(This September 26 story corrects airline group to SkyTeam alliance instead of the Sky Alliance in paragraph 6)
By Tracy Rucinski
CHICAGO (Reuters) - Delta Air Lines (DAL.N) on Thursday announced a deal to buy a 20% stake in LATAM Airlines Group LTM.SN for $1.9 billion, creating a major new airline partnership and shaking up the Chilean carrier's longtime ties with American Airlines.
The surprise deal, which Delta will fund with newly issued debt and available cash in its largest investment since its merger with Northwest Airlines a decade ago, could upend American's (AAL.O) stronghold on the Latin American region.
LATAM has been a member of the Oneworld alliance since 2000 alongside longtime partners American, British Airways and Iberia, with which it had been pursuing a deeper route alliance that was rejected by the Chilean Supreme Court last May.
Delta does not expect regulatory obstacles for its tie-up with LATAM, where it will gain representation on the board of directors. The plan envisions growth for both carriers, which currently overlap on only one route, Chief Executive Ed Bastian told Reuters.
"I think it's a great fit," he said.
Atlanta-based Delta, which is part of the SkyTeam alliance, expects the LATAM deal to be accretive to earnings per share over the next two years and add $1 billion in revenue growth over five years, Bastian said.
Delta will also provide LATAM an additional $350 million to help it transition out of Oneworld and plug into Delta's network.
The two can start code-sharing before they receive government, regulatory and anti-trust approval for the larger tie-up, a process Bastian said he expects to take between 12 and 24 months.
As part of the deal, Delta will also acquire four A350 aircraft from LATAM and assume LATAM's commitment to purchase another 10 A350s to be delivered between 2020 and 2025 for an undisclosed sum.
Delta also owns stakes in Grupo Aeromexico (AEROMEX.MX), Air France KLM (AIRF.PA), China Eastern (600115.SS), Brazil's Gol (GOLL4.SA), Virgin Atlantic and Korean Air Lines Co's (003490.KS) parent company.
It has also been negotiating a 10% stake in Alitalia. That plan has not changed with the LATAM deal, which Delta started studying about three months ago after an approach by a third party, Bastian said.
(Reporting by Tracy Rucinski; Additional reporting by David Sherwood in Santiago and Marcelo Rochabrun in Sao Paulo; Editing by Dan Grebler)