Delta Air Lines will buy a 20% stake in LATAM for $1.9 billion, triggering a seismic shift in the aviation landscape of the Americas. The move comes after Chile’s Supreme Court ruled against a joint venture planned by LATAM and its long time partner American Airlines. The new strategic partnership will be funded by a mix of cash on hand and new debt.
As part of the deal Delta will also purchase 4 of LATAM’s A350s and take over an additional 10 pending orders with Airbus. Some of those orders are for the larger –1000 model of the A350. It is unclear if Delta will take the bigger planes r convert them to the –900s it currently flies. The additional frames are expected to join Delta’s fleet in the next 5 years.
This alliance with Delta strengthens our company and enhances our leadership in Latin America by providing the best connectivity through our highly complementary route networks. We look forward to working alongside one of the world’s best airlines to enhance the travel experience for our passengers.– Enrique Cueto Plaza, Chief Executive Officer of LATAM
A new type of alliance?
In addition to ending its close relationship with American Airlines, the new deal will see LATAM depart the Oneworld alliance. It is unclear if that will trigger a shift to SkyTeam or if the carrier will remain independent. Delta’s most recent similar transaction involved a 49% stake in Virgin Atlantic and that carrier did not join the alliance. Delta executives have not been shy about their focus on building stronger equity positions rather than relying on the alliance. Those equity partnerships span the globe today, with the LATAM deal significantly boosting the Latin American position.
Etihad made similar moves to build a mini-alliance out of its global equity investments in airlines. Despite a couple small efforts, it never truly executed on the shared benefits across its members. Etihad’s version also included horrible judgement with respect to which airlines it should invest in. That ultimately cost it billions of dollars. Delta’s version is significantly different (i.e. successful), though also benefits from shared infrastructure related to the alliance.
The new partnership raises an interesting question of cooperation among rival airlines. Qatar Airways bought a 10% stake in LATAM three years ago and even leases some of the LATAM A350s today. But Delta is more than happy to fight with Qatar on any of several fronts. Getting the two sides to cooperate on the future of LATAM would be an interesting shift. Delta will hold a significant advantage, however, with a larger stake and its position on the Board of Directors.
While the partnership between American and LATAM goes back decades the US carrier says the financial value is trivial to its operations. In a statement American notes “the current relationship provided less than $20 million of incremental revenue to American, and the proposed joint business without Chile would have provided limited upside.” For a carrier pulling north of $40 billion in revenue the impact from losing LATAM may really be negligible.