American Airlines announced Thursday it recently received an unsolicited offer from Qatar Airways about the Middle Eastern airline’s intention to acquire at least a 10 percent stake in American, a move that not many people could have predicted.
The notice advised that state-owned Qatar intends to purchase at least $808 million in the U.S.-based airline following a conversation between the two companies’ CEOs, which was initiated by Qatar Airways’ CEO, Akbar Al Baker, American said in a statement.
American Airlines has a market value of about $24 billion. Qatar has said it plans to make its stock purchase on the open market.
American said that it will respond to the notice “in due course” with the appropriate filings required under the Hart-Scott-Rodino (HSR) Act. Qatar Airways has submitted a filing under the HSR Act, with respect to its potential investment in American Airlines common stock, the companies have confirmed.
This news comes just weeks after Qatar was engulfed in a diplomatic row with neighbor Saudi Arabia, which led other nations including Egypt, the United Arab Emirates and Bahrain in cutting ties with Doha, Qatar’s capital city. Qatar Airways is one of the Middle East’s biggest airlines.
Shares of American Airlines jumped more than 5 percent on this news Thursday morning.
Meanwhile, other airline stocks, such as Southwest, Delta and JetBlue, also climbed higher following this announcement.
American has noted that there are foreign ownership laws that limit the total percentage of foreign voting interest in its business to 24.9 percent.
American also said the company prohibits anyone from acquiring 4.75 percent or more of its outstanding stock without advance approval from the board, following a written request. As of Thursday, American’s board had not received any such request.
“While this move may be legal, it is not only odd but certainly inappropriate,” said Capt. Dennis Tajer, spokesman for the Allied Pilots Association, which represents American pilots. “We take this as financial aggression. It runs completely against the fiber of American Airlines and must be looked at as more than just a simple investment.”
A representative from Qatar didn’t immediately respond to a request for comment, and American declined to comment beyond what was in its Thursday press release.
This news might come as a surprise because American’s CEO, Doug Parker, has been extremely vocal in blasting Gulf carriers, like Qatar, arguing they receive subsidies and have potentially hurt U.S. carriers as a result.
He is known for being one of the most outspoken CEOs in the industry, calling the playing field uneven with unfair government subsidies involved.
A deal like this, though, couldn’t be stopped by Parker, so long as Qatar doesn’t exceed the 24.9 percent ceiling.
In recent months, Qatar Airways has been seen scooping up stakes in several other airlines, including South America’s LATAM Airlines Group and Italy’s Meridiana. Qatar is already the largest shareholder in British Airways’ parent, International Consolidated Airlines Group SA, and British Airways is a close partner with American.
“The proposed investment by Qatar Airways was not solicited by American Airlines and would in no way change the Company’s Board composition, governance, management or strategic direction,” American said in a statement.
“It also does not alter American Airlines’ conviction on the need to enforce the Open Skies agreements with the United Arab Emirates and the nation of Qatar and ensure fair competition with Gulf carriers, including Qatar Airways. American Airlines continues to believe that the President and his administration will stand up to foreign governments to end massive carrier subsidies that threaten the U.S. aviation industry and that threaten American jobs.”
American and Qatar share at least one thing in common already, both being members of the Oneworld marketing alliance. This partnership allows passengers of these airlines to earn and redeem points on each company’s flights.
According to March and April filings with the Securities and Exchange Commission, American had five shareholders above the 4.75 percent threshold, including Warren Buffett’s Berkshire Hathaway, which has a 10 percent stake.
Source: CNBC
