Delta Air Lines (DL, Atlanta Hartsfield Jackson) announced on September 26 that it would acquire a 20% stake in Chile-based LATAM Airlines Group for USD1.9 billion, abruptly creating a major new airline partnership.

Delta said it would exit its 9% stake in Brazil's GOL Linhas Aéreas Inteligentes (G3, São Paulo Congonhas) as a result of the deal, and it also ends what had been a deepening alliance between LATAM and American Airlines (AA, Dallas/Fort Worth).

Delta will gain a much larger footprint in the growing South American market, as its new Chilean partner is by far the largest airline group in Latin America by passengers carried, with subsidiaries in Argentina, Brazil, Colombia, Ecuador, Paraguay, and Peru.

The deal with LATAM is Delta’s biggest since it merged with Northwest Airlines in 2009, Reuters reported.

The strategic partnership “will unlock new growth opportunities, building on Delta’s and LATAM’s global footprint and joint ventures worldwide, including Delta’s existing partnership with Aeroméxico,” a joint Delta-LATAM statement said.

With their complementary networks, “Delta, LATAM and their partners will be able to offer access to a greatly expanded array of worldwide destinations”, including “a more seamless travel experience”.

Besides its USD1.9 billion investment, Delta will also invest USD350 million “to support the establishment of the strategic partnership”. It will in addition buy four A350-900s from LATAM and has agreed to take on LATAM’s commitment to acquiring, for an undisclosed sum, a further ten additional A350s to be delivered between 2020 and 2025, “supporting Delta’s ongoing fleet transformation”. In addition, Delta will be represented on LATAM’s board of directors.

Regulators in the US and in Chile will have to approve the Delta stake before it can go forward.

American Airlines had been chasing a deeper joint venture alliance with its oneworld alliance partner LATAM, but it commented that the loss of its Chilean partner would not have a significant impact on its financial results, according to Reuters. LATAM, meanwhile, has announced it intends to leave Oneworld, without naming a date, but it is unclear whether it will join Delta's alliance, Skyteam.

Delta said the LATAM deal would add USD1 billion in revenue growth to its balance sheet over five years, while LATAM expects the transaction will “improve free cashflow generation, reduce forecasted debt by over USD2 billion by 2025 and improve LATAM’s capital structure, enhancing its ability to execute its long-term strategy”.

“South America is one part of the world where we’re not well represented,” Delta CEO Ed Bastian told the Atlanta Journal-Constitution. “The hubs that LATAM has in Sao Paulo and Santiago, Chile and Buenos Aires, and Lima and Bogota – those are all rich markets, growing markets, markets that are not well served by Delta today.[...] Those will be the main areas we’ll be growing.”

Delta already has stakes of varying sizes in Virgin Atlantic, Aeroméxico, Air France-KLM, Korean Air, and China Eastern Airlines. Bastian told Bloomberg last week: “One of the things that has not been successful in the airline world are the alliances. [Instead] what you see is this network of influence that we’re having within those companies.”