Delta & Korean Air Invest In WestJet, Acquire 25% Stake: What’s The Goal?

Delta investing in airline partners is nothing new, as the airline owns stakes in Air France-KLM, China Eastern, LATAM, Virgin Atlantic, and more. The airline has now invested in yet another airline, but with a twist.

Delta & Korean Air buy 25% stake in WestJet

Delta and Korean Air have announced plans to strengthen their respective partnerships with WestJet, through the purchase of minority equity stakes in the Canadian airline from Onex Partners (the upper middle market private equity platform of Onex, a Canadian investor and alternative asset manager).

As it’s described, these investments build on each airline’s existing relationship with WestJet, to provide further benefits to customers in North America, Europe, Asia, and beyond.

Under this agreement, Delta and Korean Air will independently acquire stakes totaling 25% in WestJet. Delta will invest $330 million for a 15% stake, while Korean Air will invest $220 million for a 10% stake.

It gets even more interesting. Upon closing, Delta also has the right and intent to sell and transfer a 2.3% stake in WestJet to its joint venture partner Air France-KLM, in exchange for $50 million. This transaction remains subject to certain Air France-KLM approvals.

Delta and Korean Air have both been codeshare partners with WestJet for years. The plan is for there to be an elevated partnership, with “more seamless travel experience for customers worldwide.”

Here’s how Delta CEO Ed Bastian describes this investment:

“Investing in a world-class partner like WestJet aligns our interests and ensures that we remain focused on providing a world-class global network and customer experience for travelers in the United States and Canada. Together, Delta and our airline partners are connecting the world and transforming the future of travel.”

Meanwhile here’s how Korean Air CEO Walter Cho describes this:

“We are pleased to invest in WestJet as part of our continued commitment to enhancing transpacific connectivity. This strategic partnership will enhance our global network and create long-term value for customers through greater choice and convenience.”

What’s the logic for this WestJet investment?

This partnership makes perfect sense in the context of how Delta does business. Delta takes a unique approach to its airline partnerships. If Delta wants to have a close partnership with another airline, it doesn’t just start a joint venture, but it also often acquires a stake in the airline, so that it’s fully invested.

Meanwhile Delta generally couldn’t care less about its non-joint venture and non-equity partners, which it almost views as a nuisance. With that in mind, WestJet has had an interesting arrangement with Delta for quite some time. Delta and WestJet had been pursuing a transborder joint venture, but it ended up being called off, due to too many concessions being required.

Nonetheless, Delta has clearly remained very interested in WestJet, and it has kept its “preferred” status with Delta, despite the lack of a joint venture. So I imagine that this has been in the works for quite some time, or else Delta wouldn’t have remained so interested (unrelated, but I’d similarly expect Delta to invest in EL AL, given its current relationship with the airline).

In and of itself, a minority stake doesn’t give Delta control over WestJet. However, Delta is a successful airline, and as you’d expect, airlines that Delta invests in are generally pretty cooperative with the airline. The interesting twist here is that Korean Air is also investing, and Air France-KLM is expected to acquire a stake in the future. Therefore this seems to be a global strategy for Delta and two of its closest partner airline groups.

So, what’s the strategy here? When you look at the current reality of aviation in Canada, you have Air Canada as the major global airline, and it’s part of the Star Alliance transatlantic joint venture. While WestJet has a respectable network, it has been heavily centered around Calgary (YYC), and the long haul network hasn’t necessarily been that big.

With Delta, Korean Air, and Air France-KLM, now investing in WestJet, what will that mean for the airline? Well, my guess is that the airline will focus its business model more around connecting to the hubs of those airlines, rather than being so Calgary centric. I also wouldn’t be surprised to see expanded long haul service.

WestJet already has a good amount of service to Delta hubs, and flies to Seoul Incheon and Paris Charles de Gaulle. However, don’t be surprised to see even more of a focus on this kind of flying, including out of additional Canadian airports. This seems like a win-win arrangement, which will increasingly allow WestJet to compete against Air Canada on a more global scale.

Bottom line

Delta and Korean Air have announced plans to invest in WestJet, acquiring a combined stake of 25%. A small part of that stake is expected to be sold to Air France-KLM. This is in line with Delta’s strategy of investing in its most important partners, and it means that we’ll likely see the airlines work even more closely together.

I feel like there’s a lot of upside here for WestJet, so I look forward to seeing how this evolves in the coming years.

What do you make of this WestJet investment?