CHICAGO – Delta Air Lines is taking a stake in South America’s biggest airline, winning out over rival American Airlines Group, which had also sought to work through that carrier to deepen its presence in Latin America.
Delta said on Thursday that it was buying a 20-percent stake in Chile-based LATAM Airlines Group for $1.9 billion in cash and newly issued debt. That would be Delta’s biggest investment since merging with Northwest Airlines over a decade ago.
“This is the biggest region of the world that we had an open space,” Delta’s Chief Executive Ed Bastian said. “This largely completes the map.”
The new partnership spells the end of a three-year effort by American Airlines to deepen cooperation with LATAM.
Chilean antitrust regulators initially approved joint business agreements between LATAM, American and the parent company of British Airways and Iberia, but the country’s Supreme Court rejected the arrangement in May. American said the ruling would have reduced the benefits of the partnership by excluding Chile.
“We understand LATAM’s decision to partner with a US carrier that isn’t burdened by the ruling,” American said. The airline added that it doesn’t expect the switch to have a significant financial impact on American.
The new tie-up leaves American without a partner in Latin America as its competitors pair off in the fast-growing region for air travel. United Airlines Holdings is pursuing a joint business agreement with Colombian carrier Avianca Holdings in conjunction with Copa Holdings of Panama.
LATAM Airlines, formed by the 2012 joining of Chile’s Lan and Brazil’s Tam airlines, has significant operations in Argentina, Brazil, Chile, Colombia, Ecuador and Peru, serving 143 destinations in all.
American depository receipt shares of LATAM surged around 45 percent in after-hours trading following the news.
Bastian said that network hardly overlaps with Delta’s existing routes, giving him confidence regulators will approve the investment. The partnership would make Delta the largest carrier of passengers between the US and South America, he said. Delta said the airlines expect to receive approval for the deal in one to two years.
The LATAM partnership is Delta’s latest equity investment to expand its global reach. The carrier owns 49 percent stakes in Grupo Aeromexico and Virgin Atlantic, as well as smaller investments in Air France-KLM, China Eastern Airlines and Korean Air Lines.
A Delta spokesman said the airline will exit its 9 percent stake in Brazil’s Gol Linhas Aereas Inteligentes in the coming months.
Under the new arrangement with Delta, LATAM will leave the Oneworld alliance of which American is a part.
Bastian said he doesn’t know yet whether LATAM will join Delta and other partners in the SkyTeam alliance, but he is expecting the airline to remain unaligned.
In addition to its equity stake in LATAM, Delta will also buy some of LATAM’s planes: four Airbus SE A350s already in LATAM’s fleet with commitments to buy 10 more due to be delivered in the coming years. Delta will also gain representation on LATAM’s board.