Qatar joins China aviation bonanza with surprise stake in Cathay

Qatar Airways Ltd.’s surprise purchase of a 9.6 percent stake in Cathay Pacific Airways Ltd. to gain a foothold in East Asia has damped a long-held speculation among investors that the Hong Kong flag carrier would soon merge with another major shareholder: Air China Ltd.

Qatar Air on Sunday agreed to buy the stake for HKD5.16 billion (USD662 million) from Hong Kong-based Kingboard Chemical Holdings Ltd. and related companies, which have been steadily amassing shares in the Asian airline for the past year. The purchase, the first by a Middle Eastern airline in an East Asian carrier, makes the Doha-based company the third-largest shareholder in Cathay after Hong Kong conglomerate Swire Pacific Ltd. with 45 percent, and state-owned Air China with almost 30 percent. Cathay’s stock fell the most in more than three months.

“Cathay will have three major shareholders, all with different and potentially conflicting interests,” said Corrine Png, chief executive officer of Crucial Perspective, which focuses on research in Asia transportation equities. “We still think it makes more economic sense for Cathay and Air China to merge longer term, but given this new development with Qatar Airways in the picture, it is going to become more complicated for all three parties.”

Behind the investment is the battle for better access to China, which is expected to become the world’s biggest aviation market within a decade. U.S. carrier Delta Air Lines Inc. bought a minority stake in China Eastern Airlines Corp. in 2015, while American Airlines Group Inc. purchased a minority stake in China Southern Airlines Co. this year.

“Cathay Pacific is one of the strongest airlines in the world, respected throughout the industry and with massive potential future,” Qatar Airways CEO Akbar Al Baker said. Cathay CEO Rupert Hogg said in a statement on Monday that he looks forward to a “continued constructive relationship” with Qatar Air, which is a fellow member of the Oneworld Alliance of airlines.

Zhou Feng, board secretary at Air China, said having an airline as Cathay’s stakeholder, rather than Kingboard Chemical, would “bring about better synergy” as an airline stakeholder has a better understanding of Cathay’s strategy and business. Regarding the relationship between Qatar, Cathay and Air China, Zhou said there is both competition and cooperation and it will depend on how the carriers maintain the balance. Air China is part of the rival Star Alliance.

Cathay has previously denied that it is considering a merger with Air China. Swire said in an email that it is firmly committed to Cathay and it has confidence in its long-term prospects.

Qatar Air’s Al Baker said the purchase “supports Qatar Airways’ investment strategy.” The Doha-based airline has been buying minority stakes in airlines around the world, including a 20 percent stake in British Airways parent IAG SA and a 10 percent share of Latam Airlines Group SA, the biggest South American carrier. It also made a failed attempt to gain a slice of American Airlines Group.

Bloomberg