Delta Air Lines announced on Thursday an agreement to buy a 20% stake in LATAM Airlines Group for US $ 1.9 billion, creating a new alliance that shakes the old ties of the Chilean airline with American Airlines.
The surprising business, which Delta will finance with new debt issues and with available cash, is its biggest investment since the merger with Northwest Airlines a decade ago and could change the market situation in Latin America, an American Airlines stronghold.
LATAM has been a member of the Oneworld alliance since 2000 along with its American partner, British Airways and Iberia, with whom it had been looking for a deeper route alliance that was rejected by the Chilean Supreme Court last May.
Delta does not expect there to be regulatory obstacles to its relationship with LATAM, where it will obtain representation on the board of directors. The plan foresees growth for both companies, which currently overlap in a single route, Delta chief executive Ed Bastian told Reuters.
“I think it fits very well,” he said.
In a note released in Santiago, the CEO of LATAM Airlines Group, Enrique Cueto, said that “this alliance with Delta strengthens LATAM and delivers the best connectivity to passengers through our highly complementary destination networks.”
Delta, based in Atlanta and part of the Sky Alliance, expects the LATAM agreement to be beneficial to earnings per share over the next two years and add $ 1 billion in revenue over five years, Bastian said.
LATAM is the largest air transport group in Latin America.
As part of the agreement, Delta will also acquire four A350 aircraft from LATAM and assume LATAM’s commitment to purchase another 10 A350 units that will be delivered between 2020 and 2025 for an undisclosed sum.
Delta also has interests in Grupo Aeroméxico (AEROMEX.MX), Air France KLM (AIRF.PA), China Eastern (600115.SS), Gol de Brasil (GOLL4.SA), Virgin Atlantic and Korean Air Lines Co. (003490. KS).
They have also been negotiating a 10% stake in Alitalia [CAITLA.UL]. That plan has not changed with the agreement of LATAM, which Delta began studying about three months ago, Bastian said.