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Delta Air Lines will purchase a 20% stake in LATAM for $ 1.9 billion, causing a dramatic change in the airscape of the Americas. This decision came after Chile's Supreme Court ruled against a joint venture created by LATAM and its long-time partner, American Airlines. The new strategic partnership will be funded by a combination of cash on hand and a new debt.
As part of this transaction, Delta will also purchase 4 LATAM A350s and support 10 additional orders pending from Airbus. Some of these orders are for the largest model – 1,000 on the A350. It is not clear if Delta will take the biggest planes to convert them to the -900 that it currently flies. Additional chassis are expected to join the Delta fleet over the next five years.
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. We look forward to working alongside one of the best airlines in the world to enhance the travel experience of our passengers.
– Enrique Cueto Plaza, General Manager of LATAM
A new type of alliance?
In addition to ending its close relationship with American Airlines, the new contract will allow LATAM to leave the Oneworld alliance. It is unclear whether this will trigger a transition to SkyTeam or whether the carrier will remain independent. Delta's most recent similar transaction involved a 49% stake in Virgin Atlantic and this carrier did not join the alliance. Delta executives did not hesitate to focus on building stronger capital than the alliance. These equity partnerships cover the world today, the LATAM agreement significantly strengthening the position of Latin America.
Etihad has taken similar steps to create a mini-alliance from its global equity investments in airlines. Despite some modest efforts, he never really exploited the shared benefits among his members. Etihad's version also included a horrible judgment about the airlines in which it should invest. It cost him billions of dollars. Delta's version is very different (that is, successful), but it also benefits from shared alliance-related infrastructure.
Read more: LATAM focuses on sleep with the new Premium Business Refreshment
The new partnership raises an interesting question of cooperation between rival airlines. Qatar Airways bought 10% of LATAM's capital three years ago and today even rents part of the LATAM A350s. But Delta is more than happy to fight with Qatar on several fronts. Ensuring that both parties cooperate for the future of LATAM would be an interesting change. Delta will, however, have a significant advantage with greater participation and a place on the board of directors.
While the partnership between American and LATAM goes back several decades, the US carrier said the financial value was insignificant for its operations. In a statement, American notes that "the current relationship has generated less than $ 20 million in additional revenue for American, and that proposed joint activities without Chile would have had limited upside potential." really be negligible.
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