Analysis: Why Qatar Airways is Buying a Stake in American Airlines

Qatar Airways is acquiring a 3.5% stake in American Airlines with plans to acquire up to 10% of the company. Why would Qatar Airways want to invest in a company that is quick to vilify it?

Note this is not a sale from American Airlines to Qatar Airways. Rather, AA is a publicly traded company on Nasdaq and like other investors, Qatar can buy shares on the open market.

But of course Qatar is not like other investors: Qatar is a Gulf Carrier. Why disclose it at all? Because Qatar is acquiring more than 1% and that triggers the Hart-Scott-Rodino Act, requiring disclosure and antitrust approval.

According to AA’s SEC filing, Qatar Airways CEO Akbar Al Baker approached American Airlines’ CEO Doug Parker, informing him of his plans to purchase up to 10% of the company. No further details about the discussion were provided, though Qatar would need AA board approval for acquiring more than 4.75%.

AA: You May Invest Us, But We’ll Still Oppose You

I underscore again how fierce a critic American Airlines’ has been of Qatar Airways in recent years. This despite the fact that AA and Qatar are oneworld partners. AA reiterated this position in its public filling—

The proposed investment by Qatar Airways was not solicited by American Airlines and would in no way change the Company’s Board composition, governance, management or strategic direction. It also 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.

Why Does Qatar Want to Invest in American Airlines?

Qatar’s very survival is threatened by the USA. First, President Donald Trump’s laptop ban has discouraged lucrative business travel via Doha. Second, the diplomatic crisis Qatar has found itself embroiled in further erodes business. The fact that the Trump Administration has thrown its support behind Saudi Arabia (despite a huge U.S. base in Qatar) further erodes Qatar’s bargaining power. Third, U.S. carriers have proven particularly resilient and profitable. The consolidation of the industry has paid off handsomely for the three legacies still at the table. U.S. carriers have demonstrated a strong resilience against Gulf competition.

I’m just speculating here, but I see Akbar Al Baker trying to curry the favor of the U.S. administration by “investing in American jobs”. On the one hand, I see this as a much safer investment than Ethiad’s failed investments in Alitalia and Air Berlin. But let’s not kid ourselves: Qatar Airways is not just trying to offset its losses: it wants to stop losing.

Qatar is rightfully shocked that the USA has come out so strongly against it in the current diplomatic crisis. But in Donald Trump, it sees an opportunity to do business. AA becomes the proxy. CEO Baker, who calls Trump a personal friend, has said the following about him:

Donald is a businessman — at the end of the day he will see what is in the best interest of his country…I’m a businessman and I will even do business with the devil as long as it’s win-win for both.

Consider this: on the campaign trail, candidate Trump was a fierce critic of Saudi Arabia, often reminding audiences that the 9/11 attackers were Saudis. But since assuming the White House, the President has done an about face on Saudi relations and much seemed to change after his high-profile trip to the Kingdom. I don’t think it is too naive to say Qatar wants a chance to more easily convey its position to the POTUS.

Qatar Objectives

I would imagine Qatar has the following goals in furtherance of this investment:

• Use AA investment to temper Open Skies rhetoric against it
• Open up discussion for greater codeshare partnership with AA, as the USA business becomes even more important with many Gulf nations shut off
• Demonstrate symbolically that it is investing in American jobs
• Convince the Trump Administration to re-examine its laptop ban and unconditional support of Saudi Arabia

CONCLUSION

This is big news, but still developing. Qatar is trying to stop the bleeding and sees a bandage in American Airlines. But will it work? We’ll have to wait and see.

(H/T: View from the Wing)