Delta’s surprise announcement that it will spend $1.9 billion to acquire a 20% stake in LATAM is a shrewd move that will simultaneously strengthen Delta while hurting the competition.
Yesterday, Delta announced it would form a significant relationship with LATAM.
Key Details Of Delta – LATAM Partnership
- Delta will invest $1.9 billion for a 20% stake in LATAM through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash
- Delta will also invest $350 million to support the establishment of the strategic partnership
- LATAM will leave oneworld, but will not join SkyTeam
- Delta 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
- Delta will be represented on LATAM’s Board of Directors
- LATAM and Delta will establish a joint venture on key routes, subject to regulatory approval
- Delta will sell off its stake in Gol, but retain its stake in Aeromexico
Joint Venture Partnership
Not only with Delta invest in LATAM, it will form a joint venture partnership Delta hopes will solidify its new-found strength in Latin America. Together:
- Delta and LATAM will hold the leading position in five of the top six Latin American markets from the U.S.
- The partners will serve 435 destinations worldwide and carry more passengers between North America and Latin America than any other partnership
More Airbus A350s for Delta
As part of this investment, Delta will acquire 14 additional A350s. Four will be purchased directly from LATAM while 10 will be delivered from Airbus to Delta rather than LATAM.
Additional A350s are well-suited for potential Delta expansion to more South American destinations.
CEOs Weigh In
Speaking of the news, Delta CEO Ed Bastian said:
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. Our people, customers, owners and communities will all benefit from this exciting platform for future growth.
LATAM CEO Enrique Cueto Plaza said:
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. We look forward to working alongside one of the world’s best airlines to enhance the travel experience for our passengers.
Huge Blow to American Airlines + oneworld
American Airlines and LATAM spent two years trying to form a Joint Venture only to eventually be shot down by the Supreme Court of Chile. I’ll discuss the regulatory angle of this Delta – LATAM merger in a follow-up post, but AA came so close to locking this deal up only to see it disintegrate at the eleventh hour. That must make this news from Delta particularly difficult to swallow.
LATAM will separate from oneworld and sever its ties with American. This undermines the one market in which American was dominant, placing American (once again) at a potential strategic disadvantage.
LATAM’s departure will also create a huge hole in Latin America for oneworld, leaving not a single partner based in Latin America.
The Genius Of This Move
Even with its investment in Gol and Aeromexico, Delta has historically been weak in Latin America. A close relationship with LATAM will give Delta unparalleled access to primary and secondary destinations throughout the region, giving Delta not only a seat at the table, but equity.
This is big news because Ed Bastian was not just talking big…Delta truly is creating a global airline network independent of alliances or other restraints. At the driver’s seat, Delta sees a world dominated by it and its network partners, with a cohesive product experience that will keep customers loyal.
CONCLUSION
Delta’s move comes as a surprise, but should not be. Flush with cash and ready to secure its market dominance, Delta’s genius move to acquire LATAM and strengthen its Latin America network was actually long overdue.
image: Delta
Ed Bastian and Akbar al Baker on the same team!
“Hey Akbar, my stake is bigger than yours!” Surely, their conversation will not descend to this level.
It’ll be interesting to see how DL supports LATAM in MIA now that they won’t have the AA feed to help fill their MIA flights. Hopefully we see DL add some key routes like LAS and MCO out of MIA.
Totally agree with you on the strategic brilliance of this move by Delta. And, perhaps they can bolster LATAM’s service in Central America while they are at it. That’s one part of Latin America where they are weak, yet there is the potential for growth. Still, I have to wonder why DL is taking LATAM’s A350s? LATAM has an older fleet and could have really used those. How are they planning on rejuvenating LATAM’s fleet? Because it needs a refresh.
On a more trivial note: I wish they’d do something about the name of the airline – LATAM. Sounds like ta-dah! And it doesn’t exactly roll off the tongue. I understand the corporate thinking that went into this but it reminds me of the “Molen Creek” episode in Seinfeld.
The real losers here are those like me stuck in AA fortress hubs like DFW. The problem isn’t getting to major cities in South America; AA has that covered. It’s intra-South America flights that now become problematic. Those tend to be really expensive when paying cash. From DFW, it was possible to add on a second “tag” flight on LAN from, say, SCL or EZE for not much more than the straight flight to the hub. Or you could use a short-haul Avios redemption to get to or from a secondary market. Now both of those are out the window. What’s left is a double connection (DFW-ATL-MIA-SCL/EZE-XXX or DFW-MEX-SCL/EZE-XXX) to go with DL/AM and then LAN, or just ponying up the cash for the tag flight.
Maybe this will work itself out, either by DL beefing up at MIA or offering some reasonably priced short-haul redemptions on LAN, but I’m not hopeful. Next time I go South America hopping, it might actually push me to just drive to Houston and pick something up on *A from IAH.
LATAM’s CEO has said that they expect their partnerships with BA, IB and QF, so we will likely still be able to use Avios for LATAM flights.
Was there supposed to be more to this sentence, or was it supposed to read differently?
Even with its investment in Gol and Aeromexico, Delta has historically been weak in Latin American and united.
I just wonder when Delta is going to help some of our smaller cities that can’t even have enough lines on the bid for the employees that are “benefitted” to work full time . They have to bid the best reduced hour lines and trade, trade, and trade their lives away to try and get 40 hours of work a week. That’s really sad. These people are 20+ year veterans an can’t hold a full time line? Not very nice.
Delta should be investigated for anti-trust issues.
As Delta begins the push to kill alliances and limit travelers to joint venture partners, why isn’t that more of a story for frequent travelers? Limiting non-hub fliers to 1 partner per continent is going to drive prices higher and rewards lower. Even though it’s many years down the road, if it even happens, I’d think this would be an angle to cover.