What's going on?
Qatar Airways unexpectedly announced on Thursday that it intended to buy a sizeable chunk of American Airlines, a move that would make Qatar Airways one of American’s largest shareholders.
What does this mean?
Qatar Airways is planning to buy almost 5% of American Airlines’ stock on the open market and, with the approval of American’s board of directors, it hopes to increase that stake to nearly 10% (due to a quirk in American’s corporate rules, anyone wanting to own more than 4.75% of the company needs the board’s approval).
Acquiring a big chunk of American fits with Qatar Airways’ strategy of buying substantial stakes in international airlines, like it has with British Airways’ parent company and LATAM, a South American airline. As with those investments, Qatar is not intending to have any management role nor seats on the board.
Why should I care?
The bigger picture: The proposal comes amid a feud between US airlines and Gulf airlines.
US airline executives (including American’s CEO) have been very vocal in recent years about their desire to limit “state-owned” Gulf carriers (like Qatar) from expanding their US operations. To them, Gulf carriers are unfair competitors because they enjoy generous subsidies from their governments. American, however, said on Thursday that Qatar’s intention to invest doesn’t mean American will pull back in its fight against Gulf airlines’ expansion in the US.
For markets: American’s stock jumped up initially but then fell back.
Shares in American initially jumped around 5% on the news, but it lost most of those gains after it became clear that American’s board of directors was cool to Qatar’s plans. The tepid response suggests that Qatar is unlikely to receive the approval to buy more than 4.75% of the company – meaning that upward pressure on the share price won’t be as significant.