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Delta takes $1.9 billion stake in LATAM, straining American Airlines ties

Delta takes $1.9 billion stake in LATAM, straining American Airlines ties

CHICAGO (Reuters) - Delta Air Lines (DAL.N) on Thursday announced it would buy a 20% stake in LATAM Airlines Group (LTM.SN), Latin America’s largest, for $1.9 billion, creating a major new airline partnership and shaking up the Chilean carrier’s longtime ties with American Airlines.

FILE PHOTO: Passengers wait to check in for their flights at the departure area of Latam airlines inside of the Commodore Arturo Merino Benitez International Airport in Santiago, Chile April 25, 2019. REUTERS/Rodrigo Garrido/File Photo

LATAM flies to dozens of cites across Argentina, Brazil, Ecuador, Peru, Colombia and Chile, where it is based.

The surprise deal is another example of Delta’s push to grow internationally through equity partnerships with other airlines. It is the U.S. carrier’s largest investment since its merger with Northwest Airlines a decade ago, and could upend American’s (AAL.O) stronghold on the Latin American region.

LATAM has been a member of the Oneworld alliance since 2000 alongside longtime partners American, British Airways and Iberia, with which it had been pursuing a deeper route alliance that was rejected by the Chilean Supreme Court last May. As a result of the Delta deal, it will leave Oneworld.

Delta does not expect regulatory obstacles for its tie-up with LATAM, where it will gain representation on the board of directors. The plan envisions growth for both carriers, which currently overlap on only one route, Chief Executive Ed Bastian told Reuters.

“I think it’s a great fit,” he said.

Atlanta-based Delta expects the LATAM deal to be accretive to earnings per share over the next two years and add $1 billion in revenue growth over five years, Bastian said.

Delta is using newly issued debt and available cash for the deal. It will also provide LATAM an additional $350 million to help it transition out of Oneworld and plug into Delta’s network.

The two can start code-sharing before they receive government, regulatory and anti-trust approval for the larger tie-up, a process Bastian said he expects to take between 12 and 24 months.

As part of the deal, Delta will also acquire four A350 aircraft from LATAM and assume LATAM’s commitment to purchase another 10 A350s to be delivered between 2020 and 2025 for an undisclosed sum.

Delta also owns stakes in Grupo Aeromexico (AEROMEX.MX), Air France KLM (AIRF.PA), China Eastern (600115.SS), Brazil’s Gol (GOLL4.SA), Virgin Atlantic and Korean Air Lines Co’s (003490.KS) parent company.

It has also been negotiating a 10% stake in Alitalia [CAITLA.UL]. That plan has not changed with the LATAM deal, which Delta started studying about three months ago after an approach by a third party, Bastian said.

Reporting by Tracy Rucinski; Additional reporting by David Sherwood in Santiago and Marcelo Rochabrun in Sao Paulo; Editing by Dan Grebler

Topic: #latam #delta
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