01—Abstract
Summary
Summary of the 10-K filed March 2, 2007. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. (Debtor-in-Possession) reported a 2006 net loss of $6.2 billiona, driven primarily by a $6.2 billion charge for reorganization items, net, while operating income improved to $58 million from an operating loss of $2.0 billion in 2005.
Operating revenue rose 6% to $17.2 billionb and operating expense fell 6% to $17.1 billion, with lower salaries, restructuring charges and aircraft rent offsetting higher fuel costs and contract carrier expense. The company stated it reached its $3.0 billion annual financial improvement goal by year-end 2006. Cash and short-term investments were $2.6 billion at December 31, 2006, and shareowners' deficit widened to $13.6 billion.
The company remains in Chapter 11, which it entered on September 14, 2005. Its Plan of Reorganization, filed December 19, 2006, contemplates emergence as an independent airline, with creditors receiving common stock of reorganized Delta and current equity holders receiving no distribution and having their shares cancelled. The Bankruptcy Court set an April 9, 2007 deadline for creditor votes and an April 25, 2007 confirmation hearing.
The company also rejected an unsolicited US Airways merger proposal, which US Airways withdrew after the creditors committee endorsed the standalone plan. The filing explicitly urges caution regarding existing and future investments in its equity securities.
The filing also reports a $2.5 billionc exit financing facility commitment, $87.0 billion in filed claims against the Debtors, and a going-concern qualification from the auditors. Comair Flight 5191 crashed on August 27, 2006, with 49 fatalities, and lawsuits are pending against Comair and, in some cases, Delta.
02—Key points
Key Highlights
- Net loss of $6.2 billion in 2006, primarily from a $6.2 billion charge for reorganization items, net; operating income of $58 million versus an operating loss of $2.0 billion in 2005.
- Operating revenue of $17.2 billion, up 6%; passenger revenue up 7% while capacity fell 6%; passenger mile yield up 10%.
- Operating expense of $17.1 billion, down 6%, with salaries and related costs down 18% to $4.1 billion and aircraft fuel up 1% to $4.3 billion at an average price of $2.04 per gallon.
- Equity holders would receive no distributions under the proposed Plan and their interests would be cancelled; the company urges caution regarding investments in its equity securities.
- Creditor vote deadline is April 9, 2007, with a Bankruptcy Court confirmation hearing set for April 25, 2007; the unsecured creditors committee supports the Plan.
- Secured $2.5 billion exit financing commitments; shareowners' deficit was $13.6 billion at December 31, 2006, and the auditors included a going-concern explanatory paragraph.
- Net operating loss carryforwards of approximately $7.8 billion, subject to limitation on an ownership change under Section 382, with transfer restrictions proposed on new stock issued under the Plan.
03—Questions
Frequently Asked Questions
Will current Delta shareholders receive anything under the proposed reorganization plan?
No. The Plan provides that current holders of Delta's equity interests would not receive any distributions, and their equity interests would be cancelled once the Plan becomes effective. The filing urges caution regarding existing and future investments in the company's equity securities.
What drove the 2006 net loss?
The net loss of $6.2 billion was primarily attributable to a $6.2 billion charge for reorganization items, net, which includes the pilot collective bargaining agreement claim of $2.1 billion, pilot pension termination claims of $1.7 billion, and aircraft financing renegotiation claims of $1.7 billion, partly offset by $1.3 billion in pension settlement gains. A $765 million income tax benefit and $310 million of noncash accounting adjustments also affected results.
What is the timeline for emergence from Chapter 11?
Creditors must vote on the Plan by April 9, 2007, and the Bankruptcy Court has scheduled a confirmation hearing for April 25, 2007. If the Plan is approved and confirmed, the Debtors plan to emerge from Chapter 11 shortly thereafter. The company had said it expected to exit bankruptcy in the second quarter of 2007.
How did the US Airways proposal factor into the company's plan?
US Airways proposed a merger that was initially valued at $4.0 billion in cash and 78.5 million US Airways shares for unsecured claims, later increased to $5.0 billion and 89.5 million shares. The Board of Directors rejected the original proposal as inadequate and high risk, and after the Creditors Committee supported the standalone Plan on January 31, 2007, US Airways withdrew its proposal.
04—Continue