Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Presentation (December 2006)
54 slides from Delta Air Lines's investor presentation, Dec 19, 2006
Slide 1: Delta Air Lines - Plan of Reorganization
Delta Air Lines -Plan of Reorganization December 19, 2006
Slide 2: Safe Harbor
Safe Harbor 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 proj
Slide 3: Agenda
Agenda • Opening Statement Jerry Grinstein • Transformation Overview Ed Bastian • Financial Plan Ed Bastian • Business Strategy Jim Whitehurst • Response to US Airways proposal Jerry Grinstein
Slide 4: Transformation Overview
Transformation Overview Ed Bastian Chief Financial Officer
Slide 5: Standalone Plan Creates Significant Value
Standalone Plan Creates Significant Value • In the past 15 months, Delta has delivered on its commitments-Created financial stability-Transformed business model • Plan of reorganization positions Delta as a strong competitor on a standalone basis • Performance achieved through best-in-class CASM per
Slide 6: We are Delivering on our Commitments
We are Delivering on our Commitments …having significant impact Three pillars of Delta’s Transformation plan ... Closing RASM Gap • Right-size domestic capacity • Greater international mix • Improved operations and customer service 1 Repair Balance Sheet • Improved liquidity • Unsecured debt, fleet
Slide 7: We Have Achieved Great Progress Against Our Transformation Plan
6 Transformation progress…• Closing the revenue gap • Best-in-class cost structure • Top-tier operational performance • Award winning customer service • Highly engaged workforce…driving substantial financial improvement9 months ended 9/30/06 YOY change in operating income(1)($M)We Have Achieved Grea
Slide 8: We Have Significant Momentum from Restructuring Efforts
We Have Significant Momentum from Restructuring Efforts Net Income ($B)$1.9B improvement RASM / CASM Non-Fuel YOY Improvement1Consolidated RASM Mainline CASM Non-Fuel 13% 5% (1) Comparison of 2006 vs. 2005 (2.2) (0.3) 2005 2006
Slide 9: Financial Strategy
Financial Strategy Ed Bastian Chief Financial Officer
Slide 10: Positioning Delta for the Future
Positioning Delta for the Future • Achieving superior margins through best-in-class unit cost structure and continued revenue momentum • Strategy balances long-term operating growth with overall credit improvement-Overall debt reduction of 50% from pre-petition levels • Retains sufficient financial
Slide 11: Key Assumptions in Business Plan
10 Key Assumptions in Business Plan (1) Adjusted to exclude fuel taxes for comparative OAL reporting Fuel • $2.00 per gallon in 2007-Price grows 5% per year Non -Fuel CASM • Mainline down 4% in 2007 (6.73 cents) 1 • Target further reductions in future years Costs Revenue Capacity • Grows 1 -2% in 20
Slide 12: Achieve Best-in-Class Unit Cost Structure
Achieve Best-in-Class Unit Cost Structure Delta’s Mainline Non-Fuel Unit Costs Down 20% From Pre-Restructuring Levels Delta Mainline Non-Fuel Unit Cost (1) (¢) (1) Excluding special and non-cash reorganization items. Delta Non-Fuel CASM adjusted to exclude fuel taxes 8.44 6.73 6 7 8 9 2004 2005 2006
Slide 13: Mainline Unit Costs are Best-in-Class of Network Carriers
Achieve Best in Class Unit Cost Structure Delta’s Mainline Unit Costs are Best-in-Class of Network Carriers 6.43 6.68 6.72 7.55 7.86 7.92 September Quarter 2006 Mainline Stage Length Adjusted Non-Fuel CASM (1,2)(¢) (1)Excluding special and non-cash reorganization items. Delta Non-Fuel CASM adjusted
Slide 14: Restore Financial Stability
Restore Financial Stability Positioned To Compete On A Standalone Basis (6.9) 2.4 8.0 10.1 9.9 10.5 (8) (6) (4) (2) 0 2 4 6 8 10 12 2005 2006 200 72008 2009 2010 (%) Operating Margin 1,952 2,900 3,457 3,616 3,870 696 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2005 2006 2007 2008 200
Slide 15: Plan Allows for $6 Billion Reinvestment in the Business
Plan Allows for $6 Billion Reinvestment in the Business Strong Cash Flow From Operations Provides for Reinvestment While Strengthening Balance Sheet (500) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2005 2006 2007 2008 2009 2010 ($M) Cash from Operations Cash Capex and Scheduled Debt Maturities
Slide 16: Plan Reduces Net Debt by More Than 50%
Plan Reduces Net Debt by More Than 50% 18.6 10.3 10.9 10.9 16.9 7.8 7.6 6.2 0 2 4 6 8 10 12 14 16 18 20 6/30/05 2006 2007 2008 ($B)Adjusted total debt (1) Adjusted net debt (2)(1)Includes on-balance sheet debt plus 7x LTM aircraft rent(2)Includes on-balance sheet debt plus 7x LTM aircraft rent reduc
Slide 17: Plan Improves Credit Measures to Industry Leading Status
Plan Improves Credit Measures to Industry Leading Status 16YE 2007 3.7 3.0 2.0 1.9 1.8 1.7 5.8 6.2 7.6 9.4 9.9 13.0 (1) Includes on-balance sheet debt plus 7x LTM aircraft rent reduced by cash, cash equivalents and short-term investments Note All comparables as of LTM 9/30/06; excl. Non-recurring it
Slide 18: Plan Provides Strong Value for Creditors
• Valuation prepared by The Blackstone Group-Consolidated forecast for 2007 through 2010 • Consolidated enterprise value is estimated to be $18.2B to $20.8B • Consolidated equity value is estimated to be $9.4B to $12.0B • Valuation strongly supports Delta claim recoveries of 63 to 80 cents on the do
Slide 19: Delta on Track for Timely Emergence
Delta on Track for Timely Emergence • Successful restructuring achieved-On track to emerge from Chapter 11 in Spring 2007 • Considerable momentum-Management team delivering on its commitments • Significant value has been created for all stakeholders-Confirmed by valuation and recovery
Slide 20: Business Strategy
Business Strategy Jim Whitehurst Chief Operating Officer
Slide 21: Summary
Summary • Capacity reallocation driving superior RASM performance-Moving wide body aircraft from domestic to international -Right-sizing domestic hubs • Building a foundation for long term success-Investments in our product and our people driving superior customer satisfaction-Excelling at the basic
Slide 22: Significant Domestic Capacity Rationalization Achieved
Significant Domestic Capacity Rationalization Achieved • Domestic capacity rationalization a major component of Delta’s business plan • Delta reducing domestic capacity while rest of industry (1) growing (DL -13% vs. +3%) YOY change in domestic capacity (%) (13) (3) (1) 0 2 4 5 11 (1) Industry defin
Slide 23: Hub Restructuring Builds Foundation For Future Improvements
22 Hub Restructuring Builds Foundation For Future Improvements Year Over Year Change in Capacity and RASM (%) Source: Internal Analysis (October 2006 vs. October 2005); Domestic and International Atlanta • Profitable international growth in Atlanta and NYC driving RASM improvement • Restructuring in
Slide 24: Hub and Gateway Portfolio Well Balanced
Hub and Gateway Portfolio Well Balanced Salt Lake City • Strong western flows • Increase destinations to 100+ Cincinnati • Strong Midwest flows • Newly optimized to balance local and flow demand New York-JFK •Service to five continents • Increasing domestic connectivity • Upgraded transcon product L
Slide 25: Delta had most improved RASM performance
24 Delta had most improved RASM performance…Source: SEC filings, ATA, Length-of-haul adjusted RASM Performance Accelerating…and Delta’s gap to industry closing 2005 2006 Passenger RASM as % of Industry (length of haul adjusted)Mainline RASM performance (3Q 06 vs. 3Q 05, % change)17.1 10.0 9.4 9.2 9.
Slide 26: Substantial Pipeline of Network Initiatives
25 Substantial Pipeline of Network Initiatives • Atlanta Restructuring (Winter)-Improves connectivity while remaining depeaked • New York-JFK International Bank Split (Spring)-Increases connectivity while improving operational performance • Performance Upgrades-767-300 ETOPs (1)conversions provide f
Slide 27: Capacity Diversification Fundamental to Delta's Plan
26 Capacity Diversification Fundamental to Delta’s Plan Domestic / International Capacity Mix Less reliance on domestic markets Europe Latin/Caribbean Asia, Middle-East, Africa 27% 3% 28% 22% 70% 50% More diversification of international capacity 0 10 20 30 40 50 60 70 80 90 100 2005 2006 2007E 2008
Slide 28: World of Profitable Growth Available to Delta
World of Profitable Growth Available to Delta 27 • Seeking China route authority • Launching Seoul in 2007 • 777-200LR opens new markets • New reach through expanded code shares Asia/Pacific • Atlanta superior gateway • New markets with Los Angeles gateway • NYC to Caribbean, Central and South Ameri
Slide 29: Balanced Growth a Cornerstone of Network Strategy
28 Balanced Growth a Cornerstone of Network Strategy Note: Service added or announced from September 2005 through Summer 2007 • Acapulco • Culiacan • Hermosillo • Ixtapa/ Zihuatanejo • La Paz • Leon/Guanajuato • Loreto • Manzanillo • Mazatlan • Merida • Puerto Vallarta • Torreon • ZacatecasMexico •
Slide 30: Investments in our Product Driving Superior Customer Satisfaction
Investments in our Product Driving Superior Customer Satisfaction • Enhanced shopping on delta.com • Multilingual options • International credit card acceptance • Multilingual kiosks • ATL and JFK facility upgrades • Kiosk deployment throughout the system • New Business Elite cabins, lie flat seats
Slide 31: Award Winning Service and Products
30 Best Airline Web Site Best Airport Lounges Source: Business Traveler Magazine, January 2007 Best Frequent Flyer Program Investments in our Product Driving Superior Customer Satisfaction Award Winning Service and Products Award Winning Service and Products
Slide 32: Investments in our People Driving Superior Customer Satisfaction
Investments in our People Driving Superior Customer Satisfaction Continuous improvement Leadership engagement(1)Shared Rewards program pays out up to $100 per month/employee for achieving monthly performance goals (2) Velvet Rope Tour brings all Delta employees through a 1-2 day session to discuss D
Slide 33: On-Time Ranking Recovered From Atlanta Runway Closure
On-Time Ranking Recovered From Atlanta Runway Closure 2006 DL NW FL B6 CO UA US AA AS WN OC TN WB 6U SD LC OA AU AN OV AA B6 NW UA CO US DL DE CA SH P 11 AS CO B6 FL DL 10 FL UA AS B6 AS 9D LA AU AN WA A8 US FL CO UA FL 7B 6A SF LD LC O6 UA US AA AA NW 5C OB 6D LC OU S4 AA WN NW UA UA 3 NW DL WN WN
Slide 34: Delivering Customer Service Excellence
33 Source: J.D. Power and Associates 2006ReservationOverallJ.D. Power Ranking Cost and Fees Score Inflight Service Flight Crew Aircraft Condition/ Cleanliness Boarding/ Deplaning/ Baggage Low Ranking High Delivering Customer Service Excellence2006 J.D. Power recognition
Slide 35: Transforming Our Business
Transforming Our Business • Leisure focused • Right-sized Destination Origin Via • Redeploying widebodies • Removing four fleet types, best-in-class costs • Engaged / motivated workforce • Adding more premium seats, digital entertainment, new interiors • Operating profitable hubs and service to five
Slide 36: Response to US Airways proposal
Response to US Airways proposal Jerry Grinstein Chief Executive Officer
Slide 37: Primary Reasons Delta Has Rejected US Airways Proposal
5 Primary Reasons Delta Has Rejected US Airways Proposal • DOJ is not likely to approve the merger • Overwhelming labor and cultural issues • US Airways’ “synergies” based on flawed economic assumptions • Merger would result in the highest debt load in the industry • US Airways would be a poor strat
Slide 38: DOJ is Not Likely to Approve the Merger
37 DOJ is Not Likely to Approve the Merger Source: US Airways merger proposal Combined domestic network Delta’s domestic network The proposal would hurt consumers and communities The proposal would hurt consumers and communities US Airways’ domestic network • Delta/US Airways would have a dominant E
Slide 39: Overwhelming Labor and Cultural Issues
Overwhelming Labor and Cultural Issues • Labor issues present major obstacles in any airline merger...and this transaction presents overwhelming obstacles • US Airways’ labor strategy to keep employee costs below industry average is unrealistic and unsustainable • US Airways’ proposal to reduce Delt
Slide 40: US Airways' Synergies Based On Flawed Economic Assumptions
US Airways’ “Synergies” Based On Flawed Economic Assumptions • Network synergies overstated-Based on unrealistic cost reduction assumptions-Fail to account for fundamental improvement in Delta’s performance over the past twelve months • Cost synergies unrealistic-An inappropriate extrapolation of US
Slide 41: Merger Would Result in the Highest Debt Load in the Industry
Merger Would Result in the Highest Debt Load in the Industry Reverses Restructuring of Balance Sheet 8.1 11.1 12.4 13.5 18.1 18.6 23.2 Proposed US Airways /Delta Merge Delta 2005 American United Continental Delta Plan US Airways Adjusted Total Debt By Carrier (1) Adjusted total debt($B) (1)Includes
Slide 42: US Airways Would Be a Poor Strategic Fit for Delta
US Airways Would Be a Poor Strategic Fit for Delta Provides no “new”value • Highly overlapping networks create “synergies” by shrinking -therefore, combination does not offer new value to customers Unwinds progress made against Transformation • Reverses international revenue diversification strategy
Slide 43: Slide 43
Slide 44: Non-GAAP to GAAP Reconciliation
Non-GAAP to GAAP Reconciliation
Slide 45: Non-GAAP to GAAP Reconciliations
Non-GAAP to GAAP Reconciliations The following tables reconcile certain non-GAAP financial measures referred to in this Plan of Reorganization to GAAP. Delta excludes reorganization items, special items and fuel expense because the exclusion of these items is believed to be helpful to investors to e
Slide 46: Net Loss
Net Loss Year Ended (in millions )December 31, 2005 Net loss (3,818) $ Items excluded: Pension and related charges 878 Aircraft charges 10 Reorganization items, net 884 Deferred tax reserve (162) Total items excluded 1,610 Net loss excluding reorganization and special items (2,208) $
Slide 47: Mainline Non-Fuel CASM
Mainline Non-Fuel CASM 2004 2005 (in millions) Mainline operating expenses 13,494 $ 14,571 $ Items excluded: Pension and related charges 81 (876) Aircraft charges(40) (10) Total items excluded 41 (886) Mainline operating expenses excluding special items 13,535 13,685 Fuel expense and related taxes (
Slide 48: Mainline Non-Fuel CASM
Mainline Non-Fuel CASM Three Months Ended September 30, 2006(in millions)Mainline operating expenses3,418 $ Fuel expense and related taxes(1,168) Mainline operating expenses excluding fuel expense and related taxes 2,250 Effects of terminated pilot pension plan (71) Mainline operating expenses exclu
Slide 49: Operating Loss and Margin
Operating Loss and Margin Year Ended(in millions) December 31, 2005 Operating Revenue 16,191 $ Operating expenses 18,192 $ Items excluded: Pension and related charges (878) Aircraft charges (10) Total items excluded (888) Operating expenses excluding special items 17,304 $ Operating loss (2,001) $ I
Slide 50: EBITDAR / EBITDAR margin
EBITDAR / EBITDAR margin Year Ended (in millions) December 31, 2005 Net Loss (3,818) $ Items excluded: Interest expense1,032 Interest income (59) Taxes (41) Depreciation and amortization 1,273 Aircraft rent 541 Total items excluded 2,746 EBITDAR (1,072) Items excluded: Pension and related charges 87
Slide 51: Cash from Operations & Cash Capex and Scheduled Debt Maturities
Cash from Operations & Cash Capex and Scheduled Debt Maturities Year Ended(in millions) December 31, 2005 Net cash provided by operations 175 $ Short-term investments (336) Net cash used in operations excluding short-term investments (161) $ Year Ended(in millions) December 31, 2005 Cash flows used
Slide 52: Adjusted Net Debt
Adjusted Net Debt (in millions)Long-term debt and capital leases 14,082 $ Aircraft rent for the twelve months ended June 30, 2005 647 $ Multiplied by 77 Implied aircraft debt 4,529 Adjusted total debt (1) 18,611 $ Less: Cash and cash equivalents (1,341) Short-term investments (330) Total cash and ca
Slide 53: Mainline Length-of-Haul Adjusted Passenger RASM
Mainline Length-of-Haul Adjusted Passenger RASM 20062005Mainline passenger revenue (in millions) (1) 3,207 $ 3,022 $ Available Seat Miles (ASMs) (in millions) (1) 33,582 35,040 Mainline passenger RASM 9.55 ¢ 8.62 ¢ LOH adjustment to industry average- (0.47) LOH adjusted passenger RASM 9.55 ¢ 8.15 ¢
Slide 54: Length-of-Haul Adjusted Passenger RASM
Length-of-Haul Adjusted Passenger RASM Jan Feb Mar Apr May Jun Jul Aug Sep Oct (in millions) Passenger revenue 1,081 1,063 1,251 1,324 1,330 1,551 1,569 1,447 1,207 1,278 Accounting Adjustments- - 83 - - - - - - - Passenger revenue excluding special item s1,081 1,063 1,334 ,324 1,330 1,551 1,569 1,4