MAJOR COUP: Delta Taking Massive Stake In LATAM

Filed Under: American, Delta

This is huge news.

Delta To Buy 20% Stake In LATAM

It has been announced today that Delta will invest $1.9 billion to acquire a 20% stake in LATAM. This is being done through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash.

On top of that, Delta will invest $350 million to support the establishment of a strategic partnership.

This will be Delta’s biggest acquisition since they took over Northwest over a decade ago.

Delta CEO Ed Bastian had the following to say:

“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.”

Meanwhile LATAM CEO Enrique Cueto Plaza had the following to say:

“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.”

One interesting point (though ultimately insignificant) is that Qatar Airways also owns a 10% stake in LATAM. Delta and Qatar Airways are enemies so that’s kind of funny, but ultimately I imagine they could coexist as investors, assuming egos don’t get in the way.

Delta is buying a 20% stake in LATAM

Delta Will Get More A350s

As part of this investment, Delta will acquire four A350s from LATAM and has agreed to assume LATAM’s commitment to purchase 10 additional A350 aircraft, to be delivered between 2020 and 2025, supporting Delta’s fleet transformation.

This means that Delta is getting an additional 14 Airbus A350s.

Delta’s A350 business class

Delta & LATAM Will Form Joint Venture

Delta and LATAM plan to form a joint venture that will give Delta a huge advantage in South America, which is a region in which they’ve historically been weak:

  • Delta and LATAM will hold the leading position in five of the top six Latin American markets from the US; it will be interesting to see to what extent American competes
  • Together, the two airlines will serve 435 destinations worldwide and will carry more passengers between North America and Latin America than any other partnership

This will make Delta strong in Latin America

LATAM Will Leave Oneworld, Cut Ties With American

What makes this so crazy is that American and LATAM have actively been pursuing a joint venture, but have faced regulatory challenges in getting it approved.

So to see LATAM call that off and instead pursue something with Delta, despite their longstanding partnership with American, is just… wow.

LATAM plans on leaving the oneworld alliance, which is a huge blow.

This is horrible news for American. Historically Latin America has been the market where they’ve had the biggest advantage, but they will completely lose that with this deal.

American has now issued the following statement regarding this:

Given the recent negative ruling by the Chilean Supreme Court, which would have significantly reduced the benefits of our partnership since Chile was not approved as a part of the potential joint business arrangement, we understand LATAM’s decision to partner with a U.S. carrier that isn’t burdened by the ruling. 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. During the transition period, American will work with LATAM to ensure a seamless experience for customers. American Airlines remains the largest U.S. carrier to both Latin and South America and we look forward to competing and growing in this region of the world.

This is terrible news for oneworld

Will LATAM Join SkyTeam?

It’s not yet known if LATAM will join SkyTeam. Delta has expressed their dissatisfaction with SkyTeam, as they build their own global network of airlines outside the alliance. So I wouldn’t assume LATAM will join SkyTeam, as most of Delta’s closest partnerships are focused on equity investments and joint ventures, rather than a shared alliance.

Will LATAM & Alaska Cut Ties?

While minor in the grand scheme of things, it’s worth noting that Alaska & LATAM have a partnership. While Alaska’s partnerships span the alliances, there is a precedent that when Delta invests in airlines and forms close partnerships, those airlines cut ties with Alaska.

So while nothing has been stated one way or another, I would guess that Alaska and LATAM will cut ties in the not-too-distant future.

Will Alaska and LATAM cut ties?

This Is A Brilliant Move On Delta’s Part

There’s no arguing that Delta has a brilliant and consistent strategy. The airline is assembling their own global network of airlines, through both strategic partnerships and investments. This gives them so much control globally in a way that no other US airline has.

They’ve done this with Aeromexico in Mexico, Virgin Australia in Australia, Virgin Atlantic in Europe, Korean Air in Asia, and more.

Delta has also purchased a stake in Korean Air

Latin America is historically a market where Delta was weakest, without much practical opportunity to grow. So to see them not only strengthen in this way, but in the process to essentially destroy the market for one of their competitors, is pretty brilliant.

As a oneworld loyalist this sure is a shame, though.

Bottom Line

Delta is investing nearly two billion dollars to buy a 20% stake in LATAM, and in the process they’re also acquiring an additional 14 A350s that were supposed to go to LATAM.

Delta and LATAM will also form a huge joint venture, meaning LATAM will leave oneworld and cut ties with American. This is catastrophic news for American, as it means they’ll no longer dominate in the one region where they previously had a stronghold.

What do you make of the new Delta & LATAM tie-up?

Comments
  1. Agreed. MAJOR news. I travel a lot to S. America, have been EXPlat for years on AA, and am thrilled to see this news. I may fully switch to Delta if this goes through. I am sick and tired of AA too.

    AA-Latam joint would have allowed them huge profits (Latam charges very high prices in general). With this there will be more competition.

    Delta is the clear winner, AA the clear loser, Latam I am less sure. They might have made more money with AA, but maybe Delta will compensate them.

  2. “ With plans for an expansion in service to South America, Delta plans to expand in Miami.”
    -AJC

    Perfect opportunity for you to focus on Delta, Lucky

  3. Check out AA’s hilarious attempt at spinning this, saying their partnership with LATAM only drove $20M in “incremental revenue.” news.aa.com/news/news-details/2019/American-Airlines-on-LATAM-Partnership-NET-ALP/

  4. This is major “Plot Twist” in the aviation sector.

    Delta will also exit their partneship with Gol Airlines (currently at 9%)

  5. Props to Lucky!
    First takes and overall depth of research much better here than the 30 thousand feet overview from tpg.
    Thank you.

  6. Dude I love your blog but your Bottom Line section reads like a 3rd grader’s book report! Don’t you have an editor? It could really improve your blog’s quality.

  7. 14 more A350’s before 2025, after which they’ll restart receiving their own orders they deferred a year ago. Do you think more international expansion is on the horizon? Or will they speed up retiring older wide bodies.

    Also wondering if the delivery timing is preparing for the (potential) LHR 3rd runway scheduled to open in 2025. More slots for VA/DL?

  8. Hi Ben:
    In an internal letter to employees they already said they are leaving Oneworld and not joining any other global alliance. Just JVs and codeshares.

  9. I travel every other month to Brazil with AA/Latam.
    I have been EP with AA for so many years (from the old good times) and I just can’t take any more bad news coming from AA.
    Being based in Miami, I just wish we had more option with DL and UA so I could jump the boat, or should I say “jump the airline” !!!

  10. This is a huge blow to OneWorld and a shot across the bow to SkyTeam.

    I wonder though, what this means for InterJet. Could this open the door a little bit for them to become a OneWorld Connect partner?

  11. Hopefully Delta’s culture rubs off and LATAM improves their service. In Brazil, TAM was once a great airline, however, once they merged with LAN, they essentially became a low-cost carrier for domestic flights. On such routes, at least within Brazil, they charge low fares but are no-frills too. International flights are better.

  12. I guess we now know why LATAM is one of only two remaining Oneworld airlines not bookable on aa.com, as reported earlier today.

  13. This is shocking. I honestly don’t get it. Living between Brazil and the U.S. I am perplexed as to why Delta would see this as prudent given their relationship with Gol. Sure, they get Chile and Peru with Latam but Brazil is the real prize. Gol is a far more interesting company with a strong upside and I am curious now what will happen with them. Gol joining One World and coordinating with American?

    Well, at least we will get the return of the daytime flight on AA metal between GRU and MIA.

  14. Ugh… why am I an AA hub-captive. If this keeps going on I am seriously considering moving to a city with a Delta hub. I would certainly live longer because of the amount of stress it would save me.

  15. ….and, well, now Delta FF can have the joy of discovering that Latam does not give up award seats to any partner airlines.

  16. @ Stuart — Who knows, maybe Delta will just have LATAM raise award costs to the standard 325K miles one-way in J, and suddenly there will be tons of availability. :p

  17. Delta and Qatar are natural enemies, like Delta and American, or Delta and United, or Delta and Virgin Atlantic, or Delta and Delta. Damn Delta, they ruined Delta!

  18. @Sally. Latam charging high prices? Maybe to Chile. But to Brazil their Business class cabin is often around $2K r/t to GRU from MIA. American is usually $6K. They have been a godsend for me in discounted business. Which is good as they NEVER give award seating to partners.

  19. @Stuart
    Let’s hope this competition will lower AA prices for premium cabins between the US and Brazil.
    I remember buying MIA/GRU roundtrip on Business class for around 2K, but can’t find anything below 3K for a while now.
    Also we will get rid of the Latam Multiplus members redeeming with AA, so more redemption availability to Brazil for AA Advantage members.

  20. @Stuart Good point. That reflects greater competition. The good thing about this is greater competition and that will increase on average. On the other issues I don’t care much about award space, I agree with you — cheaper business is where it’s at.

  21. Alaska partners with LATAM. How will this affect the Alaska partnership, given that Delta and Alaska are not friendly to each other?

  22. Who decides if Latam leaves Oneworld? Wouldn’t this ultimately be decided at a general meeting for shareholders? DL will own more than QR, but how would the other shareholders vote?

  23. So does this mean the Alaska/LATAM partnership ends given the rivalry between Alaska and Delta? It was generally very tough to find award seats on LATAM with Alaska but my LATAM flights were credited to AS since I refuse to fly or credit anything to AA. Either way as I alternate between Alaska and Delta (I’m a Delta Gold Medallion and AS MVP Gold) I guess I’d just credit flights to Delta.

  24. @ Kory @ Robert — If history is any indicator, yes, I think it’s highly likely that Alaska and LATAM will cut ties, though that hasn’t been formally announced as part of this.

  25. @ Anonymous — LATAM leaving oneworld has nothing to do with Delta’s investment explicitly. Rather it has to do with Delta and LATAM clearly agreeing on the terms of their new partnership and joint venture. This can happen without an investment. So it’s not a function of shareholders voting, but rather a function of management being trusted to make strategic decisions in the best interest of the company.

  26. @ Andrew B — I could see that happening, especially given that Delta will be strong in both Mexico and South America. At the same time, to me the whole oneworld Connect concept is so useful that I can’t say I’m all that invested in it happening.

  27. I agree, re AS, and that’s too bad since legacy LA flights to Argentina and Chile ex-LAX in J are a very good use of AS miles. (Maybe not quite as good a value as CX but sometimes one wants to go south instead of west.) I guess I will try to do Chile before the ax falls.

  28. Interesting how Virgin Atlantic will be competing, on their new route to Sao Paulo, with LATAM given this news. I wonder if VS will be cutting their partnership with GOL now and instead partnering with LATAM within South America.

  29. I’ve got a bunch of AAdvantage miles and my preferred use is for partner awards between the US and Latin America on LATAM. Are these still bookable at the moment? Either online or over the phone?

  30. I agree, horrendous news for AA, despite the well-worded press statement. A great win for DL.

    However, it’s not the end of the world for AA. Chile is the primary market for yield performance, followed by Colombia. Brazil is the biggest market, for sure, but a lower yield country. AA just needs to evaluate the route network to continue to maximize Chile and Colombia, and probs already have a balance of seats from Brazil.

    The comment about DL expanding in MIA, nonsense. DL will leverage LATAM via Atlanta, and lesser extent JFK.

    Potential coincidence…LATAM will get kicked out of JFK Terminal 8, having to move to T4 with DL. Qatar has long complained about lack of gate access at JFK T8, so maybe this will be their solution, and a bit of a return kick of sand in the eye of DL (though Qatar has primarily blamed AA for the lack of gate access). Also, it might be helpful capacity for the move by BA into T8 in a few years…potentially expediting the terminal move.

    Anyways, yet another brilliant move by DL…

  31. My bet is on Gol joining Star Alliance as a Connect partner. They didn’t join Skyteam when Delta had 9% of their share, so I don’t think they would join any alliance now.
    But Star Alliance is desperate to find a partner in Brazil, particularly after Avianca Brazil bankruptcy, and Azul has stated they have no interest in alliances. With Delta out of Gol, I think they will come to terms with Star Alliance (their FF program already partners with Copa, Air Canada, TAP and South African and they codeshare with them and Lufthansa, also).

  32. I wonder if AA and other oneworld carriers like Qantas and BA would perhaps instead try and forge a partnership with Gol instead or perhaps purchase DLs stake that their selling? It would give AA huge access to the Brazilian market. I also wonder how Aerolíneas Argentina’s would be feeling about DL purchasing a stake in a large competitor like LATAM? Could oneworld perhaps convince Aerolíneas Argentina’s to ditch Skyteam in favour for oneworld?

  33. My wife and I visit family in Brazil and/or Argentina about once a year from LAX, so potentially huge personal news. I’m a Delta Silver Medallion while doing most of my Latin American flying elsewhere right now, and after doing AA’s EZE-LAX in 787 Main Cabin “Extra” earlier this week, I am reminded again why I prefer Delta.

    Would love to see the introduction of any of LAX-EZE, LAX-GIG or LAX-GRU on DL or LA metal. Could also feed Asia through DL or KE. Maybe something out of SLC to deep South America that could also connect Asia, serve more of the middle of the country and even get some LDS missionary traffic?

  34. So if you book a OneWorld award now, would you feel confident the award would remain viable after the presumed exit of LATAM from One world?

  35. Good scoop. So most of the purchase price will go towards the A350s, with the rest for the actual acquisition of LATAM. Looks like Ed Bastian is winning at the airline version of Tycoon.

  36. @Lu: VA announced a huge expansion plan based on the opening of the third runway. perhaps some of those slots would be transferred to DL. Not many cities I can envision receiving DL metal though. LAX didn’t work out for them, and the only expansion would be to focus cities at this point which might not be worth the high operating cost for LHR. Any ideas?

  37. Has there been any comment or backlash from the Delta pilot’s union? They expressed concern and are against a few of Delta’s transatlantic JVs. Is there any concrete plan for Delta to expand its own metal service to South America?

  38. It is clear that whatever Gol (via a stake) and Aerolíneas Argentinas (via SkyTeam) provided for DL was nowhere near its desire. Hence this move.

    This is a body blow to Oneworld. At this point the only Latin American carriers that can join Oneworld are Azul, provided they cut ties with TAP, and Gol, which might link up with AA after being forsaken by DL.

    Interestingly, LATAM has not put out a press release saying that it will leave Oneworld, the way China Southern did when it was leaving SkyTeam.

    Oneworld now has nothing beyond IAG/AA, QF, QR and a bit of AY, CX and JAL. They have lost their only (and biggest) Latin American airline.

  39. AA should be agressive, setting dozens of 5o freedom routes in the region and domestic in Brazil (most of the planes sit on the ground all day long and they have presence in all major hubs of the region).

    No more dependence of a partner and a major blow on profitable routes owned by latam.

  40. THIS IS PROBABLY PAYBACK FOR STEALING CHINA SOUTHERN FROM SKYTEAM MUAHAHAHAHAHAHAHAHAHAHA… but this is so sad for others… i feel like oneworld is on the verge of crashing and burning.

  41. Air France KLM also have a share in GOL. Virgin also just signed an agreement with them. It makes sense to maintain it for Brazilian connectivity It will be interesting since as to how IAG will respond. Air France KLM are already a big player to Latin America, along with Aeromexico TAM used to codeshare with Air France. Obviously this must all be subject to regularity approval

  42. I love the typical Delta cheerleading in this article .. like most on this site .. saying AA will no longer dominate ……. you’re forgetting that AAs got the MIA hub … of which their flights all serve Latin and South America themselves on their metal …. Yes it gives Delta entrance to the market, but AA will always win in this market with their route network out of MIA.. not even close … hopefully however it lowers fares for everyone

  43. @Leigh A

    Brazil is the biggest market followed by EZE which have better yields and its more profitable for AA. Yields for Chile are nowhere near as good . All Chilean corp accounts use LATAM not AA. MIA EZE is one of the most profitable routes for american and DFW EZE does very well with the 787.

    I wonder if this would impact Qantas as they had chosen Santiago mainly for connections with LATAM to other markets.

  44. The additional 14 A350’s for DL is what’s got my attention. As a Frequent DL flyer in HNL I hope they bring one here next year for their new flight to HND.

  45. “As a oneworld loyalist this sure is a shame, though.”

    Lucky, I know you live in Miami, but there’s plenty of alternatives out of MIA or FLL. Perhaps time to rethink alliance loyalty, especially since AA is horrid these days and BA is mediocre at best?

  46. Let’s be clear on a couple of things:

    This is not an acquistion, this is the purchase of a minority stake. It is also not a $2 billion purchase of 20% of the company, which would value LATAM at $10 billion. LATAM is a publicly traded company with a market cap of $7 billion (ticker: LTM). For comparison, GOL is worth $2 billion and Avianca is worth $150 million.

    That means the acquisition of the A350s is a meaningful portion of the purchase price. My suspicion is that the $2 billion includes the full amount of all payments on the 4 existing planes plus reimbursement for any deposits on the future deliveries. My gut says that that’s worth something approaching $700 million of the ostensible “$2 billion.” So I’d guess that this is more likely $1.2 billion to $1.3 billion for the 20% stake, valuing LATAM closer to $6 to $7 billion which seems in line with the NYSE-traded market cap of LATAM.

  47. This has dealt the oneworld alliance a crippling blow. A few months ago they were rejoicing thanks to their first (if small) step into Africa with Royal Air Maroc. Thanks to this oneworld have lost all of their presence within Latin America. Think about how significant. One of the world’s largest alliances now has nothing within an entire continent. This excludes routes into the continent from outside. I wouldn’t be surprised if IAG codeshares with LATAM on South American routes because of the large number of routes they operate to the continent. Especially Iberia.

    All of a sudden Virgin Atlantic’s Sao Paulo route makes infinitely more sense.

  48. I guess I’m missing something in regards to where, exactly, the hub will be? Delta is weak in South Florida, both at FLL and MIA, and the natural market for O&D is going to be driven by South Florida, not by connecting in ATL. Not to mention MIA is the biggest entry point for cargo from South America. While obviously LATAM drives a lot of this TO Miami, how the heck are they going to convince people to get dropped off in Atlanta?

  49. “So to see LATAM call that off and instead pursue something with Delta, despite their longstanding partnership with American, is just… wow.” – I would be really interested in knowing more about the decision in Chile and how its ok for Delta to do a joing venture but not for AA. I’m sure there are differences in the fact pattern, but it would be interesting to know.

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