Delta Outmaneuvers American Airlines and Acquires 20% Stake In LATAM Airlines

“We don’t believe you, you need more people.” Yes, that’s a quote from Jay-Z but it’s, essentially, what Delta said to American Airlines this week.

Delta stunned everyone with an announcement that they had purchased a 20% stake of LATAM Airlines, paying $1.9 billion for the shares.

In theory, a move of this nature would imply that LATAM would be planning to leave the oneworld alliance and switch over to SkyTeam (which Delta is a member of).

SURPRISE (BUT NOT REALLY)!

This major investment by Delta comes as a shock given that American and LATAM have spent the past few years trying to put together a joint venture of their own.

GLOBAL DOMINANCE STRATEGY

Lately, Delta has been focusing on a global strategy and making strategic investments in airlines in key US markets. That strategy has found success with a:
– 49% stake in Virgin Atlantic (VS) across the Atlantic
– 10% stake in Air France-KLM (AF-KL) across the Atlantic
– 49% stake in Aeromexico (AM), the Mexican flag carrier
– have secured an important joint venture in Asia with Korean Air (KE)
– have bought a smaller (3.55%) stake in China Eastern (MU) and;
– have plans to set up an additional joint venture with WestJet in Canada.

If you’re keeping track, that’s 3 major European partners, the Mexican flag carrier, 2 major Asian carriers, and a Canadian carrier. With the addition of a major carrier in South America, Delta has a built strong international team.

THE BENEFITS

Delta plans to inject money into LATAM, and take over 14 excess A350 planes off the airline’s hands.

South America is Deltas weakest region so this is a big win for Delta. Additionally, it lets LATAM ditch airplanes it doesn’t want while raising needed cash.

FINAL STAMP

This is a stunning development. The whole deal is a slap in the face to American which has been slowly working on acquiring a stake in, Americans fellow OneWorld member, LATAM.

Ultimately, this is Delta doing what it does well…slow, steady and strategic planning.

However, this deal is a big move in the airline industry on the whole, as it has the potential to be a crisis moment for LATAM’s spurned lover, American. With a major partner leaving, they have a major to make: increase flights to South America on their own planes to compete with Delta or lose most of their access to South America as Delta takes over their routes.

What do you make of this development?

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