UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended September 30, 2022
| Or | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number 001-5424
DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 58-0218548 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| Post Office Box 20706 | ||||||||
Atlanta, Georgia | 30320-6001 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (404) 715-2600
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.0001 per share | DAL | New 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.
Yes ☑ 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).
Yes ☑ 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.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||
| Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||
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 ☐ No ☑
Number of shares outstanding by each class of common stock, as of September 30, 2022:
Common Stock, $0.0001 par value - 641,188,362 shares outstanding
This document is also available through our website at http://ir.delta.com/.
| Table of Contents | |||||
| Page | |||||
Forward Looking Statements
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, 2021 ("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 2022 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, 2022, 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, 2022 and 2021, the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021 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, 2021, 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 11, 2022, 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, 2021, 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.
| /s/ Ernst & Young LLP | |||||
| Atlanta, Georgia | |||||
| October 13, 2022 | |||||
Delta Air Lines, Inc. September 2022 Form 10-Q 2
Financial Statements
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)
| (in millions, except share data) | September 30, 2022 | December 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 7,023 | $ | 7,933 | |||||||
| Short-term investments | 1,345 | 3,386 | |||||||||
Accounts receivable, net of allowance for uncollectible accounts of $24 and $50 | 3,097 | 2,404 | |||||||||
Fuel, expendable parts and supplies inventories, net of allowance for obsolescence of $150 and $176 | 1,473 | 1,098 | |||||||||
| Prepaid expenses and other | 1,861 | 1,119 | |||||||||
| Total current assets | 14,799 | 15,940 | |||||||||
| Noncurrent Assets: | |||||||||||
Property and equipment, net of accumulated depreciation and amortization of $19,984 and $18,671 | 31,512 | 28,749 | |||||||||
| Operating lease right-of-use assets | 6,961 | 7,237 | |||||||||
| Goodwill | 9,753 | 9,753 | |||||||||
Identifiable intangibles, net of accumulated amortization of $900 and $893 | 5,994 | 6,001 | |||||||||
| Equity investments | 1,585 | 1,712 | |||||||||
| Deferred income taxes, net | 935 | 1,294 | |||||||||
| Other noncurrent assets | 1,057 | 1,773 | |||||||||
| Total noncurrent assets | 57,797 | 56,519 | |||||||||
| Total assets | $ | 72,596 | $ | 72,459 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current maturities of debt and finance leases | $ | 2,031 | $ | 1,782 | |||||||
| Current maturities of operating leases | 738 | 703 | |||||||||
| Air traffic liability | 8,947 | 6,228 | |||||||||
| Accounts payable | 4,958 | 4,240 | |||||||||
| Accrued salaries and related benefits | 2,796 | 2,457 | |||||||||
| Loyalty program deferred revenue | 3,478 | 2,710 | |||||||||
| Fuel card obligation | 1,100 | 1,100 | |||||||||
| Other accrued liabilities | 1,822 | 1,746 | |||||||||
| Total current liabilities | 25,870 | 20,966 | |||||||||
| Noncurrent Liabilities: | |||||||||||
| Debt and finance leases | 21,202 | 25,138 | |||||||||
| Noncurrent air traffic liability | 150 | 130 | |||||||||
| Pension, postretirement and related benefits | 5,470 | 6,035 | |||||||||
| Loyalty program deferred revenue | 4,382 | 4,849 | |||||||||
| Noncurrent operating leases | 6,865 | 7,056 | |||||||||
| Other noncurrent liabilities | 4,067 | 4,398 | |||||||||
| Total noncurrent liabilities | 42,136 | 47,606 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders' Equity: | |||||||||||
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 651,719,217 and 649,720,387 shares issued | — | — | |||||||||
| Additional paid-in capital | 11,507 | 11,447 | |||||||||
| Retained earnings/(accumulated deficit) | 342 | (148) | |||||||||
| Accumulated other comprehensive loss | (6,946) | (7,130) | |||||||||
Treasury stock, at cost, 10,530,855 and 9,752,872 shares | (313) | (282) | |||||||||
| Total stockholders' equity | 4,590 | 3,887 | |||||||||
| Total liabilities and stockholders' equity | $ | 72,596 | $ | 72,459 | |||||||
| The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. | |||||||||||
Delta Air Lines, Inc. September 2022 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) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Operating Revenue: | |||||||||||||||||||||||
| Passenger | $ | 11,464 | $ | 7,191 | $ | 29,329 | $ | 15,278 | |||||||||||||||
| Cargo | 240 | 262 | 801 | 728 | |||||||||||||||||||
| Other | 2,271 | 1,701 | 7,017 | 4,423 | |||||||||||||||||||
| Total operating revenue | 13,975 | 9,154 | 37,147 | 20,429 | |||||||||||||||||||
| Operating Expense: | |||||||||||||||||||||||
| Salaries and related costs | 3,050 | 2,566 | 8,832 | 7,096 | |||||||||||||||||||
| Aircraft fuel and related taxes | 3,318 | 1,552 | 8,633 | 4,056 | |||||||||||||||||||
| Ancillary businesses and refinery | 1,349 | 1,079 | 4,449 | 2,724 | |||||||||||||||||||
| Contracted services | 881 | 634 | 2,425 | 1,723 | |||||||||||||||||||
| Landing fees and other rents | 562 | 524 | 1,611 | 1,477 | |||||||||||||||||||
| Depreciation and amortization | 538 | 501 | 1,554 | 1,494 | |||||||||||||||||||
| Regional carrier expense | 528 | 453 | 1,547 | 1,258 | |||||||||||||||||||
| Aircraft maintenance materials and outside repairs | 487 | 433 | 1,474 | 1,014 | |||||||||||||||||||
| Passenger commissions and other selling expenses | 546 | 308 | 1,385 | 640 | |||||||||||||||||||
| Passenger service | 406 | 226 | 1,050 | 520 | |||||||||||||||||||
| Aircraft rent | 131 | 105 | 380 | 313 | |||||||||||||||||||
| Profit sharing | 237 | — | 291 | — | |||||||||||||||||||
| Government grant recognition | — | (1,822) | — | (4,512) | |||||||||||||||||||
| Other | 486 | 390 | 1,325 | 1,003 | |||||||||||||||||||
| Total operating expense | 12,519 | 6,949 | 34,956 | 18,806 | |||||||||||||||||||
| Operating Income | 1,456 | 2,205 | 2,191 | 1,623 | |||||||||||||||||||
| Non-Operating Expense: | |||||||||||||||||||||||
| Interest expense, net | (248) | (314) | (791) | (1,014) | |||||||||||||||||||
| Equity method results | 4 | (49) | (8) | (102) | |||||||||||||||||||
| Gain/(loss) on investments, net | (245) | (223) | (613) | 251 | |||||||||||||||||||
| Loss on extinguishment of debt | (34) | (183) | (100) | (266) | |||||||||||||||||||
| Pension and related benefit | 73 | 111 | 218 | 337 | |||||||||||||||||||
| Miscellaneous, net | (44) | (15) | (103) | (36) | |||||||||||||||||||
| Total non-operating expense, net | (494) | (673) | (1,397) | (830) | |||||||||||||||||||
| Income Before Income Taxes | 962 | 1,532 | 794 | 793 | |||||||||||||||||||
| Income Tax Provision | (267) | (320) | (305) | (105) | |||||||||||||||||||
| Net Income | $ | 695 | $ | 1,212 | $ | 489 | $ | 688 | |||||||||||||||
| Basic Earnings Per Share | $ | 1.09 | $ | 1.90 | $ | 0.77 | $ | 1.08 | |||||||||||||||
| Diluted Earnings Per Share | $ | 1.08 | $ | 1.89 | $ | 0.76 | $ | 1.07 | |||||||||||||||
| Comprehensive Income | $ | 757 | $ | 1,294 | $ | 673 | $ | 926 | |||||||||||||||
| The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. | |||||||||||||||||||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 4
Financial Statements
DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Delta Air Lines, Inc. September 2022 Form 10-Q 5
Financial Statements
DELTA AIR LINES, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings / (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Treasury Stock | ||||||||||||||||||||||
| (in millions, except per share data) | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||
Balance at December 31, 2021 | 650 | $ | — | $ | 11,447 | $ | (148) | $ | (7,130) | 10 | $ | (282) | $ | 3,887 | ||||||||||||
| Net loss | — | — | — | (940) | — | — | — | (940) | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 59 | — | — | 59 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | 2 | — | 15 | — | — | 1 | (30) | (15) | ||||||||||||||||||
Balance at March 31, 2022 | 652 | $ | — | $ | 11,462 | $ | (1,088) | $ | (7,071) | 11 | $ | (312) | $ | 2,991 | ||||||||||||
| Net income | — | — | — | 735 | — | — | — | 735 | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 63 | — | — | 63 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | — | — | 23 | — | — | — | (1) | 22 | ||||||||||||||||||
Balance at June 30, 2022 | 652 | $ | — | $ | 11,485 | $ | (353) | $ | (7,008) | 11 | $ | (313) | $ | 3,811 | ||||||||||||
| Net income | — | — | — | 695 | — | — | — | 695 | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 62 | — | — | 62 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | — | — | 22 | — | — | — | — | 22 | ||||||||||||||||||
Balance at September 30, 2022 | 652 | $ | — | $ | 11,507 | $ | 342 | $ | (6,946) | 11 | $ | (313) | $ | 4,590 | ||||||||||||
(1)Treasury shares were withheld for payment of taxes, at a weighted average price per share of $41.00, $38.11 and $30.66 in the March 2022 quarter, June 2022 quarter and September 2022 quarter, respectively.
| Common Stock | Additional Paid-In Capital | Retained Earnings / (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Treasury Stock | ||||||||||||||||||||||
| (in millions, except per share data) | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||
Balance at December 31, 2020 | 647 | $ | — | $ | 11,259 | $ | (428) | $ | (9,038) | 9 | $ | (259) | $ | 1,534 | ||||||||||||
| Net loss | — | — | — | (1,177) | — | — | — | (1,177) | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 78 | — | — | 78 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | 2 | — | 23 | — | — | 1 | (20) | 3 | ||||||||||||||||||
| Government grant warrant issuance | — | — | 44 | — | — | — | — | 44 | ||||||||||||||||||
Balance at March 31, 2021 | 649 | $ | — | $ | 11,326 | $ | (1,605) | $ | (8,960) | 10 | $ | (279) | $ | 482 | ||||||||||||
| Net income | — | — | — | 652 | — | — | — | 652 | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 78 | — | — | 78 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | 1 | — | 28 | — | — | — | (1) | 27 | ||||||||||||||||||
| Government grant warrant issuance | — | — | 42 | — | — | — | — | 42 | ||||||||||||||||||
Balance at June 30, 2021 | 650 | $ | — | $ | 11,396 | $ | (953) | $ | (8,882) | 10 | $ | (280) | $ | 1,281 | ||||||||||||
| Net income | — | — | — | 1,212 | — | — | — | 1,212 | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | 82 | — | — | 82 | ||||||||||||||||||
Common stock issued for employee equity awards(1) | — | — | 32 | — | — | — | (1) | 31 | ||||||||||||||||||
Balance at September 30, 2021 | 650 | $ | — | $ | 11,428 | $ | 259 | $ | (8,800) | 10 | $ | (281) | $ | 2,606 | ||||||||||||
(1)Treasury shares were withheld for payment of taxes, at a weighted average price per share of $38.35, $46.21 and $43.48 in the March 2021 quarter, June 2021 quarter and September 2021 quarter, respectively.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. September 2022 Form 10-Q 6
Notes to the Consolidated Financial Statements
DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2021.
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 impacts from the COVID-19 pandemic and the ongoing recovery, 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, 2022 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.
Recent Accounting Standards
Standards Effective in Future Years
Fair Value of Equity Investments. In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." Under this standard, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU becomes effective January 1, 2024. Upon adoption, we do not believe it will have a material impact on the valuation of our equity investments; however, we may be required to include additional disclosures to the extent we have material equity investments subject to contractual sale restrictions.
Supplier Finance Program Obligations. In September 2022, the FASB issued ASU No. 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50)." This standard requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. Upon adoption, we may be required to include additional disclosures to the extent we have material supplier finance program obligations.
NOTE 2. REVENUE RECOGNITION
Passenger Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Ticket | $ | 10,247 | $ | 6,237 | $ | 26,005 | $ | 13,067 | |||||||||
| Loyalty travel awards | 786 | 544 | 2,073 | 1,213 | |||||||||||||
| Travel-related services | 431 | 410 | 1,251 | 998 | |||||||||||||
| Total passenger revenue | $ | 11,464 | $ | 7,191 | $ | 29,329 | $ | 15,278 | |||||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 7
Notes to the Consolidated Financial Statements
Ticket
We recognized approximately $3.9 billion and $1.8 billion in passenger revenue during the nine months ended September 30, 2022 and 2021, respectively, that had been recorded in our air traffic liability balance at the beginning of those periods.
In order to provide our customers more flexibility and time to plan or rebook their travel, we announced in January 2022 that all existing travel credit holders will have until December 31, 2023 to rebook their ticket for travel throughout 2024. Additionally, all Delta customers with upcoming 2022 travel or who purchase a ticket in 2022 will also have the flexibility to rebook their ticket through December 31, 2023, and travel throughout 2024. The air traffic liability classified as current as of September 30, 2022 represents our estimate of tickets and travel credits to be used within one year. We will continue to monitor our customers' travel behavior and may adjust our estimates in the future.
We estimate the value of tickets that will expire unused (“ticket breakage”) and recognize the related revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods.
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. 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, 2022 and 2021, total cash sales from marketing agreements related to our loyalty program were $4.1 billion and $2.9 billion, respectively, which are allocated to travel and other performance obligations. Loyalty travel awards revenue is related to the redemption of miles for air travel.
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 two years of being earned.
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) | 2022 | 2021 | |||||||||
| Balance at January 1 | $ | 7,559 | $ | 7,182 | |||||||
| Miles earned | 2,496 | 1,541 | |||||||||
| Miles redeemed for air travel | (2,073) | (1,213) | |||||||||
| Miles redeemed for non-air travel and other | (122) | (54) | |||||||||
Balance at September 30 | $ | 7,860 | $ | 7,456 | |||||||
Travel-Related Services
Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight and include baggage fees, on-board sales and administrative fees.
Delta Air Lines, Inc. September 2022 Form 10-Q 8
Notes to the Consolidated Financial Statements
Other Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Refinery | $ | 1,134 | $ | 872 | $ | 3,835 | $ | 2,189 | |||||||||
| Loyalty program | 655 | 453 | 1,877 | 1,260 | |||||||||||||
| Ancillary businesses | 249 | 215 | 665 | 586 | |||||||||||||
| Miscellaneous | 233 | 161 | 640 | 388 | |||||||||||||
| Total other revenue | $ | 2,271 | $ | 1,701 | $ | 7,017 | $ | 4,423 | |||||||||
Refinery. This represents refinery sales to third parties, which are at or near cost; accordingly, the recorded margin on these sales is de minimis.
Loyalty Program. This 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. This represents revenues from aircraft maintenance services we provide to third parties and our vacation wholesale operations.
Miscellaneous. This is primarily composed of revenues related to lounge access, including access provided to certain American Express cardholders, and codeshare agreements.
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. Our passenger and operating revenue by geographic region is summarized in the following tables:
Delta Air Lines, Inc. September 2022 Form 10-Q 9
Notes to the Consolidated Financial Statements
NOTE 3. FAIR VALUE MEASUREMENTS
Assets/(Liabilities) Measured at Fair Value on a Recurring Basis
| (in millions) | September 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||
| Cash equivalents | $ | 4,443 | $ | 4,443 | $ | — | $ | — | ||||||
| Restricted cash equivalents | 302 | 302 | — | — | ||||||||||
| Short-term investments | 1,345 | 75 | 1,270 | — | ||||||||||
| Long-term investments | 899 | 767 | 35 | 97 | ||||||||||
| Fuel hedge contracts | 23 | — | 23 | — | ||||||||||
| (in millions) | December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||
| Cash equivalents | $ | 5,450 | $ | 5,450 | $ | — | $ | — | ||||||
| Restricted cash equivalents | 635 | 635 | — | — | ||||||||||
| Short-term investments | 3,386 | 1,376 | 2,010 | — | ||||||||||
| Long-term investments | 1,459 | 1,326 | 36 | 97 | ||||||||||
| Fuel hedge contracts | (18) | — | (18) | — | ||||||||||
Cash 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 as well as proceeds from debt issued to finance, among other things, a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport. Restricted cash equivalents are recorded in prepaid expenses and other and other noncurrent assets on our Consolidated Balance Sheet ("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.
Short-Term Investments. Short-term investments consist of U.S. government and agency securities. The fair values of these 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, 2022, the estimated fair value of our short-term investments was $1.3 billion. Of these investments, $711 million are expected to mature in one year or less, with the remainder maturing by the first half of 2024. 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. 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 and forecasts provided by our investees. 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 our equity investments.
Fuel 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 gains of $139 million and losses of $339 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, 2022, respectively, compared to losses of $22 million and $143 million for the three and nine months ended September 30, 2021, respectively. The losses recognized during the nine months ended September 30, 2022 were composed of $380 million of settlements on contracts, partially offset by $41 million of mark-to-market adjustments. Expense from the settlement of closed contracts is offset by higher operating profits at Monroe from higher pricing. See Note 9, "Segments," for further information on our Monroe refinery segment.
Delta Air Lines, Inc. September 2022 Form 10-Q 10
Notes to the Consolidated Financial Statements
NOTE 4. INVESTMENTS
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.
Fair 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 companies without publicly-traded shares.
Equity Method Investments. We record our share of our equity method investees' financial results in our income statement as described in the table below.
(1)Results are included in equity method results in our income statement under non-operating expense.
(2)At September 30, 2022, we held 14.8% of the outstanding shares (including common and preferred), and 14.9% 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)We elected to account for our investment under the fair value option.
Air France-KLM. During the June 2022 quarter, Air France-KLM ("AFKL") executed a €2.3 billion rights issue, through the issuance of 1.9 billion new AFKL shares. We participated in the rights issue on a cash neutral basis by subscribing to approximately 36 million new AFKL shares using the proceeds from the sale of part of our rights to a third party. The net impact of these transactions reduced our ownership interest to approximately 3% and the change in the fair value of our investment in AFKL is recorded in gain/(loss) on investments, net in our income statement within non-operating expense.
Grupo Aeroméxico. In the March 2022 quarter, Grupo Aeroméxico ("Aeroméxico") emerged from its voluntary proceedings to reorganize under Chapter 11 of the United States bankruptcy code ("bankruptcy process"). At the conclusion of the bankruptcy process, Aeroméxico's previously outstanding capital stock was consolidated and exchanged for less than 0.01% of new capital stock, which effectively eliminated our historical 51% ownership stake. Upon emergence, Delta received a 20% equity stake in the newly restructured Aeroméxico in exchange for (1) our receivables under Aeroméxico's debtor-in-possession financing, (2) $100 million (recorded as an investing outflow on our Condensed Consolidated Statements of Cash Flows), and (3) our agreement to provide expanded commercial services to Aeroméxico in future periods. We account for our investment in Aeroméxico under the equity method of accounting and record our share of Aeroméxico's financial results in equity method results in our income statement.
Delta Air Lines, Inc. September 2022 Form 10-Q 11
Notes to the Consolidated Financial Statements
Other Investments
This category includes various investments that are accounted for at fair value or under the equity method, depending on our ownership interest and the level of influence conveyed by our investment.
Virgin Atlantic. Virgin Atlantic has completed an out-of-court restructuring, during which we provided strategic and operational assistance and which we continue to provide. The carrying value of our investment in Virgin Atlantic remains zero as of September 30, 2022. We maintained our 49% equity interest and continue to track our share of Virgin Atlantic's losses under the equity method of accounting, which are only recorded to the extent we make additional investments in Virgin Atlantic.
LATAM. LATAM Airlines Group S.A. ("LATAM") is undergoing voluntary proceedings to reorganize under Chapter 11 of the United States bankruptcy code, and the carrying value of our investment in LATAM remains zero as of September 30, 2022. In order to support our relationship with LATAM, we are providing strategic and operational assistance through the bankruptcy process. After LATAM's refinancing in the June 2022 quarter, we have a $71 million noncurrent receivable outstanding associated with LATAM's debtor-in-possession financing. LATAM's plan of reorganization has been confirmed by the Bankruptcy Court and is expected to take effect before the end of 2022. As our pre-bankruptcy equity ownership of approximately 20% will be substantially diluted to a de minimis level, we expect to participate in certain of the offerings contemplated under the reorganization plan at an additional investment level commensurate with an equity stake of approximately 10% in the reorganized LATAM.
In the September 2022 quarter, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement will combine our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. Approval was granted for a 10-year period with a subsequent reassessment and extension process. This agreement supports our strategic partnership with LATAM and the value of our $1.2 billion alliance-related indefinite-lived intangible asset. We believe the LATAM joint venture agreement will generate growth opportunities, building upon Delta's and LATAM's global footprint and joint ventures.
We have classified our intangible asset as indefinite-lived as we expect to indefinitely receive the economic benefits from the relationship, similar to other joint venture arrangements between U.S. and foreign carriers that have been cleared by competition authorities in relevant foreign jurisdictions and granted antitrust immunity from the U.S. Department of Transportation ("DOT"). Antitrust immunity grants are generally subject to reporting requirements and periodic reassessment processes administered by the DOT. We have determined that there are currently no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our LATAM alliance-related intangible asset.
Delta Air Lines, Inc. September 2022 Form 10-Q 12
Notes to the Consolidated Financial Statements
NOTE 5. DEBT
| Summary of outstanding debt by category | ||||||||||||||||||||||||||
| Maturity | Interest Rate(s) Per Annum at | September 30, | December 31, | |||||||||||||||||||||||
| (in millions) | Dates | September 30, 2022 | 2022 | 2021 | ||||||||||||||||||||||
| Unsecured Payroll Support Program Loans | 2030 | to | 2031 | 1.00% | $ | 3,496 | $ | 3,496 | ||||||||||||||||||
| Unsecured notes | 2023 | to | 2029 | 2.90% | to | 7.38% | 2,997 | 4,354 | ||||||||||||||||||
| Financing arrangements secured by SkyMiles assets: | ||||||||||||||||||||||||||
SkyMiles Notes(1) | 2023 | to | 2028 | 4.50% | and | 4.75% | 5,144 | 6,000 | ||||||||||||||||||
SkyMiles Term Loan(1)(2) | 2023 | to | 2027 | 6.46% | 2,820 | 2,820 | ||||||||||||||||||||
| Financing arrangements secured by aircraft: | ||||||||||||||||||||||||||
Certificates(1) | 2022 | to | 2028 | 2.00% | to | 8.00% | 1,855 | 1,932 | ||||||||||||||||||
Notes(1)(2) | 2022 | to | 2033 | 1.99% | to | 5.75% | 915 | 1,139 | ||||||||||||||||||
NYTDC Special Facilities Revenue Bonds(1) | 2023 | to | 2045 | 4.00% | to | 5.00% | 2,838 | 2,894 | ||||||||||||||||||
| Financing arrangements secured by slots, gates and/or routes: | ||||||||||||||||||||||||||
| 2020 Senior Secured Notes | 2025 | 7.00% | 1,542 | 2,589 | ||||||||||||||||||||||
2018 Revolving Credit Facility(2) | 2023 | to | 2024 | Undrawn | — | — | ||||||||||||||||||||
Other financings(1)(2) | 2022 | to | 2030 | 2.51% | to | 5.00% | 67 | 68 | ||||||||||||||||||
Other revolving credit facilities(2) | 2023 | to | 2024 | Undrawn | — | — | ||||||||||||||||||||
| Total secured and unsecured debt | $ | 21,674 | $ | 25,292 | ||||||||||||||||||||||
| Unamortized (discount)/premium and debt issue cost, net and other | (151) | (208) | ||||||||||||||||||||||||
| Total debt | $ | 21,523 | $ | 25,084 | ||||||||||||||||||||||
| Less: current maturities | (1,723) | (1,502) | ||||||||||||||||||||||||
| Total long-term debt | $ | 19,800 | $ | 23,582 | ||||||||||||||||||||||
(1)Due in installments during the years shown above.
(2)Certain financings are comprised of variable rate debt. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate plus a specified margin.
Availability Under Revolving Credit Facilities
As of September 30, 2022, we had approximately $2.8 billion undrawn and available under our revolving credit facilities. In addition, we had approximately $300 million outstanding letters of credit as of September 30, 2022 that did not affect the availability of our revolving credit facilities.
Early Settlement of Outstanding Notes
In August 2022, we completed a cash tender offer for an aggregate purchase price of $1.5 billion, excluding accrued and unpaid interest, of certain of our outstanding debt securities. As a result of the tender offer, we repurchased the following notes:
| Notes Repurchased in Tender Offer | |||||||||||
| (in millions) | Location in debt table | Principal Repurchased | Amount Paid | ||||||||
4.500% Senior Secured Notes due 2025 | SkyMiles Notes | $ | 856 | $ | 850 | ||||||
7.000% Senior Secured Notes due 2025 | 2020 Senior Secured Notes | 478 | 498 | ||||||||
7.375% Notes due 2026 | Unsecured Notes | 84 | 87 | ||||||||
3.800% Notes due 2023 | Unsecured Notes | 65 | 65 | ||||||||
| Total Notes Repurchased | $ | 1,483 | $ | 1,500 | |||||||
In addition to the early settlement of the principal amount of the purchased notes, we recorded a loss of $34 million on extinguishment of debt in non-operating expense in our income statement.
Delta Air Lines, Inc. September 2022 Form 10-Q 13
Notes to the 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. The 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.
| Fair value of outstanding debt | ||||||||
| (in millions) | September 30, 2022 | December 31, 2021 | ||||||
| Net carrying amount | $ | 21,523 | $ | 25,084 | ||||
| Fair value | $ | 20,500 | $ | 26,900 | ||||
Covenants
Our debt agreements contain various affirmative, negative and financial covenants. We were in compliance with the covenants in our debt agreements at September 30, 2022.
NOTE 6. EMPLOYEE BENEFIT PLANS
| Employee benefit plans net periodic (benefit) cost | |||||||||||||||||
| Pension Benefits | Other Postretirement and Postemployment Benefits | ||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||
Three Months Ended September 30, | |||||||||||||||||
| Service cost | $ | — | $ | — | $ | 18 | $ | 21 | |||||||||
| Interest cost | 153 | 146 | 32 | 29 | |||||||||||||
| Expected return on plan assets | (330) | (381) | (4) | (9) | |||||||||||||
| Amortization of prior service credit | — | — | (1) | (2) | |||||||||||||
| Recognized net actuarial loss | 64 | 88 | 13 | 15 | |||||||||||||
| Settlements | — | 1 | — | — | |||||||||||||
| Net periodic (benefit) cost | $ | (113) | $ | (146) | $ | 58 | $ | 54 | |||||||||
Nine Months Ended September 30, | |||||||||||||||||
| Service cost | $ | — | $ | — | $ | 53 | $ | 64 | |||||||||
| Interest cost | 459 | 437 | 96 | 88 | |||||||||||||
| Expected return on plan assets | (990) | (1,142) | (12) | (26) | |||||||||||||
| Amortization of prior service credit | — | — | (4) | (5) | |||||||||||||
| Recognized net actuarial loss | 191 | 266 | 41 | 42 | |||||||||||||
| Settlements | — | 1 | — | — | |||||||||||||
| Net periodic (benefit) cost | $ | (340) | $ | (438) | $ | 174 | $ | 163 | |||||||||
Service cost is recorded in salaries and related costs in our income statement, while all other components are recorded within pension and related benefit under non-operating expense.
Expected Long-Term Rate of Return. Based on our funded status as of December 31, 2021, we have modified the strategic asset allocation mix to reduce the investment risk of the portfolio. As a result of the lower risk profile of the portfolio, the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost is 7.0%.
Delta Air Lines, Inc. September 2022 Form 10-Q 14
Notes to the Consolidated Financial Statements
NOTE 7. COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Commitments
Our future aircraft purchase commitments totaled approximately $19.9 billion at September 30, 2022.
| Aircraft purchase commitments | |||||
| (in millions) | Total | ||||
| Three months ending December 31, 2022 | $ | 1,380 | |||
| 2023 | 3,440 | ||||
| 2024 | 3,640 | ||||
| 2025 | 4,230 | ||||
| 2026 | 3,700 | ||||
| Thereafter | 3,500 | ||||
| Total | $ | 19,890 | |||
Our future aircraft purchase commitments included the following aircraft at September 30, 2022:
| Aircraft purchase commitments by fleet type | |||||
| Aircraft Type | Purchase Commitments | ||||
| A220-300 | 50 | ||||
| A321-200neo | 147 | ||||
| A330-900neo | 20 | ||||
| A350-900 | 18 | ||||
| B-737-900ER | 3 | ||||
| B-737-10 | 100 | ||||
| Total | 338 | ||||
Aircraft Orders
During the June 2022 quarter, we agreed to acquire four B-737-900ER and one A330-900 aircraft. Deliveries of the pre-owned B-737-900ER aircraft are expected to occur by the end of 2022 and delivery of the new A330-900 aircraft is expected to occur in 2024.
In July 2022, we entered into a purchase agreement with Boeing for 100 Boeing 737-10 aircraft, the largest model in the 737 MAX family of aircraft, to start delivery in 2025 with the option to purchase an additional thirty 737-10 aircraft. Also in July 2022, we exercised purchase rights for 12 A220-300 aircraft with Airbus.
Legal Contingencies
We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other 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.
Delta Air Lines, Inc. September 2022 Form 10-Q 15
Notes to the Consolidated Financial Statements
Other Contingencies
General Indemnifications
We are the lessee under many commercial real estate leases. It is common in these transactions for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. This type of indemnity would typically make us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct.
Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment.
We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have insurance policies in place as required by applicable environmental laws.
Some of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to specified changes in laws or regulations. In some of these financing transactions, we also bear the risk of changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes.
We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.
Other
We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs.
NOTE 8. ACCUMULATED OTHER COMPREHENSIVE LOSS
| Components of accumulated other comprehensive loss | |||||||||||
| (in millions) | Pension and Other Benefit Liabilities | Other | Total | ||||||||
Balance at January 1, 2022 (net of tax effect of $1,184) | $ | (7,170) | $ | 40 | $ | (7,130) | |||||
Reclassifications into earnings (net of tax effect of $56)(1) | 184 | — | 184 | ||||||||
Balance at September 30, 2022 (net of tax effect of $1,128) | $ | (6,986) | $ | 40 | $ | (6,946) | |||||
Balance at January 1, 2021 (net of tax effect of $1,764) | $ | (9,078) | $ | 40 | $ | (9,038) | |||||
Changes in value (net of tax effect of $1) | 3 | — | 3 | ||||||||
Reclassifications into earnings (net of tax effect of $71)(1) | 235 | — | 235 | ||||||||
Balance at September 30, 2021 (net of tax effect of $1,692) | $ | (8,840) | $ | 40 | $ | (8,800) | |||||
(1)Amounts reclassified from accumulated other comprehensive loss for pension and other benefit liabilities are recorded in pension and related benefit in non-operating expense in our income statement.
Delta Air Lines, Inc. September 2022 Form 10-Q 16
Notes to the Consolidated Financial Statements
NOTE 9. SEGMENTS
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 through 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 the 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, 2022 was $834 million and $2.6 billion, respectively, compared to $629 million and $1.7 billion for the three and nine months ended September 30, 2021, 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.
| Financial information by segment | ||||||||||||||||||||
| (in millions) | Airline | Refinery | Intersegment Sales/Other | Consolidated | ||||||||||||||||
Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Operating revenue: | $ | 12,841 | $ | 2,599 | $ | 13,975 | ||||||||||||||
| Sales to airline segment | $ | (504) | (1) | |||||||||||||||||
| Exchanged products | (834) | (2) | ||||||||||||||||||
| Sales of refined products | (127) | (3) | ||||||||||||||||||
| Operating income | 1,264 | 192 | — | 1,456 | ||||||||||||||||
| Interest expense, net | 248 | 3 | (3) | 248 | ||||||||||||||||
| Depreciation and amortization | 538 | 23 | (23) | (4) | 538 | |||||||||||||||
| Total assets, end of period | 69,680 | 2,977 | (61) | 72,596 | ||||||||||||||||
| Net fair value obligations, end of period | — | (291) | — | (291) | ||||||||||||||||
| Capital expenditures | 1,393 | 49 | — | 1,442 | ||||||||||||||||
Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Operating revenue: | $ | 8,282 | $ | 1,696 | $ | 9,154 | ||||||||||||||
| Sales to airline segment | $ | (183) | (1) | |||||||||||||||||
| Exchanged products | (629) | (2) | ||||||||||||||||||
| Sales of refined products | (12) | (3) | ||||||||||||||||||
| Operating income | 2,108 | 97 | — | 2,205 | ||||||||||||||||
| Interest expense, net | 314 | 2 | (2) | 314 | ||||||||||||||||
| Depreciation and amortization | 501 | 24 | (24) | (4) | 501 | |||||||||||||||
| Total assets, end of period | 70,783 | 2,012 | (12) | 72,783 | ||||||||||||||||
| Net fair value obligations, end of period | — | (547) | — | (547) | ||||||||||||||||
| Capital expenditures | 818 | 12 | — | 830 | ||||||||||||||||
(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)These sales were at or near cost; accordingly, the margin on these sales is de minimis.
(4)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 2022 Form 10-Q 17
Notes to the Consolidated Financial Statements
| Financial information by segment | ||||||||||||||||||||
| (in millions) | Airline | Refinery | Intersegment Sales/Other | Consolidated | ||||||||||||||||
Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Operating revenue: | $ | 33,312 | $ | 8,265 | $ | 37,147 | ||||||||||||||
| Sales to airline segment | $ | (1,557) | (1) | |||||||||||||||||
| Exchanged products | (2,623) | (2) | ||||||||||||||||||
| Sales of refined products | (250) | (3) | ||||||||||||||||||
| Operating income | 1,676 | 515 | — | 2,191 | ||||||||||||||||
| Interest expense, net | 791 | 7 | (7) | 791 | ||||||||||||||||
| Depreciation and amortization | 1,554 | 70 | (70) | (4) | 1,554 | |||||||||||||||
| Capital expenditures | 4,069 | 97 | — | 4,166 | ||||||||||||||||
Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Operating revenue: | $ | 18,240 | $ | 4,177 | $ | 20,429 | ||||||||||||||
| Sales to airline segment | $ | (292) | (1) | |||||||||||||||||
| Exchanged products | (1,667) | (2) | ||||||||||||||||||
| Sales of refined products | (29) | (3) | ||||||||||||||||||
| Operating income (loss) | 1,809 | (186) | — | 1,623 | ||||||||||||||||
| Interest expense, net | 1,014 | 5 | (5) | 1,014 | ||||||||||||||||
| Depreciation and amortization | 1,494 | 72 | (72) | (4) | 1,494 | |||||||||||||||
| Capital expenditures | 1,994 | 35 | — | 2,029 | ||||||||||||||||
(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)These sales were at or near cost; accordingly, the margin on these sales is de minimis.
(4)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 financial information by segment for the three month periods table above are related to renewable fuel compliance costs, are presented net of any related assets or fixed price purchase agreements and are 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, 2022 was calculated using the U.S. Environmental Protection Agency's ("EPA") Renewable Fuel Standard ("RFS") volume requirements, which were finalized in the June 2022 quarter. The compliance deadlines to retire our obligations for 2020 and 2021 are in the fourth quarter of 2022 and first quarter of 2023, respectively.
Delta Air Lines, Inc. September 2022 Form 10-Q 18
Notes to the Consolidated Financial Statements
NOTE 10. EARNINGS 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. The 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) | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income | $ | 695 | $ | 1,212 | $ | 489 | $ | 688 | |||||||||
| Basic weighted average shares outstanding | 638 | 637 | 638 | 636 | |||||||||||||
| Dilutive effect of share-based instruments | 3 | 4 | 3 | 5 | |||||||||||||
| Diluted weighted average shares outstanding | 641 | 641 | 641 | 641 | |||||||||||||
| Basic earnings per share | $ | 1.09 | $ | 1.90 | $ | 0.77 | $ | 1.08 | |||||||||
| Diluted earnings per share | $ | 1.08 | $ | 1.89 | $ | 0.76 | $ | 1.07 | |||||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 19
Item 2. MD&A
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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 2021 Form 10-K.
September 2022 Quarter Financial Overview
During the September 2022 quarter, we have experienced continued improvement in our recovery from the impact of the COVID-19 pandemic, which improvement we expect will continue in the December 2022 quarter and beyond. Given the drastic and unprecedented impact of the COVID-19 pandemic on our operating results in 2021 and 2020, we believe that a comparison of our results in the September 2022 quarter to both the September 2021 and September 2019 quarters in this overview section allows for a better understanding of the full impact of the COVID-19 pandemic and the progress of our recovery.
The table below shows selected key financial and statistical measures for the three months ended September 30, 2022, 2021 and 2019.
Three Months Ended September 30, | 2022 vs. 2021 % Increase (Decrease) | 2022 vs. 2019 % Increase (Decrease) | |||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2019 | ||||||||||||||||||||
| Total operating revenue | $ | 13,975 | $ | 9,154 | $ | 12,560 | 53 | % | 11 | % | |||||||||||||
| Total operating expense | 12,519 | 6,949 | 10,489 | 80 | % | 19 | % | ||||||||||||||||
| Operating income | 1,456 | 2,205 | 2,071 | (34) | % | (30) | % | ||||||||||||||||
| Available seat miles ("ASM") | 63,007 | 54,083 | 75,742 | 17 | % | (17) | % | ||||||||||||||||
The increase in operating revenue during the September 2022 quarter compared to the September 2021 quarter primarily resulted from a $4.3 billion, or 59%, increase in passenger revenue on increased demand and capacity. Offsetting the increase in operating revenue, the decrease in operating income resulted from a $1.8 billion increase in fuel expense and increases in other volume-related expenses as we continued to restore our operation during the September 2022 quarter, as well as the recognition of a $1.8 billion benefit from the Payroll Support Programs ("PSP") grant proceeds in the September 2021 quarter, which reduced expenses in that quarter.
Compared to operating income of $2.1 billion in the September 2019 quarter, our operating income in the September 2022 quarter was lower primarily from a 48% increase in fuel expense and flat passenger revenue on 17% lower system capacity, as we continue to restore our operations following the COVID-19 pandemic.
Revenue. Compared to the September 2021 quarter, our operating revenue increased $4.8 billion, or 53%, due primarily to increased travel demand.
Compared to the September 2019 quarter, our operating revenue was $1.4 billion, or 11%, higher due primarily to higher refinery third party sales and improved yield. We expect system capacity to be 91% to 92% recovered in the December 2022 quarter compared to the December 2019 quarter.
Consumer demand continued to improve through the September 2022 quarter with a strong summer season driving domestic passenger revenue 2% higher than the September 2019 quarter, despite 11% lower capacity.
International revenue has lagged the recovery in domestic travel, but improved in the September 2022 quarter to approximately 97% recovered compared to the September 2019 quarter as travel restrictions eased and many countries have now ended testing requirements, including the U.S. Despite the recent policy changes, we still expect the recovery of international revenue to continue to trail domestic revenue during the December 2022 quarter.
We remain optimistic about the ultimate recovery of business travel, which is comprised of both corporate managed travel and small- and medium-sized businesses, and expect demand for business travel to increase during the December 2022 quarter.
Delta Air Lines, Inc. September 2022 Form 10-Q 20
Item 2. MD&A
Operating Expense. Total operating expense in the September 2022 quarter increased $5.6 billion, or 80%, compared to the September 2021 quarter, primarily resulting from increased fuel costs, due to both an increase in fuel price and increased capacity, as well as higher salaries and related costs and an increase in expenses related to refinery sales to third parties, reflected in ancillary businesses and refinery expense. The increase also resulted from $1.8 billion of PSP grant proceeds recognized during the September 2021 quarter, which reduced expenses in that quarter. Total operating expense, adjusted (a non-GAAP financial measure) for the September 2022 quarter increased $3.5 billion, or 45%, compared to the September 2021 quarter. Adjustments were primarily to exclude expenses related to PSP grant proceeds in the September 2021 quarter and refinery sales to third parties.
Total operating expense in the September 2022 quarter increased $2.0 billion, or 19%, compared to the September 2019 quarter, primarily resulting from increased fuel costs and expenses related to refinery sales to third parties, reflected in ancillary businesses and refinery expense. Total operating expense, adjusted for the September 2022 quarter increased $888 million, or 8%, compared to the September 2019 quarter. Adjustments were primarily to exclude mark to market adjustments and expenses related to refinery sales to third parties.
Our total operating cost per available seat mile ("CASM") increased 43% to 19.87 cents compared to the September 2019 quarter, primarily due to the higher costs discussed above and a 17% decrease in capacity. Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure) increased 22.5% to 12.43 cents primarily due to the 17% decrease in capacity.
We now expect non-fuel costs for the full year 2022 to be approximately 18% higher than 2019, primarily due to capacity reductions during the second half of 2022.
Cash Flow. Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity") as of September 30, 2022 was $11.2 billion. During the September 2022 quarter, operating activities generated $869 million.
Additionally, total cash sales to American Express were $1.4 billion in the September 2022 quarter, an increase of approximately 35% compared to the September 2019 quarter.
Also during the quarter, investing activities used a net of $1.3 billion, primarily for capital expenditures, partially offset by net redemptions of short-term investments. During the September 2022 quarter we had cash outflows of approximately $1.8 billion related to repayments of our debt and finance leases.
The non-GAAP financial measure referenced above for operating expense, adjusted and CASM-Ex are defined and reconciled in "Supplemental Information" below.
Environmental Sustainability. During 2022, we are continuing to develop our climate transition plan and to pursue our short-, medium-, and long-term climate goals. In July 2022, Science Based Targets Initiative (SBTi) validated our medium-term goal to reduce well-to-wake (lifecycle) scope 1 and 3 jet fuel greenhouse gas emissions by 45% per revenue tonne kilometer by 2035 from a 2019 base year. We expect our path toward achievement of these goals to depend heavily on improved fuel efficiency from fleet renewal, increased use of sustainable aviation fuel (SAF) which is not presently available at scale or at prices competitive to jet fuel, operational initiatives and technological innovation. In the nine months ended September 30, 2022, we incurred $98 million of expense related to carbon offset credits, which relates to a portion of our airline segment's 2021 and March 2022 quarter carbon emissions. As we continue to work on accelerating our long-term, net-zero greenhouse gas emissions goal, our vision of the path forward will require multiple initiatives, centered on a long-term strategy of decarbonization; we therefore expect substantially all of our investment going forward will be focused on solutions other than carbon offsets.
Delta Air Lines, Inc. September 2022 Form 10-Q 21
Item 2. MD&A - Results of Operations
Results of Operations - Three Months Ended September 30, 2022 and 2021
Operating Revenue
Three Months Ended September 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||
(in millions)(1) | 2022 | 2021 | ||||||||||||
| Ticket - Main cabin | $ | 5,893 | $ | 3,705 | $ | 2,188 | 59 | % | ||||||
| Ticket - Premium products | 4,354 | 2,532 | 1,822 | 72 | % | |||||||||
| Loyalty travel awards | 786 | 544 | 242 | 44 | % | |||||||||
| Travel-related services | 431 | 410 | 21 | 5 | % | |||||||||
| Total passenger revenue | $ | 11,464 | $ | 7,191 | $ | 4,273 | 59 | % | ||||||
| Cargo | 240 | 262 | (22) | (8) | % | |||||||||
| Other | 2,271 | 1,701 | 570 | 34 | % | |||||||||
| Total operating revenue | $ | 13,975 | $ | 9,154 | $ | 4,821 | 53 | % | ||||||
| TRASM (cents) | 22.18 | ¢ | 16.93 | ¢ | 5.25 | ¢ | 31 | % | ||||||
Third-party refinery sales | (1.80) | (1.61) | (0.19) | 12 | % | |||||||||
TRASM, adjusted(2) | 20.38 | ¢ | 15.31 | ¢ | 5.07 | ¢ | 33 | % | ||||||
(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 2021 quarter, our operating revenue increased $4.8 billion, or 53%, due to the continued recovery in demand from the COVID-19 pandemic. The increase in operating revenue, on a 17% increase in capacity, resulted in a 31% increase in total revenue per available seat mile ("TRASM") and a 33% increase in TRASM, adjusted compared to the September 2021 quarter. The growth in passenger revenue was due to increased demand in both main cabin and premium products, with yield growth in premium products outpacing main cabin.
See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
Passenger Revenue by Geographic Region
Increase (Decrease) vs. Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| (in millions) | Three Months Ended September 30, 2022 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor | |||||||||||||||||||
| Domestic | $ | 8,154 | 42 | % | 8 | % | 5 | % | 32 | % | 35 | % | 2 | pts | ||||||||||||
| Atlantic | 2,313 | 217 | % | 153 | % | 103 | % | 25 | % | 56 | % | 17 | pts | |||||||||||||
| Latin America | 659 | 17 | % | (4) | % | (13) | % | 22 | % | 34 | % | 8 | pts | |||||||||||||
| Pacific | 338 | 145 | % | 218 | % | (3) | % | (23) | % | 153 | % | 60 | pts | |||||||||||||
| Total | $ | 11,464 | 59 | % | 27 | % | 17 | % | 25 | % | 37 | % | 7 | pts | ||||||||||||
Domestic
Domestic passenger unit revenue ("PRASM") increased in the September 2022 quarter compared to the September 2021 quarter as a result of demand increasing faster than capacity, as well as higher yields, during the September 2022 quarter.
The September 2022 quarter domestic consumer revenue was above September 2021 quarter levels and continues to exceed pre-pandemic levels, even though capacity has not been fully restored, as consumers continue to return to travel and we believe spending patterns for services are returning to historical levels compared to spending on goods.
International
International passenger revenue for the September 2022 quarter increased compared to the September 2021 quarter in each geographic region, with the Atlantic region experiencing the most significant improvement.
Delta Air Lines, Inc. September 2022 Form 10-Q 22
Item 2. MD&A - Results of Operations
In November 2021, travel restrictions for fully vaccinated foreign visitors to the United States were lifted. This action made travel to the U.S. by many foreign nationals possible for the first time in 18 months. Further, in June 2022, the United States lifted its testing requirement for international travel. Both of these changes have had a positive impact on international demand.
While many countries have removed or eased travel restrictions, others still maintain international testing requirements and travel restrictions (primarily in the Pacific region), which continue to restrain demand in some markets.
The Atlantic region has shown the greatest recovery of the international regions, despite the ongoing conflict in Ukraine, as western European countries removed or eased travel restrictions earlier in 2022. Revenue in this region surpassed pre-pandemic levels in the September 2022 quarter as consumers continue to show increased desire for trans-Atlantic travel. This has been led by demand for leisure destinations such as Italy, Spain and Greece and improving business demand.
Latin America region revenue was near pre-pandemic levels during the September 2022 quarter, due to continued strong demand for leisure destinations in Mexico, the Caribbean and Central America. We expect this trend to continue during the December 2022 quarter as demand for leisure destinations remains strong and travel to South America continues to recover. Also, in the September 2022 quarter, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement will combine our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity.
The Pacific region continues to be the most impacted by travel restrictions, although we experienced demand improvement in the September 2022 quarter following South Korea and Australia re-opening to international tourists earlier in the year and the gradual easing of travel restrictions to Japan.
Overall, we still expect a lower international revenue environment during the December of 2022 quarter compared to 2019, with the recovery of international revenue continuing to trail domestic revenue.
Ticket Validity Flexibility
In order to provide our customers more flexibility and time to plan or rebook their travel, we announced in January 2022 that all existing travel credit holders will have until December 31, 2023 to rebook their ticket for travel throughout 2024. Additionally, all Delta customers with upcoming 2022 travel or who purchase a ticket in 2022 will also have the flexibility to rebook their ticket through December 31, 2023, and travel throughout 2024.
We estimate the value of ticket breakage and recognize the related revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods.
Other Revenue
Three Months Ended September 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Refinery | $ | 1,134 | $ | 872 | $ | 262 | 30 | % | ||||||
| Loyalty program | 655 | 453 | 202 | 45 | % | |||||||||
| Ancillary businesses | 249 | 215 | 34 | 16 | % | |||||||||
| Miscellaneous | 233 | 161 | 72 | 45 | % | |||||||||
| Total other revenue | $ | 2,271 | $ | 1,701 | $ | 570 | 34 | % | ||||||
Refinery. This represents refinery sales to third parties. These sales increased $262 million compared to the September 2021 quarter. The increase in third-party refinery sales resulted from higher pricing and production during the September 2022 quarter compared to the September 2021 quarter. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
Delta Air Lines, Inc. September 2022 Form 10-Q 23
Item 2. MD&A - Results of Operations
Loyalty Program. This relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards. These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions. On continued strength in co-brand card spend and card acquisitions, revenues from our relationship with American Express increased in the September 2022 quarter compared to the September 2021 quarter.
Ancillary Businesses. This represents revenues from aircraft maintenance services we provide to third parties and our vacation wholesale operations.
Miscellaneous. This is primarily composed of revenues related to lounge access, including access provided to certain American Express cardholders, and codeshare agreements. The volume of these transactions has increased compared to the September 2021 quarter due to the ongoing recovery of our business. Our network of Delta Sky Club lounges was fully reopened by the end of July 2021 after some lounges temporarily closed at the onset of the pandemic in 2020.
Delta Air Lines, Inc. September 2022 Form 10-Q 24
Item 2. MD&A - Results of Operations
Operating Expense
Three Months Ended September 30, | Increase (Decrease) | % Increase (Decrease)(1) | ||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Salaries and related costs | $ | 3,050 | $ | 2,566 | $ | 484 | 19 | % | ||||||
| Aircraft fuel and related taxes | 3,318 | 1,552 | 1,766 | 114 | % | |||||||||
| Ancillary businesses and refinery | 1,349 | 1,079 | 270 | 25 | % | |||||||||
| Contracted services | 881 | 634 | 247 | 39 | % | |||||||||
| Landing fees and other rents | 562 | 524 | 38 | 7 | % | |||||||||
| Depreciation and amortization | 538 | 501 | 37 | 7 | % | |||||||||
| Regional carrier expense | 528 | 453 | 75 | 17 | % | |||||||||
| Aircraft maintenance materials and outside repairs | 487 | 433 | 54 | 12 | % | |||||||||
| Passenger commissions and other selling expenses | 546 | 308 | 238 | 77 | % | |||||||||
| Passenger service | 406 | 226 | 180 | 80 | % | |||||||||
| Aircraft rent | 131 | 105 | 26 | 25 | % | |||||||||
| Profit sharing | 237 | — | 237 | NM | ||||||||||
| Government grant recognition | — | (1,822) | 1,822 | NM | ||||||||||
| Other | 486 | 390 | 96 | 25 | % | |||||||||
| Total operating expense | $ | 12,519 | $ | 6,949 | $ | 5,570 | 80 | % | ||||||
(1)Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.
Salaries and Related Costs. We have hired approximately 19,000 employees since the September 2021 quarter, in certain areas, including flight operations, in-flight service, reservations and customer care and airport customer service, in order to support our operations as demand and capacity return. These hiring actions and a 4% base pay increase effective May 1, 2022 for eligible employees resulted in the increase in salaries and related costs during the September 2022 quarter compared to the September 2021 quarter.
Aircraft Fuel and Related Taxes. Fuel expense increased $1.8 billion compared to the September 2021 quarter primarily due to an 83% increase in the market price of jet fuel and an 18% increase in consumption on a 17% increase in capacity. We expect elevated jet fuel prices in comparison to historical levels to continue during the December 2022 quarter due to current market conditions, further exacerbated by geopolitical events.
Additionally, during the September 2022 quarter, we purchased and retired $25 million of carbon offset credits, which relate to a portion of our airline segment's March 2022 quarter carbon emissions. During the September 2021 quarter, we purchased and retired $29 million of carbon offset credits, which related to a portion of our airline segment's 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item.
See "Refinery Segment" below for additional details on the refinery's operations.
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Delta Air Lines, Inc. September 2022 Form 10-Q 25
Item 2. MD&A - Results of Operations
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. Increased expenses were primarily related to refinery sales to third parties. The refinery cost of sales increased $262 million compared to the September 2021 quarter. The increase in third-party refinery sales resulted from higher pricing and production during the September 2022 quarter compared to the September 2021 quarter.
Contracted Services. During the September 2022 quarter, demand and capacity increased compared to the September 2021 quarter due to the ongoing recovery from the COVID-19 pandemic. The continued restoration of our operations and associated higher volume-related expenses and inflationary pressures were the primary drivers for the increase in contracted services.
Regional Carrier Expense. Regional carrier expense increased compared to the September 2021 quarter due to an increase in utilization and volume-related expenses as a result of increased demand.
Aircraft Maintenance Materials and Outside Repairs. Maintenance expense increased compared to the September 2021 quarter as we continued to return aircraft to service and to support our operational reliability.
Passenger Commissions and Other Selling Expenses. Compared to the September 2021 quarter, passenger revenue increased 59% in the September 2022 quarter, leading to higher volume-related expenses, which was the primary reason for the increase in passenger commissions and other selling expenses.
Passenger Service. Passenger service expenses increased compared to the September 2021 quarter due to higher volume-related expenses associated with increased demand and inflationary pressures.
Aircraft Rent. Aircraft rent increased compared to the September 2021 quarter due to a shift in the mix of leased aircraft from older, narrowbody aircraft to newer, widebody aircraft.
Profit Sharing. 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.
Government Grant Recognition. During the September 2021 quarter, we recognized $1.8 billion of government PSP grant proceeds as contra-expense that were used exclusively for the payment of employee wages, salaries and benefits.
Delta Air Lines, Inc. September 2022 Form 10-Q 26
Item 2. MD&A - Results of Operations
Results of Operations - Nine Months Ended September 30, 2022 and 2021
Operating Revenue
Nine Months Ended September 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||
(in millions)(1) | 2022 | 2021 | ||||||||||||
| Ticket - Main cabin | $ | 15,000 | $ | 7,810 | $ | 7,190 | 92 | % | ||||||
| Ticket - Premium products | 11,005 | 5,257 | 5,748 | 109 | % | |||||||||
| Loyalty travel awards | 2,073 | 1,213 | 860 | 71 | % | |||||||||
| Travel-related services | 1,251 | 998 | 253 | 25 | % | |||||||||
| Total passenger revenue | $ | 29,329 | $ | 15,278 | $ | 14,051 | 92 | % | ||||||
| Cargo | 801 | 728 | 73 | 10 | % | |||||||||
| Other | 7,017 | 4,423 | 2,594 | 59 | % | |||||||||
| Total operating revenue | $ | 37,147 | $ | 20,429 | $ | 16,718 | 82 | % | ||||||
| TRASM (cents) | 21.38 | ¢ | 14.31 | ¢ | 7.07 | ¢ | 49 | % | ||||||
Third-party refinery sales(2) | (2.20) | (1.53) | (0.67) | 44 | % | |||||||||
| TRASM, adjusted | 19.18 | ¢ | 12.78 | ¢ | 6.40 | ¢ | 50 | % | ||||||
(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 operating revenue line items, as well as the underlying reasons for these changes, compared to the nine months ended September 30, 2021 are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2022 and 2021.
Compared to the nine months ended September 30, 2021, our operating revenue increased $16.7 billion, or 82%, due to the continued recovery in demand from the COVID-19 pandemic and higher refinery third party sales. The increase in operating revenue, on a 22% increase in capacity, resulted in a 49% increase in TRASM and a 50% increase in TRASM, adjusted compared to the nine months ended September 30, 2021. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
Passenger Revenue by Geographic Region
Increase (Decrease) vs. Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||
| (in millions) | Nine Months Ended September 30, 2022 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor | |||||||||||||||||||
| Domestic | $ | 22,035 | 76 | % | 35 | % | 13 | % | 30 | % | 56 | % | 14 | pts | ||||||||||||
| Atlantic | 4,553 | 293 | % | 234 | % | 121 | % | 17 | % | 77 | % | 28 | pts | |||||||||||||
| Latin America | 2,084 | 59 | % | 28 | % | (5) | % | 24 | % | 68 | % | 22 | pts | |||||||||||||
| Pacific | 657 | 128 | % | 178 | % | (8) | % | (18) | % | 147 | % | 42 | pts | |||||||||||||
| Total | $ | 29,329 | 92 | % | 54 | % | 22 | % | 25 | % | 58 | % | 17 | pts | ||||||||||||
Domestic passenger unit revenue for the nine months ended September 30, 2022 increased compared to the nine months ended September 30, 2021 as a result of the higher levels of capacity and demand during the nine months ended September 30, 2022 due to the ongoing recovery in the period. International passenger revenue for the nine months ended September 30, 2022 increased 164% on 46% higher capacity compared to the nine months ended September 30, 2021.
Other Revenue
Nine Months Ended September 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Refinery | $ | 3,835 | $ | 2,189 | $ | 1,646 | 75 | % | ||||||
| Loyalty program | 1,877 | 1,260 | 617 | 49 | % | |||||||||
| Ancillary businesses | 665 | 586 | 79 | 13 | % | |||||||||
| Miscellaneous | 640 | 388 | 252 | 65 | % | |||||||||
| Total other revenue | $ | 7,017 | $ | 4,423 | $ | 2,594 | 59 | % | ||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 27
Item 2. MD&A - Results of Operations
Operating Expense
Nine Months Ended September 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Salaries and related costs | $ | 8,832 | $ | 7,096 | $ | 1,736 | 24 | % | ||||||
| Aircraft fuel and related taxes | 8,633 | 4,056 | 4,577 | 113 | % | |||||||||
| Ancillary businesses and refinery | 4,449 | 2,724 | 1,725 | 63 | % | |||||||||
| Contracted services | 2,425 | 1,723 | 702 | 41 | % | |||||||||
| Landing fees and other rents | 1,611 | 1,477 | 134 | 9 | % | |||||||||
| Depreciation and amortization | 1,554 | 1,494 | 60 | 4 | % | |||||||||
| Regional carrier expense | 1,547 | 1,258 | 289 | 23 | % | |||||||||
| Aircraft maintenance materials and outside repairs | 1,474 | 1,014 | 460 | 45 | % | |||||||||
| Passenger commissions and other selling expenses | 1,385 | 640 | 745 | 116 | % | |||||||||
| Passenger service | 1,050 | 520 | 530 | 102 | % | |||||||||
| Aircraft rent | 380 | 313 | 67 | 21 | % | |||||||||
| Profit sharing | 291 | — | 291 | NM | ||||||||||
| Government grant recognition | — | (4,512) | 4,512 | NM | ||||||||||
| Other | 1,325 | 1,003 | 322 | 32 | % | |||||||||
| Total operating expense | $ | 34,956 | $ | 18,806 | $ | 16,150 | 86 | % | ||||||
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, 2021 are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2022 and 2021.
Salaries and Related Costs. Salaries and related costs increased compared to the nine months ended September 30, 2021 due to the hiring actions and pay increase discussed above. The increase also relates to the voluntary unpaid leave of absence program we offered in response to the COVID-19 pandemic during 2021. During 2022, we no longer offered these leaves of absence as the program terminated by the end of the September 2021 quarter.
Aircraft Fuel and Related Taxes. Fuel expense increased $4.6 billion compared to the nine months ended September 30, 2021 due to a 91% increase in the market price per gallon of jet fuel and a 26% increase in consumption on a 22% increase in capacity.
Additionally, during the nine months ended September 30, 2022, we purchased and retired $98 million of carbon offset credits, which relate to a portion of our airline segment's 2021 and March 2022 quarter carbon emissions. During the nine months ended September 30, 2021, we purchased and retired $69 million of carbon offset credits, which related to a portion of our airline segment's 2020 and 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item.
See "Refinery Segment" below for additional details on the refinery's operations.
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Delta Air Lines, Inc. September 2022 Form 10-Q 28
Item 2. MD&A - Results of Operations
Ancillary Businesses and Refinery. The changes in ancillary businesses and refinery expenses were primarily related to refinery sales to third parties, which increased by $1.6 billion compared to the nine months ended September 30, 2021.
Government Grant Recognition. During the nine months ended September 30, 2021, we recognized $4.5 billion of government PSP grant proceeds as contra-expense that were used exclusively for the payment of employee wages, salaries and benefits.
Non-Operating Results
Three Months Ended September 30, | Favorable (Unfavorable) | Nine Months Ended September 30, | Favorable (Unfavorable) | |||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| Interest expense, net | $ | (248) | $ | (314) | $ | 66 | $ | (791) | $ | (1,014) | $ | 223 | ||||||||
| Equity method results | 4 | (49) | 53 | (8) | (102) | 94 | ||||||||||||||
| Gain/(loss) on investments, net | (245) | (223) | (22) | (613) | 251 | (864) | ||||||||||||||
| Loss on extinguishment of debt | (34) | (183) | 149 | (100) | (266) | 166 | ||||||||||||||
| Pension and related benefit | 73 | 111 | (38) | 218 | 337 | (119) | ||||||||||||||
| Miscellaneous, net | (44) | (15) | (29) | (103) | (36) | (67) | ||||||||||||||
| Total non-operating expense, net | $ | (494) | $ | (673) | $ | 179 | $ | (1,397) | $ | (830) | $ | (567) | ||||||||
Interest expense, net. Interest expense, net includes interest expense and interest income. This decreased compared to the prior year periods as a result of our debt reduction initiatives since the December 2020 quarter. During 2021, we made payments of approximately $5.8 billion related to our debt and finance leases, which included approximately $3.8 billion for early repayments. We have continued to pay down our debt during the nine months ended September 30, 2022 with $4.2 billion of payments on debt and finance lease obligations, including $1.5 billion of certain notes through a cash tender offer in the September 2022 quarter and $839 million for the early repurchase of various secured and unsecured notes through repurchases on the open market. We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the December 2022 quarter and beyond.
Equity method results. Equity method results in 2022 consist of our share of Aeroméxico's net results and in 2021 reflected our share of Virgin Atlantic's net losses. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity method investments.
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 companies 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 the notes mentioned above.
Pension and related benefit. Pension and related benefit reflects the net periodic benefit/(cost) of our pension and other postretirement and postemployment benefit plans. Based on our funded status as of December 31, 2021, we have modified the strategic asset allocation mix to reduce the investment risk of the portfolio. As a result of the lower risk profile of the portfolio, the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost is 7.0%.
Miscellaneous, net. Miscellaneous, net primarily includes foreign exchange gains/(losses) and charitable contributions.
Delta Air Lines, Inc. September 2022 Form 10-Q 29
Item 2. MD&A - Income Taxes
Income Taxes
We project that our annual effective tax rate for 2022 will be between 28% and 30%. In certain interim periods, we may have adjustments to our net deferred tax assets as a result of changes in prior year estimates and tax laws enacted during the period, which will impact the effective tax rate for that interim period.
The Inflation Reduction Act ("IRA") was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion. This provision is effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows or financial position when it becomes effective.
Refinery Segment
The refinery operated by Monroe primarily produces gasoline, diesel and jet fuel. Monroe exchanges the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. Historically, the jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75% of our pre-COVID-19 pandemic consumption, for use in our airline operations.
During the three and nine months ended September 30, 2022, the refinery operated at near pre-pandemic production levels and a summary of the refinery results is shown below.
Refinery revenues increased compared to the three and nine months ended September 30, 2021 due primarily to higher pricing and production. The refinery generated higher operating income in the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, which was driven by the revenue and production increases described in the Results of Operations section above, and partially offset by higher crude oil acquisition costs and increased expense associated with the higher levels of production.
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 Renewable Identification Numbers ("RINs") from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Observable RINs prices increased during much of 2022 and Monroe incurred $140 million and $448 million in RINs compliance costs during the three and nine months ended September 30, 2022, respectively, compared to $44 million and $453 million in the three and nine months ended September 30, 2021, respectively. The higher expense in the three months ended September 30, 2022 resulted from a larger increase in observable RINs prices during that period compared to the increase in the 2021 period.
At September 30, 2022, we had a net fair value obligation of $291 million related to RINs compliance costs. Our obligation as of September 30, 2022 was calculated using the Renewable Fuel Standard ("RFS") volume requirements, which were finalized in the June 2022 quarter. The compliance deadlines to retire our obligations for 2020 and 2021 are in the fourth quarter of 2022 and first quarter of 2023, respectively.
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 2022 Form 10-Q 30
Item 2. MD&A - Operating Statistics
Operating Statistics
Three Months Ended September 30, | 2022 vs. 2021 Increase (Decrease) | 2022 vs. 2019 Increase (Decrease) | |||||||||||||||||||||
Consolidated(1) | 2022 | 2021 | 2019 | ||||||||||||||||||||
| Revenue passenger miles (in millions) ("RPM") | 54,786 | 43,057 | 66,862 | 27 | % | (18) | % | ||||||||||||||||
| Available seat miles (in millions) ("ASM") | 63,007 | 54,083 | 75,742 | 17 | % | (17) | % | ||||||||||||||||
| Passenger mile yield | 20.93 | ¢ | 16.70 | ¢ | 17.07 | ¢ | 25 | % | 23 | % | |||||||||||||
| Passenger revenue per available seat mile ("PRASM") | 18.19 | ¢ | 13.30 | ¢ | 15.06 | ¢ | 37 | % | 21 | % | |||||||||||||
| Total revenue per available seat mile ("TRASM") | 22.18 | ¢ | 16.93 | ¢ | 16.58 | ¢ | 31 | % | 34 | % | |||||||||||||
TRASM, adjusted(2) | 20.38 | ¢ | 15.31 | ¢ | 16.51 | ¢ | 33 | % | 23 | % | |||||||||||||
| Cost per available seat mile ("CASM") | 19.87 | ¢ | 12.85 | ¢ | 13.85 | ¢ | 55 | % | 43 | % | |||||||||||||
CASM-Ex(2) | 12.43 | ¢ | 11.67 | ¢ | 10.15 | ¢ | 7 | % | 22.5 | % | |||||||||||||
| Passenger load factor | 87 | % | 80 | % | 88 | % | 7 | pts | (1) | pt | |||||||||||||
| Fuel gallons consumed (in millions) | 930 | 789 | 1,154 | 18 | % | (19) | % | ||||||||||||||||
Average price per fuel gallon(3) | $ | 3.57 | $ | 1.97 | $ | 1.94 | 81 | % | 84 | % | |||||||||||||
Average price per fuel gallon, adjusted(2)(3) | $ | 3.53 | $ | 1.94 | $ | 1.96 | 82 | % | 80 | % | |||||||||||||
Nine Months Ended September 30, | 2022 vs. 2021 Increase (Decrease) | 2022 vs. 2019 Increase (Decrease) | |||||||||||||||||||||
Consolidated(1) | 2022 | 2021 | 2019 | ||||||||||||||||||||
| Revenue passenger miles (in millions) ("RPM") | 145,004 | 94,290 | 181,652 | 54 | % | (20) | % | ||||||||||||||||
| Available seat miles (in millions) ("ASM") | 173,720 | 142,730 | 209,911 | 22 | % | (17) | % | ||||||||||||||||
| Passenger mile yield | 20.23 | ¢ | 16.20 | ¢ | 17.63 | ¢ | 25 | % | 15 | % | |||||||||||||
| Passenger revenue per available seat mile ("PRASM") | 16.88 | ¢ | 10.70 | ¢ | 15.26 | ¢ | 58 | % | 11 | % | |||||||||||||
| Total revenue per available seat mile ("TRASM") | 21.38 | ¢ | 14.31 | ¢ | 16.94 | ¢ | 49 | % | 26 | % | |||||||||||||
TRASM, adjusted(2) | 19.18 | ¢ | 12.78 | ¢ | 16.83 | ¢ | 50 | % | 14 | % | |||||||||||||
| Cost per available seat mile ("CASM") | 20.12 | ¢ | 13.18 | ¢ | 14.46 | ¢ | 53 | % | 39 | % | |||||||||||||
CASM-Ex(2) | 12.78 | ¢ | 11.96 | ¢ | 10.66 | ¢ | 7 | % | 20 | % | |||||||||||||
| Passenger load factor | 83 | % | 66 | % | 87 | % | 17 | pts | (4) | pts | |||||||||||||
| Fuel gallons consumed (in millions) | 2,543 | 2,023 | 3,215 | 26 | % | (21) | % | ||||||||||||||||
Average price per fuel gallon(3) | $ | 3.39 | $ | 2.00 | $ | 2.03 | 70 | % | 67 | % | |||||||||||||
Average price per fuel gallon, adjusted(2)(3) | $ | 3.41 | $ | 1.99 | $ | 2.02 | 71 | % | 69 | % | |||||||||||||
(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, refinery segment results and carbon offset costs.
Delta Air Lines, Inc. September 2022 Form 10-Q 31
Item 2. MD&A - Fleet Information
Fleet Information
Our operating aircraft fleet, purchase commitments and options at September 30, 2022 are summarized in the following table.
| Mainline aircraft information by fleet type | ||||||||||||||||||||||||||
Current Fleet(1) | Commitments(1) | |||||||||||||||||||||||||
| Fleet Type | Owned | Finance Lease | Operating Lease | Total | Average Age (Years) | Purchase | Options | |||||||||||||||||||
| A220-100 | 41 | 4 | — | 45 | 2.8 | |||||||||||||||||||||
| A220-300 | 12 | — | — | 12 | 1.5 | 50 | 38 | |||||||||||||||||||
| A319-100 | 57 | — | — | 57 | 20.6 | |||||||||||||||||||||
| A320-200 | 61 | — | — | 61 | 27.1 | |||||||||||||||||||||
| A321-200 | 69 | 22 | 36 | 127 | 3.8 | |||||||||||||||||||||
| A321-200neo | 8 | — | — | 8 | 0.3 | 147 | 70 | |||||||||||||||||||
| A330-200 | 11 | — | — | 11 | 17.5 | |||||||||||||||||||||
| A330-300 | 28 | — | 3 | 31 | 13.7 | |||||||||||||||||||||
| A330-900neo | 10 | 3 | 5 | 18 | 1.6 | 20 | ||||||||||||||||||||
| A350-900 | 15 | — | 11 | 26 | 4.2 | 18 | ||||||||||||||||||||
| B-717-200 | 10 | 50 | 4 | 64 | 21.3 | |||||||||||||||||||||
| B-737-800 | 73 | 4 | — | 77 | 21.1 | |||||||||||||||||||||
| B-737-900ER | 109 | 2 | 49 | 160 | 6.7 | 3 | ||||||||||||||||||||
| B-737-10 | — | — | — | — | — | 100 | 30 | |||||||||||||||||||
| B-757-200 | 100 | — | — | 100 | 25.2 | |||||||||||||||||||||
| B-757-300 | 16 | — | — | 16 | 19.6 | |||||||||||||||||||||
| B-767-300ER | 45 | — | — | 45 | 26.6 | |||||||||||||||||||||
| B-767-400ER | 21 | — | — | 21 | 21.8 | |||||||||||||||||||||
| Total | 686 | 85 | 108 | 879 | 14.5 | 338 | 138 | |||||||||||||||||||
(1)Includes both active and temporarily parked aircraft. Excludes certain aircraft we own or lease or 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, 2022.
(1)Includes both active and temporarily parked aircraft.
(2)Endeavor Air, Inc. is a wholly owned subsidiary of Delta.
Delta Air Lines, Inc. September 2022 Form 10-Q 32
Item 2. MD&A - Financial Condition and Liquidity
Financial Condition and Liquidity
As of September 30, 2022, we had $11.2 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn 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, restricted cash equivalents and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Sources and Uses of Liquidity
Operating Activities
We generated cash flows from operations of $5.2 billion and $2.7 billion in the nine months ended September 30, 2022 and 2021, respectively. We expect to continue generating positive cash flows from operations during the December 2022 quarter.
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.
From the onset of the COVID-19 pandemic in the March 2020 quarter through 2021, reduced demand for air travel resulted in a lower level of advance bookings and the associated cash received than we had historically experienced, which had been impacting the typical seasonal trend of air traffic liability. However, demand has improved during 2022 as consumers have regained confidence to travel and increased ticket purchases for travel further in advance. Air traffic liability decreased during the September 2022 quarter, as is typical with our usual seasonal trend. Our air traffic liability remains above historical levels with no material change to the travel credit balance compared to December 31, 2021.
Fuel. Fuel expense represented approximately 25% and 22% of our total operating expense for the nine months ended September 30, 2022 and 2021, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. The average fuel price per gallon increased substantially during the nine months ended September 30, 2022. We expect elevated jet fuel prices in comparison to historical levels to continue during the December 2022 quarter due to current market conditions, further exacerbated by geopolitical events. Fuel consumption was also higher during the nine months ended September 30, 2022 compared to the prior year period due to the increase in capacity. We expect that fuel consumption will continue to increase during the December 2022 quarter, compared to 2021, as we return closer to pre-pandemic levels of capacity, partially offset by increases in fuel efficiency of our fleet.
New York-JFK Airport Expansion. During 2021, the Port Authority of New York and New Jersey ("Port Authority") approved modified project plans to renovate and expand Terminal 4 in order to facilitate Delta's relocation from Terminal 2 and consolidation of its operations into the single facility. The project will add 10 new gates and other complementary facilities, including an additional Delta Sky Club and a new Delta One lounge. The project is estimated to cost approximately $1.5 billion and will be funded primarily with bonds issued in April 2022 by the New York Transportation Development Corporation ("NYTDC") for which our landlord, JFK International Air Terminal LLC, is the obligor. In April 2022, we amended our sublease to provide for the expansion project, including the adjustment of our subleased space and rentals. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet. The majority of project costs are being used to expand or modify Delta's leased premises, and thus will increase Delta's lease liability which we will pay via rent through 2043. Construction started in late 2021, with Delta's portion of the project estimated to be complete by the end of 2023.
Delta Air Lines, Inc. September 2022 Form 10-Q 33
Item 2. MD&A - Financial Condition and Liquidity
Investing Activities
Short-Term Investments. During the nine months ended September 30, 2022, we redeemed a net of $2.0 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 $4.2 billion and $2.0 billion for the nine months ended September 30, 2022 and 2021, respectively. Our capital expenditures are primarily related to the purchases of aircraft, airport construction projects, fleet modifications and technology enhancements.
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 2022 capital spend of approximately $5.7 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 to replace Terminals C and D with a new state-of-the-art terminal facility. Completion is expected by 2025. In June 2022, we achieved a significant milestone by opening the 455,000 square foot headhouse, the terminal roadways and Concourse E - the second of four new concourses to be built. Additionally, in early October, we opened four of 12 planned new gates on Concourse F. Construction is approximately 75% complete and will continue to be phased to support airline operations while minimizing customer inconvenience.
We currently expect our net project costs to be approximately $3.5 billion and we bear the risks of project construction, including any potential cost over-runs. Using funding primarily provided by existing financing arrangements, we expect to spend approximately $670 million on this project during 2022, of which $534 million was incurred in the nine months ended September 30, 2022.
Los Angeles International Airport ("LAX"). The City of Los Angeles (the "City") owns and operates LAX and we have an ongoing terminal redevelopment project at LAX to modernize, update and provide post-security connection to Terminals 2 and 3. In April 2022, we reached the next major phasing milestone of the project with the opening of a new consolidated headhouse for both terminals, which includes ticketing, security, baggage claim and a new Delta Sky Club lounge. In May, we opened the Terminal 3 concourse with the initial three of 14 planned new gates. Additionally, in early October, we opened the Terminal 3 satellite with eight planned new gates for a total of 11 of 14 planned new gates now open in Terminal 3. Construction is expected to be completed in 2023 with a cost of approximately $2.3 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. The credit facility was executed in 2017 and we have guaranteed the obligations of the RAIC under the credit facility. The revolving credit facility agreement was amended in January 2022, increasing the revolver capacity from $800 million to $1.1 billion. In September 2022, the revolving credit facility agreement capacity was reduced to $800 million. Loans made under the credit facility are being repaid with the proceeds from the City's purchase of completed project assets.
Financing Activities
Debt and Finance Leases. In the nine months ended September 30, 2022, we had cash outflows of $4.2 billion related to repayments of our debt and finance lease obligations, including $1.5 billion of certain notes through a cash tender offer in the September 2022 quarter and $839 million for the early repurchase of various secured and unsecured notes through repurchases on the open market. We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the December 2022 quarter and beyond.
The principal amount of our debt and finance leases was $23.4 billion at September 30, 2022.
Undrawn Lines of Credit
As of September 30, 2022, we had approximately $2.8 billion undrawn and available under our revolving credit facilities. In addition, we had approximately $300 million outstanding letters of credit as of September 30, 2022 that did not affect the availability of our revolving credit facilities.
Delta Air Lines, Inc. September 2022 Form 10-Q 34
Item 2. MD&A - Financial Condition and Liquidity
Covenants
We were in compliance with the covenants in our debt agreements at September 30, 2022.
Critical Accounting Estimates
Except as set forth below, for information regarding our Critical Accounting Estimates, see 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.
Goodwill and Indefinite-Lived Intangible Assets
Identifiable Intangible Assets. In the September 2022 quarter, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement will combine our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. Approval was granted for a 10-year period with a subsequent reassessment and extension process. This agreement supports our strategic partnership with LATAM and the value of our $1.2 billion alliance-related indefinite-lived intangible asset. We believe the LATAM joint venture agreement will generate growth opportunities, building upon Delta's and LATAM's global footprint and joint ventures.
We have classified our intangible asset as indefinite-lived as we expect to indefinitely receive the economic benefits from the relationship, similar to other joint venture arrangements between U.S. and foreign carriers that have been cleared by competition authorities in relevant foreign jurisdictions and granted antitrust immunity from the U.S. Department of Transportation ("DOT"). Antitrust immunity grants are generally subject to reporting requirements and periodic reassessment processes administered by the DOT. We have determined that there are currently no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our LATAM alliance-related intangible asset.
Defined Benefit Pension Plans
Expected Long-Term Rate of Return. Based on our funded status as of December 31, 2021, we have modified the strategic asset allocation mix to reduce the investment risk of the portfolio. As a result of the lower risk profile of the portfolio, the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost is 7.0%.
Recent Accounting Standards
Fair Value of Equity Investments. In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." Under this standard, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU becomes effective January 1, 2024. Upon adoption, we do not believe it will have a material impact on the valuation of our equity investments; however, we may be required to include additional disclosures to the extent we have material equity investments subject to contractual sale restrictions.
Supplier Finance Program Obligations. In September 2022, the FASB issued ASU No. 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50)." This standard requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. Upon adoption, we may be required to include additional disclosures to the extent we have material supplier finance program obligations.
Delta Air Lines, Inc. September 2022 Form 10-Q 35
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 that are directly related to the impact of COVID-19 and our response. These adjustments are made to provide comparability between the reported periods, if applicable, as indicated below:
•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. In the September 2022 quarter, we recognized $1 million of net adjustments to certain of those restructuring charges, representing changes in our estimates, compared to $33 million of net adjustments in the September 2021 quarter.
•Government grant recognition. We recognized $1.8 billion and $4.5 billion of the grant proceeds from the payroll support program extensions as contra-expense during the September 2021 quarter and nine months ended September 2021, respectively. We recognized the grant proceeds as contra-expense based on the periods that the funds were intended to compensate and have fully used all proceeds from the payroll support program extensions.
We also regularly adjust certain GAAP measures for the following items, if applicable, for the reasons indicated below:
•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.
•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.
•Delta Private Jets adjustment. Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.
•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.
| Operating expense, adjusted reconciliation | ||||||||||||||
Three Months Ended September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | 2019 | |||||||||||
| Operating expense | $ | 12,519 | $ | 6,949 | $ | 10,489 | ||||||||
| Adjusted for: | ||||||||||||||
| Restructuring charges | (1) | (33) | — | |||||||||||
| Government grant recognition | — | 1,822 | — | |||||||||||
| MTM adjustments and settlements on hedges | (36) | (19) | 25 | |||||||||||
| Third-party refinery sales | (1,134) | (872) | (6) | |||||||||||
| Delta Private Jets adjustment | — | — | (49) | |||||||||||
| Operating expense, adjusted | $ | 11,348 | $ | 7,846 | $ | 10,460 | ||||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 36
Item 2. MD&A - Supplemental Information
| Fuel expense, adjusted reconciliation | |||||||||||||||||||||||
| Average Price Per Gallon | |||||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per gallon data) | 2022 | 2021 | 2019 | 2022 | 2021 | 2019 | |||||||||||||||||
| Total fuel expense | $ | 3,318 | $ | 1,552 | $ | 2,239 | $ | 3.57 | $ | 1.97 | $ | 1.94 | |||||||||||
| Adjusted for: | |||||||||||||||||||||||
| MTM adjustments and settlements on hedges | (36) | (19) | 25 | (0.04) | (0.02) | 0.02 | |||||||||||||||||
| Delta Private Jets adjustment | — | — | (7) | — | — | (0.01) | |||||||||||||||||
| Total fuel expense, adjusted | $ | 3,282 | $ | 1,533 | $ | 2,257 | $ | 3.53 | $ | 1.94 | $ | 1.96 | |||||||||||
| Average Price Per Gallon | |||||||||||||||||||||||
Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per gallon data) | 2022 | 2021 | 2019 | 2022 | 2021 | 2019 | |||||||||||||||||
| Total fuel expense | $ | 8,633 | $ | 4,056 | $ | 6,508 | $ | 3.39 | $ | 2.00 | $ | 2.03 | |||||||||||
| Adjusted for: | |||||||||||||||||||||||
| MTM adjustments and settlements on hedges | 41 | (20) | 8 | 0.02 | (0.01) | — | |||||||||||||||||
| Delta Private Jets adjustment | — | — | (22) | — | — | (0.01) | |||||||||||||||||
| Total fuel expense, adjusted | $ | 8,674 | $ | 4,037 | $ | 6,494 | $ | 3.41 | $ | 1.99 | $ | 2.02 | |||||||||||
| TRASM, adjusted reconciliation | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2019 | 2022 | 2021 | 2019 | ||||||||||||||||||
| TRASM (cents) | 22.18 | ¢ | 16.93 | ¢ | 16.58 | ¢ | 21.38 | ¢ | 14.31 | ¢ | 16.94 | ¢ | |||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Third-party refinery sales | (1.80) | (1.61) | (0.01) | (2.20) | (1.53) | (0.05) | |||||||||||||||||
| Delta Private Jets adjustment | — | — | (0.06) | — | — | (0.07) | |||||||||||||||||
| TRASM, adjusted | 20.38 | ¢ | 15.31 | ¢ | 16.51 | ¢ | 19.18 | ¢ | 12.78 | ¢ | 16.83 | ¢ | |||||||||||
| CASM-Ex reconciliation | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2019 | 2022 | 2021 | 2019 | ||||||||||||||||||
| CASM (cents) | 19.87 | ¢ | 12.85 | ¢ | 13.85 | ¢ | 20.12 | ¢ | 13.18 | ¢ | 14.46 | ¢ | |||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Restructuring charges | — | (0.06) | — | — | — | — | |||||||||||||||||
| Government grant recognition | — | 3.37 | — | — | 3.16 | — | |||||||||||||||||
| Aircraft fuel and related taxes | (5.26) | (2.87) | (2.96) | (4.97) | (2.84) | (3.10) | |||||||||||||||||
| Third-party refinery sales | (1.80) | (1.61) | (0.01) | (2.20) | (1.53) | (0.05) | |||||||||||||||||
| Profit sharing | (0.38) | — | (0.68) | (0.17) | — | (0.60) | |||||||||||||||||
| Delta Private Jets adjustment | — | — | (0.05) | — | — | (0.06) | |||||||||||||||||
| CASM-Ex | 12.43 | ¢ | 11.67 | ¢ | 10.15 | ¢ | 12.78 | ¢ | 11.96 | ¢ | 10.66 | ¢ | |||||||||||
Delta Air Lines, Inc. September 2022 Form 10-Q 37
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, 2022 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, 2022, 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. There have been no material changes from the legal proceedings described in our Form 10-K.
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.
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 2022 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.
Delta Air Lines, Inc. September 2022 Form 10-Q 38
ITEM 6. EXHIBITS
(a) Exhibits
10.1 Purchase Agreement Number PA-04696, dated July 18, 2022, between The Boeing Company and Delta Air Lines, Inc. relating to Boeing Model 737-10 Aircraft.**
31.1 Certification by Delta's Chief Executive Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022
31.2 Certification by Delta's Chief Financial Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022
32 Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by Delta's Chief Executive Officer and Chief Financial Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022
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.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included in Exhibit 101)
_______________
* Incorporated by reference.
** Portions of this exhibit have been omitted as confidential information.
Delta Air Lines, Inc. September 2022 Form 10-Q 39
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.
| Delta Air Lines, Inc. | |||||
| (Registrant) | |||||
| /s/ William C. Carroll | |||||
| William C. Carroll | |||||
| Senior Vice President - Controller | |||||
| (Principal Accounting Officer) | |||||
| October 13, 2022 | |||||
Delta Air Lines, Inc. September 2022 Form 10-Q 40
