Last Dec. 31, Delta completed its purchase of 20% of Latam Airlines Group. The $1.9 billion investment was key to Delta securing a planned joint venture partnership with the Latin American stalwart and, maybe just as sweet, swaying Latam away from its tie-up with American.

Now, less than six months later, the Covid-19 crisis has forced Latam to file for Chapter 11 bankruptcy protection, leaving uncertain how much stake Delta will retain in Latam even if the latter is able to emerge from its restructuring, as most presume will happen. 

Meanwhile, Delta is chasing after extra liquidity. On June 10 the carrier moved forward with its latest equity-raising effort: an offering of $1.25 billion in unsecured bonds with a relatively high interest payment of 7.38%. Fitch gave the offering a junk rating.

For its part, Delta has expressed no regret about the Latam deal. 

“We remain firmly committed to our partnership with Latam and believe that it will successfully emerge a stronger airline and Delta partner for the long term,” CEO Ed Bastian said after the Chapter 11 filing. 

Still, the Covid-19 crisis has raised questions about the efficacy of Delta’s broader equity investment strategy. Along with its Latam stake, Delta also owns 49% of partners Virgin Atlantic and Aeromexico as well as smaller pieces of Air France, Korean and China Eastern. 

Among those airlines, Virgin Atlantic, like Latam, is especially reeling and is appealing for state aid that the U.K. to date has been unwilling to provide. 

The Latam situation, said aviation analyst Bob Mann of R.W. Mann & Co., raises the question of whether such equity purchases ever make sense. While Delta has taken the view that the investments deepen relationships with its joint venture partners, Mann said that sometimes the only definitive advantage is that they buy a seat on the partner’s board of directors. 

“The ideal scenario is just to have complementary commercial needs,” he said. “If you look at it as the price of admission, then the question is, do you really want to be doing business with that guy anyway?”

Nevertheless, sometimes that price of admission is worth it. For example, Delta spent $360 million in 2012 to purchase its stake in Virgin Atlantic, making the announcement as it unveiled plans for what became the carriers’ joint venture partnership. The partnership, said Mann, enabled Delta to greatly expand what had been an underwhelming presence at London Heathrow, where access to landing rights is expensive and in short supply. 

Industry analyst Seth Kaplan said that even if Delta’s stake in Virgin Atlantic were to be wiped out due to the British carrier’s current difficulties, the investment has been an outstanding one. 

“That was the deal of the century,” he said. “There is no question that they have gotten their money back many times over.”

As to the Latam investment, Kaplan said that while Delta surely would like to have that extra $1.9 billion in cash right now, it’s too early to say that the equity purchase has backfired. Latam, he said, will be a Delta partner for many years to come. 

If Fitch ratings are to be believed, Delta remains in better shape than American and United, both of which have been less enthusiastic through the years about equity tie-ups with partners. 

“Philosophically, I bet they still believe in the strategy,” Kaplan said of Delta.

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