Qatar Air Should Give Up on American Stake
(Bloomberg Gadfly) -- Qatar Airways Ltd.'s bid to buy a stake in American Airlines Group Inc. is making less and less sense.
The state-owned carrier last month disclosed it wanted to build a 10 percent position in its U.S. counterpart. Qatar Air said it saw a "strong investment opportunity" and believes in American Airlines' "fundamentals." It's not wrong.
But almost no one believed Qatar Air wanted to hold a big chunk of one of the largest U.S. carriers just because it liked the stock. Its true motivations are still a mystery. Presumably, it aims to expand its U.S. presence by deepening collaboration with American Airlines, while also bolstering its political leverage amid President Donald Trump's travel-ban ambitions, a blockade of Qatar by its Middle Eastern neighbors and a push for a U.S. crackdown on alleged unfair competition by Persian Gulf carriers.
Welp, if that was the strategy, it's going poorly.
American Airlines has now ended its pre-existing marketing agreement with Qatar Air, meaning the Gulf carrier is now even less connected to the U.S. than before this ordeal ended. This might have happened anyway; Abu Dhabi-based Etihad Airways was also booted from a codeshare agreement on the basis that the relationship just didn't make sense in light of American's leadership in the call for regulators to do something about the government subsidies Gulf carriers are allegedly using to aggressively lower prices and steal market share. But Qatar Air's overture probably hurt more than it helped. Who could have predicted this would backfire? David Fickling, that's who.
And yet Qatar Air seems determined to dig in its heels, despite its missteps -- and there have been a few. CEO Akbar Al Baker claimed American's leader Doug Parker was "frightened" by his proposed investment, although it's not totally clear what Parker would have to be frightened of given the bylaw and regulatory limits on how many shares Qatar Air can actually buy and the Gulf carrier's own claims that it has no intention of interfering with management or governance. Then Al Baker made disparaging comments implying U.S. flight attendants were subpar to those of Qatar Air, which seems particularly stupid in light of the flight-attendants union's blasting of the stake deal as undercutting its efforts to "preserve good jobs for U.S. workers."
It's time to give it up. It's not even clear that U.S. regulators will sign off on Qatar Air's stake purchase to begin with, but even if they do, the Gulf carrier needs permission from American's board to buy more than 4.75 percent. American has no reason to give that and every reason to stand by its fight against unfair competition and to back up its aggravated flight attendant and pilot unions.
So if Qatar Air persists on going forward with this, what then? It would own a hefty slice of American that may make it some money in the short term, but stakes in rivals that serve little strategic or political purpose often wind up being dead weight. Just ask Novartis AG, which is still sitting on a 30 percent-plus stake in Roche Holding AG more than a decade after amassing it in a failed attempt to acquire its rival. Disposing of it has presented all kinds of challenges. In the meantime, going through with the deal will likely eliminate whatever shot Qatar Air has left at a strengthened relationship with American, not to mention weaken its political leverage. The flight-attendants union chose its language wisely when highlighting the job risk of Qatar's investment, a sensitive issue for Trump.
Qatar Air should come up with a new strategy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.