Slide 1: Transformation Plan
Transformation Plan Edward H. Bastian October 19, 2005
Slide 2: Safe Harbor
2 This presentation contains various forward-looking statements which represent the company’s estimates or expectations regarding future events. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected resu
Slide 3: Overview
3 Overview • Over the past four years, Delta has done everything we could do outside of court to improve our financial situation-$3 billion Profit Improvement Initiative launched late 2002-Transformation Plan announced in fall 2004; new total of $5 billion in annual benefits to be achieved by end of
Slide 4: 2005 Achievements Have Been Offset by Fuel Prices
4 (2,281) 2005 Projected Net Loss1Revenue / Non-Fuel Expenses Fuel Price 2004 Net Loss1(1,479) 1,602 (2,158 )2005 Achievements Have Been Offset by Fuel Prices 1 Excluding special items
Slide 5: Transformation Plan objectives
5 Transformation Plan Delta’s Transformation Plan has the following objectives:1) Achieve long-term viable cash flow and operating results 2) Create a competitive cost structure with low cost carriers 3) Sacrifices must be shared equitably across stakeholder groups 4) Ensure that our cost reductions
Slide 6: Methodology for Required $3 Billion Financial Benefits
6 Methodology for Required $3 Billion Financial Benefits • First, analyzed Delta’s network, rightsizing supply to highest yielding demand-All feasible options for enhancing revenue were explored • Reviewed all controllable non-labor costs for reduction opportunities while maintaining a safe operatio
Slide 7: Transformation Plan Detail
7 Transformation Plan Detail1Does not include any savings from suspension of contribution requirements from the defined benefit plans during the two year period$3 billion per year in additional financial benefits essential to restoring Delta to profitability1SavingsKey Components1,100$Capacity reduc
Slide 8: Delta Revenue Performance
8 Delta Revenue Performance 11 12 13 14 15 16 2000 2001 2002 2003 2004 2005-23% Delta Domestic Yield(¢)Source: DOT Form 41 for consolidated operations Domestic yields have fallen 23% since 2000 2005 v.2000
Slide 9: Delta Fuel Price
9 Delta Fuel Price 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2000 2001 2002 2003 2004 2005 Delta Average Annual Fuel Price 1 ($ per gallon) 1 Fuel price is consolidated average annual price per gallon Fuel price has nearly tripled since 2000 and is currently at $2.50 per gallon in October 2005 v.2000 3X
Slide 10: Mainline Unit Cost vs LCC Average
109.818.967.766.71Mainline Unit Cost LCC Average 7.81¢Cents (¢)Delta’s 1H05 CASM1gap to LCC average is 26% 1Excludes special items Source: 1H05 earnings releases Our costs must be within 10% of LCC’s costs 7.81 9.81 1.14 0.44 0.42 6 7 8 9 10Delta CASM Employment Cost Fuel Hedges All Other Expenses L
Slide 11: Labor CASM - Other Airlines
Labor CASM (cents) - Other Airlines Stage Length Adjusted 1, 2Q 2005 3.97 3.91 3.65 3.45 3.26 2.59 2.55 2.50 2.39 2.25 2.12 1.83 June Quarter 2005 Mainline Labor CASM-21%
Slide 12: Non-Pilot Labor CASM
Non-Pilot Labor CASM - Stage Length Adjusted, 2Q 2005 2.82 2.79 2.76 2.49 2.21 1.77 1.74 1.71 1.64 1.58 1.42 1.16 June Quarter 2005 Non-Pilot Labor CASM-20%
Slide 13: Pilot Labor CASM
Pilot Labor CASM - Stage Length Adjusted (cents), 2Q 2005 1.15 1.14 1.05 0.95 0.86 0.82 0.81 0.81 0.79 0.70 0.66 0.61 June Quarter 2005 Pilot Labor CASM-22%
Slide 14: Employee Salary Comparison
14 Employee Salary Comparison Source: Aircon and labor contracts adjusted for announced salary changes FTO Agent $50,652 $43,428 $42,847 $42,785 $42,015 $40,850 $40,738 $38,000 $37,439 $36,480 $35,775 WN NW AA UA B6 CO DL NW US DL FL Flight Attendant $50,771 $44,196 $43,335 $40,140 $39,987 $35,712 $
Slide 15: Pilot Rate Comparison
15 Pilot Rate Comparison Post Emergence Bankruptcy Rate Proposed Post Emergence Bankruptcy RateProposed737NG/A320 Captain Top of Scale $173 $163 $158 $139 $139 $129 $129 $125 $122 DL CO AA DL B6 UA NW US NW 757 Captain Top of Scale $181 $166 $163 $150 $145 $144 $134 $127 DL AA CO UA DL US NW NW 777/
Slide 16: Employee Reductions are Equivalent to Payroll Share
16 Employee Reductions are Equivalent to Payroll Share Pilot 35% $821 Non-pilot 65% $1,550 Reduction ($MM)% of Total Pilot $325 35% Non-pilot $605 65% Total $930 100% Percent of Mainline Salaries & Benefits(1H05, $MM)
Slide 17: Debtor-in-Possession Financing
17 Debtor-in-Possession Financing • Delta faced a near-term cash crisis prior to DIP financing • DIP financing of $2.2 billion has been secured-Led by General Electric, Morgan Stanley and American Express-Represents $1.2 billion of incremental liquidity after payoff of existing loans • In return for
Slide 18: Timing is Critical
18 Timing is Critical • Operating losses must be stopped quickly -borrowed money cannot fund continued losses-Continued availability of DIP financing depends on meaningfully and promptly demonstrating our ability to turn the company around in short amount of time • Need to achieve necessary cost red
Slide 19: EBITDAR Covenant Projection
$250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 EBITDAR Covenant Projection Timing of transformation reductions critical 12 Month Rolling EBITDAR ($MM)11 Earnings before interest, taxes,
Slide 20: Summary
20 Summary • Delta has made tremendous progress to date in its bid to transform itself, but this progress has been masked by fuel price increases • $3 billion per year of new benefits in the Transformation Plan will be painful but are imperative to survive in today’s intensely competitive environmen
Slide 21: Reconciliation of GAAP to Non GAAP Financial Measures
21 Reconciliation of GAAP to Non GAAP Financial Measures Six months ended June 30, 2005 Mainline CASM Financial Information Mainline CASM¢ 10.74 Items excluded Pension and related charges (0.92) Aircraft charges(0.01) Total items excluded (0.93) Non-GAAP ¢9.81 Twelve months ended December 31, 2004 N