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Delta Takes Stake In LATAM Airlines

FreightWaves

Delta Air Lines (NYSE: DAL) plans to take a 20 percent ownership of LATAM Airlines (NYSE: LTM) with a $1.9 billion investment in the Chilean-based airline that positions it to make inroads against American Airlines Group (NASDAQ: AAL) in Latin America.

Both companies said late Thursday afternoon (Sept. 26) the new partnership would provide passengers greater global connectivity and convenience through a highly complementary route network, which should also benefit cargo. Delta also has a joint venture with Aeroméxico.

Together, Delta and LATAM will hold five of the top six Latin American markets from the U.S.

Delta, which does not operate all-cargo planes, would also get access to LATAM's freighter fleet.

LATAM Airlines, formerly known as LAN Airlines and LAN Chile, is the largest airline group in Latin America, offering service to 143 destinations in 25 countries, including Argentina, Brazil, Chile, Colombia, Ecuador and Peru. It employs more than 41,000 people worldwide, has 322 aircraft and operates about 1,300 flights per day.

LATAM was American's partner in Latin America. In May, Chile's Supreme Court ruled against a proposed route collaboration between OneWorld alliance partners LATAM, American, British Airways and Iberia designed to rationalize similar operations and reduce costs. Citing antitrust concerns, the justices said the arrangement would give the airlines too much market power.

Delta will pay $16 per share in LATAM stock with cash and newly issued debt. It will also invest $350 million to support the establishment of the strategic partnership, acquire four Airbus A350 aircraft from LATAM and have gain representation on LATAM's board.

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. Delta said the deal will increase earnings within two years.

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