In Boeing, Airbus Negotiations, Iran Air is Flying Solo
The recent announcement that US regulators have given their approval for the sale of Boeing and Airbus aircraft to Iran Air has been met with great enthusiasm. Officials at Iran Air have stated that they expect to receive the first Airbus airliners early next year. The news is remarkable on a number of levels, as the Boeing and Airbus agreements have been seen by many to be the linchpin deals that would finally help raise the comfort level of international banks to transact with Iran.
It is also noteworthy that Iran Air has negotiated the deals without the advisory of an international law firm. Despite the fact that most airlines rely on outside counsel to help navigate the aircraft acquisition process, and that international law firms are itching to increase their presence in Iran, Iran's national carrier has followed the approach of most Iranian state-owned enterprises and forgone outside legal counsel in the negotiation of these commercial agreements. Instead, the company relies on its in-house lawyers, as well as on legal experts at the Ministry of Roads and Urban Development, which oversees both Iran Air and the Civil Aviation Organization.
Iranian state enterprises avoid engaging outside lawyers due to concerns regarding security, political sensitivity, and perhaps most practically, an unwillingness to pay the fees associated with high-level international legal advice, which can often amount to millions of dollars. The few Iranian state enterprises that have regularly enlisted outside counsel are in the oil industry, where deeper pockets and an international marketplace necessitate a different approach. The National Iranian Oil Company has been advised by Eversheds and the National Iranian Tanker Company has worked with Stephenson Harwood. In both cases, briefs focused on sanctions-related arbitration.
By contrast, Iran Air’s counterparties in the negotiations, the airplane manufacturers, have a clear reliance on outside counsel. Airbus and Boeing are so large and deal with such a wide range of legal matters across so many jurisdictions, that they each rely on their won “preferred legal network” of law firms pre-approved to advise the firms. This way, internal legal teams can tap the support of particular firms that have the capabilities desirable for a given brief. Boeing works with firms such as Eversheds, Allen & Overy, and White & Case, among others. Airbus has worked with Clifford Chance, Willkie Farr & Gallagher, and DLA Piper, among others. Given the fact that Boeing and Airbus use many of the world’s top law firms, and given that partners often move from firm to firm, there have been instances where a conflict of interest has emerged between Boeing, Airbus, and their clients or counterparts. This may be one reason why Iran Air opts not to use foreign firms. As so many of the major firms have worked with Boeing and Airbus, it would be difficult to ensure that sensitive information could be kept confidential in the course of negotiations. On the other hand, having “backchannels” in complex negotiations can be an asset, but these usually work when there are longstanding relationships in place, which Iran Air does not have.
Encouragingly, the reputation of the Iran Air legal team is strong. Because state-owned firms rarely use outside counsel even within Iran, they invest in and empower capable lawyers to manage legal and contractual issues. The legal department at Iran Air is divided into two teams: local and foreign. Both teams are overseen by the Director General for Legal Affairs, whose mandate covers all airline transactions and commercial contracts, including acquisitions through purchase or lease, in addition to a whole host of other legal matters. In the Airbus and Boeing negotiations, the Iran Air legal team is supported by the Legal Bureau in the Department of Legal and Parliamentary Affairs of the Ministry of Roads and Urban Development, led by Deputy Minister Alireza Mahfouzi. This bureau has specific responsibility to supervise “the preparation and exchange of cost agreements and acquisition of financial and capital assets” for its affiliate organizations.
There is no doubt that significant legal talent is being devoted to the Iran Air acquisitions. Given the importance of these deals not only to the long-term commercial viability of Iran Air, but also to the public perception of the Rouhani administration. However, the size and complexity of the Airbus and Boeing deals, which involve not only two of the largest non-oil commercial agreements ever signed by an Iranian firm, but also the need to navigate the complexities of US and EU sanctions and trade regulations in a difficult political environment, raises questions about the decision not to use outside legal council. In some ways, the decision could be seen as emblematic of a wider challenge as Iran seeks to open its economy. Can the country afford to continue working by its own rules, or will it have to begin following the more typical practices of the global commercial environment, such as a reliance on external legal counsel? For the moment, it looks like the Airbus and Boeing deals are proceeding as planned. That is good news, because the Iranian people are expecting results. Nothing less will do.
Photo Credit: Iran Air