Delta Air Lines 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2021

Commission File Number 001-5424

DELTA AIR LINES, INC.

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (404) 715-2600

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares outstanding by each class of common stock, as of September 30, 2021:

Common Stock, $0.0001 par value - 640,013,818 shares outstanding

This document is also available through our website at http://ir.delta.com/.

Forward Looking Statements

Unless otherwise indicated or the context otherwise requires, the terms "Delta," "we," "us" and "our" refer to Delta Air Lines, Inc. and its subsidiaries.

FORWARD-LOOKING STATEMENTS

Statements in this Form 10-Q (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections, goals, aspirations, commitments or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 ("Form 10-K"), other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report except as required by law.

Delta Air Lines, Inc. September 2021 Form 10-Q 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directo

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Aircraft Fuel and Related Taxes. Fuel expense decreased $687 million compared to the September 2019 quarter primarily due to a 32% decrease in consumption, partially offset by a 1% increase in the market price of jet fuel. Consumption decreased due to a combination of reduced capacity and improved fuel efficiency on an available seat mile basis.

Fuel expense increased $1.1 billion compared to the September 2020 quarter primarily due to a 102% increase in consumption on a comparable increase in capacity, and a 75% increase in the market price of jet fuel.

Additionally, during the September 2021 quarter, we purchased and retired $29 million of carbon offset credits, which relate to a portion of 2021 carbon emissions generated by our airline segment. In the table below, these costs are shown in environmental sustainability impact.

(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.

Ancillary Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Increased expenses were primarily related to refinery sales to third parties, which are at or near cost. The refinery cost of sales increased $455 million and $866 million compared to the September 2020 and September 2019 quarters, respectively. The increase in third-party refinery sales compared to the September 2019 quarter resulted from the refinery's shift to producing and selling more non-jet fuel products due to the decline in demand for jet fuel compared to pre-pandemic levels. The increase compared to the September 2020 quarter was driven by higher pricing during the September 2021 quarter, with lower production and demand for both jet and non-jet fuel products in the September 2020 quarter. Compared to the September 2019 quarter, expenses related to aircraft maintenance services we provide to third parties decreased due to the reduction in flights operated worldwide; however, compared to the September 2020 quarter these expenses increased due to higher levels of flying. In addition, $43 million of costs related to services performed by Delta Private Jets in the September 2019 quarter were recorded in ancillary businesses and refinery prior to the combination of that business with Wheels Up in January 2020.

Depreciation and Amortization. Depreciation and amortization decreased compared to the September 2020 and September 2019 quarters primarily due to the aircraft that were retired or impaired during 2020.

Regional Carrier Expense. Regional carrier expense decreased compared to the September 2019 quarter due to lower utilization of these carriers as a result of the overall reduced capacity and increased compared to the September 2020 quarter due to an increase in utilization as a result of the increased demand discussed above.

We previously allocated certain costs (such as landing fees and other rents, salaries and related costs and contracted services) to regional carrier expense in our income statement based on relevant statistics (such as passenger counts). Beginning in the March 2021 quarter we ceased performing this allocation and have reclassified the costs presented in prior periods to align with this presentation. This reclassification better reflects the nature of, and how management views, these regional carrier related expenses. This allocation was approximately $900 million in 2020, including approximately $200 million in the September 2020 quarter, and $1.4 billion in 2019, including approximately $360 million in the September 2019 quarter. The remaining amounts in regional carrier expense represent the accrual of payments to our regional carriers under capacity purchase agreements and the expenses of our wholly owned regional subsidiary, Endeavor Air, Inc.

Aircraft Maintenance Materials and Outside Repairs. Maintenance expense increased compared to both the September 2019 and September 2020 quarters as we returned aircraft to service and to support our operational reliability. The increase compared to the September 2020 quarter was particularly pronounced due to the significantly reduced capacity during the September 2020 quarter and the large number of aircraft we had parked during that time.

Delta Air Lines, Inc. September 2021 Form 10-Q 26

Item 2. MD&A - Results of Operations

Aircraft Rent. Most aircraft operating lease expenses are recorded in aircraft rent and are contractually fixed. Therefore, the change in aircraft rent was more muted than our other operating expense line items, when compared to the September 2019 and September 2020 quarters.

Restructuring Charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the September 2021 quarter, we recognized $33 million of net adjustments to increase certain of those restructuring charges, representing changes in our estimates.

Government Grant Recognition. During the nine months ended September 30, 2021, we received a total of $6.4 billion under payroll support program extension agreements with the U.S. Department of the Treasury, which we were required to use exclusively for the payment of employee wages, salaries and benefits. The support payments included grants totaling $4.5 billion that were recognized as contra-expense in 2021 over the period that the funds were used. Following the recognition of $2.7 billion during the six months ended June 30, 2021, we fully recognized the remaining $1.8 billion of the PSP3 grant during the three months ended September 30, 2021. The amount recognized in the September 2021 quarter exceeded the amount recognized from PSP1 during the September 2020 quarter due to the increase in eligible salaries and related costs, as discussed above. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the payroll support program extensions.

Delta Air Lines, Inc. September 2021 Form 10-Q 27

Item 2. MD&A - Results of Operations

Results of Operations - Nine Months Ended September 30, 2021, 2020 and 2019

Operating Revenue

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There have been no material changes in market risk from the information provided in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K.

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important information. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the controls and procedures were effective as of September 30, 2021 to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the three months ended September 30, 2021, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

"Item 3. Legal Proceedings" of our Form 10-K includes a discussion of our legal proceedings. There have been no material changes from the legal proceedings described in our Form 10-K.

“Item 1A. Risk Factors” of our Form 10-K includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. There have been no material changes from the risk factors described in our Form 10-K.

Delta Air Lines, Inc. September 2021 Form 10-Q 44

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to purchases of common stock we made during the September 2021 quarter. The table reflects shares withheld from employees to satisfy certain tax obligations due in connection with grants of stock under the Delta Air Lines, Inc. Performance Compensation Plan (the "Plan"). The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. The shares of common stock withheld to satisfy tax withholding obligations may be deemed to be "issuer purchases" of shares that are required to be disclosed pursuant to this Item.

Delta Air Lines, Inc. September 2021 Form 10-Q 45

(a) Exhibits

10.1 Amendment No. 4 dated August 20, 2021 to Airbus A321 NEO Aircraft Purchase Agreement, dated as of December 15, 2017 between Airbus S.A.S. and Delta Air Lines, Inc. (“Amendment No. 4”)*

10.2 Amended and Restated Letter Agreements No. 3 related to Amendment No. 4 dated August 20, 2021*

15 Letter from Ernst & Young LLP regarding unaudited interim financial information

31.1 Certification by Delta's Chief Executive Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021

31.2 Certification by Delta's Chief Financial Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021

32 Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by Delta's Chief Executive Officer and Chief Financial Officer with respect to Delta's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021

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104 The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (included in Exhibit 101)

• Portions of this exhibit have been redacted pursuant to item 601(b)(10)(iv) of Regulation S-K.

Delta Air Lines, Inc. September 2021 Form 10-Q 46

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delta Air Lines, Inc. September 2021 Form 10-Q 47