Qatar Airways takes $1.7 billion stake in British Airways: owner IAG

By Paul Sandle and Victoria Bryan

LONDON/BERLIN (Reuters) - Qatar Airways has bought a stake worth about 1.15 billion pounds ($1.7 billion) in the owner of British Airways and Iberia, aiming to forge closer links to a group with two major European hubs and strong transatlantic networks.

The Gulf airline, which disclosed a 9.99 percent holding on Friday, already partners International Consolidated Airlines Group (IAG) (ICAG.L) in the oneworld alliance and has limited code-sharing deals and a freight partnership with BA.

Buying the stake could deepen the relationship, giving Qatar greater access to destinations served by IAG's London and Madrid hubs, particularly transatlantic, with North America well served by British Airways and South and Central America by Iberia.

On IAG's part, the tie-up will create opportunities in southeast Asia, India and the Middle East, where Qatar has an extensive network, while also giving it a wealthy long-term backer whose support could be useful in funding future growth.

Neither party said whether IAG had been aware Qatar was building the stake and did not say who the shares had been bought from, or when. But IAG Chief Executive Willie Walsh said he was "delighted" to have the airline as a supportive shareholder.

Qatar's national airline, which has more than 130 aircraft and 340 on order, said it may consider increasing its stake over time, although it was not currently intending to increase it from 9.99 percent.

Non-European shareholders of IAG are subject to a cap because of a requirement for EU airlines to be majority controlled by EU shareholders.

Owned by the country's sovereign wealth fund, Qatar Airways has become a major global carrier alongside regional rivals Emirates and Etihad Airways.

All three have used huge capacity at Middle East hubs to challenge European airlines in the long-haul market. Qatar's visibility in Europe has been strengthened by a sponsorship deal with Spanish soccer club Barcelona.

Owing to their geographic position, however, the carriers have struggled to make a mark on routes to North America.

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Jonathan Wober, an analyst at CAPA-Centre for Aviation, said Qatar would gain greater access to destinations west of Qatar, particularly across the Atlantic. "For IAG, if the relationship works, then it could give them an advantage over Air-France-KLM (AIRF.PA) and Lufthansa (LHAF.DE)."

Mark Irvine-Fortescue, an analyst at brokerage Jefferies, said: "This strategy ... should in time improve IAG's structural and competitive positioning."

Shares in IAG, which have risen 44 percent in the last three months, jumped to 590 pence in early trade, their highest since the group was formed four years ago, before giving up those gains to trade down 1.2 percent at 1408 GMT (9:08 a.m ET).

"Qatar has been building up this stake gradually, so it would not be the sort of move to give the stock much further impetus on the back of the massive run-up IAG has had as the oil price has fallen through the floor," said Dafydd Davies, a partner at Charles Hanover Investments.

Before buying the stake, Qatar Airways' growth strategy had centered on building up its fleet and joining oneworld in 2013, becoming the first Gulf carrier to enter a global alliance, which allows airlines to team up via code-sharing agreements to boost the number of flights they offer.

Etihad Airways has bought minority stakes in airlines including Air Berlin, Aer Lingus and Virgin Australia and is buying 49 percent of Alitalia.

Qatar Airways' parent sovereign wealth fund has invested in a range of European assets, including winning a deal to buy the Canary Wharf business district on Friday. It also has a 20 percent holding in Heathrow Airport, BA's London hub.

Heathrow is full to capacity and IAG is trying to buy Ireland's Aer Lingus (AERL.I) for $1.5 billion, a deal that will increase its take-off and landing slots at the airport.

(Additional reporting by David French and Sudip Kar-Gupta; Editing by Kate Holton and David Holmes)