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| DAL > SEC Filings for DAL > Form 10-Q on 24-Jul-2009 | All Recent SEC Filings |
24-Jul-2009
Quarterly Report
To reduce fleet costs, we plan to remove 30-40 Mainline passenger aircraft
from the fleet during 2009. In addition, we will retire our entire fleet of
B-747-200F freighter aircraft by the end of 2009 due to that fleet's age and
inefficiency. Furthermore, we anticipate removing over 30 regional jets from our
network over the next 18 months. We believe we have flexibility in our network
and fleet to remove additional capacity if the environment warrants.
At June 30, 2009, our combined workforce was 10% lower year-over-year,
reflecting reductions from normal attrition, as well as voluntary workforce
reduction programs offered to align our workforce with reduced capacity.
Merger Synergies
As a result of the Merger, we targeted at least $500 million in synergy
benefits in 2009 and $2 billion in total annual synergy benefits by 2012. Our
ability to fully realize the targeted synergies is dependent on achievement of
three main goals: (1) receipt of a single operating certificate from the Federal
Aviation Administration, which we expect to achieve by the end of 2009, (2) a
successful integration of technologies of the two airlines, which we expect to
occur in the first half of 2010 and (3) resolution of labor representation
issues. Two unions, the Association of Flight Attendants, which represents
Northwest's flight attendants, and the International Association of Machinists
and Aerospace Workers, which represents Northwest's airport employees and other
categories of ground employees, have not announced when they will seek to
resolve those issues.
Outlook
The ongoing global recession, the impact of the H1N1 virus and volatile fuel
prices are placing significant pressure on the airline industry, including
Delta. We are not planning for any meaningful recovery in the revenue
environment in 2009. We expect our revenue decline in 2009 to exceed the
benefits we expect to receive in that year from lower year-over-year fuel
prices, capacity reductions and merger synergies. As a result, we now expect to
record a net loss for the full year 2009.
Results of Operations-June 2009 and 2008 Quarters
Operating Revenue
Increase
(Decrease)
Increase due to Excluding
Three Months Ended June 30, Northwest Northwest
(in millions) 2009 2008 Increase Operations Operations
Operating Revenue:
Passenger:
Mainline $ 4,564 $ 3,627 $ 937 $ 1,802 $ (865 )
Regional carriers 1,339 1,143 196 462 (266 )
Total passenger revenue 5,903 4,770 1,133 2,264 (1,131 )
Cargo 173 160 13 84 (71 )
Other, net 924 569 355 274 81
Total operating revenue $ 7,000 $ 5,499 $ 1,501 $ 2,622 $ (1,121 )
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Northwest Operations. As a result of the Merger, our results of operations for the June 2009 quarter include Northwest's operations. The addition of Northwest to our operations increased operating revenue $2.6 billion and available seat miles ("ASMs"), or capacity, 59% for the June 2009 quarter. Northwest's operations are not included in our results of operations for the June 2008 quarter.
Increase (Decrease) vs.
Three Months Three Months Ended June 30, 2008
Ended Passenger
June 30, Mile Load
(in millions) 2009 Yield PRASM Factor
Passenger Revenue:
Domestic $ 2,723 (13 )% (13 )% 0.7 pts
Atlantic 1,131 (27 )% (26 )% 0.8 pts
Latin America 287 (17 )% (19 )% (2.7)pts
Pacific 423 (16 )% (15 )% 0.8 pts
Total Mainline 4,564 (18 )% (18 )% 0.1 pts
Regional carriers 1,339 (17 )% (19 )% (1.9)pts
Total passenger revenue $ 5,903 (19 )% (19 )% (0.2)pts
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Mainline Passenger Revenue. Mainline passenger revenue increased in the
June 2009 quarter due to the inclusion of Northwest's operations, partially
offset by weakened demand for air travel from the global recession, the effects
of the H1N1 virus and related capacity reductions. Passenger mile yield and
PRASM both declined 18%.
• Domestic Passenger Revenue. Domestic passenger revenue increased 53% due to
the inclusion of Northwest's operations. Domestic PRASM decreased 13% as a
result of a 13% decrease in passenger mile yield. The decrease in passenger
mile yield reflects (1) a reduction in business demand due to the global
recession, (2) an overall decrease in average fares due to competitive
pricing pressures and (3) lower fuel surcharges due to the year-over-year
decline in fuel prices. Excluding Northwest's operations, we reduced
capacity by 8% for the June 2009 quarter compared to the June 2008 quarter,
while load factor increased 1.0 point.
• International Passenger Revenue. International passenger revenue increased 45% due to the inclusion of Northwest's operations. International PRASM decreased 25% as a result of a 25% decrease in passenger mile yield. The decrease in passenger mile yield reflects (1) significantly reduced demand for international travel, (2) competitive pricing pressures (especially in the Atlantic market, which has seen a decrease of 27% in passenger mile yield), primarily reflecting a significant decrease in business demand due to the global recession and (3) the impact of the H1N1 virus, most notably in the Pacific and Latin American markets. Also contributing to the decrease in passenger mile yield in the Atlantic market were unfavorable foreign currency exchange rates and lower fuel surcharges due to the year-over-year decline in fuel prices. Excluding Northwest's operations, we reduced international capacity by 4% for the June 2009 quarter compared to the June 2008 quarter.
Regional carriers. Passenger revenue of regional carriers increased due to
the inclusion of Northwest's operations, including its Compass Airlines, Inc.
and Mesaba Aviation, Inc. subsidiaries. Excluding Northwest's operations,
regional carriers' revenue declined $266 million primarily as a result of a 16%
decrease in passenger mile yield and 9% decrease in traffic on an 8% decrease in
capacity.
Cargo. Cargo revenue increased due to the inclusion of Northwest's
operations, partially offset by the effects of capacity reductions,
significantly reduced cargo yields, decreased international volume and lower
fuel surcharges due to the year-over-year decline in fuel prices. During the
June 2009 quarter, we grounded one dedicated freighter B-747-200F aircraft as
part of our plan to retire that fleet by December 31, 2009.
Other, net. Other, net revenue increased primarily due to the inclusion of
Northwest's operations. Excluding Northwest's operations, other, net revenue
increased $81 million primarily due to new or increased administrative service
charges and baggage handling fees and higher SkyMiles program revenue.
Operating Expense
Increase (Decrease) due to:
Three Months Ended June 30, Increase Northwest
(in millions) 2009 2008 (Decrease) Operations Other
Operating Expense:
Salaries and related costs $ 1,891 $ 1,092 $ 799 $ 733 $ 66
Aircraft fuel and related taxes 1,812 1,678 134 599 (465 )
Contract carrier arrangements 965 967 (2 ) 222 (224 )
Contracted services 376 257 119 144 (25 )
Aircraft maintenance materials
and outside repairs 392 295 97 153 (56 )
Depreciation and amortization 383 302 81 126 (45 )
Passenger commissions and other
selling expenses 329 248 81 124 (43 )
Landing fees and other rents 315 173 142 131 11
Passenger service 161 105 56 62 (6 )
Aircraft rent 119 67 52 60 (8 )
Impairment of goodwill and other
intangible assets - 1,196 (1,196 ) - (1,196 )
Restructuring and merger-related
items(1) 58 104 (46 ) - (46 )
Other 198 102 96 104 (8 )
Total operating expense $ 6,999 $ 6,586 $ 413 $ 2,458 $ (2,045 )
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(1) Includes $31 million in the June 2009 quarter for merger-related charges related to Northwest.
Northwest Operations. As a result of the Merger, our results of operations
for the June 2009 quarter include Northwest's operations. The addition of
Northwest to our operations increased operating expense $2.5 billion and
capacity 59% for the June 2009 quarter. Northwest's operations are not included
in our results of operations for the June 2008 quarter.
The operating expenses discussed below do not include the impact of
Northwest's operations for the June 2009 quarter.
Salaries and related costs. The $66 million increase in salaries and related
costs is due to (1) higher pension expense from a decline in the value of our
defined benefit plan assets as a result of market conditions, (2) Delta airline
tickets awarded to employees as a part of an employee recognition program, and
(3) pay increases for pilot and non-pilot frontline employees. This increase was
partially offset by an 8% average decrease in headcount primarily related to
workforce reduction programs in connection with our capacity reductions.
Aircraft fuel and related taxes. Aircraft fuel and related taxes decreased
$465 million primarily due to decreases of (1) $1.0 billion associated with
lower average fuel prices and (2) $135 million from a 7% decline in fuel
consumption due to capacity reductions. These decreases were partially offset by
$379 million in fuel hedge losses for the June 2009 quarter, compared to
$313 million in fuel hedge gains for the June 2008 quarter.
Contract carrier arrangements. Contract carrier arrangements expense
decreased $224 million primarily due to decreases of (1) $194 million associated
with lower average fuel prices and (2) $30 million from an 8% decline in fuel
consumption due to capacity reductions.
Aircraft maintenance materials and outside repairs. Aircraft maintenance
materials and outside repairs decreased $56 million as a result of capacity
reductions.
Depreciation and amortization. In December 2008, we announced a multi-year
extension of our co-brand credit card relationship with American Express (the
"American Express Agreement"). Accordingly, we extended the useful life of the
American Express Agreement intangible asset to the date the contract expires,
which caused a $34 million decrease in depreciation and amortization expense.
Passenger commissions and other selling expenses. Passenger commissions and
other selling expenses decreased $43 million in connection with the decrease in
passenger revenue.
Impairment of goodwill and other intangible assets. During the March 2008
quarter, we experienced a significant decline in market capitalization driven
primarily by record high fuel prices and overall airline industry conditions. In
addition, the announcement of our intention to merge with Northwest established
a stock exchange ratio based on the relative valuation of Delta and Northwest.
As a result of these indicators, we determined goodwill was impaired and
recorded a non-cash charge of $6.1 billion based on a preliminary assessment.
During the June 2008 quarter, we finalized the impairment test and recorded an
additional non-cash charge of $839 million. During the June 2008 quarter, we
also recorded a non-cash charge of $357 million to reduce the carrying value of
certain intangible assets based on their revised estimated fair values.
Restructuring and merger-related items. Restructuring and merger-related
items decreased $46 million, due to the following:
• During the June 2009 quarter, we recorded $58 million in merger-related
charges associated with integrating the operations of Northwest into Delta,
including costs related to information technology, employee relocation and
training, and re-branding of aircraft and stations. We expect to incur total
cash costs of approximately $500 million over approximately three years to
integrate the two airlines.
• In March 2008, we announced two voluntary workforce reduction programs for U.S. non-pilot employees. We recorded $96 million in restructuring and related charges for the June 2008 quarter in connection with these programs. In addition, we recorded $8 million in charges related to the closure of certain facilities and merger-related expenses.
Other (Expense) Income
Other expense, net for the June 2009 quarter was $254 million, compared to
$76 million for the June 2008 quarter. This change is primarily attributable to
(1) a $183 million increase in interest expense primarily due to a higher level
of debt outstanding, including Northwest debt, for the June 2009 quarter and the
borrowing in 2008 of the entire amount of our $1.0 billion revolving credit
facility (the "Revolving Facility"), (2) a $16 million decrease in interest
income primarily from significantly reduced short-term interest rates and (3)
$21 million increase in miscellaneous, net expense primarily due to the
inclusion of Northwest non-operating expense for the June 2009 quarter.
Income Taxes
We recorded an income tax expense of $4 million for the June 2009 quarter,
primarily related to international and state income taxes. We did not record an
income tax benefit as a result of our loss for the June 2009 quarter. The
deferred tax asset resulting from such a net operating loss is fully reserved by
a valuation allowance.
We recorded an income tax benefit of $119 million for the June 2008 quarter
as a result of the impairment of our indefinite-lived intangible assets. The
impairment of goodwill did not result in an income tax benefit as goodwill is
not deductible for income tax purposes. We did not record an income tax benefit
for the remainder of our June 2008 quarter loss. The deferred tax asset
resulting from such a net operating loss is fully reserved by a valuation
allowance.
Results of Operations-Six Months Ended June 30, 2009 and 2008
Operating Revenue
Increase
(Decrease)
Increase due to Excluding
Six Months Ended June 30, Increase Northwest Northwest
(in millions) 2009 2008 (Decrease) Operations Operations
Operating Revenue:
Passenger:
Mainline $ 8,931 $ 6,688 $ 2,243 $ 3,596 $ (1,353 )
Regional carriers 2,573 2,182 391 905 (514 )
Total passenger revenue 11,504 8,870 2,634 4,501 (1,867 )
Cargo 358 294 64 176 (112 )
Other, net 1,822 1,101 721 543 178
Total operating revenue $ 13,684 $ 10,265 $ 3,419 $ 5,220 $ (1,801 )
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Northwest Operations. As a result of the Merger, our results of operations for the six months ended June 30, 2009 include Northwest's operations. The addition of Northwest to our operations increased operating revenue $5.2 billion and capacity 59% for the six months ended June 30, 2009. Northwest's operations are not included in our results of operations for the six months ended June 30, 2008.
Increase (Decrease) vs.
Six Months Six Months Ended June 30, 2008
Ended Passenger
June 30, Mile Load
(in millions) 2009 Yield PRASM Factor
Passenger Revenue:
Domestic $ 5,371 (11 )% (10 )% 1.0 pts
Atlantic 1,974 (21 )% (24 )% (2.3)pts
Latin America 608 (10 )% (15 )% (4.5)pts
Pacific 978 (11 )% (7 )% 3.5 pts
Total Mainline 8,931 (14 )% (14 )% (0.4)pts
Regional carriers 2,573 (13 )% (16 )% (2.7)pts
Total passenger revenue $ 11,504 (15 )% (15 )% (0.7)pts
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Mainline Passenger Revenue. Mainline passenger revenue increased in the six
months ended June 30, 2009 due to the inclusion of Northwest's operations,
partially offset by weakened demand for air travel from the global recession,
the effects of the H1N1virus and related capacity reductions. Passenger mile
yield and PRASM both declined 14%.
• Domestic Passenger Revenue. Domestic passenger revenue increased 55% due to
the inclusion of Northwest's operations. Domestic PRASM decreased 10% as a
result of an 11% decrease in passenger mile yield. The decrease in passenger
mile yield reflects (1) a reduction in business demand due to the global
recession, (2) an overall decrease in average fares due to competitive
pricing pressures and (3) lower fuel surcharges due to the year-over-year
decline in fuel prices. Excluding Northwest's operations, we reduced
capacity by 9% for the six months ended June 30, 2009 compared to the six
months ended June 30, 2008, while load factor increased 0.5 points.
• International Passenger Revenue. International passenger revenue increased
52% due to the inclusion of Northwest's operations. International PRASM
decreased 20% as a result of a 1.8 point decrease in load factor and 18%
decrease in passenger mile yield. The decrease in passenger mile yield
reflects (1) significantly reduced demand for international travel,
(2) competitive pricing pressures (especially in the Atlantic market, which
has seen a decrease of 21% in passenger mile yield), primarily reflecting a
significant decrease in business demand due to the global recession and
(3) the impact of the H1N1 virus, most notably in the Pacific and Latin
American markets. Also contributing to the decrease in passenger mile yield
in the Atlantic market were unfavorable foreign currency exchange rates and
lower fuel surcharges due to the year-over-year decline in fuel prices.
Regional carriers. Passenger revenue of regional carriers increased due to
the inclusion of Northwest's operations, including its Compass Airlines, Inc.
and Mesaba Aviation, Inc. subsidiaries. Excluding Northwest's operations,
regional carriers' revenue declined $514 million primarily as a result of a 12%
decrease in passenger mile yield and 13% decrease in traffic on an 11% decrease
in capacity due to the slowing economy.
Cargo. Cargo revenue increased due to the inclusion of Northwest's
operations, partially offset by the effects of capacity reductions,
significantly reduced cargo yields, decreased international volume and lower
fuel surcharges due to the year-over-year decline in fuel prices. During the six
months ended June 30, 2009, we grounded four dedicated freighter B-747-200F
aircraft as part of our plan to retire that fleet by December 31, 2009.
Other, net. Other, net revenue increased primarily due to the inclusion of
. . .
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