American plans to invest in a budget airline based in Chile

American Airlines passenger jets prepare for departure, Wednesday, July 21, 2021, near a terminal at Boston Logan International Airport, in Boston. American Airlines is planning to invest in a small South American budget airline as part of a deal that will include selling seats on each other's flights. American announced the proposed deal with JetSmart on Thursday, July 29. (AP Photo/Steven Senne)

DALLAS (AP) — American Airlines plans to invest in a Chilean budget airline and sell seats on each other's flights to help American extend its reach in South America.

American said Thursday that it has signed a letter of intent for the deal with JetSmart. American executives declined to say how much the airline proposes to invest in JetSmart other than describing it as a minority stake.

If the companies close the deal and win government approval, travelers could earn and spend American frequent-flyer points on JetSmart flights.

The airlines seem an odd fit. American has global reach and chases upscale travelers by offering better accommodations in business class. JetSmart, a so-called ultra low-cost carrier, doesn't offer business class or other amenities on its short hops around South America, and it packs more passengers than American does on similar planes.

Vasu Raja, American’s chief revenue officer, said the deal would let both airlines grow profitably throughout Latin America as the travel industry recovers from the pandemic. He said two-thirds of passengers on American flights to and from South America start in South America, and the deal will give them more flight options.

American's announcement was immediately denounced by the union representing its pilots, which accuses American of causing flight delays by failing to retrain pilots returning from pandemic-related leaves of absence quickly enough.

“It’s curious to us why management would be so focused on other airlines while seeming to ignore our airline,” said Dennis Tajer, a spokesman for the Allied Pilots Association.

JetSmart was founded in 2016 and has just 20 planes, although it has 79 more on order. It serves 33 destinations in South America, mostly in Chile and Argentina. JetSmart overlaps with American in a half-dozen cities including Buenos Aires; Santiago, Chile; and Bogota, Colombia.

JetSmart is one of several low-cost carriers controlled or partly owned by U.S. private equity firm Indigo Partners. Others include Denver-based Frontier Airlines, Mexico’s Volaris and Hungary’s Wizz Air.

American has struck deals in South America before. Its longtime partnership with the continent’s biggest airline, Latam, collapsed in 2019 when Delta Air Lines swooped in to make a $2 billion investment in the Chilean carrier. After the pandemic crushed air travel in 2020, Latam filed for bankruptcy protection in the U.S.