the same plan, Kish Free Zone is developing its international airport to host travelers using Iran as a connection point to reach other countries like India, Malaysia, or the Persian Gulf states. The country has more than 60 operational airports, but only about 10 are used regularly, so modernizing its regional airports through FDI is another fixation of the government.

There are currently 28 foreign carriers operating in Iran and more are likely to arrive. Iranian officials are also courting foreign partners to help the country’s aviation industry repair its planes. Germany’s Lufthansa is set to establish a repair and maintenance service unit after inking a deal with Iran Air for cooperation in different areas. As many as 70 planes can return to service if each gets its supply of vintage parts renovated, providing a boon to plane manufacturers and parts suppliers.

The International Air Transport Association (IATA) has predicted Iran’s market will more than treble from the current 12 million passengers per annum to 44 million by 2034. With traffic amounting to only 6 million passengers per year, Tehran’s airport is dwarfed by Dubai’s 78 million. However, the Islamic Republic plans to boost capacity to 45 million, but only as a benchmark on its way to 70 million. With this data on the table, it seems clear that the aviation sector is getting early clearance for takeoff.

Exit mobile version