Delta previously had invested in three foreign airlines since 2011 to build or enhance its partnerships with them. It already partners with Shanghai-based China Eastern and its Shanghai Airlines unit, code-sharing and trading passengers on U.S. and Chinese domestic routes and on seven trans-Pacific routes between the two nations.
China Eastern is a member of the SkyTeam global marketing alliance, which includes other Delta partners Air France-KLM SA, and Aerovias de Mexico SA, or AeroMéxico.
Under the deal announced Monday, which requires approval by both company's boards, Delta would invest in China Eastern's Hong Kong-traded H shares, and receive a so-called observer seat on the Chinese carrier's board.
China is the second-largest long-haul travel market from the U.S. and is projected to grow at more than twice the global average rate. China Eastern operates 35 weekly flights from Shanghai to Los Angeles, New York, San Francisco and Honolulu, and three flights a week from Nanjing to Los Angeles.
Delta this summer will operate 28 weekly flights to Shanghai. The U.S. carrier also flies to Beijing and Hong Kong. Delta recently relocated to Terminal 1, home of China Eastern and Shanghai Airlines, at Shanghai's Pudong Airport, which will allow more convenient connections for the two carriers' passengers.
Delta and other carriers pursue international partnerships because a web of bilateral air treaties limits their ability to fly on their own within foreign countries. The deals range from basic code-sharing pacts—where airlines list each other's flights on their reservation systems—to full-scale joint ventures that have antitrust immunity, so the partners can jointly set prices and schedules and share revenue.
Delta and Air France-KLM have that sort of extensive trans-Atlantic partnership. Delta in 2011 took a small stake, which now stands at 4.2%, in AeroMéxico and is seeking U.S. and Mexican regulatory approval to transform that code-sharing arrangement into a full-scale joint venture like the Air France deal. In May, Delta executed a derivative transaction for an economic interest of about 8% of AeroMéxico that potentially could lift the total size of its investment to 12% when the transaction settles.
Also in 2011, Delta bought a 3% stake in Gol Linhas Aéreas Inteligentes SA, Brazil's largest domestic airline. Earlier this month, Delta said it agreed to purchase as much as $56 million in preferred shares as part of a rights offering by Gol, and to guarantee borrowings by the Brazilian carrier. The deal extended the exclusive code-sharing agreement between the two carriers and potentially could lift Delta's stake in Gol to 9%.
In 2013 Delta purchased 49% of Virgin Atlantic Airways from Singapore Airlines Ltd. to shore up its position in London, where Virgin Atlantic is based. Sir Richard Branson 's Virgin Group Ltd. retains 51% of Virgin Atlantic, which now has antitrust authority to jointly set schedules and fares with Delta across the Atlantic.
This month, Delta agreed to work with aircraft lessor Intrepid Aviation to sponsor a plan of reorganization for Skymark Airlines Inc., a Japanese carrier that filed for bankruptcy protection early this year. The Intrepid-Delta plan, details of which haven't been disclosed, faces competition from a reorganization plan led by All Nippon Airways parent ANA Holdings Inc. Creditors will be able to cast their votes in early August.
Delta is interested in Skymark because it has valuable takeoff and landing slots at Tokyo's close-in Haneda Airport, where Delta eventually would like to move its operations, which are currently centered at Tokyo's Narita Airport.
Source: Wall Street Journal by Susan Carey
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