01—Abstract
Summary
Summary of the 10-K filed February 13, 2020. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported record 2019 financial results in this Form 10-K for the year ended December 31, 2019.
Operating revenue rose to $47.007 billiona from $44.438 billion, operating income increased to $6.618 billion from $5.264 billion, and net income reached $4.767 billion, or $7.30 diluted earnings per share, versus $5.67 in 2018. Management cites $8.4 billion of operating cash flow, $4.9 billion of capital expenditures and free cash flow of $4.2 billion, of which 72% (about $3 billion) was returned to shareholders through share repurchases and dividends. Liquidity was $6.0 billion at year-end, including $2.9 billion of cash and $3.1 billion of undrawn revolving credit facilities, and all three major rating agencies held Delta at investment grade.
The filing highlights strategic moves across the network. Delta acquired a 20% stake in LATAM Airlines for $1.9 billionb in January 2020 to form a planned strategic alliance, and it took a 10% stake in Hanjin-KAL, the largest shareholder of Korean Air. It also combined its Delta Private Jets unit with Wheels Up, receiving a 27% equity stake, and renewed its American Express co-brand agreement through 2029, with American Express cash sales of $4 billion in 2019 expected to grow to nearly $7 billion by 2023.
Management noted that flights between the U.S. and China were suspended from February 2020 because of a novel coronavirus outbreak and that the company could not yet estimate the financial impact. Risks disclosed include fuel price volatility (fuel was 21.1%c of operating expense in 2019), labor relations (the pilot contract became amendable on December 31, 2019, and about 19% of employees are unionized), the MD-90 fleet retirement by the end of 2022, and a pending antitrust class action over alleged capacity restraint, which Delta describes as without merit.
02—Key points
Key Highlights
- Record 2019 results: operating revenue of $47.007 billion (up $2.569 billion, or 5.8%), operating income of $6.618 billion and pre-tax income of $6.198 billion.
- Net income of $4.767 billion and diluted EPS of $7.30, up from $5.67 in 2018.
- Cash flow from operations of $8.425 billion, capital expenditures of $4.9 billion and free cash flow of $4.164 billion; $3.0 billion returned to shareholders.
- Unrestricted liquidity of $6.0 billion at December 31, 2019, including $2.9 billion of cash and $3.1 billion of undrawn revolving credit facilities.
- Strategic investments: 20% stake in LATAM for $1.9 billion (January 2020) and a planned alliance, a 10% stake in Hanjin-KAL, and a 27% equity stake in Wheels Up after combining Delta Private Jets.
- American Express co-brand agreement amended and extended to 2029; American Express cash sales were $4 billion in 2019, expected to reach nearly $7 billion by 2023.
- Principal risks include fuel price volatility (fuel was 21.1% of operating expense), labor (pilot agreement amendable December 31, 2019), the novel coronavirus suspension of China flights, and an antitrust class action over alleged capacity coordination.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 13, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $47.01B$44.44B | +5.8% |
| Operating Expenses | $40.39B$39.17B | +3.1% |
| Operating Income | $6.62B$5.26B | +25.7% |
| Net Income | $4.77B$3.94B | +21.1% |
| EPS (Basic) | $7.32$5.69 | +28.6% |
| EPS (Diluted) | $7.30$5.67 | +28.7% |
| Shares Outstanding (Basic) | 651.00M691.00M | −5.8% |
| Shares Outstanding (Diluted) | 653.00M694.00M | −5.9% |
05—Questions
Frequently Asked Questions
How profitable was Delta in 2019 compared with 2018?
Operating income rose to $6.618 billion from $5.264 billion, and net income rose to $4.767 billion from $3.935 billion. Diluted EPS was $7.30, compared with $5.67 in 2018. The filing attributes the improvement mainly to a $2.6 billion increase in revenue and lower fuel expense, which fell $501 million on an 8% decrease in the market price per gallon.
How much cash did Delta return to shareholders, and how was it funded?
Delta returned $3.0 billion to shareholders in 2019, equal to 72% of free cash flow, through share repurchases and dividends. Repurchases were $2.0 billion for 38 million shares, and dividends were $980 million. The company repurchased and retired 38 million shares and declared a quarterly dividend of $0.4025 per share in February 2020.
What were the main financial risks disclosed in the filing?
The filing highlights fuel price volatility, with fuel at 21.1% of operating expense in 2019, and labor relations, since the pilot agreement became amendable on December 31, 2019. It also cites the MD-90 fleet retirement by 2022, which included $79 million of accelerated depreciation, and the coronavirus outbreak, which led to suspended China flights through April 30, 2020. Delta also reported a pending antitrust class action it describes as without merit.
What is the LATAM transaction and what does it cost?
In January 2020 Delta acquired a non-controlling 20% stake in LATAM Airlines Group for $1.9 billion, or $16 per share. The company also agreed to pay $350 million in transition payments, of which $200 million was disbursed in 2019, and to acquire four A350 aircraft while assuming ten of LATAM's A350 purchase commitments. The strategic alliance remains subject to definitive agreements and regulatory approval.
06—Continue