MIAMI —  Qatar Airways (QR) has purchased a 9.6% stake in Cathay Pacific Airways (CX) for $661 million, adding to its portfolio of investments in Oneworld Alliance partner airlines.

The stake will be purchased from Hong Kong-based Kingboard Chemical, and the deal values the carrier at ~$6.88 billion, a gain of 15.5% for Kingboard.

After the transaction is completed by the end of the day in Hong Kong, QR will own a piece of three cornerstone Oneworld Alliance members.

In addition to this newly acquired Cathay Pacific stake, Qatar also owns ~20% of British Airways (BA) and Iberia (IB) parent International Airlines Group (IAG) and ~10% of South American giant LATAM.

Qatar gets back on the saddle after AA deal falls through

The investment in Cathay comes less than five months after QR tried and failed to invest in American Airlines (AA).

While QR expressed substantial interest in American (at one point mulling a 10% stake), the Fort Worth-based carrier was utterly unresponsive.

Both company management and front-line employees were vehemently opposed to the deal, and their combined opposition caused the deal to be withdrawn by early August.

The opposition of American’s unions was predictable – frontline US airline employees view the Middle Eastern giants as an existential threat. But the reaction of American’s management team seemed more out of character.

American had always appeared to be the most lukewarm of the US legacies when it came to the Partnership for Fair and Open Skies, the anti MEB3 advocacy group it formed with fellow US legacy carriers Delta Air Lines (DL) and United Airlines (UA).

American had long had a strong codeshare partnership with Qatar Airways’ Abu-Dhabi based rival Etihad Airways (EY), and had acquiesced to QR joining the oneworld partnership.

But despite these seemingly strong economic ties with the MEB3, and non-trivial revenue generated from the two partnerships, American’s management team reacted angrily to the QR incursion.

It was most likely a reflection of the times: namely that federal government policy had taken a sharply protectionist turn under the administration of President Donald Trump. And so soon after the bid was made, the Qatar Airways stake purchase was shelved, and the Etihad partnership was ended to boot.

It’s all about traffic rights, Qatar needs leverage

For QR, this was a non-trivial blow. The single most crucial factor in Qatar Airways’ growth plans moving forward (and indeed for all of the MEB3) is securing or maintaining traffic rights in critical markets like India, China, and the United States.

Up until 4-5 years ago, very few countries other than Canada had put up any fight against the MEB3 entering their markets. But that environment has changed over the past few years, and the MEB3 are now susceptible to the broader winds of populism that are sweeping countries around the world.

In that sense, the Cathay Pacific investments serve as a smart bulwark against those risks.

First and foremost, it is an investment in a relatively stable, historically profitable airline in a market that has never lacked for traffic rights to anywhere in the world. It opens up access to the Chinese market and much of restricted Asia (mainly India and Japan) for Qatar Airways through Hong Kong bilaterals, and in that sense serves as a hedge against direct intervention against QR by foreign governments.

As a secondary benefit, it is a critical pillar in a strategy that more or less amounts to flanking AA in most of its key markets to maintain leverage in the US market.

The goal isn’t so much to force American to adhere to Qatar Airways’ will—none of the investments thus far have enough impact on American’s business by themselves to enable that, but they do raise the cost for American in supporting any anti-MEB3 protectionist action because Qatar Airways now influences three of American’s critical Oneworld partners.

Qatar is not repeating Etihad’s mistakes

Cosmetically, the addition of yet another carrier to Qatar Airways’ investment portfolio raises questions over whether QR is following in the footsteps of Etihad’s failed investment strategy.

However, in practice, the actual airlines that Qatar has invested in are of an entirely different nature.

By and large Qatar Airways has hewed closer to the Delta’s model of investing in strategic markets (Latin America, the UK, and now Hong Kong) that are relatively mature and stable with good moats (slots at Sao Paulo and London-Heathrow, gate space to an extent in Hong Kong).

These are low-risk investments in sustainable airlines that had a temporary dip in value, not risky bets on massive turnarounds in the sclerotic European market.

The one exception to that rule is Meridiana, but in the grand scheme of things, that investment represents a tiny portion of QR’s overall invested capital.

Like Delta, Qatar Airways is sitting on a mountain of cash (through the country’s sovereign wealth fund) and now can make strategic investments around the globe.

Expect to see more investments in the coming months from Qatar Airways.