Many anticipated that the Persian Gulf carriers would follow their initial investments in Europe’s struggling airlines by picking up more shares. But a little more than a year after they entered the scene as stakeholders, the Middle East carriers are disappointed by the results to date.

Qatar Airways decided to sell its 35% stake in Cargolux this month, following a clash with other shareholders over strategy and, eventually, the naming of a new CEO. More fundamentally, Cargolux is suffering serious losses, partly as a result of the current market downturn and partly because of structural reasons.

Qatar Airways declines to comment on the matter officially, but a heated debate is under way in Luxembourg about the failed shareholder strategy and how to avoid making similar missteps. Even the country’s finance minister is facing demands to resign.

What happened in Luxembourg is hardly unique. Europe is proving to be difficult terrain for Middle East investors because of restrictions on ownership and control as well as politics and economic weakness. None of their current investments has been a resounding success. Cash-strapped European carriers worry that these difficulties will discourage new investors, such as Qatar Airways, from additional moves, at least in the near future.

Shortly after it bought into Cargolux, Qatar was close to acquiring a significant stake in Barcelona-based Spanair. But concerns over what the European Commission considered illegal state aid for the Spanish airline stopped the deal at the very last minute. Qatar CEO Akbar Al Baker decided not to make the investment, and Spanair was forced to file for bankruptcy the next day.

Berlin Investment

Etihad Airways is currently the most important Middle East investor in Europe, with a 29% stake in Air Berlin. Etihad says it benefits greatly from Air Berlin feed, and Air Berlin says its revenues are up by €50 million ($64 million) since Etihad became a shareholder. But the subsidiary is still in serious financial trouble and has taken $200 million of a $255 million Etihad loan in just a few months. And while its latest quarterly results have improved, aircraft sales intended to bolster the weak balance sheet have been delayed, and the carrier is now trying to sell its frequent-flyer program to raise cash in the winter season. Both Etihad and Air Berlin say no additional shareholder loan is needed to get into next year.

Emirates Airline President Tim Clark says he considered buying into Air Berlin a year ago but concluded that “it is not without risks.” The investment to turn the airline around would have been too high and required too much management attention, he notes. “In the end, we felt we were strong enough to support the amount of flights we are doing [into Europe],” Clark says. “So why would you throw €500 million at it?”

Meanwhile, Etihad also has invested in a small stake in Aer Lingus and says it is interested in buying the 25% held by the Irish government, if and when it is for sale. But Aer Lingus’s management is none too welcoming, not wanting to compromise its business model if the ties become too close. Aer Lingus CEO Christoph Mueller says having a shareholder such as Etihad controlling 25% “is not a disadvantage, unless they dominate us.” Whether an investment makes business sense “can only be answered by Etihad,” he says. Both airlines are exploring potential cost synergies, “but that is not bound to a shareholding,” Mueller notes.

The clash between Qatar Airways and the local Cargolux shareholders came after the board refused to accept Al Baker’s demands to install Richard Forson as permanent CEO. Forson, formerly chief financial officer of Qatar Airways, has been the cargo airline’s interim CEO since Frank Reimen departed in July. There have been numerous indications of earlier board disputes over strategy and personnel issues, and Al Baker has become increasingly frustrated by a lack of support.

Not many details of strategy differences have emerged publicly, but one involves the airline’s future fleet. The board has discussed changing some of its outstanding orders to the smaller Boeing 777F, an initiative proposed by Qatar. Cargolux’s fleet of large-capacity freighters makes it particularly vulnerable to downturns, as the aircraft can only be operated economically on a very limited number of trunk routes.