01—Abstract
Summary
Summary of the 10-K filed February 16, 2011. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported its 2010 annual results in this Form 10-K filed February 16, 2011.
Operating revenue rose to $31.76 billiona in 2010 from $28.06 billion in 2009, and operating income was $2.22 billion, compared with an operating loss of $324 million in 2009. Net income was $593 million, or $0.70 diluted earnings per share, versus a net loss of $1.2 billion in 2009. The company cited special items totaling $851 million in 2010, including $450 million of restructuring and merger-related items and $401 million primarily from a loss on extinguishment of debt.
Excluding special items, operating margin was 8.4% in 2010 versus 0.3% in 2009. The company attributed the improvement mainly to a strengthening airline revenue environment, with mainline passenger revenue up $2.89 billionb and fares higher. Fuel remained the largest sensitivity.
Aircraft fuel and related taxes were $7.59 billion, and the average price per gallon rose to $2.33c from $2.15, a figure net of $89 million in hedge costs. Total debt and capital leases fell to $15.3 billion from roughly $17.2 billion, and unrestricted liquidity was $5.2 billion at year-end. The company reported a U.S. federal pre-tax net operating loss carryforward of $17.1 billion and stated it does not expect to pay cash federal income taxes for several years.
Delta does not pay dividends and expects to retain earnings, with credit facility restrictions limiting dividends and buybacks. Key risks disclosed include labor (about 17% of employees unionized, with several contracts amendable in 2011 and 2012), pending antitrust litigation over first-bag fees, a pending DOT decision on the proposed Virgin Blue joint venture expected in 2011, and an unfunded pension obligation of roughly $9.3 billiond. The filing also describes a $1.2 billion JFK Terminal 4 redevelopment project and the continuing integration of Northwest Airlines, which merged into Delta in 2008.
02—Key points
Key Highlights
- Operating revenue of $31.76 billion in 2010, up from $28.06 billion in 2009; passenger revenue was $27.26 billion.
- Operating income of $2.22 billion in 2010 versus an operating loss of $324 million in 2009; operating margin excluding special items was 8.4% versus 0.3%.
- Net income of $593 million, or $0.70 diluted EPS, compared with a net loss of $1.2 billion in 2009.
- Special items of $851 million in 2010, including $450 million in restructuring and merger-related items and $401 million largely from a loss on debt extinguishment.
- Aircraft fuel and related taxes of $7.59 billion; average fuel price rose to $2.33 per gallon from $2.15, with $89 million in net hedge costs.
- Total debt and capital leases reduced to $15.3 billion, down $1.9 billion from year-end 2009; unrestricted liquidity of $5.2 billion.
- U.S. federal pre-tax NOL carryforwards of $17.1 billion; company expects no material cash federal income taxes in the next several years.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 16, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $31.75B$28.06B | +13.2% |
| Operating Expenses | $29.54B$28.39B | +4.1% |
| Operating Income | $2.22B-$324.00M | +784.3% |
| Interest Expense | $1.00B$908.00M | +10.6% |
| Net Income | $593.00M-$1.24B | +147.9% |
| EPS (Basic) | $0.71$-1.50 | +147.3% |
| EPS (Diluted) | $0.70$-1.50 | +146.7% |
| Shares Outstanding (Basic) | 834.00M827.00M | +0.8% |
| Shares Outstanding (Diluted) | 843.00M827.00M | +1.9% |
05—Questions
Frequently Asked Questions
Did Delta return to profitability in 2010?
Yes. Delta reported net income of $593 million, or $0.70 per diluted share, for 2010, compared with a net loss of $1.2 billion in 2009. The filing attributes the $1.8 billion improvement primarily to a strengthening airline revenue environment, though 2010 results still included $851 million of special items.
How exposed is Delta to fuel prices?
Highly exposed. Fuel costs were $7.59 billion in 2010, about 30% of total operating expense as the filing states. Delta uses crude oil, heating oil and jet fuel derivatives to hedge, but its purchase contracts provide no material price protection. The filing's sensitivity table shows fuel expense and hedge gains or losses at crude prices from $60 to $120 per barrel for 2011.
What is Delta's debt and liquidity position?
Total debt and capital leases, including current maturities, were $15.3 billion at December 31, 2010, down $1.9 billion from 2009. Unrestricted liquidity was $5.2 billion, including $3.6 billion in cash and short-term investments and $1.6 billion in undrawn revolving facilities. Substantially all assets are subject to liens, and credit agreements contain financial covenants.
What are the main legal and labor risks?
Delta faces a consolidated class action alleging collusion over first-bag fees, which the company says lacks merit, plus a Canadian passenger surcharge antitrust suit seeking over $100 million. About 17% of employees are unionized, and several groups, including Comair pilots, have amendable agreements in 2011 or later. Representation disputes from the Northwest merger, including flight attendants and ground workers, remain unresolved.
Will Delta pay dividends or buy back stock?
Not for the foreseeable future. Delta said it expects to retain future earnings to fund operations and liquidity needs, and that credit facilities restrict its ability to pay dividends or repurchase common stock. Shares withheld for employee tax obligations in the December 2010 quarter are the only repurchase-related activity disclosed.
06—Continue