Delta invest $2 billion into partnership with LATAM
Delta Air Lines (DAL) is forming a strategic partnership together with the biggest airline group in South America, LATAM. The U.S. airline will acquire a 20% stake in the South American airline for $1.9 billion and invest $350 million to support the establishment of the partnership. LATAM’s Board of Directors will now seat Delta’s representatives.
In addition, LATAM will transfer four Airbus A350 XWB aircraft together with its commitment to acquire ten A350s to Delta, as the former is going through a fleet transformation process. Delta will now receive the 10 XWBs starting from 2020 through 2025.
As of August 30, 2019, the U.S. carrier operated 13 Airbus A350 aircraft and has 12 orders pending delivery, according to Airbus’ Orders and Deliveries file.
The two airlines plan to serve 435 destinations worldwide and carry more passengers between North America and Latin America than “any other joint venture”, according to the press release. Delta will finance the investment by newly issued debt and free cash, as it is the only major airline in the United States that is not affected by the 737 MAX crisis – the airline has zero MAX aircraft in its fleet.
The deal is still to be approved by “customary closing conditions and all required governmental and regulatory”. If given the green light, for Delta this would be the second investment in 2019. On September 23, 2019, the American airline acquired a 10% stake in Hanjin-KAL, which is the largest shareholder of Korean Air.
While the partnership with LATAM significantly expanded the global reach of both airline brands, the deal also has sparked quite a few headaches.
Conflict of interest
LATAM and Delta Air Lines are both associated with different airline alliances – the latter has been a member of oneworld since 2000, while the former is a founding member of SkyTeam, forming the alliance in 2000.
With DAL’s extensive presence in the Chile-based airline group, this has brought a significant amount of conflict of interest within the two overlapping networks. Following the strategic partnership announcement, LATAM “advised oneworld that they intend to leave the alliance in due course”, according to a statement released by the association.
Furthermore, one of the most prominent members of oneworld Qatar Airways owns a 10% stake in LATAM, which it acquired in 2016. It is still not known what will happen with the Qatari airline’s shares. However, if Delta were to sit together with Qatar at one Board of Directors’ table, things would, presumably, get spicy.
Persian Gulf airlines and three U.S. legacy carriers, including Delta, have been at a spat ever since 2015 when the American airlines accused the Middle East carriers of receiving illegal state aid in the form of subsidies. Qatar Airways has further instigated the conflict with its Italian adventure Air Italy. The American “big three” has called out Qatar Airways for using the Italian airline as a proxy to go around an agreement with which the Middle Eastern carrier pledged not to increase “fifth freedom” flights to the United States.
Delta is not yet done shopping in international markets. It is still eyeing a 10% stake in Alitalia, the Italian flag carrier which apparently can survive the Four Horsemen of the Apocalypse. The Chief Executive Officer of Delta Air Lines, Ed Bastian, said that the airline is “ready to invest in Alitalia”, and that it is still in “discussions with the consortium and the government”.
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