Delta Air Lines has long taken a different approach than rivals towards its partnership. Rather than just forming partnerships and focusing on the global alliances, Delta has instead used a global investment strategy, whereby the airline has taken stakes in foreign airlines. Well, Delta is in the process of investing even more money in three airlines.
In this post:
Delta invests more in Virgin Atlantic, Aeromexico, and LATAM
It has been announced that Delta is increasing its investments in Virgin Atlantic, Aeromexico, and LATAM, as those airlines transform their businesses to emerge from the pandemic.
While most airlines globally have been hit hard by the pandemic, in many ways US airlines have had it better than others. The domestic US aviation market is big, and we’re back to close to pre-pandemic passenger numbers. It’s a different story at other airlines:
- Virgin Atlantic exclusively operates long haul flights, so was among the hardest hit by the US travel ban that we saw for around 20 months (it only ended in November 2021)
- Aeromexico filed for Chapter 11 bankruptcy in July 2020
- LATAM filed for Chapter 11 bankruptcy in May 2020
Delta will be investing $1.2 billion in the three airlines, though it’s not yet known how that amount is being distributed between the carriers. What we do know is that:
- Delta is targeting a 20% equity stake in Aeromexico
- Delta is targeting a 10% equity stake in LATAM
- Delta is maintaining its 49% equity stake in Virgin Atlantic
Delta also owns stakes in Air France-KLM, Korean Air, and China Eastern, but nothing is changing to those investments.
Here’s how Delta CEO Ed Bastian describes these investments:
“These strategic investments in our partners will transform our ability to improve travel for our customers, enabling us to deliver a seamless travel experience alongside offering our customers an unrivalled network between North American and premier markets worldwide. The work each of our partners has done to strengthen their businesses for the future makes these partnerships even more valuable and creates a new era of international travel to benefit our customers, our employees and our investors as global travel rebounds in 2022 and beyond.”
Delta believes that these investments will help the airline lead the industry through an ongoing recovery. For some context on these partnerships up until now:
- Delta and Aeromexico formed a joint venture between the United States and Mexico in 2017, and the airlines have offered the most capacity between the two countries
- Delta invested in LATAM just before the pandemic, essentially poaching the airline from oneworld, and from the dominant partnership with American; while this was a big blow to oneworld, the timing wasn’t great for Delta, since LATAM’s value plummeted during the pandemic
- Delta and Virgin Atlantic formed a joint venture in 2013; while not as big as the American and British Airways joint venture between the US and UK, this greatly improved Delta’s access to London
My take on Delta’s further investment in foreign airlines
I’ll be honest, I’m not sure I can fully make sense of this, as laws surrounding Chapter 11 bankruptcy are beyond my area of expertise. Pre-pandemic, Delta owned a 49% stake in Virgin Atlantic, 49% stake in Aeromexico, and 20% stake in LATAM.
So now the airline is investing $1.2 billion in these airlines, and will maintain a 49% stake in Virgin Atlantic, will have a 20% stake in Aeromexico, and will have a 10% stake in LATAM. I’m not sure if this investment just comes in the form of Delta forgiving some debt and helping these airlines remain in business, since presumably Delta doesn’t want the carriers to liquidate.
At the same time, this doesn’t exactly reflect all that well on Delta’s investment strategy, as the airline is investing even more money, and is ending with smaller stakes in these airlines.
And of course with the billions of dollars in taxpayer support that Delta received over the course of the pandemic, we know who is really on the hook for this investment. To be clear, I realize that money went towards payroll support, but without that funding, it’s unlikely Delta would have been in a position to invest in this. For an airline that spent years criticizing Gulf carriers on account of a strategy prioritizing America, that’s not looking all that good…
Bottom line
Delta is investing $1.2 billion in Virgin Atlantic, Aeromexico, and LATAM. However, Delta’s stake in Virgin Atlantic is remaining the same, while the carrier’s stake in Aeromexico and LATAM will be significantly smaller than pre-pandemic.
While Delta’s strategy of investing in foreign airlines probably worked well pre-pandemic during the best of times, it’s not looking so good at this point, especially when we’re far from seeing a full global recovery.
What do you make of Delta’s further investment in foreign carriers?
I am sure this helps answer the question why doesn’t
Aeromexico offer flights or fares between a USA airport and a European airport? For example JFK-MAD? Answer: Because they are playing games with the Bankruptcy court and their creditors!
Well, as the old saw goes, that's one way to end up with $1 million.
It's not about the percentage of ownership, since the percentage is only relevant if profits are distributed to shareholders--DL is making sure that it has a vote in the boardroom. Having 10, 20 or 49 percent is functionally the same thing because it's still a minority stake--not control The JV relationship gives DL outsized influence beyond it's ownership percentage or number of board seats.
In bankruptcy, the equity of pre-bankruptcy owners, which is represented in...
It's not about the percentage of ownership, since the percentage is only relevant if profits are distributed to shareholders--DL is making sure that it has a vote in the boardroom. Having 10, 20 or 49 percent is functionally the same thing because it's still a minority stake--not control The JV relationship gives DL outsized influence beyond it's ownership percentage or number of board seats.
In bankruptcy, the equity of pre-bankruptcy owners, which is represented in stock, is wiped out (the shares are cancelled). The secured creditors (to whom debt is owed) convert the debt into equity in the reorganized company (NEWCO) so the company isn't saddled with as much debt BUT the company still needs CASH to operate, which is where new investors come in. DL one of the new investors and is buying stock in NEWCO. In so doing DL is both giving NEWCO money to operate (which is important to have the JV function until there is profit) and probably getting (at least one) board seat(s).
Ben - what do you make of this investment in VS given it's just announced United will be Virgin Australia's new transpacific partner, with presumably Delta having made the call to ditch VA? Different airlines and share only a name but still interesting I feel.
The way that the airlines function all have different target details and dates to their future of mapping routes to the airspace of everything.
To all the morons that think Delta is using tax payer for anything other than what it was meant for (payroll protection) you really need to go do your research before you start talking out of you arse. By law they weren't allowed to spend that money on anything else but payroll. Get the facts straight.
To the real morons, if you have no money in your left pocket you don't have to pay with your right pocket? You really think without any bailout money, airlines don't have to pay salary? A free billion dollar not used for salary is a free billion dollar to spend elsewhere. (bonuses, supersonic planes, bankrupt airlines, etc.)
To those who wonder why Delta ended up paying more money for less share.
The simple answer is:
Delta bought Basic Economy shares.
Due to recent changes as of January 1, 2022, all basic shares doesn't earn ownership.
For Delta to maintain ownership, Delta has to pay change fees to keep the ownership. The change fee could also be subtracted by the residual value resulting in a smaller ownership.
Lucky for Delta, Donny and Brandon paid for these tickets.
Delta is still not considered a Global Airline for Asia continet. Delta neither offers flights to Asia through its network nor allow competition at its flagship Airport in Atlanta.
There was no mention of the demise of Alitalia during the pandemic.
huh? Delta was the 2nd largest airline to Asia of all airlines pre-covid. In case you missed it, Asia-US travel is largely shut down. United is a fraction of its pre-covid size as well.
Delta had no investment in Alitalia. Its successor will still be a Skyteam member.
I fly dtw pvg and atl icn all the time before pandemic. the hell you talking about.
The notions that Delta used taxpayer money to invest in foreign airlines, was or should have been prohibited from investing in foreign airline partners, or puts taxpayers at risk are all categorically and factually incorrect.
United during the pandemic invested in multiple risky, unproven aircraft technologies AND ordered tens of billions of dollars of aircraft.
American has made similar investments in aircraft that are not in production while nearly every airline has placed...
The notions that Delta used taxpayer money to invest in foreign airlines, was or should have been prohibited from investing in foreign airline partners, or puts taxpayers at risk are all categorically and factually incorrect.
United during the pandemic invested in multiple risky, unproven aircraft technologies AND ordered tens of billions of dollars of aircraft.
American has made similar investments in aircraft that are not in production while nearly every airline has placed orders for in-production aircraft.
As hard as it is for some to accept, neither what Delta or any other airline has done is prohibited.
The current federal support for airlines has ended. Some will try to hold airlines to rules that no longer or never did apply.
The hypocrisy is that some see United's investment in unproven technologies as an investment in their future but investment in partners is considered wrong.
Finally, US airline execs are being hauled before Congress to explain why airline service in the US was so bad, esp. this summer when government aid was specifically given to ensure that airline service would be there when demand returned. With by far the best documented operational performance of any other airline except for Hawaiian throughout the pandemic, Delta has little to be concerned about from the people that are really interested in seeing how airline aid was spent. Despite the reputation, American has performed far better operationally than United which continues to accrue a consumer complaint ratio that is multiples of Delta's and Southwest's and worse than American - and more in line with JetBlue.
Same optics of airline executives getting huge bonuses amidst a bailout.
Nothing wrong or prohibited, just aggravate taxpayers.
The hypocrisy is that these same taxpayers couldn't get refunds, or got delayed for hours because of staff shortage. Which the bailout was supposed to prevent.
Is there any wrongdoings - probably not.
Will taxpayers blame them - definitely yes.
the vast majority of the public doesn't even know or care what airlines do with their money other than how it impacts passenger service.
Delta fared above average in complaints about refunds during the pandemic along with American. United was the worst.
Let's see what questions Congress asks airline execs but I'm pretty sure that Delta's equity investments won't be on the agenda or United's investment in supersonic aircraft or its massive aircraft order.
Delta invested over 4.5 billion dollars in our codeshare partners, most of those investments went ZERO $ when the foreign carriers went bankrupt. As a group, American and United invested a mere $500 million. Who do you think had better results with their finances?
factually incorrect.
United ALONE wrote off a $1 billion investment in Avianca.
Delta was the only one of the big 4 that showed a profit in the 3rd quarter of this year excluding government aid.
Delta has run by far the most reliable operation since the pandemic started and continues to do so even into the fall. Not my opinion but easily verified by the DOT air travel consumer report.
Who actually has used...
factually incorrect.
United ALONE wrote off a $1 billion investment in Avianca.
Delta was the only one of the big 4 that showed a profit in the 3rd quarter of this year excluding government aid.
Delta has run by far the most reliable operation since the pandemic started and continues to do so even into the fall. Not my opinion but easily verified by the DOT air travel consumer report.
Who actually has used government aid to do what the government asked airlines to do and not by rules which don't even apply post government aid even if they existed under government aid? Delta
Who has invested in its business to gain strategic advantages which cannot be duplicated by other airlines? Delta
wait how do you invest more but end up with a smaller share? presumably if you already own 20% and invest several hundred million additional dollars, you don't end up with less equity in the company than you did to start?!
I think what happened was that there was probably dilution of their stakes since these airlines needed to raise more capital, likely by issuing more equity?
In the cases of AM and LA, both went through bankruptcy so DL's initial investments were wiped out. Starting over essentially with these new stakes.
The debt holders become shareholders in the capital reorganization.
The current shareholders lose everything.
Delta buys new shares from a former debt holder.
Writing style feedback - would be better to put the pre-pandemic stakes closer to the new stakes. Don't make your reader hunt
The hypocrisy here is breathtaking.
The pandemic isn't over. I would have thought if they had any spare cash lying around they would be keeping it for a rainy day, you know, like a new variant ravaging the world or something...
To all my “conservative” brethren, a corporation taking tax payers’ money to invest in other companies is acceptable but a government helping its citizens is socialism. Go figure.
Following too much AOC? Who said using bailout money that way is acceptable. It was Trump who put loopholes in the CARES act.
By the way, did you learn about socialism from the same place that you learn about the global warming that ended the Cold war?
Were you disappointed that civic studies is not about cars?
And if you want to fight capitalism, you should start by using only lower case letters.
Go figure?
Seems, I hit a nerve there. Well you and folks like you said acceptable as you idiots keep on voting for those bafoons. You’ll be voting for them again in a yr’s time.
While you are trying to write your response to me, remember - It’s better to keep quiet and thought a fool than open your mouth and remove all doubts.
LOL, learn to read? I never said acceptable.
Maybe when you took your IQ test, it came back negative.
Who did you vote for @Ole? It's probably AOC.
I sure did not vote for any of these clowns back in 2016 and 2020. I doubt we will have any decent candidates for 2024. Having another Trump vs Biden is worse than Trump vs Hilary. So hard pass for now.
Republicans don't try...
LOL, learn to read? I never said acceptable.
Maybe when you took your IQ test, it came back negative.
Who did you vote for @Ole? It's probably AOC.
I sure did not vote for any of these clowns back in 2016 and 2020. I doubt we will have any decent candidates for 2024. Having another Trump vs Biden is worse than Trump vs Hilary. So hard pass for now.
Republicans don't try enough to distance itself from Trump. Democrats still have Bernie or AOC type of people. Maybe if Elon Musk or Morgan Freeman runs as independent in 2024.
Yes, set that government bail out money on fire!
So, they can barely turn a profit without US government assistance but have $1.2 billion to burn on foreign airlines?
I'm glad you mentioned the Gulf airlines and Delta's hypocrisy toward them. I'm reminded of Etihad's strategy of investing in distressed airlines as a means of increasing its own clout. Remind me how that went for them?
Gotta make you feel all warm and fuzzy at giving them how many hundreds of millions of cash during last years covid nonsense?
isn't DL taking a haircut here with AM, though? I thought they had something like a 49% something or other before this?
IGNORE ME! You cover this in the article :)
I know how you feel. If only OMAAT enabled "edit" for posters, as many publishers do. I find regrettable "errors" after posting more than half the time. Sometimes snark is involved. Sigh
VS were/are trying to raise £400m in extra funding from various investors, if Delta have offered to bridge this request it will take the heat off VS operations during the winter months.
VS has been crucified during this. With the UK and HK and AUS and even the US basically closed and now reopening hits during the winter lull in demand on most of their route map.
Virginatlantic.com/us/en/destinations/route-map.html