Qatar Airways says that it won’t pursue a planned 10% investment in American Airlines Group.

“Further review of the proposed financial investment, taking into account the latest public disclosure of American Airlines, has demonstrated that the investment no longer meets our objectives,” Qatar said in a statement. “Qatar Airways will continue to investigate alternative investment opportunities in the United States of America and elsewhere that do meet our objectives.”

“We respect Qatar Airways’ decision not to proceed with its proposed investment in American Airlines,” said AA Spokesman Matt Miller. “This in no way changes the course for American. Our 120,000 team members remain energized and focused on taking care of those who entrust us with their travel needs. We couldn’t be more excited to keep our focus on that mission.”

The investment would have put Qatar on par with Berkshire Hathaway Inc. among shareholders of the carrier.  Any purchase of more than 4.75% of the airline needs to be approved by the airline’s board.

When Qatar announced its plans to buy part of American last June, American’s leadership openly expressed displeasure with the proposal. The deal, valued at $808 million, was a source of worry for American executives. Qatar’s decision to drop it came as a “relief” for many of them.

“While anyone can purchase our shares in the open market, we aren’t particularly excited about Qatar’s outreach,” said AA CEO Doug Parker in June. “We find it extremely puzzling given our extremely public stance on the illegal subsidies that Qatar, Emirates, and Etihad have all received over the years. [The purchase] is confusing our team, and we don’t like that.”

Parker also called the proposed purchase “puzzling at best and concerning at worst”.

Tensions became apparent last month when American officially confirmed that it was dropping a codeshare agreement with Qatar Airways over alleged illegal subsidies that the state-run airline received from Qatar’s government. American, along with Delta Airlines and United Airlines, claims that these subsidies decreased competition on certain high-demand routes. You can read more about that here.

American recently announced that it would end a codeshare with Qatar.
Photo Source: Traveling For Miles

In addition, tensions were strained when, in a July 12 public filing, AA said that, if Qatar went through with its purchase, it would not alter American’s governance structure or its plans to continue seeking fair enforcement of the Open Skies agreement. Qatar said that the filing played a role in its decision to pull its bid.

When they announced the deal, Qatar promised to be a “passive” investor in American. The Middle-Eastern carrier said that it was drawn to AA by its business fundamentals, though many analysts thought commercial and diplomatic motives were also at play.

Will Horton, a senior analyst at CAPA-Center for Aviation, said that Qatar wanted a partnership with AA similar to the one that Emirates has with JetBlue Airways and Alaska Airlines. “Qatar’s immediate priority is to find partnerships with North American airlines that will give access to all the smaller destinations Qatar won’t fly to,” Horton said.

Qatar Airways has recently lost access to eighteen Middle Eastern destinations in the fallout of the ongoing regional political crisis in which multiple Middle Eastern states cut ties with its home country.

American reported that sales grew 7% last quarter to about $11.1 billion. However, profits fell by 16%, due in part to rising labor costs. Shares of American recently went down 1.72% to $50.18/share. However, share prices went up almost $2 after Qatar announced that it had canceled its plans.

Both American and Qatar remain members of the OneWorld alliance.

Categories: Industry Talk