Delta buys 20% of LATAM, the largest airline in Latin America

Delta Air Lines increases its presence in Latin America by investing $ 1.9 billion in LATAM, the largest airline in Latin America, with a 20% stake in Delta, its American rival American Airlines, which has created a joint venture with the Chilean company to increase its revenues. In the region.

The Delta announcement is the latest example of how the Atlanta-based airline is aggressively developing overseas through joint ventures or minority stakes with other carriers.

The foreign ownership rules prevent airlines from buying foreign carriers on the spot. This is why airlines are turning more and more to minority stakes and revenue sharing joint ventures in order to expose themselves to other markets.

According to Delta, Delta is expected to buy back its stake in the Brazilian company Gol, LATAM's competitor in Brazil. Delta's latest annual report showed that the participation rate was 9% in Gol.

LATAM provides services between major cities in South America and the United States, as well as domestic services in Chile, Brazil, Colombia, Peru, Argentina and Ecuador.

American Airlines is pursuing a joint venture with LATAM, a carrier to which it is already connected through the alliance of OneWorld airlines. These code share agreements allow carriers to sell seats on their respective flights and passengers to earn and accrue miles on these airlines. LATAM will leave the OneWorld alliance, but it was unclear whether it would join SkyTeam, the group that includes Delta and its partners.

Regulators in the United States and Chile, where LATAM is headquartered, are expected to approve the stake in Delta.

"Our employees, customers, owners and communities will all benefit from this exciting platform for future growth." Ed Bastian, chief executive of Delta, said in a press release announcing the deal.

In recent years, Delta has gradually developed its ownership and relationships with other international carriers. It increased its stake in Korean Air's parent company to 9.2%, announced the creation of a cross-border joint venture with Canadian airline WestJet and increased its stake in Aeromexico, the largest airline in the world, to 49%. Mexico.

Bastian and his team have forged closer relationships with Aeromexico to strengthen Delta's presence in Los Angeles, a key market for both airlines.

In addition to buying twenty percent of LATAM for $ 1.9 billion, Delta will also spend $ 350 million to expand its partnership with the carrier. As part of this agreement, Delta will acquire four Airbus A350 aircraft and will assume LATAM's commitment to purchase an additional 10 A350s between 2020 and 2025.

Delta pays for the contract with existing cash and newly issued debt. He expects the investment to increase profits over the next two years.

Announcing the deal, Enrique Cueto Plaza, CEO of LATAM, said, "This alliance with Delta strengthens our company and strengthens our leadership in Latin America by providing the best possible connectivity through our highly complementary route networks."

CNBC Meghan Reeder contributed to this report