Qatar’s bid for a stake in American Airlines; OEMs reflect on the week’s performance

Eleanor Steed
By Eleanor Steed June 22, 2017 09:16

Qatar’s bid for a stake in American Airlines; OEMs reflect on the week’s performance

Qatar Airways, which is of course government backed, has revealed its intent buy as much as 10% of American Airlines Group — a mirror investment policy to the IAG investment some years ago that gradually increased to the current stake of 20%.

American confirmed today that Qatar Airways intends to make an initial investment of 4.75% on the open market purchasing around $808 million of stock, or roughly 16.7 million shares at Wednesday’s closing price.

Never one to hold back, Qatar Airways‘ chief executive Akbar Al Baker told American Airlines that Qatar intended to acquire up to a 10% stake but would not exceed 4.75% without prior consent of the American Airlines board. American’s own incorporation rules prohibit anyone from acquiring 4.75% of the airline without the board approving a formal advance request from the buyer, while U.S. law allows foreign entities to hold up to 25% of voting shares and 49% economic interest in a U.S airline.

So what is going on here? The timing of this announcement is strange to say the least. The USA has more or less sanctioned the UAE, Saudi Arabia, Bahrain and Egypt to blockade Qatar to force it to curtail its alleged financial and military equipment supply support of terror groups around the Middle East and beyond. An accusation that Qatar fervently denies. Qatar remains supplied at this time by an Iran Air 747F fleet giving daily deliveries of food and drinking water.

Moreover, the economical considerations should come first. What is the real difference between the Swiss airline investment model and the Qatar one – the answer is nothing. Etihad, on the other hand, specifically chose to purchase distressed shares under its mandate to grow rapidly to catch-up with and overtake Emirates, the investments managed to increase Etihad‘s exposure and influence to the maximum in those airlines. Although Alitalia and Air Berlin were manic investment risks too far, it is fair to say that the Jet investment is turning around well and the Air Mauritius investment has done well. In real monetary terms, however, none have paid back anywhere near what has been put in.

Qatar Airways, like Swiss before it, is investing in airlines at their zenith, leaving very little room for a good return on investment, and like Swiss before it, any 9/11 style attack would see transatlantic traffic plummet and shares in the investments plummet with it. Some cynical readers might suggest that unlike Swiss, Qatar Airways can rely on huge sovereign wealth as a fall-back, but how long can that continue?

Qatar Airways’ aim is clear – it is seeking a major holding in all of its major oneworld partners. What Capitol Hill will make of this is another matter entirely and it is sure to unite both sides of the political divide in Washington DC against the investment in principle at least and the resulting news stories highliting the investment will be sure to turn some demographics away from transiting with American (at least in the short term).

In short, this is something American could have well done without.

Boeing, Airbus and Bombardier have released their reviews of the past few days in Paris, with Boeing trumpeting its success over its European rival. Boeing did indeed dominate the headlines for the first few days of the airshow, with the launch of the 737 MAX 10 with more than 361 orders and commitments from 16 customers worldwide. Commercial customers announced incremental orders and commitments during the week for a total of 571 Boeing airplanes, valued at $74.8 billion at list prices.

In comparison, Airbus announced $39.7 billion worth of new business during the 2017 Paris Air Show. The company won commitments for a total of 326 aircraft, including firm orders for 144 aircraft worth $18.5 billion and Memorandum of Understandings for 182 aircraft worth $21.2 billion. John Leahy, Chief Operating Officer Customers, Airbus Commercial Aircraft said: “Our commercial success this week at Paris extends our already diversified order backlog to a new industry record of over 6,800 aircraft, with 326 orders worth $40 billion.”

Meanwhile, Bombardier Commercial Aircraft announced up to US$2 billion in orders and other commitments and confirmed that Ilyushin Finance and an undisclosed airline signed a framework agreement on the lease of six CS300 aircraft. Embraer too had a good show with orders for 30 aircraft, including the E2 family, as well as 13 options. Firm orders at the airshow for the Brazilian manufacturer total $2.37bn.

Eleanor Steed
By Eleanor Steed June 22, 2017 09:16