News

ATLANTA, July 19 /PRNewswire-FirstCall/ -- Delta Air Lines (NYSE: DAL) today reported financial results for the June 2010 quarter.  Key points include:

• Delta's net income for the June 2010 quarter was $549 million, or $0.65 per diluted share, excluding special items(1).  This is a $748 million improvement year over year.  
• Delta's net income was $467 million, or $0.55 per diluted share, for the June 2010 quarter.
• Results include $90 million in profit sharing expense, in recognition of Delta employees' achievements toward meeting the company's financial targets.
• Delta generated more than $1 billion in operating cash flow and ended the June 2010 quarter with $6.0 billion in unrestricted liquidity.

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"Delta's profit this quarter is our best result in a decade and proof that our plan has positioned us well as the economy begins its recovery," said Richard Anderson, Delta's chief executive officer.  "These results would not have been possible without the dedication and determination of Delta people.  We're happy to recognize our employees' contributions with $90 million in profit sharing."  

Revenue Environment

Delta's operating revenue grew $1.2 billion, or 17% in the June 2010 quarter compared to the 2009 quarter.

• Passenger revenue increased 19%, or $1.1 billion, compared to the prior year period on 1% lower capacity.  Passenger unit revenue (PRASM) increased 19.4%, driven by a 17% improvement in yield and a 1.9 point improvement in load factor.
• Cargo revenue increased 22%, or $38 million, on higher cargo volume and yield.
• Other, net revenue increased 3%, or $24 million, primarily due to increased baggage fees.

Comparisons of revenue-related statistics are as follows:

"We are seeing strong improvements in these early stages of the economic recovery and believe there's room for more revenue growth as the economy continues to stabilize," said Ed Bastian, Delta's president.  "We anticipate double-digit year over year unit revenue gains for the September quarter."

Cost Performance

In the June 2010 quarter, Delta's operating expense increased $317 million year over year due to higher fuel price and profit sharing expense, which were partially offset by incremental merger cost synergies.

Consolidated unit cost (CASM(2)), excluding fuel expense, profit sharing and special items, was flat in the June 2010 quarter on a year-over-year basis, despite 1% lower capacity.  Consolidated CASM increased 5% due to higher fuel price and profit sharing expense.

Fuel Price and Related Hedges

Delta hedged 51% of its fuel consumption for the June 2010 quarter, for an average fuel price(3) of $2.32 per gallon.  The table below represents fuel hedges Delta had in place as of July 16, 2010:

Liquidity Position

As of June 30, 2010, Delta had $6.0 billion in unrestricted liquidity, including $4.4 billion in cash and $1.6 billion in undrawn revolving credit facilities.  During the quarter, the company prepaid its $914 million revolving credit facility, which is now fully undrawn and available for future cash needs.

Operating cash flow during the June 2010 quarter was $1 billion, driven by the company's profitability and advance ticket sales, and free cash flow was $778 million.  In the June quarter, Delta contributed nearly $500 million to its pension plans and completed its required 2010 pension funding.  Year to date, Delta has generated $2.0 billion in operating cash flow and $1.4 billion in free cash flow.

Capital expenditures during the quarter were $283 million, which included $154 million for investments in aircraft, parts and modifications.

Subsequent to the end of the quarter, Delta completed its $450 million 2010-1A enhanced equipment trust certificate (EETC) offering.  The certificates will be secured by 22 aircraft that are currently included in Delta's 2000-1 EETC, which matures in November 2010, and two 777LR aircraft which were delivered in March 2010.

Total debt payments in the June 2010 quarter were $345 million, of which $70 million was paid before scheduled maturity.  At June 30, Delta's adjusted net debt was $15.6 billion, an $800 million reduction from March 31, 2010.

"Delta exhibited strong cost performance this quarter as merger synergies and productivity offset cost pressures in the business.  Synergies have exceeded our expectations and will be a key factor as we strive to keep our non-fuel unit costs flat for the full year," said Hank Halter, Delta's chief financial officer.  "In addition, we continue to make excellent progress in delevering our balance sheet – generating nearly $800 million in free cash flow this quarter and reducing adjusted net debt to $15.6 billion."

Company Highlights

Delta has a strong commitment to employees, customers and the communities it serves.  Key accomplishments in 2010 to date include:

• Accruing $90 million in employee profit sharing, in recognition of the achievements of all Delta employees toward meeting the company's financial targets;
• Bolstering Delta's trans-Atlantic joint venture with Air France-KLM with the addition of Alitalia, Italy's flag carrier;
• Increasing Delta's global reach through alliance and codeshare partnerships, including plans to codeshare with GOL airlines, a Brazilian carrier, and the ten-year anniversary celebration of the SkyTeam global airline alliance with the addition of Vietnam Airlines and TAROM, Romania's flag carrier;
• Selling Mesaba and Compass Airlines, two wholly owned regional airline subsidiaries, to Pinnacle Airlines Corp. and Trans States Holdings, Inc., respectively;
• Obtaining approval from the U.S. Department of Transportation to offer customers nonstop service between Tokyo's Haneda Airport and Detroit and Los Angeles as well as between Sao Paulo, Brazil and Detroit;
• Furthering Delta's efforts to become the leading airline of New York with the launch of Delta Shuttle service between New York-LaGuardia and Chicago-O'Hare International airports;
• Committing to expand First Class availability to all domestic markets longer than 750 miles, or about two and one-half hours of flight time, beginning this fall;
• Allowing customers to book scheduled commercial flights and on-demand private jet service in a single transaction through Delta AirElite;
• Partnering with American Express to offer select Delta SkyMiles Credit Card members the opportunity to check a first bag free for up to nine people in the same reservation; and
• Raising $1 million for the Martin Luther King Jr. National Memorial in Washington, D.C. with the support of our employees and customers.

Special Items

Delta recorded special items totaling $82 million in the June 2010 quarter, including:

• $46 million in merger-related expenses; and
• $36 million in asset impairment charges related to aircraft retirements.

Delta recorded $58 million in merger-related expense items in the June 2009 quarter.

September 2010 Quarter Guidance

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

Other Matters

Included with this press release are Delta's unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009; a statistical summary for those periods; selected balance sheet data as of June 30, 2010 and Dec. 31, 2009; and a reconciliation of certain non-GAAP financial measures.

About Delta

Delta Air Lines serves more than 160 million customers each year. With its unsurpassed global network, Delta and the Delta Connection carriers offer service to 369 destinations in 67 countries on six continents. Headquartered in Atlanta, Delta employs more than 70,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. A founding member of the SkyTeam global alliance, Delta participates in the industry's leading trans-Atlantic joint venture with Air France-KLM and Alitalia. Including its worldwide alliance partners, Delta offers customers more than 13,000 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 45 Delta Sky Clubs in airports worldwide. Customers can check in for flights, print boarding passes, check bags and review 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 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 vacation wholesale operations (MLT) and Delta's dedicated freighter operations through 2009. 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, MLT and freighter operations through 2009.  Management believes these classifications provide a more consistent and comparable reflection of Delta's consolidated operations.

(3) Delta's June 2010 quarter average fuel price of $2.32 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 our 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; the effects of weather, natural disasters and seasonality on our business; 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 Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2009 and our report on Form 10-Q for the quarterly period ended March 31, 2010.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of July 19, 2010, and which we have no current intention to update.

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

• We sometimes use information that is derived from our Condensed Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Certain of this information is considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules.  The non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

• Delta is unable to reconcile certain forward-looking projections to GAAP, including projected consolidated non-fuel 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 because management believes the exclusion of these items is helpful to investors to evaluate the company's recurring operational performance.

• 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.

• Delta presents free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash.

• Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted total debt by cash and cash equivalents, to present the amount of additional assets needed to satisfy the debt.

• 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 aircraft maintenance and staffing services to third parties, Delta's vacation wholesale operations and its dedicated freighter operations through 2009.

• Delta excludes profit sharing expense from CASM because management believes the exclusion of this item provides a more meaningful comparison of the Company’s CASM to the industry.

SOURCE Delta Air Lines