Delta Air Lines stands by new partner LATAM, despite bankruptcy

Delta Air Lines is standing by its new partner LATAM Airlines even as South America's largest carrier begins the process of restructuring through bankruptcy.

Atlanta-based Delta has bet the future of its business in South America on LATAM. This includes a $2 billion investment in the Chile-based carrier, and a new partnership designed to improve connections for travelers between the U.S. and South America and give its frequent flyers more options in Latin America.

"We have the utmost confidence in the LATAM team, and remain firmly committed to our partnership, which will be important when we rebuild our international network in the recovery," said Delta CEO Ed Bastian in a memo to staff on May 27.

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LATAM filed for Chapter 11 bankruptcy restructuring in New York on May 26. The filing covers its businesses in Chile, Colombia, Ecuador and Peru, but not its operations in Argentina, Brazil and Paraguay. The bankruptcy is also not expected to effect the LATAM Pass mileage program.

Delta, which owns a nearly 20% stake in LATAM, figures highly in the carrier's restructuring plan. LATAM's initial filings outlined plans to accelerate approvals of the carriers' proposed joint venture. The pact will allow the airlines to coordinate schedules and fares, and jointly market and sell flights between South America and the U.S.

The tie up also includes closer frequent-flyer ties. In February, the airlines unveiled plans to allow reciprocal earnings and redemptions on each others flights for members of both Delta's SkyMiles and the LATAM Pass programs.

Related: LATAM Airlines hopes to speed Delta partnership through bankruptcy restructuring

The Delta-LATAM pact came as a surprise to many when it was unveiled last September. LATAM, formerly LAN Airlines, was a long standing partner of American Airlines and an early member of the Oneworld alliance. It plans to leave Oneworld on Oct. 1.

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Delta also has a close partnership with Aeromexico.

While it is too early to know how LATAM's restructuring will progress, Delta has already made moves to support its partner. The U.S. airline paid LATAM $62 million to cancel a deal to purchase four already-built Airbus A350-900s from LATAM. The payment will help LATAM with its with short-term cash needs, Bastian told staff during a virtual town hall on May 27 viewed by TPG.

"It is [also] going to save us about $500 million from not having to redo those planes," he added. The savings will come from not having to reconfigure the four A350s to Delta's specs from LATAM's layout.

Related: Delta members can soon earn and redeem SkyMiles on LATAM flights

Delta still has 10 A350-900 orders that it assumed from LATAM as part of their September agreement. The U.S. airline has 22 A350 orders, in addition to 13 aircraft in its fleet, that will replace its now-retiring Boeing 777s.

LATAM is the latest — and largest — airline to reorganize because of the pandemic. Avianca and Virgin Australia have both begun restructuring efforts and others, including South African Airways and Thai Airways, are reportedly near entering the local equivalents of bankruptcy. Several regional airlines, including Flybe and Trans States Airlines, have already shut down during the crisis.

Related: A country-by-country guide to coronavirus recovery