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American Airlines: Qatar Airways Interested in Buying 10 Percent Stake

American Airlines: Qatar Airways Interested in Buying 10 Percent Stake
Banol2007 | Dreamstime.com

Thursday, 22 June 2017 01:20 PM

Only weeks after President Donald Trump accused Qatar of funding terrorism, the nation’s flagship airline has made a surprise overture to acquire a major stake in American Airlines.

The move represents a startling turn in a running battle between U.S. carriers and their Persian Gulf rivals, which U.S. airline executives say have unfair advantages because of deep government subsidies. It also comes against the backdrop of renewed efforts by the Trump administration to mediate the simmering crisis between Qatar and some of the closest U.S. allies in the region, notably Saudi Arabia.

Qatar Airways Ltd. is seeking to acquire about 10 percent of American, a stake that would put the state-owned company on par with  Warren Buffett’s Berkshire Hathaway Inc. among shareholders of the world’s largest carrier. That would require approval by the board of American Airlines Group Inc. -- a step that is by no means guaranteed given the U.S. company’s vocal efforts to level the playing field in global aviation under so-called Open Skies agreements.

The Fort Worth, Texas-based airline said it believes the U.S. government will continue to defend against “massive carrier subsidies that threaten the U.S. aviation industry and that threaten American jobs.” Its pilots union called the Gulf carrier’s move an act of “financial aggression.”

CEO Meeting

Qatar Airways Chief Executive Officer Akbar Al Baker told his counterpart at American,  Doug Parker, that the Gulf carrier intended to buy about 10 percent of American, according to a regulatory  filing Thursday by the U.S. carrier.

In a separate statement, the Doha-based airline said it planned to make a passive investment of as much as 4.75 percent of American’s shares.

“Qatar Airways sees a strong investment opportunity in American Airlines,” the Gulf carrier said by email. “Qatar Airways believes in American Airlines’ fundamentals and intends to build a passive position in the company with no involvement in management, operations or governance.”

Anyone seeking to acquire more than that is required to receive approval from American’s board, the U.S. airline said. Foreign ownership laws also limit a foreign voting interest to 24.9 percent, American said.

American rose 1.2 percent to $48.99 at 12:29 p.m. in New York after climbing as much as 4.4 percent for the biggest intraday gain in six weeks. The shares advanced 3.7 percent this year through Wednesday, trailing the 9.5 percent gain of a Standard & Poor’s airlines index.

Al Baker is seeking the stake at a time when American’s shares are near their highest price since the U.S. company emerged from bankruptcy in 2013. The closing price peaked at $55.76 on March 20, 2015, just days after it was added to the S&P 500 Index.

Subsidy Allegations

The moves adds a new dimension to a long-running feud between Qatar Airways and American despite their shared relationship within the Oneworld alliance of global airlines. American, Delta Air Lines Inc. and United Continental Holdings Inc. have railed for years against Qatar Airways and two other Persian Gulf carriers, saying that $50 billion in government support have enabled them to compete unfairly. 

Like Emirates and Etihad Airways PJSC, both of the United Arab Emirates, Qatar Airways has emerged as one of the most powerful airlines in the world, with fleets of gleaming wide-body jetliners from Boeing Co. and Airbus SE. Exploiting the Gulf’s geographical position, the carriers have built huge transfer hubs for affluent long-distance passengers traveling between all parts of the globe.

That ranks at the top of American’s competitive concerns and represents “a huge risk to U.S. commercial aviation,” Parker said in an interview last week.

“What’s really concerning is the fact they’ve begun flying to places outside the Gulf to the United States,” he said. He described the Mideast rivals as “three carriers in two countries that are heavily subsidized who don’t seem to care at all about making profits nor have a requirement to do so because they are subsidized.”

Al Baker said as recently as last year that he might seek to split the Oneworld group by establishing a breakaway faction if American continued to lend its weight to the U.S. push to curb Persian Gulf growth. While the U.S. carriers have sought to revive that campaign following Trump’s election, Parker said he was concerned that a lack of staffers in the new administration was impeding progress.

“This is a very smart move by Mr. Al Baker to get the attention of the U.S. market and potentially undermine the collective move by the big U.S. airlines to convince Trump” to block the Gulf airlines, said Tilmann Gabriel, assistant professor of the aviation management program at City University of London. “To make this announcement now is certainly to impress upon the U.S. government that Qatar Air is not a small airline you can avoid.”

Buying Support

Establishing an equity holding in American would extend an investment strategy in which the Qatari airline has purchased significant stakes in IAG SA, the parent of British Airways, and Latam Airlines Group SA, which are both close allies of the the U.S. carrier. Al Baker said in April that Qatar Airways planned to buy a stake in another foreign airline.

“Qatar is looking to solidify the partnership with the biggest Oneworld members, as well as strengthen its U.S. Open Skies negotiating hand, by essentially buying the affiliation of the largest member of the lobbying group,” said Diogenis Papiomytis, director of aerospace at consultant Frost & Sullivan in Dubai.

For Qatar Airways, an investment in American could serve as “a stepping stone to more access to the U.S.,” Cowen & Co. analyst Helane Becker said in a note. But any deal is unlikely to happen, in part because of labor opposition, said Hunter Keay, an analyst at Wolfe Research.

Best Airline

Qatar Airways reclaimed the No. 1 spot in this year’s Skytrax awards, a coveted list of the leading 100 airlines announced this week. No U.S. companies ranked in the Top 20.

Like some other predominantly Muslim countries, Qatar has already found itself targeted by travel restrictions imposed by Trump amid concerns about a terrorist threat. A moratorium on the use of personal electronic devices in aircraft cabins on flights from Doha to the U.S. has had an impact on bookings.

More recently, Qatar Airways has found itself isolated in the Middle East after four other Arab states led by Saudi Arabia severed travel links and closed their airspace to its flights amid a spat over the Qatari government’s ties to Iran.

© Copyright 2019 Bloomberg News. All rights reserved.

   
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American Airlines Group Inc. said on Thursday Qatar Airways had expressed interest in buying a 10 percent stake in the U.S. airline.
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2017-20-22
Thursday, 22 June 2017 01:20 PM
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