01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported a 2008 net loss of $8.9 billiona (diluted loss per share of $19.08), driven primarily by a $7.3 billion non-cash impairment of goodwill and other intangible assets and $1.1 billion in primarily non-cash merger-related charges.
Operating revenue rose to $22.7 billionb in 2008 from $13.4 billion for the eight months ended December 31, 2007 (Successor), and operating expense reached $31.0 billion, producing an operating loss of $8.3 billion. Fuel was the dominant cost pressure: the average price per gallon rose to $3.16 from $2.24 in 2007, and aircraft fuel accounted for 38% of total operating expense (28% including the impairment and merger charges). The results include Northwest Airlines only from the October 29, 2008 merger closing, which contributed about $2.0 billion of operating revenue in the period from October 30 to December 31, 2008.
Liquidity and balance sheet strain are central to the filing. Cash and short-term investments were $4.5 billionc at year-end, supported by $2.4 billion acquired from Northwest, a $1.0 billion American Express SkyMiles advance purchase, and full $1.0 billion draw on the revolving facility, offset by $1.2 billion of fuel hedge margin posted to counterparties. Total assets were $45.0 billion, long-term debt and capital leases $16.6 billion, and stockholders' equity fell to $874 million from $10.1 billion.
Management expects a significant loss in the March 2009 quarter, plans capacity reductions of 6-8% for 2009, and targets roughly $2 billiond in annual revenue and cost synergies from the merger by 2012, with about $500 million in one-time integration cash costs over approximately three years. Management expects weaker 2009 demand from the global recession, and the company faces risks from its substantial indebtedness, covenant restrictions in its credit facilities, a $1.2 billion fuel hedge margin requirement, expected higher pension funding for 2010 and beyond, and labor integration issues, since about 80% of pre-merger Northwest employees are unionized. The company does not anticipate paying dividends.
02—Key points
Key Highlights
- Net loss of $8.9 billion for 2008 (basic and diluted loss per share of $19.08), including a $7.3 billion non-cash goodwill and intangible impairment charge.
- Operating revenue of $22.7 billion for 2008; operating loss of $8.3 billion after $1.1 billion in primarily non-cash merger-related charges.
- Average fuel price rose to $3.16 per gallon from $2.24 in 2007; fuel represented 38% of total operating expense.
- Merger with Northwest Airlines closed October 29, 2008; Northwest results included from October 30 to December 31, 2008, adding $2.0 billion to operating revenue.
- Stockholders' equity fell to $874 million from $10.1 billion, while total assets were $45.0 billion and long-term debt and capital leases were $16.6 billion.
- Cash and short-term investments of $4.5 billion at year-end, including $1.2 billion of fuel hedge margin posted to counterparties.
- Management expects a significant loss in the March 2009 quarter and plans 2009 capacity cuts of 6-8%, with merger synergies targeted at about $2 billion annually by 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 2, 2009Financial Statements
| Revenue | $22.70B |
| Operating Expenses | $31.01B |
| Operating Income | -$8.31B |
| Interest Expense | $685.00M |
| Net Income | -$8.92B |
| EPS (Basic) | $-19.08 |
| EPS (Diluted) | $-19.08 |
| Shares Outstanding (Basic) | 468 |
| Shares Outstanding (Diluted) | 468 |
05—Questions
Frequently Asked Questions
What drove Delta's large 2008 net loss?
The $8.9 billion net loss reflects a $7.3 billion non-cash impairment of goodwill and other intangible assets, $1.1 billion in primarily non-cash merger-related charges, significantly higher fuel costs, and weaker demand from the onset of the global recession.
How did the Northwest merger affect 2008 results?
Northwest's operations were included only from October 30 to December 31, 2008, increasing operating revenue by $2.0 billion and operating expense by $2.1 billion. The company expects about $2 billion in annual revenue and cost synergies by 2012 and about $500 million in one-time cash integration costs over roughly three years.
How is Delta managing its liquidity?
Delta ended 2008 with $4.5 billion in cash and short-term investments, supported by $2.4 billion of cash acquired from Northwest, $1.0 billion from an American Express SkyMiles advance purchase, and a full $1.0 billion draw on its revolving facility. It also has an undrawn $500 million revolving credit facility, but faces fuel hedge margin obligations of $1.2 billion and expects to need additional collateral if fuel prices keep falling.
What is the outlook for 2009?
Management expects a significant loss in the March 2009 quarter, expects worsening economic conditions to substantially reduce U.S. industry revenues in 2009, and plans consolidated capacity cuts of 6-8% versus 2008. It expects to recognize $500 million in merger synergy benefits in 2009, mainly in the second half, and expects higher pension expense and interest expense in 2009.
Does Delta pay dividends, and what are the key constraints?
Delta does not anticipate paying dividends on its common stock for the foreseeable future. Its ability to pay dividends or repurchase stock is restricted under credit facilities entered into upon emergence from bankruptcy, and those facilities also contain financial covenants, including minimum fixed charge coverage and unrestricted cash requirements.
06—Continue