Delta Air Lines has revealed it will take a 20 per cent stake in LATAM Airlines Group.
The deal, valued at US$1.9 billion, is likely to prove a blow to American Airlines, which has previously sought a joint-venture with the Chilean-based carrier to grow revenue in South America.
“This transformative partnership with LATAM will bring together our leading global brands, enabling us to provide the very best service and reliability for travellers to, from and throughout the Americas,” said Ed Bastian, Delta Air Lines chief executive.
“Our people, customers, owners and communities will all benefit from this exciting platform for future growth.”
As a result of the deal, Delta said expects to exit its stake in Brazilian carrier Gol.
The carrier competes with LATAM in Brazil.
According to the latest annual filings from Delta, it currently owns nine per cent of Gol.
LATAM offers service between major cities in South America and the United States, as well as domestic service within Chile, Brazil, Colombia, Peru, Argentina and Ecuador.
“This alliance with Delta strengthens our company and enhances our leadership in Latin America by providing the best connectivity through our highly complementary route networks,” said Enrique Cueto Plaza, chief executive of LATAM.
“We look forward to working alongside one of the world’s best airlines to enhance the travel experience for our passengers.”
The deal will see the airlines develop a new strategic partnership, which will also include Aeroméxico, in which the Delta holds a stake.
Delta will pay $16 per share in LATAM, with the deal to be funded principally with newly issued debt and available cash.
The American carrier will also invest $350 million to support the establishment of the strategic partnership.
At the same time, Delta will acquire four A350 aircraft from LATAM and has agreed to assume the South American carrier’s commitment to purchase ten additional A350 aircraft.
The latter are to be delivered beginning in 2020 through 2025.
In recent years, Delta has steadily expanded its ownership and relationship with other international carriers.
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.
The airline has also increased its ownership of Aeromexico, the largest airline in Mexico, to 49 per cent.
Following the LATAM news, fellow oneworld carrier American Airlines stated that it would not be pursuing its partnership with the South American carrier further.
“This change in partnership is not expected to have a significant financial impact to American, as the current relationship provided less than $20 million of incremental revenue to American, and the proposed joint business without Chile would have provided limited upside,” read a statement from American.
“During the transition period, American will work with LATAM to ensure a seamless experience for customers.”
LATAM also advised oneworld it intends to leave the alliance in due course and in accordance with formal contractual requirements.
“We are disappointed, but we respect their decision,” read a oneworld statement.
“They have been a valued long-term member of the alliance, and we wish them well.”