The airline industry makes for strange bedfellows.
Last fall Delta swooped in and announced they were taking a stake in South American mega-carrier and American Airlines partner LATAM. LATAM would leave oneworld and drop its relationship with American, entering into a joint venture with Delta instead.
In order to get regulatory approval in Brazil for the deal, Delta dropped their partnership with Brazil’s Gol in which they had owned a stake.
American then partnered up with Gol. While that didn’t fill the hole left for American across South America, it’s a great partnership because of American’s strong flying between Brazil and the U.S. that matches up nicely with Gol’s extensive Brazilian domestic network.
Then the global pandemic hit. LATAM filed for bankruptcy. Delta’s ability to protect its investment is limited, thanks both to its own needs to conserve cash and restrictions placed on it in accepting a U.S. government bailout.
But the hits for Delta don’t end there. In 2015 Delta guaranteed a five-year $300 million loan for Gol, which comes due this August. With travel grounded, and indeed Brazil one of the primary current epicenters for spread of the novel coronavirus, the airline is in no position to pay back the loan. Delta is in talks with creditors to seek delay of payment.
- If Gol defaults on the loan, that’s bad for the airline, forcing it into bankruptcy.
- And that would be bad for Delta, finding itself on the hook for $300 million.
- However Delta does have collateral in the form of a stake in Gol’s Smiles frequent flyer program.
Delta is rushing to save a key American Airlines partner, because that keeps it from being on the hook to repay the loan they guaranteed. However if they fail they will take partial ownership in Gol’s frequent flyer program, a key American Airlines partnership.
Maybe I’m just weird but i find the irony here hilarious. Great post.
LOL, ED Bastion, sometimes the Karma bus go slow, sometimes the Karma bus go fast…..
As if these days could not get any weirder.
I have said that this deal with DL and LATAM felt fishy and karma is a (well you know). DL is a lousy partner since Richard Anderson left and now they will have a weaker network in SA, across the Atlantic and to Asia/Australia. Doug Parker must get a big laugh out of this.
It’s nice to see Delta get body slammed on the tarmac. Delta management have been real jerks.
Gary – the title is, at least to me, very misleading! Delta is not “rushing in to protect a key American Airlines partner”. They are dealing with the impact of a loan they GUARANTEED years ago and are still on the hook to cover. This wasn’t something American assumed so Delta is protecting THEIR OWN interest here. Sure American (and the Gol relationship with American ) may benefit but the primary driver is Delta’s financial interest and not anyone else’s.