Block­ade ‘may force Qatar Air­ways bailout’

Qatar’s ro­bust growth con­tin­ues to defy Saudi sanc­tions, Jack Tor­rance re­ports from Doha

The Sunday Telegraph - Money & Business - - Front Page - By Jack Tor­rance in Doha

THE boss of Qatar’s state-backed air­line has ad­mit­ted it could be forced to seek a govern­ment bailout if a block­ade by the coun­try’s re­gional neigh­bours con­tin­ues.

Ak­bar Al Baker, who has led Qatar Air­ways since 1997, said that a po­ten­tial bailout was “still some time away” but that it would prob­a­bly need to seek govern­ment cash if the sanc­tions per­sisted over the long term. He said: “At the mo­ment I don’t need it, but if this block­ade con­tin­ues then I’m sure that the govern­ment will be pre­pared to in­ject cap­i­tal, be­cause Qatar Air­ways is a very im­por­tant eco­nomic tool.”

The air­line has suf­fered af­ter its neigh­bours, in­clud­ing Saudi Ara­bia, the UAE and Egypt, sev­ered ties with the coun­try. It has been forced to halt flights to 19 des­ti­na­tions and fly more ex­pen­sive routes to avoid their airspace. In April, Mr Baker re­vealed the air­line fell to a “sub­stan­tial” loss last year. A bailout would al­most cer­tainly in­fu­ri­ate US ri­vals, who have ac­cused Qatar Air­ways and re­gional ri­vals of be­ing sub­sidised by their gov­ern­ments.

But Mr Baker said there was a big dif­fer­ence be­tween in­vest­ment and a sub­sidy, adding: “Sim­i­larly, we do not have the priv­i­lege that the car­ri­ers across the At­lantic have that when they are in trouble they can clean their books via Chap­ter 11 [bank­ruptcy].”

If Qatar is in cri­sis, you wouldn’t no­tice it on a fly­ing visit. Even dur­ing Ra­madan, when many shops and most restau­rants are closed dur­ing day­light hours, the tiny penin­sula state’s roads are packed with gas-guz­zling 4x4s fer­ry­ing well-heeled Qataris be­tween air-con­di­tioned of­fices, pala­tial homes and a shiny new air­port.

Viewed from the top of any of its sky­scrapers, the sandy land­scape is dot­ted with busy build­ing sites amid a con­struc­tion boom that means even the rul­ing emir, Sheikh Tamim bin Ha­mad Al Thani, has to put up with the sound of pneu­matic drills as work­ers toil a stone’s throw from one of his favourite res­i­dences in the cap­i­tal Doha.

That’s de­spite sanc­tions im­posed by Qatar’s pow­er­ful neigh­bours, in­clud­ing Saudi Ara­bia, the United Arab Emi­rates and Egypt, which say they are blockad­ing the coun­try over its al­leged sup­port for ter­ror­ists and ex­trem­ist groups such as the Mus­lim Broth­er­hood. Last June, the oil-rich state found it­self adrift al­most overnight as its only land bor­der, with Saudi Ara­bia – led by Muham­mad bin Salman, of­ten de­scribed as the most pow­er­ful leader in the Mid­dle East – was cut off, and its aero­planes were de­nied ac­cess to big swathes of airspace. Boats laden with goods destined for the coun­try were turned away from nearby ports, leav­ing su­per­mar­ket shelves empty.

Among the com­pa­nies hard­est hit is Qatar Air­ways. The state-owned flag car­rier had en­joyed a strong run, grow­ing faster than its Emi­rati ri­vals Eti­had and Emi­rates. But the block­ade has forced it to sus­pend routes to 19 des­ti­na­tions for the fore­see­able fu­ture and most of its re­main­ing flights have be­come sig­nif­i­cantly more ex­pen­sive to run, as its planes have had to take longer routes that avoid the hos­tile coun­tries’ airspace, burn­ing gal­lons of ex­tra fuel in the process.

The costs of the sanc­tions were mit­i­gated by the air­line’s de­ci­sion to lease nine of its grounded planes, along with their crew, to British Air­ways, to help it cope with strike ac­tion last sum­mer, which Qatar Air­ways chief ex­ec­u­tive Ak­bar Al Baker says al­lowed him to avoid mak­ing any re­dun­dan­cies.

But he has re­vealed the air­line made a “sub­stan­tial” loss last year af­ter new routes failed to drum up as much cash as more es­tab­lished ones, which have been closed off.

“Un­for­tu­nately the routes where we were forced to stop were very mature routes we had been fly­ing for many years and we had re­ally de­vel­oped our brand in those mar­kets,” he says. If the cri­sis con­tin­ues, Baker ad­mits his com­pany will likely need to seek a cap­i­tal in­jec­tion from the govern­ment to avoid load­ing up with more debt.

He has been a vo­cal critic of the In­ter­na­tional Civil Avi­a­tion Or­gan­i­sa­tion’s han­dling of the cri­sis. The body, part of the United Na­tions that is in charge of lay­ing down the rules for the use of airspace, has “taken a back seat”, he claims, leav­ing Qatar with­out the op­por­tu­nity to ap­peal against the re­stric­tions.

“Airspace doesn’t be­long to a coun­try, it be­longs to an in­ter­na­tional com­mu­nity. Qatar is part of the in­ter­na­tional com­mu­nity, it is a mem­ber of the ICAO and the UN, so they need to do their job,” he adds.

“We are not ask­ing for per­mis­sion to land in their coun­try, we are ask­ing that this in­ter­na­tional airspace can be used for in­ter­na­tional civil avi­a­tion traf­fic.”

The sanc­tions have also caused havoc for in­ter­na­tional busi­nesses with a pres­ence across the Gulf.

ATG Ac­cess, a UK com­pany that makes anti-ter­ror­ist se­cu­rity bol­lards, has found its prod­ucts in high de­mand in the re­gion. How­ever, not long af­ter open­ing a new fac­tory in Abu Dhabi, the com­pany was sud­denly un­able to ship to Qatar, its largest ex­port mar­ket, be­cause of the block­ade.

“We had taken a cou­ple of good sized or­ders, we were man­u­fac­tur­ing, and lit­er­ally with two days’ no­tice we were told that we couldn’t ship it,” says Gavin Hep­burn, an ATG di­rec­tor.

Even send­ing prod­ucts via a neu­tral in­ter­me­di­ary such as Oman won’t work be­cause cus­toms of­fi­cials de­mand ev­i­dence of a prod­uct’s fi­nal des­ti­na­tion.

ATG has been forced to move pro­duc­tion back to the UK and to Sin­ga­pore as a re­sult, but even now get­ting its wares into Qatar isn’t easy.

In the past, boats would dock at deep wa­ter ports in Dubai and Saudi Ara­bia, where their cargo would be moved across to smaller ves­sels more ca­pa­ble of han­dling Qatar’s shal­low waters, but that is no longer an op­tion.

“There are still ports that are not too far away that will deal with Qatar, but none of the stan­dard ship­ping routes and that does mean there are fewer op­tions, less com­pe­ti­tion and higher prices,” says Hep­burn.

Ship­ping costs are pushed even higher by ris­ing de­mand as Qataris are forced to bring in sta­ple foods and other ba­sics that would have pre­vi­ously come over the Saudi bor­der from fur­ther afield.

That said, the block­ade has also forced Qatar to con­sider ways of be­com­ing more self-suf­fi­cient. While it used to buy most of its dairy prod­ucts from Saudi Ara­bia, for in­stance, it is now in the process of im­port­ing more than 10,000 cows that will al­low it to pro­duce enough yo­gurt, cheese and milk to meet its own needs.

Me­dia re­stric­tions have proven a

par­tic­u­larly con­tro­ver­sial as­pect of the block­ade. Saudi Ara­bia and the UAE have blocked their ci­ti­zens from ac­cess­ing Qatari news agen­cies such as Al Jazeera, which they ini­tially called for Qatar to shut down.

“One of the af­fil­i­ates we work with in Dubai can­not get ac­cess to in­for­ma­tion any more,” says Lau­ren Fryer, an Aus­tralian ex­pat who runs Doha-based mar­ket­ing agency Qanect. “The Dubai govern­ment has blocked all websites out of Qatar, [so] they can’t get links to the news cov­er­age that’s hap­pened on the ground here.”

BEIN Me­dia Group, a state-backed Qatari broad­caster that holds the re­gional rights to sev­eral ma­jor sports com­pe­ti­tions, in­clud­ing the Premier League, has been banned from sell­ing its set-top boxes in Saudi Ara­bia.

Its broad­casts have also been pi­rated by a rival com­pany, Be-outq, which the Saudi govern­ment has failed to shut down. BEIN’S Daniel Markham says: “Usu­ally piracy is some­body in their bed­room do­ing it over a web stream but th­ese guys have ba­si­cally launched Sky Sports – they’ve got set-top boxes, satel­lite space, mar­ket­ing, edit­ing.”

Rights hold­ers in­clud­ing Uefa and the Premier League have spo­ken out against Be-outq, but their protests have so far fallen on deaf ears.

BEIN’S pro­duc­tion staff, who have to travel to the blockad­ing coun­tries for work, have also faced dif­fi­cul­ties.

“We’ve had var­i­ous forms of ha­rass­ment, from re­porters not be­ing al­lowed in to coun­tries … in­ter­ro­ga­tions at air­ports, not be­ing al­lowed into sta­di­ums, be­ing treated ag­gres­sively by se­cu­rity per­son­nel and staff,” says Markham.

But while the sanc­tions have proven to be a ma­jor headache for some com­pa­nies, the econ­omy as a whole still seems to be hold­ing its own.

In­vol­un­tary un­em­ploy­ment re­mains all but ab­sent and last month the Qatar Na­tional Bank up­graded the coun­try’s eco­nomic growth fore­casts for 2018 to 2.8pc – not off the charts but a level the UK would be grate­ful for at the mo­ment. Qatar has been able to weather the storm largely be­cause of its mas­sive oil and gas re­serves, which have con­tin­ued to flow, pro­vid­ing tens of bil­lions of pounds per year.

It helps that its big­gest ex­port part­ners are not its im­me­di­ate neigh­bours but Ja­pan, South Korea, China and In­dia, where de­mand for petro­chem­i­cals shows no sign of abat­ing.

The govern­ment’s mas­sive $300bn (£225bn) sovereign wealth fund gave it the fire­power to in­ject $38bn into the econ­omy in the months fol­low­ing the block­ade, equiv­a­lent to al­most a quar­ter of its GDP. Eh­san Khoman of Mit­subishi UFJ Fi­nan­cial Group, for­merly an econ­o­mist at the Qatar Na­tional Bank, wrote in a note last month that the “brunt of the eco­nomic hit looks likely to have passed”, with a down­turn in the travel and leisure in­dus­try hav­ing been off­set by growth in oil, gas and man­u­fac­tur­ing, as Qatar makes more of its own prod­ucts in re­sponse to the block­ade.

A key ques­tion for many is whether the block­ade will be halted in time for Qatar’s host­ing of the foot­ball World Cup in 2022.

It has been in­vest­ing bil­lions of pounds ahead of the tour­na­ment, and not just in hi-tech sta­di­ums with air con­di­tion­ing but also in mas­sive in­fra­struc­ture projects in­clud­ing a new metro sys­tem, an ex­panded air­port and Lu­sail, a whole new city.

Just north of Doha, the set­tle­ment will cost an es­ti­mated $45bn to build and will be home to the Lu­sail Iconic Sta­dium, where the World Cup fi­nal will be played.

Qatar’s host­ing of the con­test has so far been marred by controversy. There have been al­le­ga­tions that Fifa of­fi­cials took bribes in re­turn for sup­port­ing the bid. Hun­dreds of con­struc­tion work­ers, mostly mi­grants from other parts of Asia, have died work­ing on the new sites. Some of­fi­cials are sim­ply fu­ri­ous the coun­try’s hot weather means the event will have to take place in Novem­ber, in the mid­dle of most clubs’ do­mes­tic sea­sons.

But Baker says the com­pe­ti­tion will “in­tro­duce the world to my coun­try”. He adds: “To­day some peo­ple say that it is some­where in the back­wa­ters of the Gulf, it is a small town. But when they see what we can de­liver it will be such a big boost to the rep­u­ta­tion of the cul­ture we have here.”

The World Cup could be the spur that en­cour­ages Qatar’s neigh­bours to open their doors once again, as tourist hotspots such as Dubai get a chance to at­tract the le­gions of vis­i­tors that will de­scend on the re­gion.

It seems un­likely the dis­pute will come to an end any time soon though, with nei­ther side show­ing any sign of soft­en­ing its stance. Saudi Ara­bia is even con­tem­plat­ing dig­ging a trench along the bor­der, turn­ing Qatar’s metaphor­i­cal is­land into a lit­eral one.

“We don’t see any light at the end of the tun­nel be­cause the blockad­ing coun­tries are adamant that what they are do­ing is cor­rect,” Baker says.

A key ques­tion for many is whether the block­ade will be halted in time for Qatar’s host­ing of the foot­ball World Cup in 2022

Qatar Air­ways, left, is among those hit by sanc­tions from Saudi leader Mo­hammed bin Salman, be­low right

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