Air Wars: Delta Snatches LATAM From American Airlines Partnership, Leaves AA Without Partners In Several Major Markets

Delta (NYSE: DAL) and LATAM Airlines Group S.A. (NYSE: LTM; IPSA: LTM) last week announced that they have entered into a strategic partnership that seeks to reshape the air travel environment in The Americas. Chile based LATAM will sever its ties with longtime partner American Airlines as a result of the deal, and Delta will take a 20 percent stake in LATAM. This leaves American Airlines (NASDAQ: AAL) without a major partner in several significant South American and Central American markets.

American Airlines issued a statement to its customers that can be seen by clicking here.

LATAM and American Airlines sought to do a comprehensive business deal that included British Airways and Spain’s Iberia, but that pact was blocked by Chile’s supreme court earlier this year on competition grounds.

This comes just months after a controlling stake in Avianca (NYSE: AVH) (BVC: PFAVH), fell into the hands of United Airlines (NASDAQ: UAL) after controlling shareholder Germán Efromovich defaulted on a loan collateralized by Avianca’s shares.

• Delta will invest $1.9 billion for a 20 percent stake in LATAM through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash.
• Delta will also invest $350 million to support the establishment of the strategic partnership.
• Delta will acquire four A350 aircraft from LATAM and has agreed to assume LATAM’s commitment to purchase 10 additional A350 aircraft to be delivered beginning in 2020 through 2025.
• Delta will be represented on LATAM’s Board of Directors.
• The tender offer and the strategic alliance are subject to customary closing conditions and all required governmental and regulatory approvals, including anti-trust immunity.

Delta expects that the transaction will be accretive to EPS (Earnings Per Share) over the next two years. In addition, the transaction will not impact the company’s existing financial commitments to shareholders, including free cash flow and shareholder returns. Delta also expects to remain within targeted leverage ratios.

“This transformative partnership with LATAM will bring together our leading global brands, enabling us to provide the very best service and reliability for travelers to, from and throughout the Americas”, said Ed Bastian, Delta’s chief executive officer. “Our people, customers, owners and communities will all benefit from this exciting platform for future growth.”

LATAM expects the transaction will improve free cash flow generation, reduce forecasted debt by over $2 billion by 2025 and improve LATAM’s capital structure, enhancing its ability to execute its long-term strategy.

“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”, said Enrique Cueto Plaza, chief executive officer of LATAM. “We look forward to working alongside one of the world’s best airlines to enhance the travel experience for our passengers.”