Photo by Chad Slattery

Cleary Gottlieb Steen & Hamilton is advising LATAM Airlines Group on its strategic partnership with Delta Airlines, which brings together the leading airlines in North and Latin America. Sullivan & Cromwell represents Delta on the deal.

As part of the agreement, Delta will acquire a 20% stake in LATAM for $1.9 billion. The partnership marks the end of LATAM's pursuit of a joint venture with American Airlines and LATAM's exit from the Oneworld alliance of airlines. Chilean regulators had knocked down the deal with American.

Together, LATAM and Delta will hold the leading position in five of the top six Latin American markets from the U.S. They will serve 435 destinations worldwide and carry more passengers between North America and Latin America than any other partnership.

Atlanta-based Delta has long held a stake in Aeroméxico, Mexico's top airline, and has singled out Latin America as a key growth market. The deal with LATAM means Delta will be severing an eight-year partnership with Brazilian carrier GOL.

Delta chief executive officer Ed Bastian said he expects regulatory approval for the tie-up with LATAM to take somewhere between 12 and 24 months. He expects the purchase to contribute $1 billion to Delta's revenue during the next five years.

LATAM, based in Santiago, Chile, services 143 destinations in 25 countries, including six domestic markets in Latin America: Argentina, Brazil, Chile, Colombia, Ecuador and Peru.

The Cleary M&A team on the deal is led by New York-based partners Jeff Lewis and Chantal Kordula. Partner Meyer Fedida is providing tax advice, while partner Elaine Ewing leads antitrust advice and partner Adam Brenneman helms securities law advice.

The Sullivan & Cromwell team is led by New York-based partners Sergio J. Galvis, Werner Federico Ahlers and Ronald E. Creamer Jr.

Delta expects that the transaction will be accretive to earnings during the next two years. For LATAM, the transaction will improve free cashflow generation, reduce forecasted debt by more than $2 billion by 2025 and improve the company's capital structure.

Tie-ups between global airlines have become increasingly important in an interconnected world where hometown airlines hold coveted slots at major international airports.

LATAM CEO Enrique Cueto described the two airlines as having "highly complementary route networks". LATAM is the market leader in Chile and Peru, and the number two carrier in Brazil, Argentina, Colombia and Ecuador.

The Chile-based airline has multiple flights to Miami, an important hub for Latin American flights and an airport where Delta has a limited presence. Ramiro Alfonsín, LATAM chief financial officer, said the two airlines have just one overlapping route: São Paulo to New York.

LATAM has a strong presence in São Paulo, the financial hub of Latin America's biggest economy, due to its 2012 takeover of Brazil's TAM Airlines. LATAM traces its origins to LAN Chile, which was the flagship carrier of Chile until privatisation in the 1990s.

Within Latin America, the airline says four out of 10 passengers on regional flights fly LATAM.

Chilean counsel for LATAM is provided by Claro y Cia, led by M&A practice head José María Eyzaguirre and partner Felipe Larraín. Delta is represented in Chile by Barros y Errázuriz Abogados.

Delta will invest in LATAM through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash. Delta will also invest $350 million to support the establishment of the strategic partnership.

In addition, Delta will acquire four A350 aircraft from LATAM and has agreed to assume LATAM's commitment to purchase 10 additional A350 aircraft, to be delivered beginning in 2020 through 2025.

LATAM also has a strategic partnership with Qatar Airlines. LATAM executives expect to wind down the airline's codeshares with American during several months.

"Delta has a vision for the airline industry that combines joint-venture and equity ownership in a unique partnership strategy," LATAM's Alfonsín told analysts in a Friday conference call. "Without a doubt, they are recognised as one of the world's most innovative airlines."