Qatar Airways seeks 10% stake in American Airlines amid Middle East dispute

Reporting from new york —  State-owned Qatar Airways has made an offer to buy a 10% stake in American Airlines, the Fort Worth-based carrier that has been a vocal critic of Qatar and other Middle Eastern airlines.

American said in a regulatory filing Thursday that the bid was unsolicited, but that the CEOs of both airlines have spoken. Qatar submitted a filing under the Hart-Scott-Rodino Act, which is subject to review by the Justice Department’s antitrust division.

Industry experts suggest various motives for the proposed investment — from an attempt to ease a recent political dispute between Qatar and its Middle Eastern neighbors to a way of currying favor with American, which has criticized the Qatar airline’s expansion into the U.S. with the support of its government owners.

“This is not just a financial investment,” said Seth Kaplan, managing partner for the trade publication Airline Weekly. “There are broader strategic reasons for doing this.”

In a statement, the Middle Eastern carrier said the proposed investment is simply intended to get a share of a profitable company.

“Qatar Airways sees a strong investment opportunity in American Airlines,” the Doha-based airline said. “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.”

American has been profitable in recent years and reported first-quarter adjusted earnings of 61 cents a share, higher than the 57-cent average of analyst estimates compiled by Bloomberg. Revenue for the first quarter was $9.62 billion, in line with estimates.

Shares of American Airlines Group Inc. closed Thursday at $48.97, up 54 cents.

Qatar has made similar investments on other foreign carriers that have teamed up with Qatar Airways under the Oneworld Alliance, an airline partnership that allows passengers to earn and redeem loyalty reward points when they fly with any member of the alliance.

Qatar last year set up a revenue-sharing partnership with British Airways parent International Airlines Group, deepening its partnership with that company. It owns just over 20% of IAG, which also controls European carriers Aer Lingus, Iberia and Vueling.

In July, Qatar Airways announced a deal to buy a 49% stake in Meridiana, Italy’s second-biggest carrier. And in December it announced a 10% stake in Chile’s LATAM Airlines Group, acquired for $608 million.

The Middle Eastern carrier was launched in 1993 with the backing of the government of Qatar, which has the fourth-highest GDP per capita in the world. But the airline has said it now operates without subsidies from its oil-rich government owners.

Earlier this month Saudi Arabia, the United Arab Emirates, Egypt and Bahrain cut ties with Qatar and blocked direct flights with the country. Qatar Airways, one of the region’s largest, also stopped its flights to the four Arab countries in response to the UAE’s Etihad, Emirates, FlyDubai, EgyptAir and Bahrain’s Gulf Air suspending flights to Qatar.

An investment in a major U.S. company could help it leverage influence with both Wall Street and, more importantly, decision-makers in Washington as Qatar’s most recognized global brand is pressed from all sides.

Kaplan said the proposed investment could be a way for the nation of Qatar to improve relations with President Trump who has accused Qatar of funding terrorism in the Middle East.

“If you’re President Trump and have rather simplistic world view this only complicates that,” he said.

Travel analyst Henry Harteveldt also called the proposed investment a “political move.”

“This move is being driven by the ruling family in Qatar,” he said. “It is an effort to get attention of the Trump administration to show Qatar’s strength, to work to get a resolution to this political dispute.”

The investment offer could also be a way to improve relations with American Airlines, which has teamed up with United Airlines and Delta Air Lines to push U.S. political leaders to put the brakes on the growth of the Middle East’s three biggest airlines — Qatar, Emirates and Etihad — saying the support from their government owners has given them an unfair advantage.

Critics of Qatar Airways and the other Middle Eastern carriers said any subsidies from their government owners would violates the so-called Open Skies agreement that allows foreign carriers free access to U.S. markets.

In its filing with the U.S. Securities and Exchange Commission, American Airlines said the proposed investment by Qatar would not “alter American Airlines’ conviction on the need to enforce the Open Skies agreement with the United Arab Emirates and the Nation of Qatar and ensure fair competition with Gulf Carriers, including Qatar Airways.”

Bob Ross, president of the union the represents American Airlines flight attendants, said he suspects that Qatar is using the investment as a way to influence a carrier that has vocally opposed the growth of Qatar in the U.S.

“The intentions of Qatar Airways are clear,” he said. “They are using enormous government subsidies to gain a greater foothold in U.S. markets. They’re coming after our routes, which means the jobs of our members are at stake.”

Qatar plans to buy at least $808 million in common stock of American Airlines. American’s shares are listed on the Nasdaq, and the airline said that Qatar plans to make its purchases on the open market.

American’s certificate of incorporation restricts anyone from buying 4.75% or more of its shares without advanced board approval following a written request. American says it hasn’t received such a request. The U.S. prevents foreign ownership of airlines to less than 25%.

If it were to buy 4.75% that would make Qatar one of the largest shareholders of American behind T. Rowe Price (10.85%), Primecap Management Co. (10.23%) and Berkshire Hathaway Inc. (10%), among others.

American said that Qatar’s proposed investment would not change its board makeup, governance, management or strategic direction.

The Associated Press was used in compiling this report.

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UPDATES:

4:15 p.m.: This story was updated with a comments from Qatar Airways, American Airlines, airline analyst Seth Kaplan and Bob Ross, president of the union that represents American Airlines flight attendants, as well as additional details and background.

This story was originally published at 7:05 a.m.