Delta Air Lines Inc. plans to buy $56 million in newly issued shares of its partner airline in Brazil, bringing its ownership stake in GOL Linhas Aereas Inteligentes SA from 3 to about 9 percent, executives said in a July 15 earnings call in which Delta announced a record $1.6 billion quarterly profit.
The goal is to deepen Delta’s integration with Brazil’s largest carrier ahead of a bilateral Open Skies pact set to go into effect in October, which would liberalize ownership rules and eliminate route restrictions on flights between the U.S. and Brazil.
That would pave the way for a joint venture, executives said, a prospect Delta is working toward in keeping with its strategy in other international markets. The airline already has multiple trans-Atlantic joint ventures and in April applied for anti-trust immunity in its plans for a $1.5 billion tie-up with Grupo Aeromexico, in which it has a 4.17 percent stake.
“When we couple our investment in GOL with the significant investment we have in Aeromexico, we have the foundation for the strongest network in Latin America. We have a long and successful history with our partner, Air France-KLM, that has allowed us to build a very profitable trans-Atlantic business. That, coupled with our Virgin Atlantic investment, will allow us to continue to leverage that kind of model with new partners in other markets in regions of the world,” said Delta Chief Executive Richard Anderson.
The GOL investment is also aimed at improving the airline’s liquidity as Brazil’s domestic economy faces headwinds. Delta will also guarantee a $300 million private loan to GOL secured by GOL’s interest in its publicly traded SMILES loyalty program.
A joint venture with ant-trust immunity would allow the airlines to set schedules and fares together, increase efficiency in operations and deepen access to domestic networks in both the U.S. and Brazil, said Ed Bastian, Delta’s president.
“With (antitrust immunity) protection, we can go to the market together, so we can sell together, we schedule together our international feed. Today we can’t do that in those markets,” Mr. Bastian said of Brazil and Mexico.
Latin America is Delta’s smallest market by revenues but one where it has been investing heavily to expand its network and enhance the flight experience. During the call, Mr. Bastian said regional revenues were down 8 percent to $601 million on an 8 percent increase in capacity. Sales were impacted negatively by currency conversion — the U.S. dollar remains relatively strong in the region compared with last year — and “pressure from last year’s Venezuelan capacity reductions.”
Executives said this would likely be the last quarter with high single-digit expansion of its capacity in Latin America, noting that its cross-border network is largely built out there.
Delta was joined in its investment by GOL’s majority shareholder, FIP Volluto, which bought $90 million in newly issued shares.
On July 14, Delta announced that it would begin service from Orlando to Brasilia.
Other U.S. airlines are looking to get a foothold in Brazil with Open Skies on the horizon: United Airlines in late June took a $100 million stake in Azul, Brazil’s third largest carrier.