Delta to expand Latin America reach with LATAM deal

US carrier Delta Air Lines is to significantly strengthen its presence in Latin America as a result of its surprise deal to buy a 20 percent stake in LATAM Airlines Group.

Delta Air Lines is spending $1.9bn for a 20 percent stake in Chile’s LATAM Airlines Group, an agreement described as a “transformative” that will give the airlines a leading position in five of the top six Latin American markets from the US.

The SkyTeam carrier will also invest $350m to support the establishment of a “strategic partnership” as well as acquiring four Airbus A350 aircraft from LATAM and assuming its commitment to purchase ten additional A350s, set for delivery between 2020 and 2015.

The move is a bitter blow for rival American Airlines, which had been pursuing an anti-trust immunised joint venture with LATAM. The tie-up between the two carriers appeared to be on track until May 2019 when Chile’s Supreme Court blocked the airlines from cooperating in the country, citing the dominant market position they would hold.

As a result of Delta’s planned investment in LATAM, it plans to sell its 9 percent stake in Brazilian carrier Gol Linhas Aereas. LATAM, meanwhile, will leave the Oneworld alliance in favour of forming individual partnerships and codeshare agreements with other airlines.

Delta and LATAM will begin codesharing on routes between North and Latin America later this year, ahead of applying for antitrust immunity to form a joint venture. Ed Bastian, chief executive of Delta, said he believes it will take between 12 and 24 months for all government approvals to be received, including antitrust immunity.

“Together, the partners will serve 435 destinations worldwide and carry more passengers between North America and South America than any other partnership,” Bastian told investors on a conference call. “This partnership will also create additional competition in the region ensuring that our customers have more options for their flying across the Americas.”

Glen Hauenstein, Delta’s president, added that GOL has been a “great partner” but it has been unable to generate beyond traffic in Brazil. He said LATAM would offer point-of-sale strength in Argentina, Brazil, Chile, Colombia, Ecuador and Peru.

Bastian also told analysts that Latin America is the region which has “the greatest return potential and most efficient deployment of capital”. He said he doesn’t see any further development “on the Asian front or anywhere else for that matter that would make interest to Delta anywhere close to interest we have in South America.”

Reacting to the deal between Delta and LATAM, American said: “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 US carrier that isn’t burdened by the ruling.”

On LATAM’s exit from Oneworld, the alliance said: “We are disappointed, but we respect their decision. They have been a valued long-term member of the alliance, and we wish them well.”

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