By Quentin Webb
HONG KONG (Reuters Breakingviews) - Qatar Airways has landed in the centre of the debate about Cathay Pacific’s future. The state-owned Middle Eastern carrier is buying nearly 10 percent of its struggling Hong Kong counterpart for about $661 million. That may not be a money-spinner for the Qataris, but it will certainly complicate any future manoeuvring over Cathay’s ownership.
The deal, unveiled on Monday, looks partly like a consolation prize. Qatar Airways recently had to drop a controversial attempt to buy a chunk of American Airlines. But the company is still following a trajectory similar to Abu Dhabi’s Etihad, gobbling up minority stakes left and right.
True, the airline is a more natural investor than the seller, Kingboard Chemical, a bargain-hunting group whose day job is making laminates, chemicals and circuit boards. And the duo, who are already partners in the Oneworld alliance, could reap some benefits from collaborating more closely: Corrine Png of Crucial Perspective says this could cover areas like cross-marketing and joint procurement.
Still, Etihad and others show the perils of airlines dabbling in portfolio-building. This can tie up funds in a capital-hungry industry, and the buyer gets little clout in return. Such deal-making also tends to concentrate on cheaper, more distressed carriers.
It is not clear if Qatar Airways will even get a board seat in this deal. And while the airline characterises this as a financial investment, it is unlikely to be lucrative, at least in the short term. Analysts expect Cathay to record a loss this year, and be barely profitable in 2018. A price of HK$13.65 a share equates to about 16 times estimated earnings in 2019: hardly a bargain.
On the other hand, the stake does give Qatar Airways a seat at the table if Cathay were to be put up for sale. It is 45 percent owned by Swire Pacific, a Hong Kong conglomerate, and 30 percent by mainland carrier Air China. Swire has remained committed despite Cathay’s recent difficulties. But should it decide to quit or sell down, it now has two suitors to play against each other, assuming national ownership hurdles can be overcome.
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