DELTA BUYS 20% OF LATAM in 2019
EXPECTS TO LAUNCH JV BY 2021
Delta announced a 20% equity stake in South America’s largest Airline, LATAM. Initial analysis of the deal appeared to be positive for both Delta and LATAM but many questions about specifics remain.
The LATAM deal gives Delta a partnership with the strongest carrier in South America. There is potential for some domestic and international growth opportunities for Delta pilots as LATAM switches its gateway to South America in Miami from American to Delta.
Delta management has promoted but has not consistently committed to equitable growth with the international JV partners. The Delta MEC will be monitoring developments closely and ensure that the Delta PWA is enforced and the promise of equitable growth becomes a reality.
Delta will invest $1.9 billion for a 20 percent stake in LATAM to be funded principally with newly issued debt and available cash. In addition Delta will also pay $350 million in support of the strategic partnership and LATAMs exit from Oneworld. However, LATAM will not join the Delta-led SkyTeam alliance.
LATAM was formed when LAN Chile merged with Brazil’s TAM in 2012. In 2016 Qatar took a 10% stake in LATAM. Delta’s investment in LATAM will make it the third largest shareholder of LATAM behind the Cueto family of Chile and Chilean pension funds and Delta will be represented on LATAM’s Board of Directors.
Going forward, as part of its shift to LATAM Delta will exit its 9% stake in Brazil’s Gol.
LATAM Major Shareholders:
|Chilean Pension Fund||22.5%|
Source: LATAM Investor Relations
LATAM US SERVICE FROM SOUTH AMERICA
LATAMs has eight of the 17 widebody flights pointed at Miami, the main US gateway. The remaining nine widebody flights go to to four other points in the US: BOS, JFK, LAX & MCO.
In South America LATAM has three gateways: São Paulo Brasil (GRU), Lima Peru (LIM) and Santiago Chile (SCL).
In addition there is widebody service from three points in Brasil: Fortaleza (FOR), Recife (REC) & Salvador (SSA) two points in Ecuador: Guayaqil (GYE) and Quito (UIO) , Buenos Aires Argentina (EZE) and narrowbody service to MIA and MCO from Belém Brasil (BEL) & Manaus Brasil (MAO).
LATAM also operates a flight between MIA and Punta Cana (PUJ) in the Dominican Republic. JFK GRU (São Paulo) is the only overlapping route between Delta and LATAM.
DELTA SERVICE TO SOUTH AMERICA
Delta has six widebody flights to five points in South America: Buenos Aires Argentina (EZE), Rio de Janeiro Brasil (GIG), São Paulo Brasil (GRU), Lima Peru (LIM) Bogota Columbia (BOG) & Santiago Chile (SCL).
With the exception of the JFK-GIG and GRU flights (JFK BOG returns in Dec), these long-haul flights all originate from ATL. In addition there is narrowbody 757 service from ATL to two points Bogota Columbia (BOG) & Quitao Ecuador (UIO) and a 737 narrowbody flight from ATL to Cartagena Columbia (CTG).
JFK GRU (São Paulo) is the only overlapping route between Delta and LATAM.
Delta previously operated but discontinued service between:
- ATL to BSB, CCS, FOR, GYE, MAO MDE & REC
- DTW to GRU
- JFK to BOG, EZE, GEO (JFK BOG returns Dec 2019 on a 757)
- LAX to GRU
- MCO to BSB & GRU
- Source: OAG
FLYING CAPACITY SHARE
Delta currently flies 30% of Delta and LATAM’s combined capacity between the US and South America. That means the current production balance is split 30/70.
Even with Equitable Growth – that is the same capacity added by each carrier every year – it will take time for capacity to become more balanced.
|Airbus 319, 320, 321||216|
|Airbus 320 NEO, 321 NEO||20|
|Boeing 767-300 ER||28|
|Boeing 777-300 ER||9|
|Boeing 787-8, 787-9||26|
|TOTAL LATAM OPERATING FLEET||324|
Source: OAG, LATAM Annual Report Notes: LATAM includes LATAM Airline Group, LATAM Airlines Ecuador, LATAM Airlines Brasil, and LATAM Airlines Argentina Source: OAG (23 September 2019 load date)
In 2014, LATAM ordered 27 A350-900. First Deliveries were in December of 2015 and at that time LATAM converted part of its order to the larger A350-1000 and currently has eight A350-1000 on order. In recent years, economic conditions in Brasil have put pressure on LATAM. To cope LATAM has made some operational adjustments including making changes to the fleet plan. As part of that restructuring, four LATAM A350-900s were leased to Qatar starting March 2017 (Qatar has a 10% ownership stake in LATAM) Since then two of those A350s have returned to LATAM.
As part of the agreement with LATAM, Delta proposes to acquire four A350-900 from LATAM’s current fleet, and potentially take delivery of 10 more A350’s LATAM has on order. Latam will keep nine A350 planes.
The 10 A350 aircraft on order, two A350-900, and eight A350-1000, are could be delivered late 2020 through 2025.
LAN chose the B787 as its new generation widebody aircraft while TAM chose the A350. Reducing the total number of A350 aircraft operated by LATAM will help reduce costs and remove billions of dollars of financial obligations from LATAM.
Currently LATAM Operates seven A350-900
Source: Delta Press Release, LATAM Annual Report
A350 ORDERS, DELIVERIES, LEASES
AIRBUS ORDERS by LATAM
Potential LATAM A350s to DELTA (proposed, not a firm commitment)
|Used Aircraft from LATAM’s Fleet A350-900||4|
|LATAM Orders A350-900, A350-1000||10|
Source: Airbus, LATAM, Airfleets.net