Delta and LATAM's joint venture is tentatively approved by DOT

A proposed joint venture between Delta Air Lines and LATAM Airlines has been tentatively cleared by the Department of Transportation, paving the way for the deal to proceed.

Delta and LATAM announced the planned joint venture in 2019, and Delta recommitted to the deal in 2020 even as LATAM entered bankruptcy due to the COVID-19 pandemic.

Although Chilean authorities cleared the deal last fall, the airlines continued to wait for the ruling from U.S. regulators. Airlines must typically receive approval from regulators before enjoying the anti-trust immunity offered by a joint venture. Delta has similar ventures in place with numerous airline partners, including Air France-KLM and Virgin Atlantic.

Still, in the ruling published on Thursday, the DOT attached conditions to its approval, arguing that without them, it found that granting the antitrust immunity could be anti-competitive in the U.S.-South America market.

"The Department proposes the following critical remedies and conditions to address these issues: maintenance of current third-party interline agreements, the removal of exclusivity provisions...a 10-year expiration and re-assessment requirement, and the removal of a capacity constraint clause located in the Joint Venture Agreement, which artificially limits growth during the initial stages of the proposed relationship," the DOT wrote in the filing.

"With these conditions, we have tentatively determined that the alliance is likely to generate public benefits while the U.S.-South America market would remain sufficiently open to existing and new competition."

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The ruling is now subjected to a 14-day comment period.

In September 2019, Delta made waves with the shocking announcement it would take a 20% stake in the Latin American carrier, valued at just under $2 billion, and form a joint venture, upending historical alliances in the region. LATAM, which was previously a member of the Oneworld alliance and a partner of American Airlines, left the alliance as part of the announcement.

The two airlines currently offer reciprocal frequent flyer benefits and codeshare on some routes, an arrangement that was expanded in November.

In a statement, Delta celebrated the decision.

"Delta Air Lines and LATAM Airlines Group applaud the U.S. Department of Transportation's tentative decision to approve their Joint Venture," a spokesperson said.

"Once the DOT finalizes its decision, both airlines will work to quickly deliver the consumer benefits approval unlocks, including expanded capacity, increased routing options between the U.S./Canada and South America, superior frequent flyer benefits and shared airport facilities and amenities."