Qatar Airways buys $1.73bn stake in British Airways parent IAG.

Qatar Airways bought a 9.99% stake in British Airways parent IAG, drawing closer to its main European ally in a partnership that promises better access to the Americas and traffic flows through its expanded Doha hub.Qatar Airways may consider increasing the investment — valued at £1.15bn ($1.73bn) based on Thursday’s close — over time, but will stick with the holding for now, it said in a statement.

European Union rules limit the Gulf carrier to a 49% holding in London-based IAG.The companies have grown increasingly close since Qatar Airways chief executive officer Akbar al-Baker joined IAG’s Oneworld Alliance in 2013, sponsored by the European carrier’s CEO Willie Walsh. The surprise purchase, after Qatar built a 20% stake in BA’s London Heathrow hub, comes as IAG itself contemplates a $1.52bn bid for Ireland’s Aer Lingus.

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“Qatar’s thinking has three key elements,” said John Strickland, director at aviation analysts JLS Consulting. “Oneworld and the relationship with the BA, the good personal relationship between Willie Walsh and Akbar al-Baker, and Qatar as a shareholder in Heathrow. It’s all about global flows and the importance of London, Asia and their new hub in Doha.”

Shares in IAG, which have risen 44% in the last three months, jumped to 590 pence in early trade, their highest since he group was formed four years ago, before giving up those gains to trade down 1.2% at 1408 GMT. IAG’s stock has advanced 15% this year after gaining 21% in 2014 and more than doubling in value in 2013, outperforming European peers Air France-KLM Group and Deutsche Lufthansa as Walsh pushes through savings at Spanish unit Iberia and benefits from a booming trans-Atlantic travel market.

IAG has also taken a more pragmatic attitude the growth of the big three Gulf carriers, also including Dubai-based Emirates and Etihad Airways of Abu Dhabi, by opting to bring Qatar into the Oneworld fold and embrace the links it can provide with Asia, rather than railing against the new threat.“This strategy could be seen as a defensive ‘if you can’t beat them, join them’ move and should in time improve IAG’s structural and competitive positioning,” Jefferies analyst Mark Irvine-Fortescue said in an investor note. “The core structural difficulty for European airlines relates to huge capacity growth from Middle East carriers.”

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Walsh said yesterday that the Qatar investment should further IAG’s ambitions to be the top global airline group.
“We will talk to them about what opportunities exist to work more closely together,” he said in a statement from IAG.
The Qatari stake in a leading global carrier contrasts with investments by Etihad, the Gulf No 3, which has built an alliance based around equity stakes in struggling airlines in need of investent, including Air Berlin and Alitalia.

Emirates — which has eschewed purchases in recent years — Qatar Air and Etihad have all exploited the Gulf’s position at a crossroads for global flight-paths to funnel more traffic through their hubs, with Dubai International airport last year toppling Heathrow as the No 1 airport by international traffic.

Qatar has sought to invest its wealth from natural-gas resources with a variety of purchases involving well-known brands from car maker Volkswagen to the Harrods department store in London, though most have been made through its sovereign wealth fund rather than an industrial partnership.“IAG represents an excellent opportunity to further develop our westwards strategy,” al-Baker said in the statement. “It makes sense for us to work more closely together in the near term.”

Both Walsh and his Qatar counterpart are known as tough taskmasters, willing to squeeze manufacturers. Walsh earned the nickname “Slasher Walsh” in his former job as boss of Aer Lingus, while al-Baker has refused to accept planes from Airbus Group that were not up to his standards.

Walsh has been the prime proponent of consolidation in the European aviation market, pushing through the merger of British Airways and Iberia to create IAG in 2011. IAG added Deutsche Lufthansa’s BMI unit — previously British Midland — a year later and then bought Spanish discounter Vueling in 2013.

Buying Aer Lingus would win IAG scarce take-off and landing positions at Heathrow airport, Europe’s top hub.

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