In what is by far the most high profile investment made by any of three Gulf carriers, Qatar Airways has bought a 9.99% stake in International Consolidated Airlines Group (IAG), the parent of British Airways, Iberia and Vueling.
The airline said in a statement that it “may consider increasing its stake further over time although this is not currently intended to exceed 9.99%.” Qatar Airways pointed out that non-EU shareholders in IAG cannot have a combined majority share in the group. “IAG represents an excellent opportunity to further develop our westwards strategy,” Qatar CEO Akbar Al Baker said. “Having joined the Oneworld alliance it makes sense for us to work more closely together in the near term and we look forward to forging a long-term relationship.”
IAG’s Chief Executive Willie Walsh said he was “delighted” about the investment and that “we will talk to them about what opportunities exist to work more closely together and further IAG’s ambitions as the leading global airline group.”
The investment makes Qatar Airways IAG’s largest single shareholder. The stake is worth around GBP1.1 billion ($1.7 billion) at today’s share price.
Gulf carriers have already put billions into European carriers, but they have so far limited themselves to secondary and economically struggling airlines. This is the first time that one of the three big European airline groups – IAG, Lufthansa and Air France-KLM – has attracted investment from one of the three Gulf carriers – Qatar, Emirates andEtihad.
The deal and its later iterations could very well have a profound impact on the European airline landscape, deepening the differences between highly profitable IAG and the much worse-off Lufthansa and Air France-KLM. The investment also raises the question of whether Lufthansa and Air France-KLM can avoid similar deals with Etihad and Emirates in the longer term, provided the two other Gulf carriers would consider an investment.
Both Lufthansa and Air France-KLM may look for capital increases in the not too distant future given their requirements to fund corporate restructuring and fleet renewals. Air France-KLM entertains some limited cooperation (code-sharing) with Etihad between Abu Dhabi and Paris that has been the cause of speculation in the past that it may be the basis for more. Emirates and Lufthansa talked about an alliance about 10 years ago, but the discussions ended with no result because Lufthansa at the time felt it did not need to cooperate.
For Air France-KLM and Lufthansa to shift gears and join forces with Gulf carriers, major cultural change would be needed. The two have been fierce in their opposition to their new competitors, trying to stop them from gaining more traffic rights and criticizing them for what they perceive as unfair government support.
IAG has taken a very different approach. Willie Walsh has always made clear that he has “no problem whatsoever with the growth of Gulf carriers” and that he admires their strategies and product quality. He forged ties with Al Baker and supported him in his coup at the 2011 International Air Transport Association (IATA) annual general meeting in Singapore, when Al Baker fought for a seat on the board of governors in opposition to the former IATA Director General Giovanni Bisignani and Etihad Airways CEO James Hogan.
Walsh was also the driving force behind inviting Qatar Airways into the Oneworld alliance, an approach that has not been welcomed by all alliance members.
IAG – consisting of British Airways, Iberia and Vueling for now – and Qatar Airways operate route networks that are highly complementary at first glance. However, many of Qatar’s connecting services through Doha compete with nonstop British Airways flights to Asia. Given that the Qatar Airways business model is built on connecting traffic rather than its own home market, Asian traffic could become a source of tension between IAG and its new shareholder.
An interesting side-aspect of the deal is IAG’s offer to buy Aer Lingus in which Etihad holds a stake of around 5%. If that takeover goes through, Aer Lingus would not only become part of IAG, but also move away from Etihad’s sphere of influence into Qatar’s.
Qatar Airways has so far not been very active in European investments. It once held a 35% stake in Cargolux, but sold it again at the end of 2012. Al Baker was also close to buying a 49% stake in now-defunct Spanair, but walked away from the deal at the last minute in early 2012.
By contrast, Etihad has been much more active: the airline owns 29% of Air Berlin, 49% of Alitalia, 5% of Aer Lingus and 49% of Air Serbia. The Abu Dhabi-based carrier is also still in talks with Darwin Airline to buy a 33% stake, but that deal has hit significant regulatory hurdles.
Before Etihad bought the Air Berlin stake in 2011, Emirates was close to investing in the German airline, but ultimately decided against the move.