Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	52
Consolidated Balance Sheets - December 31, 2018 and 2017	53
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016	54
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016	55
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	56
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016	57
Notes to the Consolidated Financial Statements	58
Note 1 - Summary of Significant Accounting Policies	58
Note 2 - Revenue Recognition	65
Note 3 - Fair Value Measurements	68
Note 4 - Investments	70
Note 5 - Derivatives and Risk Management	72
Note 6 - Intangible Assets	74
Note 7 - Long-Term Debt	75
Note 8 - Leases	77
Note 9 - Airport Redevelopment	80
Note 10 - Employee Benefit Plans	82
Note 11 - Commitments and Contingencies	87
Note 12 - Income Taxes	90
Note 13 - Equity and Equity Compensation	92
Note 14 - Accumulated Other Comprehensive Loss	93
Note 15 - Segments and Geographic Information	94
Note 16 - Restructuring and Other	96
Note 17 - Earnings Per Share	96
Note 18 - Quarterly Financial Data (Unaudited)	97

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Delta Air Lines, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 15, 2019 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for recognizing revenue from contracts with customers and for accounting for leases in fiscal year 2018 due to the adoption of the new revenue standard and new lease standard, respectively. The Company adopted the new revenue standard using the full retrospective approach and adopted the new lease standard using a modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

	/s/ Ernst & Young LLP
We have served as the Company's auditor since 2006.
Atlanta, Georgia
February 15, 2019

DELTA AIR LINES, INC.

Consolidated Balance Sheets

		December 31,
(in millions, except share data)		2018				2017
ASSETS
Current Assets:
Cash and cash equivalents		$	1,565			$	1,814
Short-term investments		203				825
Accounts receivable, net of an allowance for uncollectible accounts of $12 at December 31, 2018 and 2017		2,314				2,377
Fuel inventory		592				916
Expendable parts and supplies inventories, net of an allowance for obsolescence of $102 and $113 at December 31, 2018 and 2017, respectively		463				413
Prepaid expenses and other		1,203				1,459
Total current assets		6,340				7,804
Noncurrent Assets:
Property and equipment, net of accumulated depreciation and amortization of $15,823 and $14,097 at December 31, 2018 and 2017, respectively		28,335				26,563
Operating lease right-of-use assets		5,994				—
Goodwill		9,781				9,794
Identifiable intangibles, net of accumulated amortization of $862 and $845 at December 31, 2018 and 2017, respectively		4,830				4,847
Cash restricted for airport construction		1,136				—
Deferred income taxes, net		242				1,354
Other noncurrent assets		3,608				3,309
Total noncurrent assets		53,926				45,867
Total assets		$	60,266			$	53,671
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and finance leases		$	1,518			$	2,242
Current maturities of operating leases		955				—
Air traffic liability		4,661				4,364
Accounts payable		2,976				3,634
Accrued salaries and related benefits		3,287				3,022
Loyalty program deferred revenue		2,989				2,762
Fuel card obligation		1,075				1,067
Other accrued liabilities		1,117				1,868
Total current liabilities		18,578				18,959
Noncurrent Liabilities:
Long-term debt and finance leases		8,253				6,592
Pension, postretirement and related benefits		9,163				9,810
Loyalty program deferred revenue		3,652				3,559
Noncurrent operating leases		5,801				—
Other noncurrent liabilities		1,132				2,221
Total noncurrent liabilities		28,001				22,182
Commitments and Contingencies
Stockholders' Equity:
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 688,136,306 and 714,674,160 shares issued at December 31, 2018 and 2017, respectively		—				—
Additional paid-in capital		11,671				12,053
Retained earnings		10,039				8,256
Accumulated other comprehensive loss		(7,825		)		(7,621		)
Treasury stock, at cost, 8,191,831 and 7,476,181 shares at December 31, 2018 and 2017, respectively		(198		)		(158		)
Total stockholders' equity		13,687				12,530
Total liabilities and stockholders' equity		$	60,266			$	53,671
The accompanying notes are an integral part of these Consolidated Financial Statements.

DELTA AIR LINES, INC.

Consolidated Statements of Operations

	Year Ended December 31,
(in millions, except per share data)	2018				2017				2016
Operating Revenue:
Passenger	$	39,755			$	36,947			$	35,814
Cargo	865				744				684
Other	3,818				3,447				2,952
Total operating revenue	44,438				41,138				39,450
Operating Expense:
Salaries and related costs	10,743				10,058				9,394
Aircraft fuel and related taxes	9,020				6,756				5,985
Regional carriers expense, excluding fuel	3,438				3,466				3,447
Depreciation and amortization	2,329				2,222				1,886
Contracted services	2,175				2,108				1,918
Passenger commissions and other selling expenses	1,941				1,827				1,751
Ancillary businesses and refinery	1,695				1,495				1,182
Landing fees and other rents	1,662				1,501				1,472
Aircraft maintenance materials and outside repairs	1,575				1,591				1,434
Profit sharing	1,301				1,065				1,115
Passenger service	1,178				1,123				964
Aircraft rent	394				351				285
Other	1,723				1,609				1,621
Total operating expense	39,174				35,172				32,454
Operating Income	5,264				5,966				6,996
Non-Operating Expense:
Interest expense, net	(311		)		(396		)		(388		)
Unrealized gain/(loss) on investments, net	14				—				—
Miscellaneous, net	184				(70		)		(255		)
Total non-operating expense, net	(113		)		(466		)		(643		)
Income Before Income Taxes	5,151				5,500				6,353
Income Tax Provision	(1,216		)		(2,295		)		(2,158		)
Net Income	$	3,935			$	3,205			$	4,195
Basic Earnings Per Share	$	5.69			$	4.45			$	5.59
Diluted Earnings Per Share	$	5.67			$	4.43			$	5.55
Cash Dividends Declared Per Share	$	1.31			$	1.02			$	0.68
The accompanying notes are an integral part of these Consolidated Financial Statements.

DELTA AIR LINES, INC.

Consolidated Statements of Comprehensive Income

	Year Ended December 31,
(in millions)	2018				2017				2016
Net Income	$	3,935			$	3,205			$	4,195
Other comprehensive (loss) income:
Net change in derivative contracts	15				(29		)		(37		)
Net change in pension and other benefits	(113		)		(98		)		(360		)
Net change in investments	—				142				36
Total Other Comprehensive (Loss) Income	(98		)		15				(361		)
Comprehensive Income	$	3,837			$	3,220			$	3,834

The accompanying notes are an integral part of these Consolidated Financial Statements.

DELTA AIR LINES, INC.

Consolidated Statements of Cash Flows

	Year Ended December 31,
(in millions)	2018				2017				2016
Cash Flows From Operating Activities:
Net income	$	3,935			$	3,205			$	4,195
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,329				2,222				1,886
Deferred income taxes	1,364				2,242				2,118
Pension, postretirement and postemployment payments greater than expense	(790		)		(3,302		)		(717		)
Changes in certain assets and liabilities:
Receivables	108				(428		)		(134		)
Fuel inventory	324				(397		)		(140		)
Prepaid expenses and other current assets	(440		)		(57		)		(26		)
Air traffic liability	297				284				157
Loyalty program deferred revenue	319				399				198
Profit sharing	233				(51		)		(383		)
Accounts payable and accrued liabilities	(418		)		955				298
Other, net	(247		)		(49		)		(237		)
Net cash provided by operating activities	7,014				5,023				7,215
Cash Flows From Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments	(3,704		)		(2,704		)		(2,617		)
Ground property and equipment, including technology	(1,464		)		(1,187		)		(774		)
Purchase of equity investments	—				(1,245		)		—
Purchase of short-term investments	(145		)		(925		)		(1,707		)
Redemption of short-term investments	766				584				2,686
Other, net	154				211				257
Net cash used in investing activities	(4,393		)		(5,266		)		(2,155		)
Cash Flows From Financing Activities:
Payments on long-term debt and finance lease obligations	(3,052		)		(1,258		)		(1,709		)
Repurchase of common stock	(1,575		)		(1,677		)		(2,601		)
Cash dividends	(909		)		(731		)		(509		)
Fuel card obligation	7				636				211
Proceeds from long-term obligations	3,745				2,454				450
Other, net	58				(154		)		(102		)
Net cash used in financing activities	(1,726		)		(730		)		(4,260		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	895				(973		)		800
Cash, cash equivalents and restricted cash at beginning of period	1,853				2,826				2,026
Cash, cash equivalents and restricted cash at end of period	$	2,748			$	1,853			$	2,826
Supplemental Disclosure of Cash Paid for Interest	$	376			$	390			$	385
Non-Cash Transactions:
Treasury stock contributed to our qualified defined benefit pension plans	$	—			$	350			$	350
Flight and ground equipment acquired under finance leases	$	100			$	261			$	86
Flight and ground equipment acquired under operating leases	$	1,041			$	—			$	—
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:
	Year Ended December 31,
(in millions)	2018				2017				2016
Current assets:
Cash and cash equivalents	$	1,565			$	1,814			$	2,762
Restricted cash included in prepaid expenses and other	47				39				64
Noncurrent assets:
Cash restricted for airport construction	1,136				—				—
Total cash, cash equivalents and restricted cash	$	2,748			$	1,853			$	2,826
The accompanying notes are an integral part of these Consolidated Financial Statements.

DELTA AIR LINES, INC.

Consolidated Statements of Stockholders' Equity

	Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
(in millions, except per share data)	Shares		Amount			Shares		Amount			Total
Balance at January 1, 2016	800		$	—		$	12,936		$	5,562		$	(7,275	)	21		$	(373	)	$	10,850
Net income	—		—			—			4,195			—			—		—			4,195
Change in accounting principle	—		—			—			(735		)	—			—		—			(735		)
Dividends declared	—		—			—			(509		)	—			—		—			(509		)
Other comprehensive loss	—		—			—			—			(361		)	—		—			(361		)
Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $44.27(1) per share)	2		—			105			—			—			1		(40		)	65
Stock options exercised	3		—			32			—			—			—		—			32
Treasury stock, net, contributed to our qualified defined benefit pension plans	—		—			204			—			—			(8	)	139			343
Stock purchased and retired	(60	)	—			(983		)	(1,618		)	—			—		—			(2,601		)
Balance at December 31, 2016	745		—			12,294			6,895			(7,636		)	14		(274		)	11,279
Net income	—		—			—			3,205			—			—		—			3,205
Dividends declared	—		—			—			(731		)	—			—		—			(731		)
Other comprehensive income	—		—			—			—			15			—		—			15
Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $48.31(1) per share)	1		—			107			—			—			1		(39		)	68
Stock options exercised	2		—			28			—			—			—		—			28
Treasury stock, net, contributed to our qualified defined benefit pension plans	—		—			188			—			—			(8	)	155			343
Stock purchased and retired	(33	)	—			(564		)	(1,113		)	—			—		—			(1,677		)
Balance at December 31, 2017	715		—			12,053			8,256			(7,621		)	7		(158		)	12,530
Net income	—		—			—			3,935			—			—		—			3,935
Change in accounting principle and other	—		—			—			(154		)	(106		)	—		—			(260		)
Dividends declared	—		—			—			(909		)	—			—		—			(909		)
Other comprehensive loss	—		—			—			—			(98		)	—		—			(98		)
Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $54.90(1) per share)	1		—			91			—			—			1		(40		)	51
Stock options exercised	1		—			13			—			—			—		—			13
Stock purchased and retired	(29	)	—			(486		)	(1,089		)	—			—		—			(1,575		)
Balance at December 31, 2018	688		$	—		$	11,671		$	10,039		$	(7,825	)	8		$	(198	)	$	13,687

(1)	Weighted average price per share.

The accompanying notes are an integral part of these Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1**. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Basis of Presentation

Delta Air Lines, Inc., a Delaware corporation, provides scheduled air transportation for passengers and cargo throughout the United States ("U.S.") and around the world. Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). We do not consolidate the financial statements of any company in which we have voting rights of 50% or less. We are not the primary beneficiary of, nor do we have a controlling financial interest in, any variable interest entity. Accordingly, we have not consolidated any variable interest entity.

We have marketing alliances with other airlines to enhance our access to domestic and international markets. These arrangements may include codesharing, reciprocal loyalty program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co-location and other marketing agreements. We have received antitrust immunity for certain marketing arrangements, which enables us to offer a more integrated route network and develop common sales, marketing and discount programs for customers. Some of our marketing arrangements provide for the sharing of revenues and expenses. Revenues and expenses associated with collaborative arrangements are presented on a gross basis in the applicable line items on our Consolidated Statements of Operations ("income statement").

We have recast prior year financial statements to conform with the adoption of the revenue recognition and retirement benefits standards described below. In addition, we have reclassified regional carriers fuel expense from regional carriers expense to aircraft fuel and related taxes, and consolidated ancillary businesses and refinery expenses into one financial statement line item, in addition to making other classification changes to conform to the current year presentation.

Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.

Use of Estimates

We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates.

Recent Accounting Standards

Standards Effective in Future Years

Comprehensive Income. In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220)." This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income/(loss) ("AOCI") to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. The adoption of the standard may impact tax amounts stranded in AOCI related to our pension plans. This standard is effective for interim and annual reporting periods beginning after December 15, 2018.

Recently Adopted Standards

Leases. In 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This ASU and subsequently issued amendments require leases with durations greater than 12 months to be recognized on the balance sheet. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted.

In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements - Leases (Topic 842)." This update provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years presented. If elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. We adopted the new standard as of January 1, 2018 during the December quarter using the transition method that provides for a cumulative-effect adjustment to retained earnings upon adoption and have recast our 2018 quarterly results. The Consolidated Financial Statements for the fiscal year ended December 31, 2018 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with our historical accounting policy.

See Note 8, "Leases," for more information.

Revenue from Contracts with Customers. In 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." Under this ASU and subsequently issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. We adopted this standard using the full retrospective transition method effective January 1, 2018 and recast prior year results as shown below.

While the adoption of the new standard did not have a significant effect on earnings, approximately $2 billion of certain annual revenues that were previously classified in other revenue have been reclassified to passenger revenue. These revenues include baggage fees, administrative charges and other travel-related fees, which are deemed part of the single performance obligation of providing passenger transportation.

In addition, the adoption of the new standard increased the rate we use to account for loyalty program miles. We previously analyzed our standalone sales of mileage credits to other airlines and customers to establish the accounting value for loyalty program miles. Considering the guidance in the new standard, we changed our valuation of a mileage credit to an analysis of the award redemption value. The new valuation considers the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash. This change increased our loyalty program liability at December 31, 2017 by $2.2 billion. The mileage deferral and redemption rates are approximately the same; therefore, assuming stable volume, there would not be a significant change in revenue recognized from the program in a given period.

The adoption of the new standard also reduced our air traffic liability at December 31, 2017 by $524 million. This change primarily results from estimating the tickets that will expire unused and recognizing revenue at the scheduled flight date rather than when the unused tickets expire.

See Note 2, "Revenue Recognition," for more information.

Statement of Cash Flows. In 2016, the FASB issued ASU Nos. 2016-15 and 2016-18 related to the classification of certain cash receipts and cash payments, and the presentation of restricted cash within an entity's statement of cash flows, respectively. We adopted these standards effective January 1, 2018.

Financial Instruments. In 2016, the FASB issued ASU No. 2016-01, "Financial Instruments—Overall (Subtopic 825-10)." This standard makes several changes, including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. In February 2018, the FASB issued ASU No. 2018-03, "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)," to clarify certain aspects of ASU No. 2016-01. We adopted these standards effective January 1, 2018.

Prior to the adoption of these standards, our investments in GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), and China Eastern were accounted for as available-for-sale with changes in fair value recognized in other comprehensive income. At the time of adoption, we reclassified an unrealized gain of $162 million related to these investments from AOCI to retained earnings.

Our investment in Air France-KLM was previously accounted for at cost as our investment agreement restricts the sale or transfer of these shares until 2022. Upon adopting ASU Nos. 2016-01 and 2018-03, we recorded a $148 million gain in unrealized gain/(loss) on investments in our income statement related to the value of Air France-KLM's stock at December 31, 2017 compared to our investment basis. Consistent with our investments in GOL and China Eastern, this investment is now accounted for at fair value with changes in fair value recognized in net income.

Retirement Benefits. The components of the net (benefit) cost are shown in Note 10, "Employee Benefit Plans." In 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715)." This standard requires an entity to report the service cost component in the same line item as other compensation costs. The other components of net (benefit) cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We adopted this standard effective January 1, 2018. The components of the net (benefit) cost are shown in Note 10, "Employee Benefit Plans."

Impact of Certain Recently Adopted Standards

We recast certain prior period amounts to conform with the adoption of the revenue recognition and retirement benefits standards, as shown in the tables below.

	Year Ended December 31, 2017										Year Ended December 31, 2016
(in millions, except per share data)	As Previously Reported			Adjustments			Current Presentation				As Previously Reported			Adjustments			Current Presentation
Income statement:
Passenger revenue	$	34,819		$	2,128		$	36,947			$	33,777		$	2,037		$	35,814
Cargo revenue	729			15			744				668			16			684
Other revenue	5,696			(2,249		)	3,447				5,194			(2,242		)	2,952
Total operating revenue	41,244			(106		)	41,138				39,639			(189		)	39,450
Operating expense	35,130			42			35,172				32,687			(233		)	32,454
Non-operating expense	(413		)	(53		)	(466		)		(316		)	(327		)	(643		)
Income tax provision	(2,124		)	(171		)	(2,295		)		(2,263		)	105			(2,158		)
Net income	$	3,577		$	(372	)	$	3,205			$	4,373		$	(178	)	$	4,195
Diluted earnings per share	$	4.95		$	(0.52	)	$	4.43			$	5.79		$	(0.24	)	$	5.55

	December 31, 2017
(in millions)	As Previously Reported			Adjustments			Current Presentation
Balance sheet:
Deferred income taxes, net	$	935		$	419		$	1,354
Air traffic liability	4,888			(524		)	4,364
Loyalty program deferred revenue (current and noncurrent)	4,118			2,203			6,321
Other accrued and other noncurrent liabilities	3,969			120			4,089
Retained earnings	9,636			(1,380		)	8,256

Significant Accounting Policies

Our significant accounting policies are disclosed below or included within the topic-specific notes included herein.

Cash and Cash Equivalents and Short-Term Investments

Short-term, highly liquid investments with maturities of three months or less when purchased are classified as cash and cash equivalents. Investments with maturities of greater than three months, but not in excess of one year, when purchased are classified as short-term investments. Investments with maturities beyond one year when purchased may be classified as short-term investments if they are expected to be available to support our short-term liquidity needs. Our short-term investments are classified as fair value investments and gains and losses are recorded in non-operating expense.

Inventories

Fuel. Refined product, feedstock and blendstock inventories, all of which are finished goods, are carried at recoverable cost. We use jet fuel in our airline operations that is produced by the refinery and procured through the exchange with third parties of gasoline, diesel and other refined products ("non-jet fuel products") the refinery produces. Cost is determined using the first-in, first-out method. Costs include the raw material consumed plus direct manufacturing costs (such as labor, utilities and supplies) incurred and an applicable portion of manufacturing overhead.

Expendables Parts and Supplies. Inventories of expendable parts related to flight equipment, which cannot be economically repaired, reconditioned or reused after removal from the aircraft, are carried at moving average cost and charged to operations as consumed. An allowance for obsolescence is provided over the remaining useful life of the related fleet. We also provide allowances for parts identified as excess or obsolete to reduce the carrying costs to the lower of cost or net realizable value. These parts are assumed to have an estimated residual value of 5% of the original cost.

Accounting for Refinery Related Buy/Sell Agreements

To the extent that we receive jet fuel for non-jet fuel products exchanged under buy/sell agreements, we account for these transactions as nonmonetary exchanges. We have recorded these nonmonetary exchanges at the carrying amount of the non-jet fuel products transferred within aircraft fuel and related taxes on the income statement.

Derivatives

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 may enter into derivative contracts and adjust our derivative portfolio as market conditions change. We recognize derivative contracts at fair value on our Consolidated Balance Sheets ("balance sheets").

The following table summarizes the risk hedged and the classification of related gains and losses on our income statement, by each type of derivative contract:

Derivative Type	Hedged Risk	Classification of Gains and Losses
Fuel hedge contracts	Fluctuations in fuel prices	Aircraft fuel and related taxes
Interest rate contracts	Increases in interest rates	Interest expense, net
Foreign currency exchange contracts	Fluctuations in foreign currency exchange rates	Passenger revenue or non-operating expense (See Note 5)

The following table summarizes the accounting treatment of our derivative contracts:

	Impact of Unrealized Gains and Losses
Accounting Designation	Effective Portion	Ineffective Portion
Not designated as hedges	Change in fair value(1) of hedge is recorded in earnings
Designated as cash flow hedges	Market adjustments are recorded in AOCI	Excess, if any, over effective portion of hedge is recorded in non-operating expense
Designated as fair value hedges	Market adjustments are recorded in long-term debt and finance leases	Excess, if any, over effective portion of hedge is recorded in non-operating expense

(1)	Including settled gains and losses as well as mark-to-market adjustments ("MTM adjustments").

We perform, at least quarterly, an assessment of the effectiveness of our derivative contracts designated as hedges, including assessing the possibility of counterparty default. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings. We believe our derivative contracts that continue to be designated as hedges, consisting of interest rate and foreign currency exchange contracts, will continue to be highly effective in offsetting changes in fair value or cash flow, respectively, attributable to the hedged risk.

Cash flows associated with purchasing and settling hedge contracts generally are classified as operating cash flows. However, if a hedge contract includes a significant financing element at inception, cash flows associated with the hedge contract are recorded as financing cash flows.

Hedge Margin. The hedge margin we receive from counterparties is recorded in cash, with the offsetting obligation in accounts payable. The hedge margin we provide to counterparties is recorded in prepaid expenses and other. We do not offset margin funded to counterparties or margin funded to us by counterparties against fair value amounts recorded for our hedge contracts.

Long-Lived Assets

The following table summarizes our property and equipment:

		December 31,
(in millions, except for estimated useful life)	Estimated Useful Life	2018			2017
Flight equipment	20-34 years	$	33,898		$	30,688
Ground property and equipment	3-40 years	8,028			7,665
Flight and ground equipment under finance leases	Shorter of lease term or estimated useful life	1,055			1,147
Advance payments for equipment		1,177			1,160
Less: accumulated depreciation and amortization(1)		(15,823		)	(14,097		)
Total property and equipment, net		$	28,335		$	26,563

(1)	Includes accumulated amortization for flight and ground equipment under finance leases in the amount of $566 million and $668 million at December 31, 2018 and 2017, respectively.

We record property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated residual values over their estimated useful lives. The estimated useful life for leasehold improvements is the shorter of lease term or estimated useful life. Depreciation and amortization expense related to our property and equipment was $2.3 billion, $2.2 billion and $1.9 billion for each of the years ended December 31, 2018, 2017 and 2016, respectively. Residual values for owned aircraft, engines, spare parts and simulators are generally 5% to 10% of cost.

We capitalize certain internal and external costs incurred to develop and implement software and amortize those costs over an estimated useful life of three to 10 years. Included in the depreciation and amortization expense discussed above, we recorded $205 million, $187 million and $158 million for amortization of capitalized software for the years ended December 31, 2018, 2017 and 2016, respectively. The net book value of these assets, which are included in ground property and equipment above, totaled $819 million and $659 million at December 31, 2018 and 2017, respectively.

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. Factors which could be indicators of impairment include, but are not limited to, (1) a decision to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment. For long-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell.

To determine whether impairments exist for aircraft used in operations, we group assets at the fleet-type level or at the contract level for aircraft operated by 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 costs, labor costs and other relevant factors. If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available.

Goodwill and Other Intangible Assets

Our goodwill and identifiable intangible assets relate to the airline segment. 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. We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach. Under a qualitative approach, we consider various market factors, including the key assumptions listed below. We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets. If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. Under a quantitative approach, we calculate the fair value of the asset using the key assumptions listed below.

We value goodwill and indefinite-lived intangible assets primarily using market capitalization and income approach valuation techniques. These measurements include the following key assumptions: (1) forecasted revenues, expenses and cash flows, (2) terminal period revenue growth and cash flows, (3) an estimated weighted average cost of capital, (4) assumed discount rates depending on the asset and (5) a tax rate. These assumptions are consistent with those that hypothetical market participants would use. Because we are required to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates.

Changes in certain events and circumstances could result in impairment or a change from indefinite-lived to definite-lived. Factors which could cause impairment include, but are not limited to, (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U.S. and global economies, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e.g., diminished slot access or additional Open Skies agreements), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets.

Goodwill. When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering both market capitalization and projected discounted future cash flows (an income approach). If the reporting unit's fair value exceeds its carrying value, no further testing is required. If it does not, we recognize an impairment charge if the carrying value of the reporting unit's goodwill exceeds its estimated fair value.

Identifiable Intangible Assets. Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to SkyTeam and collaborative arrangements. Definite-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred.

We assess our indefinite-lived assets under a qualitative or quantitative approach. We analyze market factors to determine if events and circumstances have affected the fair value of the indefinite-lived intangible assets. If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. We perform the quantitative impairment test for indefinite-lived intangible assets by comparing the asset's fair value to its carrying value. Fair value is estimated based on (1) recent market transactions, where available, (2) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using our tradename) or (3) projected discounted future cash flows (an income approach). We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value.

Income Taxes

We account for deferred income taxes under the liability method. We recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates. Deferred tax assets and liabilities are net by jurisdiction and are recorded as noncurrent on the balance sheet.

A valuation allowance is recorded to reduce deferred tax assets when necessary. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies.

Fuel Card Obligation

We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil. The card currently carries a maximum credit limit of $1.1 billion and must be paid monthly. At December 31, 2018 and December 31, 2017, we had $1.1 billion outstanding on this purchasing card, and the activity was classified as a financing activity in our Consolidated Statements of Cash Flows.

Retirement of Repurchased Shares

We immediately retire shares repurchased pursuant to our share repurchase program. We allocate the share purchase price in excess of par value between additional paid-in capital and retained earnings.

Manufacturers' Credits

We periodically receive credits in connection with the acquisition of aircraft and engines. These credits are deferred until the aircraft and engines are delivered, and then applied as a reduction to the cost of the related equipment.

Maintenance Costs

We record maintenance costs to aircraft maintenance materials and outside repairs. Maintenance costs are expensed as incurred, except for costs incurred under power-by-the-hour contracts, which are expensed based on actual hours flown. Power-by-the-hour contracts transfer certain risk to third-party service providers and fix the amount we pay per flight hour to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.

Advertising Costs

We expense advertising costs in passenger commissions and other selling expenses in the year the advertising first takes place. Advertising expense was $267 million, $273 million and $267 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Commissions

Passenger sales commissions are recognized in operating expense when the related revenue is recognized.

NOTE 2**.** 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.

	Year Ended December 31,
(in millions)	2018			2017			2016
Ticket	$	34,950		$	32,467		$	31,534
Loyalty travel awards	2,651			2,403			2,234
Travel-related services	2,154			2,077			2,046
Total passenger revenue	$	39,755		$	36,947		$	35,814

Ticket

Passenger Tickets. We record 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. We periodically evaluate the estimated air traffic liability and record any adjustments in our income statement. These adjustments relate primarily to refunds, exchanges, ticket breakage, transactions with other airlines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price.

Approximately $3.5 billion of the prior year air traffic liability related to passenger ticket sales (which excludes those tickets sold on behalf of other airlines) and was recognized in passenger revenue during each of the years ended December 31, 2018 and 2017.

Ticket Breakage. We estimate the value of tickets that will expire unused and recognize revenue at the scheduled flight date.

Regional Carriers. Our regional carriers include both our contract carrier agreements with third-party regional carriers ("contract carriers") and Endeavor Air, Inc., our wholly owned subsidiary. Our contract carrier agreements are primarily structured as capacity purchase agreements where we purchase all or a portion of the contract carrier's capacity and are responsible for selling the seat inventory we purchase. We record revenue related to our capacity purchase agreements in passenger revenue and the related expenses in regional carriers expense, excluding fuel.

Loyalty Travel Awards

Loyalty travel awards revenue is related to the redemption of mileage credits for travel. We recognize loyalty travel awards revenue in passenger revenue as mileage credits are redeemed and travel is provided. See below for discussion of our loyalty program accounting policies.

Travel-Related Services

Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight, including administrative fees (such as ticket change fees), baggage fees and on-board sales. We recognize revenue for these services when the related transportation service is provided. Prior to the adoption of the new revenue recognition standard, the majority of these fees were classified in other revenue.

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 by flying on Delta, Delta Connection and other airlines that participate in the loyalty program. When traveling, customers earn redeemable mileage credits based on the passenger's loyalty program status and travel fare paid. Customers can also earn mileage credits through participating companies such as credit card companies, hotels and car rental agencies. To facilitate transactions with participating companies, we sell mileage credits to non-airline businesses, customers and other airlines. Mileage credits 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 reflect the mileage credits earned, the loyalty program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) mileage credit earned with travel and (2) mileage credit sold to participating companies.

Passenger Ticket Sales Earning Mileage Credits. Passenger ticket sales earning mileage credits under our loyalty program provide customers with (1) mileage credits earned and (2) air transportation. We value each performance obligation on a standalone basis. To value the mileage credits earned, we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as equivalent ticket value ("ETV"). Our estimate of ETV is adjusted for mileage credits that are not likely to be redeemed ("breakage"). Management uses statistical models to estimate breakage based on historical redemption patterns. A change in assumptions as to the actual redemption activity for mileage credits or the estimated fair value of mileage credits expected to be redeemed could have a material impact on our revenue in the year in which the change occurs and in future years. We recognize breakage proportionally during the period in which the remaining mileage credits are actually redeemed.

We defer revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and services are provided. We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize passenger revenue when we provide transportation or if the ticket goes unused.

Sale of Mileage Credits. Customers may earn mileage credits based on their spending with participating companies such as credit card companies, hotels and car rental agencies with which we have marketing agreements to sell mileage credits. Our contracts to sell mileage credits under these marketing agreements have multiple performance obligations. Payments are typically due monthly based on the volume of miles sold during the period, and the terms of our marketing contracts are generally from one to eight years. During the years ended December 31, 2018 and 2017, total cash sales from marketing agreements were $3.5 billion and $3.2 billion, respectively, which are allocated to travel and other performance obligations, as discussed below.

Our most significant contract to sell mileage credits relates to our co-brand credit card relationship with American Express. Our agreements with American Express provide for joint marketing, grant certain benefits to Delta-American Express co-branded credit card holders ("cardholders") and American Express Membership Rewards program participants, and allow American Express to market using our customer database. Cardholders earn mileage credits for making purchases using co-branded cards, may check their first bag for free, are granted discounted access to Delta Sky Club lounges and receive other benefits while traveling on Delta. Additionally, participants in the American Express Membership Rewards program may exchange their points for mileage credits under the loyalty program. We sell mileage credits at agreed-upon rates to American Express which are then provided to their customers under the co-brand credit card program and the Membership Rewards program.

We account for marketing agreements, including American Express, consistent with the accounting method that allocates the consideration received to the individual products and services delivered. We allocate the value based on the relative selling prices of those products and services, which generally consist of award travel, baggage fee waivers, lounge access and the use of our brand. We determined our best estimate of the selling prices by considering discounted cash flow analyses using multiple inputs and assumptions, including: (1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation, (3) published rates on our website for baggage fees, discounted access to Delta Sky Club lounges and other benefits while traveling on Delta and (4) brand value.

We defer the amount for award travel obligation as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the mileage credits are used for travel. Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel-related services in passenger revenue when the related service is performed. Revenue allocated to access Delta Sky Club lounges is recognized as miscellaneous in other revenue as access is provided. Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue over time as miles are delivered.

Current Activity of the Loyalty Program. Mileage credits 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 liability, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.

(in millions)	2018			2017
Balance at January 1	$	6,321		$	5,922
Mileage credits earned	3,142			2,948
Travel mileage credits redeemed	(2,651		)	(2,403		)
Non-travel mileage credits redeemed	(171		)	(146		)
Balance at December 31	$	6,641		$	6,321

The timing of mileage redemptions can vary widely; however, the majority of new miles are redeemed within two years.

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. The majority of the revenues of the refinery, consisting of fuel sales to the airline, have been eliminated in the 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 (as defined by the U.S. Department of Transportation) is summarized in the following table:

	Passenger Revenue										Operating Revenue
	Year Ended December 31,										Year Ended December 31,
(in millions)	2018			2017			2016				2018			2017			2016
Domestic	$	28,159		$	26,079		$	25,002			$	31,233		$	28,850		$	27,309
Atlantic	6,165			5,537			5,419				7,042			6,297			6,115
Latin America	2,888			2,862			2,686				3,181			3,133			2,939
Pacific	2,543			2,469			2,707				2,982			2,858			3,087
Total	$	39,755		$	36,947		$	35,814			$	44,438		$	41,138		$	39,450

Cargo Revenue

Cargo revenue is recognized when we provide the transportation.

Other Revenue

	Year Ended December 31,
(in millions)	2018			2017			2016
Ancillary businesses and refinery	$	1,801		$	1,591		$	1,293
Loyalty program	1,459			1,269			1,110
Miscellaneous	558			587			549
Total other revenue	$	3,818		$	3,447		$	2,952

Ancillary Businesses and Refinery. Ancillary businesses and refinery includes aircraft maintenance and staffing services provided to third parties, our vacation wholesale operations, our private jet operations and refinery sales to third parties. Third-party refinery production sales are at or near cost; accordingly, the margin on these sales is de minimis. See Note 15, "Segments and Geographic Information," for more information on revenue recognition within our refinery segment.

In December 2018, we sold DAL Global Services, LLC (“DGS”), which provides aviation-related, ground support equipment maintenance and professional security services, to a new subsidiary of Argenbright Holdings, LLC. We received a non-controlling 49% equity stake in the new company and $40 million cash. The new company will continue to service our customers and third parties, and is expected to continue operating at the same airport locations it currently serves. In 2019, DGS will no longer be reflected within ancillary businesses and refinery.

Loyalty Program. Loyalty program revenues relate to brand usage by third parties and other performance obligations embedded in mileage credits sold, including redemption of mileage credits for non-travel awards. These revenues are included within the total cash sales from marketing agreements, discussed above.

Miscellaneous. Miscellaneous revenue is primarily composed of lounge access and codeshare revenues.

Accounts Receivable

Accounts receivable primarily consist of amounts due from credit card companies from the sale of passenger tickets, ancillary businesses and refinery sales, and other companies for the purchase of mileage credits under the loyalty program. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.

Passenger Taxes and Fees

We are required to charge certain taxes and fees on our passenger tickets, including U.S. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are assessments on the customer for which we act as a collection agent. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier (i.e., for codeshare-related fees).

NOTE 3**. FAIR VALUE MEASUREMENTS**

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

•	Level 1. Observable inputs such as quoted prices in active markets;

•	Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•	Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:

(a)	Market Approach. Prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities; and

(b)	Income Approach. Techniques to convert future amounts to a single present value amount based on market expectations (including present value techniques and option-pricing models).

Assets (Liabilities) Measured at Fair Value on a Recurring Basis**(1)**

	December 31, 2018									Valuation Technique
(in millions)	Total			Level 1			Level 2
Cash equivalents	$	1,222		$	1,222		$	—		(a)
Restricted cash equivalents	1,183			1,183			—			(a)
Short-term investments
U.S. government and agency securities	50			45			5			(a)
Asset- and mortgage-backed securities	36			—			36			(a)
Corporate obligations	90			—			90			(a)
Other fixed income securities	27			—			27			(a)
Long-term investments	1,084			880			204			(a)
Hedge derivatives, net
Fuel hedge contracts	15			20			(5		)	(a)(b)
Interest rate contracts	1			—			1			(a)
Foreign currency exchange contracts	(3		)	—			(3		)	(a)

	December 31, 2017									Valuation Technique
(in millions)	Total			Level 1			Level 2
Cash equivalents	$	1,357		$	1,357		$	—		(a)
Restricted cash equivalents	38			38			—			(a)
Short-term investments
U.S. government securities	93			84			9			(a)
Asset- and mortgage-backed securities	173			—			173			(a)
Corporate obligations	467			—			467			(a)
Other fixed income securities	92			—			92			(a)
Long-term investments	513			485			28			(a)
Hedge derivatives, net
Fuel hedge contracts	(66		)	(43		)	(23		)	(a)(b)
Foreign currency exchange contracts	(17		)	—			(17		)	(a)

(1)	See Note 10, "Employee Benefit Plans," for fair value of benefit plan assets.

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 a portion of the construction costs for the new terminal facilities at the LaGuardia Airport, certain self-insurance obligations and other airport commitments. The fair value of these investments 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 are recorded in other noncurrent assets on our balance sheet. See Note 4, "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 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 Japanese yen and Euro forward contracts and are valued based on data readily observable in public markets.

NOTE 4**. INVESTMENTS**

Short-Term Investments

The estimated fair values of short-term investments, which approximate cost at December 31, 2018, are shown below by contractual maturity. Actual maturities may differ from contractual maturities because issuers of certain securities have the right to retire our investments without prepayment penalties.

(in millions)
Due in one year or less			$	93
Due after one year through three years			96
Due after three years through five years			1
Due after five years			13
Total			$	203

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. Strategic relationships improve our coordination with these companies and enable our customers to seamlessly connect to more destinations while enjoying a consistent, high-quality travel experience. 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 boards of directors of the other company.

During the year ended December 31, 2018, we recorded a net gain on our strategic investments of $14 million, which was recorded in unrealized gain/(loss) on investments in our income statement under non-operating expense. This net gain was primarily driven by changes in stock prices and foreign currency fluctuations. During 2017 and 2016, before we adopted the new financial instruments accounting standard in 2018, we recorded unrealized gains and losses on available-for-sale investments in AOCI.

Equity Method Investments

We account for the following investments under the equity method of accounting and recognize our portion of Aeroméxico's and Virgin Atlantic's financial results in miscellaneous in our income statement under non-operating expense. Our equity method investments are recorded in other noncurrent assets on our balance sheet. If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our basis in the investment to fair value and record the loss in unrealized gain/(loss) on investments.

•	Aeroméxico. We have a 51% equity stake in Grupo Aeroméxico, the parent company of Aeroméxico, which is recorded at $897 million as of December 31, 2018. Our investment is non-controlling and accounted for under the equity method as Mexican law and Grupo Aeroméxico's corporate bylaws limit our voting interest to 49%.

•	Virgin Atlantic. We have a non-controlling 49% equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways, which is recorded at $383 million as of December 31, 2018.

•	DGS. In December 2018, we sold DGS, which provides aviation-related, ground support equipment maintenance and professional security services, to a new subsidiary of Argenbright Holdings, LLC. The new company will continue to service our customers and third parties, and is expected to continue operating at the same airport locations it currently serves.

At the time of the sale, we received a non-controlling 49% equity stake in the new company of $109 million and $40 million cash. We recognized a gain upon deconsolidation of $91 million in miscellaneous under non-operating expense.

After the sale, we will record our portion of the new entity's financial results in contracted services under operating expense as this entity is integral to the operations of our business.

Fair Value Investments

We account for the following investments at fair value with adjustments to fair value recognized in unrealized gain/(loss) on investments within non-operating expense.

•

Air France-KLM. We own 9% of the outstanding shares of Air France-KLM, which are recorded at $408 million as of December 31, 2018. In addition, we have a joint venture with Air France-KLM and entered into an agreement with Air France-KLM and Virgin Atlantic to combine our separate transatlantic joint ventures into a single three-party transatlantic joint venture. The three-party agreement remains subject to required regulatory approvals.

•	GOL. We own 9% of the outstanding capital stock of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), through ownership of its preferred shares. Our ownership stake is recorded at $213 million as of December 31, 2018.

Additionally, GOL has a $300 million five-year term loan facility with third parties, which we have guaranteed. Our entire guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly-traded loyalty program. Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability on our balance sheet as of December 31, 2018.

•	China Eastern. We own a 3% equity interest in China Eastern, which is recorded at $259 million as of December 31, 2018.

•	Alclear Holdings, LLC ("CLEAR"). We own a 7% equity interest in CLEAR. During the year ended December 31, 2018, we sold a portion of our equity interest and recognized a gain of $18 million in miscellaneous, net in our income statement under non-operating expense.

•	Republic Airways. We own a 17% equity interest in Republic Airways Holdings Inc. ("Republic"). This ownership interest is currently recorded at our original cost, as Republic's shares are not actively traded on a public exchange and we do not have the ability to exercise significant influence over Republic.

NOTE 5**. 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 may enter into derivative contracts and adjust our derivative portfolio as market conditions change. We recognize derivative contracts at fair value on our balance sheets.

Fuel Price Risk

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s refining margins. During the year ended December 31, 2018 fuel hedges did not have a material impact on our income statement. During the years ended December 31, 2017 and 2016 we recorded fuel hedge losses of $81 million and $366 million, respectively.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations. Market risk associated with our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.

In an effort to manage our exposure to the risk associated with our variable rate long-term debt, we periodically enter into interest rate swaps. We designate interest rate contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a fixed rate as cash flow hedges, while those contracts converting our interest rate exposure from a fixed rate to a floating rate are designated as fair value hedges.

In April 2018, we entered into interest rate swaps which are designated as fair value hedges. These swaps range from two to nine years remaining and have a total notional value of $1.6 billion. The objective of the swaps is to manage toward a higher percentage of net floating rate debt by swapping payments of fixed rate interest on the unsecured notes that we issued in the June 2018 quarter for payments of floating rate interest. The gains/losses on the swaps are recorded within interest expense in the income statement and offset the gain/losses in the related debt obligations due to interest rate fluctuations.

We also have exposure to market risk from adverse changes in interest rates associated with our cash and cash equivalents and benefit plan obligations. Market risk associated with our cash and cash equivalents relates to the potential decline in interest income from a decrease in interest rates. Pension, postretirement, postemployment and worker's compensation obligation risk relates to the potential increase in our future obligations and expenses from a decrease in interest rates used to discount these obligations.

Foreign Currency Exchange Rate Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense 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. Our Japanese yen foreign currency exchange contracts are designated as cash flow hedges with the effective portion of the gains or losses on the derivatives recorded in passenger revenue in the income statement in the same period in which the hedged transaction affects earnings.

In January 2018, we entered into a three-year U.S. dollar-Euro cross currency swap with a notional value of €375 million. This swap was intended to mitigate foreign currency volatility resulting from our Euro-denominated investment in Air France-KLM. In response to favorable changes in interest rates and the U.S. dollar-Euro exchange rate, we settled the cross currency swap in August 2018. Upon settlement, we recognized gains of $18 million in miscellaneous in our Consolidated Statement of Operations under non-operating expense. Subsequently, we entered into a new U.S. dollar-Euro cross currency swap with a notional value of €397 million and a maturity date in December 2020. During the year ended December 31, 2018, we recorded an unrealized loss on this new swap of $4 million, which is reflected in unrealized gain/(loss) on investments under non-operating expense.

Hedge Position as of December 31, 2018

(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)	1,893		U.S. dollars	April 2028	$	—		$	8		$	(7	)	$	—		$	1
Foreign currency exchange contracts	6,934		Japanese yen	November 2019	1			—			—			—			1
Not designated as hedges
Foreign currency exchange contract	397		Euros	December 2020	13			—			—			(17		)	(4		)
Fuel hedge contracts	219		gallons - crude oil and refined products	December 2019	30			—			(15		)	—			15
Total derivative contracts					$	44		$	8		$	(22	)	$	(17	)	$	13

Hedge Position as of December 31, 2017

(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
Foreign currency exchange contracts	23,512		Japanese yen	November 2019	$	1		$	1		$	(13	)	$	(6	)	$	(17	)
490		Canadian dollars	May 2020
Not designated as hedges
Fuel hedge contracts	249		gallons - crude oil and refined products	May 2019	638			8			(694		)	(18		)	(66		)
Total derivative contracts					$	639		$	9		$	(707	)	$	(24	)	$	(83	)

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 sheets. 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
December 31, 2018
Net derivative contracts	$	35		$	—		$	(13	)	$	(9	)	$	13
December 31, 2017
Net derivative contracts	$	—		$	1		$	(68	)	$	(16	)	$	(83	)

Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts during the years ended December 31, 2018, 2017 and 2016 are as follows:

	Effective Portion Reclassified from AOCI to Earnings										Effective Portion Recognized in Other Comprehensive (Loss) Income
(in millions)	2018			2017			2016				2018			2017			2016
Foreign currency exchange contracts	$	(3	)	$	10		$	37			$	1		$	(43	)	$	(68	)

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.

Our hedge contracts contain margin funding requirements. The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change. Due to the fair value position of our hedge contracts, we held margin of $9 million as of December 31, 2018 and posted margin of $43 million as of December 31, 2017.

Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services, the majority of which are processed through major credit card companies. We also have receivables from the sale of mileage credits under our loyalty program to participating airlines and non-airline businesses such as credit card companies, hotels and car rental agencies. The credit risk associated with our receivables is minimal.

Self-Insurance Risk

We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued based on an estimate of the aggregate liability for claims incurred, using independent actuarial reviews based on standard industry practices and our historical experience.

NOTE 6**. INTANGIBLE ASSETS**

Indefinite-Lived Intangible Assets

	Carrying Value at December 31,
(in millions)	2018			2017
International routes and slots	$	2,583		$	2,583
Delta tradename	850			850
SkyTeam-related assets	661			661
Domestic slots	622			622
Total	$	4,716		$	4,716

International Routes and Slots. Our international routes and slots primarily relate to Pacific route authorities and slots at capacity-constrained airports in Asia, and slots at London-Heathrow airport.

Domestic Slots. Our domestic slots relate to our slots at New York-LaGuardia and Washington-Reagan National airports.

Definite-Lived Intangible Assets

	December 31, 2018							December 31, 2017
(in millions)	Gross Carrying Value			Accumulated Amortization				Gross Carrying Value			Accumulated Amortization
Marketing agreements	$	730		$	(687	)		$	730		$	(677	)
Contracts	193			(122		)		193			(115		)
Other	53			(53		)		53			(53		)
Total	$	976		$	(862	)		$	976		$	(845	)

Amortization expense was $17 million for each of the years ended December 31, 2018, 2017 and 2016. We estimate that we will incur approximately $15 million of amortization expense annually from 2019 through 2023.

NOTE 7**. LONG-TERM DEBT**

The following table summarizes our long-term debt:

	Maturity			Interest Rate(s)(4) Per Annum at			December 31,
(in millions)	Dates			December 31, 2018			2018			2017
Pacific Facilities:
Pacific Term Loan B-1	n/a			n/a		n/a	$	—		$	1,048
Pacific Revolving Credit Facility	n/a			n/a		n/a	—			—
2015 Credit Facilities:
Term Loan Facility	n/a			n/a		n/a	—			490
Revolving Credit Facility	n/a			n/a		n/a	—			—
Financing arrangements secured by aircraft:
Certificates(1)	2019	to	2027	3.63%	to	8.02%	1,837			2,380
Notes(1)	2019	to	2025	2.91%	to	6.54%	1,787			1,961
2018 Unsecured notes	2021	to	2028	3.40%	to	4.38%	1,600			—
2018 Unsecured Revolving Credit Facility	2021	to	2023	undrawn	variable(3)		—			—
NYTDC Special Facilities Revenue Bonds, Series 2018(1)	2022	to	2036	4.00%	to	5.00%	1,383			—
Other unsecured notes	2020	to	2022	2.60%	to	3.63%	2,450			2,450
Other financings(1)(2)	2019	to	2030	1.81%	to	8.75%	251			210
Other revolving credit facilities	2019	to	2021	undrawn	variable(3)		—			—
Total secured and unsecured debt							9,308			8,539
Unamortized premium (discount) and debt issue cost, net							60			(99		)
Total debt							9,368			8,440
Less: current maturities							(1,409		)	(2,145		)
Total long-term debt							$	7,959		$	6,295

(1)	Due in installments.

(2)	Primarily includes unsecured bonds and debt secured by certain accounts receivable and real estate.

(3)	Interest rate equal to LIBOR (generally subject to a floor) or another index rate, in each case plus a specified margin.

(4)	Certain aircraft and other financings are comprised of variable rate debt.

2018 Aircraft-Secured Loans

During the December 2018 quarter, we obtained $621 million in aggregate principal amount of loans secured by 10 aircraft. These loans, which are included in secured aircraft notes in the table above, bear interest at a variable rate equal to LIBOR plus a specified margin and are due in installments from 2019 to 2023.

2018 Unsecured Notes

During the June 2018 quarter, we issued $1.6 billion in aggregate principal amount of unsecured notes, consisting of $600 million of 3.4% Notes due 2021, $500 million of 3.8% Notes due 2023 and $500 million of 4.375% Notes due 2028 (collectively, the "Notes"). Concurrently with issuing the Notes, we entered into interest rate derivatives that swapped payments of fixed rate interest for payments of floating rate interest, which reduced our effective interest rate to one-month LIBOR plus 1.17%. See Note 5, "Derivatives," for more information about the interest rate swaps.

The Notes are equal in right of payment with our other unsubordinated indebtedness and senior in right of payment to our future subordinated debt. The Notes are subject to covenants that, among other things, limit our ability to incur liens securing indebtedness for borrowed money or finance leases and engage in mergers and consolidations or transfer all or substantially all of our assets, in each case subject to certain exceptions. The Notes are also subject to customary event of default provisions, including cross-defaults to other material indebtedness.

If we experience certain changes of control, followed by a ratings decline of any series of Notes by two of the ratings agencies to a rating below investment grade, we must offer to repurchase such series.

We used the net proceeds from the offering of the Notes to repay borrowings outstanding under our secured Pacific term loan B-1 facility and 2015 term loan facility and for general corporate purposes.

2018 Unsecured Revolving Credit Facility

During the June 2018 quarter, we entered into a $2.65 billion unsecured revolving credit facility, up to $500 million of which may be used for the issuance of letters of credit (the “Revolving Credit Facility”). The Revolving Credit Facility was undrawn at the time we entered into it and as of December 31, 2018. The Revolving Credit Facility replaced the undrawn secured Pacific Revolving Credit Facility and the 2015 Revolving Credit Facility, both of which were terminated in conjunction with the repayment of the term loans described above.

The Revolving Credit Facility is split evenly into a $1.325 billion three-year facility and a $1.325 billion five-year facility. Borrowings on both facilities bear interest at a variable rate equal to LIBOR, or another index rate, in each case plus a specified margin.

NYTDC Special Facilities Revenue Bonds

During the June 2018 quarter, the New York Transportation Development Corporation ("NYTDC") issued Special Facilities Revenue Bonds, Series 2018 (the "2018 Bonds") in the aggregate principal amount of $1.4 billion. We entered into loan agreements with the NYTDC to use the proceeds from the 2018 Bonds to finance a portion of the construction costs for the new terminal facilities at the LaGuardia Airport. The proceeds from the 2018 Bonds are recorded in cash restricted for airport construction on the balance sheet. Additional information about the construction project at the LaGuardia Airport is included in Note 9, "Airport Redevelopment."

We are required to pay debt service on the 2018 Bonds through payments under loan agreements with NYTDC, and we have guaranteed the 2018 Bonds.

Financial Covenants

We were in compliance with the covenants in our financing agreements at December 31, 2018.

Availability Under Revolving Credit Facilities

The table below shows availability under revolving credit facilities, all of which were undrawn, as of December 31, 2018:

(in millions)
Unsecured Revolving Credit Facility	$	2,650
Other revolving credit facilities	380
Total availability under revolving credit facilities	$	3,030

During February 2019, we drew $750 million from our unsecured Revolving Credit Facility for general corporate purposes.

Future Maturities

The following table summarizes scheduled maturities of our debt for the years succeeding December 31, 2018:

(in millions)	Total Debt				Amortization of Debt (Discount) Premium and Debt Issuance Cost, net
2019	$	1,441			$	(22	)
2020	2,048				2
2021	1,019				7
2022	1,676				11
2023	929				9
Thereafter	2,195				53
Total	$	9,308			$	60			$	9,368

Fair Value of Debt

Market risk associated with our fixed- and variable-rate long-term 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. Long-term debt is primarily classified as Level 2 within the fair value hierarchy.

	December 31,
(in millions)	2018			2017
Total debt at par value	$	9,308		$	8,539
Unamortized premium (discount) and debt issuance cost, net	60			(99		)
Net carrying amount	$	9,368		$	8,440
Fair value	$	9,400		$	8,700

NOTE 8**. LEASES**

During the December 2018 quarter, we adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2018. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. We have recast previously reported 2018 interim periods under the new lease standard as shown in Note 18, "Quarterly Financial Data." We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Some of our aircraft lease agreements include provisions for residual value guarantees. These provisions primarily relate to our regional aircraft and the amounts are not significant. We do not have other forms of variable interests with the lessor of our leased assets, other than at New York-JFK, as discussed in Note 9, "Airport Redevelopment," in which we are not the primary beneficiary. As a result, we have not consolidated any of our lessors.

Aircraft

Including aircraft operated by our regional carriers, we lease 376 aircraft, of which 50 are under finance leases and 326 are operating leases. Our aircraft leases generally have long durations with remaining terms of one month to 13 years. Aircraft finance leases continue to be reported on our balance sheet, while operating leases were added to the balance sheet in 2018 with the adoption of the new standard.

In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the right-of-use ("ROU") asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 172 aircraft as of December 31, 2018 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 11, "Commitments and Contingencies," for additional information about our capacity purchase agreements.

With the adoption, we evaluated whether leased aircraft asset groups within our fleet are impaired under the new standard. The regional fleet flown by our wholly-owned subsidiary, Endeavor, is primarily under operating leases. Within Endeavor’s CRJ-200 fleet, we had 43 aircraft that were parked on a temporary basis as of our January 1, 2018 adoption date, but were not identified as permanently retired as the aircraft may be utilized to address network needs in the future. We determined that the CRJ-200 fleet operated by Endeavor was impaired due to insufficient future cash flows projected for the fleet. The fair value of the CRJ-200 fleet based on market lease rates was less than the contractual lease rates and, therefore, we recorded a transition adjustment that reduced equity by $284 million (net of tax). The transition adjustment reflects the difference in fair value compared to the basis of the ROU asset and reduced post-adoption lease expense by $75 million for 2018.

Airport Facilities

Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases are classified as operating leases and reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease this space from government agencies that control the use of the airport. The remaining lease terms vary from one month to 32 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability.

Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payment. See Note 9, "Airport Redevelopment," for more information on our significant airport redevelopment projects.

Other Ground Property and Equipment

We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to eight years. Certain leased IT assets are embedded within various service agreements. The lease components included in those agreements are included in the ROU asset and lease liability, and the amounts are not significant.

Lease Position as of December 31, 2018

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

(in millions)	Classification on the Balance Sheet	December 31, 2018
Assets
Operating lease assets	Operating lease right-of-use assets	$	5,994
Finance lease assets	Property and equipment, net	490
Total lease assets		$	6,484
Liabilities
Current
Operating	Current maturities of operating leases	$	955
Finance	Current maturities of long-term debt and finance leases	109
Noncurrent
Operating	Noncurrent operating leases	5,801
Finance	Long-term debt and finance leases	294
Total lease liabilities		$	7,159
Weighted-average remaining lease term
Operating leases		12 years
Finance leases		7 years
Weighted-average discount rate
Operating leases(1)		3.69		%
Finance leases		5.23		%

(1)	Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2018.

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases during 2018.

	Year Ended
(in millions)	December 31, 2018
Finance lease cost
Amortization of leased assets	$	100
Interest of lease liabilities	22
Operating lease cost(1)	994
Short-term lease cost(1)	458
Variable lease cost(1)	1,427
Total lease cost	$	3,001

(1)	Expenses are classified within aircraft rent, landing fees and other rents and regional carriers expense, excluding fuel on the income statement.

$150 million, $18 million and $48 million of the operating, short-term and variable lease costs, respectively, are attributable to our regional carriers.

Other Information

The table below presents supplemental cash flow information related to leases during 2018.

	Year Ended
(in millions)	December 31, 2018
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	1,271
Operating cash flows for finance leases	22
Financing cash flows for finance leases	108

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

(in millions)	Operating Leases			Finance Leases
2019	$	1,172		$	127
2020	1,000			89
2021	819			75
2022	692			33
2023	654			27
Thereafter	4,200			111
Total minimum lease payments	8,537			462
Less: amount of lease payments representing interest	(1,781		)	(59		)
Present value of future minimum lease payments	6,756			403
Less: current obligations under leases	(955		)	(109		)
Long-term lease obligations	$	5,801		$	294

As of December 31, 2018 we have additional leases that have not yet commenced of $189 million. These leases will commence between 2019 and 2020 with lease terms of 1 year to 17 years.

NOTE 9**. AIRPORT REDEVELOPMENT**

New York-JFK Airport Redevelopment

In 2015, we completed our redevelopment project at New York-JFK's Terminal 4 to facilitate convenient connections for our passengers and improve coordination with our SkyTeam alliance partners. Terminal 4 is operated by JFK International Air Terminal LLC ("IAT"), a private party, under its lease with the Port Authority of New York and New Jersey ("Port Authority"). In December 2010, we entered into a 33-year agreement with IAT ("Sublease") to sublease space in Terminal 4. Also, in 2010, the Port Authority issued approximately $800 million principal amount of special project bonds to fund the majority of the project.

We managed the project and bore the construction risk, including cost overruns. We previously accounted for this project by recording an asset for project costs (e.g., design, permitting, labor and other general construction costs), regardless of funding source, and a construction obligation equal to project costs funded by parties other than us. Our rental payments reduced the construction obligation and resulted in the recording of interest expense, calculated using the effective interest method. At December 31, 2017, we recorded $691 million as property and equipment and $744 million as the related construction obligation. Upon adoption of the new lease standard, these amounts were derecognized and we recorded a transition adjustment that increased equity by $40 million (net of tax). Following derecognition of these assets and liabilities, we recognized a ROU asset and lease liability representing the fixed component of the lease payments.

We have an equity method investment in the entity which owns IAT, our sublessor at Terminal 4. The Sublease requires us to pay certain fixed management fees. We determined the investment is a variable interest entity and assessed whether we have a controlling financial interest in IAT. Our rights under the Sublease, with respect to management of Terminal 4, are consistent with rights granted to an anchor tenant under a standard airport lease. Accordingly, we do not consolidate in our Consolidated Financial Statements the entity in which we are invested.

Los Angeles International Airport ("LAX")

During 2016, we executed a modified lease agreement with Los Angeles World Airports ("LAWA"), which owns and operates LAX, and announced plans to modernize, upgrade and connect Terminals 2 and 3 at LAX by 2023. Based on the lease agreement, we are designing and managing the construction of the initial investment of $350 million to renovate gate areas, support space and other amenities for passengers, to upgrade the baggage handling systems in the terminals and to facilitate the relocation of those airlines located in Terminals 2 and 3 to Terminals 5 and 6 and Tom Bradley International Terminal ("TBIT"). The relocation was completed during 2017. We are also designing and managing the construction of an expansion of the project, which is expected to cost an additional $1.5 billion, of which $1.3 billion has been approved by LAWA. The expanded project will include (1) redevelopment of Terminal 3 and enhancement of Terminal 2, (2) rebuilding the ticketing and arrival halls and security checkpoint, (3) construction of infrastructure for the planned airport people mover, (4) ramp improvements and (5) construction of a secure connector to the north side of TBIT.

A substantial majority of the project costs will be funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using an $800 million revolving credit facility provided by a group of lenders. The credit facility was executed during 2017 and we have guaranteed the obligations of the RAIC under the credit facility. Loans made under the credit facility will be repaid with the proceeds from LAWA’s purchase of completed project assets. Using funding provided by cash flows from operations and/or the credit facility, we spent approximately $208 million on this project during 2018.

New York-LaGuardia Airport

As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and 30 percent more concessions space than the existing terminals. The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas. The design of the new terminal will integrate sustainable technologies and improvements in energy efficiency. Construction will be phased to limit passenger inconvenience and is expected to be completed by 2026.

In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050. Pursuant to the lease agreement we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off-premises supporting facilities, (2) receive a Port Authority contribution of $600 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers. We currently expect our net project cost to be approximately $3.3 billion with Delta bearing the risks of project construction, including any potential cost over-runs. Using funding provided by cash flows from operations and/or financing arrangements, we spent approximately $304 million on this project during 2018. See Note 7, "Long-Term Debt," for additional information on the debt issuance related to this redevelopment project.

NOTE 10**. EMPLOYEE BENEFIT PLANS**

We sponsor defined benefit and defined contribution pension plans, healthcare plans and disability and survivorship plans for eligible employees and retirees and their eligible family members.

Defined Benefit Pension Plans. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and frozen for future benefit accruals. The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen. We elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17-year period and is calculated using an 8.85% discount rate. We have no minimum funding requirements in 2019, but we plan to voluntarily contribute approximately $500 million to these plans.

Defined Contribution Pension Plans. We sponsor several defined contribution plans. These plans generally cover different employee groups and employer contributions vary by plan. The costs associated with our defined contribution pension plans were $926 million, $875 million and $733 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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 2018, we remeasured our postretirement obligation to reflect a curtailment of our postretirement healthcare plans.

Postemployment Plans. We provide certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans. Substantially all employees are eligible for benefits under these plans in the event of death and/or disability.

Benefit Obligations, Fair Value of Plan Assets and Funded Status

	Pension Benefits							Other Postretirement and Postemployment Benefits
	December 31,							December 31,
(in millions)	2018			2017				2018			2017
Benefit obligation at beginning of period	$	21,696		$	20,859			$	3,504		$	3,379
Service cost	—			—				85			87
Interest cost	781			853				126			138
Actuarial (gain) loss	(1,560		)	1,068				(142		)	183
Benefits paid, including lump sums and annuities	(1,093		)	(1,075		)		(306		)	(311		)
Participant contributions	—			—				26			28
Curtailment	—			—				(68		)	—
Settlements	(15		)	(9		)		—			—
Benefit obligation at end of period(1)	$	19,809		$	21,696			$	3,225		$	3,504
Fair value of plan assets at beginning of period	$	14,744		$	10,301			$	866		$	784
Actual (loss) gain on plan assets	(700		)	1,966				(72		)	138
Employer contributions	523			3,561				152			254
Participant contributions	—			—				26			28
Benefits paid, including lump sums and annuities	(1,093		)	(1,075		)		(335		)	(338		)
Settlements	(15		)	(9		)		—			—
Fair value of plan assets at end of period	$	13,459		$	14,744			$	637		$	866
Funded status at end of period	$	(6,350	)	$	(6,952	)		$	(2,588	)	$	(2,638	)

(1)	At the end of each year presented, our accumulated benefit obligations for our pension plans are equal to the benefit obligations shown above.

During 2018, net actuarial gains decreased our benefit obligation due to the increase in discount rates, while in 2017 our obligations increased due to the actuarial losses from a decrease in discount rates. These gains and losses are recorded in AOCI and reflected in the table below.

A net actuarial loss of $320 million will be amortized from AOCI into net periodic benefit cost in 2019. Amounts are generally amortized from AOCI over the expected future lifetime of plan participants.

Balance Sheet Position

	Pension Benefits							Other Postretirement and Postemployment Benefits
	December 31,							December 31,
(in millions)	2018			2017				2018			2017
Current liabilities	$	(27	)	$	(32	)		$	(123	)	$	(121	)
Noncurrent liabilities	(6,323		)	(6,920		)		(2,465		)	(2,517		)
Total liabilities	$	(6,350	)	$	(6,952	)		$	(2,588	)	$	(2,638	)
Net actuarial loss	$	(8,682	)	$	(8,495	)		$	(613	)	$	(651	)
Prior service credit	—			—				47			56
Total accumulated other comprehensive loss, pre-tax	$	(8,682	)	$	(8,495	)		$	(566	)	$	(595	)

Net Periodic (Benefit) Cost

	Pension Benefits										Other Postretirement and Postemployment Benefits
	Year Ended December 31,										Year Ended December 31,
(in millions)	2018			2017			2016				2018			2017			2016
Service cost	$	—		$	—		$	—			$	85		$	87		$	68
Interest cost	781			853			917				126			138			147
Expected return on plan assets	(1,318		)	(1,143		)	(902		)		(67		)	(69		)	(74		)
Amortization of prior service credit	—			—			—				(24		)	(26		)	(26		)
Recognized net actuarial loss	267			262			233				36			32			24
Settlements	4			3			3				—			—			—
Curtailment	—			—			—				(53		)	—			—
Net periodic (benefit) cost(1)	$	(266	)	$	(25	)	$	251			$	103		$	162		$	139

(1)	See Note 1, "Summary of Significant Accounting Policies," for discussion on ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715)."

Service cost is recorded in salaries and related costs in the income statement while other components are recorded within miscellaneous under non-operating expense.

Assumptions

We used the following actuarial assumptions to determine our benefit obligations and our net periodic cost for the periods presented:

	December 31,
Benefit Obligations**(1)**	2018		2017
Weighted average discount rate	4.33	%	3.69	%

	Year Ended December 31,
Net Periodic Cost**(1)**	2018		2017		2016
Weighted average discount rate - pension benefit	3.69	%	4.14	%	4.57	%
Weighted average discount rate - other postretirement benefit	3.69	%	4.19	%	4.53	%
Weighted average discount rate - other postemployment benefit	3.65	%	4.14	%	4.50	%
Weighted average expected long-term rate of return on plan assets	8.97	%	8.96	%	8.94	%
Assumed healthcare cost trend rate for the next year(2)	6.75	%	7.00	%	6.50	%

(1)	Future employee compensation levels do not impact our frozen defined benefit pension plans or other postretirement plans and impact only a small portion of our other postemployment obligation.

(2)	Healthcare cost trend rate is assumed to decline gradually to 5.00% by 2026 and remain unchanged thereafter.

Expected Long-Term Rate of Return. Our expected long-term rate of return on plan assets is based primarily on plan-specific investment studies using historical market return and volatility data. Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. We also expect to receive a premium for investing in less liquid private markets. We review our rate of return on plan assets assumptions annually. Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation. The investment strategy for our defined benefit pension plan assets is to earn a long-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan. This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments. Our expected long-term rate of return on assets for net periodic pension benefit cost for the year ended December 31, 2018 was 8.97%.

Healthcare Cost Trend Rate. Assumed healthcare cost trend rates have an effect on the amounts reported for the other postretirement benefit plans. A 1% change in the healthcare cost trend rate used in measuring the plan benefit obligation for these plans would have the following effects:

(in millions)	1% Increase			1% (Decrease)
Increase (decrease) in total service and interest cost	$	1		$	(2	)
Increase (decrease) in the accumulated plan benefit obligation	9			(29		)

Life Expectancy. Changes in life expectancy may significantly change our benefit obligations and future expense. We use the Society of Actuaries ("SOA") published mortality data, other publicly available information and our own perspective of future longevity to develop our best estimate of life expectancy. The SOA publishes updated mortality tables for U.S. plans and updated improvement scales. Each year we consider updates by the SOA in setting our mortality assumptions for purposes of measuring pension and other postretirement and postemployment benefit obligations.

Benefit Payments

Benefit payments in the table below are based on the same assumptions used to measure the related benefit obligations. Actual benefit payments may vary significantly from these estimates. Benefits earned under our pension plans and certain postemployment benefit plans are expected to be paid from funded benefit plan trusts, while our other postretirement benefits are funded from current assets.

The following table summarizes the benefit payments that are scheduled to be paid in the years ending December 31:

(in millions)	Pension Benefits			Other Postretirement and Postemployment Benefits
2019	$	1,187		$	295
2020	1,197			302
2021	1,218			303
2022	1,238			301
2023	1,252			298
2024-2028	6,380			1,418

Plan Assets

We have adopted and implemented investment policies for our defined benefit pension plans that incorporate strategic asset allocation mixes intended to best meet the plans' long-term obligations, while maintaining an appropriate level of risk and liquidity. These asset portfolios employ a diversified mix of investments, which are reviewed periodically. Active management strategies are utilized where feasible in an effort to realize investment returns in excess of market indices. Derivatives in the plans are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. As part of these strategies, the plans are required to hold cash collateral associated with certain derivatives. Our investment strategies target a mix of 30-50% growth-seeking assets, 25-35% income-generating assets and 30-40% risk-diversifying assets. Risk diversifying assets include hedged mandates implementing long-short, market neutral and relative value strategies that invest primarily in publicly-traded equity, fixed income, foreign currency and commodity securities and are used to improve the impact of active management on the plans.

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

Benefit Plan Assets. Benefit plan assets relate to our defined benefit pension plans and certain of our postemployment benefit plans. These investments are presented net of the related benefit obligation in pension, postretirement and related benefits on the balance sheets. See Note 3, "Fair Value," for a description of the levels within the fair value hierarchy and associated valuation techniques used to measure fair value. The following table shows our benefit plan assets by asset class.

	December 31, 2018										December 31, 2017										Valuation Technique
(in millions)	Level 1			Level 2			Total				Level 1			Level 2			Total
Equities and equity-related instruments	$	400		$	100		$	500			$	2,033		$	13		$	2,046			(a)
Delta common stock	675			—			675				801			—			801				(a)
Cash equivalents	312			708			1,020				735			697			1,432				(a)
Fixed income and fixed income-related instruments	233			2,157			2,390				17			3,648			3,665				(a)(b)
Benefit plan assets	$	1,620		$	2,965		$	4,585			$	3,586		$	4,358		$	7,944
Investments measured at net asset value ("NAV")(1)							9,136										7,378
Total benefit plan assets							$	13,721									$	15,322

(1)	Investments that were measured at NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy.

Equities and Equity-Related Instruments. These investments include common stock and equity-related instruments. Common stock is valued at the closing price reported on the active market on which the individual securities are traded. Equity-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes.

Delta Common Stock. In both 2017 and 2016, we contributed $350 million of Delta common stock as a portion of the employer contribution to certain of our defined benefit pension plans. The Delta common stock investment is managed by an independent fiduciary.

Cash Equivalents. These investments primarily consist of high-quality, short-term obligations that are a part of institutional money market mutual funds that are valued using current market quotations or an appropriate substitute that reflects current market conditions.

Fixed Income and Fixed Income-Related Instruments. These investments include corporate bonds, government bonds, collateralized mortgage obligations and other asset-backed securities, and are generally valued at the bid price or the average of the bid and ask price. Prices are based on pricing models, quoted prices of securities with similar characteristics, or broker quotes. Fixed income-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year, or if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes.

The following table summarizes investments measured at fair value based on NAV per share as a practical expedient:

	December 31, 2018						December 31, 2017
(in millions)	Fair Value			Redemption Frequency	Redemption Notice Period		Fair Value			Redemption Frequency	Redemption Notice Period
Hedge funds and hedge fund-related strategies	$	5,264		(4)	2-180 Days		$	4,768		(4)	2-120 Days
Commingled funds, private equity and private equity-related instruments(5)	1,591			(4)	2-30 Days		1,375			(1) (3)	10-30 Days
Fixed income and fixed income-related instruments(5)	769			(2)	15-90 Days		311			(2)	3-15 Days
Real assets(5)	807			(3)	N/A		924			(3)	N/A
Other	705			(1) (2)	2-90 Days		—			(1)	30 Days
Total investments measured at NAV	$	9,136					$	7,378

(1)	Monthly

(2)	Semi-monthly

(3)	Semi-annually and annually

(4)	Various. Includes funds with weekly, monthly, semi-monthly, quarterly and custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment.

(5)	Unfunded commitments were $490 million for commingled funds, private equity and private equity-related instruments, $256 million for fixed income and fixed income-related instruments, and $227 million for real assets at December 31, 2018.

Hedge Funds and Hedge Fund-Related Strategies. These investments are primarily made through shares of limited partnerships or similar structures for which a liquid secondary market does not exist. Investments in these strategies are typically valued monthly by third-party administrators or valuation agents with an annual audit performed by an independent third party.

Commingled Funds, Private Equity and Private Equity-Related Instruments. These investments include commingled funds invested in common stock, as well as private equity and private equity-related instruments. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private equity and private equity-related strategies are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. There is an annual audit performed by an independent third party.

Fixed Income and Fixed Income-Related Instruments. These investments include commingled funds invested in debt obligations. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private fixed income strategies are typically valued monthly or quarterly by the fund managers or third-party valuation agents using valuation models where one or more of significant inputs into the model cannot be observed and which require the development of assumptions. There is an annual audit performed by an independent third party.

Real Assets. These investments include real estate, energy, timberland, agriculture and infrastructure. The valuation of real assets requires significant judgment due to the absence of quoted market prices as well as the inherent lack of liquidity and the long-term nature of these assets. Real assets are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. There is an annual audit performed by an independent third party.

Other. Primarily includes globally-diversified, risk-managed commingled funds consisting mainly of equity, fixed income and commodity exposures. Investments in these strategies are typically valued monthly by third-party administrators or valuation agents with an annual audit performed by an independent third party.

On an annual basis we assess the potential for adjustments to the fair value of all investments. Certain of our investments valued using NAV as a practical expedient have a lag in the availability of data. This primarily applies to private equity, private equity-related strategies and real assets. We solicit valuation updates from the investment fund managers and use their information and corroborating data from public markets to determine any needed fair value adjustments.

Other

We also sponsor defined benefit pension plans for eligible employees in certain foreign countries. These plans did not have a material impact on our Consolidated Financial Statements in any period presented.

Profit Sharing Program

Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items. For the years ended December 31, 2018, 2017 and 2016, we recorded expenses of $1.3 billion, $1.1 billion and $1.1 billion under the profit sharing program, respectively.

Effective October 1, 2017, we aligned our profit sharing plans under a single formula. Under this formula, our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual profit and 20% of annual profit above $2.5 billion. Prior to that time, the profit sharing program for pilots used this formula but for 2016 and the first nine months of 2017, the profit sharing program for merit, ground and flight attendant employees paid 10% of annual profit and, if we exceeded our prior-year results, the program paid 20% of the year-over-year increase in profit to eligible employees.

NOTE 11**. COMMITMENTS AND CONTINGENCIES**

Aircraft Purchase Commitments

Our future aircraft purchase commitments totaled approximately $16.2 billion at December 31, 2018:

(in millions)	Total
2019	$	3,290
2020	3,130
2021	3,190
2022	2,760
2023	1,850
Thereafter	1,940
Total	$	16,160

Our future aircraft purchase commitments included the following aircraft at December 31, 2018:

Aircraft Type	Purchase Commitments
A220-100	36
A220-300	50
A321-200	62
A321-200neo	100
A330-900neo	35
A350-900	14
B-737-900ER	18
CRJ-900	15
Total	330

During 2018, we entered into the following purchase agreements, which are included in the table above:

•	In June 2018, we signed an agreement with Bombardier Commercial Aircraft to purchase 20 CRJ-900 aircraft. These aircraft will be operated by SkyWest Airlines, Inc., and will replace older dual-class aircraft that they own or lease. The new aircraft will be delivered through 2020.

•	In November 2018, we expanded our purchase commitment for A330-900neo aircraft from 25 to 35 and deferred the delivery of the final ten A350-900 purchase commitments.

•	In December 2018, we increased our A220 purchase commitment by 15 to a total of 90 aircraft, composed of 40 A220-100s and 50 A220-300s. The first four A220-100 deliveries were received during the December 2018 quarter and deliveries will continue through 2020. The A220-300 deliveries will begin during 2020.

Contract Carrier Agreements

We have contract carrier agreements with regional carriers expiring from 2019 to 2029.

Capacity Purchase Agreements. Most of our contract carriers operate for us under capacity purchase agreements. Under these agreements, the contract carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services.

The following table shows our minimum fixed obligations under our existing capacity purchase agreements with third-party regional carriers. The obligations set forth in the table contemplate minimum levels of flying by the contract carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees. Accordingly, our actual payments under these agreements could differ materially from the minimum fixed obligations set forth in the table below.

(in millions)	Amount**(1)**
2019	$	1,505
2020	1,344
2021	951
2022	872
2023	769
Thereafter	2,862
Total	$	8,303

(1)	These amounts exclude contract carrier payments accounted for as operating leases of aircraft, which are described in Note 8, "Leases."

Revenue Proration Agreement. As of December 31, 2018, a portion of our contract carrier agreement with SkyWest Airlines, Inc. is structured as a revenue proration agreement. This revenue proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries.

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 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 December 31, 2018 or 2017.

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 law 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.

Employees Under Collective Bargaining Agreements

At December 31, 2018, we had approximately 89,000 full-time equivalent employees. Approximately 19% of these employees were represented by unions. The following table shows our domestic airline employee groups that are represented by unions.

Employee Group	Approximate Number of Active Employees Represented			Union	Date on which Collective Bargaining Agreement Becomes Amendable
Delta Pilots	13,203			ALPA	December 31, 2019
Delta Flight Superintendents (Dispatchers)(1)	432			PAFCA	March 31, 2018
Endeavor Air Pilots	1,976			ALPA	January 1, 2024
Endeavor Air Flight Attendants(1)	1,307			AFA	December 31, 2018
Endeavor Air Dispatchers(1)	60			PAFCA	December 31, 2018

(1)	We are in discussions with representatives of these employee groups regarding terms of amendable collective bargaining agreements.

In addition to the domestic airline employee groups discussed above, 196 refinery employees of Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2019. This agreement is governed by the National Labor Relations Act, which generally allows either party to engage in self help upon the expiration of the agreement.

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 12**. INCOME TAXES**

Income Tax Provision

Our income tax provision consisted of the following:

	Year Ended December 31,
(in millions)	2018			2017			2016
Current tax (provision) benefit:
Federal	$	187		$	(4	)	$	—
State and local	(26		)	5			(28		)
International	(13		)	(54		)	(12		)
Deferred tax provision:
Federal	(1,226		)	(2,093		)	(1,990		)
State and local	(138		)	(149		)	(128		)
Income tax provision	$	(1,216	)	$	(2,295	)	$	(2,158	)

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:

	Year Ended December 31,
	2018		2017		2016
U.S. federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	2.5		1.8		1.8
Foreign tax rate differential	0.1		(2.2	)	(2.1	)
Tax Cuts and Jobs Act adjustment	(0.5	)	7.2		—
Other	0.5		—		(0.7	)
Effective income tax rate	23.6	%	41.8	%	34.0	%

Following the enactment of the Tax Cuts and Jobs Act of 2017 ("2017 tax reform"), we recorded a provisional tax expense estimate of $395 million resulting in a 7.2% increase in our effective tax rate during 2017. The provisional estimate included recognition of tax expense related to certain of our undistributed foreign earnings and tax expense to decrease our federal net deferred tax asset to a 21% statutory tax rate. During 2018 we recognized a $26 million benefit resulting in a 0.5% reduction to our 2018 effective tax rate after finalizing the impact of the 2017 tax reform.

As a result of the 2017 tax reform, we assessed tax on $522 million of foreign earnings which would have been indefinitely reinvested outside the United States and therefore not taxable prior to the 2017 tax reform. At December 31, 2018, we had a basis difference in our investments in foreign subsidiaries of $160 million which is considered to be indefinitely reinvested.

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The following table shows significant components of our deferred tax assets and liabilities:

	December 31,
(in millions)	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	674		$	1,297
Pension, postretirement and other benefits	2,435			2,544
Alternative minimum tax credit carryforward	189			379
Deferred revenue	1,620			1,416
Operating lease liabilities	1,579			—
Other	357			728
Valuation allowance	(13		)	(15		)
Total deferred tax assets	$	6,841		$	6,349
Deferred tax liabilities:
Depreciation	$	4,185		$	3,847
Operating lease right-of-use assets	1,388			—
Intangible assets	1,052			1,043
Other	137			105
Total deferred tax liabilities	$	6,762		$	4,995
Net deferred tax assets(1)	$	79		$	1,354

(1)	At December 31, 2018, the net deferred tax assets of $79 million included $242 million of net state deferred tax assets, which are recorded in deferred income taxes, net, and $163 million of net federal deferred tax liabilities, which are recorded in other noncurrent liabilities.

At December 31, 2018, we had $189 million of federal alternative minimum tax credit carryforwards. As a result of the Tax Cuts and Jobs Act of 2017, this credit becomes refundable to us if not used by 2021. We have $2.2 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

Income Tax Allocation

We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations (the "Income Tax Allocation"). The 2017 tax reform reduced the statutory tax rate in the U.S. from 35% to 21% during the prior year. GAAP requires that the tax expense related to tax law changes be recognized in current earnings, even when a portion of the related deferred tax asset originated through amounts recognized in AOCI. As a result, $688 million of income tax expense remains in AOCI, primarily related to pension obligations, and will not be recognized in net income until the pension obligations are fully extinguished, which will not occur for approximately 25 years.

Other

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2018, 2017, 2016 and 2015 tax years.

NOTE 13**. EQUITY AND EQUITY COMPENSATION**

Equity

We are authorized to issue 2.0 billion shares of capital stock, of which up to 1.5 billion may be shares of common stock, par value $0.0001 per share, and up to 500 million may be shares of preferred stock.

Preferred Stock. We may issue preferred stock in one or more series. The Board of Directors is authorized (1) to fix the descriptions, powers (including voting powers), preferences, rights, qualifications, limitations and restrictions with respect to any series of preferred stock and (2) to specify the number of shares of any series of preferred stock. We have not issued any preferred stock.

Treasury Stock. We generally withhold shares of Delta common stock to cover employees' portion of required tax withholdings when employee equity awards are issued or vest. These shares are valued at cost, which equals the market price of the common stock on the date of issuance or vesting. The weighted average cost per share held in treasury was $24.14 and $21.19 as of December 31, 2018 and 2017, respectively.

Equity Compensation

Our broad-based equity and cash compensation plan provides for grants of restricted stock, stock options, performance awards, including cash incentive awards and other equity-based awards (the "Plan"). Shares of common stock issued under the Plan may be made available from authorized, but unissued, common stock or common stock we acquire. If any shares of our common stock are covered by an award that expires, is canceled, forfeited or otherwise terminates without delivery of shares (including shares surrendered or withheld for payment of taxes related to an award), such shares will again be available for issuance under the Plan except for (i) any shares tendered in payment of an option, (ii) shares withheld to satisfy any tax withholding obligation with respect to the exercise of an option or stock appreciation right ("SAR") or (iii) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award. The Plan authorizes the issuance of up to 163 million shares of common stock. As of December 31, 2018, there were 27 million shares available for future grants.

We make long-term incentive awards annually to eligible employees under the Plan. Generally, awards vest over time, subject to the employee's continued employment. Equity compensation expense, including awards payable in common stock or cash, is recognized in salaries and related costs over the employee's requisite service period (generally, the vesting period of the award) and totaled $159 million, $169 million and $154 million for the years ended December 31, 2018, 2017 and 2016, respectively. We record expense on a straight-line basis for awards with installment vesting. As of December 31, 2018, unrecognized costs related to unvested shares and stock options totaled $81 million. We expect substantially all unvested awards to vest and recognize forfeitures as they occur.

Restricted Stock. Restricted stock is common stock that may not be sold or otherwise transferred for a period of time and is subject to forfeiture in certain circumstances. The fair value of restricted stock awards is based on the closing price of the common stock on the grant date. As of December 31, 2018, there were 2.4 million unvested restricted stock awards.

Stock Options. Stock options are granted with an exercise price equal to the closing price of Delta common stock on the grant date and generally have a 10-year term. We determine the fair value of stock options at the grant date using an option pricing model. As of December 31, 2018, there were 2.5 million outstanding stock option awards with a weighted average exercise price of $48.99 and 616,000 were exercisable.

Performance Awards. Performance awards are long-term incentive opportunities, which are payable in common stock or cash, and are generally contingent upon our achieving certain financial goals.

Other. During 2018 and 2017, we recognized $7 million and $21 million, respectively, of excess tax benefits in our income tax provision.

NOTE 14**. ACCUMULATED OTHER COMPREHENSIVE LOSS**

The following table shows the components of accumulated other comprehensive loss:

(in millions)	Pension and Other Benefits Liabilities**(3)**			Derivative Contracts and Other			Available-for-Sale Investments			Total
Balance at January 1, 2016 (net of tax effect of $1,222)	$	(7,354	)	$	151		$	(72	)	$	(7,275	)
Changes in value (net of tax effect of $293)	(482		)	(13		)	36			(459		)
Reclassifications into earnings (net of tax effect of $57)(1)	122			(24		)	—			98
Balance at December 31, 2016 (net of tax effect of $1,458)	(7,714		)	114			(36		)	(7,636		)
Changes in value (net of tax effect of $32)	(264		)	(23		)	150			(137		)
Reclassifications into earnings (net of tax effect of $90)(1)	166			(6		)	(8		)	152
Balance at December 31, 2017 (net of tax effect of $1,400)	(7,812		)	85			106			(7,621		)
Changes in value (net of tax effect of $88)	(294		)	7			—			(287		)
Reclassifications into retained earnings (net of tax effect of $61)(2)	—			—			(106		)	(106		)
Reclassifications into earnings (net of tax effect of $57)(1)	181			8			—			189
Balance at December 31, 2018 (net of tax effect of $1,492)	$	(7,925	)	$	100		$	—		$	(7,825	)

(1)

Amounts reclassified from AOCI for pension and other benefits liabilities and for derivative contracts designated as foreign currency cash flow hedges are recorded in miscellaneous and in passenger revenue, respectively, in the income statement. The 2017 reclassification into earnings for available-for-sale investments relates to our investment in Grupo Aeroméxico and the related conversion to accounting under the equity method. The reclassification of the unrealized gain was recorded to non-operating expense in our income statement.

(2)	The reclassification into retained earnings relates to our investments in GOL, China Eastern and other previously designated available-for-sale investments, and the related conversion to accounting for changes in fair value of these investments from AOCI to the income statement. See Note 1, "Summary of Significant Accounting Policies," for more information.

(3)	Includes $688 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 continuing operations.

NOTE 15**. SEGMENTS AND GEOGRAPHIC INFORMATION**

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments. Our chief operating decision maker is considered to be our executive leadership team. Our executive leadership team regularly reviews discrete information for our two operating segments, which are determined by the products and services provided: our airline segment and our refinery segment.

Airline Segment

Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U.S. and around the world and other ancillary airline services. This allows us to benefit from an integrated revenue pricing and route network. Our flight equipment forms one fleet, which is deployed through a single route scheduling system. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. Our objective in making resource allocation decisions is to optimize our consolidated financial results.

Refinery Segment

In 2012, our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), acquired the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel. The acquisition included pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK.

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 years ended December 31, 2018, 2017 and 2016 was $3.6 billion, $3.2 billion and $2.7 billion, respectively.

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
Year Ended December 31, 2018
Operating revenue:	$	43,890		$	5,458							$	44,438
Sales to airline segment								$	(962	)	(1)
Exchanged products								(3,596		)	(2)
Sales of refined products								(352		)	(3)
Operating income	5,206			58								5,264
Interest expense (income), net	334			(23		)						311
Depreciation and amortization	2,262			67								2,329
Total assets, end of period	58,561			1,705								60,266
Capital expenditures	5,005			163								5,168
Year Ended December 31, 2017
Operating revenue:	$	40,636		$	5,039							$	41,138
Sales to airline segment								$	(886	)	(1)
Exchanged products								(3,240		)	(2)
Sales of refined products								(411		)	(3)
Operating income	5,856			110								5,966
Interest expense (income), net	403			(7		)						396
Depreciation and amortization	2,175			47								2,222
Total assets, end of period	51,544			2,127								53,671
Capital expenditures	3,743			148								3,891
Year Ended December 31, 2016
Operating revenue:	$	39,217		$	3,843							$	39,450
Sales to airline segment								$	(695	)	(1)
Exchanged products								(2,658		)	(2)
Sales of refined products								(257		)	(3)
Operating income (loss)(4)	7,121			(125		)						6,996
Interest expense, net	386			2								388
Depreciation and amortization	1,846			40								1,886
Total assets, end of period	50,519			1,331								51,850
Capital expenditures	3,270			121								3,391

(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)	Includes the impact of pricing arrangements between the airline and refinery segments with respect to the refinery's inventory price risk.

Geographic Information

See Note 2, "Revenue Recognition," for information on revenues by geographic region.

Our tangible assets consist primarily of flight equipment, which is mobile across geographic markets. Accordingly, assets are not allocated to specific geographic regions.

NOTE 16**. RESTRUCTURING**

The following table shows the balances and activity for restructuring charges:

(in millions)	2018			2017			2016
Liability at beginning of period	$	237		$	333		$	467
Reclassified to lease liability	(195		)	—			—
Payments	(5		)	(103		)	(144		)
Additional expenses and other	1			7			10
Liability at end of period	$	38		$	237		$	333

Restructuring charges in 2017 and 2016 primarily include remaining lease payments for permanently grounded aircraft related to domestic and Pacific fleet restructurings. The domestic fleet restructuring involves replacing a portion of our 50-seat regional fleet with more efficient and customer preferred aircraft and replacing older, less cost effective B-757-200 aircraft with B-737-900ER aircraft. The Pacific fleet restructuring resulted in the 2017 retirement of the B-747-400 fleet, which is being replaced with smaller-gauge, widebody aircraft to better match capacity with demand.

As a result of the implementation of the new lease accounting standard, $195 million of the lease restructuring liability related to aircraft and certain airport facilities was reclassified at adoption on January 1, 2018 to current and noncurrent operating lease liabilities. The remaining balance in the restructuring liability at December 31, 2018 is primarily related to certain airport facilities with variable rates.

NOTE 17**. EARNINGS PER SHARE**

We calculate basic earnings per share by dividing net 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 earnings per share calculation are not material. The following table shows our computation of basic and diluted earnings per share:

	Year Ended December 31,
(in millions, except per share data)	2018			2017			2016
Net income	$	3,935		$	3,205		$	4,195
Basic weighted average shares outstanding	691			720			751
Dilutive effect of share-based awards	3			3			4
Diluted weighted average shares outstanding	694			723			755
Basic earnings per share	$	5.69		$	4.45		$	5.59
Diluted earnings per share	$	5.67		$	4.43		$	5.55

NOTE 18**. QUARTERLY FINANCIAL DATA (UNAUDITED)**

The following table summarizes our unaudited results of operations on a quarterly basis. The quarterly earnings per share amounts for a year will not add to the earnings per share for that year due to the weighting of shares used in calculating per share data.

We recast certain 2018 quarterly amounts to conform with the adoption of the lease standard effective January 1, 2018.

As recast for lease accounting standard	Three Months Ended,
(in millions, except per share data)	March 31			June 30			September 30			December 31
2018
Operating revenue	$	9,968		$	11,775		$	11,953		$	10,742
Operating income	844			1,684			1,645			1,090
Net income	557			1,036			1,322			1,019
Basic earnings per share	$	0.79		$	1.49		$	1.93		$	1.50
Diluted earnings per share	$	0.79		$	1.49		$	1.92		$	1.49

As previously reported	Three Months Ended,
(in millions, except per share data)	March 31			June 30			September 30
2018
Operating revenue	$	9,968		$	11,775		$	11,953
Operating income	840			1,680			1,642
Net income	547			1,025			1,312
Basic earnings per share	$	0.78		$	1.47		$	1.91
Diluted earnings per share	$	0.77		$	1.47		$	1.91

As disclosed in our 2018 Form 10-Qs, we recast certain 2017 quarterly amounts to conform with the adoption of the revenue recognition and retirement benefits standards.

	Three Months Ended,
(in millions, except per share data)	March 31			June 30			September 30			December 31
2017
Operating revenue	$	9,101		$	10,747		$	11,061		$	10,229
Operating income	999			1,982			1,823			1,162
Net income	561			1,186			1,159			299
Basic earnings per share	$	0.77		$	1.63		$	1.62		$	0.42
Diluted earnings per share	$	0.77		$	1.62		$	1.61		$	0.42