What's the Big Attraction in British Airways?

(Bloomberg Opinion) -- Even Willie Walsh admits that International Consolidated Airlines Group SA, where he’s the boss, is a “very boring name” for an airline group (IAG’s portfolio includes the more evocatively titled British Airways and Iberia).

But should his successor ever wish to change it to something racier they’ll have to seek the blessing of Qatar Airways. On Wednesday the loss-making Gulf carrier said it had hiked its IAG stake from 21.4% to 25.1% in a move that will have cost about $600 million at current prices.

Under British share ownership rules, an investor with 25% or more of the stock can block special resolutions, such as changes to the articles of association or to a company’s name. Unlike some airlines, IAG is focused on making money for its shareholders but it’s still a little baffling why the Qatar Airways boss, Akbar Al Baker, would pay all that money for such limited influence (his airline didn’t respond to questions seeking further clarification). Usually, the company’s approach is not to seek board seats.

Qatar Airways is doubtless snaffling up stakes in rivals as a means of asserting soft power on behalf of its government, and enhancing its own global flight network — and it’s not alone in doing that. But the Gulf company is one of the most acquisitive carriers, and maybe that’s not a good thing given the mixed performance of airline stocks. In addition to its IAG shares, Qatar owns minority stakes in Latam, Cathay Pacific and China Southern Airlines. It also wants one in RwandAir.

Financial considerations aside, Qatar certainly has more of a need to curry favor with international partners than a typical airline. In 2017, the state’s regional neighbors Saudi Arabia, Bahrain, Egypt and the United Arab Emirates imposed an air, sea and land blockade that remains in place. That threatens Doha’s status as an aviation hub.

But Qatar Airways’ efforts to gain influence overseas by acquiring stakes in rival carriers haven’t always been welcome. Al Baker had to give up on buying a stake in American Airlines Group Inc. after the latter’s chief executive officer, Doug Parker, made clear the Qataris wouldn’t be welcome. U.S. airlines often accuse the Gulf carriers of unfair competition owing to state subsidies, which they deny.

More recently, Lufthansa AG said Qatar Airways should rethink any idea of investing in the German flag carrier. “We did not have Lufthansa privatized in Germany to have it nationalized in Qatar," a spokesman told Reuters in December, sounding unusually frosty.

In fairness, IAG has been one of Qatar Airways’ better investments. The stock has gained about 17% in British pound terms since the airline first acquired a 10% stake in 2015. Subsequent IAG share purchases have done better. With respect, though, few financial advisers would counsel their clients to make concentrated bets on airline stocks.

Some of Qatar Airways’ other investments are instructive. Earlier this month Air Italy went into liquidation despite Qatar’s strong desire to keep it afloat. In the end its 49% shareholding counted for nothing. The 9.6% stake that Qatar purchased in Cathay Pacific Airways Ltd. in 2017 also appears to be underwater. The stake was acquired for HK$13.65 a share but the stock is now worth about HK$10.50 amid the protests in Hong Kong and the new coronavirus.

Others have struggled too. Qatar’s Gulf rival Etihad Airways PJSC invested in Alitalia and Air Berlin Plc. Both went bust.

Of course, Al Baker can invest his company’s capital however he wishes — he doesn’t have shareholders to answer to. But he may want to listen to someone who does. Walsh, who will step down at IAG in March, had this to say about the merits of shareholdings and alliances late last year: “Taking a minority stake without having some form of control, or some influence over what the airline is going to do, has no value whatsoever.”

To contact the author of this story: Chris Bryant at cbryant32@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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