Delta Air Lines Reports 2009 Financial Results

ATLANTA, Jan. 26 /PRNewswire-FirstCall/ -- Delta Air Lines (NYSE: DAL) today reported financial results for the December quarter and full year 2009.  Key points include:

• Delta's net loss excluding special items(1) for the December 2009 quarter was $225 million, or $0.27 per share.  This result is $285 million better than the prior year quarter on a combined basis(2) excluding special items.  
• Delta's net loss was $25 million, or $0.03 per share, for the December 2009 quarter.
• Delta's net loss for 2009 was $1.2 billion, including $169 million in special items.  Excluding special items and $1.4 billion of fuel hedge losses, Delta's net profit for 2009 was $291 million.
• Delta ended 2009 with $5.4 billion in unrestricted liquidity, a $400 million increase year over year.
• Delta continued its successful integration of Northwest Airlines and received approval from the Federal Aviation Administration for a single operating certificate at year end.

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"2009 was a difficult year by any measure and my thanks go out to the Delta people for their hard work through this challenging time," said Richard Anderson, Delta's chief executive officer.  "As a result of the strategic pieces we put in place in 2009 and the strong momentum of our merger integration, Delta is now positioned to capitalize on the economic recovery under way and expects to generate positive RASM improvements each month of this year."  

Revenue Environment

Delta's operating revenue on a GAAP basis grew 1% to $6.8 billion in the December 2009 quarter compared to the prior year period as a result of its merger with Northwest.  On a combined basis, total operating revenue declined nearly $1 billion, or 12%, and total unit revenue (RASM) declined 5% in the December 2009 quarter compared to the 2008 quarter.

On a combined basis:

• Total operating revenue declined 12% in the December 2009 quarter versus the prior year quarter due to the global economic recession.
• Passenger revenue decreased 13%, or $878 million, compared to the prior year period on an 8% capacity reduction.  Passenger unit revenue (PRASM) declined 5%, driven by a 7% decline in yield and a 1 point improvement in load factor.
• Cargo revenue declined 11%, or $32 million, reflecting lower yields.  Freighter capacity was 19% lower year over year due to Delta's decision to end all dedicated freighter flying by the end of 2009.
• Other, net revenue declined 6%, or $53 million, primarily due to declines in administrative service charges which were partially offset by increased baggage fees.

Comparisons of revenue-related statistics are as follows:

"Our revenue performance this quarter showed indications of economic recovery with increased corporate travel demand, strong load factors and sequential RASM improvement each month," said Ed Bastian, Delta's president.  "With initiatives in place to broaden our network through new alliances, invest $1 billion in our fleet and product and reallocate our global fleet under our single operating certificate, we have built the foundation for further RASM improvement this year."  

Cost Performance

In the December 2009 quarter, Delta's operating expense on a GAAP basis decreased approximately $1 billion year over year primarily due to lower restructuring and merger-related items.  Excluding special items, operating expense decreased $1.2 billion due to lower fuel expense, reduced capacity, productivity improvements and merger benefits in the December 2009 quarter compared to the prior year period on a combined basis.  These cost reductions were partially offset by investments in Delta's product, increased employee wages and higher pension expense.

On a combined basis:

• Consolidated unit cost (CASM(3)), excluding fuel expense and special items, increased 7% year over year in the December 2009 quarter as the pace of capacity reductions exceeded the benefits from cost reduction initiatives and merger synergies.
• Non-operating expense excluding special items decreased $55 million, or 15%, in the December 2009 quarter primarily due to lower foreign exchange losses.

"Delta's strong financial foundation and unmatched merger benefits allowed us to keep our full year unit costs contained and grow our unrestricted liquidity to $5.4 billion," said Hank Halter, chief financial officer.  "We are well positioned for 2010 with more than 50% of our debt maturities already addressed and plans to keep our non-fuel unit costs flat to 2009."

Fuel Price and Related Hedges

Delta hedged 40% of its fuel consumption for the December 2009 quarter, for an average fuel price(4) of $2.17 per gallon.  The table below represents the fuel hedges Delta had in place as of Jan. 22, 2010:

Liquidity Position

As of Dec. 31, 2009, Delta had $5.4 billion in unrestricted liquidity, including $4.7 billion in cash and short-term investments and $685 million in undrawn revolving credit facilities.  Operating cash flow during the December 2009 quarter was negative $75 million, reflecting the pre-tax loss and the seasonal declines in air traffic liability.

During the quarter, the company completed a total of $1.1 billion in financing transactions, including $689 million from the 2009-1 EETC offering to refinance 27 aircraft (of which $347 million remains in escrow), $150 million from the issuance of unsecured municipal bonds and $250 million in new revolving credit facilities.  Northwest's $300 million undrawn revolving credit facility terminated on its scheduled maturity date.  Debt and capital lease payments for the December 2009 quarter totaled $628 million, which included repaying the original financing for five aircraft in the 2009-1 EETC.  

Capital expenditures during the quarter were approximately $175 million, which included $136 million for investments in aircraft, parts and modifications.

Company Highlights

In 2009, Delta continued to position itself as the world's No. 1 airline, with an ongoing commitment to employees, customers and communities.  Key accomplishments include:

• Paying more than $65 million in 2009 in employee Shared Rewards for achieving operational performance goals;
• Achieving more than $700 million in synergy benefits in 2009 from its merger with Northwest, with an incremental $600 million expected in 2010;  
• Receiving final authorization from the Federal Aviation Administration for Delta and Northwest to fly under a single operating certificate and merging Delta and Northwest into a single legal entity;
• Resolving union representation and seniority integration for aircraft maintenance technicians, other Technical Operations employee groups, dispatchers and meteorologists and scheduling an election for simulator technicians to vote on IAM representation;
• Implementing an expanded trans-Atlantic alliance with Air France-KLM, which will result in more flight choices, frequencies, convenient flight schedules, competitive fares and harmonized services for customers;
• Completing the integration and re-branding of 247 airport facilities worldwide;
• Improving the quality and consistency of Delta's product by painting more than 300 pre-merger Northwest aircraft in the Delta livery, installing Wi-Fi on more than 346 aircraft, refurbishing the interiors of approximately 90 percent of the pre-merger Northwest mainline fleet and harmonizing onboard products and services worldwide;
• Announcing plans to invest $1 billion through mid-2013 to enhance the customer experience and improve fleet efficiency with installation of flat-bed BusinessElite seats, expanded in-flight entertainment, additional First Class service on regional jets and new Sky Club lounges;
• Creating the world's largest airline loyalty program by merging the Northwest WorldPerks program into Delta SkyMiles and announcing the 2010 SkyMiles Medallion program offering frequent flyers new, industry-leading benefits, including a Diamond level status and rollover Medallion Qualification Miles;
• Reaching a definitive agreement with US Airways to exchange slots and airport facilities at New York's LaGuardia and Washington's Reagan National airports, subject to regulatory approval, which will enable Delta to serve an additional two million customers at LaGuardia annually without added congestion;
• Partnering with the City of Atlanta to reach an agreement to extend Delta's lease at Hartsfield-Jackson Atlanta International Airport through 2017 to maintain the airport's position as the leading airport in the world;
• Receiving recognition for industry-leading products and services, including "Best Frequent Flyer Program," "Best Airline Web Site" and "Best Airport Lounge" from Business Traveler magazine and receiving the "Extra Mile Award" from Budget Travel magazine for the re-launch of Delta's Red Coat program; and
• Contributing cash and in-kind donations to charities around the globe, including sponsoring Habitat for Humanity builds in six U.S. cities and Thailand, partnering with the American Red Cross for Haiti relief and continuing a long-standing partnership with the Breast Cancer Research Foundation.

Special Items

Delta recorded special items totaling a net $200 million credit in the December 2009 quarter, including:

• $121 million in merger-related expenses; and
• a $321 million non-cash tax benefit related to the impact of fuel hedges in other comprehensive income.

Delta recorded special items totaling $1 billion in charges in the December 2008 quarter, including:

• $970 million in merger-related items;
• a $20 million write-down in the value of auction rate securities; and
• an $18 million charge related to facilities closure.

March 2010 Quarter Guidance

Delta's projections for the March 2010 quarter are below.

Other Matters

Included with this press release are Delta's unaudited Consolidated Statements of Operations for the three and twelve months ended Dec. 31, 2009 and 2008; a statistical summary for those periods; selected balance sheet data as of Dec. 31, 2009 and Dec. 31, 2008; and a reconciliation of certain non-GAAP financial measures.

About Delta

Delta Air Lines, the world's No. 1 airline, serves more than 160 million passengers each year. With its unsurpassed global network, Delta and the Delta Connection carriers offer service to 368 destinations in 66 countries on six continents. Delta employs more than 70,000 employees worldwide and operates a mainline fleet of nearly 800 aircraft. A founding member of the SkyTeam global alliance, Delta participates in the industry's leading trans-Atlantic joint venture with Air France KLM. Including its worldwide alliance partners, Delta offers customers more than 16,000 daily flights, with hubs in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. The airline's service includes the SkyMiles frequent flier program, the world's largest airline loyalty program; the award-winning BusinessElite service; and more than 50 Delta Sky Clubs in airports worldwide. Customers can check in for flights, print boarding passes, check bags and flight status at delta.com.

Endnotes

(1) Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release and provides the reasons management uses those measures.

(2) Delta's financial results under generally accepted accounting principles (GAAP) include the results of Northwest Airlines for the periods following the completion of the merger, which occurred on Oct. 29, 2008. Unless otherwise indicated, Delta presents financial results on a GAAP basis, which reflects both Delta and Northwest financial results for the December 2009 quarter.  Under GAAP, Delta does not include in its financial results the results of Northwest prior to the completion of the merger.  This impacts the comparability of Delta's financial statements under GAAP for the December 2009 and 2008 quarters.  In this press release, Delta presents its financial results for the December 2008 quarter under GAAP as well as on a "combined basis".  "Combined basis" means the company combines the financial results of Delta and Northwest as if the merger had occurred prior to the beginning of the applicable period.  Delta's financial results on a combined basis for the December 2008 quarter include the financial results of Northwest for the period Oct. 1, 2008 through Dec. 31, 2008.  Delta believes presenting this financial information on a combined basis provides a more meaningful basis for comparing Delta's year-over-year financial performance than the GAAP financial information.

(3) Delta excludes from consolidated unit cost ancillary businesses which are not related to the generation of a seat mile, including aircraft maintenance and staffing services which Delta provides to third parties, Delta's dedicated freighter operations and Delta's vacation wholesale operations (MLT). Similarly, Delta excludes from passenger unit revenues, and includes in other revenue, revenues Delta received for providing aircraft maintenance and staffing services to third parties, freighter operations and MLT.  Management believes these classifications provide a more consistent and comparable reflection of Delta's consolidated operations.

(4) Delta's December 2009 quarter average fuel price of $2.17 per gallon reflects the consolidated cost per gallon for mainline and regional operations, including contract carrier operations, net of fuel hedge impact.

Forward-looking Statements

Statements in this news release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.  All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the effects of the global recession; the effects of the global financial crisis; the impact of posting collateral in connection with our fuel hedge contracts;  the impact that our indebtedness will have on our financial and operating activities and our ability to incur additional debt; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; the ability to realize the anticipated benefits of our merger with Northwest; the integration of the Delta and Northwest workforces; interruptions or disruptions in service at one of our hub airports; our increasing dependence on technology in its operations; our ability to retain management and key employees; the ability of our credit card processors to take significant holdbacks in certain circumstances; the effects of terrorist attacks; and competitive conditions in the airline industry.  

Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Quarterly Report on Form 10-Q for the period ended September 30, 2009.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of January 26, 2010, and which we have no current intention to update.

Operating Expense Reclassifications

Delta reclassified certain prior period operating expense amounts to conform to our current period presentation.  These reclassifications do not impact total operating expense, net income, or other key financial metrics in any period.  We reclassified travel and incidental expenses, primarily crew meals and lodging expenses, from salaries and related costs to other operating expenses.  This reclassification more closely aligns the statements of operations to that of the airline industry.  We also reclassified expenses associated with the cost incurred to provide services to third-party connection carriers.  

Note A: The following tables show reconciliations of non-GAAP financial measures.  The reasons Delta uses these measures are described below.

    -- Delta completed its merger with Northwest Airlines on Oct. 29, 2008.
       Accordingly, Delta's financial results under GAAP for 2009 include
       the results of Northwest Airlines for the period Jan. 1, 2009
       through Dec. 31, 2009.

       Under GAAP, Delta does not include in its financial results the
       results of Northwest Airlines prior to the merger.  Accordingly,
       Delta's financial results under GAAP for the December 2008 quarter
       include the results of Northwest Airlines from Oct. 30, 2008 through
       Dec. 31, 2008.  This impacts the comparability of Delta's financial
       statements under GAAP for the December 2009 and 2008 quarters.

       Delta presents its financial results for the December 2008 quarter
       under GAAP as well as on a "combined basis."   "Combined basis"
       means the company combines the financial results of Delta and
       Northwest as if the merger had occurred prior to the beginning of
       the applicable period.  Delta believes presenting this financial
       information on a combined basis provides a more meaningful basis for
       comparing Delta's year-over-year financial performance than the GAAP
       financial information.

       This press release also includes guidance for the March 2010 quarter.
       Delta is unable to reconcile certain forward-looking projections to
       GAAP, including projected consolidated cost per available seat mile
       (CASM) and Mainline non-fuel CASM, as the nature or amount of
       special items cannot be estimated at this time.

    -- Delta excludes special items and fuel hedge losses because
       management believes the exclusion of these items is helpful to
       investors to evaluate the company's recurring operational
       performance.

    -- Delta excludes non-cash mark-to-market (MTM) adjustments related to
       fuel hedges settling in future periods in order to present financial
       results related to operations in the period shown.

    -- Delta presents consolidated and Mainline CASM excluding fuel expense
       and related taxes because management believes the volatility in fuel
       prices impacts the comparability of year-over-year financial
       performance.

    -- Consolidated and Mainline CASM excludes ancillary businesses not
       associated with the generation of a seat mile.  These businesses
       include expenses related to Delta's providing maintenance and
       staffing services to third parties, dedicated freighter operations
       and Delta's vacation wholesale operations.

    -- Delta presents net capital expenditures because management believes
       this metric is helpful to investors to evaluate the company's
       investing activities.

    -- Delta presents total debt and capital lease payments because
       management believes this metric is helpful to investors to evaluate
       the company's debt-related activities.

SOURCE Delta Air Lines