Delta’s bold bid for Argentina’s national airline – strategic masterstroke or financial quagmire?

Delta’s bold bid for Argentina’s national airline – strategic masterstroke or financial quagmire?

from Gary Leff on November 11, 2024

Local media in Argentina report that Delta has made an offer to buy Aerolineas Argentinas.

Aerolineas Argentinas joined SkyTeam, the Delta-led alliance, back in 2012. The airline has 10 Airbus A330s, 46 Boeing 737s and 24 Embraer E190s. It also has two 737 cargo aircraft.

• On the one hand, President Javier Milei is ready for the government to sell the state-owned airline to foreign interests.
• On the other hand, owning the Argentine state airline is not worth that much since Milei opens domestic routes to foreign companies. However, this could be a cost-effective way to access the airline’s fleet of Airbus A330 widebody aircraft.

Aerolineas Argentinas crew

This would fit with Delta’s strategy of buying shares in airlines around the world

Delta doesn’t just work with airlines around the world. For its closest partners, it controls them. You have a stake in Aeromexico; LATAM; Virgin Atlantic; China East; Korean Air; and Air France KLM. They also considered purchasing ITA Airways (the new Alitalia).

Often these investments are extremely strategic. They helped Korean Air’s management maintain control of the airline. Their Virgin stake is 49%, which actually means buying a company in London Heathrow. Joining LATAM gave them a South American partner while depriving them of a key component of American strategy.

The US market is mature and there are limited growth opportunities here. They can grow in other parts of the world, gaining access to markets while strengthening close relationships.

Aerolineas Argentinas is a hopeless case, but should better be run under Delta. And Delta could get the opportunity to repurpose some of its widebody aircraft. But it’s also a money loser unless they can saddle the government with some of their obligations, and perhaps even then. Delta offers very aggressive bargains.

Buenos Aires

Argentina is desperate to get rid of Aerolineas Argentinas

Argentina needs to do something about the loss-making airline, which has lost a total of $8 billion in taxpayers’ money since it was renationalized in 2008. And Argentina cannot afford to go any lower.

The country’s annual inflation rate was 211.4% last year. They recorded negative GDP growth of 5%. Ten years ago only 5% of people in Argentina lived in poverty, today the figure is 40%.

This is a country that reached its peak a century ago and has been largely in decline under authoritarian leaders ever since. American Airlines stopped accepting cash in the country late last year.

This is what it looks like to pay for a group meal (and not a particularly expensive one at that!)

Paying the bill is a whole event! First, the guest counts the bills into piles of 10,000 pesos, then the waiter counts again to make sure everything is correct pic.twitter.com/9g2RFWNj5M

— Devon ☀️ (@devonzuegel) December 28, 2023

They stopped flying to New York. They stopped flying to Havana. They have worked to lay off up to two-thirds of their staff. Delta would be a much stronger operator for the assets, although that could also be the case Repurposing some of these assets.

Buenos Aires

This is anything but a done deal

Local media reports do not suggest a deal is imminent, just that offers have been discussed. Delta tried to buy the new Alitalia, but that didn’t work out. Undoubtedly, any agreement would be politically complicated. But that seems more possible now than it did last week.

More from View from the Wing