Delta Air Lines will be spending $1.9 billion (£1.5bn) in LATAM Airlines Group to take a 20% in the Latin American conglomerate, it has announced.
The surprise deal will give Delta a much larger presence in the region, with the new partnership serving 435 destinations worldwide and carrying more passengers between North America and Latin America than any other partnership.
As part of the deal, Delta will purchase four A350 aircraft from LATAM and will acquire a further 10 directly from Airbus.
“This transformative partnership with LATAM will bring together our leading global brands, enabling us to provide the very best service and reliability for travelers to, from and throughout the Americas,” said Ed Bastian, Delta chief executive .
Delta will invest a further $350 million (£280m) to support the establishment of the strategic partnership and will gain seats on LATAM’s board of directors.
Huge blow to American Airlines
American Airlines and LATAM spent two years trying to form a joint venture only to eventually be shot down by the Supreme Court of Chile in May.
Until now, LATAM had been a oneworld member. With the new partnership with Delta it will leave oneworld and sever its ties with American, though there are no plans for the airline group to join SkyTeam.
Shortly after the announcement from Delta, American Airlines released a statement saying: “This change in partnership is not expected to have a significant financial impact to American, as the current relationship provided less than $20 million (£16m) of incremental revenue to American, and the proposed joint business without Chile would have provided limited upside.”
Indeed, American already has a well-developed network in Latin America and is unlikely to be seriously impacted by the new partnership. However, it is now left without a partner airline in South America, and beyond its major hubs will have few connection opportunities.
LATAM’s departure from oneworld will also create a hole in Latin America for the alliance. While SkyTeam has Aerolineas Argentinas and Star Alliance has Avianca and Copa, oneworld will be left without a single partner based in the region.
Even with its investment in Gol and Aeromexico, Delta has historically been weak in Latin America. A close relationship with LATAM will give Delta unparalleled access to primary and secondary destinations throughout the region with the added benefit of equity.
Delta does not expect regulatory obstacles for its tie-up with LATAM. The plan envisions growth for both carriers, which currently overlap on only one route.
As a result of the deal, Delta will sell its stake in Brazil’s largest airline, Gol. Delta currently holds stakes in Grupo Aeromexico, Air France-KLM, China Eastern, Virgin Atlantic, and Korean Airlines Co’s parent company, with LATAM to shortly be added to its portfolio.
Following the annoucement, Delta’s stock price rose by 0.81%, closing at $58.78 (£48.75).