Economy, Domestic Economy

Deal Season Open

Deal Season OpenDeal Season Open

On Jan. 24 and 25, executives from Airbus, Lufthansa and Bombardier shared tea and pastries with representatives of the Iranian aviation industry at the Parsian Azadi Hotel, a 26-story tower at the base of the snowcapped mountains that loom over northern Tehran, reads a recent article published by Bloomberg, parts of which continue as follows:

A week earlier, French and Iranian pharmaceutical chiefs spent an evening at another hotel downtown nibbling on fruit and cupcakes while discussing healthcare. And on Jan. 25, well-heeled Iranians were treated to delights such as macaroons and chocolate truffles at the grand opening of a dealership for automaker Peugeot’s DS luxury line on upscale Andarzgoo Street.

“Now that the sanctions have been lifted, we are very happy to be the first brand to enter the Iranian market,” Yves Bonnefont, DS Brand’s chief executive officer, said at the event.

Since Jan. 16, when sanctions against Iran’s nuclear program were eased, Tehran has started to feel more like a business destination. The concourses of Imam Khomeini International Airport increasingly echo with the sounds of French, English and German, and hotels are full of money managers and investment bankers looking to profit from a country with a $406 billion economy and a young, well-educated population of 78 million people.

On Jan. 25, Iranian President Hassan Rouhani landed in Rome to kick off a European tour, where he was scheduled to meet with French and Italian leaders and corporate chieftains such as Fiat Chrysler CEO Sergio Marchionne and Total CEO Patrick Pouyanne.

During the four-day trip, Rouhani reached business deals worth at least $22 billion with companies ranging from Italian oil and gas contractor Saipem to France’s Airbus.

Largely absent from the festivities: Americans. While Europeans and Asians seek deals, most US companies will have to watch from the sidelines. The US has left in place a host of restrictions on commercial dealings with Iran.

Some foreign subsidiaries of US companies will be allowed to work in Iran, but executives back at headquarters will have to keep their American operations walled off from Iranian entities still sanctioned under US law.

An exception to the continuing US sanctions are Boeing and jet engine makers General Electric and United Technologies, which can now make deals. Airbus got a jump on Boeing just as sanctions were lifted, with an agreement to sell Iran 114 [118, to be more precise] new and used planes that will start being delivered as early as July, according to Abbas Akhoundi, the minister of roads and urban development.

Beyond aerospace, most of the action is from European companies. Peugeot—which got about 13% of its sales from Iran before pulling out in 2012—is in talks with automaker Iran Khodro and others about a car manufacturing venture. And Germany’s Daimler on Jan. 18 announced a joint venture to build Mercedes-Benz trucks in Iran and a second one to distribute smaller trucks from its Japan-based Fuso brand.

“There is a huge demand for commercial vehicles,” Wolfgang Bernhard, the head of Daimler’s commercial vehicle unit, said in a statement. “We will quickly resume our business activities in the market.”

As European automakers jump back in, they’ll find a landscape changed by new competitors from China, which were not affected by the sanctions. Led by Chery Automobile, Lifan Industry and Anhui Jianghuai Automobile, the Chinese are on track to boost their share of the Iranian market from about 1% in 2011 to about 9% this year, according to researcher IHS Automotive.

At its glass-walled Tehran dealership, Geely Automobile offers its Emgrand X7 SUV for about a third less than a similar offering from Toyota. And cars such as the MVM 110, a made-in-Iran version of Chery’s QQ hatchback, have become a common sight on the streets.

The Chinese “have taken advantage of their investments in local production,” says IHS analyst Stephanie Vigier. “They suffer from an image of low quality, but their low prices make their offerings attractive.”