Qatar Airways lifted its stake in British Airways parent IAG SA, tightening its grip on the European carrier after expansion in the Gulf was thwarted by a Saudi-led embargo.
The increase to 25.1 per cent, from 21.4 per cent, comes less than a month after IAG removed a cap on non-European Union investment.
The move gives Qatar greater leverage as IAG Chief Executive Officer Willie Walsh prepares to exit the post next month, and BA grapples with fallout from the UK separating from the EU. Walsh and Qatar Airways Chief Executive Officer Akbar Al Baker have had one of the closest dynamics in the airline industry, and the increased holding will hand the Mideast carrier additional rights as that personal partnership comes to an end.
“Our investment to date has been highly successful and the announced increase in our shareholding is evidence of our continued support of IAG and its strategy,” Al Baker said in a statement Wednesday.
IAG shares traded 1.0 per cent higher as of 12:45 pm in London. The stock has gained 2.0 per cent this year, valuing the company at 12.7 billion pounds (US$16.5 billion).
Qatar Airways has invested widely, building stakes in Latam Airlines Group SA, Cathay Pacific Airways Ltd and China Southern Airlines Co, and most recently Africa’s Rwandair. While the moves have created a network to feed long-haul traffic through its Doha hub, the Mideast carrier is also exposed to events like the coronavirus outbreak that’s crippled airline traffic to and from China.
” Qatar Airways has invested widely, building stakes in Latam Airlines Group SA, Cathay Pacific Airways Ltd and China Southern Airlines Co, and most recently Africa’s Rwandair.”
The increased holding in IAG ties Qatar Airways more closely to a strong player in Europe just days after a foray into the Italian market failed. Qatar Airways and the Aga Khan decided to liquidate Air Italy, which had aspired to become a rival to Alitalia SpA.
“We agree with Qatar’s move in choosing to invest in Europe’s best positioned long-term play,” Daniel Roeska, a Sanford C Bernstein analyst, wrote in a note. “The move may create new headaches for the IAG team, and potentially put a time limit on buying the shares for non-EU investors.”
While headquartered and listed in London, IAG is domiciled in Spain along with EU units including Madrid-based Iberia and Ireland’s Aer Lingus. It has to remain compliant with the bloc’s rules in order to retain flying rights. Foreign companies aren’t able to take full control of European airlines as a condition of their air operating licences.
Raising the stake in IAG would broaden Qatar Airways’ global platform, said Mark Martin, founder of Dubai-based Martin Consulting. The deal gives the Doha-based carrier a strategic edge over Emirates and helps it overcome the Saudi-led airspace closure, given it now has an increased global jurisdiction, Martin said.
Barred from overflying Saudi Arabia and three other countries amid a spat over Qatar’s links with Iran, the Doha-based carrier has to make lengthy diversions, enlarging its fuel bill and widening its losses.
IAG capped non-EU ownership at 47.5 per cent in February 2019. The limit was removed on January 17 after IAG’s non-EU ownership fell to 39.5 per cent, making room for share purchases from outside the bloc.
Qatar Airways first bought IAG stock in 2015, though the company has always insisted that the interest is a financial one and not an attempt to gain control. It has so far declined to seek a seat on the board.
Voting rights of more than 25 per cent in a UK firm allow a shareholder to block special resolutions such as the adoption of new articles of association or changing a company’s name, according to law firm Stephens Scown’s website.