Qatar Eyes American Stake in Surprise Twist to Airline Feud

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By Michael Sasso , Deena Kamel , and Rick Clough

Qatar Airways Seeks 10% Stake in American Airlines

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 interested in acquiring about 10 percent of American, the U.S. company said in a filing. That would put the state-owned Mideast airline on par with Warren Buffett’s Berkshire Hathaway Inc. among shareholders of the world’s largest carrier. It would also 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.

“This development strengthens our resolve to ensure the U.S. government enforces its trade agreements regarding fair competition with Gulf carriers,” American Airlines Chief Executive Officer Doug Parker said in a Thursday letter to employees, which was obtained by Bloomberg News. “We must make it crystal clear that no minority investment in American will ever dissuade us from doing what is right for our team members, our customers and all of our shareholders.”

The company’s pilots union called the Gulf carrier’s move an act of “financial aggression.”

CEO Meeting

Qatar Airways CEO Akbar Al Baker told Parker of the Gulf carrier’s interest in American when the two men met at an airline industry conference this month in Cancun, Mexico, said Matt Miller, a spokesman for the Fort Worth, Texas-based company.

A 10 percent stake would be worth about $2.4 billion based on American’s current market value. In a statement after American’s filing, the Doha-based airline said it planned to make a passive investment of as much as 4.75 percent.

“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 0.9 percent to $48.86 at 2:06 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

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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.

‘Huge Risk’

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.”

Doug Parker, American’s CEO, discusses the airline industry with Bloomberg’s Vonnie Quinn on “Bloomberg Markets.”

Source: Bloomberg)

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.

Buying Support

Establishing a 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.

“The intent to acquire 10 percent of American suggests a very radical, out-of-the-box approach with ensuring the airline’s earnings aren’t affected, even if it’s curtailed marginally from Doha,” said Mark Martin, the CEO of Dubai-based Martin Consulting.

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