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LATAM Airlines Declares 10% Stake Buyout by Qatar Airways

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Shares of LATAM Airlines Group S.A. gained 1.69% by close of business on Dec 28, driven by the news that the Qatar Airways had acquired 10% stake in the company. The transaction, completed through a rights issue, was valued at $608.4 million. Per reports, the purchase consideration translates to over 60.8 million shares worth $10 each.

The deal had been agreed upon by the two parties in July this year. In November, Brazilian regulatory authority, Cade, gave approval to the investment. Notably, LATAM Airlines was formed in 2012 after Chile’s LAN joined forces with Brazil’s TAM airlines. 

Market Conditions

The Latin American economy has been struggling due to a slowdown over the past couple of months. This has resulted in lower revenues for airlines as well. One of the major reasons for the economic slowdown is low oil prices. However, growth of tourism in the country still provides opportunities. Moreover, improvement in the business climate could see a surge in business travelers. We note that the Middle Eastern airlines have been actively competing with some of the biggest names in the U.S. airlines industry. Speculations are rife that these airlines have also eaten into the market share of several industry leaders, especially with respect to intercontinental, long-haul flights. U.S. airlines view Latin America as a growing region and consequently several new flights have been introduced by these airlines to the region. There have also been reports of possible collaborations between Latin American and U.S. airlines. Thus, with growing competition for market share, Qatar Airlines’ investment could draw additional attention to airlines in this region.

Zacks Rank and Stocks to Consider

LATAM Airlines currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Other popular airlines in the Latin American region include GOL Linhas Aereas Inteligentes S.A., Copa Airlines S.A. (CPA - Free Report) and Avianca Holdings S.A. .

Performance of the Stock

The company’s stock has underperformed the Zacks categorized Transportation-Airline industry over the past three months. Shares of the company have gained 3.95%, while the industry gained 23.12% over the same period.

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