Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2017)
29 slides from Delta Air Lines's investor day presentation, Dec 13, 2017
Slide 1: Delta Finance 101
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, be lie fs, intentions, projections or strategies for the future, may be "forward - looking statements" as defined in the Private Securities Litigation Re form Act of
Slide 4: Value Drivers Unique to Delta
Value Drivers Unique to Delta 4 Key value drivers often present challenges when modeling Delta’s financial performance • Core to Delta’s International strategy Joint Ventures & Equity Investments 1 • Aligns employees’ incentives with owners’ interests Profit Sharing 2 • Complementary businesses that
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 Joint Ventures Equity Investments • Commercial arrangements based on contracts, not equity • Allow close cooperation and provide more choice for customers • Equal sharing of e
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 7 Delta 3Q17 Press Release Revenue for Delta - operated flights in JV flow through Passenger Revenue JV profit sharing settlements in Other Revenue Delta rea
Slide 8: How Joint Venture Settlements are Determined
8 Settlements balance split of profits above a baseline How Joint Venture Settlements are Determined • Baseline profitability was set for each carrier at the start of the joint venture contract • Current year profits are measured against the established baseline and split proportionately • Joint ven
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 9 Seasonality Example – If Delta Owned 49% of Aeromexico in 2016 $5M $1M $17M $6M 1Q16 2Q16 3Q16 4Q16 AM Earnings (USD) 49% in DL Non-Op $9M $2M $34M $13M • Delta recognizes its 49% share
Slide 10: Accounting for Equity Stakes <20%
Accounting for Equity Stakes <20% 10 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 Balance Sheet with no impact to Income S
Slide 11: Profit Sharing
Profit Sharing 11
Slide 12: Profit Sharing Program
Profit Sharing Program • Eligible profit sharing pool is Delta’s pre - tax profits before profit sharing ─ Employees share 10% of first $2.5 billion of eligible profits and 20% above that amount ─ Delta also accrues for employer taxes and other benefits which adds 2 - 2.5% at 10% sharing level and 3
Slide 13: 2015 Profit Sharing Calculation Example
($M) $5.9B Pre-Tax Income Profit Sharing Calc Revenue $40,704 Expenses (Excludes Profit Sharing) 33,349 Profit Sharing Eligible Profits $7,355 Profit Sharing Eligible Profits Accrual Rates with Benefits Profit Sharing Blended Avg Annual Profit Sharing Rate Profit Sharing (up to $2.5B Threshold) 2,50
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 has created a virtual “jet - only” refinery by exchanging most non - jet fuel products produced by its Monroe refinery for jet fuel with third parties • Roughly $250 - 400 million per year in products are not exchanged and are sold to third parties ─ Margins earned
Slide 16: The Impact of Delta's Ancillary Businesses
The Impact of Delta’s Ancillary Businesses • Delta’s ancillary businesses include Maintenance Repair and Overhaul (MRO), Delta Global Services (DGS), Delta Vacations, and Delta Private Jets (DPJ) • Ancillary businesses are complementary to the airline operation, but may have different seasonality an
Slide 17: Tax Overview – Current Tax Law
Tax Overview – Current Tax Law 17
Slide 18: Delta's Cash Taxes Are Below Book Expense
18 Delta’s cash tax rate will be below its book rate for several years Delta’s Cash Taxes Are Below Book Expense • Delta’s cash tax rate is significantly below its ~35% book tax rate due to: ─ Accelerated depreciation ─ Pension funding ─ Permanently reinvested foreign earnings • Under current tax la
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 20 New accounting standards will change income statement geography • Revenue reclassification improves comparability of reporting across the industry Revenue Recognition 1 • Benefits from Delta’s recent pension funding will be seen in pre - tax margin Pension Cos
Slide 21: Revenue Recognition – P&L Impact Immaterial
Revenue Recognition – P&L Impact Immaterial 21 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 • Reclassification of ~$2
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 22 Old Standard New Standard Impact • Net benefit or cost for pension and related plans is reported within operating expense • Delta will report under current standard in
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 23 Old Standard New Standard Impact • Market value adjustments for investments accounted for as available - for - sale currently recognized in equity • Market value adjustment
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 24 Old Standard New Standard Impact • Generally allowed off - balance sheet treatment as a future commitment, this included primarily airport and aircraft leases • Requires leases to be
Slide 25: Non-GAAP Reconciliations
Non - GAAP Reconciliations 25 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. Securities and Excha
Slide 26: Pre-Tax Income, adjusted for special items
Pre-Tax Income, adjusted for special items ‘We adyst or the folowing tems to determane pretax income, ajsted Tor Special ems, othe Toasons described BOW [TM adusiments and setements MT adustments ate defined as fa valve changes recorded in periods ther than the setlement ‘ered. Such far valve change
Slide 27: Total Expense, adjusted
Total Expense, adjusted ‘We aust tal expensa for ITM edusinenls and satiemant,resrocurng and oer and Virgin lane MTN acusinanls fore se reasons o> sented above under te heeding Pre-Tax Income, adsted Year Ended {in mons December 31,2016 ‘Operating expanse $ ‘ses Non-operating expense Bs Tot expense
Slide 28: Fuel expense, adjusted
Fuel expense, adjusted “The table below shows the componeris of fol expense, Heluding Te mpac he einery segment and ane segment hedging on foal expense, We then adjust for MT adjustments and setlements forthe same reasons as described above under the heacng Pre-Tax Income, adjusted ‘Three Months End
Slide 29: Non-Fuel Unit Cost (CASM-Ex)
Non-Fuel Unit Cost or Cost per Available Seat Mile, Including Profit Sharing ("CASM-Ex") ‘We adjust CASH for the folowing tems to determine CASN-Ex, including proft sharing forthe reasons descnbed below Aircraft tel and related taxes. The volatty in fue prices impacts the comparabilty of year-over-y