Delta Ups Stake in Aeromexico to 49 Percent

Delta takes a big stake in Mexico’s Grupo Aeromexico as it continues its expansion into international markets.

Delta said Thursday it will acquire up to an additional 32 percent of the outstanding capital stock of Grupo Aeroméxico S.A.B. de C.V. through a cash tender offer that, all options in, could bring Delta’s stake in the Mexican airline to 49 percent.

The Atlanta-based airline currently owns a 4.1 percent stake in Grupo Aeromexico shares. The deal, for 43.59 pesos per share ($2.61), holds an option for Delta to buy an additional 8.1 percent of stock.

Grupo Aeromexico shares closed at $1.79 in over-the-counter trading Wednesday, and Delta’s offer price represents a 45.8 percent premium on Grupo Aeromexico shares, which closed at $1.79 per share in over-the-counter trading Wednesday.

Separately, Delta’s pension trust holds options to purchase 4.6 percent of Grupo Aeromexico. At the transaction’s close, Delta and the Delta pension trust would together own or have options to own up to 49 percent of Grupo Aeromexico’s outstanding shares.

“This new investment demonstrates Delta’s confidence in Mexico’s future and deepens our relationship with Aeroméxico, cementing Delta’s long-term commitment to the customers we serve to, from and through Latin America,” said Delta President Ed Bastian in a press release issued Thursday.

Delta will begin the tender offer pending regulatory approval in Mexico and the United States. The deal is also subject to approval by the board of directors of both Delta and Grupo Aeromexico.

“We believe that Delta‘s decision to bolster its stake in Grupo Aeromexico is a smart one since the average annual growth in passenger traffic (through 2035) between the U.S. and Mexico is projected to be the highest (4.7 percent) among Latin American countries, as per data released by the U.S. Federal Aviation Administration,” said investment firm Zacks Equity Research in a press release Thursday. “We remind investors that in March this year, Delta, along with Grupo Aeromexico, had sought antitrust immunity for their $1.5 billion joint venture for U.S. to Mexico flights, through an application filed with the U.S. Department of Transportation.”

Zacks said Delta’s acquisition is in line with its attempts to widen its international presence, noting that in July, Delta purchased a 3.55 percent stake in China Eastern Airlines CEA in addition to announcing plans to increase its investment in Latin-American carrier GOL Linhas GOL.

“Delta’s constant efforts to expand internationally can be attributed to its sound financial health, thanks to low oil prices,” Zack’s press release said. “Weak oil prices are allowing Delta, like most other carriers, to generate huge savings. This is because fuel costs account for a major chunk of an airline’s operating expenses.”

Zacks currently ranks Delta stock at hold. Delta shares ended trading on the New York Stock Exchange up 1.59 percent, adding 76 cents to $48.51 a share.

Separately Thursday, Delta’s global airline alliance SkyTeam named Perry Cantarutti Chief Executive Officer of SkyTeam and Michael Wisbrun as Chairman of the Governing Board, composed of CEOs and Chairmen of the 20 member airlines. Leo van Wijk retired after serving over eight years as the Chairman of the alliance.

Cantarutti formerly held the position of Delta’s Senior Vice President Europe, Middle East and Africa.

SkyTeam, an airline alliance with 20 member airlines, operates seamless service to over to 665 million customers each year on more than 16,270 daily flights to 1,057 destinations in 179 countries. SkyTeam carriers include Aeroflot, Aerolineas Argentinas, Aeromexico, Air Europa, Air France, Alitalia, China Airlines, China Eastern, China Southern, Czech Airlines, Delta Air Lines, Garuda Indonesia, Kenya Airways, KLM Royal Dutch Airlines, Korean Air, Middle East Airlines, Saudia, TAROM, Vietnam Airlines and Xiamen Airlines.

[Photo: Getty]