Qatar Airways wants to buy 10% stake in American Airlines
American Airlines announced Thursday that Qatar Airways intends to buy a 10% stake in the world’s largest carrier, but added the offer was unsolicited and would have to be approved in advance by the board.
American said in a federal filing that the fast-growing Middle East carrier has indicated its “intention to make a significant investment in American Airlines” by a purchase of common stock “would be made on the open market.”
American’s filing said Qatar Airways wants to acquire about $81 million of American Airlines common stock, adding such a move would be “subject to review by the Antitrust Division of the United States Department of Justice.” Further, American said Qatar Airways’ CEO approached its own CEO and revealed an interest by Qatar Airways to purchase a stake of about 10% in American. U.S. law caps foreign interests from buying more than 24.9% of a U.S. airline, though Qatar Airways’ apparent interest would fall within an allowable range.
American noted the conversation was “initiated by the Qatar Airways CEO,” adding that the company would “respond in due course with the appropriate filings required” by U.S. law. American also noted that its corporate bylaws prohibit “anyone from acquiring 4.75% or more of the company’s outstanding stock without advance approval from the Board following a written request … . The Board has not received any such request.”
American CEO Doug Parker addressed the development in a Thursday memo to workers.
“While anyone can purchase our shares in the open market, we aren’t particularly excited about Qatar’s outreach, and we find it puzzling given our extremely public stance on the illegal subsidies that Qatar, Emirates and Etihad have all received over the years from their governments. We remain committed to that effort, and we will remain so even with this potential investment,” Parker said. (see the entire memo)
Qatar Airways confirmed its interest, saying in a statement to USA TODAY’s Today in the Sky blog that it “sees a strong investment opportunity in American Airlines.”
“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,” the company added.
For now, Qatar Airways said it “plans to make an initial investment of up to 4.75%” and that it would not exceed that amount “without prior consent of the American Airlines board.”
The potential deal is an interesting one given the complicated relationship between the two companies.
The airlines are already partners via their membership in the oneworld frequent-flier alliance, which generally allows customers of one airline to earn or redeem frequent-flier miles when flying on the other.
But American also has joined U.S. carriers Delta and United to vociferously oppose Qatar Airways and two other big Gulf carriers – Emirates and Etihad – with the claim that they’re violating U.S. “Open Skies” agreements by receiving subsidies from their respective governments.
Such “Open Skies” pacts govern flight rights between nations. The U.S. favors unrestricted access on both sides in the aviation deals it reaches with other nations. But American, Delta and United say Qatar Airways, Emirates and Etihad have been able to expand their U.S. capacity beyond market demand because of the alleged subsidies. All three Gulf carriers have vigorously pushed back against those claims.
American suggested it would not change its position in light of Qatar Airways’ potential stock purchase.
In its filing, American said the potential deal “does not alter American Airlines’ conviction on the need to enforce the Open Skies agreements with the United Arab Emirates and the nation of Qatar and ensure fair competition with Gulf carriers, including Qatar Airways. American Airlines continues to believe that the President and his administration will stand up to foreign governments to end massive carrier subsidies that threaten the U.S. aviation industry and that threaten American jobs.”
As for Qatar Airways, its move to buy a stake in American would continue its recent trend of buying equity stakes in airlines it partners with. Qatar Airways is the largest individual shareholder of the International Airlines Group (IAG), the holding company that includes fellow oneworld members British Airways and Iberia.
“IAG represents an excellent opportunity to further develop our Westwards strategy,” Qatar Airways CEO Akbar Al Baker says in a statement from January 2015, when his company announced it had purchased a stake of about 10%. “Having joined the oneworld alliance it makes sense for us to work more closely together in the near term and we look forward to forging a long-term relationship.”
Qatar Airways has since increased its stake in IAG.
In 2016, Qatar Airways also bought stakes in two other carriers – South American giant LATAM Airlines and Italian carrier Meridiana. LATAM also is a oneworld member. Meridiana, while not in oneworld, would help funnel passengers from popular Italian destiantions through Qatar Airways’ hub in Doha.
More broadly, the Meridiana deal follows a trend that has seen big global airlines try to expand their reach by taking equity stakes in the airlines of other nations.
In the U.S., Delta has been a leader on that front, buying stakes in partners such as Aeromexico and Brazil’s GOL.
In the Middle East, Qatar Airways rival Etihad has purchased equity stakes in a number of airlines, including Alitalia, Air Serbia, Air Berlin and Jet Airways. Etihad has had mixed success with those ventures; its Alitalia and Air Berlin deals have been money-losing endeavors widely viewed as busts by industry observers.
Original article derived from USAToday.