Delta Air Lines plans a China Eastern stake. Will other US airlines follow the foreign equity path?

Delta Air Lines is making its largest airline investment yet at USD450m. The prize is China Eastern Airlines, on the cusp of re-vitalisation, long-haul growth and a beneficiary as China's aviation power looks set to tip to Shanghai. Yet Delta's largest investment buys it only 3.55% and an observer's seat on the board. In comparison, USD360m bought Delta 49% of Virgin Atlantic and three board seats. In light of Delta's anti-Gulf carrier dispute, Delta will quietly need to reconcile the fact China Eastern is the most heavily subsidised Chinese airline.

Delta emphasises it is "solidifying" its partnership with China Eastern. The two account for 24% of US-mainland China seat capacity in Jul-2015. That is approximately 20,000 weekly one-way seats compared to the 78,000 US-UK seats Delta and Virgin have on the tightly held North Atlantic. Delta's stake reflects long term potential but as a mere 3.5% it is more symbolic and a placeholder for a potentially deeper partnership.

China Eastern has been considering its future direction, and even whether it should leave SkyTeam for the oneworld alliance. Delta's stake is an attempt to maintain the status quo. Delta needs China Eastern more than the China Eastern needs Delta. There is some wariness at China Eastern about Delta's intentions, but this could be the start of a long and close relationship. It is likely to spark competitive responses, such as United Airlines re-evaluating Air China's wish for a deeper partnership. It is unclear if Delta's stake signals other foreign airlines can buy into Chinese airlines.