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Home / Business / Delta purchases 20% of LATAM, Latin America's largest airline

Delta purchases 20% of LATAM, Latin America's largest airline



The LATAM Airlines logo is depicted on an Airbus aircraft in Colomiers near Toulouse, France, November 6, 2018.

Regis Duvignau | Reuters

Delta Air Lines expands its presence in Latin America by spending $ 1.9 billion on a 20% stake in LATAM, Latin America's largest airline, a twist for Delta rival American Airlines following a joint venture with the Chilean-based carrier to increase revenue in the region.

Delta's announcement is the latest example of how the Atlanta-based airline is aggressively expanding overseas through joint ventures or minority interests with other airlines.

Foreign ownership rules prevent airlines from buying foreign companies directly, so airlines have increasingly turned to minority shares and revenue-sharing joint ventures to gain exposure to other markets.

Delta said it expects to abandon its stake in Brazilian carrier Gol, which competes with LATAM in Brazil. Delta's last annual submission showed that it had 9% in Gol.

LATAM offers service between major cities in South America and the United States, as well as domestic service in Chile, Brazil, Colombia, Peru, Argentina and Ecuador.

American Airlines has followed a joint venture with LATAM, a carrier already connected through the OneWorld Alliance of Airlines. Such code sharing agreements allow carriers to sell seats on each other's flights and allow passengers to earn and burn miles on these airlines. LATAM will leave the OneWorld alliance, but it was not immediately clear whether it would join SkyTeam, the group that includes Delta and its partners.

Regulators in the United States and Chile, where LATAM is headquartered, had to approve the delta stake.

"Our people, customers, owners and communities will all benefit from this exciting platform for future growth." Ed Bastian, Delta's chief executive, said in a press release announcing the deal.

In recent years, Delta has steadily expanded its ownership and relationship with other international carriers. It lifted its stake in Korean Air's parent company to 9.2%, announced a cross-border joint venture with Canadian airline WestJet, and increased its ownership of Aeromexico, Mexico's largest airline to 49% . [1

9659002] Bastian and his team have exploited a closer relationship with Aeromexico to increase Delta's presence in Los Angeles, a key market for both airlines.

In addition to buying twenty percent of LATAM for $ 1.9 billion, Delta will also spend $ 350 million to expand its partnership with the carrier. As part of the agreement, Delta will acquire four Airbus A350 aircraft and assume LATAM's commitment to purchase 10 more A350s between 2020 and 2025.

Delta will pay for the agreement with existing cash and newly issued debt. It expects the investment to be accredited for revenue over the next two years.

In the announcement of the agreement, LATAM CEO Enrique Cueto Plaza said, "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."

CNBC's Meghan Reeder contributed to this report


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