Atlanta-based Delta Air Lines (NYSE: DAL – $59.31) announced that it has entered into a strategic partnership with LATAM Airlines that combines the strengths of the leading air carriers in North and Latin America. LATAM, formerly LAN Airlines, is based in Santiago, Chile, and is one of the founders of LATAM Airlines Group, Latin America’s largest airline holding company. Delta will invest $1.9 billion for a 20 percent stake in LATAM through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash. Delta will also invest $350 million to support the establishment of the strategic partnership. As part of the agreement, Delta will acquire four A350 aircraft from LATAM and has agreed to assume LATAM’s commitment to purchase 10 additional A350 aircraft to be delivered beginning in 2020 through 2025, supporting Delta’s ongoing fleet transformation. Management expects that the transaction will be accretive to Delta’s earnings per share over the next two years. In addition, the transaction will not impact the company’s existing financial commitments to shareholders, including free cash flow and shareholder returns.
Delta’s stock is a good option for those willing to accept the risks associated with the volatile and highly competitive airline industry. The company expects capacity to rise 4% this year, while revenue will likely increase 6%-7%, thanks in part to the company’s thriving loyalty program as well as its profitable partnership with American Express. The shares also yield 2.7% at current quotations.