Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2017)
30 slides from Delta Air Lines's investor day presentation, Dec 14, 2017
Slide 1: Delta Finance 101
on wit Delta Finance 101
Slide 2: Value Drivers Unique to Delta
Value Drivers Unique to Delta Jill Greer Vice President - Investor Relations
Slide 3: Safe Harbor
Safe Harbor Statements in this presentation that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995
Slide 4: Value Drivers Unique to Delta
Value Drivers Unique to Delta Key value drivers often present challenges when modeling Delta’s financial performance 1 Joint Ventures & Equity Investments 2 Profit Sharing • Core to Delta’s International strategy • Aligns employees’ incentives with owners’ interests 3 Ancillary Businesses 4 Tax Stru
Slide 5: Joint Ventures & Equity Investments
Joint Ventures & Equity Investments 5
Slide 6: International Joint Ventures and Equity Investments
International Joint Ventures and Equity Investments Delta employs a unique strategy of joint ventures and equity investments • Commercial arrangements based on contracts, not equity Joint Ventures • Allow close cooperation and provide more choice for customers • Equal sharing of economic benefits dr
Slide 7: Driving Value Through Joint Ventures and Equity Investments
Driving Value Through Joint Ventures and Equity Investments Benefits from improved revenues, cost efficiencies, & recognizing partner earnings Delta 3Q17 Press Release Revenue for Delta-operated flights in JV flow through Passenger Revenue JV profit sharing settlements in Other Revenue Delta realize
Slide 8: How Joint Venture Settlements are Determined
How Joint Venture Settlements are Determined Settlements balance split of profits above a baseline JV Settlement - Sample Calculation • Baseline profitability was set for each carrier Delta Partner Total at the start of the joint venture contract Baseline (2017) Profit (A) 100 60 160 • Current year
Slide 9: Equity Method Used to Account for Ownership Stakes >20%
Equity Method Used to Account for Ownership Stakes >20% Delta currently owns 49% of Virgin Atlantic & Aeromexico Seasonality Example – • Delta recognizes its 49% share of both If Delta Owned 49% of Aeromexico in 2016 Virgin Atlantic’s and Aeromexico’s results $34M in non-operating income AM Earnings
Slide 10: Accounting for Equity Stakes <20%
Accounting for Equity Stakes <20% Beginning in 2018, GOL, Air France-KLM, and China Eastern stakes will be impacted by a new accounting standard Current – Available for Sale 2018 – Fair Value in Net Income • Market value adjustments recognized in AOCI on • Changes in the fair value of equity instrum
Slide 11: Profit Sharing
Profit Sharing ADELTA 11
Slide 12: Profit Sharing Program
Profit Sharing Program Profit Sharing is a unifying force for the Delta people and aligns the interests of employees, customers and owners • Eligible profit sharing pool is Delta’s pre-tax profits before profit sharing Annual Profit Sharing ─ Employees share 10% of first $2.5 billion of eligible pro
Slide 13: Profit Sharing Calculation – 2015 Example
Profit Sharing Calculation – 2015 Example Delta’s 2015 profit sharing plan was consistent with the current plan, providing a good example of how profit sharing expense will be calculated going forward 2015 Profit Sharing Calculation Example ($M) $5.9B Pre-Tax Income Profit Sharing Calc Revenue $40,7
Slide 14: Third Party Refinery Sales and Ancillary Businesses
Third Party Refinery Sales and Ancillary Businesses 14
Slide 15: Third Party Refinery Sales
Third Party Refinery Sales Delta excludes third party refinery sales from TRASM and adjusted margins • Delta has created a virtual “jet-only” refinery by exchanging most non-jet fuel products produced by its Third Party Refinery Sales Disclosures Monroe refinery for jet fuel with third parties 3Q17
Slide 16: The Impact of Delta's Ancillary Businesses
The Impact of Delta’s Ancillary Businesses Ancillary businesses are complementary to the airline operation and are earnings and cash flow positive Delta's CASM-Ex Calculation • Delta’s ancillary businesses include Maintenance 3Q17 Repair and Overhaul (MRO), Delta Global ($M) Services (DGS), Delta Va
Slide 17: Tax Overview – Current Tax Law
Tax Overview – Current Tax Law 17
Slide 18: Delta's Cash Taxes Are Below Book Expense
Delta’s Cash Taxes Are Below Book Expense Delta’s cash tax rate will be below its book rate for several years 2017 Book vs. Cash Tax Rate (Ex. NOLs) ~35% • Delta’s cash tax rate is significantly below its ~35% book 20-25% tax rate due to: ─ Accelerated depreciation ─ Pension funding ─ Permanently re
Slide 19: Upcoming Accounting Standard Changes
Upcoming Accounting Standard Changes Bryan Treadway Senior Vice President – Finance & Controller
Slide 20: Upcoming Accounting Standard Changes
Upcoming Accounting Standard Changes New accounting standards will change income statement geography 1 Revenue Recognition 2 Pension Costs • Revenue reclassification improves comparability of • Benefits from Delta’s recent pension funding will be reporting across the industry seen in pre-tax margin
Slide 21: Revenue Recognition – P&L Impact Immaterial
Revenue Recognition – P&L Impact Immaterial Drives increase in frequent flyer liability on balance sheet, with P&L impact primarily to geography • Effective January 1, 2018 – Delta will provide a recast of the prior two years, including estimated 2017 impacts shown below Income Statement Balance She
Slide 22: Pension and Other Post-Employment Costs – Change in P&L Geography
Pension and Other Post-Employment Costs – Change in P&L Geography Future pension funding benefits will fall below-the-line • Net benefit or cost for pension and related plans is reported within operating Old Standard expense • Delta will report under current standard in 2017 • Service costs reported
Slide 23: Financial Instruments – Ownership Stakes Visible in P&L
Financial Instruments – Ownership Stakes Visible in P&L Likely to result in incremental volatility in non-operating income • Market value adjustments for investments accounted for as available-for-sale Old Standard currently recognized in equity • Market value adjustments recognized in non-operating
Slide 24: Leases – Balance Sheet Impact, but Likely P&L Neutral
Leases – Balance Sheet Impact, but Likely P&L Neutral Delta continues to evaluate the impact to the Balance Sheet • Generally allowed off-balance sheet treatment as a future commitment, this Old Standard included primarily airport and aircraft leases • Requires leases to be recorded on the balance s
Slide 25: Please join us for cocktails
Please join us for cocktails Delta Flight Museum – Boeing 747 Exhibit
Slide 26: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-GAAP Financial Measures Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Under the U.S.
Slide 27: Pre-Tax Income, adjusted for special items
Pre-Tax Income, adjusted for special items We adjust for the following items to determine pre-tax income, adjusted for special items, for the reasons described below: MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement peri
Slide 28: Total Expense, adjusted
Total Expense, adjusted We adjust total expense for MTM adjustments and settlements, restructuring and other and Virgin Atlantic MTM adjustments for the same reasons as described above under the heading Pre-Tax Income, adjusted. " Year Ended December 31, 2015 (in millions) Operating expense $ 32,902
Slide 29: Fuel expense, adjusted
Fuel expense, adjusted The table below shows the components of fuel expense, including the impact of the refinery segment and airline segment hedging on fuel expense. We then adjust for MTM adjustments and settlements for the same reasons as described above under the heading Pre-Tax Income, adjusted
Slide 30: Non-Fuel Unit Cost or Cost per Available Seat Mile (CASM-Ex)
Non-Fuel Unit Cost or Cost per Available Seat Mile, Including Profit Sharing ("“CASM-Ex") We adjust CASM for the following items to determine CASM-Ex, including profit sharing for the reasons described below: Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of