Delta and LATAM Airlines Group S.A. ("LATAM") today announced that they have entered into a strategic partnership that for the first time combines the strengths of the leading airlines in North and Latin America.
The Latam deal could make Delta the largest USA carrier in Latin America, Bloomberg Intelligence analyst George Ferguson commented.
"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's Chief Executive Officer.
In a statement, American said its current tie-up with LATAM provided an incremental revenue of less than $20 million to its bottom line, and that the planned joint business without Chile would have given the company limited upside.
Under the agreement, Delta will invest United States dollars 1.9 Billion for a 20% stake in LATAM through a public tender offer at USD 16 per share share. Also, Delta will invest an additional $350 million for setting up the strategic partnership between both airlines.
Delta's purchase of LATAM stake still needs approval from US and Chilean regulators. "It means that Delta will have more access to Latin America than it did before, but American already has much of that in its back pocket". Nevertheless, Delta expects the proposal to be approved and transactions to be ready over the coming two years.
"We are disappointed, but we respect their decision", read a oneworld statement. While Delta is gloating over the action, American Airlines is not.
As a result of the deal, Delta will sell its stake in Brazil's largest airline Gol, a LATAM rival. But LATAM will now be leaving the OneWorld alliance, although it is not clear whether it will be joining SkyTeam, where Delta has its alliances.
This surprise agreement is just another instance of how Delta has been focused on expanding aggressively in global markets, primarily through joint ventures or minority stakes.
Delta has recently raised its stake in the parent company of Korean Air to 9.2 per cent and announced a trans-border joint venture with Canadian airline WestJet. -South America traffic flow.
"During the transition period, American will work with LATAM to ensure a seamless experience for customers".
Delta will also gain representation on LATAM's board of directors.
Since then, Delta has made moves to expand in Latin America through partnerships with Aeromexico and GOL, but GOL has in recent years struggled financially amid a recession in Brazil.