Delta Air Lines Inc.’s newest airline investment is set to deepen its already considerable reach around Latin America.
The Atlanta-based carrier will spend $1.9 billion to take a 20 percent stake in Chile’s LATAM Airlines. That doesn’t include the $350 million Delta will invest to set up the partnership with South America’s largest carrier. LATAM has more than 41,000 global employees and carried 71 million passengers in 2018.
The deal, which is subject to regulatory approval by both governments, includes the purchase of four aircraft from LATAM. Delta will also assume liability for an order of 10 Airbus A350 jets to be purchased between 2020 and 2025, freeing up LATAM’s cash. At the same time, the deal gives Delta a seat on the LATAM’s board.
The proposed deal echoes a strategy that Delta has employed both in the Americas and around the world, only with a more aggressive initial play — this is Delta’s largest financial investment in another carrier since its $2.8 billion purchase of Northwest Airlines in 2008.
Delta’s joint venture with Aeromexico started with a small stake that was ramped up to 49 percent in 2016. Delta’s stake in Brazil’s GOL has risen to almost 10 percent, though Delta plans to exit that investment due to LATAM’s competition with GOL in that country.
Delta hopes to gain antitrust immunity for a similar joint venture with LATAM. The approval process is expected to take one to two years.
LATAM has hubs in major South American commercial and political capitals, including Santiago, Chile; Sao Paulo, Brazil; Buenos Aires, Argentina; Bogota, Colombia; Lima, Peru; and Quito, Ecuador.
Flying into the U.S., LATAM has a considerable hub in Miami, and some analysts believe that Delta sees the partnership as an expansion play at an airport dominated by rival American Airlines, whose efforts at a joint venture with LATAM were denied by the Chilean government last year. LATAM is leaving American’s Oneworld alliance as part of the deal, though it’s unclear whether it will join SkyTeam.
A Miami buildup could mean fewer South American flights into Delta’s largest hub in Atlanta, though CEO Ed Bastian told the Atlanta Journal-Constitution that the company could add more flights into Atlanta from some of those same hubs, given LATAM’s extended connectivity into certain markets.
That would fix one challenge for Delta in places like Colombia, where it has lacked partners to take connecting passengers beyond Delta’s destination cities. Some executives in Atlanta have complained the one daily flight to a country isn’t enough to entice them away from American, even if it means connecting in Miami. The versatility of that hub — often offering multiple flights per day to one city — is just too great.
Mr. Bastian told the AJC the airline would strike a “balance” between Atlanta and Miami as it continues expanding into South America, a market with promise that is not served well by Delta. Overall, Delta says the partnership would give the airlines the top position on five of six largest U.S.-Latin America routes.
Global Atlanta has been exploring the city’s business ties throughout the Western Hemisphere through the Latin American Crossroads series, which will continue with its next event in October. Sign up for updates here.