The French recognised that Watt's talents were not being fully utilised due to his ineligibility to lead a squadron, and recommended that he transfer to the Australian Flying Corps. Watt did so on 1 March 1916, with the rank of captain. Posted to Egypt in May, he was made commander of B Flight, No. 1 Squadron, and took charge of the unit's first contingent of Royal Aircraft Factory B.E.2s the following month. No. 1 Squadron was engaged mainly in aerial reconnaissance and army co-operation duties, but the two-seat B.E.2 proved inferior to German Fokkers and Rumplers in speed, time-to-climb, and manoeuvrability. In September 1916, Watt was promoted to major and given command of No. 2 Squadron, which was formed in Kantara. He was mentioned in despatches by General Archibald Murray, Commander-in-Chief of the Egyptian Expeditionary Force, on 13 October; the commendation was promulgated in the "London Gazette" on 1 December. No. 2 Squadron's personnel was composed largely of former Lighthorsemen, as well as thirteen mechanics from the Australian Flying Corps' first combat formation, the Mesopotamian Half Flight, led by Flight Sergeant George Mackinolty. Watt personally trained the force in England commencing in January 1917, before deploying it to the Western Front that September. He was "a born leader of men", according to one officer, while another recalled that "In the things that mattered, his men knew he stood for absolute obedience. They also knew that when discipline could be safely relaxed he would be quick to grant them some relief from the strain."