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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-5424
DAL-20200331_G1.JPG
DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0218548
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Post Office Box 20706
Atlanta, Georgia
30320-6001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 715-2600

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.0001 per share DAL New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer  Non-accelerated filer 
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Number of shares outstanding by each class of common stock, as of March 31, 2020:
Common Stock, $0.0001 par value - 637,836,206 shares outstanding
This document is also available through our website at http://ir.delta.com/.



Table of Contents
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Unless otherwise indicated, the terms "Delta," "we," "us" and "our" refer to Delta Air Lines, Inc. and its subsidiaries.

FORWARD-LOOKING STATEMENTS

Statements in this Form 10-Q (or otherwise made by us or on our behalf) that are not historical facts, including statements about 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. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("Form 10-K") and "Item 1A. Risk Factors" of Part II of this Form 10-Q, other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.

1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Delta Air Lines, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Delta Air Lines, Inc. (the Company) as of March 31, 2020, the related condensed consolidated statements of operations and comprehensive (loss) income, cash flows, and stockholders' equity for the three-month periods ended March 31, 2020 and 2019, and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for the year then ended, and the related notes (not presented herein); and in our report dated February 12, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



/s/ Ernst & Young LLP
Atlanta, Georgia
April 22, 2020


2


DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)
(in millions, except share data) March 31,
2020
December 31,
2019
ASSETS
Current Assets:
Cash and cash equivalents $ 5,967    $ 2,882   
Accounts receivable, net of an allowance for uncollectible accounts of $16 and $13 at March 31, 2020 and December 31, 2019, respectively
2,280    2,854   
Fuel inventory 439    730   
Expendable parts and supplies inventories, net of an allowance for obsolescence of $90 and $82
at March 31, 2020 and December 31, 2019, respectively
535    521   
Prepaid expenses and other 1,054    1,262   
Total current assets 10,275    8,249   
Noncurrent Assets:
Property and equipment, net of accumulated depreciation and amortization of $17,506 and $17,027 at March 31, 2020 and December 31, 2019, respectively
31,644    31,310   
Operating lease right-of-use assets 5,488    5,627   
Goodwill 9,753    9,781   
Identifiable intangibles, net of accumulated amortization of $875 and $873 at March 31, 2020
and December 31, 2019, respectively
6,019    5,163   
Cash restricted for airport construction 455    636   
Equity investments 3,684    2,568   
Other noncurrent assets 1,420    1,198   
Total noncurrent assets 58,463    56,283   
Total assets $ 68,738    $ 64,532   
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of debt and finance leases $ 4,337    $ 2,287   
Current maturities of operating leases 768    801   
Air traffic liability 5,598    5,116   
Accounts payable 3,337    3,266   
Accrued salaries and related benefits 1,844    3,701   
Loyalty program deferred revenue 1,099    3,219   
Fuel card obligation 1,100    736   
Other accrued liabilities 1,309    1,078   
Total current liabilities 19,392    20,204   
Noncurrent Liabilities:
Debt and finance leases 12,662    8,873   
Pension, postretirement and related benefits 8,285    8,452   
Loyalty program deferred revenue 5,718    3,509   
Noncurrent operating leases 5,204    5,294   
Deferred income taxes, net 1,502    1,456   
Other noncurrent liabilities 1,666    1,386   
Total noncurrent liabilities 35,037    28,970   
Commitments and Contingencies
Stockholders' Equity:
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 647,386,115 and 651,731,443
shares issued at March 31, 2020 and December 31, 2019, respectively
—    —   
Additional paid-in capital 11,054    11,129   
Retained earnings 11,423    12,454   
Accumulated other comprehensive loss (7,898)   (7,989)  
Treasury stock, at cost, 9,549,909 and 8,959,730 shares at March 31, 2020 and
December 31, 2019, respectively
(270)   (236)  
Total stockholders' equity 14,309    15,358   
Total liabilities and stockholders' equity $ 68,738    $ 64,532   
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



DELTA AIR LINES, INC.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited)
Three Months Ended March 31,
(in millions, except per share data) 2020 2019
Operating Revenue:
Passenger $ 7,569    $ 9,254   
Cargo 152    192   
Other 871    1,026   
  Total operating revenue 8,592    10,472   
Operating Expense:
Salaries and related costs 2,771    2,639   
Aircraft fuel and related taxes 1,595    1,978   
Regional carriers expense, excluding fuel 902    893   
Depreciation and amortization 678    615   
Contracted services 675    632   
Aircraft maintenance materials and outside repairs 469    476   
Landing fees and other rents 467    419   
Passenger commissions and other selling expenses 358    427   
Passenger service 257    271   
Ancillary businesses and refinery 219    351   
Aircraft rent 100    102   
Profit sharing —    220   
Other 511    429   
Total operating expense 9,002    9,452   
Operating (Loss)/Income (410)   1,020   
Non-Operating Expense:
Interest expense, net (79)   (83)  
Gain/(loss) on investments, net (112)   100   
Miscellaneous, net (6)   (91)  
Total non-operating expense, net (197)   (74)  
(Loss)/Income Before Income Taxes (607)   946   
Income Tax Benefit/(Provision) 73    (216)  
Net (Loss)/Income $ (534)   $ 730   
Basic (Loss)/Earnings Per Share $ (0.84)   $ 1.10   
Diluted (Loss)/Earnings Per Share $ (0.84)   $ 1.09   
Cash Dividends Declared Per Share $ 0.40    $ 0.35   
Comprehensive (Loss)/Income $ (443)   $ 789   
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended March 31,
(in millions) 2020 2019
Net Cash Provided by Operating Activities $ 358    $ 1,942   
Cash Flows from Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments (629)   (1,059)  
Ground property and equipment, including technology (308)   (301)  
Redemption of short-term investments —    206   
Acquisition of strategic investments (2,099)   —   
Other, net 65    58   
Net cash used in investing activities (2,971)   (1,096)  
Cash Flows from Financing Activities:
Payments on debt and finance lease obligations (1,238)   (1,285)  
Repurchase of common stock (344)   (1,325)  
Cash dividends (260)   (233)  
Proceeds from short-term obligations 2,882    1,750   
Proceeds from long-term obligations 3,962    500   
Fuel card obligation 364    (9)  
Other, net (22)   (7)  
Net cash provided by/(used in) financing activities 5,344    (609)  
Net Increase in Cash, Cash Equivalents and Restricted Cash Equivalents 2,731    237   
Cash, cash equivalents and restricted cash equivalents at beginning of period 3,730    2,748   
Cash, cash equivalents and restricted cash equivalents at end of period $ 6,461    $ 2,985   
Non-Cash Transactions:
Flight and ground equipment acquired under finance leases $ 184    $  
Right-of-use assets acquired under operating leases 55    274   
The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:
March 31,
(in millions) 2020 2019
Current assets:
Cash and cash equivalents $ 5,967    $ 1,910   
Restricted cash included in prepaid expenses and other 39    57   
Noncurrent assets:
Cash restricted for airport construction 455    1,018   
Total cash, cash equivalents and restricted cash equivalents $ 6,461    $ 2,985   
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


DELTA AIR LINES, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)

Common Stock Additional
Paid-In Capital
 Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury Stock
(in millions, except per share data) Shares Amount Shares Amount Total
Balance at December 31, 2019
652    $ —    $ 11,129    $ 12,454    $ (7,989)     $ (236)   $ 15,358   
Net loss —    —    —    (534)   —    —    —    (534)  
Dividends declared —    —    —    (257)   —    —    —    (257)  
Other comprehensive income —    —    —    —    91    —    —    91   
Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $56.48(1) per share)
  —    29    —    —      (34)   (5)  
Stock purchased and retired (6)   —    (104)   (240)   —    —    —    (344)  
Balance at March 31, 2020
647    $ —    $ 11,054    $ 11,423    $ (7,898)   10    $ (270)   $ 14,309   


Common Stock Additional
Paid-In Capital
 Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury Stock
(in millions, except per share data) Shares Amount Shares Amount Total
Balance at December 31, 2018
688    $ —    $ 11,671    $ 10,039    $ (7,825)     $ (198)   $ 13,687   
Net income —    —    —    730    —    —    —    730   
Dividends declared —    —    —    (232)   —    —    —    (232)  
Other comprehensive income —    —    —    —    59    —    —    59   
Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, 49.75(1) per share)
  —    27    —    —      (35)   (8)  
Stock purchased and retired (26)   —    (444)   (881)   —    —    —    (1,325)  
Balance at March 31, 2019
664    $ —    $ 11,254    $ 9,656    $ (7,766)     $ (233)   $ 12,911   

(1)Weighted average price per share.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2019.

Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair statement of results for the interim periods presented.

Due to severe impacts from the global COVID-19 (coronavirus) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three months ended March 31, 2020 are not necessarily indicative of operating results for the entire year.

We reclassified certain prior period amounts to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.

Recent Accounting Standards

Credit Losses. In 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." Under this ASU, an entity is required to utilize an "expected credit loss model" on certain financial instruments, including trade and financing receivables. This model requires consideration of a broader range of reasonable and supportable information and requires an entity to estimate expected credit losses over the lifetime of the asset. We adopted this standard effective January 1, 2020 and due to the COVID-19 pandemic, we recorded reserves against certain of our outstanding financial instruments that were not material individually or in the aggregate.


NOTE 2. IMPACT OF THE COVID-19 PANDEMIC

The unprecedented and rapid spread of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world have significantly reduced demand for air travel. After initially impacting our service to China beginning in January, the spread of the virus and the resulting global pandemic next affected the majority of our international network and ultimately our domestic network. Beginning in March, large public events were cancelled, governmental authorities began imposing restrictions on non-essential activities, businesses suspended travel and popular leisure destinations temporarily closed to visitors. Certain countries that are key markets for our business have imposed bans on international travelers for specified periods or indefinitely.

As a result, demand for travel declined at an accelerated pace, which has had an unprecedented and materially adverse impact on our revenues and financial position. The length and severity of the reduction in demand due to the pandemic is uncertain; accordingly, we expect the adverse impact to grow in the June 2020 quarter. While we are planning for a modest demand recovery beginning in the September 2020 quarter, the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall U.S. and global economy. Our forecasted expense management and liquidity measures may be modified as we clarify the demand recovery timing.

See Note 3, "Revenue Recognition," for discussion of the recognition of passenger revenue, our air traffic liability and ticket breakage assumptions.

7


In response to these developments, we have implemented measures to focus on the safety of our customers and employees, while at the same time seeking to mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

Taking Care of our Customers and Employees. The safety of our customers and employees continues to be our primary focus. As the COVID-19 pandemic has developed, we have taken numerous steps to help customers and employees practice social distancing on the ground and in the air in keeping with current health-expert recommendations:
Adopting new cleaning procedures on all flights, including disinfectant electrostatic spraying on all aircraft overnight and sanitizing high-touch areas like tray tables, entertainment screens, armrests and seat-back pockets before boarding.
Taking steps to help employees and customers practice social distancing, including blocking middle seats, pausing automatic upgrades, modifying our boarding process and moving to essential meal service only.
Extending 2020 Medallion Status an additional year, rolling Medallion Qualification Miles into 2021 and extending Delta SkyMiles American Express Card benefits and Delta Sky Club memberships.
Giving customers flexibility to plan, re-book and travel including extending expiration on travel credits through September 2022.
Offering pay protection to employees who have tested positive for COVID-19, must quarantine due to exposure or travel-related requirements or have self-identified as being at high-risk for illness from COVID-19 according to the Centers for Disease Control and Prevention ("CDC") guidelines and do not have the ability to telecommute.
Implementing significant workforce social distancing and protection measures, including reworking call center spaces to provide appropriate social distancing, increasing cleaning of our facilities using methods and products similar to what we are using on our aircraft and having virtually all employees who can telecommute do so.

Capacity Reductions. Following a strong start to 2020 in January and February, we experienced a precipitous decrease in demand in March as COVID-19 spread throughout the world. To align capacity with expected demand, beginning in the second half of March, we have significantly reduced our system capacity to a level that maintains essential services. For the June 2020 quarter, system capacity is expected to be down approximately 85 percent compared to the June 2019 quarter, with international capacity to be reduced by approximately 90 percent and domestic flying to be reduced by approximately 80 percent. As a result of reduced demand expectations and lower capacity, we are temporarily parking approximately 50 percent of our fleet.

Expense Management. With the reduction in revenue, we have, and will continue to implement cost saving initiatives, including:
Reducing capacity as described above to align with expected demand, which has resulted in temporarily parking approximately 400 aircraft as of March 31, 2020, with the expectation to have over 650 aircraft parked by the end of the June quarter. As a result, we have made the decision to accelerate the retirement of our MD-88 fleet from December 2020 to the end of July 2020.
Consolidating our footprint at our airport facilities, including temporarily closing most Delta Sky Clubs.
Reducing employee-related costs, including:
Voluntary unpaid leaves of 30 days to 12 months offered to most employees. Approximately 35,000 employees have volunteered to take leaves beginning in the June 2020 quarter.
Salary reductions of 50% for our officers and 25% for our director level employees.
A 25% reduction in work hours for all other management and most front-line employee work groups.
Instituting a company-wide hiring freeze.
Delaying non-essential maintenance projects and reducing or suspending other discretionary spending.

Balance Sheet, Cash Flow and Liquidity. We have taken the following actions to increase liquidity and strengthen our financial position. As a result of these actions, our cash and cash equivalents balance as of March 31, 2020 was $6.0 billion.
Reducing planned capital expenditures by approximately $3.5 billion, including working with original equipment manufacturers ("OEM") to optimize the timing of our future aircraft deliveries, delaying aircraft modifications and postponing certain information technology initiatives and replacement of ground equipment.
Drawing $3.0 billion from our previously undrawn revolving credit facilities.
Entering into a $2.7 billion secured term loan facility during the March 2020 quarter with an accordion feature that allowed us to increase the facility to $3.0 billion during April 2020.
Entering into $150 million of loans secured by certain of our widebody aircraft. In addition, during April 2020, we have entered into an additional $1.2 billion of sale-leaseback transactions for certain aircraft and are pursuing other financing initiatives.
Suspending future share repurchases and dividends.
Delaying $500 million of planned voluntary pension funding.

8


We continue to evaluate future financing opportunities by leveraging our unencumbered assets which, as of March 31, 2020, have a value of at least $15 billion, and utilizing funding from the CARES Act, discussed below. In response to the impact that the demand environment has had on our financial condition, our credit rating has been downgraded by Standard & Poor's to BB in late March 2020 and by Fitch to BB+ in early April 2020.

Our primary credit facility has various financial and other covenants that require us to maintain a minimum fixed charge coverage ratio and a minimum asset coverage ratio. In the event that we are unable to maintain compliance with such covenants, we expect to obtain an amendment or waiver from our lenders, refinance the indebtedness subject to covenants or take other mitigating actions prior to a potential breach.

See Note 7, "Debt," for more information on our debt issuances during the March 2020 quarter.

Valuation of Goodwill and Indefinite-Lived Intangibles

We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our December 2019 quarter quantitative impairment tests of goodwill and intangibles indicated that there was no indication of impairment as the fair value exceeded our carrying value:
Carrying Value at Fair Value Excess at 2019 Testing Date
(in millions) March 31, 2020 December 31, 2019
Goodwill(1)
$ 9,753    $ 9,781   
234%
International routes and slots 2,583    2,583   
15% to 29%
Airline alliances(2)
1,863    1,005   
67% to 576%
Delta tradename 850    850   
185%
Domestic slots 622    622   
61% to 181%
Total $ 15,671    $ 14,841   
(1) The reduction in goodwill during the March 2020 quarter relates to the combination of Delta Private Jets with Wheels Up. See Note 5, "Investments," for more information on this transaction.
(2) As part of our strategic alliance with and investment in LATAM, we have recorded an alliance-related indefinite-lived intangible asset of $1.2 billion, which was not reflected in the 2019 quantitative impairment assessment.

Despite the significant excess fair value identified in our 2019 impairment assessment, we determined that the reduced cash flow projections and the significant decline in Delta's market capitalization as a result of the COVID-19 pandemic indicate that an impairment loss may have been incurred. Therefore, we qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were impaired as of March 31, 2020. We reviewed our previous forecasts and assumptions based on our current projections that are subject to various risks and uncertainties, including: (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3) the reduction in Delta's market capitalization, (4) observable market transactions, (5) changes to the regulatory environment and (6) the nature and amount of government support that will be provided.

Based on our interim impairment assessment as of March 31, 2020, we have determined that our goodwill and indefinite-lived intangible assets are not impaired. However, we are unable to predict how long these conditions will persist, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel and our business. Any measure that encourages potential travelers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the air travel industry in general, and consequently our business.

Valuation of Long-Lived Assets

Our flight equipment and other long-lived assets, which are classified as property and equipment, net on the Consolidated Balance Sheet ("balance sheet"), have a recorded value of $31.6 billion at March 31, 2020. We review flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired.

9


As part of our capacity reductions related to the negative effect on our business from the COVID-19 pandemic, we have removed approximately 400 aircraft from active service and plan to park another approximately 250 aircraft during the June 2020 quarter. These aircraft are being temporarily parked, with the exception of the MD-88 fleet discussed above for which an impairment charge of $22 million was recorded, and we have not yet decided to accelerate the retirement of any other fleet.

To determine whether impairments exist for active and temporarily parked aircraft, we group assets at the fleet-type level or at the contract level for aircraft operated by regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel and labor costs and other relevant factors. Given the substantial reduction in our active aircraft and diminished projections of future cash flows in the near term, we evaluated the remainder of our fleet and determined that no fleet (other than the MD-88) was impaired as the future cash flows from operation of the fleet through the respective retirement dates exceeded the carrying value. As we obtain greater clarity about the duration and extent of reduced demand and potentially execute further capacity adjustments, we will continue to evaluate our current fleet compared to network requirements and may decide to permanently retire additional aircraft.

See Note 5, "Investments," for more information on the valuation of our equity investments.

CARES Act

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing the airline industry with up to $25 billion in grants to be used for employee wages, salaries and benefits.

In April 2020, we were granted $5.4 billion in emergency relief through the payroll support program of the CARES Act to be paid in installments through July 2020. The relief payments are conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020. Other conditions include prohibitions on share repurchases and dividends through September 30, 2021, continuing essential air service as directed by the U.S. Department of Transportation and certain limitations on executive compensation. The relief payments include $3.8 billion in grants and $1.6 billion in an unsecured 10-year low interest loan. The loan includes annual interest rates of 1.00% for the first five years (through April 2025) and the Secured Overnight Financing Rate ("SOFR") plus 2.00% in the final five years. In return, we have agreed to issue to the U.S. Department of the Treasury over 6.5 million warrants to acquire Delta common stock. These warrants include an exercise price of $24.39 per share and have a five-year term.

On April 20, 2020, we received the first installment of $2.7 billion under the payroll support program.

The CARES Act provides for up to $25 billion in secured loans to the airline industry. We expect to be eligible for approximately $4.6 billion under the loan program and are currently evaluating our level of participation.

Finally, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. This is expected to provide us with approximately $200 million of additional liquidity during the current year.



10


NOTE 3. REVENUE RECOGNITION

Passenger Revenue

Passenger revenue is primarily composed of passenger ticket sales, loyalty travel awards and travel-related services performed in conjunction with a passenger’s flight.
Three Months Ended March 31,
(in millions) 2020 2019
Ticket $ 6,511    $ 7,988   
Loyalty travel awards 543    692   
Travel-related services 515    574   
Total passenger revenue $ 7,569    $ 9,254   

The air traffic liability primarily includes sales of passenger tickets to be flown in the future, as well as credits which can be applied as payment toward the cost of a ticket. The credits are typically issued as a result of ticket cancellations prior to their expiration dates. As of March 31, 2020, passenger tickets sold and credits issued were generally valid for one year from the date of original ticket issuance. In April 2020, we announced changes to expiration dates, as discussed below.

We recognized approximately $2.8 billion in passenger revenue during the three months ended March 31, 2020 that was recorded in our air traffic liability balance at December 31, 2019.

The air traffic liability typically increases during the winter and spring as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months. However, the current reduction in demand for air travel due to the COVID-19 pandemic has resulted in an unprecedented low level of advance bookings and the associated cash received. At the same time, we have experienced significant cancellations beginning in the second half of March, which has led to issuance of refunds to customers, while the remainder have been rebooked on future flights or received credits in lieu of cash refunds. The total value of refunds, excluding taxes and related fees, issued to customers during the March 2020 quarter was approximately $850 million. Due to the uncertainty around the return of demand for air travel, we are unable to estimate the amount of the December 31, 2019 air traffic liability that will be recognized in earnings compared to amounts that will be refunded to customers or issued as a credit for future travel through the end of 2020.

In April 2020, we announced that credits issued for cancelled travel in March through September 2020 will have an extended expiration date through September 2022. This change is expected to shift a portion of our air traffic liability to noncurrent. We will also consider this change in estimating the future breakage rate, which represents the value of tickets that will expire unused and is recognized as revenue at the scheduled flight date.

Other Revenue
Three Months Ended March 31,
(in millions) 2020 2019
Loyalty program $ 474    $ 474   
Ancillary businesses and refinery 223    369   
Miscellaneous 174    183   
Total other revenue $ 871    $ 1,026   

Loyalty Program. Our SkyMiles loyalty program generates customer loyalty by rewarding customers with incentives to travel on Delta. This program allows customers to earn mileage credits ("miles") by flying on Delta, Delta Connection and other airlines that participate in the loyalty program. When traveling, customers earn redeemable miles based on the passenger's loyalty program status and ticket price. Customers can also earn miles through participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies. Miles are redeemable by customers in future periods for air travel on Delta and other participating airlines, membership in our Sky Club and other program awards. To facilitate transactions with participating companies, we sell miles to non-airline businesses, customers and other airlines. Our most significant contract to sell miles relates to our co-brand credit card relationship with American Express. During the three months ended March 31, 2020 and 2019, total cash sales from marketing agreements related to our loyalty program were $992 million and $980 million, respectively, which are allocated to travel and other performance obligations.

11


Current Activity of the Loyalty Program. Miles are combined in one homogeneous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

The table below presents the activity of the current and noncurrent loyalty program liability and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.
(in millions) 2020 2019
Balance at January 1 $ 6,728    $ 6,641   
Miles earned 660    720   
Travel miles redeemed (543)   (692)  
Non-travel miles redeemed (28)   (45)  
Balance at March 31 $ 6,817    $ 6,624   

The timing of mile redemptions can vary widely; however, the majority of new miles have historically been redeemed within two years. The loyalty program deferred revenue classified as a current liability represents our current estimate of revenue expected to be recognized in the next 12 months based on projected redemptions, while the balance classified as a noncurrent liability represents our current estimate of revenue expected to be recognized beyond 12 months. As a result of the COVID-19 pandemic, a larger portion of mile redemptions is projected to occur beyond 12 months and is therefore reflected as a noncurrent liability as of March 31, 2020. We will continue to monitor redemptions as the situation evolves.

Revenue by Geographic Region

Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment. The majority of the revenues of the refinery, consisting of fuel sales to the airline, have been eliminated in the Condensed Consolidated Financial Statements. The remaining operating revenue for the refinery segment is included in the domestic region. Our passenger and operating revenue by geographic region is summarized in the following tables:
Passenger Revenue
Three Months Ended March 31,
(in millions) 2020 2019
Domestic $ 5,601    $ 6,741   
Atlantic 818    1,074   
Latin America 765    861   
Pacific 385    578   
Total $ 7,569    $ 9,254   

Operating Revenue
Three Months Ended March 31,
(in millions) 2020 2019
Domestic $ 6,267    $ 7,516   
Atlantic 994    1,287   
Latin America 863    969   
Pacific 468    700   
Total $ 8,592    $ 10,472   



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NOTE 4. FAIR VALUE MEASUREMENTS

Assets (Liabilities) Measured at Fair Value on a Recurring Basis
(in millions) March 31,
2020
Level 1 Level 2
Cash equivalents $ 4,669    $ 4,669    $ —   
Restricted cash equivalents 494    494    —   
Long-term investments 1,367    908    459   
Hedge derivatives, net
Fuel hedge contracts   (5)   13   
Interest rate contracts 25    —    25   
Foreign currency exchange contracts 14    —    14   

(in millions) December 31,
2019
Level 1 Level 2
Cash equivalents $ 586    $ 586    $ —   
Restricted cash equivalents 847    847    —   
Long-term investments 1,099    881    218   
Hedge derivatives, net
Fuel hedge contracts   (1)    
Interest rate contracts 61    —    61   
Foreign currency exchange contracts   —     

Cash Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets.

Long-Term Investments. Our long-term investments that are measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet. See Note 5, "Investments," for further information on our equity investments.

Hedge Derivatives. A portion of our derivative contracts are negotiated over-the-counter with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Such contracts are classified as Level 2 within the fair value hierarchy. The remainder of our hedge contracts are comprised of futures contracts, which are traded on a public exchange. These contracts are classified within Level 1 of the fair value hierarchy.

Fuel Hedge Contracts. Our fuel hedge portfolio consists of options, swaps and futures. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices.

Interest Rate Contracts. Our interest rate derivatives are swap contracts, which are valued based on data readily observable in public markets.

Foreign Currency Exchange Contracts. Our foreign currency derivatives consist of forward contracts and are valued based on data readily observable in public markets.


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NOTE 5. INVESTMENTS

Long-Term Investments

We have developed strategic relationships with a number of airlines and airline services companies through equity investments and other forms of cooperation and support. Our equity investments reinforce our commitment to these relationships and provide us with the ability to participate in strategic decision-making, often through representation on the board of directors of the investee.

Fair Value Investments

We account for the following investments at fair value with adjustments to fair value recognized in gain/(loss) on investments within non-operating expense in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income ("income statement"). We recorded losses of $112 million and gains of $100 million on our fair value investments during the three months ended March 31, 2020 and 2019, respectively. These results were driven by changes in stock prices and foreign currency fluctuations.

Ownership Interest Carrying Value
(in millions) March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
Hanjin-KAL 15  % 10  % $ 538    $ 205   
Air France-KLM % % 211    418   
China Eastern % % 159    258   
Wheels Up 27  % —  % 234    —   
Other investments 225    218   
Total fair value investments $ 1,367    $ 1,099   


Wheels Up. In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up. Upon closing, we received a 27% equity stake in Wheels Up which we have elected to record using the fair value option as this is expected to better reflect the economics of our ownership interest. This transaction resulted in a gain of $240 million which was recorded within miscellaneous, net in our income statement.

GOL. In the December 2019 quarter we sold our ownership stake of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), and are winding down our commercial agreements. Additionally, GOL has a $300 million five-year term loan facility with third parties maturing in August 2020, which we have guaranteed. Based on market value at March 31, 2020, approximately 50% of our guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly traded loyalty program. Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability for the term loan on our balance sheet as of March 31, 2020. However, as the COVID-19 pandemic continues to impact the global economy, there is an increased risk related to GOL's ability to repay this term loan, which may require our performance under this guarantee. Therefore, we have recorded an immaterial reserve in other accrued liabilities related to the decline in value of our security interest in GOL's Smiles shares.

14


Equity Method Investments

We account for the investments listed below under the equity method of accounting.

Ownership Interest Carrying Value
(in millions) March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
LATAM 20  % —  % $ 1,088    $ —   
Grupo Aeroméxico (1)
51  % 51  % 770    833   
Virgin Atlantic (2)
49  % 49  % 207    375   
AirCo 49  % 49  % 141    142   

(1)Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to a maximum of 49%. Therefore, we account for our investment under the equity method. Due to Grupo Aeroméxico's share repurchase program, our equity stake in Grupo Aeroméxico has increased to a non-controlling 51% interest.
(2)We have a non-controlling equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways, and similar non-controlling interests in certain affiliated Virgin Atlantic companies.

LATAM. In January 2020, we acquired 20% of the shares of LATAM Airlines Group S.A. ("LATAM") for $1.9 billion, or $16 per share, through a tender offer as part of our plan to enter into a strategic alliance with LATAM. In addition, to support the establishment of the strategic alliance, we agreed to make transition payments to LATAM totaling $350 million, $200 million of which was disbursed in 2019. As part of our planned strategic alliance with LATAM, we have also agreed to acquire four A350 aircraft from LATAM and have assumed ten of LATAM's A350 purchase commitments with Airbus for deliveries through 2025. The total consideration of $2.3 billion, including the tender offer and the transition payments, has been allocated based on their relative fair values to the shares ($1.1 billion) and to the alliance-related indefinite-lived intangible asset ($1.2 billion). We expect to record the aircraft at cost upon delivery.

Based on our 20% ownership interest and planned strategic alliance, we determined that we have significant influence over LATAM and will accordingly record this investment under the equity method of accounting. At acquisition, our investment was recorded at $1.1 billion based on the allocated value to our 20% equity stake in LATAM on January 3, 2020. Due to the timing of information available from LATAM, we will record our portion of LATAM's financial results on a one quarter lag, beginning in the June 2020 quarter.

Our portion of Grupo Aeroméxico's and Virgin Atlantic's financial results are recorded in miscellaneous, net in our income statement under non-operating expense, and our share of AirCo's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business.

If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our basis in the investment to fair value and record the loss in non-operating expense. Given the recent and unprecedented impact of the COVID-19 pandemic on the airline industry, we evaluated whether our equity method investments in LATAM, Grupo Aeroméxico, Virgin Atlantic and AirCo were other than temporarily impaired. Based on discussions with each investee's management and review of their respective liquidity and financial projections, we do not believe these investments are other than temporarily impaired as we have the intent and ability to retain these investments for a period of time sufficient to allow for anticipated recovery in value. However, we will continue to monitor the continuing effects of the pandemic, self-help measures each investee executes and potential assistance provided by their respective governments.

Effective January 2020, we combined our separate transatlantic joint venture agreements with Air France-KLM and Virgin Atlantic into a single three-party transatlantic joint venture. Under the new agreement, certain measurement thresholds were reset from the previous joint venture with Virgin Atlantic, reducing the value Delta would have received over the original term. To compensate Delta for this reduced value, we entered into a transition agreement with Virgin Atlantic and, as of March 31, 2020, have recognized a receivable of approximately $200 million, which is recorded in other noncurrent assets, and corresponding deferred revenue, which is recorded in other noncurrent liabilities.




NOTE 6. DERIVATIVES AND RISK MANAGEMENT

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we enter into derivative contracts and adjust our derivative portfolio as market conditions change. We recognize derivative contracts at fair value on our balance sheet.

Cash flows associated with purchasing and settling hedge contracts generally are classified as operating cash flows.

Fuel Price Risk

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s inventory.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our debt obligations. Market risk associated with our fixed and variable rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.

In March 2020, we unwound a majority of our interest rate swap contracts. The unwind of these contracts generated approximately $100 million of cash in the quarter. These gains will be reflected in our income statement over the remaining term of the related debt agreements.

Foreign Currency Exchange Risk

We are subject to foreign currency exchange rate risk because we have revenue, expense and equity investments denominated in foreign currencies. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable. From time to time, we may also enter into foreign currency option and forward contracts. 

Hedge Position as of March 31, 2020
(in millions) Volume Final Maturity Date Prepaid Expenses and Other Other Noncurrent Assets Other Accrued Liabilities Other Noncurrent Liabilities Hedge Derivatives, net
Designated as hedges
Interest rate contracts (fair value hedges) 150 U.S. dollars    April 2028 $   $ 23    $ —    $ —    $ 25   
Not designated as hedges
Foreign currency exchange contracts 238 Euros    December 2020 11    —    —    —    11   
Foreign currency exchange contracts 177,045 South Korean won    April 2023     —    —     
Fuel hedge contracts 219 gallons - crude oil and refined products    April 2021 98    —    (90)   —     
Total derivative contracts    $ 112    $ 25    $ (90)   $ —    $ 47   

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Hedge Position as of December 31, 2019
(in millions) Volume Final Maturity Date Prepaid Expenses and Other Other Noncurrent Assets Other Accrued Liabilities Other Noncurrent Liabilities Hedge Derivatives, net
Designated as hedges
Interest rate contracts (fair value hedges) 1,872 U.S. dollars    April 2028 $ 12    $ 53    $ (4)   $ —    $ 61   
Not designated as hedges
Foreign currency exchange contracts 397 Euros    December 2020   —    —    —     
Foreign currency exchange contracts 177,045 South Korean won    April 2023   —    —    (4)   (3)  
Fuel hedge contracts 243 gallons - crude oil and refined products    July 2020 16    —    (15)   —     
Total derivative contracts    $ 38    $ 53    $ (19)   $ (4)   $ 68   

Balance Sheet Location of Hedged Item in Fair Value Hedges
Carrying Amount of Hedge Instruments
Cumulative Amount of Fair Value Hedge Adjustments1
(in millions) March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
Current maturities of debt and finance leases
$ 22    $ (19)   $ 22    $  
Debt and finance leases
$ (47)   $ (1,783)   $ 102    $ 53   
(1)As of March 31, 2020, these amounts include the cumulative amount of fair value hedging adjustments remaining for which hedge accounting has been discontinued of approximately $100 million.

Offsetting Assets and Liabilities

We have master netting arrangements with our counterparties giving us the right to offset hedge assets and liabilities. However, we have elected not to offset the fair value positions recorded on our balance sheet. The following table shows the net fair value of our counterparty positions had we elected to offset.
(in millions) Prepaid Expenses and Other Other Noncurrent Assets Other Accrued Liabilities Other Noncurrent Liabilities Hedge Derivatives, net
March 31, 2020
Net derivative contracts $ 22    $ 25    $ —    $ —    $ 47   
December 31, 2019
Net derivative contracts $ 24    $ 53    $ (5)   $ (4)   $ 68   
Not Designated Hedge Gains (Losses)

Gains (losses) related to our foreign currency exchange and fuel hedge contracts are as follows:
Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
(in millions) 2020 2019
Three Months Ended March 31,
Foreign currency exchange contracts
Gain/(loss) on investments, net $ 19    $ 11   
Fuel hedge contracts
Aircraft fuel and related taxes 216    (54)  
Total
$ 235    $ (43)  

Credit Risk

To manage credit risk associated with our fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria, including their credit ratings, and limit our exposure to any one counterparty.




NOTE 7. DEBT

The following table summarizes our debt:
Maturity Interest Rate(s) Per Annum at March 31, December 31,
(in millions) Dates March 31, 2020 2020 2019
Unsecured notes 2020 to 2029 2.60% to 4.38% $ 4,550    $ 5,550   
2020 Secured Term Loan Facility(1)
2021 2.75% to 2.96% 2,700    —   
Financing arrangements secured by aircraft:
Certificates(2)
2020 to 2028 2.00% to 8.02% 2,611    1,669   
Notes(1)(2)
2020 to 2025 1.37% to 6.03% 1,243    1,193   
NYTDC Special Facilities Revenue Bonds, Series 2018(2)
2022 to 2036 4.00% to 5.00% 1,383    1,383   
Other financings(1)(2)(3)
2021 to 2030 1.99% to 8.75% 256    196   
2018 Unsecured Revolving Credit Facility(1)
2021 to 2023 2.45% 2,650    —   
Other revolving credit facilities(1)
2020 to 2021 2.37% to 3.21% 292    —   
Total secured and unsecured debt 15,685    9,991   
Unamortized premium and debt issue cost, net and other 155    115   
Total debt 15,840    10,106   
Less: current maturities (4,090)   (2,054)  
Total long-term debt $ 11,750    $ 8,052   
(1)Certain financings are comprised of variable rate debt. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate, in each case plus a specified margin.
(2)Due in installments.
(3)Primarily includes unsecured bonds and debt secured by certain accounts receivable and real estate.

2020 Secured Term Loan Facility

In March 2020, we entered into a $2.7 billion 364-day secured term loan facility ("the facility"). Borrowings under the facility are secured by certain aircraft. The facility also contains an accordion feature under which the aggregate commitment can be increased to $4.0 billion upon our request, provided that the new lenders agree to the existing terms of the facility. The facility contains covenants similar to our other existing borrowings. In April 2020, this loan was increased to $3.0 billion.

2020-1 EETC

We completed a $1.0 billion offering of Pass Through Certificates, Series 2020-1 ("2020-1 EETC") utilizing a pass through trust during March 2020. This amount is included in Certificates in the table above. The proceeds of this issuance were used to pay the unsecured notes that matured in the March 2020 quarter. The details of the 2020-1 EETC, which is secured by 33 aircraft, are shown in the table below:

(in millions) Total Principal Fixed Interest Rate Issuance Date Final Maturity Date
2020-1 Class AA Certificates $ 796    2.00% March 2020 June 2028
2020-1 Class A Certificates 204    2.50% March 2020 June 2028
Total $ 1,000   

Availability Under Revolving Credit Facilities

During the March 2020 quarter, we drew $3.0 billion on our revolving credit facilities and had $21 million undrawn as of March 31, 2020. The amounts drawn are included as outstanding debt in the table above.

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Fair Value of Debt

Market risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Debt is primarily classified as Level 2 within the fair value hierarchy. 
(in millions) March 31,
2020
December 31,
2019
Net carrying amount $ 15,840    $ 10,106   
Fair value $ 14,800    $ 10,400   

Covenants

We were in compliance with the covenants in our financing agreements at March 31, 2020.


NOTE 8. EMPLOYEE BENEFIT PLANS

The following table shows the components of net periodic (benefit) cost:
Pension Benefits Other Postretirement and Postemployment Benefits
(in millions) 2020 2019 2020 2019
Three Months Ended March 31,
Service cost $ —    $ —    $ 24    $ 21   
Interest cost 175    208    28    34   
Expected return on plan assets (343)   (297)   (11)   (12)  
Amortization of prior service credit —    —    (2)   (2)  
Recognized net actuarial loss 75    73    10     
Net periodic (benefit) cost $ (93)   $ (16)   $ 49    $ 50   

Service cost is recorded in salaries and related costs in our income statement while all other components are recorded within miscellaneous, net under non-operating expense.

We have no minimum funding requirements for our defined benefit pension plans. Due to the impact of the COVID-19 pandemic on our liquidity, we no longer plan to make any voluntary contributions during 2020.


NOTE 9. COMMITMENTS AND CONTINGENCIES

Aircraft Purchase Commitments

We have committed to the future aircraft purchases reflected below. However, we are working with the OEMs to optimize the timing of our future aircraft deliveries. Our future aircraft purchase commitments totaled approximately $14.7 billion at March 31, 2020:

(in millions) Total
Nine months ending December 31, 2020
$ 2,560   
2021 4,560   
2022 3,060   
2023 1,860   
2024 1,000   
Thereafter 1,700   
Total $ 14,740   

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Our future aircraft purchase commitments included the following aircraft at March 31, 2020:
Aircraft Type Purchase Commitments
A220-100 14   
A220-300 50   
A321-200 27   
A321-200neo 100   
A330-900neo(1)
32   
A350-900 26   
CRJ-900  
Total 253   
(1)Includes two A330-900neo lease commitments with one in each of 2020 and 2021.

LATAM A350 Commitments

We have agreed to acquire four A350 aircraft from LATAM and assumed ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025, which are included as purchase commitments in the table above. See Note 5, "Investments," for further information on our strategic alliance with LATAM.

Legal Contingencies

We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other matters concerning our business. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, we believe that the resolution of current matters will not have a material adverse effect on our Condensed Consolidated Financial Statements.

Credit Card Processing Agreements

Our VISA/MasterCard and American Express credit card processing agreements provide that no cash reserve ("Reserve") is required, and no withholding of payment related to receivables collected will occur, except in certain circumstances, including when we do not maintain a required level of liquidity as outlined in the merchant processing agreements. In circumstances in which the credit card processor can establish a Reserve or withhold payments, the amount of the Reserve or payments that may be withheld would be equal to the potential liability of the credit card processor for tickets purchased with VISA/MasterCard or American Express credit cards, as applicable, that had not yet been used for travel. We did not have a Reserve or an amount withheld as of March 31, 2020 or December 31, 2019.

Other Contingencies

General Indemnifications

We are the lessee under many commercial real estate leases. It is common in these transactions for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. This type of indemnity would typically make us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct.

Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment.

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We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have insurance policies in place as required by applicable environmental laws.

Some of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to specified changes in laws or regulations. In some of these financing transactions, we also bear the risk of changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes.

We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.

Other

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs.


NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables show the components of accumulated other comprehensive loss:
(in millions)
Pension and Other Benefit Liabilities(2)
Other Total
Balance at January 1, 2020 (net of tax effect of $1,549)
$ (8,095)   $ 106    $ (7,989)  
Changes in value (net of tax effect of $3)
—    21    21   
Reclassifications into earnings (net of tax effect of $21)(1)
70    —    70   
Balance at March 31, 2020 (net of tax effect of $1,531)
$ (8,025)   $ 127    $ (7,898)  

Balance at January 1, 2019 (net of tax effect of $1,492)
$ (7,925)   $ 100    $ (7,825)  
Changes in value (net of tax effect of $1)
—    (2)   (2)  
Reclassifications into earnings (net of tax effect of $19)(1)
60      61   
Balance at March 31, 2019 (net of tax effect of $1,474)
$ (7,865)   $ 99    $ (7,766)  

(1)Amounts reclassified from AOCI for pension and other benefit liabilities and for derivative contracts designated as foreign currency cash flow hedges are recorded in miscellaneous, net in non-operating expense and in passenger revenue, respectively, in our income statement.
(2)Includes $672 million of deferred income tax expense primarily related to pension and other benefit obligations that will not be recognized in net income until these obligations are fully extinguished. We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations.



NOTE 11. SEGMENTS

Refinery Operations

Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties. The refinery's production consists of jet fuel, as well as non-jet fuel products. We use several counterparties to exchange the non-jet fuel products produced by the refinery for jet fuel consumed in our airline operations. The gross fair value of the products exchanged under these agreements during the three months ended March 31, 2020 and 2019 was $831 million and $732 million, respectively.
Segment Reporting

Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with GAAP. Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis.
(in millions) Airline Refinery Intersegment Sales/Other Consolidated
Three Months Ended March 31, 2020
Operating revenue: $ 8,592    $ 1,184    $ 8,592   
Sales to airline segment $ (210)  
(1)
Exchanged products (831)  
(2)
Sales of refined products (143)  
(3)
Operating (loss) income (439)   29    —    (410)  
Interest expense (income), net 80    (1)   —    79   
Depreciation and amortization 678    25    (25)  
(4)
678   
Total assets, end of period 66,864    1,874    —    68,738   
Capital expenditures 926    11    —    937   
Three Months Ended March 31, 2019
Operating revenue: $ 10,424    $ 1,283    $ 10,472   
Sales to airline segment $ (271)  
(1)
Exchanged products (732)  
(2)
Sales of refined products (232)  
(3)
Operating income (loss) 1,054    (34)   —    1,020   
Interest expense (income), net 92    (9)   —    83   
Depreciation and amortization 615    23    (23)  
(4)
615   
Total assets, end of period 60,343    1,498    —    61,841   
Capital expenditures 1,350    10    —    1,360   
(1)Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery.
(2)Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis.
(3)These sales were at or near cost; accordingly, the margin on these sales is de minimis.
(4)Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement.



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NOTE 12. (LOSS)/EARNINGS PER SHARE

We calculate basic (loss)/earnings per share and diluted (loss) per share by dividing net (loss)/income by the weighted average number of common shares outstanding, excluding restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including stock options and restricted stock awards. Antidilutive common stock equivalents excluded from the diluted (loss)/earnings per share calculation are not material. The following table shows the computation of basic and diluted (loss)/earnings per share:
Three Months Ended March 31,
(in millions, except per share data) 2020 2019
Net (loss)/income $ (534)   $ 730   
Basic weighted average shares outstanding 637    665   
Dilutive effect of share-based awards —     
Diluted weighted average shares outstanding 637    667   
Basic (loss)/earnings per share $ (0.84)   $ 1.10   
Diluted (loss)/earnings per share $ (0.84)   $ 1.09   

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world have significantly reduced demand for air travel. After initially impacting our service to China beginning in January, the spread of the virus and the resulting global pandemic next affected the majority of our international network and ultimately our domestic network. Beginning in March, large public events were cancelled, governmental authorities began imposing restrictions on non-essential activities, businesses suspended travel and popular leisure destinations temporarily closed to visitors. Certain countries that are key markets for our business have imposed bans on international travelers for specified periods or indefinitely.

As a result, demand for travel declined at an accelerated pace, which has had an unprecedented and materially adverse impact on our revenues and financial position. The length and severity of the reduction in demand due to the pandemic is uncertain; accordingly, we expect the adverse impact to grow in the June 2020 quarter. While we are planning for a modest demand recovery beginning in the September 2020 quarter, the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall U.S. and global economy. Our forecasted expense management and liquidity measures may be modified as we clarify the demand recovery timing.

In response to these developments, we have implemented measures to focus on the safety of our customers and employees, while at the same time seeking to mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

Taking Care of our Customers and Employees.