Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.60M
2: EX-15 Letter re: Unaudited Interim Financial Info HTML 17K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
5: EX-32 Certification -- §906 - SOA'02 HTML 20K
11: R1 Cover HTML 69K
12: R2 Consolidated Balance Sheets (Unaudited) HTML 151K
13: R3 Consolidated Balance Sheets (Unaudited) HTML 39K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 117K
and Comprehensive Income (Unaudited)
15: R5 Condensed Consolidated Statements of Cash Flows HTML 76K
(Unaudited)
16: R6 Consolidated Statements of Stockholders' Equity HTML 93K
(Unaudited)
17: R7 Consolidated Statements of Stockholders' Equity HTML 22K
(Unaudited) (Parenthetical)
18: R8 Summary of Significant Accounting Policies HTML 24K
19: R9 Revenue Recognition HTML 97K
20: R10 Fair Value Measurements HTML 59K
21: R11 Investments HTML 54K
22: R12 Debt HTML 70K
23: R13 Employee Benefit Plans HTML 52K
24: R14 Commitments and Contingencies HTML 35K
25: R15 Accumulated Other Comprehensive Loss HTML 41K
26: R16 Segments HTML 96K
27: R17 Earnings Per Share HTML 38K
28: R18 Summary of Significant Accounting Policies HTML 40K
(Policies)
29: R19 Revenue Recognition (Tables) HTML 92K
30: R20 Fair Value Measurements (Tables) HTML 52K
31: R21 Investments (Tables) HTML 77K
32: R22 Debt (Tables) HTML 65K
33: R23 Employee Benefit Plans (Tables) HTML 49K
34: R24 Commitments and Contingencies (Tables) HTML 31K
35: R25 Accumulated Other Comprehensive Loss (Tables) HTML 40K
36: R26 Segments (Tables) HTML 90K
37: R27 Earnings Per Share (Tables) HTML 37K
38: R28 REVENUE RECOGNITION - Passenger Revenue (Details) HTML 34K
39: R29 REVENUE RECOGNITION - Narrative (Details) HTML 33K
40: R30 REVENUE RECOGNITION - Loyalty Program Liability HTML 27K
(Details)
41: R31 REVENUE RECOGNITION - Other Revenue (Details) HTML 37K
42: R32 REVENUE RECOGNITION - Revenue by Geographic Region HTML 42K
(Details)
43: R33 FAIR VALUE MEASUREMENTS - Measured at Fair Value HTML 62K
on a Recurring Basis (Details)
44: R34 FAIR VALUE MEASUREMENTS - Narrative (Details) HTML 43K
45: R35 INVESTMENTS - Equity Investments Ownership HTML 53K
Interest and Carrying Value (Details)
46: R36 Investments - Narrative (Details) HTML 50K
47: R37 DEBT - Summary of Debt (Details) HTML 97K
48: R38 DEBT - Availability Under Revolving Credit HTML 32K
Facilities (Details)
49: R39 DEBT - Early Settlement of Outstanding Notes HTML 27K
(Details)
50: R40 DEBT - Fair Value of Debt (Details) HTML 23K
51: R41 EMPLOYEE BENEFIT PLANS - Components of Net HTML 43K
Periodic (Benefit) Cost (Details)
52: R42 COMMITMENTS AND CONTINGENCIES - Narrative HTML 37K
(Details)
53: R43 COMMITMENTS AND CONTINGENCIES - Aircraft HTML 35K
Commitments by Year (Details)
54: R44 COMMITMENTS AND CONTINGENCIES - Aircraft HTML 32K
Commitments by Fleet Type (Details) (Details)
55: R45 Accumulated Other Comprehensive Loss (Details) HTML 58K
56: R46 SEGMENTS - Narrative (Details) HTML 26K
57: R47 SEGMENTS - Segment Reporting (Details) HTML 68K
58: R48 Earnings Per Share (Details) HTML 52K
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(Exact name of registrant as specified in its charter)
iDelaware
i58-0218548
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iPost Office Box 20706
iAtlanta,
iGeorgia
i30320-6001
(Address of principal executive offices)
(Zip Code)
Registrant's telephone
number, including area code: (i404) i715-2600
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol
Name of each exchange on which registered
iCommon Stock, par value $0.0001 per share
iDAL
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes☑ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐iNo☑
Number of shares outstanding by each class of common stock, as of September 30, 2023:
Common Stock, $0.0001 par value - i643,463,433 shares outstanding
Unless otherwise indicated or the context otherwise requires, the terms "Delta,""we,""us" and "our" refer to Delta Air Lines, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections, goals, aspirations, commitments or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ
materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 ("Form 10-K"), other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report except as required by law.
Delta Air Lines, Inc. | September 2023 Form 10-Q 1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Delta Air Lines, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Delta Air Lines, Inc. (the Company) as of September 30, 2023, the related condensed consolidated statements of operations and comprehensive income and consolidated statements of stockholders' equity for the three-month and nine-month periods ended September 30, 2023 and 2022, condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations,
comprehensive income/(loss), cash flows, and stockholders' equity for the year then ended, and the related notes (not presented herein); and in our report dated February 10, 2023, we expressed an unqualified audit opinion on those Consolidated Financial Statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Accounts receivable,
net of allowance for uncollectible accounts of $i17 and $i23
i3,214
i3,176
Fuel,
expendable parts and supplies inventories, net of allowance for obsolescence of $i128 and $i136
i1,507
i1,424
Prepaid
expenses and other
i2,529
i1,877
Total
current assets
i12,255
i13,011
Noncurrent
Assets:
Property and equipment, net of accumulated depreciation and amortization of $i21,235 and $i20,370
i34,593
i33,109
Operating
lease right-of-use assets
i6,962
i7,036
Goodwill
i9,753
i9,753
Identifiable
intangibles, net of accumulated amortization of $i909 and $i902
i5,985
i5,992
Equity
investments
i2,291
i2,128
Other
noncurrent assets
i1,408
i1,259
Total noncurrent
assets
i60,992
i59,277
Total assets
$
i73,247
$
i72,288
LIABILITIES
AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of debt and finance leases
$
i1,981
$
i2,359
Current
maturities of operating leases
i728
i714
Air traffic liability
i8,738
i8,160
Accounts
payable
i5,320
i5,106
Accrued salaries and related
benefits
i4,003
i3,288
Loyalty
program deferred revenue
i3,917
i3,434
Fuel
card obligation
i1,100
i1,100
Other
accrued liabilities
i1,769
i1,779
Total
current liabilities
i27,556
i25,940
Noncurrent
Liabilities:
Debt and finance leases
i17,532
i20,671
Pension,
postretirement and related benefits
i3,618
i3,707
Loyalty
program deferred revenue
i4,456
i4,448
Noncurrent
operating leases
i6,558
i6,866
Other
noncurrent liabilities
i4,301
i4,074
Total
noncurrent liabilities
i36,465
i39,766
Commitments
and Contingencies
i
i
Stockholders' Equity:
Common
stock at $ii0.0001/ par value; ii1,500,000,000/
shares authorized, i654,674,447 and i651,800,786
shares issued
i—
i—
Additional
paid-in capital
i11,613
i11,526
Retained
earnings
i3,613
i1,170
Accumulated
other comprehensive loss
(i5,660)
(i5,801)
Treasury
stock, at cost, i11,211,014 and i10,535,033 shares
(i340)
(i313)
Total
stockholders' equity
i9,226
i6,582
Total liabilities and stockholders'
equity
$
i73,247
$
i72,288
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 3
Financial Statements
DELTA AIR LINES, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions, except per share data)
2023
2022
2023
2022
Operating Revenue:
Passenger
$
i13,119
$
i11,464
$
i36,735
$
i29,329
Cargo
i154
i240
i535
i801
Other
i2,215
i2,271
i6,555
i7,017
Total
operating revenue
i15,488
i13,975
i43,825
i37,147
Operating
Expense:
Salaries and related costs
i3,760
i3,050
i10,838
i8,832
Aircraft
fuel and related taxes
i2,936
i3,318
i8,128
i8,633
Ancillary
businesses and refinery
i1,128
i1,349
i3,427
i4,449
Contracted
services
i1,004
i881
i3,009
i2,425
Landing
fees and other rents
i679
i562
i1,880
i1,611
Aircraft
maintenance materials and outside repairs
i661
i487
i1,860
i1,474
Passenger
commissions and other selling expenses
i618
i546
i1,770
i1,385
Depreciation
and amortization
i594
i538
i1,731
i1,554
Regional
carrier expense
i546
i528
i1,664
i1,547
Passenger
service
i449
i406
i1,307
i1,050
Profit
sharing
i417
i237
i1,084
i291
Pilot
agreement and related expenses
i—
i—
i864
i—
Aircraft
rent
i131
i131
i395
i380
Other
i581
i486
i1,669
i1,325
Total
operating expense
i13,504
i12,519
i39,626
i34,956
Operating
Income
i1,984
i1,456
i4,199
i2,191
Non-Operating
Expense:
Interest expense, net
(i196)
(i248)
(i627)
(i791)
Gain/(loss)
on investments, net
(i206)
(i245)
i45
(i613)
Loss
on extinguishment of debt
(i13)
(i34)
(i63)
(i100)
Pension
and related (expense)/benefit
(i61)
i73
(i183)
i218
Miscellaneous,
net
i13
(i40)
(i38)
(i111)
Total
non-operating expense, net
(i463)
(i494)
(i866)
(i1,397)
Income
Before Income Taxes
i1,521
i962
i3,333
i794
Income
Tax Provision
(i413)
(i267)
(i761)
(i305)
Net
Income
$
i1,108
$
i695
$
i2,572
$
i489
Basic
Earnings Per Share
$
i1.73
$
i1.09
$
i4.03
$
i0.77
Diluted
Earnings Per Share
$
i1.72
$
i1.08
$
i4.00
$
i0.76
Comprehensive
Income
$
i1,157
$
i757
$
i2,713
$
i673
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 4
Financial Statements
DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine
Months Ended September 30,
(in millions)
2023
2022
Net Cash Provided by Operating Activities
$
i5,919
$
i5,175
Cash
Flows from Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments
(i2,560)
(i2,852)
Ground
property and equipment, including technology
(i1,161)
(i1,314)
Purchase
of short-term investments
(i2,312)
(i575)
Redemption
of short-term investments
i3,488
i2,584
Acquisition
of strategic investments
(i152)
(i153)
Other,
net
i84
i121
Net
cash used in investing activities
(i2,613)
(i2,189)
Cash
Flows from Financing Activities:
Payments on debt and finance lease obligations
(i3,710)
(i4,190)
Cash
dividends
(i64)
i—
Other,
net
(i36)
(i40)
Net
cash used in financing activities
(i3,810)
(i4,230)
Net
Decrease in Cash, Cash Equivalents and Restricted Cash Equivalents
(i504)
(i1,244)
Cash,
cash equivalents and restricted cash equivalents at beginning of period
i3,473
i8,569
Cash,
cash equivalents and restricted cash equivalents at end of period
$
i2,969
$
i7,325
Non-Cash
Transactions:
Right-of-use assets acquired under operating leases
$
i443
$
i372
Flight
and ground equipment acquired under finance leases
i37
i84
Operating
leases converted to finance leases
i53
i279
Equity investments and
other financings
i—
i330
The
following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:
September 30,
(in millions)
2023
2022
Current assets:
Cash and cash equivalents
$
i2,835
$
i7,023
Restricted
cash included in prepaid expenses and other
i134
i149
Noncurrent assets:
Restricted
cash included in other noncurrent assets
i—
i153
Total
cash, cash equivalents and restricted cash equivalents
$
i2,969
$
i7,325
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 5
(1)Treasury
shares were withheld for payment of taxes, at a weighted average price per share of $i39.73, $i36.76 and $i45.34
in the March 2023 quarter, June 2023 quarter and September 2023 quarter, respectively.
(1)Treasury
shares were withheld for payment of taxes, at a weighted average price per share of $i41.00, $i38.11 and $i30.66
in the March 2022 quarter, June 2022 quarter and September 2022 quarter, respectively.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 6
Notes to the Condensed Consolidated Financial Statements
DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1. iSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
Basis of Presentation
The
accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our consolidated subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2022.
Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring
items, considered necessary for a fair statement of results for the interim periods presented.
Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of operating results for the entire year.
We reclassified certain prior period amounts to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.
NOTE
2. iREVENUE RECOGNITION
i
Passenger Revenue
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2023
2022
2023
2022
Ticket
$
i11,733
$
i10,247
$
i32,801
$
i26,005
Loyalty
travel awards
i902
i786
i2,547
i2,073
Travel-related
services
i484
i431
i1,387
i1,251
Passenger
revenue
$
i13,119
$
i11,464
$
i36,735
$
i29,329
/
Ticket
We
recognized approximately $i6.7 billion and $i3.9 billion in passenger revenue during the nine months ended September 30, 2023
and 2022, respectively, that had been recorded in our air traffic liability balance at the beginning of those periods.
As of September 30, 2023, all of our air traffic liability was recorded as a current liability. As of December 31, 2022, our air traffic liability was $i8.3 billion, of which $i100 million
was included in other noncurrent liabilities on our Consolidated Balance Sheet ("balance sheet").
Loyalty Travel Awards
Our SkyMiles loyalty program allows customers to earn mileage credits ("miles") by flying on Delta, Delta Connection and other airlines that participate in the loyalty program. Loyalty travel awards revenue is related to the redemption of miles for air travel. Customers can also earn miles through participating companies, such as credit card companies, hotels, car rental agencies and ridesharing companies, who purchase miles from us. Our most significant contract to sell miles relates to our co-brand credit card relationship with American Express. During the nine months ended September 30,
2023 and 2022, total cash sales from marketing agreements related to our loyalty program were $i5.2 billion and $i4.1 billion, respectively, which are allocated to travel and other performance obligations.
Delta
Air Lines, Inc. | September 2023 Form 10-Q 7
Notes to the Condensed Consolidated Financial Statements
Current Activity of the Loyalty Program. Miles are combined in one homogeneous pool and are not separately identifiable. Therefore, revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period. The timing of mile redemptions can vary widely; however, the majority of miles have historically been redeemed within itwo
years of being earned.
i
The table below presents the activity of the current and noncurrent loyalty program deferred revenue and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.
Loyalty
program activity
(in millions)
2023
2022
Balance at January 1
$
i7,882
$
i7,559
Miles
earned
i3,164
i2,496
Miles
redeemed for air travel
(i2,547)
(i2,073)
Miles
redeemed for non-air travel and other
(i126)
(i122)
Balance
at September 30
$
i8,373
$
i7,860
/
Travel-Related
Services
Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight and include baggage fees, administrative fees, and on-board sales.
Other Revenue
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2023
2022
2023
2022
Refinery
$
ii935/
$
i1,134
$
i2,817
$
i3,835
Loyalty
program
i791
i655
i2,291
i1,877
Ancillary
businesses
i212
i249
i657
i665
Miscellaneous
ii277/
i233
i790
i640
Other
revenue
$
i2,215
$
i2,271
$
i6,555
$
i7,017
Refinery.
This represents refinery sales to third parties. See Note 9, "Segments," for more information on revenue recognition within our refinery segment.
Loyalty Program. Loyalty program revenue relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-air travel and other awards. These revenues are mainly derived from the total cash sales from marketing agreements, discussed above.
Ancillary Businesses. Ancillary businesses revenue represents revenues from aircraft maintenance services we provide to third parties and our vacation wholesale operations.
Miscellaneous. Miscellaneous
is primarily composed of revenues related to Delta Sky Club lounge access, including access provided to certain American Express cardholders, and codeshare agreements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 8
Notes to the Condensed Consolidated Financial Statements
Revenue by Geographic Region
Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment. A significant portion of the refinery segment's revenues typically consists of fuel sales to support the airline, which is eliminated in the Condensed Consolidated Financial Statements.
The remaining operating revenue for the refinery segment is included in the domestic region. iOur passenger and operating revenue by geographic region is summarized in the following tables:
Passenger
revenue by geographic region
Passenger Revenue
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2023
2022
2023
2022
Domestic
$
i8,662
$
i8,154
$
i25,200
$
i22,035
Atlantic
i3,110
i2,313
i7,157
i4,553
Latin
America
i788
i659
i2,846
i2,084
Pacific
ii559/
i338
ii1,532/
i657
Total
$
i13,119
$
i11,464
$
i36,735
$
i29,329
Operating
revenue by geographic region
Operating Revenue
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2023
2022
2023
2022
Domestic
$
i10,461
$
i10,118
$
i30,607
$
i28,322
Atlantic
i3,497
i2,705
i8,223
i5,538
Latin
America
i891
i752
i3,208
i2,417
Pacific
i639
i400
i1,787
i870
Total
$
i15,488
$
i13,975
$
i43,825
$
i37,147
NOTE
3. iFAIR VALUE MEASUREMENTS
iAssets/(Liabilities) Measured at Fair Value on a Recurring Basis
iCash
Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to certain self-insurance obligations and airport commitments. Restricted cash equivalents are recorded in prepaid expenses and other on our balance sheet. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets.
iShort-Term
Investments. The fair values of our short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security and other observable information.
As of September 30, 2023, the estimated fair value of our short-term investments was$i2.2 billion. Of these investments, $i2.1 billion
are expected to mature in one year or less, with the remainder maturing by the first quarter of 2026. Investments with maturities beyond one year when purchased are classified as short-term investments if they are expected to be available to support our short-term liquidity needs.
Long-Term Investments and Related. Our long-term investments measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet. Our equity investments in private companies are classified as Level 3 in the fair value hierarchy as their equity is not traded on a public exchange and our valuations incorporate certain unobservable inputs, including non-public equity issuances. As of September 30, 2023
our equity investment in Wheels Up Experience Inc. ("Wheels Up") is classified as Level 3 in the fair value hierarchy. In prior periods, this investment was classified as Level 1. We determined the quoted price of its publicly-traded shares does not represent fair value after the closing of Wheels Up's $i500 million credit facility on September 20, 2023. In addition to the quoted price, the valuation of our equity investment in Wheels Up considered certain unobservable inputs, including Wheels Up's financial projections,
using both market and income approach valuation techniques. Fair value measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair values. See Note 4, "Investments," for further information on the transaction with Wheels Up and our other equity investments.
iFuel Hedge Contracts. Our derivative contracts to
hedge the financial risk from changing fuel prices are primarily related to inventory at our wholly-owned subsidiary, Monroe Energy, LLC ("Monroe"). Our fuel hedge portfolio may consist of a combination of options, swaps or futures contracts, most of which have a duration of less than three months. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Futures contracts and options on futures contracts
are traded on a public exchange and valued based on quoted market prices. We recognized losses of $i140 million and $i96 million on our fuel hedge contracts
in aircraft fuel and related taxes on our Condensed Consolidated Statements of Operations and Comprehensive Income ("income statement") for the three and nine months ended September 30, 2023, respectively, compared to gains of $i139 million and losses of $i339 million
for the three and nine months ended September 30, 2022, respectively. The lossesrecognized during the first nine months of 2023 were composed of $i59 million of mark-to-market gains and $i155 million
of settlement losses on contracts. Gains and losses on settled contracts are reflected within Monroe's operating results. See Note 9, "Segments," for further information on our Monroe refinery segment.
Delta Air Lines, Inc. | September 2023 Form 10-Q 10
Notes to the Condensed Consolidated Financial Statements
NOTE 4. iINVESTMENTS
We have developed strategic relationships with a number of airlines and airline services companies through joint ventures and other forms of cooperation and support, including equity investments. Our equity investments reinforce our commitment to these relationships and generally enhance our ability to offer input to the investee on strategic issues and direction, in some cases through representation on the board of directors.
iFair Value Investments. Changes
in the valuation of investments accounted for at fair value are recorded in gain/(loss) on investments, net in our income statement within non-operating expense and are driven by changes in stock prices, foreign currency fluctuations and other valuation techniques for investments in certain companies, particularly those without publicly-traded shares.
iEquity Method Investments. iiWe
record our share of our equity method investees' financial results in our income statement as described in the table below. /
Equity investments ownership interest and carrying value
(1)Results
are included in miscellaneous, net in our income statement under non-operating expense.
(2)At September 30, 2023, we held i14.8% of the outstanding shares (including common and preferred), and i14.9%
of the common shares, of Hanjin KAL.
(3)Results are included in contracted services in our income statement as this entity is integral to the operations of our business by providing services at many of our airport locations.
(4)See below for additional information about our ownership interest and voting rights.
Wheels Up. We, along with Certares Management LLC, Knighthead Capital Management LLC and Cox Enterprises, Inc. announced the closing on September 20, 2023 of an expanded strategic partnership with Wheels Up, which includes an agreement for a $i500 million
credit facility to Wheels Up. At closing, the credit facility was comprised of a $i350 million term loan, of which we contributed $i150 million, and a $i100 million
liquidity facility that we made available to Wheels Up in the event the company's liquidity falls below $i100 million. The terms of the credit facility permit one or more new lenders to provide an aggregate incremental $i50 million
term loan after the closing date. In connection with the closing, the term loan investors received newly issued shares of Wheels Up's common stock representing i80% of Wheels Up's outstanding equity as of the closing of the credit facility on a fully diluted basis. Upon approval by Wheels Up's stockholders of an amendment to its certificate of incorporation, Wheels Up is expected to issue to the lenders additional new shares such that the lenders will own i95%
of Wheels Up's outstanding equity as of the closing of the credit facility on a fully diluted basis.
The $i150 million cash contribution was reflected as an investing outflow in our Condensed Consolidated Statement of Cash Flows and allocated on a relative fair value basis to a loan receivable within other noncurrent assets and an equity investment on our balance sheet. Combined with our previous ownership stake, this new investment provides us with a i39%
equity stake in Wheels Up calculated based on Wheels Up's outstanding equity as of September 20, 2023. Our current percentage ownership does not reflect the anticipated dilutive effect from the additional shares to be issued to the lenders (including potentially to one or more new lenders under the term loan) upon approval by Wheels Up's stockholders and common stock grants expected to be made under Wheels Up's equity compensation plans. Furthermore, Delta's voting rights with respect to its Wheels Up equity stake are capped at i29.9%.
Delta
Air Lines, Inc. | September 2023 Form 10-Q 11
Notes to the Condensed Consolidated Financial Statements
As a result of the transaction, we concluded that Wheels Up is a variable interest entity ("VIE"). A VIE requires consolidation by the entity’s primary beneficiary. We determined that we are not the primary beneficiary after assessing the decision-making process for the significant activities of Wheels Up, concluding that Wheels Up's Board of Directors continues to possess the decision-making authority over the significant activities, and we do not control Wheels Up's Board. Based on this assessment, Wheels Up is not consolidated in our financial statements.
We continue to account for our equity interest under the fair
value option, as originally elected as part of our initial acquisition of Wheels Up shares in 2020. We will also account for our loan receivable at fair value, as the fair value option is applied to all of an investor's financial interests in the same entity. iNone of the $i100 million
liquidity facility has been drawn as of September 30, 2023.
Financing
arrangements secured by SkyMiles assets:
SkyMiles Notes(1)
2023
to
2028
i4.50%
and
i4.75%
i4,655
i5,144
SkyMiles
Term Loan(1)(2)
2023
to
2027
i9.08%
i1,882
i2,820
NYTDC
Special Facilities Revenue Bonds(1)
2024
to
2045
i4.00%
to
i5.00%
i2,778
i2,838
Financing
arrangements secured by aircraft:
Certificates(1)
2023
to
2028
i2.00%
to
i8.00%
i1,632
i1,802
Notes(1)(2)
2023
to
2033
i6.76%
to
i8.00%
i173
i813
Financing
arrangements secured by slots, gates and/or routes:
2020 Senior Secured Notes
2025
i7.00%
i838
i1,542
2018
Revolving Credit Facility(2)
2024
to
2025
Undrawn
i—
i—
Other
financings(1)(2)
2023
to
2030
i2.51%
to
i5.00%
i67
i67
Other
revolving credit facilities(2)
2023
to
2024
Undrawn
i—
i—
Total
secured and unsecured debt
$
i18,111
$
i21,519
Unamortized
(discount)/premium and debt issue cost, net and other
(i83)
(i138)
Total
debt
$
i18,028
$
i21,381
Less:
current maturities
(i1,681)
(i2,055)
Total
long-term debt
$
i16,347
$
i19,326
(1)Due
in installments during the years shown above.
(2)Certain financings are comprised of variable rate debt. All variable rates are equal to Secured Overnight Financing Rate ("SOFR") (generally subject to a floor) or another index rate, plus a specified margin.
/
Availability Under Revolving Credit Facilities
As of September 30, 2023, we had approximately $i2.8
billion undrawn and available under our revolving credit facilities. In addition, we had approximately $i400 million outstanding letters of credit as of September 30, 2023 that did not affect the availability of our revolving credit facilities.
Early Settlement of Outstanding Notes
During the nine
months ended September 30, 2023, we repurchased a principal amount of $i1.4 billion of various secured and unsecured notes and a portion of the SkyMiles Term Loan on the open market and made early principal repayments of $i585 million
on various notes secured by aircraft. These payments resulted in a $i63 million loss on extinguishment of debt recorded in non-operating expense in our income statement.
Delta Air Lines, Inc. | September 2023 Form 10-Q 12
Notes to the Condensed Consolidated Financial Statements
Fair Value of Debt
Market
risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. iThe fair value of debt shown below is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Debt is primarily classified as Level 2 within the fair value hierarchy.
Our
debt agreements contain various affirmative, negative and financial covenants. We were in compliance with the covenants in our debt agreements at September 30, 2023.
NOTE 6. iEMPLOYEE BENEFIT PLANS
i
Employee
benefit plans net periodic cost (benefit)
Pension Benefits
Other Postretirement and Postemployment Benefits
(in millions)
2023
2022
2023
2022
Three Months Ended September 30,
Service cost
$
i—
$
i—
$
i18
$
i18
Interest
cost
i213
i153
i50
i32
Expected
return on plan assets
(i264)
(i330)
i—
(i4)
Amortization
of prior service credit
i—
i—
(i1)
(i1)
Recognized
net actuarial loss
i60
i64
i3
i13
Net
periodic cost (benefit)
$
i9
$
(i113)
$
i70
$
i58
Nine
Months Ended September 30,
Service cost
$
i—
$
i—
$
i54
$
i53
Interest
cost
i638
i459
i150
i96
Expected
return on plan assets
(i791)
(i990)
(i1)
(i12)
Amortization
of prior service credit
i—
i—
(i4)
(i4)
Recognized
net actuarial loss
i179
i191
i10
i41
Net
periodic cost (benefit)
$
i26
$
(i340)
$
i209
$
i174
/
Service
cost is recorded in salaries and related costs in our income statement, while all other components are recorded within pension and related (expense)/benefit under non-operating expense.
Delta Air Lines, Inc. | September 2023 Form 10-Q 13
Notes to the Condensed Consolidated Financial Statements
NOTE 7. iCOMMITMENTS
AND CONTINGENCIES
Aircraft Purchase Commitments
i
Our future aircraft purchase commitments totaled approximately $i17.8 billion
at September 30, 2023.
(1)The
timing of these commitments is based on our contractual agreements with the aircraft manufacturers and may be subject to change based on modifications to those agreements or changes in delivery schedules.
Our future aircraft purchase commitments included the following aircraft at September 30, 2023:
Aircraft purchase commitments by fleet type
Aircraft Type
Purchase Commitments
A220-300
i68
A321-200neo
i113
A330-900neo
i16
A350-900
i16
B-737-10
i100
Total
i313
/
Aircraft
Orders
During the June 2023 quarter, we agreed to acquire ione A330-900 with delivery expected to occur in 2025. We also exercised purchase rights for i12 A220-300 with delivery expected
to start in 2027.
Legal Contingencies
We are involved in various legal proceedings related to employment practices, environmental issues, commercial disputes, antitrust and other regulatory matters concerning our business. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, we believe that the resolution of current matters will not have a material adverse effect on our Condensed Consolidated Financial Statements.
Employees Under Collective Bargaining Agreements
In
the March 2023 quarter, Delta pilots ratified a new four-year Pilot Working Agreement effective January 1, 2023. The agreement includes numerous work rule changes and pay rate increases during the four-year term, including an initial pay rate increase of i18%. The agreement also includes a provision for a one-time payment made upon ratification in the March 2023 quarter of $i735 million.
Additionally, we recorded adjustments to other benefit-related items of approximately $i130 million.These items are recorded within pilot agreement and related expenses in our income statement.
Delta Air Lines, Inc. | September 2023 Form 10-Q 14
Notes
to the Condensed Consolidated Financial Statements
NOTE 8. iACCUMULATED OTHER COMPREHENSIVE LOSS
i
Components
of accumulated other comprehensive loss
(1)Amounts
reclassified from accumulated other comprehensive loss for pension and other benefit liabilities are recorded in pension and related (expense)/benefit in non-operating expense in our income statement.
Delta Air Lines, Inc. | September 2023 Form 10-Q 15
Notes to the Condensed Consolidated Financial Statements
NOTE 9. iSEGMENTS
Refinery
Operations
Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and from jet fuel obtained through agreements with third parties. The refinery's production consists of jet fuel, as well as non-jet fuel products. We use several counterparties to exchange non-jet fuel products produced by the refinery for jet fuel consumed in our airline operations. The gross fair value of the products exchanged under these agreements during the three and nine months ended September 30, 2023 was $i519 million
and $i1.8 billion, respectively, compared to $i834 million and $i2.6 billion
for the three and nine months ended September 30, 2022, respectively.
Segment Reporting
Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with GAAP. Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis.
(1)Represents
transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price for jet fuel from the refinery by reference to the market index for the primary delivery location, which is New York Harbor.
(2)Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis.
(3)Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement.
/
Delta
Air Lines, Inc. | September 2023 Form 10-Q 16
Notes to the Condensed Consolidated Financial Statements
(1)Represents
transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price for jet fuel from the refinery by reference to the market index for the primary delivery location, which is New York Harbor.
(2)Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis.
(3)Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement.
Fair Value Obligations
The net fair value obligations presented in the table above are related to renewable fuel compliance costs
and presented net of any related assets or fixed price purchase agreements. Their value is based on quoted market prices and other observable information and are therefore classified as Level 2 in the fair value hierarchy. Our obligation as of September 30, 2023 was calculated using the U.S. Environmental Protection Agency's ("EPA") Renewable Fuel Standard ("RFS") volume requirements, which were finalized in 2022 for the 2021 and 2022 obligations, and proposed in 2022 for 2023 obligations. In the March 2023 quarter, we settled a portion of our 2021 Renewable Identification Numbers ("RINs") obligation with the EPA. We expect to settle the remaining 2021 and our entire 2022 RINs obligation by the 2022 compliance deadline in the December 2023 quarter.
Delta Air Lines, Inc. | September 2023 Form 10-Q 17
Notes
to the Condensed Consolidated Financial Statements
NOTE 10. iEARNINGS PER SHARE
We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based instruments, including stock options, restricted stock awards and warrants. Antidilutive
common stock equivalents excluded from the diluted earnings per share calculation are not material. iThe following table shows the computation of basic and diluted earnings per share:
Basic
and diluted earnings per share
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions, except per share data)
2023
2022
2023
2022
Net income
$
i1,108
$
i695
$
i2,572
$
i489
Basic
weighted average shares outstanding
i639
i638
i639
i638
Dilutive
effect of share-based instruments
i5
i3
i4
i3
Diluted
weighted average shares outstanding
i644
i641
i643
i641
Basic
earnings per share
$
i1.73
$
i1.09
$
i4.03
$
i0.77
Diluted
earnings per share
$
i1.72
$
i1.08
$
i4.00
$
i0.76
Delta
Air Lines, Inc. | September 2023 Form 10-Q 18
Item 2. MD&A
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial
Statements and related notes included in our 2022 Form 10-K.
September 2023 Quarter Financial Highlights
Our operating income for the September 2023 quarter improved $528 million compared to the September 2022 quarter to $2.0 billion for the reasons discussed below.
Revenue. Compared to the September 2022 quarter, our total revenue increased$1.5 billion, or 11%, due primarily to a 16%increase in capacity driven by strength in the demand for premium products and international travel. Total revenue, adjusted (a non-GAAP financial measure) increased in the September 2023 quarter by $1.7 billion, or 13%, compared to the September 2022 quarter.
Adjustments were primarily to exclude revenue related to refinery sales to third parties.
Operating Expense. Total operating expense in the September 2023 quarter increased $1.0 billion, or 8%, compared to the September 2022 quarter, primarily due to higher employee costs from increased wages and profit sharing, higher maintenance costs and increased costs associated with higher capacity, partially offset by lower fuel expense and lower expenses related to refinery sales to third parties, reflected in ancillary businesses and refinery expense. Total operating expense, adjusted (a non-GAAP financial measure) in the September 2023 quarter increased $1.2 billion, or 11%, compared to the September 2022 quarter. Adjustments were primarily to exclude expenses related to refinery sales to third parties.
Our
total operating cost per available seat mile ("CASM") decreased 7% compared to the September 2022 quarter, primarily due to a 16%increasein capacity, as well as lower fuel expense and lower expenses related to refinery sales to third parties. Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure) increased1.3%.
Cash Flow. Our cash, cash equivalents, short-term investments and aggregate undrawn principal amount available under our revolving credit facilities ("liquidity") as of September 30, 2023 was $7.8 billion. During the September 2023 quarter, operating activities generated $1.1 billion. Also, during the quarter, cash flows used in investing
activities totaled $131 million as capital expenditures and our investment in Wheels Up were partially offset by redemptions of short-term investments. These operating and investing activities generated negative free cash flow of $250 million(a non-GAAP financial measure) in the September 2023 quarter. Additionally, we had cash outflows of $724 million related to repayments of our debt and finance leases.
Total cash sales to American Express were $1.7 billion in the September 2023 quarter, an increase of approximately 20% compared to the September 2022 quarter.
The non-GAAP financial measures referenced above for total revenue, adjusted, operating expense, adjusted, CASM-Ex and free cash flow are defined and reconciled in "Supplemental Information"
below.
Delta Air Lines, Inc. | September 2023 Form 10-Q 19
(1)Total
amounts in the table above may not calculate exactly due to rounding.
(2)TRASM, adjusted is a non-GAAP financial measure. For additional information on adjustments to TRASM, see "Supplemental Information" below.
Compared to the September 2022 quarter, total revenue increased$1.5 billion, or 11%, due primarily to a 16%increase in capacity driven by strength in travel demand, with growth in revenue from premium products outpacing main cabin. This increase was partially offset by a decline in third-party refinery sales recorded in other revenue. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales. Total revenue per available seat mile ("TRASM") decreased
5%in large part as a result of the decline in third-party refinery sales.
Domestic
passenger revenue increased6% in the September 2023 quarter compared to the September 2022 quarter on an 11%increase in capacity and a slight increase in load factor. We experienced strong revenue results across the domestic network, with coastal hub markets such as New York and Boston improving significantly compared to the prior period, and domestic business travel revenue improving compared to the September 2022 quarter.
International
International passenger revenue for the September 2023 quarter increased compared to the September 2022 quarter in each geographic region. Overall, international demand remained strong leading to an increase in passenger unit revenue of 7% on a 26% increase in capacity compared
to the September 2022 quarter.
Consumers continue to show a strong desire for transatlantic travel, driving higher revenue and passenger unit revenue during the September 2023 quarter on 22% capacity growth compared to the September 2022 quarter. The increase in revenue was led by higher demand for travel to leisure destinations in southern Europe and premium products.
Delta Air Lines, Inc. | September 2023 Form 10-Q 20
Item 2. MD&A - Results of Operations
Latin America region revenue increased during the September 2023 quarter, due to strong demand for leisure destinations in South America and the Caribbean. In addition,
during the first year of our joint venture with LATAM we have streamlined travel between North and South America while expanding connections in each of our key hub airports.
Pacific region revenue benefited from improved demand for travel to the region, particularly to Japan, on increased capacity following the lifting of travel restrictions and the performance of our joint venture with Korean Air.
Other Revenue
Three
Months Ended September 30,
Increase (Decrease)
% Increase (Decrease)
(in millions)
2023
2022
Refinery
$
935
$
1,134
$
(199)
(18)
%
Loyalty
program
791
655
136
21
%
Ancillary businesses
212
249
(37)
(15)
%
Miscellaneous
277
233
44
19
%
Other
revenue
$
2,215
$
2,271
$
(56)
(2)
%
Refinery. Refinery sales to third parties decreased$199 million compared to the September
2022 quarter due to lower pricing and a planned maintenance event ("turnaround") which began in September 2023. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales.
Loyalty Program. Loyalty program revenue relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-air travel and other awards. These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions. Revenues from our relationship with American Express increased compared to the September 2022 quarter, due to increased co-brand card spend.
Miscellaneous. Miscellaneous is primarily composed of revenues
related to Delta Sky Club lounge access, including access provided to certain American Express cardholders, and codeshare agreements. The volume of these transactions has increased compared to the September 2022 quarter in line with the increased capacity.
Delta Air Lines, Inc. | September 2023 Form 10-Q 21
Item 2. MD&A - Results of Operations
Operating Expense
Three
Months Ended September 30,
Increase (Decrease)
% Increase (Decrease)
(in millions)
2023
2022
Salaries and related costs
$
3,760
$
3,050
$
710
23
%
Aircraft
fuel and related taxes
2,936
3,318
(382)
(12)
%
Ancillary businesses and refinery
1,128
1,349
(221)
(16)
%
Contracted
services
1,004
881
123
14
%
Landing fees and other rents
679
562
117
21
%
Aircraft
maintenance materials and outside repairs
661
487
174
36
%
Passenger commissions and other selling expenses
618
546
72
13
%
Depreciation
and amortization
594
538
56
10
%
Regional carrier expense
546
528
18
3
%
Passenger service
449
406
43
11
%
Profit
sharing
417
237
180
76
%
Aircraft rent
131
131
—
—
%
Other
581
486
95
20
%
Total
operating expense
$
13,504
$
12,519
$
985
8
%
Salaries and Related Costs. In the March 2023 quarter, Delta pilots ratified a new four-year Pilot Working Agreement effective January 1, 2023. The agreement includes numerous work rule changes and pay rate increases during the four-year term, including an initial pay rate increase
of 18%.
Over the past year, we implemented base pay increases for eligible non-pilot employees of 5% effective April 1, 2023. Additionally, we have approximately8,000 more employees as of September 30, 2023 than at September 30, 2022, principally in in-flight service, flight operations and aircraft maintenance, in order to support the growth in our operations. Each of these items contributed to the increase in salaries and related costs during the September 2023 quarter compared to the September 2022 quarter.
Aircraft Fuel and Related Taxes. Aircraft fuel and related taxes decreased $382
million compared to the September 2022 quarter primarily due to a 23% decrease in the market price of jet fuel partially offset by a 14% increase in consumption on a 16% increase in capacity. The refinery also provided a benefit of 11 cents per gallon compared to a benefit of 21 cents per gallon in the September 2022 quarter. We expect jet fuel prices to remain volatile throughout the remainder of 2023 and into 2024.
See "Refinery Segment" below for additional details on the refinery's operations.
Fuel
expense and average price per gallon
Average Price Per Gallon
Three Months Ended September 30,
Increase (Decrease)
Three Months Ended September 30,
Increase (Decrease)
(in millions, except per gallon data)
2023
2022
2023
2022
Fuel
purchase cost(1)
$
3,076
$
3,474
$
(398)
$
2.89
$
3.74
$
(0.85)
Fuel
hedge impact
(21)
36
(57)
(0.02)
0.04
(0.06)
Refinery segment impact
(119)
(192)
73
(0.11)
(0.21)
0.10
Total
fuel expense
$
2,936
$
3,318
$
(382)
$
2.76
$
3.57
$
(0.81)
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Ancillary
Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Refinery sales to third parties decreased $199 million compared to the September 2022 quarter due to lower pricing and the turnaround which began in September 2023. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales.
Delta Air Lines, Inc. | September 2023 Form 10-Q 22
Item 2. MD&A - Results of Operations
Contracted Services. During the September 2023 quarter, capacity
increased 16% compared to the September 2022 quarter resulting in higher volume-related contracted services expenses, in addition to inflationary pressures.
Landing Fees and Other Rents. The increase in landing fees and other rents resulted from higher rates charged by airports following extensive redevelopment projects at numerous facilities and more flights compared to the September 2022 quarter that contributed to our increased capacity.
Aircraft Maintenance Materials and Outside Repairs. Aircraft maintenance materials and outside repairs expense increased compared to the September 2022 quarter as we continued to invest in the operational reliability of our fleet, in particular related to engine overhauls on our B-757 aircraft, in addition to higher material
costs.
Passenger Commissions and Other Selling Expenses. Compared to the September 2022 quarter, passenger revenue increased in the September 2023 quarter which was the primary reason for the increase in passenger commissions and other selling expenses.
Profit Sharing. Profit sharing increased $180 million compared to the September 2022 quarter due to higher projected profitability in 2023. Our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual pre-tax profit and 20% of annual pre-tax profit above $2.5 billion, as defined by the terms of the program. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items.
Other.
The increase in other is primarily due to higher volume-related expenses associated with increased capacity, such as flight crew and other employee travel and incidental costs, and inflationary pressures.
Delta Air Lines, Inc. | September 2023 Form 10-Q 23
(1)Total
amounts in the table above may not calculate exactly due to rounding.
(2)TRASM, adjusted is a non-GAAP financial measure. For additional information on adjustments to TRASM, see "Supplemental Information" below.
Unless otherwise discussed below, the changes in total revenue line items, as well as the underlying reasons for these changes, compared to the nine months ended September 30, 2022 are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2023 and 2022.
Compared to the nine months ended September 30, 2022,
total revenue increased $6.7 billion, or 18%, due primarily to strength in travel demand on higher capacity and higher yield.
Domestic
passenger unit revenue for the nine months ended September 30, 2023 increased compared to the nine months ended September 30, 2022 as a result of the higher levels of capacity and yield during the nine months ended September 30, 2023 due to strong demand in the period. International passenger revenue for the nine months ended September 30, 2023 increased 58% on 35% higher capacity compared to the nine months ended September 30, 2022 due to U.S. consumer demand for international travel and the removal of travel restrictions.
Other Revenue
Nine
Months Ended September 30,
Increase (Decrease)
% Increase (Decrease)
(in millions)
2023
2022
Refinery
$
2,817
$
3,835
$
(1,018)
(27)
%
Loyalty
program
2,291
1,877
414
22
%
Ancillary businesses
657
665
(8)
(1)
%
Miscellaneous
790
640
150
23
%
Other
revenue
$
6,555
$
7,017
$
(462)
(7)
%
Delta Air Lines, Inc. | September 2023 Form 10-Q 24
Item 2. MD&A - Results of Operations
Operating Expense
Nine
Months Ended September 30,
Increase (Decrease)
% Increase (Decrease)(1)
(in millions)
2023
2022
Salaries and related costs
$
10,838
$
8,832
$
2,006
23
%
Aircraft
fuel and related taxes
8,128
8,633
(505)
(6)
%
Ancillary businesses and refinery
3,427
4,449
(1,022)
(23)
%
Contracted
services
3,009
2,425
584
24
%
Landing fees and other rents
1,880
1,611
269
17
%
Aircraft maintenance materials
and outside repairs
1,860
1,474
386
26
%
Passenger commissions and other selling expenses
1,770
1,385
385
28
%
Depreciation
and amortization
1,731
1,554
177
11
%
Regional carrier expense
1,664
1,547
117
8
%
Passenger service
1,307
1,050
257
24
%
Profit
sharing
1,084
291
793
NM
Pilot agreement and related expenses
864
—
864
NM
Aircraft rent
395
380
15
4
%
Other
1,669
1,325
344
26
%
Total
operating expense
$
39,626
$
34,956
$
4,670
13
%
(1)Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.
Unless otherwise discussed below, the changes in operating expense line items, as well as the underlying reasons for these changes, compared to the nine months ended September 30,
2022 are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2023 and 2022.
Aircraft Fuel and Related Taxes. Aircraft fuel and related taxesdecreased$505 million compared to the nine months ended September 30, 2022 due to a 19% decrease in the market price per gallon of jet fuel partially offset by a 16% increase in consumption on a 17% increase in capacity. The refinery also provided a benefit of 13 cents per gallon compared to a benefit of 20 cents per gallon in the nine months ended September 30, 2022.
See
"Refinery Segment" below for additional details on the refinery's operations.
Fuel expense and average price per gallon
Average Price Per Gallon
Nine
Months Ended September 30,
Increase (Decrease)
Nine Months Ended September 30,
Increase (Decrease)
(in millions, except per gallon data)
2023
2022
2023
2022
Fuel purchase cost(1)
$
8,572
$
9,189
$
(617)
$
2.91
$
3.61
$
(0.70)
Fuel
hedge impact
(59)
(41)
(18)
(0.02)
(0.02)
—
Refinery segment impact
(385)
(515)
130
(0.13)
(0.20)
0.07
Total
fuel expense
$
8,128
$
8,633
$
(505)
$
2.76
$
3.39
$
(0.63)
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Passenger
Service. Passenger service expenses increased compared to the prior period due to higher volume-related expenses associated with increased demand and expanded onboard service offerings.
Pilot agreement and related expenses. In addition to the items in salaries and related costs above under Results of Operations - Three Months Ended September 30, 2023 and 2022, the recently ratified pilot agreement also includes a provision for a one-time payment made upon ratification in the March 2023 quarter of $735 million. Additionally, we recorded adjustments to other benefit-related items of approximately $130 million.
Delta Air Lines, Inc. | September 2023 Form 10-Q 25
Item
2. MD&A - Non-Operating Results
Non-Operating Results
Three Months Ended September 30,
Favorable (Unfavorable)
Nine Months Ended September
30,
Favorable (Unfavorable)
(in millions)
2023
2022
2023
2022
Interest expense, net
$
(196)
$
(248)
$
52
$
(627)
$
(791)
$
164
Gain/(loss)
on investments, net
(206)
(245)
39
45
(613)
658
Loss on extinguishment of debt
(13)
(34)
21
(63)
(100)
37
Pension
and related (expense)/benefit
(61)
73
(134)
(183)
218
(401)
Miscellaneous, net
13
(40)
53
(38)
(111)
73
Total
non-operating expense, net
$
(463)
$
(494)
$
31
$
(866)
$
(1,397)
$
531
Interest expense, net. Interest expense, net includes interest expense and interest income. This decreased
compared to the prior year periods as a result of increased interest income and reduced interest expense resulting from our debt reduction initiatives. Interest income increased as a result of higher interest rates and higher short-term investment balances throughout 2023. During 2022, we made payments of approximately $4.5 billion related to our debt and finance lease obligations and we have continued to pay down our debt during the nine months ended September 30, 2023 with $3.7 billion of payments on debt and finance lease obligations. We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities.
Gain/(loss) on investments, net. Changes in the valuation of investments accounted for at fair value are recorded in gain/(loss) on investments, net and are driven
by changes in stock prices, foreign currency fluctuations and other valuation techniques for investments in certain companies, particularly those without publicly-traded shares. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis.
Loss on extinguishment of debt. Loss on extinguishment of debt reflects the losses incurred in the early repayment of certain loans and notes.
Pension and related (expense)/benefit. Pension and related (expense)/benefit reflects the net periodic (cost)/benefit of our pension and other postretirement and postemployment benefit plans. The unfavorable year-over-year change in pension and related (expense)/benefit
results from lower expected return on plan assets during 2023. This is due to lower plan asset balances as of December 31, 2022, compared to December 31, 2021, primarily resulting from investment value declines in 2022 consistent with the broader financial markets.
Miscellaneous, net. Miscellaneous, net primarily includes foreign exchange gains/(losses), charitable contributions and our share of our equity method investments results.
Income Taxes
We project
our annual effective tax rate for 2023 will be between 22% and 24%. Our effective tax rate in 2023 may be impacted by mark-to-market adjustments on our equity investments. In certain interim periods, we may have adjustments to our net deferred tax assets as a result of changes in prior year estimates, changes in our mark-to-market equity investments and tax laws enacted during the period, which will impact the effective tax rate for that interim period.
Refinery Segment
The refinery operated by Monroe primarily produces gasoline, diesel and jet fuel. Monroe exchanges non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations.
The jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provides approximately 200,000 barrels per day, or approximately 75% of our consumption, for use in our airline operations.
Delta Air Lines, Inc. | September 2023 Form 10-Q 26
Item 2. MD&A - Refinery Segment
Refinery
segment financial information
Three Months Ended September 30,
Increase (Decrease)
Nine Months Ended September 30,
Increase (Decrease)
(in millions, except per gallon data)
2023
2022
2023
2022
Exchange
products
$
519
$
834
$
(315)
$
1,848
$
2,623
$
(775)
Sales of refined products
47
127
(80)
263
250
13
Sales
to airline segment
385
504
(119)
1,346
1,557
(211)
Third party refinery sales
935
1,134
(199)
2,817
3,835
(1,018)
Operating
revenue
$
1,886
$
2,599
$
(713)
$
6,274
$
8,265
$
(1,991)
Operating
income
$
119
$
192
$
(73)
$
385
$
515
$
(130)
Refinery segment impact on airline average price per fuel gallon
$
(0.11)
$
(0.21)
$
0.10
$
(0.13)
$
(0.20)
$
0.07
The
refinery generated lower operating income in the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, as a result of lower pricing.
Starting in mid-September 2023, the refinery began the turnaround that is performed once every five years in accordance with the long-term maintenance plan of the facility to allow for safe completion of major repairs and upgrades. The turnaround is expected to conclude in mid-November 2023 and until that time there will be no production at the refinery.
A refinery is subject to annual U.S. Environmental Protection Agency ("EPA") requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces.
Alternatively, a refinery may purchase RINs from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Observable RINs prices declined slightly since the beginning of 2023 through September 30, 2023 and Monroe incurred $80 million and $287 million in RINs compliance costs during the three and nine months ended September 30, 2023, respectively, compared to $140 million and $448 million in the three and nine months ended September 30, 2022.
At September 30, 2023, we had a net fair value obligation of $9 million related to RINs compliance costs. Our obligation as of September 30, 2023
was calculated using the Renewable Fuel Standard ("RFS") volume requirements, which were finalized in 2022 for the 2021 and 2022 obligations, and proposed in 2022 for 2023 obligations. In the March 2023 quarter, we settled a portion of our 2021 RINs obligation with the EPA. We expect to settle the remaining 2021 and our entire 2022 RINs obligation by the 2022 compliance deadline in the December 2023 quarter.
For more information regarding the refinery's results, see Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. | September 2023 Form 10-Q 27
Item
2. MD&A - Operating Statistics
Operating Statistics
Three Months Ended September 30,
% Increase (Decrease)
Nine
Months Ended September 30,
% Increase (Decrease)
Consolidated(1)
2023
2022
2023
2022
Revenue passenger miles (in millions) ("RPM")
64,095
54,786
17
%
174,586
145,004
20
%
Available
seat miles (in millions) ("ASM")
73,226
63,007
16
%
203,571
173,720
17
%
Passenger mile yield
20.47
¢
20.93
¢
(2)
%
21.04
¢
20.23
¢
4
%
Passenger
revenue per available seat mile ("PRASM")
17.92
¢
18.19
¢
(1)
%
18.05
¢
16.88
¢
7
%
Total revenue per available seat mile ("TRASM")
21.15
¢
22.18
¢
(5)
%
21.53
¢
21.38
¢
1
%
TRASM,
adjusted(2)
19.87
¢
20.38
¢
(2.5)
%
20.14
¢
19.18
¢
5
%
Cost per available seat mile ("CASM")
18.44
¢
19.87
¢
(7)
%
19.47
¢
20.12
¢
(3)
%
CASM-Ex(2)
12.59
¢
12.43
¢
1.3
%
13.13
¢
12.78
¢
3
%
Passenger
load factor
88
%
87
%
1
pt
86
%
83
%
3
pts
Fuel gallons consumed (in millions)
1,062
930
14
%
2,947
2,543
16
%
Average
price per fuel gallon(3)
$
2.76
$
3.57
(23)
%
$
2.76
$
3.39
(19)
%
Average price per fuel gallon, adjusted(2)(3)
$
2.78
$
3.53
(21)
%
$
2.78
$
3.41
(18)
%
(1)Includes
the operations of our regional carriers under capacity purchase agreements.
(2)Non-GAAP financial measures defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below.
(3)Includes the impact of fuel hedge activity and refinery segment results.
Delta Air Lines, Inc. | September 2023 Form 10-Q 28
Item 2. MD&A - Fleet Information
Fleet Information
Our
operating aircraft fleet, purchase commitments and options at September 30, 2023 are summarized in the following table.
Mainline aircraft information by fleet type
Current
Fleet(1)
Commitments
Fleet Type
Owned
Finance Lease
Operating Lease
Total
Average Age (Years)
Purchase
Options
A220-100
41
4
—
45
3.8
A220-300
18
—
—
18
1.8
68
14
A319-100
57
—
—
57
21.6
A320-200
60
—
—
60
28.0
A321-200
63
22
42
127
4.8
A321-200neo
42
—
—
42
0.7
113
70
A330-200
11
—
—
11
18.5
A330-300
28
—
3
31
14.7
A330-900neo
15
3
5
23
2.1
16
A350-900
17
—
11
28
4.8
16
B-717-200
10
62
2
74
22.0
B-737-800
73
4
—
77
22.0
B-737-900ER
114
—
49
163
7.7
B-737-10
—
—
—
—
—
100
30
B-757-200
100
—
—
100
26.1
B-757-300
16
—
—
16
20.6
B-767-300ER
45
—
—
45
27.5
B-767-400ER
21
—
—
21
22.7
Total
731
95
112
938
14.7
313
114
(1)Includes
both active and temporarily parked aircraft. Excludes certain aircraft we own or lease that are operated by regional carriers on our behalf shown in the table below.
The table below summarizes the aircraft operated by regional carriers on our behalf at September 30, 2023. In the June 2023 quarter, we retired all remaining CRJ-200 aircraft from service.
Regional aircraft
information by fleet type and carrier
Fleet Type(1)
Carrier
CRJ-700
CRJ-900
Embraer 170
Embraer 175
Total
Endeavor Air, Inc.(2)
18
123
—
—
141
SkyWest
Airlines, Inc.
6
39
—
83
128
Republic Airways, Inc.
—
—
11
46
57
Total
24
162
11
129
326
(1)Includes
both active and temporarily parked aircraft. We own 205 and have operating leases for three of these regional aircraft. The remainder are owned or leased by SkyWest Airlines, Inc. or Republic Airways, Inc.
(2)Endeavor Air, Inc. is a wholly owned subsidiary of Delta.
Delta Air Lines, Inc. | September 2023 Form 10-Q 29
Item 2. MD&A - Financial Condition and Liquidity
Financial Condition and Liquidity
As of September 30, 2023, we had $7.8 billion
in cash, cash equivalents, short-term investments and aggregate undrawn principal amount available under our revolving credit facilities ("liquidity"). We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Undrawn Lines of Credit. As of September 30, 2023, we had approximately $2.8 billion undrawn and available under our revolving credit facilities. In addition, we had approximately $400 million outstanding letters of credit as of September 30, 2023 that did not affect the availability of our revolving credit facilities.
Sources
and Uses of Liquidity
Operating Activities
We generated cash flows from operations of $5.9 billion and $5.2 billion in the nine months ended September 30, 2023 and 2022, respectively. We expect to continue generating positive cash flows from operations during the remainder of 2023.
Our operating cash flow is impacted by the following factors:
Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred
revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advance ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months. We continue to see customers purchasing flights further in advance compared to historical patterns, enhancing the positive cash flow from advance ticket sales.
Fuel. Fuel expense represented approximately 21% and 25% of our total operating expense for the nine months ended September 30, 2023 and 2022, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. Although the average fuel price per gallon decreased during the nine months ended September 30,
2023, fuel costs remain high compared to historical levels. We expect jet fuel prices to remain volatile throughout the remainder of 2023 and into 2024. Fuel consumption was also higher during the nine months ended September 30, 2023 compared to the prior year period due to the increase in capacity. We continue to expect that fuel consumption for the full year 2023 will be higher compared to 2022, as we anticipate capacity for the full year to be higher than 2022, partially offset by increases in the fuel efficiency of our fleet.
Profit Sharing. Our broad-based employee profit sharing program provides that for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the
program defines profit as pre-tax profit adjusted for profit sharing and certain other items. During the nine months ended September 30, 2023, we accrued $1.1 billion in profit sharing expense based on the year-to-date performance and current expectations for 2023 profit.
We paid $563 million in profit sharing in February 2023 related to our 2022 pre-tax profit in recognition of our employees' contributions toward achieving the year's financial results.
Pilot Agreement Payment. In the March 2023 quarter, Delta pilots ratified a new four-year Pilot Working Agreement effective January 1, 2023. The agreement includes numerous work rule changes and pay rate increases during the four-year
term, including an initial pay rate increase of 18%. The agreement also includes a provision for a one-time payment made upon ratification in the March 2023 quarter of $735 million.
Sale of Miles to Participating Companies. Customers earn miles based on their spending with participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies with which we have marketing agreements to sell miles. Payments are typically due to us monthly based on the volume of miles sold during the period. Our most significant contract to sell miles relates to our co-brand credit card relationship with American Express. Total cash sales to American Express were $5.1 billion in the nine months ended September 30,
2023, an increase of 26% compared to the prior year period.
Delta Air Lines, Inc. | September 2023 Form 10-Q 30
Item 2. MD&A - Financial Condition and Liquidity
Investing Activities
Short-Term Investments. During the nine months ended September 30, 2023, we redeemed a net of $1.2 billion in short-term investments. See Note 3 of the Notes to the Condensed Consolidated Financial Statements for further information on these investments.
Capital Expenditures. Our
capital expenditures were $3.7 billion and $4.2 billion for the nine months ended September 30, 2023 and 2022, respectively. We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft. Excluding the New York-LaGuardia airport project discussed below, our expected 2023 capital spend of approximately $5.5 billion will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements and may vary depending on financing decisions.
New York-LaGuardia Redevelopment. As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port
Authority of New York and New Jersey to replace Terminals C and D with a new state-of-the-art terminal facility. Construction is ongoing and is being phased to limit passenger inconvenience. Due to an acceleration effort that commenced in 2020, completion is expected by 2025.
We currently expect our net project costs to be approximately $4.3 billion and we bear the risks of project construction, including any potential cost over-runs. Using funding primarily provided by existing financing arrangements and other sources of funding, we expect to spend approximately $500 million on this project during 2023, of which $354 million was incurred in the nine months ended September 30, 2023.
Los Angeles International Airport ("LAX"). We
have an ongoing terminal redevelopment project at LAX to modernize, update and provide post-security connection to Terminals 2 and 3. Construction is expected to be completed by the end of 2023 with a total cost of approximately $2.4 billion. A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using a revolving credit facility provided by a group of lenders. We have guaranteed the obligations of the RAIC under the credit facility and the revolving credit facility agreement was most recently amended in the March 2023 quarter, decreasing the revolver capacity to $700 million. In the June 2023 quarter, the revolving credit facility agreement capacity was reduced to $626 million.
Wheels Up. We, along with Certares Management LLC, Knighthead Capital
Management LLC and Cox Enterprises, Inc. announced the closing on September 20, 2023 of an expanded strategic partnership with Wheels Up, which includes an agreement for a $500 million credit facility to Wheels Up. At closing, the credit facility was comprised of a $350 million term loan, of which we contributed $150 million, and a $100 million liquidity facility that we made available to Wheels Up in the event the company's liquidity falls below $100 million. The terms of the credit facility permit one or more new lenders to provide an aggregate incremental $50 million term loan after the closing date. In connection with the closing, the term loan investors received newly issued shares of Wheels Up's common stock representing 80% of Wheels Up's outstanding equity as of the closing of the credit facility on a fully diluted basis. Upon approval
by Wheels Up's stockholders of an amendment to its certificate of incorporation, Wheels Up is expected to issue to the lenders additional new shares such that the lenders will own 95% of Wheels Up's outstanding equity as of the closing of the credit facility on a fully diluted basis.
The $150 million cash contribution was reflected as an investing outflow in our Condensed Consolidated Statement of Cash Flows and allocated on a relative fair value basis to a loan receivable within other noncurrent assets and an equity investment on our balance sheet.
Financing Activities
Debt and Finance Leases. In the nine months ended
September 30, 2023, we had cash outflows of $3.7 billion related to repayments of our debt and finance lease obligations, including $1.4 billionof principal amounts for the early repurchase of various secured and unsecured notes and a portion of the SkyMiles Term Loan on the open market and early principal repayments of $585 million on various notes secured by aircraft. Approximately $1.7 billion of the early repurchases and repayments were scheduled to mature after 2023.We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities.
In the March 2023 quarter, both Fitch and S&P credit rating agencies upgraded our debt rating outlooks to stable and positive, respectively. In the September
2023 quarter, S&P upgraded our credit rating to BB+.
The principal amount of our debt and finance leases was $19.6 billion at September 30, 2023.
Delta Air Lines, Inc. | September 2023 Form 10-Q 31
Item 2. MD&A - Financial Condition and Liquidity
Capital Return to Shareholders. On June 15, 2023, the Board of Directors approved and we paid a quarterly dividend of $0.10 per share on August 7, 2023.
Covenants. We were in compliance with the covenants in our debt agreements at September 30, 2023.
Critical Accounting Estimates
There have been no material changes in our Critical Accounting Estimates
from the information provided in the "Critical Accounting Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.
Delta Air Lines, Inc. | September 2023 Form 10-Q 32
Item 2. MD&A - Supplemental Information
Supplemental Information
We sometimes use information (non-GAAP financial measures) that is derived from the Condensed Consolidated Financial Statements, but that is not presented in accordance with GAAP. Under the U.S. Securities and Exchange Commission rules, non-GAAP
financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.
Included below are reconciliations of non-GAAP measures used within this Form 10-Q to the most directly comparable GAAP financial measures. Reconciliations below may not calculate exactly due to rounding. These reconciliations include certain adjustments to GAAP measures to provide comparability between the reported periods, if applicable, and for the reasons indicated below:
•Third-party refinery sales. Refinery sales to third parties, and related expenses, are not related to our airline segment. Excluding these sales therefore provides a more meaningful comparison of our airline operations to the
rest of the airline industry.
•MTM adjustments and settlements on hedges. Mark-to-market ("MTM") adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period, and therefore we remove this impact to allow investors to better understand and analyze our core performance. Settlements represent cash received or paid on hedge contracts settled during the applicable period.
•Restructuring
charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. During 2022, we recognized adjustments to certain of those restructuring charges, representing changes in our estimates.
•Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.
•Profit sharing. We adjust for profit sharing because this adjustment allows investors
to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.
•One-time pilot agreement expenses. In the March 2023 quarter, Delta pilots ratified a new four-year Pilot Working Agreement effective January 1, 2023. The agreement includes numerous work rule changes and pay rate increases during the four-year term, including an initial pay rate increase of 18%. The agreement also includes a provision for a one-time payment made upon ratification in the March 2023 quarter of $735 million. Additionally, we recorded adjustments to other benefit-related items of approximately $130 million. Adjusting for these expenses allows investors to better understand and analyze our core cost performance.
Total
revenue, adjusted reconciliation
Three Months Ended September 30,
(in millions)
2023
2022
Total revenue
$
15,488
$
13,975
Adjusted for:
Third-party refinery sales
(935)
(1,134)
Total
revenue, adjusted
$
14,553
$
12,840
Delta Air Lines, Inc. | September 2023 Form 10-Q 33
Delta
Air Lines, Inc. | September 2023 Form 10-Q 34
Item 2. MD&A - Supplemental Information
Free Cash Flow
The following table shows a reconciliation of net cash provided by operating and investing activities (GAAP measures) to free cash flow (a non-GAAP financial measure). We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:
•Net
redemptions of short-term investments. Net redemptions of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations.
•Strategic investments and related. Certain cash flows related to our investments in and related transactions with other airlines and associated companies, including Wheels Up in the September 2023 quarter, are included in our GAAP investing activities. We adjust for this activity because it provides a more meaningful comparison to our airline industry peers.
•Net
cash flows related to certain airport construction projects and other. Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures. We have adjusted for these items because management believes investors should be informed that a portion of these capital expenditures from airport construction projects are either reimbursed by a third party or funded with restricted cash specific to these projects.
•Financed aircraft acquisitions. This adjustment reflects aircraft deliveries that are leased as capital expenditures. The adjustment is based on their original contractual purchase price or an estimate of the aircraft's fair value and provides a more meaningful view of our investing activities.
Free
cash flow reconciliation
Three Months Ended September 30,
(in millions)
2023
Net cash provided by operating activities
$
1,076
Net cash used in investing activities
(131)
Adjusted for:
Net
redemptions of short-term investments
(1,226)
Strategic investments and related
152
Net cash flows related to certain airport construction projects and other
40
Financed aircraft acquisitions
(162)
Free
cash flow
$
(250)
Delta
Air Lines, Inc. | September 2023 Form 10-Q 35
Item 3. Market Risk
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Our
management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important information. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the controls and procedures were effective as of September 30, 2023 to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the three months ended September 30, 2023, we did not make any changes in our internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
"Item 3. Legal Proceedings" of our Form 10-K includes a discussion of our legal proceedings. Except as described below, there have been no material changes from the legal proceedings described in our Form 10-K.
Capacity Antitrust Litigation
In
July 2015, a number of purported class action antitrust lawsuits were filed alleging that Delta, American, United and Southwest had conspired to restrain capacity. The lawsuits were filed in the wake of media reports that the U.S. Department of Justice had served civil investigative demands upon these carriers seeking documents and information relating to this subject. The lawsuits have been consolidated into a single Multi-District Litigation proceeding in the U.S. District Court for the District of Columbia. In August 2023, the Court denied the defendants’ motions for summary judgment that had been pending for over two years. In September 2023, we moved to certify the decision for an interlocutory appeal or for reconsideration. Briefing related to that motion will run through mid-November 2023, and class certification discovery will commence in the meantime. Delta believes the claims in these cases are without merit and is vigorously defending these lawsuits.
ITEM
1A. RISK FACTORS
“Item 1A. Risk Factors” of our Form 10-K includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. There have been no material changes from the risk factors described in our Form 10-K.
Delta Air Lines, Inc. | September 2023 Form 10-Q 36
Item 2. Unregistered Sales of Equity Securities
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
following table presents information with respect to purchases of common stock we made during the September 2023 quarter. The table reflects shares withheld from employees to satisfy certain tax obligations due in connection with grants of stock under the Delta Air Lines, Inc. Performance Compensation Plan (the "Plan"). The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. The shares of common stock withheld to satisfy tax withholding obligations may be deemed to be "issuer purchases" of shares that are required to be disclosed pursuant to this Item.
Shares
purchased / withheld from employee awards during the September 2023 quarter
Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans
Approximate Dollar Value (in millions) of Shares That May Yet be Purchased Under the Plan
July 2023
24,298
$
47.38
24,298
$
—
August
2023
19,338
$
45.23
19,338
$
—
September 2023
13,392
$
41.82
13,392
$
—
Total
57,028
57,028
Delta
Air Lines, Inc. | September 2023 Form 10-Q 37
101.INS Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
104 The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30,
2023, formatted in Inline XBRL (included in Exhibit 101)
Delta Air Lines, Inc. | September 2023 Form 10-Q 38
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.