01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported 2017 operating revenue of $41.24 billiona, up from $39.64 billion in 2016, and net income of $3.58 billion, down from $4.37 billion.
Pre-tax income was $5.7 billionb, a $935 million decrease from 2016, driven mainly by higher fuel costs, salaries and related costs, and depreciation. Operating cost per available seat mile rose 6.4% to 13.81 cents, while passenger revenue per available seat mile increased 2.1% on 1.0% higher capacity. Diluted earnings per share were $4.95, compared with $5.79 in 2016.
The company generated $5.15 billionc of operating cash flow in 2017, below $7.21 billion in 2016, partly reflecting $3.5 billion of pension contributions funded in part by a $2.0 billion debt issuance. Capital expenditures were $3.9 billion, and shareholders received $2.4 billion through dividends and share repurchases. Long-term debt and capital leases rose to $8.83 billion, and Standard & Poor's upgraded the company to investment grade, so all three major agencies now rate it investment grade.
Total liquidity was $5.1 billiond at year-end. Management highlighted revenue momentum, with three consecutive quarters of year-over-year passenger unit revenue growth to close 2017, and a planned change in revenue recognition under ASU 2014-09 effective January 1, 2018, which reclassifies about $2 billion of ancillary fees into passenger revenue. Key risks disclosed include fuel price volatility, labor relations, competition from government-backed Gulf carriers, and pending antitrust litigation over the first bag fee and capacity coordination.
02—Key points
Key Highlights
- Operating revenue rose 4.0% to $41.24 billion, with passenger revenue up $1.04 billion to $34.82 billion on 1.0% higher capacity.
- Operating income fell to $6.11 billion from $6.95 billion, as total operating expense rose $2.44 billion (7.5%) to $35.13 billion.
- Aircraft fuel and related taxes increased $600 million to $5.73 billion; the average fuel price per gallon rose to $1.68 from $1.49.
- Net income was $3.58 billion ($4.95 diluted EPS) versus $4.37 billion ($5.79) in 2016, reflecting a $2.12 billion income tax provision that included a $150 million estimate related to the Tax Cuts and Jobs Act.
- Operating cash flow was $5.15 billion, down from $7.21 billion, mainly due to $3.5 billion of accelerated qualified pension contributions.
- Delta returned $2.4 billion to shareholders in 2017 through dividends and repurchases; the quarterly dividend was raised to $0.305 per share and a $5 billion repurchase program was authorized in May 2017.
- Total debt and capital leases reached $8.9 billion, and the company holds $5.1 billion of unrestricted liquidity, including $2.5 billion of undrawn revolving credit facilities.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $41.24B$39.64B | +4.0% |
| Operating Expenses | $35.17B$32.45B | +8.4% |
| Operating Income | $5.97B$7.00B | −14.7% |
| Interest Expense | $396.00M$388.00M | +2.1% |
| Net Income | $3.21B$4.20B | −23.6% |
| EPS (Basic) | $4.45$5.59 | −20.4% |
| EPS (Diluted) | $4.43$5.55 | −20.2% |
| Shares Outstanding (Basic) | 720.00M751.00M | −4.1% |
| Shares Outstanding (Diluted) | 723.00M755.00M | −4.2% |
05—Questions
Frequently Asked Questions
Why did Delta's pre-tax income decline in 2017 despite higher revenue?
Pre-tax income fell $935 million to $5.7 billion, primarily due to higher fuel costs, salaries and related costs, and depreciation expense. These increases outpaced the $1.6 billion increase in operating revenue.
How did Delta's cash flow and balance sheet change during 2017?
Operating cash flow declined to $5.15 billion from $7.21 billion, largely because of incremental pension contributions. The company issued $2.5 billion of unsecured notes in 2017, which increased total debt and capital leases to $8.9 billion, while stockholders' equity rose to $13.91 billion.
What accounting changes will affect Delta's reported results in 2018?
Delta will adopt ASU No. 2014-09 on January 1, 2018 using the full retrospective method. About $2 billion of baggage, administrative and travel-related fees will move from other revenue to passenger revenue, air traffic liability will fall by about $500 million, and frequent flyer liability will rise by about $2 billion. The company expects no significant effect on earnings.
What are the main risks to Delta's operations as described in the filing?
Key risks include the volatility of aircraft fuel prices, the possibility that fuel hedges do not provide protection, potential labor disruptions (about 19% of the workforce is unionized), competition from government-subsidized Gulf carriers and domestic low-cost carriers, and exposure to the Monroe refinery's operations. Pending litigation includes the First Bag Fee and Capacity antitrust cases.
What did management say about Delta's 2018 outlook and capital spending?
Management expects to invest approximately $4.5 billion in 2018, primarily in aircraft and cabin modifications funded through operating cash flow. It projects an effective tax rate of 21% to 23% for 2018 and does not expect to pay cash federal income taxes before 2019, given about $5.1 billion of federal net operating loss carryforwards.
06—Continue