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 consolidated 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 and nine months ended September 30, 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 on certain receivables, which are discussed further in Note 5, "Investments."
Income Taxes. In 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This standard simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of ASC 740. This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries. We adopted the new standard effective January 1, 2020 during the September 2020 quarter with no material impact on our condensed consolidated financial statements.
NOTE 2. IMPACT OF THE COVID-19 PANDEMIC
The unprecedented and widespread impact 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 has significantly affected 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 a rapid pace in the March 2020 quarter and has remained depressed, which has had an unprecedented and materially adverse impact on our revenues and financial position. Although demand improved compared to the June 2020 quarter, it remains significantly below the prior year. The exact timing and pace of the recovery remain uncertain as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, remain closed or are enforcing extended quarantines for most U.S. residents. Additionally, some states have instituted travel restrictions, advisories or quarantines for travelers from other states. We expect the demand environment to remain depressed until widespread advances by the medical community are available. Our forecasted expense and liquidity management initiatives may be modified as the demand environment evolves.
In response to these developments, beginning in March and continuing through the September 2020 quarter, we have implemented enhanced measures focusing on the safety of our customers and employees, while at the same time seeking to mitigate the impact on our financial position and operations and to position our business for recovery.
Taking Care of our Customers and Employees. The safety of our customers and employees is our primary focus. As the COVID-19 pandemic has progressed, we have taken numerous steps to help promote the safety of our customers and employees on the ground and in the air in keeping with current health-expert recommendations, including:
•Adopting new cleaning procedures on all flights, including disinfectant electrostatic spraying on aircraft and sanitizing high-touch areas like tray tables, entertainment screens, armrests and seat-back pockets before each flight.
•Taking steps to help employees and customers practice social distancing and promote safety, including:
◦Creating a Global Cleanliness Division to ensure a consistently safe and sanitized experience across our facilities and aircraft.
◦Requiring all customers and customer-facing employees to wear masks.
◦Capping load factors throughout our aircraft and blocking middle seats through at least January 6, 2021.
◦Modifying our boarding and deplaning processes, while providing food and beverage service that is designed to reduce physical touch points.
◦Installing plexiglass shields at Delta check-in counters, Delta Sky Clubs and gate counters as well as adding social distance markers in the check-in lobby, Delta Sky Clubs, at the gate, throughout the jetbridge and at baggage claim.
◦Implementing significant workforce social distancing and protection measures, including reconfiguring call center spaces to promote social distancing, increasing cleaning and disinfecting of our facilities and encouraging employees to work remotely when possible.
•Giving customers flexibility to plan and re-book travel, including extending expiration on certain tickets and travel credits through December 2022, eliminating change fees for domestic tickets, with the exception of Basic Economy tickets, and waiving change fees for all international and Basic Economy tickets purchased between March 1 and December 31, 2020. Additionally, we are 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.
•Offering pay protection to employees who have tested positive for COVID-19, who must quarantine due to exposure to COVID-19 or who are considered 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 work remotely.
•Offering on-site COVID testing at our hubs and making at-home testing available for our U.S.-based employees. We have also added rapid testing in most U.S. hubs for active flight crews. Over 40,000 employees have been tested and retesting protocols are being developed.
Capacity Reductions. Beginning in the second half of March, we experienced a precipitous decrease in demand as COVID-19 spread throughout the world. While we have increased capacity compared to the lowest levels in April 2020, system capacity remains significantly lower than prior to the pandemic. For the September 2020 quarter, system capacity was reduced approximately 60% compared to the September 2019 quarter, with international capacity reduced by approximately 80% and domestic capacity reduced by approximately 50%. For the December 2020 quarter, system capacity is expected to be down approximately 40-45% compared to the December 2019 quarter. As a result of reduced demand expectations and lower capacity in the December 2020 quarter and beyond, we have parked approximately 40% of our fleet, including the permanent retirement of certain aircraft, as discussed in the valuation of long-lived assets section of this footnote, below.
Expense Management. In response to the reduction in revenue, we have implemented, and will continue to implement, cost saving initiatives, including:
•Reducing capacity as described above to align with expected demand, which has resulted in removing from active service approximately 500 aircraft as of September 30, 2020, including certain fleets or aircraft that we have decided to early retire as described below.
•Consolidating our footprint at our airport facilities, including temporarily closing some Delta Sky Clubs.
•Reducing employee-related costs, including:
◦Voluntary unpaid leaves of 30 days to 12 months offered to most employees. Approximately 50,000 of our employees have taken or have elected to take voluntary leaves.
◦Offering employees early retirement and voluntary separation programs, with approximately 18,000 employees electing to participate. Most departures occurred during the September 2020 quarter. See Note 8, "Employee Benefit Plans," for additional information.
◦Due to projected levels of flying and staffing levels, notifying our pilots of the potential of furloughs. We continue to actively work with ALPA on alternative courses of action that would allow us to avoid furloughing approximately 1,700 pilots after October 31, 2020.
◦From April 1 through December 31, 2020, salary reductions of 100% for our CEO, 50% for our officers and a 25% reduction in work hours for all other management and most front-line employee work groups.
•Delaying or eliminating nearly all other discretionary spending.
Balance Sheet, Cash Flow and Liquidity. Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities balance ("liquidity") as of September 30, 2020 was $21.6 billion as a result of the following actions to increase liquidity and strengthen our financial position during the nine months ended September 30, 2020:
•Completing financing transactions for approximately $27.0 billion during the nine months ended September 30, 2020. Financings completed during the three months ended September 30, 2020 are listed below.
◦Entering into loan agreements to borrow $1.5 billion from the New York Transportation Development Corporation ("NYTDC") in connection with NYTDC's issuance of Special Facilities Revenue Bonds, Series 2020, to finance, among other things, a portion of the construction costs for the new terminal facilities at LaGuardia Airport.
◦Raising $9.0 billion through the issuance of notes and entry into a term loan facility, each secured by certain assets related to our SkyMiles program.
•Receiving $5.6 billion as part of the CARES Act payroll support program as described in the CARES Act section below.
•Reducing planned capital expenditures by approximately $3.3 billion for the year, including optimizing the timing of our future aircraft deliveries, delaying aircraft modifications and postponing certain information technology initiatives and ground equipment replacement. See Note 9, "Commitments and Contingencies," for additional information about our aircraft purchase commitments.
•Amending our credit facilities to replace fixed charge coverage ratio covenants with liquidity-based covenants.
•Suspending share repurchases, dividends and voluntary pension funding.
In October 2020, we repaid all outstanding borrowings under our $3.0 billion 2020 secured term loan facility, which was subsequently terminated, and repaid $2.6 billion in outstanding borrowings under our revolving credit facilities. We have additional unencumbered assets available for potential financing arrangements, if needed.
In response to the impact that the demand environment has had on our financial condition, our credit rating was downgraded by Standard & Poor's to BB in March 2020 and by Fitch to BB+ in April 2020. Our credit rating from Moody's remains Baa3.
Our debt agreements contain various affirmative, negative and financial covenants, including our credit facilities and our SkyMiles financing agreements, each of which contains, among other things, a minimum liquidity covenant. The minimum liquidity covenant replaced the fixed charge coverage ratio previously included in our credit facilities as part of amendments that were completed in the June 2020 quarter. Certain of our debt agreements also include collateral coverage ratios, and our SkyMiles financing agreements include a debt service coverage ratio. We were in compliance with the covenants in these debt agreements as of September 30, 2020.
See Note 7, "Debt," and the sale-leaseback transactions section in this footnote for more information on our financing activities during the nine months ended September 30, 2020.
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 concluded that there was no indication of impairment as the fair value exceeded our carrying value:
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Carrying Value at
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Fair Value Excess at 2019 Testing Date
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|
(in millions)
|
September 30, 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
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|
|
(1) The reduction in goodwill relates to the combination of Delta Private Jets with Wheels Up in the March 2020 quarter. See Note 5, "Investments," for more information on this transaction.
(2) As part of our strategic alliance with and investment in LATAM Airlines Group S.A. ("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. See Note 5, "Investments," for more information on this transaction.
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 our 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 September 30, 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 our market capitalization, (4) observable market transactions, (5) changes to the regulatory environment and (6) the nature and amount of government support that has been and is expected to be provided in the future.
Based on our interim impairment assessment as of September 30, 2020, we have determined that our goodwill and indefinite-lived intangible assets are not impaired. However, we are unable to predict how long conditions related to the pandemic will persist, when widespread advances by the medical community will be available, 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 requires or 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. We expect any traveler wariness of airports and commercial aircraft to have a similar effect.
Valuation of Long-Lived Assets
Our flight equipment and other long-lived assets, which are classified as property and equipment, net on our Consolidated Balance Sheet ("balance sheet"), have a recorded value of $26.6 billion at September 30, 2020. We review flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired.
As part of our capacity reductions related to the negative effect on our business from the COVID-19 pandemic, we have removed approximately 500 aircraft from active service as of September 30, 2020, including certain fleets and other aircraft that are being retired early.
The following table shows the details of our 2020 aircraft retirement decisions:
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Fleet Type
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Number of Aircraft
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Estimated Final Retirement During the Quarter Ended
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Impairment-Related Charge (in millions)
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Quarter Decision was Made
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717
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91
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December 2025
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$
|
950
|
|
September 2020
|
|
767-300ER
|
49
|
|
December 2025
|
905
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|
September 2020
|
|
CRJ-200 (1)
|
125
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|
December 2023
|
320
|
|
September 2020
|
|
777
|
18
|
|
December 2020
|
1,440
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|
June 2020
|
|
MD-90
|
26
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|
June 2020
|
330
|
|
June 2020
|
|
737-700
|
10
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|
September 2020
|
220
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|
June 2020
|
|
767-300ER
|
7
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|
June 2020
|
180
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|
June 2020
|
|
A320
|
10
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|
June 2020
|
60
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|
June 2020
|
|
MD-88
|
47
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|
June 2020
|
22
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|
March 2020
|
|
Total
|
383
|
|
|
$
|
4,427
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|
|
(1)Certain of the CRJ-200 aircraft scheduled to be retired by the December 2023 quarter are operated for us by SkyWest Airlines under a revenue proration agreement.
These impairment and other related charges are recorded in restructuring charges in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income ("income statement"). These charges were calculated using Level 3 fair value inputs based primarily upon recent market transactions, published pricing guides and our assessment of existing market conditions based on industry knowledge. Following the impairment charges, the remaining cumulative net book value of these aircraft is $520 million.
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 third-party 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 only the fleet-types discussed above were 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.
We assess the valuation of our equity investments when events and circumstances indicate the investments may be impaired. See Note 5, "Investments," for 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 entered into an agreement with the U.S. Department of the Treasury to receive emergency relief through the CARES Act payroll support program, which totaled $5.6 billion after receiving $701 million in the September 2020 quarter. This includes the final installment paid in July under the original $5.4 billion allocation, plus an incremental installment of $157 million paid in September. 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 consisted of $4.0 billion in a grant and $1.6 billion in an unsecured 10-year low interest loan. The loan bears interest at an annual rate 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 issued to the U.S. Department of the Treasury warrants to acquire more than 6.7 million shares of Delta common stock. These warrants have an exercise price of $24.39 per share and a five-year term.
The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan which is being amortized as interest expense in our income statement over the term of the loan. The proceeds of the grant were recorded in cash and cash equivalents when received and are being recognized as contra-expense in CARES Act grant recognition in our income statement over the periods that the funds are intended to compensate.
As of September 30, 2020, we had recognized $2.6 billion of the grant as contra-expense with the remaining $1.3 billion recorded as a deferred contra-expense in other accrued liabilities on our balance sheet. We expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as contra-expense by the end of 2020. See Note 7, "Debt," for further discussion of the unsecured loans and warrants to acquire Delta shares issued under the CARES Act payroll support program.
The CARES Act also provided for up to $25 billion in secured loans to the airline industry. We were eligible and entered into a non-binding letter of intent in the June 2020 quarter with the U.S. Department of the Treasury for $4.6 billion under the loan program. In the September 2020 quarter, however, we elected not to participate in this program.
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.
Sale-Leaseback Transactions
In the June 2020 quarter, we entered into $2.8 billion of sale-leaseback transactions for 85 aircraft including 25 A321-200s, 25 A220-100s, 23 CRJ-900s, 10 737-900ERs and two A330-900s. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. These transactions are treated as financing inflows on the Condensed Consolidated Statements of Cash Flows ("cash flow statement").
The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within operating lease right-of-use assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. These transactions are treated as investing cash inflows on the cash flow statement.
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.
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|
|
|
Three Months Ended September 30,
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|
Nine Months Ended September 30,
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(in millions)
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2020
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2019
|
|
2020
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2019
|
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Ticket
|
$
|
1,634
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|
$
|
10,029
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|
|
$
|
8,712
|
|
$
|
27,986
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|
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Loyalty travel awards
|
143
|
|
732
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|
|
731
|
|
2,174
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|
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Travel-related services
|
161
|
|
649
|
|
|
742
|
|
1,872
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|
|
Total passenger revenue
|
$
|
1,938
|
|
$
|
11,410
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|
|
$
|
10,185
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|
$
|
32,032
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|
Ticket. We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in air traffic liability. Passenger revenue is recognized when we provide transportation or when ticket breakage occurs. For tickets that we sell on behalf of other airlines, we reduce the air traffic liability when consideration is remitted to those airlines. The air traffic liability primarily includes sales of passenger tickets to be flown in the future and 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.
The air traffic liability typically increases during the winter and spring months 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, as well as significant ticket cancellations which led to issuance of cash refunds or credits to customers. The total value of cash refunds, excluding taxes and related fees, issued to customers during the three and nine months ended September 30, 2020 was approximately $650 million and $2.8 billion, respectively.
Prior to April 2020, passenger tickets sold and credits issued were generally valid for one year from the date of original ticket issuance. During the current year, we announced the extension of expiration on certain tickets and travel credits through December 2022. The air traffic liability classified as noncurrent as of September 30, 2020 represents our current estimate of tickets and credits to be used or refunded beyond one year, while the balance classified as current represents our current estimate of tickets and credits to be used or refunded within one year. We will continue to monitor our customers' travel behavior and may adjust our estimates in the future.
We recognized approximately $3.0 billion in passenger revenue during the nine months ended September 30, 2020 that was recorded in our air traffic liability balance at December 31, 2019. 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.
Other Revenue
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|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
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|
|
Nine Months Ended September 30,
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|
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(in millions)
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2020
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2019
|
|
2020
|
2019
|
|
Ancillary businesses and refinery
|
$
|
572
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|
$
|
291
|
|
|
$
|
1,185
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|
$
|
990
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|
|
Loyalty program
|
343
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|
485
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|
|
1,086
|
|
1,443
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|
|
Miscellaneous
|
67
|
|
185
|
|
|
263
|
|
536
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|
|
Total other revenue
|
$
|
982
|
|
$
|
961
|
|
|
$
|
2,534
|
|
$
|
2,969
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|
Ancillary Businesses and Refinery. Ancillary businesses and refinery includes aircraft maintenance services we provide to third parties, our vacation wholesale operations and refinery sales to third parties.
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 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 nine months ended September 30, 2020 and 2019, total cash sales from marketing agreements related to our loyalty program were $2.2 billion and $3.1 billion, respectively, which are allocated to travel and other performance obligations.
In September 2020, we raised $9.0 billion through the issuance of notes and entry into a term loan facility, each secured by certain assets related to our SkyMiles program. See Note 7, "Debt" for further discussion of these transactions.
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 deferred revenue and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.
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|
|
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|
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|
|
|
|
|
|
(in millions)
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|
|
2020
|
2019
|
|
Balance at January 1
|
|
|
$
|
6,728
|
|
$
|
6,641
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|
|
Miles earned
|
|
|
1,132
|
|
2,352
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|
|
Travel miles redeemed
|
|
|
(731)
|
|
(2,175)
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|
|
Non-travel miles redeemed
|
|
|
(40)
|
|
(122)
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|
|
Balance at September 30
|
|
|
$
|
7,089
|
|
$
|
6,696
|
|
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 September 30, 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. A significant portion of the refinery's revenues typically consists of fuel sales to support the airline, which is 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger Revenue
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
(in millions)
|
2020
|
2019
|
|
2020
|
2019
|
|
Domestic
|
$
|
1,647
|
|
$
|
7,985
|
|
|
$
|
7,812
|
|
$
|
22,819
|
|
|
Atlantic
|
132
|
|
2,062
|
|
|
1,014
|
|
5,009
|
|
|
Latin America
|
97
|
|
673
|
|
|
879
|
|
2,287
|
|
|
Pacific
|
62
|
|
690
|
|
|
480
|
|
1,917
|
|
|
Total
|
$
|
1,938
|
|
$
|
11,410
|
|
|
$
|
10,185
|
|
$
|
32,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
(in millions)
|
2020
|
2019
|
|
2020
|
2019
|
|
Domestic
|
$
|
2,585
|
|
$
|
8,665
|
|
|
$
|
10,116
|
|
$
|
24,990
|
|
|
Atlantic
|
240
|
|
2,338
|
|
|
1,353
|
|
5,754
|
|
|
Latin America
|
126
|
|
747
|
|
|
1,015
|
|
2,547
|
|
|
Pacific
|
111
|
|
810
|
|
|
638
|
|
2,277
|
|
|
Total
|
$
|
3,062
|
|
$
|
12,560
|
|
|
$
|
13,122
|
|
$
|
35,568
|
|
NOTE 4. FAIR VALUE MEASUREMENTS
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30,
2020
|
Level 1
|
Level 2
|
Level 3
|
|
Cash equivalents
|
$
|
13,554
|
|
$
|
13,554
|
|
$
|
—
|
|
$
|
—
|
|
|
Restricted cash equivalents
|
1,868
|
|
1,868
|
|
—
|
|
—
|
|
|
Short-term investments
|
|
|
|
|
|
U.S. Government securities
|
5,048
|
|
3,694
|
|
1,354
|
|
—
|
|
|
Long-term investments
|
1,310
|
|
846
|
|
230
|
|
234
|
|
|
Hedge derivatives, net
|
|
|
|
|
|
Fuel hedge contracts
|
(3)
|
|
—
|
|
(3)
|
|
—
|
|
|
Interest rate contracts
|
25
|
|
—
|
|
25
|
|
—
|
|
|
Foreign currency exchange contracts
|
(2)
|
|
—
|
|
(2)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
(1)
|
|
2
|
|
|
Interest rate contracts
|
61
|
|
—
|
|
61
|
|
|
Foreign currency exchange contracts
|
6
|
|
—
|
|
6
|
|
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, among other things, 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.
Short-Term Investments. The fair values of short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security and other observable information.
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. As of September 30, 2020, our equity investment in Wheels Up is classified as Level 3 in the fair value hierarchy as its equity is not traded on a public exchange and our equity investments in LATAM and Grupo Aeroméxico, which have no remaining value following impairment charges recorded in the June 2020 quarter, are classified as Level 3 investments due to their entry into bankruptcy proceedings. 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.
NOTE 5. INVESTMENTS
Short-Term Investments
At September 30, 2020, the estimated fair value of our short-term investments was $5.0 billion, which approximates cost. $4.4 billion of these investments are expected to mature in one year or less, with the remainder maturing within the next one to three years. Actual maturities may differ from contractual maturities because certain issuers of the securities may have the right to retire certain of our investments without prepayment penalties.
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.
LATAM. In January 2020, we acquired 20% of the shares of LATAM for $1.9 billion, or $16 per share, through a tender offer as part of our plan to create 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. We disbursed an additional $75 million during the September 2020 quarter, with the remaining $75 million due by the end of 2021. As part of our planned strategic alliance with LATAM, we also agreed to acquire four A350 aircraft from LATAM (which has subsequently been terminated, as discussed below) and 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, was allocated in the March 2020 quarter to the shares ($1.1 billion) and to the alliance-related indefinite-lived intangible asset ($1.2 billion) based on their relative fair values. We expect to record the ten aircraft at cost upon delivery.
In May 2020, LATAM filed for bankruptcy under Chapter 11 of the United States bankruptcy code and, as part of LATAM's reorganization, we terminated the purchase agreement for the four A350 aircraft from LATAM for a fee of $62 million, which was recorded in restructuring charges in our income statement. While our ownership interest remains at 20%, we no longer have significant influence with LATAM and discontinued accounting for the investment under the equity method in the June 2020 quarter. This investment is now accounted for at fair value.
During the June 2020 quarter, we eliminated our investment basis in LATAM and recorded expense of $1.1 billion in impairments and equity method losses within non-operating expenses in our income statement. This charge reflected the recognition of both our 20% share of LATAM's March 2020 quarter losses (due to the timing of information available from LATAM) and the decline in our expected realizable value for LATAM's shares following its bankruptcy filing. The impairment charge for our investment in LATAM was calculated using Level 3 fair value inputs. During the September 2020 quarter, LATAM’s debtor-in-possession financing was approved by the bankruptcy court to provide LATAM with near-term liquidity and continue progressing toward a plan of reorganization. We expect that no more than an immaterial amount will be distributed to current equity holders following the settlement of unsecured claims upon LATAM's emergence from bankruptcy. The balance of our investment in LATAM remains zero at September 30, 2020.
In May 2020, we signed a trans-American joint venture agreement with LATAM that, subject to regulatory approvals, will combine our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. In addition, we believe LATAM intends to request that the bankruptcy court approve the assumption of our strategic partnership agreement, which contributes to supporting the value of our $1.2 billion alliance-related indefinite-lived intangible asset. We continue to believe this alliance will generate growth opportunities, building upon Delta's and LATAM's global footprint and joint ventures. See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of our qualitative impairment assessment of indefinite-lived intangible assets.
Grupo Aeroméxico. In June 2020, Grupo Aeroméxico filed for bankruptcy under Chapter 11 of the United States bankruptcy code. We have a non-controlling 51% ownership interest in Grupo Aeroméxico, however Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to a maximum of 49%. Therefore, we accounted for our investment under the equity method prior to Grupo Aeroméxico's bankruptcy filing.
As a result of Grupo Aeroméxico's bankruptcy filing, while our ownership interest has not changed, we no longer have significant influence with Grupo Aeroméxico and discontinued accounting for the investment under the equity method in the June 2020 quarter. This investment is now accounted for at fair value.
During the June 2020 quarter, we eliminated our investment basis in Grupo Aeroméxico and recorded expense of $770 million in impairments and equity method losses within non-operating expense in our income statement. This charge reflected the recognition of both our 51% share of Grupo Aeroméxico's June 2020 quarter losses and the decline in our expected realizable value for Grupo Aeroméxico's shares following its bankruptcy filing. The impairment charge for our investment in Grupo Aeroméxico was calculated using Level 3 fair value inputs. We expect that no more than an immaterial amount will be distributed to current equity holders following the settlement of unsecured claims upon Grupo Aeroméxico's emergence from bankruptcy. The balance of our investment in Grupo Aeroméxico remains zero at September 30, 2020.
In addition, we believe Grupo Aeroméxico intends to request the bankruptcy court's approval to assume our joint cooperation agreement.
GOL. In 2019, we sold our ownership stake of GOL Linhas Aéreas Inteligentes, the parent company of GOL Linhas Aéreas (operating as GOL), and have ended our commercial agreements. During 2015, in conjunction with our investment in GOL we agreed to guarantee GOL’s $300 million five-year term loan facility with third parties that matured in August 2020. During the September 2020 quarter, we loaned GOL $250 million, to be used exclusively to repay the aforementioned 2015 term loan. The $250 million loan to GOL reduced our financial exposure and provides us with additional collateral while providing GOL more time to address its obligations during the pandemic. Our loan to GOL is secured by GOL’s ownership interest in Smiles, GOL’s publicly traded loyalty program, as well as other collateral. As of September 30, 2020, the outstanding principal balance of the loan, which is scheduled to be repaid in monthly installments through the end of 2021, was $235 million.
Fair Value Investments
We account for the following investments at fair value on a recurring basis with adjustments to fair value recognized in gain/(loss) on investments within non-operating expense in our income statement. We recorded losses of $95 million and $199 million on our fair value investments during the three and nine months ended September 30, 2020, respectively. These results were driven by changes in stock prices, foreign currency fluctuations and other valuation techniques for investments in companies without publicly-traded shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Interest
|
|
|
Carrying Value
|
|
|
(in millions)
|
September 30, 2020
|
December 31, 2019
|
|
September 30, 2020
|
December 31, 2019
|
|
Hanjin-KAL
|
15
|
%
|
10
|
%
|
|
$
|
517
|
|
$
|
205
|
|
|
Air France-KLM
|
9
|
%
|
9
|
%
|
|
130
|
|
418
|
|
|
China Eastern
|
3
|
%
|
3
|
%
|
|
199
|
|
258
|
|
|
Wheels Up
|
25
|
%
|
—
|
%
|
|
234
|
|
—
|
|
|
Other investments
|
|
|
|
230
|
|
218
|
|
|
Total fair value investments
|
|
|
|
$
|
1,310
|
|
$
|
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 in the March 2020 quarter. Our ownership interest decreased to 25% as of September 30, 2020 as a result of additional share issuances to Wheels Up employees.
Equity Method Investments
We account for the investments listed below under the equity method of accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Interest
|
|
|
Carrying Value
|
|
|
(in millions)
|
September 30, 2020
|
December 31, 2019
|
|
September 30, 2020
|
December 31, 2019
|
|
Virgin Atlantic (1)
|
49
|
%
|
49
|
%
|
|
$
|
—
|
|
$
|
375
|
|
|
Unifi (formerly AirCo)
|
49
|
%
|
49
|
%
|
|
147
|
|
142
|
|
(1)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.
Virgin Atlantic. As a result of the COVID-19 pandemic and the resulting travel restrictions and quarantines, Virgin Atlantic has incurred significant losses during 2020. In recording our 49% share in Virgin Atlantic's results and based on our review of Virgin Atlantic's financial projections, in the June 2020 quarter we reduced the basis in our investment to zero.
During the September 2020 quarter, Virgin Atlantic undertook a voluntary recapitalization process in the U.K., which was subsequently approved by its creditors, and instituted ancillary proceedings in support of that process in the U.S. Under related agreements, we recognized a note payable of $115 million, which is recorded in debt and finance leases, and a corresponding receivable within other noncurrent assets. In the nine months ended September 30, 2020, we recorded $511 million in impairments and equity method losses within non-operating expense in our income statement. Under the equity method of accounting, we will track our share of Virgin Atlantic's future losses, but we will not reflect our share of their results in our financial statements until such time that our share of their earnings eliminates the losses beyond our basis in the investment. We continue to monitor and support Virgin Atlantic's ongoing restructuring efforts.
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 we would have received over the original term. In consideration for this reduced value, we entered into a transition agreement with Virgin Atlantic, which would have resulted in payments to us in future periods. However, as of September 30, 2020, based on our assessment of collectibility, we do not have any assets or liabilities recorded on our balance sheet related to this transition agreement.
Unifi. Our share of Unifi's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business and the services provided by Unifi are also recorded in contracted services in our income statement. Based on discussions with Unifi's management and review of their liquidity and financial projections, we do not believe our investment is other than temporarily impaired as we have the intent and ability to retain this investment 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 and self-help measures Unifi executes.
Receivables from Investees and Business Partners
Based on our assessment of collectibility, during the nine months ended September 30, 2020, we recorded $156 million of reserves against outstanding receivables from Virgin Atlantic, GOL, Virgin Australia, LATAM, Grupo Aeroméxico and others reflecting our expected recoveries given the impact of the COVID-19 pandemic, their restructuring efforts or recent bankruptcy filings. In determining the appropriate amount to reserve, we also considered the valuation of and our ability to realize the value of any collateral associated with each receivable. The reserves are recorded within accounts receivable, net or prepaid expenses and other on our balance sheet and within restructuring charges in our income statement.
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 the March 2020 quarter, we unwound a majority of our interest rate swap contracts. The unwind of these contracts generated approximately $100 million of cash in the March 2020 quarter. These gains are being 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 September 30, 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
|
$
|
2
|
|
$
|
23
|
|
$
|
—
|
|
$
|
—
|
|
$
|
25
|
|
|
Not designated as hedges
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
177,045
|
South Korean won
|
April 2023
|
—
|
|
—
|
|
—
|
|
(2)
|
|
(2)
|
|
|
Fuel hedge contracts
|
197
|
gallons - crude oil and refined products
|
April 2021
|
3
|
|
—
|
|
(6)
|
|
—
|
|
(3)
|
|
|
Total derivative contracts
|
|
|
|
$
|
5
|
|
$
|
23
|
|
$
|
(6)
|
|
$
|
(2)
|
|
$
|
20
|
|
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
|
9
|
|
—
|
|
—
|
|
—
|
|
9
|
|
|
Foreign currency exchange contracts
|
177,045
|
South Korean won
|
April 2023
|
1
|
|
—
|
|
—
|
|
(4)
|
|
(3)
|
|
|
Fuel hedge contracts
|
243
|
gallons - crude oil and refined products
|
July 2020
|
16
|
|
—
|
|
(15)
|
|
—
|
|
1
|
|
|
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 Adjustments (1)
|
|
|
(in millions)
|
September 30, 2020
|
December 31, 2019
|
|
September 30, 2020
|
December 31, 2019
|
|
Current maturities of debt and finance leases
|
$
|
21
|
|
$
|
(19)
|
|
|
$
|
21
|
|
$
|
8
|
|
|
Debt and finance leases
|
$
|
(61)
|
|
$
|
(1,783)
|
|
|
$
|
88
|
|
$
|
53
|
|
(1)As of September 30, 2020, these amounts include the cumulative amount of fair value hedging adjustments remaining for which hedge accounting has been discontinued of approximately $84 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
|
|
September 30, 2020
|
|
|
|
|
|
|
Net derivative contracts
|
$
|
2
|
|
$
|
23
|
|
$
|
(3)
|
|
$
|
(2)
|
|
$
|
20
|
|
|
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 September 30,
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Gain/(loss) on investments, net
|
|
$
|
(21)
|
|
$
|
18
|
|
|
Fuel hedge contracts
|
|
Aircraft fuel and related taxes
|
|
(22)
|
|
31
|
|
|
Total
|
|
|
|
$
|
(43)
|
|
$
|
49
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Gain/(loss) on investments, net
|
|
$
|
(20)
|
|
$
|
25
|
|
|
Fuel hedge contracts
|
|
Aircraft fuel and related taxes
|
|
127
|
|
(5)
|
|
|
Total
|
|
|
|
$
|
107
|
|
$
|
20
|
|
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 as of the dates noted in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Interest Rate(s) Per Annum at
|
|
|
September 30,
|
December 31,
|
|
(in millions)
|
Dates
|
|
|
September 30, 2020
|
|
|
2020
|
2019
|
|
Unsecured notes
|
2020
|
to
|
2029
|
2.60%
|
to
|
7.38%
|
$
|
5,800
|
|
$
|
5,550
|
|
|
Unsecured CARES Act Payroll Support Program Loan
|
2030
|
|
|
1.00%
|
|
|
1,648
|
|
—
|
|
|
Financing arrangements secured by SkyMiles assets:
|
|
|
|
|
|
|
|
|
|
SkyMiles Notes(1)
|
2023
|
to
|
2028
|
4.50%
|
and
|
4.75%
|
6,000
|
|
—
|
|
|
SkyMiles Term Loan(1)(2)
|
2023
|
to
|
2027
|
4.75%
|
|
|
3,000
|
|
—
|
|
|
Financing arrangements secured by slots, gates and/or routes:
|
|
|
|
|
|
|
|
|
|
2020 Senior Secured Notes
|
2025
|
|
|
7.00%
|
|
|
3,500
|
|
—
|
|
|
2020 Term Loan(1)(2)
|
2020
|
to
|
2023
|
5.75%
|
|
|
1,496
|
|
—
|
|
|
2018 Revolving Credit Facility(2)
|
2021
|
to
|
2023
|
3.75%
|
|
|
2,350
|
|
—
|
|
|
2020 Secured Term Loan Facility(2)
|
2021
|
|
|
2.39%
|
to
|
2.41%
|
2,950
|
|
—
|
|
|
Financing arrangements secured by aircraft:
|
|
|
|
|
|
|
|
|
|
Certificates(1)
|
2020
|
to
|
2028
|
2.00%
|
to
|
8.02%
|
2,686
|
|
1,669
|
|
|
Notes(1)(2)
|
2020
|
to
|
2032
|
0.84%
|
to
|
5.75%
|
1,068
|
|
1,193
|
|
|
NYTDC Special Facilities Revenue Bonds, Series 2020(1)
|
2026
|
to
|
2045
|
4.00%
|
to
|
5.00%
|
1,511
|
|
—
|
|
|
NYTDC Special Facilities Revenue Bonds, Series 2018(1)
|
2022
|
to
|
2036
|
4.00%
|
to
|
5.00%
|
1,383
|
|
1,383
|
|
|
Other financings(1)(2)(3)
|
2020
|
to
|
2030
|
2.51%
|
to
|
8.75%
|
241
|
|
196
|
|
|
Other revolving credit facilities(2)
|
2021
|
to
|
2022
|
3.35%
|
to
|
3.75%
|
267
|
|
—
|
|
|
Total secured and unsecured debt
|
|
|
|
|
|
|
33,900
|
|
9,991
|
|
|
Unamortized (discount)/premium and debt issue cost, net and other
|
|
|
|
|
|
|
(252)
|
|
115
|
|
|
Total debt
|
|
|
|
|
|
|
33,648
|
|
10,106
|
|
|
Less: current maturities
|
|
|
|
|
|
|
(4,738)
|
|
(2,054)
|
|
|
Total long-term debt
|
|
|
|
|
|
|
$
|
28,910
|
|
$
|
8,052
|
|
(1)Due in installments.
(2)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.
(3)Primarily includes unsecured bonds and debt secured by certain real estate.
2020 Unsecured Notes
In the June 2020 quarter, we issued $1.3 billion in aggregate principal amount of 7.375% unsecured notes due 2026. The unsecured notes are equal in right of payment with our other unsubordinated indebtedness and senior in right of payment to future subordinated debt. The unsecured notes also contain event of default provisions consistent with those in our other recent unsecured debt offerings.
Unsecured CARES Act Payroll Support Program Loan
During the current year, we entered into a promissory note for the $1.6 billion CARES Act payroll support program loan and issued warrants to acquire more than 6.7 million shares of Delta common stock under the program in connection with the promissory note. We have recorded the value of the promissory note and warrants on a relative fair value basis as $1.5 billion of noncurrent debt, net of discount, and $114 million in additional paid in capital, respectively. See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of the terms of the payroll support program loan.
2020 SkyMiles Financing
In September 2020, Delta and SkyMiles IP Ltd. ("SMIP"), a newly formed exempted company incorporated with limited liability under the laws of the Cayman Islands and an indirect wholly-owned subsidiary of Delta, issued $2.5 billion in principal amount of 4.500% senior secured notes due 2025 and $3.5 billion in principal amount of 4.750% senior secured notes due 2028 (collectively, the “SkyMiles Notes”). Concurrently with the issuance of the SkyMiles Notes, Delta and SMIP entered into a term loan credit agreement and borrowed $3.0 billion (the “SkyMiles Term Loan” and together with the SkyMiles Notes, the “SkyMiles Debt”). The SkyMiles Term Loan matures in October 2027 and bears interest at a variable rate equal to LIBOR (but not less than 1.0% per annum), plus a margin of 3.75% per year.
The SkyMiles Debt is guaranteed by three other Delta subsidiaries that are also newly formed exempted companies incorporated with limited liability under the laws of the Cayman Islands, including SkyMiles IP Finance Ltd. ("SMIF"). The SkyMiles Debt is secured by a first-priority security interest in certain of our co-branding, partnering or similar agreements relating to the SkyMiles program (including all payments thereunder), rights under certain intercompany agreements relating to the SkyMiles program, certain rights under our SkyMiles program, certain deposit accounts that receive revenue under our SkyMiles agreements, the equity of SMIP and substantially all other assets of SMIP and SMIF. The assets and credit of SMIP and the Cayman entity guarantors are not available to satisfy obligations, including indebtedness, of Delta or our subsidiaries other than with respect to the SkyMiles Debt and any permissible priority lien or junior lien debt subsequently incurred.
2020 Senior Secured Notes and Term Loan
In the June 2020 quarter, we issued $3.5 billion of senior secured notes and entered into a $1.5 billion term loan secured by certain slots, gates and routes. The senior secured notes bear interest at an annual rate of 7.00% and mature in May 2025. The term loan bears interest at a variable rate equal to LIBOR plus a specified margin and is subject to payments of 1% per year, payable quarterly beginning in September 2020, with the balance due in April 2023.
2018 Revolving Credit Facility
In June 2020, we amended the 2018 revolving credit facility agreement to be secured by our Pacific route authorities and certain related assets. Additionally, the revolving credit facility was amended to extend the maturities of $1.3 billion of the revolver previously due in April 2021 to April 2022 and to include a minimum liquidity covenant, as discussed further below. In October 2020, we repaid the borrowings under the revolving credit facility.
2020 Secured Term Loan Facility
In the March 2020 quarter, we entered into a $2.7 billion 364-day secured term loan facility, and we increased the borrowings thereunder to $3.0 billion in April 2020. Borrowings under this facility were secured by certain aircraft. In October 2020, we repaid all borrowings under, and terminated, this facility.
2020-1 EETC
We completed a $1.0 billion offering of Class AA and A Pass Through Certificates, Series 2020-1 ("2020-1 EETC") utilizing a pass through trust during the March 2020 quarter. The proceeds of this issuance were used to repay unsecured notes that matured in the March 2020 quarter. In the June 2020 quarter, we issued an additional $135 million of Class B certificates. The amounts of all 2020-1 EETC issuances are included in Certificates in the table above. The details of the 2020-1 EETC issuances, which are 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
|
|
2020-1 Class B Certificates
|
135
|
|
8.00%
|
April 2020
|
June 2027
|
|
Total
|
$
|
1,135
|
|
|
|
|
2019-1 EETC
In the June 2020 quarter, we issued an additional $108 million of certificates under the 2019-1 EETC offering initially completed in March 2019. The additional certificates were issued as 2019-1 Class B Certificates with a fixed interest rate of 8.00% and mature in April 2023.
NYTDC Special Facilities Revenue Bonds
In September 2020, the NYTDC issued Special Facilities Revenue Bonds, Series 2020 (the "Series 2020 Bonds") in the aggregate principal amount of $1.5 billion. We entered into loan agreements with the NYTDC to use the proceeds from the Series 2020 Bonds to finance a portion of the costs of the construction project that is currently in process at LaGuardia Airport, consisting of the demolition of existing Terminals C and D, the design and construction of new terminal facilities, the payment of capitalized interest on the Series 2020 Bonds and on a portion of the Special Facilities Revenue Bonds, Series 2018, and the payment of costs related to issuance of the Series 2020 Bonds. The proceeds from the Series 2020 Bonds are recorded in cash restricted for airport construction on our balance sheet.
We are required to pay debt service on the Series 2020 Bonds through payments under loan agreements with NYTDC, and we have guaranteed the Series 2020 Bonds.
Availability Under Revolving Facilities
During the March 2020 quarter, we drew $3.0 billion on our revolving credit facilities, of which approximately $400 million was repaid in the September 2020 quarter. The amounts drawn are spread across several lines within the debt summary table above. In addition, we had outstanding letters of credit as of September 30, 2020, including approximately $300 million that reduced the availability under our revolvers and approximately $300 million that did not affect the availability of our revolvers. These activities resulted in approximately $25 million undrawn as of September 30, 2020.
In October 2020, we repaid $2.6 billion in outstanding borrowings under the revolving credit facilities. Following these repayments, we had $2.6 billion undrawn and available under our revolving credit facilities.
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)
|
September 30,
2020
|
December 31,
2019
|
|
Net carrying amount
|
$
|
33,648
|
|
$
|
10,106
|
|
|
Fair value
|
$
|
33,900
|
|
$
|
10,400
|
|
Covenants
Our debt agreements contain various affirmative, negative and financial covenants. For example, our credit facilities and our SkyMiles financing agreements, contain, among other things, a minimum liquidity covenant. The minimum liquidity covenant requires Delta to maintain at least $2.0 billion of liquidity (defined as cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities). Certain of our debt agreements also include collateral coverage ratios and limit our ability to (i) incur liens under certain circumstances, (ii) dispose of collateral, (iii) engage in mergers and consolidations or transfer all or substantially all of our assets, and (iv) pay dividends or repurchase our common stock through September 2021. Our SkyMiles financing agreements include a debt service coverage ratio and also restrict our ability to, among other things, (i) modify the terms of the SkyMiles program, or otherwise change the policies and procedures of the SkyMiles program, in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Debt, (ii) sell pre-paid miles in excess of $550 million in the aggregate, and (iii) terminate or materially modify the intercompany arrangements governing the relationship between Delta and SMIP with respect to the SkyMiles program.
Each of these restrictions, however, is subject to important exceptions and qualifications that are set forth in these debt agreements. We were in compliance with the covenants in these debt agreements at September 30, 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 September 30,
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
$
|
—
|
|
|
$
|
24
|
|
$
|
21
|
|
|
Interest cost
|
175
|
|
208
|
|
|
30
|
|
34
|
|
|
Expected return on plan assets
|
(343)
|
|
(297)
|
|
|
(11)
|
|
(12)
|
|
|
Amortization of prior service credit
|
—
|
|
—
|
|
|
(2)
|
|
(2)
|
|
|
Recognized net actuarial loss
|
74
|
|
73
|
|
|
10
|
|
9
|
|
|
Special termination benefits
|
—
|
|
—
|
|
|
1,260
|
|
—
|
|
|
Settlements
|
30
|
|
2
|
|
|
—
|
|
—
|
|
|
Net periodic (benefit) cost
|
$
|
(64)
|
|
$
|
(14)
|
|
|
$
|
1,311
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
$
|
—
|
|
|
$
|
72
|
|
$
|
63
|
|
|
Interest cost
|
526
|
|
625
|
|
|
86
|
|
102
|
|
|
Expected return on plan assets
|
(1,030)
|
|
(890)
|
|
|
(33)
|
|
(36)
|
|
|
Amortization of prior service credit
|
—
|
|
—
|
|
|
(7)
|
|
(7)
|
|
|
Recognized net actuarial loss
|
223
|
|
219
|
|
|
32
|
|
29
|
|
|
Special termination benefits
|
—
|
|
—
|
|
|
1,260
|
|
—
|
|
|
Settlements
|
33
|
|
3
|
|
|
—
|
|
—
|
|
|
Net periodic (benefit) cost
|
$
|
(248)
|
|
$
|
(43)
|
|
|
$
|
1,410
|
|
$
|
151
|
|
Service cost is recorded in salaries and related costs in our income statement. Special termination benefits are recorded in restructuring charges, 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 do not plan to make any voluntary contributions during 2020.
Postretirement Healthcare Plans. We sponsor healthcare plans that provide benefits to eligible retirees and their dependents who are under age 65. We have generally eliminated company-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents and (2) a group of retirees who retired prior to 1987. Benefits under these plans are funded from current assets and employee contributions.
During the September 2020 quarter, we remeasured our postretirement healthcare obligation to account for enhanced retiree healthcare benefits provided to eligible participants in our voluntary early retirement and separation programs ("voluntary programs"). As a result, we recorded a $1.3 billion special termination benefit charge and increased our postretirement healthcare obligation by $1.3 billion.
Voluntary Programs. During the June 2020 quarter, we announced the voluntary programs, which primarily applied to eligible U.S. merit, ground and flight attendant and pilot employees. Employees electing to participate in the voluntary programs are eligible for separation payments, continued healthcare benefits and certain participants will receive enhanced retiree healthcare benefits. The election and revocation windows for these programs closed during the September 2020 quarter with approximately 18,000 employees electing to participate. We recorded $3.1 billion in restructuring charges in our income statement associated with these programs during the September 2020 quarter, including $1.3 billion of special termination benefits (discussed above). The remainder of the restructuring charge primarily relates to separation payments and healthcare benefits. Approximately $543 million of this charge was disbursed in cash payments to participants during the September 2020 quarter. An additional approximately $270 million of cash payments were disbursed during the September 2020 quarter related to unused vacation and other benefits, which had been previously accrued. Accruals related to the voluntary programs are primarily recorded in pension, postretirement and related benefits, other noncurrent liabilities, other accrued liabilities and accrued salaries and related benefits on our balance sheet.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Commitments
In the September 2020 quarter we restructured our aircraft order books with Airbus and MHI RJ Aviation Group (manufacturer of CRJ aircraft) in an effort to better match the timing of aircraft deliveries with our network and financial needs over the next several years. The restructuring reduces our aircraft purchase commitments by more than $2 billion in 2020 and by more than $5 billion through 2022. All deliveries in 2020 after February have been or will be fully financed. The shift in delivery timing is intended to allow us to maintain our Airbus order book and to continue simplifying and modernizing our fleet.
Our future aircraft purchase commitments totaled approximately $14.2 billion at September 30, 2020:
|
|
|
|
|
|
|
|
(in millions)
|
Total
|
|
Three months ending December 31, 2020
|
$
|
380
|
|
|
2021
|
1,310
|
|
|
2022
|
2,460
|
|
|
2023
|
2,310
|
|
|
2024
|
2,960
|
|
|
Thereafter
|
4,810
|
|
|
Total
|
$
|
14,230
|
|
Our future aircraft purchase commitments included the following aircraft at September 30, 2020:
|
|
|
|
|
|
|
|
Aircraft Type
|
Purchase Commitments
|
|
A220-100
|
14
|
|
|
A220-300
|
50
|
|
|
A321-200
|
24
|
|
|
A321-200neo
|
100
|
|
|
A330-900neo(1)
|
30
|
|
|
A350-900
|
20
|
|
|
CRJ-900
|
2
|
|
|
Total
|
240
|
|
(1)Includes two A330-900neo lease commitments with one in each of 2020 and 2021.
LATAM A350 Commitments
We have assumed ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025, which are included as purchase commitments in the table above. We had agreed to acquire four A350 aircraft from LATAM, but terminated the purchase agreement for a fee of $62 million during the June 2020 quarter. 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 September 30, 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.
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(3)
|
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 $31)
|
(102)
|
|
17
|
|
(85)
|
|
|
Reclassifications into earnings (net of tax effect of $149)(1)
|
218
|
|
(83)
|
|
135
|
|
|
Balance at September 30, 2020 (net of tax effect of $1,431)
|
$
|
(7,979)
|
|
$
|
40
|
|
$
|
(7,939)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $2)
|
(12)
|
|
4
|
|
(8)
|
|
|
Reclassifications into earnings (net of tax effect of $57)(1)
|
189
|
|
(1)
|
|
188
|
|
|
Balance at September 30, 2019 (net of tax effect of $1,437)
|
$
|
(7,748)
|
|
$
|
103
|
|
$
|
(7,645)
|
|
(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 $755 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 results from operations.
(3)In the June 2020 quarter, all remaining foreign currency hedges expired, and we recognized an $83 million tax benefit which was released from AOCI.
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 and nine months ended September 30, 2020 was $249 million and $1.1 billion, respectively, compared to $1.1 billion and $3.0 billion, respectively for the three and nine months ended September 30, 2019.
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 September 30, 2020
|
|
|
|
|
|
|
|
Operating revenue:
|
$
|
2,645
|
|
$
|
669
|
|
|
|
|
$
|
3,062
|
|
|
Sales to airline segment
|
|
|
|
$
|
—
|
|
(1)
|
|
|
Exchanged products
|
|
|
|
(249)
|
|
(2)
|
|
|
Sales of refined products
|
|
|
|
(3)
|
|
(3)
|
|
|
Operating loss
|
(6,358)
|
|
(28)
|
|
|
—
|
|
|
(6,386)
|
|
|
Interest expense, net
|
288
|
|
3
|
|
|
—
|
|
|
291
|
|
|
Depreciation and amortization
|
545
|
|
25
|
|
|
(25)
|
|
(4)
|
545
|
|
|
Restructuring charges
|
5,345
|
|
—
|
|
|
—
|
|
|
5,345
|
|
|
Total assets, end of period
|
77,558
|
|
1,518
|
|
|
—
|
|
|
79,076
|
|
|
Capital expenditures
|
130
|
|
3
|
|
|
—
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
Operating revenue:
|
$
|
12,554
|
|
$
|
1,505
|
|
|
|
|
$
|
12,560
|
|
|
Sales to airline segment
|
|
|
|
$
|
(304)
|
|
(1)
|
|
|
Exchanged products
|
|
|
|
(1,143)
|
|
(2)
|
|
|
Sales of refined products
|
|
|
|
(52)
|
|
(3)
|
|
|
Operating income
|
2,022
|
|
49
|
|
|
—
|
|
|
2,071
|
|
|
Interest expense, net
|
70
|
|
—
|
|
|
—
|
|
|
70
|
|
|
Depreciation and amortization
|
631
|
|
26
|
|
|
(26)
|
|
(4)
|
631
|
|
|
Total assets, end of period
|
61,515
|
|
1,704
|
|
|
—
|
|
|
63,219
|
|
|
Capital expenditures
|
936
|
|
10
|
|
|
—
|
|
|
946
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Airline
|
Refinery
|
|
Intersegment Sales/Other
|
|
Consolidated
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
Operating revenue:
|
$
|
12,413
|
|
$
|
2,366
|
|
|
|
|
$
|
13,122
|
|
|
Sales to airline segment
|
|
|
|
$
|
(214)
|
|
(1)
|
|
|
Exchanged products
|
|
|
|
(1,144)
|
|
(2)
|
|
|
Sales of refined products
|
|
|
|
(299)
|
|
(3)
|
|
|
Operating loss
|
(11,498)
|
|
(113)
|
|
|
—
|
|
|
(11,611)
|
|
|
Interest expense, net
|
564
|
|
—
|
|
|
—
|
|
|
564
|
|
|
Depreciation and amortization
|
1,813
|
|
74
|
|
|
(74)
|
|
(4)
|
1,813
|
|
|
Restructuring charges
|
7,798
|
|
—
|
|
|
—
|
|
|
7,798
|
|
|
Capital expenditures
|
1,336
|
|
15
|
|
|
—
|
|
|
1,351
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
Operating revenue:
|
$
|
35,474
|
|
$
|
4,289
|
|
|
|
|
$
|
35,568
|
|
|
Sales to airline segment
|
|
|
|
$
|
(882)
|
|
(1)
|
|
|
Exchanged products
|
|
|
|
(2,953)
|
|
(2)
|
|
|
Sales of refined products
|
|
|
|
(360)
|
|
(3)
|
|
|
Operating income
|
5,167
|
|
52
|
|
|
—
|
|
|
5,219
|
|
|
Interest expense (income), net
|
247
|
|
(19)
|
|
|
—
|
|
|
228
|
|
|
Depreciation and amortization
|
1,960
|
|
74
|
|
|
(74)
|
|
(4)
|
1,960
|
|
|
Capital expenditures
|
3,836
|
|
28
|
|
|
—
|
|
|
3,864
|
|
(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.
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
(in millions, except per share data)
|
2020
|
2019
|
|
2020
|
2019
|
|
Net (loss)/income
|
$
|
(5,379)
|
|
$
|
1,495
|
|
|
$
|
(11,630)
|
|
$
|
3,669
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
635
|
|
646
|
|
|
636
|
|
654
|
|
|
Dilutive effect of share-based awards
|
—
|
|
2
|
|
|
—
|
|
2
|
|
|
Diluted weighted average shares outstanding
|
635
|
|
648
|
|
|
636
|
|
656
|
|
|
|
|
|
|
|
|
|
Basic (loss)/earnings per share
|
$
|
(8.47)
|
|
$
|
2.32
|
|
|
$
|
(18.30)
|
|
$
|
5.61
|
|
|
Diluted (loss)/earnings per share
|
$
|
(8.47)
|
|
$
|
2.31
|
|
|
$
|
(18.30)
|
|
$
|
5.59
|
|