Sanctions buffet Iranian airlines - FT.com Iran's ageing airline fleet has managed to stay in the air despite almost 20 years of US sanctions on new aircraft and spare parts, but now it is struggling to stay airborne as international sanctions over the country's nuclear programme cripple its finances. The oil ministry, whose revenues have dwindled after EU oil sanctions imposed last year, has raised the price of aircraft fuel by three and a half times for domestic flights and enforced international market rates for overseas destinations. Last month the ministry refused to provide airlines with fuel until they paid off outstanding debt amounting to 7tn rials ($285m). The dispute led to an unprecedented one-day halt in domestic flights. Aviation officials complain that the central bank, which was hit by US sanctions last year and faces difficulties in transferring hard currency into the country, has not been consistently supplying airlines with US dollars at a semi-subsidised rate (24,516 rials) - higher than the official rate, but lower than the open market rate. As a result, Iranian airlines are running up debts with overseas airports and companies. Kambiz Babaei Nemati, the managing director of the quasi state-run Iran Aseman Airlines - which with 31 aircraft is the country's second-biggest airline - acknowledged that airlines struggled with liquidity problems due to a widening gap between their costs and income. "One of the main reasons behind the rise in [airlines"] debt is the incompatibility of ticket fares for a one-hour flight with the cost every litre of fuel . . . leading to decrease in [the companies"] liquidity and inability to pay [debts]," Mr Babaei told the Financial Times. However, he said he was optimistic that airlines and the oil ministry would be able to work together to resolve the problem. In an effort to help airlines meet their increasing costs, the government of Mahmoud Ahmadi-Nejad last November allowed the country's 17 airlines to increase ticket fares by 65 per cent for domestic flights and almost double for overseas destinations. But the increases have not covered the rocketing fuel and maintenance costs, aviation officials insist. Mr Babaei said high inflation, which is officially 28.7 per cent but believed by many economists to be far higher, coupled with the fall of rial - which has dropped by about 60 per cent over the past year - have also adversely affected passenger numbers. "It is natural to have a decline in number of passengers for a short period of time," he said, adding that "our experience in the country shows it will gradually catch up." However, aviation industry analysts fear that the financial crisis, coupled with the existing sanctions, may further erode the poor safety record of Iran's airliners. Iran's civil aviation industry has been subject to sanctions since the 1990s, when Washington blocked Tehran from buying civil aircraft, spare parts or maintenance contracts, allegedly to prevent it from gaining access to technology that could have a military use. The sanctions have long been opposed by Iranians, whether or not they support the regime. "How can countries, which impose sanctions on civilian aircraft, still claim they care about human rights?" asked Mr Babaei. To get around the prohibition, the country's airlines buy and rent spare parts and second-hand aircraft through middlemen, mostly based in Turkey, but also the United Arab Emirates, Ukraine and central Asian states. But the age of Iran's civilian airliners is believed to be the main reason why the country has one of the worst airline safety records. The average age of the fleet of 200 aircraft is 22 years - while some predate the 1979 Islamic revolution, according to the State Aviation Organisation. More than 700 Iranian passengers have been killed in 13 aircraft crashes and other incidents since 2005, according to local media reports. Mr Babaei said the average age of his fleet of 31 aircraft was only 10 years, despite the sanctions imposed on the country.