Delta Air Lines, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The interim financial statements were reviewed by Ernst & Young, not audited. Results remained significantly affected by the COVID-19 pandemic.
Financial performance and position
| Metric | Q1 2021 | Comparison |
|---|---|---|
| Operating revenue | $4.15 billion | Down 52% from Q1 2020 and 60% from Q1 2019 |
| Operating loss | $1.40 billion | Versus losses of $410 million in Q1 2020 and $1.02 billion in Q1 2019 |
| Net loss / diluted loss per share | $1.18 billion / $1.85 | Versus net loss of $534 million and $0.84 per share in Q1 2020 |
| Adjusted pre-tax loss, non-GAAP | $2.92 billion | Versus adjusted pre-tax loss of $422 million in Q1 2020 |
| Operating cash flow | $691 million | Included $2.0 billion of payroll support grant receipts; Q1 2020 provided $358 million |
| Free cash flow, non-GAAP | $710 million | Versus negative $161 million in Q1 2020 |
| Cash and short-term investments | $14.0 billion | Cash and equivalents were $8.46 billion; short-term investments were $5.58 billion |
| Liquidity, as defined by Delta | $16.6 billion | Includes cash, short-term investments and available revolving credit |
| Debt and finance leases | $29.3 billion principal | Delta repaid $1.8 billion during the quarter, including early repayment of a $1.5 billion term loan |
| Stockholders’ equity | $482 million | Down from $1.53 billion at December 31, 2020 |
Passenger revenue fell 64% from Q1 2020 and 70% from Q1 2019. Capacity was down 32% and 36%, respectively, versus those periods; passenger load factor was 45%. Cargo revenue increased 41% from Q1 2020. Adjusted operating expense was $6.26 billion, down 33% from Q1 2019, while adjusted CASM-Ex rose 13% from Q1 2019 to 13.01 cents.
Material changes and unusual items
- Delta recognized $1.19 billion of payroll support grant proceeds as a reduction of operating expenses in Q1. This materially reduced the reported operating loss; Delta expected to recognize the remaining first-extension grant by the end of Q2 2021.
- Delta received $2.9 billion under the first payroll support extension: approximately $2.0 billion in grants and $828 million in a 10-year loan. A further extension was expected to provide approximately $2.7 billion, including $1.9 billion in grants; these were estimates, not confirmed receipts in this filing.
- Net investment gains were $262 million, primarily from the mark-to-market increase in Delta’s Wheels Up investment. Delta also recorded a $56 million loss on extinguishment of debt.
- Refinery segment operating loss was $125 million. Renewable fuel compliance costs were $158 million, compared with $27 million in Q1 2020.
- Delta voluntarily contributed $1.0 billion to pension plans in April 2021, after quarter-end, and was evaluating up to $1.0 billion in additional voluntary contributions later in the year.
- Delta changed how certain expenses are classified between regional carrier expense and other expense lines. Prior-period amounts were reclassified for comparison.
Outlook, commentary and risks
- Management reported improving demand, with March 2021 passenger revenue about 50% higher than February. It expected demand to improve through 2021 as vaccination progressed and travel restrictions eased, while noting that recovery timing and scale remained uncertain.
- For Q2 2021, Delta planned domestic capacity about 20% below Q2 2019 levels and international capacity about 50% below Q2 2019. Management expected international recovery to lag domestic recovery and business-travel recovery remained difficult to predict.
- Delta expected positive operating cash flow during 2021 if demand recovery proceeded as anticipated. It expected Q2 interest expense of approximately $350 million and planned approximately $2.5 billion in 2021 capital expenditures, excluding the LaGuardia project.
- Delta expected total LaGuardia redevelopment costs of approximately $3.5 billion, with about $900 million of project spending in 2021. Delta bears construction and potential cost-overrun risks.
- Payroll assistance carries restrictions, including limits on involuntary layoffs, share repurchases and dividends, as well as executive compensation limits. The government may also require certain air service. Delta reported compliance with debt covenants at March 31, 2021.
- Key uncertainties include pandemic-related travel demand and restrictions, fuel-price volatility, debt and interest costs, refinery economics and renewable fuel compliance costs, pension assumptions, and the timing and amount of expected government assistance. Delta said its risk factors and legal proceedings had not materially changed from its 2020 Form 10-K.
Important facts for investors to verify
- How much of the reported loss improvement reflects government grants, and what operating performance looks like excluding those grants and other adjustments.
- Whether the estimated second payroll support extension was received, its final grant-versus-loan allocation, and the resulting restrictions and dilution from warrants.
- Actual demand, capacity, load factor and revenue trends against management’s Q2 and full-year recovery assumptions.
- Debt repayment progress, liquidity usage and the cash impact of pension contributions, capital expenditures and LaGuardia construction.
- Subsequent developments affecting Wheels Up valuation, partner-airline exposures and refinery/RIN compliance costs.