Series of Transactions to Consolidate Power in Airline Business

 - July 28, 2017, 10:59 AM

Delta Air Lines, Air France-KLM, Virgin Atlantic and China Eastern have all agreed to participate in partnership deals aimed at fending off competition from powerful Persian Gulf airlines and emerging long-haul, low-fare carriers plying the North Atlantic. The centerpiece of the activity, all announced on Thursday, involves the launch of a long-term joint venture between Delta, Air France-KLM and Virgin Atlantic supported by a 31-percent investment by Air France-KLM in Virgin Atlantic in 2018. As a result, Richard Branson will relinquish control of Virgin Atlantic, as his share falls from 51 percent to 20 percent.

The memorandum of understanding between Air France-KLM, Delta and Virgin Atlantic lays the foundation for a combination of two existing joint ventures, one between Air France-KLM, Delta and Alitalia and the other between Delta and Virgin Atlantic. 

The MOU promises to establish, in the words of Air France-KLM, “one of the most advanced partnership models in the airline industry,” allowing for what the company calls an “unrivaled proposition on the transatlantic axis.”

According to Air France-KLM, the single joint venture will, in effect, drive capacity growth of the partners, create an associate partner status allowing for the inclusion of other players at a later stage and generate “significant synergies” thanks to a new code shares to and from London, sales coordination, cost savings and the extension of the partnership to 15 years.

Meanwhile, Delta and China Eastern have each agreed to take a 10-percent stake in Air France-KLM by subscribing new shares through capital increases totaling €751 million ($882 million). Air France-KLM said the China Eastern investment will “secure and reinforce” its presence in the Chinese market thanks to the associated long-term partnership as well as give it a European leadership position in Shanghai.