Delta Air Lines Inc. will invest $450 million to take a 3.6 percent stake in China Eastern Airlines Corp., expanding a partnership that will allow the carriers to better compete on routes across the Pacific.
China Eastern, the nation’s second-largest airline by market value, will sell about 466 million shares at HK$7.49 apiece (97 cents), according to a statement to the Hong Kong stock exchange. The sale price is a premium of 8.6 percent over the stock’s closing price in Hong Kong on July 22, before trading was halted pending Monday’s announcement.
The transaction gives Atlanta-based Delta an opportunity to expand and strengthen its overseas partnerships as an industrywide glut of available seats damps carriers’ abilities to raise prices for U.S. flights. The airline has longstanding ambitions to grow in China, where it trails the leading U.S. carrier into the country, United Continental Holdings Inc.
Delta is also eyeing a market that is poised to overtake the U.S. within two decades as the world’s biggest, according to the International Air Transport Association. Outbound Chinese tourists will double to 200 million annually by 2020 as income rises and other nations relax visa requirements to compete for spending, CLSA Asia-Pacific Markets said last year.
Earlier this year Delta deepened ties with the China Eastern, also a member of Skyteam airline alliance, with plans to move operations at Shanghai’s Pudong International Airport to share a terminal with the Chinese carrier.
Delta, the world’s third-biggest airline, owns minority stakes in Virgin Atlantic and Grupo Aeromexico SAB, and earlier this month agreed to increase its holding in Brazil’s Gol Linhas Aereas Inteligentes SA.
Monday’s deal comes after minority shareholders vetoed a proposal to sell a 24 percent stake in China Eastern to Singapore Airlines Ltd. and Temasek Holdings Pte in 2008. The Chinese carrier then fended off an offer from the parent of its Beijing-based rival Air China Ltd.
China Eastern along with its Shanghai Airlines unit operate code shares with Delta on 30 domestic routes in the U.S., 43 in China and seven trans-Pacific, according to the statement Monday. Delta serves the three largest cities in China with six daily non-stop flights from the U.S.
Earlier this month, China Eastern forecast a 263-fold increase in first-half profit and said it may report net income of as much as 3.7 billion yuan ($596 million), according to regulatory filings.
China Eastern shares surged this year, gaining 131 percent in Shanghai and 86 percent in Hong Kong before the July 23 halt. Trading will resume Tuesday, according to the statement.