Delta Air Lines, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter report. Delta operates passenger and cargo air services, a loyalty program and related businesses, including the Monroe refinery. COVID-19 restrictions and reduced travel demand drove major capacity reductions and materially affected results.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $17.1 billion | $47.0 billion |
| Operating loss | $12.5 billion | Operating income of $6.6 billion |
| Net loss | $12.4 billion | Net income of $4.8 billion |
| Basic and diluted EPS | $(19.49) | $7.32 basic; $7.30 diluted |
| Operating cash flow | $(3.8) billion | $8.4 billion |
| Free cash flow (non-GAAP) | $(4.3) billion | $4.2 billion |
| Cash, cash equivalents and short-term investments | $14.1 billion | $2.9 billion |
| Reported liquidity, including available revolver capacity | $16.7 billion | — |
| Debt and finance leases, principal amount | $29.4 billion | — |
- Passenger revenue declined 70% to $12.9 billion; cargo revenue declined 19% to $608 million. Total revenue fell 64% year over year.
- Capacity fell approximately 50% for the year. Load factor decreased to 55% from 86%; total operating cost per available seat mile rose to 22.01 cents from 14.67 cents, primarily because capacity fell faster than costs.
- Operating expense was $29.6 billion, including $8.2 billion of restructuring charges and a $3.9 billion CARES Act grant recognized as a reduction of expense. Adjusted pre-tax loss, a non-GAAP measure, was $9.0 billion versus adjusted pre-tax income of $6.2 billion in 2019.
- Fuel expense declined 63% to $3.2 billion; average fuel cost was $1.64 per gallon versus $2.02. Interest expense, net, increased to $929 million from $301 million.
- At year-end, total assets were $72.0 billion and stockholders’ equity was $1.5 billion, down from $15.4 billion a year earlier. Current assets were $17.4 billion and current liabilities $15.9 billion.
Material changes versus 2019
- Passenger revenue, traffic and capacity contracted sharply amid the pandemic; domestic capacity was down about 45% and international capacity about 65% for 2020 versus 2019.
- Delta recorded $4.4 billion of fleet impairment and related charges and $3.4 billion of voluntary separation and other employee benefit charges. It retired 227 aircraft and removed about 350 aircraft from active service, including temporarily parked aircraft.
- Non-operating expense rose to $3.1 billion from $420 million, including $2.4 billion of impairments and equity-method losses. Delta wrote down its investments in LATAM, Grupo Aeroméxico and Virgin Atlantic to zero carrying value.
- Delta raised approximately $25.9 billion through financing transactions, received $5.6 billion under the initial CARES Act payroll support program, and ended 2020 with $16.7 billion of reported liquidity. Operating activities used $3.8 billion of cash.
Outlook, commentary and risks
- Management expected demand to remain depressed until vaccines became broadly available, vaccination widened and travel restrictions eased. Its 2021 scenario anticipated fluctuating early-year demand, improvement in spring and summer, and more sustained improvement in the second half; timing and pace remained uncertain.
- Delta expected March 2021-quarter capacity to be 30%–40% below the March 2019 quarter. It anticipated higher operating expense as capacity and revenue returned, while expecting some 2020 cost savings to be structural. Management projected positive operating cash flow in 2021 under its demand recovery assumptions, including expected payroll support payments.
- Year-end liquidity included $8.3 billion cash and cash equivalents, $5.8 billion short-term investments and approximately $2.6 billion of undrawn revolving credit. Delta said it expected to meet near-term needs with liquidity, financing, government support and operating cash flows; this depends on recovery and continued access to financing.
- The 2020 CARES Act support totaled $5.6 billion: a $4.0 billion grant and a $1.6 billion 10-year loan, with warrants issued to the Treasury. A further $2.9 billion payroll-support package was expected in 2021, subject to conditions including restrictions on dividends and share repurchases through March 2022 and limits on executive compensation. Delta received $1.4 billion in January 2021 and expected the balance in the March quarter.
- Dividends and share repurchases were suspended. Delta reported compliance with debt covenants at year-end, including minimum-liquidity requirements, but warned that reduced liquidity could impair its ability to meet obligations or covenants. Credit ratings were BB+ from Fitch, Baa3 from Moody’s and BB from S&P, each with a negative outlook.
- Other material exposures include fuel-price volatility, significant fixed obligations and debt, uncertain recovery and possible permanent reductions in business travel, airline-partner restructurings, aircraft and asset impairment estimates, pension obligations, cybersecurity and operational disruption, labor negotiations, environmental rules and RIN compliance costs. The Monroe refinery recorded a $216 million operating loss, including $172 million of RIN costs.
- Delta’s financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting. The auditor identified critical audit matters involving employee benefit plans, fleet asset fair values and deferred tax asset realizability.
Most important facts for investors to verify
- Whether passenger demand, capacity, load factors and revenues recover in line with management’s 2021 assumptions, particularly for international and business travel.
- Cash burn, liquidity composition and availability, debt maturities, interest expense, covenant headroom and the conditions attached to government support.
- The cash and accounting effects of restructuring, fleet retirements, voluntary employee programs and any further impairment charges.
- Whether airline-partner restructurings affect Delta’s investments, alliance-related intangible assets, receivables or network access.
- Performance of the SkyMiles and American Express relationship, including deferred loyalty revenue of $7.2 billion and the assumptions used to estimate redemptions.
- Exposure to pension and postretirement obligations, refinery RIN costs, fuel prices, and remaining aircraft and airport project commitments.