Delta, Air France KLM, Virgin and China Eastern deepen partnerships with equity deals
27 / 07 / 2017
Air France KLM, Delta Air Lines, Virgin Atlantic and China Eastern have revealed plans for a major strengthening of their partnership that will involve the airlines making more equity investments.
In an announcement, the carriers said that Air France KLM will acquire a 31% stake in Virgin Atlantic for around £220m.
The move will see Richard Branson, who founded Virgin, reduce his stake in the airline to 20% and lose his controlling shareholding. Reports suggest the brand will remain in place and the airline will continue to operate as a UK airline with a British operating certificate.
The Air France KLM investment in Virgin should take place in 2018, after approval by the relevant regulatory authorities.
After the deal, Air France-KLM will become the second largest shareholder in Virgin Atlantic after Delta, which holds 49%, and will have the same level of representation as Delta within the Board of Directors.
Meanwhile, Delta and China Eastern will each acquire a 10% stake in Air France KLM by subscribing to new shares through capital increases totalling €751m.
The subscription price is €10 per share, which represents a 42% premium relative to the average share price over the last 12 months.
The realisation of these reserved capital increases will be subject to approval by the Air France-KLM shareholders during an Extraordinary Shareholders’ Meeting convened for September 4, and to approval by the relevant regulatory authorities.
The deal will also see the airlines unite two joint venture alliances into a single group by bringing together the Air France KLM, Delta and Alitalia partnership and the Delta and Virgin Atlantic tie-up.
The expanded joint venture, including Alitalia, will offer nearly 300 daily nonstop trans-Atlantic flights.
In parallel, Air France-KLM and China Eastern will step up their commercial co-operation and reinforce their partnership within the framework of their existing joint-venture.
The carriers said the move would offer customers an "unrivaled proposition" on the trans-Atlantic, drive the capacity growth of the partners, create an associate partner status to allow others to join, establish the partnership over 15 years and generate synergies.
The Air France KLM-China Eastern partnership expansion will re-enforce the Franco Dutch carrier’s presence in the Chinese market and give it a leading European position in Shanghai.
Jean-Marc Janaillac, Chairman and Chief Executive Officer of Air France-KLM, said: “This partnership which is unprecedented in scale gives Air France-KLM a leadership position in the worldwide airline industry.
"With Delta and Virgin Atlantic we are reinforcing our trans-Atlantic alliance, making us the number one alliance between Europe and the United States in terms of traffic.
"With China Eastern, we are consolidating our position on a high-growth market. The commitment and efforts of Air France-KLM staff have enabled an improvement in our performance and the securing of these strategic partnerships. These agreements accelerate the value-creation initiatives deployed through the Trust Together project.”
Delta chief executive Ed Bastian said: “A dynamic global landscape means it’s more important than ever for Delta to deepen ties with our global partners to provide opportunities for mutual growth.
“Bringing together the strengths of Delta, Air France-KLM and Virgin Atlantic into a combined joint venture will create the trans-Atlantic partnership of choice for customers.”
The Atlanta-based airline’s existing joint venture with Air France-KLM dates to 2009, with the addition of Alitalia in 2010.
In 2012 Delta launched a joint venture with Virgin Australia followed in 2013 by both a 49% investment in, and joint venture with, Virgin Atlantic.
In 2015, Delta entered into an enhanced marketing arrangement with, and acquired a 3.5% stake in, its SkyTeam partner China Eastern.
In 2017, Delta launched its joint co-operation agreement with Aeromexico and increased its equity stake in the carrier to 49%. Also in 2017, Delta announced a joint venture with Korean Air Lines.
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