Delta Air Lines, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in U.S. dollars. The interim financial statements were reviewed by Ernst & Young, not audited.
Business context and results
Delta said its business remained significantly affected by COVID-19, but demand improved from March through the June quarter. Management compared results with 2019 as well as 2020, given the unusually weak pandemic-affected 2020 comparison.
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Operating revenue | $7.126 billion; 43% below Q2 2019 | $11.276 billion; 51% below first-half 2019 |
| Operating income/(loss), GAAP | $816 million | $(582) million |
| Net income/(loss), GAAP | $652 million; diluted EPS $1.02 | $(525) million; diluted EPS $(0.82) |
| Adjusted pre-tax income/(loss), non-GAAP | $(881) million | Not clearly provided in the supplied filing text |
| Operating cash flow | $1.866 billion | $2.557 billion |
| Free cash flow, non-GAAP | $1.450 billion | Not clearly provided in the supplied filing text |
Revenue, costs, and material comparisons
- Q2 revenue rose $5.658 billion from Q2 2020, when travel was at the pandemic’s low point, but was down $5.410 billion from Q2 2019. Passenger revenue was $5.339 billion, 53% below 2019; cargo revenue was $251 million, 35% above 2019.
- Q2 capacity was 32% below 2019. Total revenue per available seat mile (TRASM) was 16% lower than 2019; adjusted TRASM was 25% lower. Domestic leisure bookings approached 2019 levels by June, while international demand remained substantially constrained.
- GAAP Q2 operating income included $1.504 billion of payroll-support grants recorded as a reduction of expenses. For the first half, grant recognition totaled $2.689 billion. The reported profit therefore does not reflect operating performance without this support; adjusted Q2 pre-tax loss was $881 million.
- Q2 operating expense was $6.310 billion, nearly flat against Q2 2020 and 39% below Q2 2019. Adjusted Q2 operating expense was $7.005 billion, 32% below 2019. Adjusted CASM-Ex was 11.42 cents, versus 10.47 cents in 2019, a 9% increase.
- Q2 fuel expense was $1.487 billion, 35% below 2019, reflecting lower consumption and a lower market fuel price; it increased substantially from the pandemic-depressed 2020 quarter. Interest expense was $338 million for Q2 and $700 million for the first half, higher than 2019 following pandemic-era borrowing.
Liquidity, debt, and balance sheet
- At June 30, cash and cash equivalents were $10.357 billion and short-term investments were $4.873 billion. Management reported total liquidity of $17.8 billion, including $2.6 billion available under revolving credit facilities.
- Reported debt was $27.265 billion, excluding finance leases; principal debt and finance leases were $29.3 billion. Delta repaid approximately $3.1 billion of debt and finance lease obligations during the first half, including early repayments, and said it would seek further opportunities to prepay debt.
- Total assets were $75.309 billion; stockholders’ equity was $1.281 billion. Current liabilities rose to $23.573 billion from $15.927 billion at year-end 2020, including increases in air traffic liability and loyalty-program deferred revenue.
- First-half investing cash flow was a $34 million use; financing cash flow was a $1.120 billion use. Delta voluntarily contributed $1.5 billion to pension plans in Q2 despite having no 2021 minimum funding requirement. Management said it expected liquidity to cover needs for the next 12 months and expected positive operating cash flow in 2021 if the demand recovery continued.
Outlook, risks, and unusual items
- Management expected the demand recovery to continue through the remainder of 2021, with domestic recovery ahead of international. It planned September 2021 capacity approximately 15% below 2019 domestically and 50% below 2019 internationally; international recovery was expected to remain weak into at least early 2022.
- Delta cited uncertainty from COVID-19 variants, travel restrictions, fuel-price volatility, and the pace of business-travel recovery. The filing provides no clear full-year earnings guidance.
- Payroll-support grants and loans materially affected reported results and liquidity. Program terms included restrictions on layoffs, dividends, share repurchases, and executive compensation for specified periods. Delta also issued Treasury warrants under the support programs.
- Aircraft purchase commitments totaled approximately $15.2 billion, with $719 million of leases not yet commenced. The LaGuardia redevelopment was expected to cost approximately $3.5 billion; Delta bears construction and potential cost-overrun risk.
- The refinery reported a Q2 operating loss of $157 million. Elevated renewable-fuel compliance (RIN) costs were a significant factor, totaling $252 million in Q2 and $410 million in the first half.
- Delta reported that it was in compliance with debt covenants. It said there were no material changes to previously disclosed risk factors or legal proceedings, and no material changes in market risk.
Important facts for investors to verify
- How much of reported profitability and cash generation depends on government grants, and how results trend after the remaining grant recognition.
- Whether passenger demand, capacity, unit revenue, and cash flow recover as management expected, particularly for international and business travel.
- Debt reduction progress, interest costs, and the sustainability of the stated $17.8 billion liquidity position.
- Actual aircraft, lease, and LaGuardia project spending against the disclosed commitments and estimates.
- Fuel prices and refinery RIN compliance costs, including their effect on operating results and cash needs.