Delta to buy 20% percent stake in LATAM Airlines for $1.9 billion

Sep 27, 2019: Delta Airlines will buy 20 percent stake in LATAM Airlines Group, for $1.9 billion, announced the US carrier, leading to end of the Latin American carrier’s ties with American Airlines.

With the deal, Atlanta-based Delta will also gain representation on LATAM’s Board of Directors.

With their complementary networks, Delta, LATAM and their partners will be able to serve 435 destinations worldwide and carry more passengers between North America and Latin America than any other partnership.

Additionally, Delta will also invest $350 million to support the establishment of the strategic partnership.

The US carrier also informed that it will acquire four A350 aircraft from LATAM and has agreed to assume LATAM’s commitment to purchase 10 additional A350 aircraft to be delivered beginning in 2020 through 2025, supporting Delta’s ongoing fleet transformation.

The deal is subject to customary closing conditions and all required governmental and regulatory approvals, including anti-trust immunity.

The strategic partnership will unlock new growth opportunities, building upon Delta’s and LATAM’s global footprint and joint ventures worldwide, including Delta’s existing partnership with Aeromexico. 

Delta expects that the transaction will be accretive to EPS over the next two years. 

For LATAM, the transaction will improve free cash flow generation, reduce forecasted debt by over $2 billion by 2025 and improve LATAM’s capital structure, enhancing its ability to execute its long-term strategy.

Delta has also holdings in Air France KLM, China Eastern, Virgin Atlantic and Korean Air Lines Co’s parent company, in addition to its stake in Grupo Aeromexico.

It has also been negotiating a 10 percent stake in Alitalia as part of its strategy to boost its international presence through equity investments.

That plan has not changed with the LATAM deal, which Delta started studying about three months ago after an approach by a third party, Bastian said.

American Airlines comments on the LATAM partnership

On the LATAM partnership with Delta, American Airlines which has been the leading US carrier in the region and was pursuing a deeper route alliance with LATAM, said that it understands LATAM’s decision to partner with a US carrier that isn’t burdened by the ruling of the Chilean Supreme Court.

Adding to it, the airline through a statement said that the loss of partner in Chile would not have a significant impact on its financial results.

American added that its LATAM partnership had limited upside after the Chilean Supreme Court did not approve the two carriers’ plans for further route cooperation.