On March 22, 1935, the international name of the country was officially changed from Persia to Iran, and on October 1, 1935, the IIAF was reported to have on charge 51 Tiger Moths (33 Gipsy III and 18 Gipsy Major), 29 Hornet Audaxes and 28 Pegasus Audaxes, 20 Furies (Mercury), 10 R-5s (M-17), 2 Junkers W 33s (L 5), 11 R-1s (M-5, including five without engines) and the Curtiss Fledgling (Wright Whirlwind). A new batch of 20 Tiger Moths (c/ns 3290-3309) had been ordered and had arrived in January and February, and in May ten additional Tiger Moths (c/ns 3464-3473) were delivered. In the summer of 1936 new squadrons were established at Mashad and Ahvaz with a planned strength of 7 Audaxes, 7 Furies and 2 Tiger Moths each.
A contract for 25 Gloster Gladiator fighters with Mercury VI engines was apparently negotiated in the autumn of 1937. It was, however, never confirmed, or possibly placed and later cancelled. It was also rumoured that the Government had ordered twelve Junkers Ju 86K bombers after Ju 86 D-ALOH had been demonstrated in Tehran in October 1937. In November an Iranian aircraft deserted to the USSR. Apparently the crew was allowed to stay, but the aircraft was returned in January 1938.
In order to become self-sufficient, the Persian Government had decided to establish its own aircraft production facilities. The Iranian Aircraft Factory was erected at Shahbaz, Doshan Teppeh, 3.5 miles south-east of Tehran. The Swedish engineer N H Larsson had been engaged already in August 1933 to plan and organise the factory. Ten wood-workers, fitters and draftsmen started working in November 1935 and the necessary machinery was acquired. The factory was ready in 1936 and by October that year two British, one Italian and 41 Persians were on the payroll. A Captain Walker with Frank Knight as his assistant had replaced Larsson in the factory management. The first aircraft built were five Tiger Moths, which had been completed, but not yet tested, in October 1937. At the beginning of 1938 all five had been flown by the chief test pilot Captain Afghami. A batch of five Audaxes were completed during the spring of 1938.