Four of the biggest airlines from three continents have come together in a deal worth over $1.2 billion. A series of transactions announced have linked Delta Air Lines (DAL), China Eastern (CEA), Air France/KLM (AFLYY)Group and Virgin Atlantic Airways. DAL and CEA are reportedly buying 10% stake of Air France and Air France..
Four of the biggest airlines from three continents have come together in a deal worth over $1.2 billion.
A series of transactions announced have linked Delta Air Lines (DAL), China Eastern (CEA), Air France/KLM (AFLYY)Group and Virgin Atlantic Airways.
DAL and CEA are reportedly buying 10% stake of Air France and Air France separately announced that it will be buying 31% of Virgin Atlantic Airways.
Background
Commercial aviation became popular after World War II when ex-military aircraft were used to transport people and cargo. Today, the industry supports 3.5% of the world’s gross domestic product (GDP) and is worth $2.7 trillion. Airlines across the world carry over three billion passengers in a year as well as 50 million tonnes of freight. 2016 alone saw the airlines charting 3.8 billion passengers.
According to the International Air Transport Association (IATA), this number is set to increase in the future. By to its projections, 7.2 billion passengers will travel by air in 2035.
Analysis
Delta Air Lines is by far the largest airline in the world in terms of assets value and market capitalization. These two overlapping deals will help each of the four airlines fend off competition.
According to the agreements that were announced, each airline will maintain its own distinct brand. But they will tightly coordinate the traffic between Europe and the United States. Jean-Marc Janaillac, Chairman and Chief Executive Officer of Air France-KLM, said, “This partnership which is unprecedented in scale gives Air France-KLM a leadership position in the worldwide airline industry. With Delta and Virgin Atlantic, we are reinforcing our trans-Atlantic alliance, making us the number one alliance between Europe and the United States in terms of traffic. With China Eastern, we are consolidating our position on a high-growth market.”
Virgin Atlantic is among the many regional carriers in Britain looking for ways to protect its traffic rights and shareholder structures in the wake of Brexit.
Assessment
Our assessment is that these deals are a calculated move to counter the challenge posed by airlines launched in the Middle East that are growing at an exponential rate. They will also enable these airlines to grow their global footprint.
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