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Qatar Airways Wants A Billion-Dollar Stake In American Airlines

Its home country is under blockade, and its US competitors have spent years lobbying against it. But Qatar Airways is getting out the checkbook.

Posted on June 22, 2017, at 2:32 p.m. ET

Karim Jaafar / AFP / Getty Images

Qatar Airways wants to buy a 10% stake in American Airlines, the two companies said on Thursday, in what would be one of the largest foreign investments in the US airline industry — and one loaded with political complications.

The state-owned airline has chosen an interesting moment to make its move in the US. Saudi-led efforts to diplomatically isolate Qatar mean the airline is currently unable to fly its planes through the airspace of most of its neighbors, instead redirecting flights through Iran and Turkey. Just weeks ago, President Trump said Qatar "has historically been a funder of terrorism at a very high level."

American Airlines and other major US carriers have long lobbied against Qatar Airways and other state-owned carriers from the Persian Gulf region. Last year, American Airlines CEO Doug Parker said state support for the Gulf airlines represents "the biggest threat I’ve ever seen to commercial aviation in the United States."

Just last week, Parker told Bloomberg that he worries the Trump administration's shortage of staffers has reduced its ability to address the threats posed by state-backed carriers like Qatar Airways. Now, Qatar could become one of his largest investors.

American Airlines said on Thursday morning that it had "recently received an unsolicited notice from Qatar Airways indicating Qatar Airways’ intention to make a significant investment in American Airlines." The purchase would be worth "at least" $808 million, and could lead to Qatar Airways acquiring a 10% stake, American Airlines said.

The CEOs of the two airlines have talked about the proposed deal, American Airlines said. American Airlines' stock is up by over 1% today, valuing the company at just over $24 billion.

Qatar Airways said 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."

Qatar said it would initially move to buy as much as 4.75% of American Airlines, which would cost just over $1 billion at current prices. Buying more than 4.75% would require the approval of American Airlines' board. Foreigners are limited to owning up to 24.9% of the voting interest in US airlines.

The investment "would in no way change the Company’s Board composition, governance, management or strategic direction," American Airlines said.

Led by Emirates Airlines, the Gulf airlines have reshaped the international air travel industry, turning their home airports into central global hubs for international flights. Their competitors in Europe and the United States have complained that they receive extensive government support, and that their operations should be restricted in major Western airports. The Gulf airlines have denied these allegations.

Partial Qatari ownership of a major US carrier could eventually reshape this debate. The Partnership for Open and Fair Skies, a lobby group which focuses on the Gulf carriers and which represents Delta Air Lines, American Airlines, and United Airlines, told BuzzFeed News that American Airlines remains a "strong and committed" member of the group, which "opposes foreign government subsidies that violate international agreements with the United States and threaten the jobs of more than 1.2 million Americans."

"It makes sense [Qatar Airways] would look for investment opportunities," John Breyault, the vice president of public policy at the National Consumers League, told BuzzFeed News. "If you look at the American airline industry for years it was considered a black hole for investors, but in recent years, due to the rampant increase in nickel and diming and lack of competition, you see it’s an industry that’s hitting record profits."

Beyond the long-running battle over the Gulf airlines themselves, Qatar is currently embroiled in an intense diplomatic battle with many of its neighbors, who have accused it of backing Islamist groups across the Arab world and of being too friendly with Iran. A crackdown led by Saudi Arabia has imposed a blockade on Qatar, closing its land borders and blocking flights between Qatar and the airspace of a number of Arab countries.

As a result, many routes flown by Qatar Airways had to be scrapped entirely, while other flights had to be rerouted over Turkey or Iran.

The Gulf embargo "will leave a lasting wound," Qatar Airways CEO Akbar al-Baker said at the Paris Air Show earlier this week. "There has been a monetary impact," he told Reuters. "We have had a lot of cancellations, especially to the four countries that did this illegal blockade, but we have found new markets and this is our growth strategy."

Qatar has been intensely courting its allies in the United States in order to build up diplomatic support to relieve the blockade. On Wednesday, the State Department openly criticized the country's opponents in the six-member Gulf Cooperation Council, questioning their true motives in launching the blockade.

"The more that time goes by, the more doubt is raised about the actions taken by Saudi Arabia and the UAE," State Department spokesperson Heather Nauert said in press briefing. "At this point, we are left with one simple question: Were the actions really about their concerns regarding Qatar’s alleged support for terrorism, or were they about the long simmering grievances between and among the GCC countries?"

"Qatar is very resilient, and Qatar also has friends," al-Baker, the Qatar Airways CEO, told Al Jazeera last week. "We have managed to make sure that life will continue as normal. For an airline, for us, the biggest priority is for us to have a gateway in and out of my country, which we are very successfully handling, and at the same time, it is our passengers for which it is our responsibility."


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