It’s no secret that the Big 3 US Airlines aren’t big fans of the big Middle East carriers. They claim those airlines are getting massive subsidies from their respective governments. They make those claims while also having partnerships with those same carriers, like the partnership between American and Qatar.
Now, there’s news that Qatar is buying a sizable stake in American Airlines. They do so by buying shares on the open market. After all, American is a publicly traded company. Anyone can buy shares.
Once Qatar had acquired 1% of the airline’s shares, they were required to file paperwork providing proper notification.
It appears the CEO of Qatar has reached out to Doug Parker, CEO of American Airlines, to inform them Qatar intends to acquire a 10% stake in the airline.
That’s a massive amount of cash and would make them one of the largest shareholders in the airline. Side note: it’s likely to piss off AA union folks, though there’s really nothing they can do about it.
Why is Qatar doing this?
To say this comes as a surprise to me would be an understatement. Maybe smarter minds than me saw this coming. But, why is Qatar actually doing this?
Matthew at Live and Let’s Fly had some thoughts on it this morning:
Before we get too deep into the weeds, I think it’s worth noting that I’m not in either “camp” as it relates to the subsidies of Middle East airlines. I imagine that there’s plenty of cash being funneled into the Middle East airlines. But, I’m not of the strong opinion that Doug Parker and the other Big 3 US airlines represent:
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.
I also don’t fall in the camp of believing the US airlines are two-faced, since they’ve gotten subsidies such as pension bailouts, etc. There’s right and wrong on both sides of this fight.
At any rate, let’s look at Matthew’s suggested objectives:
Use AA investment to temper Open Skies rhetoric against it
I don’t think I agree here. I don’t think the rhetoric from the US airlines will calm down. And, I’m not entirely sure the airlines believe it themselves, at least to the degree that they bloviate. But, it’s great fodder for the unions, which helps build the relationship between management and front-line employees.
Open up discussion for greater codeshare partnership with AA
This is the most plausible reason to invest. It’ll be a cold day in hell before American gives Qatar a board seat. But, they do have a responsibility to create value for shareholders. If Qatar owns a significant percentage of the airline, it’s likely easier to lobby for expanded codesharing.
Demonstrate symbolically that it is investing in American jobs
I get where Matthew is going with this, but I think Trump is the only one who might buy that argument.
Convince the Trump administration to re-examine the laptop ban
Matthew brings up a solid point here. Trump was anti-Saudi Arabia on the campaign trail, but has a much closer relationship now. I think that’s just him moderating positions. But, Matthew could be right that Qatar has a chance to convince Trump they’re not such bad people overall.
The Final Two Pennies
Here’s the thing. I think the chances Qatar can “buy” any sway here are minimal. That means you either have to be insane or have really deep pockets to buy 10% of American Airlines for any reason other than you believe the stock will go up. We certainly can’t rule that out. Oil prices continue to drop and American is cramming in more seats on new planes. If they believe the stock is bound to go up in the future, then they may believe there’s not much risk in the investment. The problem I see with that logic is the optics surrounding a sell-off of their massive stake should they change their mind.
Sorta like the airline union battles over the past few decades, I feel like I need to get some popcorn for this one.
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