Qatar Airways wants to buy a piece of the biggest airline in the world. In a securities filing last week, American Airlines (NASDAQ:AAL) stated that the fast-growing Middle Eastern airline plans to buy up to 10% of its stock.
This puts American in an awkward position, because it is part of a lobbying group -- along with Delta Air Lines (NYSE:DAL) and United Continental (NYSE:UAL) -- that seeks to limit Qatar Airways' growth in the U.S. Indeed, it's not clear what Qatar Airways is up to with its latest minority investment move.
Qatar Airways likes having partners
In recent years, Qatar Airways has shown more interest in partnering with other airlines than its larger regional rival Emirates.
For example, Qatar Airways is the only one of the three big Persian Gulf carriers that belongs to a major airline alliance. It joined the Oneworld group (which also includes the likes of American Airlines, British Airways, Cathay Pacific, Japan Airlines, LATAM, and Qantas) in late 2013.
Qatar Airways has also accumulated a 20% stake in IAG, the holding company that owns British Airways and Iberia (both fellow members of the Oneworld alliance). This shareholding arrangement paved the way for a revenue-sharing joint venture agreement implemented last fall. It has also led to IAG defending Qatar Airways' right to grow in Europe.
What is Qatar Airways up to?
Qatar Airways may just see an American Airlines investment as a way to make money by investing in a highly profitable airline. However, if that were the case, there are plenty of other airlines it could invest in, most of which are not lobbying aggressively against Qatar Airways.
A more plausible rationale is that Qatar Airways hopes to buy some influence through its investment, as seems to have been the case at IAG. Yet American Airlines doesn't need a capital injection. It doesn't even need the validation of a large third-party investor anymore, now that Warren Buffett's Berkshire Hathaway is one of its biggest shareholders.
A third possibility is that Qatar Airways -- which is effectively controlled by Qatar's government -- simply wants to create more ties between Qatar and the U.S. In the long run, this could have diplomatic or economic benefits for Qatar.
Qatar Airways has officially stated that its proposed investment in American Airlines would be passive in nature. This means it will not recommend changes to the board or management, suggesting that the third explanation may come closest to capturing Qatar Airways' true motives.
American Airlines isn't interested
So far, American Airlines doesn't seem remotely interested in having a cozy relationship with Qatar Airways. In an email to employees, American Airlines CEO Doug Parker stated, "[W]e aren't particularly excited about Qatar's outreach, and we find it puzzling given our extremely public stance on the illegal subsidies that Qatar, Emirates and Etihad have all received over the years from their governments."
Indeed, the Partnership for Open and Fair Skies -- a lobbying group consisting of American Airlines, Delta Air Lines, and United Continental -- claims that Qatar Airways received $15 billion in government subsidies between 2004 and 2014, in the form of interest-free loans, loan guarantees, and cash advances from the Qatari government.
Airline employees at American, Delta, and United have bought in to this campaign against the so-called ME3 carriers (Emirates, Etihad, and Qatar Airways). They recognize that a big influx of competition from the likes of Qatar Airways would force their employers to seek wage concessions to offset unit revenue declines.
American Airlines can't afford to back down from its strong stance against the ME3 carriers, as it would risk inciting more labor tensions. So while Qatar Airways may acquire a small stake in the world's largest airline, this development would probably have a negligible impact on the U.S. airline industry.