Delta Air Lines and China Eastern Airlines will each buy 10 percent stakes in Air France-KLM Group as part of a far-reaching plan to forge a deeper alliance. At the same time Air France will take a 31% stake in Virgin Atlantic, in which Delta is a major investor.
The U.S. and Chinese stakes in Air France-KLM will be acquired via a capital increase totaling €751 million (US$876 million), while the Paris-based group will pay about £220 million (US$287 million) for 31 percent of Britain’s Virgin Atlantic, the four companies said in a joint statement Thursday.
Delta, Air France-KLM, Virgin and Italy’s Alitalia also plan to forge a single commercial venture out of two existing partnerships, while Air France and China Eastern will expand their own tie-up.
Delta owns 3.2 percent of China Eastern and 49 percent of Virgin Atlantic, where billionaire founder Richard Branson’s stake will be cut to 20 percent following the Air France deal.
The interlocking ties will provide the closest bonds yet between major airlines from different continents in an industry where scope for outright mergers is limited by government-imposed ownership caps.
The expanded joint venture deal should allow the carriers – which are all members of the SkyTeam global alliance, but for Virgin Atlantic – to coordinate timetables and fares on some routes while combining frequent flyer programs and co-locating airport facilities to cut costs.
“With Delta and Virgin Atlantic we are reinforcing our trans-Atlantic alliance, making us the number one alliance between Europe and the U.S. in terms of traffic,” Air France-KLM Chief Executive Officer Jean-Marc Janaillac said in a statement. “With China Eastern, we are consolidating our position on a high-growth market.”
Under current arrangements, Air France-KLM, Delta and Alitalia have one joint venture, and Delta and Virgin Atlantic are tied together via another.
In a letter posted on the Virgin Atlantic website, Branson said that cooperation with Air France-KLM will help provide feeder traffic from mainland Europe together with onward routes there.
He added: “As I get a little older, I want to be certain that all the necessary building blocks are in place for Virgin Atlantic to continue to prosper and grow for the next 50 years.”
Delta will take a seat on the board of Air France-KLM, Europe’s biggest airline by passenger traffic, which will see the French government’s holding diluted from the current 18 percent. The U.S. giant also plans to pursue a joint venture with China Eastern on trans-Pacific routes, should a U.S.-China open skies accord be negotiated.
The new arrangements should be concluded next year, assuming they clear antitrust hurdles, allowing them to be implemented from 2019 at the latest.