Will Qatar Succeed in acquiring a 10% stake in American Airlines Group Inc (NASDAQ:AAL)?

June 23, 2017, 09:33 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

On Thursday June 22, 2017, Doug Parker, the CEO of American Airlines Group Inc (NASDAQ:AAL), sent a letter to all employees following an announcement by Qatar Airways that it was interested in acquiring a 10% stake in the American carrier. He described the announcement by the Qatari carrier as “puzzling” because it was not clear what Qatar Airways intended to accomplish by investing in America’s national carrier.

Qatar has been in the news recently for all the wrong reasons given that other gulf nations have isolated the country due to claims that the Qatari government was funding terrorist groups. The reasons behind Qatar Airways’ announcement were not clear, but some industry experts opined that this might be a move to soften America’s resistance to foreign airlines expanding operations in the country.

Doug’s letter reassured the airline’s employees and investors that under American laws, a foreign entity cannot acquire more than 25% of an American airline. This law guarantees that even if Qatar Airways acquired a 10% stake in the company, it would not have the power to influence the airline’s board and management.

Politically, this announcement comes at the worst time given that Qatar is trying to distance itself from allegations linking its government to terrorist groups operating in the gulf region. This announcement could end up alienating Qatar from the US given that President Donald Trump has tried to mediate the conflict between Qatar and its neighbors.

It is also not clear why Qatar Airways chose to invest in American Airlines given that Doug Parker has always been a major critic of the illegal subsidies that gulf carriers receive from their governments. This begs the question, why did Qatar Airways choose a major American Carrier, instead of minor player such as LATAM Airlines Group SA (ADR) (NYSE:LTM)?

It is also highly unlikely that the board of American Airlines Group Inc will approve a sale of a 10% stake in the company given that Qatar Airways can only acquire a 4.75% stake on the open market. Any stake above this threshold requires approval from the company’s board.

The expression of interest from Qatar Airways triggered a rally in airline stocks listed on both the NASDAQ and the NYSE.

The U.S. Global Jets ETF (NYSEARCA:JETS) also rallied higher upon the announcement.

Therefore, is this an indicator that the acquisition of a stake in a US airline by Qatar Airways could boost the industry?

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