Photo: Delta
Delta Airlines has announced equity stake changes in LATAM and Aeromexico, two Latin American carriers currently under the Chapter 11 bankruptcy process. Delta will see its equity stakes in both airlines dilute due to the reorganization process. The US carrier will also invest more in Virgin Atlantic, it said on December 13. Delta changes equity stakes in LATAM and Aeromexico.
Delta aims to invest up to $1.2 billion in the three carriers, which are currently transforming their businesses to emerge from the global pandemic stronger and more resilient. While its investment in Virgin Atlantic will remain at a 49 percent equity stake, Delta will see a dilution in LATAM and Aeromexico’s ownership.
Reduced stake in Aeromexico
Delta’s stake in Aeromexico will decrease from 49 to 20 percent once the flag Mexican carrier exits Chapter 11. Aeromexico aims to leave the bankruptcy process during 2022’s first quarter. Currently, Judge Chapman (overseeing Aeromexico’s Chapter 11) approved the Mexican carrier’s Debtor’s exit financing motion.
Delta has played an important role in a few aspects of this process:
- Delta acquired $185 million (approximately 23 percent) of the Tranche 2 DIP Loans of $1 billion.
- In addition to this commitment, Delta will acquire $100 million of New Shares. Delta shall also be required to convert its Tranche 2 Loans to New Shares, according to Aeromexico’s exit financing motion.
“As a result, the Chapter 11 Plan shall reflect that Delta shall receive 20.0 percent of all New Shares issued under the Chapter 11 Plan,” said Aeromexico.
Delta will also retain the right to designate two directors into Aeromexico’s New Board. Both companies have a close strategic partnership, having built a transborder network of more than forty business and leisure routes.
Stake in LATAM is halved
Just prior to the COVID-19 pandemic, Delta invested and acquired 20 percent of stakes in LATAM Airlines Group. Since, both carriers have improved their relationship. They are looking to enter into a full Joint Venture Agreement, which currently only lacks authorization from the US authorities. Nonetheless, since LATAM is also in Chapter 11, Delta will also see a dilution in its ownership of the carrier. It will go down from 20 to 10 percent, announced Delta.
On November 26, LATAM’s Plan of Reorganization outlined that the airline would allow its creditors’ rights to enter a common stock rights offering and separate rights offerings for three tranches of unsecured notes convertible into shares of the reorganized airline. The Plan also includes a $500 million new revolving credit facility and approximately $2.25 billion in new debt financing.
Delta is anticipating acquiring both of reorganized LATAM’s common stock and unsecured convertible notes. Nonetheless, the airline reported that its ownership interest in LATAM following the transaction will be approximately 10 percent lower than it is today. Delta will also have the right to appoint one board member.
Virgin has stretched out its fleet renewal plan until 2027 but took delivery of this A350-1000 on December 3. (Virgin Atlantic)
Additional funding in Virgin Atlantic
While maintaining its 49 percent share, Delta said it will support Virgin Atlantic with £196 million in fresh equity while the airline’s major shareholder Virgin Group (51 percent) of Richard Branson will invest £204 million. Virgin Atlantic has been seriously affected by the pandemic since March 2020 and was forced to suspend passenger services for three months in the first phase of the crisis. This year, all hopes were on the full reopening of transatlantic traffic, but this only happened in November. Whilst initially benefitting from a surge in demand, uncertainties over the Omicron variant are having an impact on bookings.
In September 2020, Virgin secured £1.2 billion in a private funding recapitalization plan, called ‘The Plan’, of which £200 million came from Branson. Part of the plan was a restructuring of its workforce, which was reduced by 3.350 or 45 percent. The airline financed another £300 million this first quarter, including that of two Boeing 787s. In total, the airline delivered more than £300 million in structural cost savings.
In recent months, it became clear that Virgin was in need of more. With the support of Branson, Delta, and its creditors, who are willing to reduce the cash burden until 2024 by £200 million, Virgin Atlantic hopes to get through 2022 and return to sustainable profitability the year after, when long-haul air travel on which the carrier is so dependent should have restored. It will use the investment to further restructure its balance sheet and reduce debts.
Virgin Atlantic will continue its fleet renewal program and has fully financed all aircraft that are scheduled for delivery until Q2 2024 but will stretch out deliveries until 2027. The carrier said in July 2020 that it would defer deliveries of eight A330-900s on firm order with Airbus and four A350-1000s, although another -1000 joined the airline early December.
Investments bolster Delta’s presence
The investments of Delta in the three airlines bolster its global platform. They allow the airline to provide an enhanced network, seamless connectivity, and an elevated experience. Ed Bastian, Delta’s CEO, said:
“The work each of our partners has done to strengthen their businesses for the future makes these partnerships even more valuable and creates a new era of international travel to benefit our customers, our employees, and our investors as global travel rebounds in 2022 and beyond.”
Finally, there is no change to Delta’s investments in Air France-KLM, Korean Air, and China Eastern.
(Additional reporting by Richard Schuurman)
