Qatar Airways' Brash Move on American Airlines
We question both Qatar Airways' tactics and strategy.
According to American Airlines' (AAL) 8-K filing with the SEC, Qatar Airways may take up to a 10% stake in the U.S. carrier. In a letter to employees, American's CEO, Doug Parker, wrote that management found the move “puzzling given our extremely public stance on the illegal subsidies that Qatar, Emirates and Etihad have all received.”
American Airlines stock reacted positively to the news, but has trimmed some of its gains. We think it will be very difficult for Qatar to go above a 4.75% shareholding in American because of unique factors in the U.S. carrier's certificate of incorporation. We’re maintaining our no-moat rating and fair value estimate for American.
Qatar Airways has made investments in other airlines, holding a 20% stake in IAG, the parent company of British Airways. However, it has not taken a board seat at IAG. According to industry sources, IAG’s CEO and board are pleased with the carrier’s investment in their company. The Middle Eastern carrier has also invested in Latam Airlines Group and has presence on the board at the company. Qatar is also taking a stake in Meridiana, an Italian carrier, and has been eyeing means to access the Indian market.
On the one hand, the move could provide Qatar with a stronger toehold in the U.S., which is Qatar’s top destination and accounts for nearly 10% of its flights. And Qatar CEO Akbar Al Baker has stated that, unlike Emirates, his airline does not plan to cut flights going to the U.S. It’s possible that Al Baker may be attempting to play the long game and is betting on American changing its tune on the subsidies issue, which in turn could bolster Qatar Airways’ access to the U.S. On the other hand, we don’t envision American changing its stance on the subsidies any time in the foreseeable future, and we question both Qatar Airways' tactics and strategy. Qatar has said that it intends to build a passive position in the company and invest up to 4.75%.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Chris Higgins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.