Proposed Reform of AOC Regulations in Iran: Aircraft Leasing and Sanctions Risk Management

Analysis of Airline Industry Development and Operational Flexibility

Introduction

In Iran, obtaining an Air Operator Certificate (AOC) currently requires airlines to own at least three aircraft. This regulation aims to ensure operational stability, financial capability, and safety.

However, international sanctions significantly limit the purchase of aircraft, creating barriers for new entrants and preventing the expansion of flight routes.

Globally, airlines often lease or purchase aircraft while independently managing operations. This approach allows for faster scaling and more flexible fleet management.

1. Challenges of the Current Law

• Mandatory ownership of three aircraft requires substantial upfront capital.
• Sanctions limit access to international aircraft suppliers, hindering fleet expansion.
• Smaller or startup airlines cannot easily enter the market, reducing competition and industry growth.

2. Aircraft Leasing and Its Benefits

2.1 Operating and Finance Leases

• Operating Lease: Aircraft is rented from the owner; the airline pays for usage.
• Finance Lease: Lease with an option to acquire ownership at the end of the term.

2.2 Advantages of Leasing

• Reduces upfront capital requirements for fleet acquisition.
• Enables rapid route and capacity expansion.
• Decreases dependency on bank financing and reduces financial risk.

2.3 Flexibility under Sanctions

• Airlines can lease aircraft domestically or internationally with proper registration under compliant entities.
• Leasing allows better risk management for insurance and maintenance under sanctions constraints.

3. Sanctions-Related Limitations

• Leasing from foreign lessors may be restricted or prohibited under sanctions.
• Access to international aircraft insurance may be limited.
• Financing leased aircraft via foreign banks is constrained.

Therefore, removing the full ownership requirement alone will not fully resolve operational challenges without parallel solutions for insurance and financing.

4. Proposed Regulatory Adjustments

4.1 Relaxation of the Three-Aircraft Ownership Requirement

• Permit the use of leased aircraft (domestic or foreign) for AOC eligibility.
• Require operational guarantees and substitute insurance instead of full ownership.

4.2 Development of Domestic and Substitute Insurance

• Implement domestic insurance coverage for leased aircraft to reduce dependency on foreign insurers.
• Use hybrid domestic-foreign insurance models to cover operational risks and critical components.

4.3 Promotion of Domestic Leasing Models

• Domestic leasing companies can acquire aircraft and lease them to airlines.
• Reduces reliance on foreign suppliers and mitigates sanctions impact.

4.4 Flexibility in Route Approval

• Allow new entrants to launch new routes with leased aircraft.
• Facilitate operational expansion without heavy upfront investment.

5. Expected Impacts

• Increases competition and operational flexibility within the airline sector.
• Enables faster growth for startups and smaller airlines.
• Reduces sanctions-related constraints on fleet expansion.
• Creates strategic advantages and sustainable industry development.

Conclusion

Adjusting the three-aircraft ownership requirement for AOC and replacing it with aircraft leasing and substitute insurance mechanisms can strengthen Iran’s airline industry under sanctions.Simultaneously, developing
domestic leasing and insurance solutions ensures that sanctions’ negative effects are minimized, allowing sustainable growth and expansion of operational capacity.