Post on 20-May-2020
transcript
Delta Insights
December 11, 2019
Delta Insights
Environmental Sustainability
International Partner Strategy
Driving Value from Customer Experience and Loyalty
Finance Insights
Governance Overview
Governance Overview
Board of Directors
4
Age: 62
Director since: 2010
Other Public COMMITTEES:
Boards: 1 N/A
Age: 70 INDEPENDENT
Director since: 2014
Other Public COMMITTEES:
Boards: 2 Audit, Corporate Governance★,
and Personnel & Compensation
★ Committee Chair
2
11
Independence
1
57
Board Tenure
0-4 years
5-9 years
10+ years
5
8
Diversity
5
8
1
2
5
8
3
2
11
Government Affairs/Security
Global Business
Energy
Technology/Cybersecurity/Digital
Risk Management
Finance/Accounting
Marketing/Brand Management/Data
Airline/Transportation Industry
Senior Leadership
Skills Independent Directors Collectively Possess
All independent
except CEO and
ALPA Nominee
Average tenure 5
years
5 of 13 directors are
diverse from racial,
gender or ethnic
standpoint
Delta’s board includes a rich and varied mix of expertise as well as a broad
distribution of board tenure
EDWARD H. BASTIANCEO of Delta
FRANCIS S. BLAKEFormer Chairman and CEO of
The Home Depot
Non-executive Chairman of the
Board of Delta
Board of Directors
5
Age: 71 INDEPENDENT
Director since: 2007
Other Public COMMITTEES:
Boards: 2 Corporate Governance, Finance,
and Personnel & Compensation★
Age: 65 INDEPENDENT
Director since: 2017
Other Public COMMITTEES:
Boards: 0 Audit and Safety & Security
★ Committee Chair
Age: 55 INDEPENDENT
Director since: 2011
Other Public COMMITTEES:
Boards: 2 Audit and Safety & Security★
Age: 70 INDEPENDENT
Director since: 2012
Other Public COMMITTEES:
Boards: 2 Audit★, Corporate Governance, and
Safety & Security
Age: 52
Director since: 2019
Other Public COMMITTEES:
Boards: 0 Safety & Security
Age: 63 INDEPENDENT
Director since: 2018
Other Public COMMITTEES:
Boards: 0 Audit and Safety & Security
DANIEL A. CARPFormer Chairman and CEO of
Eastman Kodak
ASHTON B. CARTERDirector of the Belfer Center for
Science and International Affairs
at Harvard Kennedy School
DAVID G. DEWALTFormer Executive Chairman and
CEO of FireEye
WILLIAM H. EASTER IIIFormer Chairman, President and
CEO of DCP Midstream
CHRISTOPHER A. HAZLETONCaptain, Airbus 321, Delta
MICHAEL P. HUERTAFormer Administrator of the
Federal Aviation Administration
Board of Directors
6
Age: 68 INDEPENDENT
Director since: 2017
Other Public COMMITTEES:
Boards: 2 Finance and Personnel &
Compensation
Age: 59 INDEPENDENT
Director since: 2014
Other Public COMMITTEES:
Boards: 1 Finance and Personnel &
Compensation
★ Committee Chair
KATHY N. WALLERFormer Executive Vice President,
CFO and President, Enabling
Services of The Coca-Cola
Company
Age: 60 INDEPENDENT
Director since 2015
Other Public COMMITTEES:
Boards: 2 Audit, Corporate Governance, and
Safety & Security
Age: 53 INDEPENDENT
Director since: 2012
Other Public COMMITTEES:
Boards: 1 Corporate Governance, Finance★,
and Personnel & Compensation
Age: 61 INDEPENDENT
Director since: 2019
Other Public COMMITTEES:
Boards: 1 Finance and Personnel &
Compensation
Age: 61 INDEPENDENT
Director since: 2015
Other Public COMMITTEES:
Boards: 2 Audit, Corporate Governance and
Safety & Security
JEANNE P. JACKSONFormer President, Senior
Strategic Advisor to the CEO of
NIKE
GEORGE N. MATTSONFormer Partner of Goldman
Sachs
SERGIO A.L. RIALCEO of Banco Santander Brazil
DAVID S. TAYLORChairman of the Board,
President and Chief Executive
Officer of The Procter & Gamble
Company
KATHY N. WALLERFormer Executive Vice
President, CFO and President,
Enabling Services of The Coca-
Cola Company
7
Governance Practices
Sound Governance in Place
Delta has a history of a strong, independent Board, composed of seasoned members with diversity of experiences. The Board is committed to sound
corporate governance practices in line with evolving best practices
Board
• Separate non-executive Chairman and CEO roles
• All directors elected annually with majority voting in uncontested
elections
• No outside director will stand for re-election after age 72
• Robust annual self-evaluation of Board and committees
Shareholder rights
• 3/3/20 proxy access
• No shareholder rights plan (poison pill) or super-majority voting
Stock ownership
• Anti-hedging and anti-pledging policy for all employees and Board
• Meaningful stock ownership and retention guidelines for Board
and executive officers
• Ownership of specific airline competitors’ stock by Board and
officers prohibited
Executive Compensation Closely Tied to Performance
• Compensation based on linking pay to performance
through a mix of relative and absolute financial and
operational performance measures
• Measures of the operation include on-time performance,
baggage handling, flight completion factor, and net
promoter scores
• Financial measures include absolute pre-tax income,
relative pre-tax margin, relative TRASM performance,
return on invested capital, and relative total shareholder
return
8
9
Executive Compensation Practices
• Commitment to pay-for-performance philosophy that
emphasizes shareholder value creation
• Use of multiple performance measures, both absolute and
relative, both annual and long-term – aligned with broader
employee incentive plans
• Clawback policy for all officers
• “Double trigger” vesting of incentive awards in a termination
during a change in control
• No employment agreements for officers
• Full disclosure of incentive plan performance measures
“Pay for Performance” Approach to Compensation
Environmental Sustainability
John Laughter
Sr. Vice President Corporate Safety, Security
and Compliance
Investor Day Emissions Offset by Delta
All emissions associated with air travel for Investor Day have been offset by Delta through verified carbon offset credits from The Guatemalan Conservation Coast
Project, which protects 54,000 hectares of threatened rainforests, conserving over 400 bird species and supporting local farmers and communities.
11
“Being a good corporate
citizen is key to the Delta
culture, which is why our
sustainability efforts are more
than just words. Delta is
committed to producing
significant, measurable
results as a part of its
sustainability strategy.”
Ed Bastian, Delta CEO
9th year
5th year
B Score
Annual Corporate
Responsibility Report
12
Environmental Sustainability – Core to Delta’s Values-Led Brand
Reducing emissions from jet fuel is a primary
focus
Eliminating waste and diverting hundreds of
thousands of pounds from landfills
annually
Ensuring that our employees,
customers, and the communities we serve benefit from our commitment
13
Climate Action
Waste Reduction
Stakeholder Engagement
Environmental Sustainability – Key Focus Areas
Jet Fuel 98%
Other Emissions 2%
Fleet Renewal
Sustainable Aviation Fuel
Carbon Neutral Growth
Climate Action: Jet Fuel is Our Biggest Opportunity
14
Jet fuel accounts
for over 98% of
Delta’s total
emissions Fuel Efficiency
Fleet Renewal
300+NEW AIRCRAFT IN LAST 5 YEARS
25%MORE EFFICIENT THAN AIRCRAFT
THEY ARE REPLACING. :
2%ANNUAL FUEL
EFFICIENCY IMPROVEMENT
11%REDUCTION IN EMISSIONS SINCE 2005
Climate Action: Renewing our Fleet and Driving Efficiency
15
APUreduce fuel usage through heat carts,
ground power units, and enhanced power
conditioned air at gates
TURBULENCE APPreduce fuel burn by predicting altitude
and speed changes to avoid turbulence
COST TO CARRYreduce fuel burn by identifying lighter
weight components on aircraft and
improving catering provisions onboard
Fuel Efficiency
2020 GOAL: Save 45 Million Gallons
Climate Action: Sustainable Aviation Fuels (SAF)
Up to 80% reduction in lifecycle emissions compared to conventional jet
16
• Partnership with Airbus on delivery flights out of Toulouse
• Partnership with Airbus and Air BP for carbon neutral
delivery flights out of Mobile
Feasibility study for SAF production facility in Washington
State:
• Feedstock: wood residue in forests which can cause
forest fires
• If successful, SAF available late 2023
• SEA, PDX, SFO, LAX
SAF on Delivery Flights SAF Production Facility
17
Capping Emissions Through Carbon Offsets
Reduces CO2 in the atmosphere through
verified emissions reductions
12 MILLIONMETRIC TONS OF CO2 REDUCED
GLOBALLY BY DELTA'S CARBON
OFFSETS
EQUIVALENT TO EMISSIONS FROM
1.7 MILLIONPASSENGER VEHICLES FOR 1 YEAR
CARBON NEUTRAL
GROWTHSINCE 2012
Social Cobenefits
Advances the UN's Sustainable Development
Goals, such as:
• Decent Work and Economic Growth
• Reduced Inequalities
• Sustainable Communities
and Climate Action
Climate Action: Commitment to Carbon Neutral Growth
Delta is the only global airline to voluntarily cap emissions at 2012 levels
Reduced Waste
300,000POUNDS PER YEAR IN
PLASTIC REDUCTIONS
5%ON CAMPUS WASTE
REDUCTION THROUGH
COMPOSTING
350,000+POUNDS UNIFORMS
DIVERTED FROM
LANDFILLS
Waste Reduction
18
19
Green Up
Business Resource Group
• Delta’s largest and fastest growing BRG -
4,000 members
• 2,000 pounds of food donated in last 6
months
• Spearheaded compostable materials in
campus cafeterias
• Hosted first Electric Vehicle Expo to
educate employees
Youth Advisory Board
on Sustainability
• 16 members, representing 11 states &
American Samoa
• Provides Delta insight into our younger
generation's mindset around
sustainability
Habitat for Humanity
• In Flight Recycling - Recycled more than
3 million pounds of aluminum, which is
equivalent to the weight of 6 Airbus
350s
• Raised enough funds to build 12 of
Delta’s 270+ Habitat for Humanity homes
in communities we serve
Engaging Our Employees, Customers and Communities
Delta’s International Partner Strategy
Steve Sear
President, International
EVP, Global Sales
Delta’s Joint Ventures and Equity Investments
21
~$3B Joint Venture
10% equity stake in Hanjin-KAL
~$1B Joint Venture
~$11B Joint Venture
9% Equity stake
~$3B Joint Venture
49% Equity stake
Pending ~$1B Joint Venture
Equity Joint Venture
~$1B Joint Venture
47% Voting Interest 3% Equity stake
Expanded JV of ~$13B(Launching January 1, 2020)
Note: WestJet JV subject to government approvals; LATAM equity stake subject to tender offer completion and JV subject to government approvals; Aeromexico is non-
controlling 51% equity interest (voting by foreign shareholders limited under Mexican law).
Planned Future ~$2B Joint Venture
Pending 20% Equity Stake
• IROP Protection
• Inventory Access
• Through Check-In
• Joint Commercial
and Operational
Planning
• Harmonized
Policies
• Profit Sharing
Based
• Operational and
Customer
Experience
Coordination
• Board Participation
in Most
Relationships
• Single Brand
Selling (DL*)
• Loyalty / Lounge
• Complete Strategic
Alignment
• Talent exchange
and best practices
Uniquely Creating Deeper Partnerships That Maximize Benefits
22
Minimal Cooperation Deep Cooperation
Highest value
Interline Joint VentureIncl. Antitrust Immunity (ATI)
Codeshare Equity Equity and Joint Venture
Note: WestJet JV subject to government approvals; LATAM JV and equity stake are subject to tender completion and government approvals; Aeromexico is non-
controlling 51% equity interest (voting by foreign shareholders limited under Mexican law).
Value from Delta’s Partner Investments Continue to Mature in 2020
• Through 2019, Delta has made
significant progress in building
out a strong partner portfolio
• Benefits extend beyond 2020 as
initiatives mature
23
Continued growth and ramp-up
Implement new transborder JV
Launch strategic partnership
Implement new expanded JV
Note: WestJet JV subject to government approvals; LATAM JV and equity stake are subject to tender completion and government approvals
Delta’s International Partner Strategy Panel
24
Steve SearPresident International & EVP Global Sales
Perry CantaruttiSenior Vice President Alliances
Matteo CurcioVice President Asia Pacific (Seoul)
Nicolas FerriChief Commercial Officer, Aeromexico (Mexico City)
Roberto IoriattiVice President Transatlantic (Amsterdam)
Driving Value from Customer Experience and Loyalty
Sandeep Dube
Sr. Vice President
Customer Engagement
& Loyalty
The Value of Customer Experience
26
When consumers love your
products and services, it
leads to better business
results
NPS: Delta’s Measure of Customer Experience
27
Promoter DetractorNeutral
Definitely Will5 Probably Will4 3 2 1May or May Not Probably Will Not Definitely Will Not
Survey Question
How likely are you to recommend Delta?
Calculation
Net Promoter Score (NPS) = % Promoters - % Detractors
Better Business Results Driven by Best-in-Class Customer Experience
Note: NPS sourced from Domestic ISM Surveys; 2019 PRASM data is TTM 3Q19; 2019 NPS Data is YTD Oct 2019
28
Strong relationship observed between
NPS andRevenue Premium
106%
117%119%
15%
38%
51%
2010 2015 2019YTD 3Q19
Domestic Revenue Premium Domestic NPS
Domestic NPS & Revenue Premium
The Delta People
Delta Leverages Its Key Assets to Elevate Customer Experience
29
NPS is measured across the travel ribbon to understand customer pain points and to inform decisions on future investments
START DEST.ARRIVALONBOARDBOARDINGSECURITYCHECK-INBOOKING
Data and Process Understanding the Customer
Improving Customer Experience Drives Loyalty Which Unlocks Value
“Delivering a distinctive journey
experience makes it more likely
that customers repeat a purchase,
spend more, recommend to their
friends, and stay with your
company” Source: From touchpoints to journeys - Seeing the world as customers do
(McKinsey Quarterly, March 2016)
Top Line Revenue
Brand LoveLoyalty
SkyMiles Member
with Credit Card
ActiveSkyMiles Member
Non-
Member
Lifetime Customer Value30
The Strategic Importance of American Express
31
Contract renewal through 2029 provides platform for significant value creation
for both partners
Delta-American Express Contribution
$1.4B
~$7B
2010 2023E
Finance Insights
Jill Greer Vice President, Investor Relations
Julie StewartManaging Director, Investor Relations
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.
All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates,
expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and
uncertainties include, but are not limited to, the cost of aircraft fuel; the availability of aircraft fuel; the impact of fuel hedging activity including
rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the
performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; breaches
or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on
technology in our operations; the restrictions that financial covenants in our financing agreements could have on our financial and business
operations; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in
services provided by third parties; failure or inability of insurance to cover a significant liability at Monroe’s Trainer refinery; the impact of
environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior
management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity through social media;
the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major
airports at which we operate; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged
periods of stagnant or weak economic conditions; uncertainty in economic conditions and regulatory environment in the United Kingdom related
to the exit of the United Kingdom from the European Union; and the effects of the rapid spread of contagious illnesses.
Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is
contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December
31, 2018. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of
December 11, 2019, and which we have no current intention to update.
33
Agenda
34
Commonly Asked Modeling Questions- Revenue disclosures
- Pension update
- Tax update
- Joint Ventures & equity investment accounting
- Profit sharing calculation
- Airport investments
Investor Relations Update- Perception study feedback
- Update on approach to financial guidance
P E R C E P T I O N S T U D Y
We Asked – You Told Us
35
Strengths
• A clear strategic vision
• Competitive positioning
• Strong management
• Building brand loyalty
• Leading financial performance
Opportunities
• Demonstrate ability to sustain
success over a cycle
• Maintain margin premium
• Cost management
• Target setting
U P D A T E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E
Evolving Our Guidance Approach
36
Focus on the metrics that inform our business decisions
Reduce number of adjustments in key performance measures
Reduce near-term updates and provide better information
for long-term investment
Streamline annual
guidance
Reduce
adjustments
Long-term
perspective
U P D A T E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E
Reducing Adjustments to Improve Transparency
37
Revised Definition(starting in 2020)
Prior Definition
Non-fuel unit cost Excluding fuel and profit sharingExcluding fuel, profit sharing and ancillary
businesses
Free Cash FlowOperating Cash Flow less net Property &
Equipment (adj. for LGA)
Operating Cash Flow
less GAAP Investing Cash Flow
adjusted for LGA and short-term
investments
U P D A T E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E
2020 Guidance Metrics
38
• Total revenue growth
• Earnings per share
• Free cash flow
• Pre-tax margin
• Total revenue growth
• Unit revenue (TRASM)
• Unit cost (CASM-ex)
• Fuel price
• Pre-tax margin
Annual
Focusing on metrics that create shareholder value
Quarterly
Including key performance drivers
Reducing near-term noise and providing a
more long-term perspective
• Ending quarter-end
guidance updates
• Eliminating monthly
traffic
• Moving Investor Day to
June
• Establishing multi-year
targets
• Evaluating enhanced
loyalty disclosure
• Increased insight into
portfolio businesses
39
U P D A T E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E
Evolving Our Approach
Long-Term Focus Better InsightFewer Near-Term Updates
Agenda
40
Commonly Asked Modeling Questions- Revenue disclosures
- Pension update
- Tax update
- Joint Ventures & equity investment accounting
- Profit sharing calculation
- Airport investments
Investor Relations Update- Perception study feedback
- Update on approach to financial guidance
6%
8%
5%
18%
63%
Ancillary and Cargo
Travel Related Services
Loyalty Program
Premium Products
Main Cabin
R E V E N U E D I S C L O S U R E S
Building Durability through Healthy and Diverse Revenue Streams
41In
du
str
y
2019E~$47B
Ge
og
rap
hy
Lo
ya
lty
Corporate Revenue Mix by Sector
Top Sectors
1. Financial Services (15%)
2. Manufacturing (15%)
3. Technology (14%)
Domestic (72%)
Atlantic (15%)
Latin (7%)
Pacific (6%)
Ticket Revenue Mix by Entity
Ticket Revenue Mix by SkyMiles Status
Elite (29%)
General Member (33%)
Non Member (38%)
47%
32%
10%
5%
6%
Note: All figures based on 2019 estimates
2011$35B
R E V E N U E D I S C L O S U R E S
Revenue Components of Disclosed Categories
Note: Premium revenue based on cabin flown
Total Revenue
Passenger Revenue (~90% of Total Revenue)
Other Revenue(~8% of Total Revenue)
Travel-Related
Services
Loyalty
Travel Awards
Ancillary and
Refinery
Miscellaneous
LoyaltyTicket
Main Cabin
• Main
• Basic Economy
Ticket
Premium
• Delta One
• Domestic First Class
• Delta Premium Select
• Comfort+
• Mileage redemptions for
travel (includes mileage
upgrades)
• Services related to flight
(bag fees, change fees,
on board sales, co-brand
bag waivers)
• MRO
• Delta Vacation
• Third-party refinery sales
• Sky Club lounge access (includes revenue from co-brand
partner for club access on certain card products)
• Codeshare
• Brand value of mileage
sales under marketing
agreements
• Redemption of miles for
non-travel awards
Cargo(~2% of Total Revenue)
Note: Revenue percentages are a breakout of 2019 estimates
42
R E V E N U E D I S C L O S U R E S
Methodology for Revenue Allocation
• Premium revenue growth driven by fleet
transformation, branded fares, and
improved upsell capabilities
• Classification of ticket revenue
determined by cabin flown
‒ Use of miles as payment allocates
portion to loyalty-related revenue
‒ Post-ticketing upgrades shift
original fare to premium ticket
revenue
Revenue Allocation
Purchase ExamplesMain -
Ticket
Premium -
TicketLoyalty
$200 Main Cabin Fare $200 fare
20,000 Mile Main Cabin Fare $200 fare
$250 Premium Fare $250 fare
25,000 Mile Premium Fare $250 fare
$200 Main Cabin Fare and
$50 Upgrade to Premium$200
$200 fare
$50 upgrade
$200 Main Cabin Fare and
5,000 Mile Upgrade to Premium$200 $200 fare $50 upgrade
20,000 Mile Main Cabin Fare and
5,000 Mile Upgrade to Premium
$200 fare
$50 upgrade
20,000 Mile Main Cabin Fare and
$50 Upgrade to Premium$50 upgrade $200 fare
43
R E V E N U E D I S C L O S U R E S
Mileage Sales and Recognition in the Financial Statements
Cash from Mileage Sales Agreements
Remainder to Balance Sheet as Deferred Revenue
Recognized in Revenue When Miles are Redeemed
44
Income Statement Recognition:
Category Subcategory
Companion Certificates Passenger Revenue Ticket
Bag Fee Waivers, Priority Boarding Passenger Revenue Travel-Related Services
Brand Value Other Revenue Loyalty
Sky Club Other Revenue Miscellaneous
Operating Expense (contra) Operating Expense Other selling expenses (contra)
Delta Delivers Again in 2017P E N S I O N U P D A T E
Proactively Addressing Pension Obligation
• Impact of lower interest rates on liability mitigated by elective contributions and strong returns
• Expect unfunded liability ~$6 billion at the end of 2019
• Elective contribution of $1 billion in 2019 with $500 million planned in 2020
• Pension relief provides flexibility with no mandatory funding through 2024
• Non-operating headwind from pension in 2019 reversing in 2020
• Expect favorability in year-over-year from pension income driven by strong expected return in 2019
38%
68% ~70%
2012 2018 2019E
Funded Status %
Balance Sheet
Cash Flow
Income Statement
45
5.4x
0.9x 0.7x
2012 2018 2019E
Funded Status as % OCF
Book Tax Rate Estimated CashTax Rate
23-24%
10-12%
T A X U P D A T E
Cash Taxes Expected To Begin in 2021
• Cash tax rate is expected to remain below the
book tax rate for next several years
• Lower cash tax rate reflects:
─ Immediate expensing of asset additions allowed
by Tax Cuts and Jobs Act of 2017
─ Pension funding
• Expect to exhaust NOLs and tax credits in 2020
and transition to a full cash tax payer in 2021 at
a 10% to 12% rate
$17.5 $15.3
$5.9
$2.2
2010 2013 2016 2018
Expected Book vs. Cash Tax Rate
Net Operating Loss Carry Forwards ($B)
46
47
~$3B Joint Venture
10% equity stake in Hanjin-KAL
~$1B Joint Venture
~$11B Joint Venture
9% Equity stake
~$3B Joint Venture
49% Equity stake
Pending ~$1B Joint Venture
Equity Joint Venture
~$1B Joint Venture
47% Voting Interest 3% Equity stake
Expanded JV of ~$13B(Launching January 1, 2020)
Note: WestJet JV subject to government approvals; LATAM JV and equity stake are subject to tender completion and government approvals; Aeromexico is non-
controlling 51% equity interest (voting by foreign shareholders limited under Mexican law).
Planned Future ~$2B Joint Venture
Tender Underway for 20% Equity Stake
J O I N T V E N T U R E & E Q U I T Y I N V E S T M E N T A C C O U N T I N G
Delta’s Joint Ventures and Equity Investments
J O I N T V E N T U R E & E Q U I T Y I N V E S T M E N T A C C O U N T I N G
JVs and Equity Investments Create Strong Commercial Cooperation
• Allow close cooperation and provide more
choice for customers
• Sharing of economic benefits drives
customer-focused partner alignment
• Antitrust immunity allows for legal
coordination, forming a fully cooperative
relationship
• Contribution to operating results through JV
settlements
• Commitment to relationship, often reinforced
through board-level participation
• Increased opportunities for best practice
implementation and talent sharing
• Delta’s portion of partner results is
recognized in the non-operating line when
ownership stake is 20% or greater
48
Joint Ventures Equity Investments
J O I N T V E N T U R E & E Q U I T Y I N V E S T M E N T A C C O U N T I N G
Driving Value Through Joint Ventures and Equity InvestmentsBenefits from improved revenues, cost efficiencies and percentage of partner earnings
49
Revenue for Delta-operated flights in JV flow through
passenger revenue
JV settlements flow through other revenue, accrued
quarterly based on full year expected settlements
Delta realizes cost efficiencies through scale & scope –
expenses for DL-operated flights in JV flow through
operating expenses
~50% of net income for Aeromexico and Virgin Atlantic
flows through non-op, giving Delta effectively 75% of the
JV economics
Delta 3Q19
Press Release
Equity changes for <20% stakes are marked-to-market
and flow through non-op, and are excluded from
adjusted earnings
J O I N T V E N T U R E & E Q U I T Y I N V E S T M E N T A C C O U N T I N G
Joint Venture Settlements Balance Profits
($M) Delta Partner Total
Baseline Year Profit (A) 100 60 160
Total Year 2 Profit (B) 250 220 470
Incremental Value (C = B-A) 150 160 310
50/50 Split of Value (D) 155 155 310
Settlement (E = D - C) 5 (5) 0
JV Settlement - Sample Calculation
for a 50/50 Split• Joint venture economics determined by pre-set
baselines, set for each carrier at the start of the
contract
• Current year profits are measured against the
established baseline with incremental profits split
proportionately through a settlement mechanism
• Joint venture settlements are accrued quarterly as
part of other revenue based on full year expected
settlement
• Changes to JV settlement payables / receivables
reflected in Cash Flow from Operating Activities
3Q19 Earnings Press Release:
50
P R O F I T S H A R I N G C A L C U L A T I O N
Understanding Delta’s Employee Profit Sharing Program
• Rewarding employees through profit sharing is a
unifying force
• Eligible profit sharing pool is determined by
Delta’s adjusted pre-tax profits
─ Employees receive 10% of first $2.5 billion of eligible profits and 20% above that
─ Delta incurs employer taxes and other costs which add 2% to 2.5% at 10% level and 3% to 4% at 20% level
• Profit sharing accrual is updated monthly
• Expect 2019 will mark record profit sharing and
6th annual profit sharing accrual over $1 billion
$1.1B
$1.5B
$1.1B $1.1B
$1.3B
~$1.5B
2014 2015 2016 2017 2018 2019E
Annual Profit Sharing
51
Blended Average Profit Sharing Rate
Pre-Tax Income
Revenue $ 44.0B
Expenses (excluding profit sharing) $ 37.8B
Profit Sharing $ 1.2B
Pre-Tax Income $ 5.0B
Profit Sharing Total
$2.5B threshold = $2.5B x ~12.5% $0.3B
Above threshold = $3.7B x ~23.5% $0.9B
Profit Sharing Pool = $6.2B $1.2B
Profit Sharing Pool
Revenue: $ 44.0B
Expenses (excluding profit sharing): $ 37.8B
Revenue – Expenses = Profit Sharing Pool: $ 6.2B
P R O F I T S H A R I N G C A L C U L A T I O N
Impact of Profit Sharing on the Income Statement – Illustrative Example
Profit Sharing Total
Profit Sharing Pool
$1.2B
$6.2B= = ~20%
=
=
Total =
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• Delta maintains control over project cost
and timeline
• Provides greater control of customer
service and operational disruption
• Costs paid up front or reimbursed by
airport
• Airport usually issues bonds to fund
construction
• Airport recovers costs through rents/fees
over lease term
• Examples: ATL – Delta concourses, LAX
• Delta approaches each construction project individually, working closely with airport partners
• Airports have different structures for how they charge airlines fees and rents
− Landing/flight fees are assessed by aircraft weight and cover airfield-related costs to construct, maintain, and operate runways
and taxiways
− Rents cover the cost to construct, maintain and operate landside assets (primarily terminals and concourses), assessed by
facilities leased, passenger volumes, or other measure of usage
A I R P O R T I N V E S T M E N T S
Delta’s Financial Approach to Airport Investments
• Delta maintains control over project cost
and timeline
• Provides greater control of customer
service and operational disruption
• Cash or debt financing by Delta locks in
ownership costs and avoids periodic rent
increases related to construction/building
• Facility rents decline, depreciation
increases (and interest expense, if
financed)
• Example: LGA
Delta Managed /
Financed
Delta Managed /
Airport Financed
• Airport manages project and usually
finances through bond offerings
• Delta engages with airport to mitigate
potential customer impact from
construction
• Delta has less input on costs, design
• Airport recovers costs through rents/fees
over lease term
• Examples: ATL – Airfield, SLC, SEA
Airport Managed /
Financed
Renovation funding of key airports including ATL, LAX, LGA, SEA, and SLC
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