A proposed joint venture (JV) between Delta Air Lines and LATAM Airlines Group has been tentatively approved by the US Transportation Department subject to a series of “critical remedies and conditions” on final antitrust immunity for the deal.
Delta acquired a 20% stake in LATAM in 2019, and the companies applied to regulatory authorities to operate a metal-neutral, antitrust-immunized JV for flights between the US and South America.
The planned partnership has already gained approval from competition authorities in Brazil, Chile, Colombia, Peru and Uruguay. The carriers said the agreement would cover around 7,000 city-pair markets and provide new or expanded service on at least 18 nonstop routes.
In an order published in June 23, the Transportation Department said its analysis tentatively found that a grant of antitrust immunity would “likely restrain competition such that the JV, as proposed, would not be in the public interest.”
However, subject to a series of conditions being imposed, the Department has determined that the alliance is “likely to generate public benefits while the US-South America market would remain sufficiently open to existing and new competition.”
The remedies include the maintenance of current third-party interline agreements; the removal of exclusivity provisions that prohibit or limit Delta or LATAM from engaging in a business relationship with another carrier; a 10-year expiration and reassessment requirement; and the removal of a capacity constraint clause, which “artificially limits growth during the initial stages of the proposed relationship.”
With these conditions, the Transportation Department has proposed to approve the alliance and grant antitrust immunity. Interested parties now have 14 days to respond to the tentative decision.
A joint statement from Delta and LATAM said: “Once the [Transportation Department] finalizes its decision, both airlines will work to quickly deliver the consumer benefits approval unlocks, including expanded capacity, increased routing options between the US/Canada and South America, superior frequent flyer benefits and shared airport facilities and amenities.”
Delta agreed to take a 20% stake in Latin America’s largest airline group for $1.9 billion in September 2019, following which LATAM announced plans to leave the Oneworld alliance. The move came after LATAM failed to gain approval from Chile to create a JV with former Oneworld partner American Airlines.
In anticipation of implementing the JV, Delta and LATAM have been building up codesharing on flights between the US and South America and on domestic and regional flights beyond the long-haul connections.
The carriers said antitrust immunity would allow them to “create a larger network with an enhanced product, improved consumer convenience and choice, increased operating efficiencies, and greater scale to compete with American, United, and their respective regional partners in South America.”
In addition, the parties claimed the JV would incentivize Delta to grow its operations at Miami (MIA), the largest gateway for South American services.
They also said that their networks are “largely complementary,” as the only route overlap exists on the New York-Sao Paulo city-pair market. Additionally, they added that their existing codeshare relationship, in place since 2020, is limited in future growth, as the two carriers “remain competitors with no incentive to divert traffic from their own flights.”
The Transportation Department’s tentative approval comes days after the US Bankruptcy Court for the Southern District of New York approved a Chapter 11 exit plan for LATAM Airlines Group.
Backed by “nearly all” of LATAM's creditors, the plan will inject approximately $8 billion through a combination of a capital increase, the issuance of convertible bonds and new debt. This includes $5.4 billion of financing backed by major shareholders (Delta Air Lines, Qatar Airways and Grupo Cueto), as well as the group’s major creditors.
LATAM's exit from the Chapter 11 process is expected during the second half of 2022.
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