Delta, Virgin Atlantic and Air France-KLM create a new trans-atlantic joint-venture

Yesterday, Thursday 27th July 2017, Delta Air Lines, Air France-KLM and Virgin Atlantic unveiled plans to combine two overlapping transatlantic joint-ventures, supported by equity deals worth $1 billion, as airlines brace for more competition.

The strategic move is designed to strengthen carriers on the North Atlantic market, where LCCs (Norwegian in particular) have shaken up the market, and to create a tangle over Heathrow access, as the UK is in the process of leaving the EU.

The realignment coincides with a deal for Air France-KLM to deepen its commercial ties with China Eastern to build what it described as the European leg of a global network.

This new partnership, which will last for 15 years, will combine the previous joint-venture between Delta and Virgin Atlantic and the one between Delta, AF-KLM and Alitalia.

The italian carrier’s position in the new alliance depends on what will happen in the months to come, as the airline is currently in the Italian equivalent of Chapter 11 bankruptcy protection (Amministrazione Straordinaria) with the three administrators entitled to save Alitalia searching for buyers.

Air France-KLM said one option could be for Alitalia to cooperate as an associate partner.

“What it does is brings together the missing piece of that triangle: the missing link between Air France-KLM and Virgin Atlantic,” Atmosphere Research Group analyst Henry Harteveldt said, noting Delta’s existing ventures with both carriers.

At the same time as forging the expanded alliance, Air France-KLM will buy 31 percent of Virgin Atlantic from Richard Branson’s Virgin Group for around 220 million pounds ($287 million).

Delta and China Eastern will each acquire a 10 percent stake in Air France-KLM by subscribing to new shares through reserved capital increases totalling 751 million euros ($877 million).

The deal – which is subject to regulatory approval – would give the partners a stronger position on the North Atlantic market with a combined 27 percent of capacity, ahead of rivals, according to FlightGlobal Schedules data.

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