Delta Air Lines, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited interim statements reviewed by Ernst & Young; the review is not an audit. Delta’s results remained materially affected by COVID-19, although management reported a continuing recovery in travel demand.
Financial performance and liquidity
| Metric | Q3 2021 | First nine months 2021 |
|---|---|---|
| Operating revenue | $9.154 billion | $20.429 billion |
| Operating income | $2.205 billion | $1.623 billion |
| Pre-tax income | $1.532 billion | $793 million |
| Net income | $1.212 billion; diluted EPS $1.89 | $688 million; diluted EPS $1.07 |
| Operating cash flow | $151 million | $2.708 billion |
- Q3 pre-tax income included $1.822 billion of payroll-support grant recognition. Delta’s adjusted, non-GAAP Q3 pre-tax income was $216 million.
- Q3 free cash flow was negative $463 million, a non-GAAP measure. Nine-month GAAP operating cash flow included $4.5 billion of payroll-support grants.
- At September 30, cash and cash equivalents were $8.785 billion and short-term investments were $4.417 billion. Delta reported total liquidity of $15.8 billion, including $2.6 billion available under revolving credit facilities.
- Debt carrying value was $26.101 billion; principal debt and finance leases were approximately $28.0 billion. Nine-month repayments of debt and finance leases were $4.685 billion. Delta said it was compliant with debt covenants.
- Current air traffic liability was $6.246 billion; loyalty-program deferred revenue totaled $7.456 billion.
Changes versus comparable periods
- Against Q3 2020, revenue increased from $3.062 billion and net results improved from a $5.379 billion loss. The comparison reflects the pandemic’s severe effect on the 2020 quarter and the subsequent demand recovery.
- Against Q3 2019, revenue was down 27%, while capacity was down 29%. Reported pre-tax income was $415 million lower; adjusted pre-tax income of $216 million compared with $1.968 billion in Q3 2019.
- For the first nine months, revenue was up 56% from 2020 but down 43% from 2019. Delta reported a $11.630 billion net loss in the 2020 period.
- Fuel expense rose 219% versus Q3 2020, reflecting higher consumption and a 75% increase in jet-fuel market price. Versus Q3 2019, fuel expense was down 31%, mainly due to lower consumption.
- Total debt carrying value declined from $27.974 billion at December 31, 2020. The company recognized $266 million of debt-extinguishment losses in the first nine months, including $183 million in Q3.
Outlook, commentary and risks
- Management expected recovery to continue, but cited COVID-19 variants, travel restrictions, fuel-price volatility and seasonality as uncertainties. Leisure demand was recovering faster than business travel; international recovery was expected to lag domestic recovery, particularly in the Atlantic and Pacific regions.
- Delta planned December 2021 system capacity approximately 20% below December 2019. It expected higher fuel prices in Q4 2021 than the nine-month 2021 average and forecast approximately $310 million of Q4 net interest expense.
- Management expected positive operating cash flow during 2021 if demand continued to recover, including government support. It said near-term liquidity would likely remain above pre-pandemic levels.
- All payroll-support extension grants had been recognized by September 30. The related programs impose restrictions on dividends and share repurchases through specified dates in 2022 and limitations on executive compensation; support also included low-interest loans and Treasury warrants.
- Future aircraft purchase commitments were approximately $16.9 billion, with another $795 million of leases not yet commenced. The LaGuardia redevelopment was expected to cost approximately $3.5 billion, with Delta bearing construction and potential overrun risks.
- Monroe refinery RIN compliance costs were $453 million for the first nine months, versus $78 million in 2020. Delta also reported $69 million of carbon-offset expense year to date.
- Management reported no material changes to the risk factors or legal proceedings disclosed in its 2020 Form 10-K. It stated that current legal matters were not expected to have a material adverse effect, while acknowledging outcomes cannot be predicted with certainty.
Key facts for investors to verify
- How much of reported profitability and operating cash flow reflects government grants, and how results compare using Delta’s non-GAAP reconciliations.
- Whether demand recovery—especially business and international travel—supports management’s capacity and cash-flow expectations.
- Debt and lease repayment plans, interest expense, available revolving credit and the effect of program restrictions on capital returns.
- Exposure to fuel prices, refinery RIN costs, aircraft commitments and LaGuardia construction costs.
- Changes in air traffic liability, including travel credits, and the assumptions used to estimate revenue from unused tickets.