LATAM Won’t Sell A350s To Delta Following $62M Settlement

Advertisement:

In the wake of LATAM’s filing for Chapter 11 bankruptcy, its joint venture partner Delta Air Lines has pulled out of a deal to purchase four A350s from the Latin American airline. The penalty for this was a huge $62m but is likely to avoid costs for Delta in reconfiguring the planes.

LATAMA350
Delta will no longer be purchasing LATAM’s A350s. Photo: Tom Boon – Simple Flying

Delta will not buy LATAM’s A350s

Delta’s purchase of a 20% stake in LATAM was one of the biggest stories of 2019, if only for shock value alone. As part of the deal, LATAM would abandon its ties with oneworld and its pursuit of a joint venture with American Airlines and make a brisk move across to the Delta family.

Also within the deal was an agreement that Delta would buy four A350s from LATAM, all of which with airline already had in operation. It would also take over LATAM’s commitment for 10 further A350s, which were set to be delivered over the coming five years.

airbus-a350-liquid-free-zone
Delta is already a big fan of the A350. Photo: Airbus.

However, since the abrupt announcement of LATAM’s Chapter 11 bankruptcy filing, it seems the deal with Delta is off. In the bankruptcy documents, squirreled away in a footnote, were the details of the change. It said,

“By agreement dated as of May 25, 2020, LATAM and Delta terminated the aircraft sale and purchase agreement (the “Aircraft Purchase Agreement”), dated as of November 6, 2019, pursuant to which Delta had committed to purchase four A350 airplanes from LATAM.”

Although ceasing the purchase agreement must have made business sense in some ways, Delta doesn’t get to walk away from the deal unscathed.

Advertisement:

Delta shells out $62m for nothing

In addition to the documents revealing the end of the A350 purchase agreement, it also detailed the penalty to be paid by Delta. It said,

“In exchange for termination of the Aircraft Purchase Agreement, Delta agreed to pay LATAM $62,000,000.”

That’s effectively a payment of $62m for absolutely nothing. While it’s a far cry from the purchase price of the four A350s, at least then Delta would have had something to show for its investment. Clearly, Delta is keen to avoid taking more aircraft during this uncertain time, even if it means paying out dearly to do so.

LATAM bankrupt
Pulling out of the deal cost Delta $62m. Photo: Getty Images

Nevertheless, Delta remains committed to taking over the 10 aircraft order from Airbus, which will be delivered between now and 2025. It’s likely Delta will be pursuing some sort of deferral deal with Airbus for these planes, as nobody’s keen to take on more capacity right now.

Advertisement:

Delta not pulling out of joint venture

Under the terms of the newly formed joint venture between Delta and LATAM, Delta has the right to withdraw from the partnership in the event that LATAM enters Chapter 11 bankruptcy. However, Delta has affirmed its commitment to the Latin American airline, with CEO Ed Bastian saying in a memo seen by The Points Guy yesterday,

“We have the utmost confidence in the LATAM team, and remain firmly committed to our partnership, which will be important when we rebuild our international network in the recovery.”

Delta Air Lines grounded planes
Delta remains committed to the partnership, despite its own current challenges. Photo: Getty Images

With Delta experiencing its own challenges right now, it’s comforting to know that it still sees a strong opportunity in Latin America.

Advertisement: