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Visa row overshadows Iranian investment drive and plane deals

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    |By Parisa Hafezi and Tim Hepher

By Parisa Hafezi and Tim Hepher

ANKARA/PARIS (Reuters) - A row over U.S. visa bans may further weaken Iranian President Hassan Rouhani's efforts to attract foreign investors to Iran, particularly if it slows the implementation of deals for Western aircraft, officials and analysts said.

The deals for 80 Boeing <BA.N> jets and 100 from Europe's Airbus <AIR.PA> struck last year are seen by Western investors as a crucial test as they seek business in Iran in the wake of the nuclear deal that led to the lifting of most sanctions.

People involved in the airline deals say it is too early to assess the impact of the U.S. visa ban but worry that hardening rhetoric in Tehran and Washington can only add to a list of complications that could slow, if not endanger, the jet sales.

While Airbus planes come from Europe, the administration of U.S. President Donald Trump can veto the sale of all the planes to Iran because of the widespread use of U.S. parts in the aircraft which need U.S. export licenses.

The visa ban could also prolong a hiatus in talks about financing deliveries of jets, with European and Chinese banks reluctant to put up money to back Iranian jet purchases for fear of a backlash against their U.S. operations.

"It will make people more nervous, more risk-averse, more inclined to wait and see," said a senior Western financier, who asked not to be named.

Iranian officials say that even before Trump imposed restrictions on travel to the United States from seven mainly Muslim countries, concerns about what the new U.S. president might do had already put the brakes on post-sanctions business.

During his election campaign, Trump criticized the nuclear accord six major powers struck with Iran and his victory in November increased uncertainty around Iran's investment drive.

FINAL RULING

"The process has been very slow ... foreign investors were very interested to work in Iran, but since Trump's election the process has almost stopped. Investors are worried about possible U.S. punishments if they work with Iran," a senior economy ministry official told Reuters.

Final decisions on whether the plane deals go ahead may well lie with Trump and Iran's Supreme Leader Ayatollah Ali Khamenei, the ultimate broker in the country's faction-ridden politics who has the last say on key matters.

Since taking office this month, Trump has largely ignored the Iranian jet deals in public, even as he lambasted U.S. aerospace firms including Boeing about other projects.

For now, at least, Boeing appears comfortable that Trump won't automatically block its deal, though questions also remain over further approvals from Iran, two industry sources said.

Boeing and Europe's Airbus declined comment.

Still, any long-term U.S. travel curbs could also undermine the case for long-distance jets capable of linking Tehran with expatriate communities in cities such as Los Angeles. Boeing plans to start delivering its large 777 jets in 2018.

IranAir has already canceled orders for Airbus A380 superjumbos, initially meant to signal its ambitions to compete on equal terms with the hubs of Gulf rivals.

Besides the Boeing and Airbus orders, state airline IranAir is planning to buy 20 small Franco-Italian ATR turboprops to help expand economic development to smaller Iranian cities.

But officials say a final deal has been held up due to uncertainty over some licenses for engines made by a Canadian subsidiary of Pratt & Whitney, America's top military engine maker and supplier to the colossal F-35 fighter project.

Pratt & Whitney is seen to be wary of the political risks of dealing with Iran, especially with the F-35 project at the center of Trump's criticism of aerospace firms for going over budget.

A Pratt & Whitney Canada spokesman said it was, "working closely with ATR to ensure all necessary licenses are in place prior to providing any products or services".

SHOWCASE FLIGHTS

The renewal of Iran's unsafe, elderly fleet is also a major political battleground ahead of presidential elections in May as Rouhani's failure to boost the economy a year after the lifting of sanctions intensifies political infighting.

Hardliners blame Rouhani for failing to deliver a swift improvement in domestic living standards following the nuclear deal, at a time when prices for oil exports are low and the promised foreign investment has yet to arrive.

They have singled out long-range jets for particular criticism, arguing that they only benefit rich travelers.

"The economy is the main factor for most of the Iranian voters ... Rouhani was hoping that the deal with major planemakers will encourage other investors to come to Iran," said political analyst Hamid Farahvashian.

"That is why hardliners are mainly focused on criticizing this deal. Basically, Rouhani's political career depends on this deal."

One senior Iranian official said he doubted the aircraft deals would be ditched altogether.

"I don't think the deal will be canceled because Rouhani signed it with the approval of the Supreme Leader ... but he might be forced to cancel some of the orders to save the deals," said one senior official.Others were more cautious, saying foreign investors would avoid being targeted by Trump for doing business with Iran.

"This is good news for Rouhani's rivals," said another senior official, referring to the U.S. visa restrictions.

For now, IranAir appears anxious is get airplanes into the country as an urgent priority ahead of May's presidential election, demonstrating tangible results from the nuclear deal.

But so far, just one aircraft has been delivered: an Airbus A321, paid for in cash. It was promptly deployed widely on domestic routes in an apparent effort to showcase the benefits of the lifting of sanctions.

In its first 12 days, Iran's first brand-new jet in decades covered 46,000 km (29,000 miles) between 15 cities, from the Kurdish city of Kermanshah in the West to the Shi'ite holy city of Mashhad in the northeast, according to FlightRadar24 data.

(Additional reporting by Allison Lampert; editing by David Clarke)