What's Driving Gulf Cash To European Holdings

Taking a sizable stake in Deutsche Bank, Qatari investors are once again showing a strategy that is single-minded by definition.

After German cars, Qatari sheikhs are starting to invest in German banks.
After German cars, Qatari sheikhs are starting to invest in German banks.
Simone Boehringer and Thomas Fromm

FRANKFURT — Once upon a time, buying an expensive German car was enough to make a rich sheikh happy. Lately it seems a car doesn't quite cut it, though a sizeable stake in an entire German car company may do nicely, thank you.

Four years ago, for example, at a Volkswagen general assembly, a man was sitting up on the stage who didn’t look like the others there from the VW family dynasty. The man's name was Hussain Ali Al-Abdulla, and he was a board member of the Qatar Investment Authority (QIA) that owns 17% of VW after acquiring most of Porsche’s share options.

Seventeen percent of the common stock of one of the world’s largest automakers is a great deal. But since the Porsche and Piëch families (via Porsche Holding) own over half of VW stocks and the state of Lower Saxony holds a further 20%, this 17% gives the QIA a strategic right to make its voice heard quite clearly — if not direct power.

Still, it seems that direct power is not necessarily what Gulf investors are after. They want one thing above all: to see their investments multiply. That appears to be the strategy driving the 1.75 billion euro investment in Deutsche Bank this week that shook financial markets.

At Volkswagen competitor Daimler, which unlike VW is not a company with large family shareholdings, the Kuwait Investment Authority holds some 7% of shares. Again that doesn’t sound like a lot, except that it means that they are Daimler’s single biggest shareholder.

The amount of money involved is indeed formidable. QIA boasts an estimated $200 billion, which means they’re not too choosy with their investments as long as they bring in high returns. The firms on the Qatari shopping list include the Merck Fink, Credit Suisse and Barclays banks, the Paris Saint-Germain soccer club, Siemens, the beleaguered manufacturer of photovoltaic products Solarworld, Royal Dutch Shell — but also Tiffany's, Louis Vuitton, the London stock exchange, Lagardère and German construction company Hochtief.

What such portfolios show is that Gulf investors tend not to limit themselves to specific kinds of companies, and certainly not to individual countries.

The investors from the Emirates are welcome guests in business circles: they have a reputation for being reserved and discrete — unlike hedge fund folks, for example. Sometimes they arrive as a figurative white knight to rescue companies, as was the case with Abu Dhabi-based Etihad Airways, which now owns 29.2% of German’s second largest airline company, Air Berlin. As a large shareholder, it helped out to the tune of 300 million euros and is betting on long-term recovery of the airline.

Sometimes the Arab investors court Western companies in their quest to acquire shares; these state investment funds have billions to manage, and the market for high-yield investments is limited.

And so this is the context in which the recent Qatari investment in Deutsche Bank arrive. The Arabs are keen on investing in Germany in general and investing in German firms in particular. In any case, international investors tend to go for German stocks when the financial markets are in crisis. And German shares are comparatively popular tangible assets when the objective is profiting from growth prospects.

According to a recent study by professional services firm Ernst & Young, over the past 10 years the number of foreign investors in the 30 large companies listed on the Frankfurt-based Dax stock index had grown from 44% to 54% by the end of 2013. Most of the investors were European, followed by North American funds. Asian and Arab investors were still a minority, but rising sharply.

Unlike Chinese

When some of the European Union's peripheral countries were strongly affected by the crisis two years ago, there were even more foreign asset managers focused on Germany. At the height of the crisis they accounted for 58% of foreign Dax investors. The largest shareholder in Dax-quoted companies is still BlackRock. Through various funds, the American asset manager holds 3% or more of all Dax company shares, and BlackRock is often listed as the largest shareholder in individual companies.

Unlike Qatar, at Volkswagen BlackRock holds over 5% of preferential stock and is thus the largest shareholder. It only holds 0.15% of the strategically important common shares which are mostly in the hands of the Porsche families and not on the Dax.

In October 2012 Daimler boss Dieter Zetsche learned just how fast-moving business with foreign investors can sometimes be. When it began in March 2009, the alliance with the Abu Dhabi-based Aabar Investments was supposed to last for decades — the sheikhs had bought a 9% share for two billion euros.

But after only three and a half years, they sold. Eastern investors are anything but romantic when it comes to their Western investments. And unlike Chinese investors, they’re not overly interested in technology. They mainly just want to take their petro-billions, and make billions more.

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7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.

But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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