Delta Takes 20 Percent Stake in LATAM, a Partnership Which Will Dominate Five Latin American Markets
Updated: Jan 11, 2020
Late yesterday afternoon, Delta Air Lines announced they would acquire 20 percent of Santiago, Chile-based LATAM Airlines Group S.A. for $1.9B through a public tender offer at $16.00/share. The deal will be funded by available cash and newly issued debt.
The new LATAM partnership will extend Delta’s connectivity throughout the Americas by building on their relationship with Aeroméxico. According to the Delta Press Release, the partnership will serve 435 destinations worldwide and carry more passengers between North America and Latin America than any other airline collaboration. The joint venture links the leading North American and Latin American airline brands, expanding travel choices for customers of each respective airline. In the announcement Delta Air Lines Chief Executive Officer Ed Bastian stated,
“This transformative partnership with LATAM will bring together our leading global brands, enabling us to provide the very best service and reliability to travelers to, from and throughout the Americas. Our people, customers, owners and communities will all benefit from this exciting platform for future growth."
As part of the deal, Delta will acquire 4 Airbus A350’s from LATAM and assume their commitment for ten more, due for delivery between 2020 and 2025. Additionally, Delta has committed $350 million in support of the partnership and will be represented on LATAM’s Board of Directors. The deal is expected to be positive for Delta’s earnings per share (EPS) over the next two years and won’t impact existing financial commitments or free cash flow. The company also states that targeted leverage ratios will be maintained.
Speaking on the new partnership, LATAM Chief Executive Officer Enrique Cueto Plaza stated,
“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.”
Naturally, the partnership announced yesterday will be subject to closing conditions and regulatory approvals, which are expected to take 12-24 months. On the investor conference call this morning, Mr. Bastian stated that Delta would be ending their current partnership with Brazilian low-cost-carrier Gol, but expected code sharing integration between Delta and LATAM to be completed by the end of this year. In recent months, Delta’s strong financial position has allowed them to take substantial stakes in other airlines as well. Last June, the company acquired a 4.3% stake in SkyTeam partner Korean Air, which was subsequently increased to 10% earlier this month. Delta also has equity stakes in GOL, China Eastern and Air France-KLM.
Source: Delta Air Lines