Delta Air Lines has
reported results for the quarter and year ended December 31, 2005.
Key points include:
- Delta's fourth quarter net loss was $1.2 billion. Excluding
reorganization and special items, the fourth quarter net loss was
- For 2005, Delta's net loss was $3.8 billion. Excluding
reorganization and special items, the full year 2005 net loss was
- Despite significant losses, Delta achieved important milestones
in its reorganization during the fourth quarter of 2005, including
strengthening its route network, making progress in restructuring
its aircraft fleet and reducing its employment costs.
- As of December 31, 2005, Delta had $2.9 billion in cash and
cash equivalents, of which $2.0 billion was unrestricted.
Delta reported a net loss of $1.2 billion in the fourth quarter
of 2005, compared to a net loss of $2.2 billion in the fourth
quarter of 2004. Excluding the reorganization and special items
described below, the net loss was $782 million in the fourth
quarter of 2005. Excluding the special items described below, the
net loss was $780 million in the fourth quarter of 2004.
For the full year 2005,
Delta recorded a net loss of $3.8 billion, compared to 2004's full
year net loss of $5.2 billion. Excluding reorganization and special
items, the net loss was $2.2 billion in 2005. Excluding the special
items described below, the net loss was $2.3 billion in 2004.
"Losses of the magnitude that Delta recorded in 2005 are not
sustainable," said Edward H. Bastian, Delta's executive vice
president and chief financial officer. "These losses emphasize the
need for the urgency with which we have to pursue route network and
revenue improvements and the use of the bankruptcy process to
reduce the cost and complexity of our business."
On September 14, 2005, Delta filed a petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Since the filing,
Delta has worked diligently to become a simpler, more efficient and
Through its restructuring efforts, Delta:
- Strengthened its route
network by adjusting capacity to match demand, including reducing
capacity in its Cincinnati hub, utilizing smaller aircraft in its
Atlanta domestic operations and shifting wide-body aircraft to its
expanded international operations. The Company also announced plans
to begin non-stop service from Atlanta and New York's John F.
Kennedy International Airport to new markets in Europe, Latin
America, Africa and the Middle East, and to launch a new long-haul
domestic Song(r) service.
- Made significant progress in restructuring its aircraft fleet
to reduce its cost structure and match its fleet to future needs.
In addition to a number of restructured aircraft arrangements for
which it is seeking bankruptcy court approval, Delta has already
reduced its fleet by 76 aircraft through the bankruptcy
restructuring process and lease returns.
- Reduced employment costs through employee productivity
improvements; pay and benefit reductions for non-pilot employees,
including executives; and an interim agreement with the union
representing Delta's pilots, ALPA.
"2006 will be a year for Delta to stabilize our financial
situation," Bastian continued. "While masked by the high cost of
fuel, our restructuring initiatives have begun to produce tangible
results this quarter in the form of increased unit revenue and
lower mainline non-fuel costs. By maintaining our focus on these
efforts, I am confident that we can be successful in positioning
Delta to emerge from bankruptcy as a profitable, competitively
For the fourth quarter of 2005, consolidated passenger unit
revenue increased 7.8 percent and consolidated passenger mile yield
increased 7.7 percent, compared to the fourth quarter of the
previous year. Total revenue for the fourth quarter of 2005 and
full year 2005 improved 6.2 percent and 6.3 percent, respectively,
compared to the same periods in the prior year. Delta is beginning
to see the expected unit revenue improvement from the structural
changes it has made to strengthen its route network.
As a result of higher fuel prices, Delta paid $410 million more
for fuel in the fourth quarter of 2005 than it did in the fourth
quarter of 2004, and $1.5 billion more for the full year 2005 as
compared to the full year 2004.(3) Driven by fuel and special
items, Delta's mainline unit costs increased by 15.7 percent in
comparison to the fourth quarter of 2004. Excluding fuel and
special items, mainline unit costs decreased 7.1 percent for the
quarter as compared to the fourth quarter of 2004.(4) For the full
year 2005, mainline unit costs increased 4.8 percent as compared
with 2004; however, excluding fuel and special items, mainline unit
costs decreased 12.5 percent.
At December 31, 2005, the company had $2.9 billion in cash and
cash equivalents, of which $2.0 billion was unrestricted. In
January 2006, Delta completed a letter of credit facility with
Merrill Lynch that enables the company to utilize up to $300
million in cash that would have been held in reserve by Delta's
Visa/MasterCard processor. At December 31, 2005, Delta was in
compliance with all of the financial covenants in its post-petition
Reorganization and Special Items
In the fourth quarter
of 2005, Delta recorded $453 million in charges for reorganization
and special items. These items are described below:
- a $277 million charge for reorganization items. This net charge
primarily reflects estimated pre-petition bankruptcy claims for
aircraft and facilities lease matters, as well as professional fees
in the company's Chapter 11 case.
- a $176 million net charge associated with pension and
restructuring items. Pension settlement charges totaled $129
million and represent the accelerated recognition of deferred
actuarial losses, in accordance with SFAS 88,(5) due primarily to
lump sum retirement distributions from retirement plan assets.
Restructuring charges totaled $47 million and represent estimated
severance costs associated with 2005 workforce reduction
In the fourth quarter of 2004, Delta recorded $1.4 billion in
charges for special items, including (1) a $1.9 billion goodwill
impairment charge associated with Atlantic Southeast Airlines, Inc.
and Comair, Inc.; (2) a $194 million charge related to voluntary
and involuntary workforce reduction programs; (3) a $120 million
settlement charge related to the company's defined benefit pension
plan for pilots; (4) a $527 million gain related to the elimination
of the health care coverage subsidy for future retirees; (5) a $123
million gain related to the sale of Delta's equity investment in
Orbitz, Inc.; and (6) a $114 million tax benefit from a reduction
in the deferred tax asset allowance that resulted from a goodwill
Delta sells mileage
credits in the SkyMiles(r) frequent flyer program to participating
partners, such as credit card companies, hotels and car rental
agencies. The portion of the revenue from the sale of mileage
credits that approximates the value of the transportation to be
provided is deferred and recognized on a straight-line basis over
the expected life of the awards. Effective with the December 2005
quarter, amounts received in excess of the value of the
transportation to be provided are classified as other revenue on
the Consolidated Statements of Operations. Previously, these
amounts were classified as an offset to selling expenses.
The company has reclassified prior period amounts to be
consistent with the December 2005 quarter presentation. These
reclassifications did not impact the operating loss or net loss for
any period presented.
December Monthly Operating Report
Delta filed with the U.S. Bankruptcy Court its Monthly Operating
Report for December 2005. As reflected in that report, the company
recorded a $372 million operating loss and $753 million net loss
for the month. Excluding reorganization and special items, the
company recorded a $196 million operating loss and a $358 million
net loss for the month.