Add
DAL to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| DAL > SEC Filings for DAL > Form 10-Q on 27-Oct-2009 | All Recent SEC Filings |
27-Oct-2009
Quarterly Report
At September 30, 2009, we had $5.5 billion in cash, cash equivalents and
short-term investments and $300 million in an undrawn revolving credit facility.
In September 2009, we borrowed a total of $2.1 billion under three new
financings, consisting of:
• $750 million of senior secured credit facilities, which include a
$500 million first-lien revolving credit facility and a $250 million
first-lien term loan facility;
• $750 million of senior secured notes; and
• $600 million of senior second lien notes.
A portion of the net proceeds was used to repay in full Northwest's
approximately $900 million senior secured exit financing facility due in 2010
with the remainder of the proceeds available for general corporate purposes. The
new financing agreements are guaranteed by substantially all of our subsidiaries
and secured by our Pacific route authorities and certain related assets.
Business Overview
Recent Initiatives. We believe that our diverse global network, hub structure
and alliances with other airlines result in a competitive advantage over other
domestic and international airlines. In 2009, we implemented a joint venture
with Air France-KLM that further strengthens our transatlantic network, expanded
our alliance agreement with Alaska Airlines and Horizon Air to enhance our west
coast presence, and received U.S. Department of Transportation approval for a
codesharing agreement with Virgin Blue, which will expand our network between
the U.S. and Australia and the South Pacific.
Expanding our presence in New York City is another key component of our
network strategy. In August 2009, we announced our intention to make New York's
LaGuardia Airport a domestic hub through a slot transaction with US Airways. The
agreement, which is subject to government approvals, calls for US Airways to
transfer 125 operating slot pairs to us at LaGuardia and for us to transfer 42
operating slot pairs to US Airways at Reagan National Airport in Washington,
D.C. In addition, we plan to swap gates at LaGuardia to consolidate all of our
operations (including the Delta Shuttle) into an expanded main terminal facility
with 11 additional gates. We also continue to make investments in our
international operation at John F. Kennedy International Airport in New York
City and explore long-term options to upgrade the facility.
Merger Synergies. As a result of our integration efforts, we are now
targeting over $700 million in synergy benefits in 2009 and continue to target
$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) 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 pre-merger
unions, the Association of Flight Attendants-CWA, which represented flight
attendants at pre-merger Northwest Airlines, Inc., and the International
Association of Machinists ("IAM"), which represented various categories of
ground employees at pre-merger Northwest Airlines, Inc., only recently filed
with the National Mediation Board to resolve post-merger representation issues.
The IAM filed for only a portion of the workgroups it represented at Northwest
Airlines, Inc. pre-merger. It is unclear when representation issues will be
fully resolved in those workgroups and, therefore, when integration of those
workgroups can be completed.
Outlook
The ongoing global recession continues to place significant pressure on the
airline industry. As a result, we continue to take actions intended to adapt our
business to the current environment. This includes strengthening our network
through the airline alliances and proposed slot transaction discussed above;
right sizing our operations with passenger capacity reductions and by
discontinuing dedicated freighter service; and managing costs and liquidity. We
expect our system capacity in 2010 to be approximately 3% lower than in 2009.
Results of Operations-September 2009 and 2008 Quarters
Operating Revenue
Decrease
Increase due to Excluding
Three Months Ended September 30, Northwest Northwest
(in millions) 2009 2008 Increase Operations Operations
Operating Revenue:
Passenger:
Mainline $ 5,122 $ 3,921 $ 1,201 $ 1,898 $ (697 )
Regional carriers 1,402 1,057 345 492 (147 )
Total passenger revenue 6,524 4,978 1,546 2,390 (844 )
Cargo 177 162 15 99 (84 )
Other, net 873 579 294 363 (69 )
Total operating revenue $ 7,574 $ 5,719 $ 1,855 $ 2,852 $ (997 )
|
Northwest Operations. As a result of the Merger, our results of operations for the September 2009 quarter include Northwest's operations. The addition of Northwest to our operations increased operating revenue $2.9 billion and available seat miles ("ASMs"), or capacity, 58% for the September 2009 quarter. Northwest's operations are not included in our results of operations for the September 2008 quarter.
Increase (Decrease) vs.
Three Months Three Months Ended September 30, 2008
Ended Passenger
September 30, Mile Load
(in millions) 2009 Yield PRASM Factor
Passenger Revenue:
Domestic $ 2,901 (9 )% (9 )% 0.1 pts
Atlantic 1,353 (27 )% (22 )% 4.9 pts
Latin America 294 (21 )% (19 )% 2.3 pts
Pacific 574 (20 )% (15 )% 4.5 pts
Total Mainline 5,122 (17 )% (15 )% 1.8 pts
Regional carriers 1,402 (14 )% (14 )% (0.2)pts
Total passenger revenue $ 6,524 (17 )% (15 )% 1.6 pts
|
Mainline Passenger Revenue. Mainline passenger revenue increased in the
September 2009 quarter due to the inclusion of Northwest's operations, partially
offset by weakened demand for air travel from the global recession and related
capacity reductions. Passenger mile yield and PRASM declined 17% and 15%,
respectively.
• Domestic Passenger Revenue. Domestic passenger revenue increased 52% due to
the inclusion of Northwest's operations. Domestic PRASM decreased 9% as a
result of a 9% 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 6% for the September 2009 quarter compared to the September 2008
quarter.
• International Passenger Revenue. International passenger revenue increased 45% due to the inclusion of Northwest's operations. International PRASM decreased 22% as a result of a 26% decrease in passenger mile yield. The decrease in passenger mile yield reflects (1) significantly reduced demand for international travel and (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. 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 3% for the
September 2009 quarter compared to the September 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 $147 million primarily as a result of a 14%
decrease in passenger mile yield.
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.
Other, net. Other, net revenue increased primarily due to the inclusion of
Northwest's operations. Excluding Northwest's operations, other, net revenue
decreased $69 million primarily due to (1) a reduction in ancillary business,
such as our aircraft maintenance and repair service, and (2) lower
administrative service charges, partially offset by increased baggage handling
fees.
Operating Expense
Increase (Decrease) due to:
Three Months Ended September 30, Northwest
(in millions) 2009 2008 Increase Operations Other
Operating Expense:
Aircraft fuel and related taxes $ 1,973 $ 1,952 $ 21 $ 670 $ (649 )
Salaries and related costs 1,894 1,086 808 764 44
Contract carrier arrangements 1,009 941 68 246 (178 )
Contracted services 415 272 143 183 (40 )
Depreciation and amortization 385 293 92 136 (44 )
Aircraft maintenance materials and
outside repairs 334 273 61 130 (69 )
Passenger commissions and other
selling expenses 384 259 125 146 (21 )
Landing fees and other rents 340 179 161 125 36
Passenger service 181 122 59 76 (17 )
Aircraft rent 123 70 53 60 (7 )
Restructuring and merger-related
items(1) 129 24 105 - 105
Other 203 117 86 100 (14 )
Total operating expense $ 7,370 $ 5,588 $ 1,782 $ 2,636 $ (854 )
|
(1) Includes $32 million in the September 2009 quarter for merger-related charges related to Northwest.
Northwest Operations. As a result of the Merger, our results of operations
for the September 2009 quarter include Northwest's operations. The addition of
Northwest to our operations increased operating expense $2.6 billion and
capacity 58% for the September 2009 quarter. Northwest's operations are not
included in our results of operations for the September 2008 quarter.
The operating expenses discussed below do not include the impact of
Northwest's operations for the September 2009 quarter.
Aircraft fuel and related taxes. Aircraft fuel and related taxes decreased
$649 million primarily due to decreases of (1) $963 million associated with
lower average fuel prices and (2) $87 million from a 4% decline in fuel
consumption due to capacity reductions. These decreases were partially offset by
$222 million in fuel hedge losses for the September 2009 quarter, compared to
$179 million in fuel hedge gains for the September 2008 quarter.
Salaries and related costs. The $44 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 and (2) pay
increases for pilot and non-pilot frontline employees. This increase was
partially offset by a 4% average decrease in headcount primarily related to
workforce reduction programs.
Contract carrier arrangements. Contract carrier arrangements expense
decreased $178 million primarily due to a decrease of $197 million associated
with lower average fuel prices which was partially offset by an increase of
$17 million from a 5% increase in fuel consumption compared to the
September 2008 quarter.
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.
Aircraft maintenance materials and outside repairs. Aircraft maintenance
materials and outside repairs decreased $69 million as a result of capacity
reductions.
Restructuring and merger-related items. Restructuring and merger-related
items increased $105 million, primarily due to the following:
• During the September 2009 quarter, we recorded a $78 million charge for
merger-related items 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 the September 2009 quarter, we recorded a $51 million charge in connection with employee workforce reduction programs.
• During the September 2008 quarter, we recorded a $14 million charge associated with the early termination of certain contract carrier arrangements and a $10 million charge primarily for merger-related expenses.
Other (Expense) Income
Other expense, net for the September 2009 quarter was $383 million, compared
to $181 million for the September 2008 quarter. This change is primarily
attributable to (1) a $179 million increase in interest expense primarily due to
a higher level of debt outstanding, including Northwest debt for the
September 2009 quarter and the borrowing in 2008 of the entire amount of our
$1.0 billion first-lien revolving credit facility (the "Exit Revolving
Facility"), (2) an $83 million non-cash loss for the write-off of the
unamortized discount on the extinguishment of the Northwest senior secured exit
financing facility (the "Bank Credit Facility"), (3) a $17 million decrease in
interest income primarily from significantly reduced short-term interest rates
and (4) a $77 million favorable change in miscellaneous, net due to the
following:
Favorable (Unfavorable) vs.
Three Months Ended
(in millions) September 30, 2009
Miscellaneous, net
Foreign currency exchange rates $ 35
Mark-to-market adjustments on the ineffective portion of our fuel
hedge contracts 30
Loss on our investment in The Reserve Primary Fund in 2008 13
Northwest miscellaneous, net for the three months ended September 30,
2009 9
Other (10 )
Total miscellaneous, net $ 77
|
Income Taxes
We recorded an income tax benefit of $18 million for the September 2009
quarter, primarily related to a refund of income tax partially offset by
international and state income taxes. We did not record an income tax benefit as
a result of our loss for the September 2009 and 2008 quarters. The deferred tax
asset resulting from those net operating losses are fully reserved by a
valuation allowance.
Results of Operations-Nine Months Ended September 30, 2009 and 2008
Operating Revenue
Increase
(Decrease)
Increase due to Excluding
Nine Months Ended September 30, Northwest Northwest
(in millions) 2009 2008 Increase Operations Operations
Operating Revenue:
Passenger:
Mainline $ 14,053 $ 10,609 $ 3,444 $ 5,494 $ (2,050 )
Regional carriers 3,975 3,239 736 1,397 (661 )
Total passenger revenue 18,028 13,848 4,180 6,891 (2,711 )
Cargo 535 456 79 275 (196 )
Other, net 2,695 1,680 1,015 906 109
Total operating revenue $ 21,258 $ 15,984 $ 5,274 $ 8,072 $ (2,798 )
|
Northwest Operations. As a result of the Merger, our results of operations for the nine months ended September 30, 2009 include Northwest's operations. The addition of Northwest to our operations increased operating revenue $8.1 billion and capacity 59% for the nine months ended September 30, 2009. Northwest's operations are not included in our results of operations for the nine months ended September 30, 2008.
Increase (Decrease) vs.
Nine Months Nine Months Ended September 30, 2008
Ended Passenger
September 30, Mile Load
(in millions) 2009 Yield PRASM Factor
Passenger Revenue:
Domestic $ 8,200 (10 )% (9 )% 0.7 pts
Atlantic 3,327 (24 )% (23 )% 0.3 pts
Latin America 974 (15 )% (17 )% (1.8)pts
Pacific 1,552 (15 )% (10 )% 3.8 pts
Total Mainline 14,053 (15 )% (15 )% 0.4 pts
Regional carriers 3,975 (13 )% (15 )% (1.8) pts
Total passenger revenue $ 18,028 (15 )% (15 )% 0.1 pts
|
Mainline Passenger Revenue. Mainline passenger revenue increased in the nine
months ended September 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 H1N1 virus and related capacity reductions. Passenger mile
yield and PRASM both declined 15%.
• Domestic Passenger Revenue. Domestic passenger revenue increased 52% due to
the inclusion of Northwest's operations. Domestic PRASM decreased 9% as a
result of an 10% 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 nine months ended September 30, 2009 compared to the
nine months ended September 30, 2008.
• International Passenger Revenue. International passenger revenue increased 51% due to the inclusion of Northwest's operations. International PRASM decreased 21% as a result of a 21% 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 . . .
|
|