The second largest U.S. airline,
Delta Air Lines
) acquired a 4.17% stake in the largest Mexican airline, Grupo
Aeromexico, for $65 million.
Under the terms of the deal, Delta received 30.18 million shares
of Aeromexico at $31 Mexican pesos per share and became a member of
its board. The deal was announced last year in August.
The transaction will expand the networks of both companies
between U.S. and Mexico amidst an uncertain economy, threats of a
recession looming large over Europe and high fuel prices. Thus, the
purchase would create a leading airline alliance in the Mexico-U.S.
Together, the companies will offer 93 destinations with 733
daily flights in eight countries through code sharing. In addition,
Aeromexico's fleet that includes
) 777, 767 and 737, and
) 145 and 190 will further benefit Delta's network as the company
is replacing smaller gauge inefficient aircraft with more
Further, Delta and Aeromexico intend to open a new maintenance
and overhaul facility in Mexico in the third quarter of 2013.
The deal affirms Delta Air Lines' continued effort to expand
domestic and international flights. Within the country, the company
is continuing its effort to strengthen its position in New York
City through deeper focus on corporate customers, better airport
facilities, and increased services into and out of the region.
Additionally, the company has a strong foothold in Latin America,
in particular Brazil and Mexico.
We believe the company's global network, hub structure and
alliances with other airlines will enable it to offer an improved
global reach compared with its peers such as
United Continental Holdings Inc.
JetBlue Airways Corporation
Southwest Airlines Co.
We are currently maintaining our long-term Neutral
recommendation on Delta Air Lines. For the short term (1-3 months),
the stock retains a Zacks #2 (Buy) Rank.
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