One certainly wonders what’s motivating this sale, because this doesn’t otherwise seem in line with Qatar Airways’ strategy…
In this post:
Cathay Pacific buying back Qatar Airways’ 10% stake
Over the years, we’ve seen Qatar Airways invest in all kinds of airlines. Qatar Airways is of course owned by the government of Qatar, so the investments have largely been strategic, with multiple goals. For one, most of the investments have been in legitimately profitable airlines, so they’re sound investments in and of themselves. But on top of that, it seems like soft political pressure plus building of alliances has also been a consideration.
In 2017, Qatar Airways purchased a nearly 10% stake in Cathay Pacific, for around $662 million, which has been held onto for the past eight years. The Hong Kong-based airline has now announced its intention to buy back that stake for around $892 million, so that’s a roughly 35% premium over the purchase price.
This deal requires Cathay Pacific obtaining approval from its independent shareholders. Currently Cathay Pacific is around 45% owned by Swire Pacific, and around 30% owned by Air China.
Here’s how Cathay Group Chair Patrick Healy describes this transaction:
“The buy-back reflects our strong confidence in the future of the Cathay Group and underscores our commitment to the development of the Hong Kong international aviation hub. Together with our investment of well over HK$100 billion into our fleet, cabin and lounge products, and digital leadership, we are firmly focused on sustainably growing our business to strengthen Hong Kong’s status as a world-class aviation hub and contribute to the prosperity of the wider Greater Bay Area. I would like to extend my gratitude to Qatar Airways for their unwavering support over the years, and I look forward to continuing our close partnership through the oneworld Alliance relationship. I would also like to thank our shareholders, Swire Pacific and Air China, for their continued trust and support.”
Meanwhile here’s what Qatar Airways Group CEO Badr Mohammed Al-Meer had to say:
“This agreement reflects Qatar Airways Group’s disciplined approach to portfolio management and our commitment to delivering sustainable value for our shareholders. Following a period of record profitability and strong performance, this decision is part of a proactive strategy to optimise our investments and position the group for long-term growth. While we adjust our shareholding, we look forward to continuing our collaboration with Cathay through the oneworld Alliance to continue delivering benefits that enhance connectivity and choice for our passengers. Hong Kong remains an important market to Qatar Airways, and we remain fully committed to serving it through our flights and codeshare agreements, offering travellers a seamless and world-class experience that reflects the highest standards of quality, service and innovation.”
I’m curious what the real motivation is for this sale
As you can see, we’re kind of getting mixed signals here. Cathay Pacific management claims it’s buying back these shares because of its strong confidence in the company’s future, while Qatar Airways claims it’s selling its stake because of a period of record profitability. Do the two organizations have such differing takes on Cathay Pacific’s future financial prospects?
For what it’s worth, the purchase price here is a small discount over the company’s current stock price. If Cathay Pacific had such confidence in the upside, you’d think the sale would’ve happened at a premium to the stock price, so I can’t imagine that narrative is accurate.
What’s interesting here is that there seems to be no bad blood, in terms of executives from both companies providing friendly statements on the situation. So is this just a geopolitical decision, related to China and Qatar, as Qatar moves increasingly closer to the United States?
The implications here are ultimately limited. It’s not like Qatar Airways’ stake in Cathay Pacific gave it much control, and for that matter, commercial cooperation between the airlines has been based on their mutual oneworld membership, rather than anything else. Qatar Airways does fly a handful of former Cathay Pacific Boeing 777s, but that also has nothing to do with the ownership stake, and was simply a commercial agreement.
Bottom line
Qatar Airways is selling its nearly 10% stake in Cathay Pacific, which was acquired back in 2017. While this is being sold for a (modest) profit, this seems a bit unusual, at least based on Qatar Airways’ historical approach to airline investments.
Cathay Pacific claims the company buying back these shares represents its confidence in its own future, while Qatar Airways claims it’s selling the stake due to record profitability at Cathay Pacific in recent years.
It’s anyone’s guess what’s going on here, but it’s hard to imagine there’s not something political going on in the background.
What do you make of Qatar Airways selling its stake in Cathay Pacific?
There's a certain widget-tailed North American airline, who doesn't have a strategic partner in southeast(ern) Asia, who really loves purchasing stakes in unaligned airlines, then developing them into strategic partners even if an immunized joint-venture isn't available.
That 10% might be mighty appealing to them. Just saying.
I believe the main reason is that investing in CX doesn’t offer any strategic value for Qatar. In contrast, their investment in IAG makes sense, as it allows them to route passengers to Asia through Doha. CX’s business model essentially mirrors Qatar’s and, in many ways, directly competes with it, whereas IAG has effectively withdrawn from the Asian market.
Most likely the CCP wants control back of its assets. Ultimately, QR/CX have been much less connected in recent years. CX ended their DOH flight in 2016.
You'll probably get all the people up in arms saying "CX is leaving Oneworld for Star Alliance bc of Air China" now.
I don't think it's too clear how to interpet this situation, this could really mean nothing.
That's what Xi said.
You win the Internet today.
So that leaves them with stakes in LATAM, JSX, IAG and pending stakes in Rwandair and Airlink?