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Delta Expands in Asia Via Investment in Korean Air's Parent

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In a bid to strengthen its foothold in Asia, Delta Air Lines (DAL - Free Report) bought a 4.3% stake in Hanjin Kal Corp.  Subject to regulatory approvals, Delta plans to increase its stake to 10% in this largest shareholder of Korean Air Lines. Notably, Delta already has a joint venture (JV) with Korean Air.

The JV, launched in May 2018,enables both the carriers to share costs and revenues on flights apart from coordinating schedules, thereby enhancing connectivity between the United States and Asia. This trans-Pacific deal has resulted in the formation of a huge network, covering in excess of 290 and 80 destinations in the United States and Asia, respectively.

Additionally, the deal provides benefits to reciprocal frequent flyers as the carriers aim to increase traffic and boost revenues amid stiff competition. Notably, Delta and Korean Airare among the four founding members of the SkyTeam alliance in 2000.

The alliance is a key driver behind Delta’s first year-over-year growth in the Asia Pacific region since 2012. This is because flights connecting Minneapolis and Seoul as well as Seattle and Osaka have been launched this year, courtesy of the partnership. Delta’s desire to increase its stake in Korean Air’s parent company further highlights this Atlanta-based carrier’s intention to boost the already successful JV.

We remind investors that the highly lucrative Asian aviation market attracted Delta’s rival American Airlines (AAL - Free Report) as well. American Airlines Group has a stake in China Southern Airlines (ZNH - Free Report) .

Delta’s Investment — A Vote of Confidence in Hanjin Kal Management

Delta’s interest in Hanjin Kal is a blessing for the Korean company’s leadership. Notably, Hanjin Kal, a family-run company, has been engulfed in management-related controversies ever since the demise of Cho Yang-ho, the chairman of the Hanjin Group, in April.

Cho Won-tae was subsequently appointed as the group’s chairman — a move that has been questioned by the activist fund, Korea Corporate Governance Improvement (“KCGI”). Currently, KCGI’s disappointment pertaining to the group’s corporate governance is giving rise to fears about an ownership battle at the conglomerate.

In fact, Delta’s decision to invest in Hanjin Kal and subsequently increase its stake has thwarted KCGI’s desires to take control of the group. According to Reuters, in the event of Delta succeeding to increase its stake to 10%, the Cho family and its allies will have a 39% stake in Hanjin Kal compared with KCGI’s 16%.

Zacks Rank & A Key Pick

Delta carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader Transportation sector is GATX Corporation (GATX - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GATX has an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16%.

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