Delta Air Lines annual report 1974

Contents
Highlights of the Year. . . . . . . . . . . . . . . . . . . . . 1
Report to the Stockholders. . . . . . . . . . . . . . . . . 3
Earnings and Dividends. . . . . . . . . . . . . . . . . . . . 7
Revenues...... . . . . . . . . . . . . . . . . . . . . . . . . . 7
Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Capitalization and Financing. . . . . . . . . . . . . . . . 9
Flight Equipment and Purchase
Commitments .... .. .. .. .. ...... ..... 10
Personnel. .. .. ............ . . . .. . ... .... 11
Fuel Problems ... . . . .. ... ... .. .. .. ... .... 14
Regulatory Matters ............ . .. .. . . .... 15
Route Map. . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21
Financial Statements-
Balance Sheets. . . . . . . . . . . . . . . . . . . . 22, 23
Statements of Income ...... .. ........ .. 24
Statements of Retained Earnings ....... .. 25
Statements of Additional Paid-in
Capital. ... . ......... .. ..... .... 25
Statements of Changes in Financial
Position . .... .. .. ............... 26
Notes to Financial Statements ...... . 27- 35
Auditors' Report ...... .. . . ...... ..... 35
Five-Year Summary. . . . . . . . . . . . . . . . . . . . 36, 37
Board of Directors. . . . . . . . . . . . . . . . . . . . 38, 39
Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Highlights of the Year
A comparative summary of the m ajor yard-
sticks for evaluation of operations for years
ended June 30 is shown below. D ollars are
expressed in thousands, except per share figures.
Per Cen t
1974 1 973 Change
O perating
Revenues ......... . . $1,227,127 $1,049,699 + 17%
O perating
Expenses . . . .. . . ... . . $1,070,043 $928,940 + 15%
Net Income . .. . . . .... $90,649 $65,995 + 37%
Earnings Per
Share ..... .. ... . . . . $4.56 $3.32 +37%
Revenue Passengers
Enplaned . .. .. . . .. . . 25,565,208 23,702,870 + 8%
Available Seat
Miles (000) . . . .. . .. . . 28,417,679 27,958,095 + 2%
Revenue Passenger
Miles (000) . .... . .... 15,581,370 14,449,748 + 8%
Passenger Load
Factor. . . ... . . ... . .. 54.83% 51.68% + 6%
1
2
W. T. BEEBE
Chairman of the Board &
Chief &ecutive Officer
DAVID C. GARRETT, JR.
President
Report to the Stockholders
It is our pleasure to report to you that fiscal
197 4 was the most successful year in Delta's
history. Our net income of $90.6 million is the
largest profit ever earned by an airline and 37%
above that reported to you last year. Passenger
revenues and total revenues reached record
highs of $1.11 and $1.23 billion respectively.
Revenue passenger miles increased 8% over last
year to 15.58 billion, even though we had to
substantially reduce our number of flights and
seat miles in the last half of the year in response
to the fuel crisis.
This level of achievement is particularly
gratifying when viewed against the backdrop
of double digit inflation, the uncertain economy
and high interest rates, as well as the fuel crisis,
all of which plagued the industry and the coun-
try during the past year. A very large part of
our success during this year of crisis and uncer-
tainty can be attributed to the people who make
up the team of Delta Professionals. Truly, each
member of the Delta family gave that extra
measure of resourcefulness and effort in this
past year while continuing to offer the highest
possible level of service to our passengers and
shippers under very difficult circumstances. It
is that extra effort and concern for the customer
which enhances Delta's reputation as the "Air-
line of Professionals'.'
Under the leadership of Chairman
Robert D. Timm, the Civil Aeronautics Board
recognized the need for timely fare and rate
increases to offset the effects of inflation,
particularly the rapid rise in fuel prices. Conse-
quently, passenger fares were increased 5% on
December 1, 1973, to cover general inflation and
an additional 6% on April 16, 1974, to cover fuel
price increases. In addition, much needed
increases were granted in freight and mail rates,
and the Board permitted the cancellation of
various dilutionary discount rates and fares.
Considerable progress was made during
the past year in our program of modernizing
and standardizing Delta's aircraft fleet. Thirty
3
new aircraft, 21 Boeing 727-200's and 9 Lock-
heed L-lOll's, were added to the fleet while 39
aircraft were retired. The aircraft dispositions
resulted in an after tax gain of $9 .4 million or
47<t per share.
A new $300 million credit agreement was
finalized during the year to replace the 1967
Bank Credit Agreement. The net proceeds from
this agreement along with the $85 million loan
agreement with Lazard Brothers & Co., Limited
and internally generated funds are expected to
meet our capital needs for currently outstanding
orders for new B-727-200 and L-1011 aircraft.
While we fully recognize and welcome the
CAB's positive efforts to stabilize the industry's
financial condition, we are deeply concerned
about the Board's recent decision in the last
phase of the Passenger Fare Investigation. We
have petitioned the Board to reconsider this
decision, which will significantly change the fare
structure so as to raise short-haul fares while
lowering longer haul fares. In addition, it will
raise first-class fares over a period of time to a
level equal to 163% of coach fares. We believe
this decision, if permitted to stand, would not be
in the best interests of the public or the industry
and could have the effect of depressing total
airline passenger revenues. The CAB has recently
issued an order staying the effectiveness of this
decision until further order of the Board.
The outlook for fiscal 1975 is currently
more unsettled than for any year in recent
history. Present trends in the general economy
and the low level of consumer confidence make
it difficult to assess traffic growth, particularly
for the latter part of the year. Consequently,
our operating plans have been designed with
maximum flexibility to respond quickly to
actual traffic demand. Yields will be up signif-
icantly due to fare increases already approved
and present cost trends indicate a further mod-
erate increase will be required later this year.
Persistent and rapid inflation, particularly in
4
fuel costs, will continue to put upward pressure
on unit costs despite a more efficient aircraft
fleet. In fact, much of our effort during this year
will be directed towards the minimizing of con-
trollable costs and the improvement of produc-
tivity in all operating functions. Despite the
magnitude of the challenges before us, we are
confident that the Delta team of highly skilled
professionals will once again keep your Com-
pany in its well-earned position of leadership.
u$Je~
W. T. BEEBE
Chairman of the Board &
Chief Execu tive O fficer
September 6, 1974
~~h'4
DAVID C. GARRETT, JR.
President
5
EARNINGS PER SHARE*
In Dollars
5
4-- - - - -- - - - - - - - - - - - -- -
3 - - - - - - - - -- - - -- - -- - - - -
2 - - - ------,;-....;f--------,F=I--E---1--- -1---t--t---l--t--l--
1 ----,;---a-----,1--1--11--11-------ll--il-------ll--l--l:--l--ll -l--t---t--t---l--J--t---
65 66 67 68 69 70 71 72 73 7 4
STOCKHOLDER EQUITY PER SHARE*
In Dollars
25
20
15
'
5
0
65 66 67 68 69 70 71 72 73 7 4
*These data reflect the operations of Delta Air Lines, Inc.,
and do not include the Northeast Airlines system prior
to August 1, 1972.
6
Earnings and Dividends
As a result of excellent improvements in yields,
acceptable traffic growth, and extensive efforts
to counter the negative impact of inflation and
the fuel shortage, net earnings reached an in-
dustry record $90.6 million or $4.56 per share,
a 37% increase over the $66.0 million ($3.32 per
share) reported in 1973.
The current year1s results include a gain of
$18.6 million ( 47q: per share after taxes) from
the sale of various aircraft. Last year1s results
included a gain of $4.7 million (12q: per share
after taxes) from aircraft sales, and a non-
recurring charge of $4.0 million (lH per share
after taxes) for merger related expenses.
Dividend payments for the year totaled
$11,925,268, or 60q: per share, a 20% increase
over the soq: per share paid last year. Fiscal
197 4 marked the 25th consecutive year in which
Delta has made cash dividend payments.
Revenues
Operating revenues totaled a record $1.23
billion, an increase of 17% over the $1.05 billion
reported in 1973. Passenger revenue increased
16% to $1.1 billion while cargo revenue in-
creased 14% to $86.7 million, including $3.5
million in mail payments retroactive to prior
years. Security charges, which were only par-
tially effective last year, totaled $14.7 million,
an increase of $12.4 million. Other revenues
were unchanged at $10.8 million.
Passenger traffic was up 8% to 15.58 billion
revenue passenger miles while available seat
miles increased only 2% because of fuel con-
straints in the last half of the year producing a
load factor improvement from 51.68% to
54.83%.
The passenger mile yield was 7.lM, a gain
of 8% from the 6.6Sq: reported in 1973. During
the year the Civil Aeronautics Board approved
a 5% passenger fare increase effective Decem-
ber 1, 1973, and a 6% increase effective April
16, 197 4. In addition, the phaseout of Family
Plan and Youth discount fares continued
throughout the year with the final elimination
of the discounts effective June 1, 1974. Certain
domestic excursion and military standby fares
were also eliminated during the year.
7
Cargo traffic declined 2% to 254.6 million
ton miles. Freight ton miles remained level with
last year while mail ton miles declined 8%, and
express ton miles increased 3%. Delta withdrew
from the agreement between the airlines and
th Railway Express Agency and did not carry
Express traffic after June 14, 1974. (See discus-
sion in the section on Regulatory Matters) .
Excluding the retroactive mail payments, cargo
yield increased 11 % over the previous year.
Expenses
Operating expenses for the year totaled $1.07
billion, a 15% increase over the $929 million
reported last year as available seat miles in-
creased only 2% to 28.4 billion while revenue
aircraft miles declined 2%.
Continued and rising inflation, the fuel
shortage, and the fuel related reduction in
operations combined to drive up unit costs
14% to 4.osq: per available seat mile and 27.SH
per available ton mile. The breakeven load
factor was up 4% to 47.10%, but the spread
between actual and breakeven load factor in-
creased to 7.7% from 6.5% last year.
The following table compares operating
expenses for fiscal 1974 with 1973 by major
expense function.
Fiscal Year Ended
1974 1973 Cha nge
(In Th ousa nds)
Salaries and Related Costs . . $ 509,054 $450,437 + 13%
Aircraft Fuels. . . . . . . . . . . . 144,780 111,209 + 30
Aircraft Maintenance
Materials and Repairs .. .
Aircraft Rentals . ...... .. .
Other Rentals ..... . .. . . .
Landing Fees .. ..... . ... .
Passenger Food and
Related Supplies ....... .
Passenger Commissions . . . .
Advertising ............ .
Other Cash Expenses ..... .
35,722
29,498
23,935
23,584
39,155 - 9
21,173 + 39
18,647 + 28
20,210 + 17
42,488 38,637 + 10
32,127 27,311 + 18
17,226 14,180 + 22
111,753 103,067 + ~
Total Cash Expenses . . . .. $ 970,167 $844,206 + 15%
Depreciation and
Amortization . . .. ...... $ 99,876 $ 84,914 + ~ %
Total Operating
Expenses ... .... . . .. . $1,070,043 $928,940 + B %
Even though the level of employment was up
less than 1 % at the end of this year over last
8
year, the average number of employees for the
whole year was up 5% over the average for
fiscal 1973. This factor along with higher wage
levels required by inflation caused a 13% in-
crease in total salary and related costs. Fuel
cost increases are more fully discussed in a
later section of this report. Aircraft rental costs
were up 39% due to the inclusion'of the 5 leased
DC-10 aircraft for a full year together with the
higher interest rate applicable thereto. Increases
in other rentals included the initial rentals on
the new Atlanta Maintenance Base and occu-
pancy of the new Dallas-Fort Worth regional
airport facilities. It is significant to note that
maintenance materials and supplies were down
9%, reflecting the benefits of our fleet simpli-
fication program.
Net interest expense increased some $8.0
million due to the higher level of borrowings
required for the major new aircraft additions
and a significantly higher average prime rate.
Capitalization and Financing
During fiscal 1974 a new bank credit agreement
was negotiated which provides for borrowings
up to $300 million on a revolving basis through
September 30, 1975, at which time the balance
outstanding will be converted to a term loan,
repayable quarterly over five years. The initial
proceeds of the new agreement were used to
repay the $156 million principal outstanding
under the 1967 Bank Credit Agreement. At
June 30, 1974, $270 million had been borrowed
under this agreement.
Under the $85 million loan agreement with
Lazard Brothers & Co., Limited a total of $46.9
million was borrowed during the year to finance
the Rolls-Royce engines for the Lockheed L-1011
aircraft. After normal repayments of $600,000,
the balance outstanding at year-end was
$46.3 million.
Total long-term debt of $366.4 million at
June 30, 1974, increased $147.0 million from
the previous year and was 82.5% of equity at
year-end. These net borrowings together with
net internally generated funds of $267.0
million were utilized primarily for the purchase
of flight and ground equipment in an aggregate
amount of $439.8 million. Mandatory debt
9
repayments due in fiscal 1975 total $21.2
million. (See Note 3 to the attached Financial
Statements).
At June 30, 1974, outstanding commit-
ments for aircraft and related spares (including
options exercised after year end) will require
future expenditures of $570 million
during fiscal years 1975 through 1978. It is
anticipated that the remaining funds available
under current credit agreements of approxi-
mately $66 million, together with internally
generated funds, will sufficiently cover these
purchase commitments and the repayment of
normal debt maturities. Should additional
capital be required, the Company has been
offered additional funds by Lazard Brothers
& Co., Limited at very favorable interest rates.
Total stockholder equity at June 30, 1974,
was $443,826,000 or $22.33 per share on the
19,879,377 shares outstanding, an increase of
22% over the $18.35 per share reported last
year.
Flight Equipment and Purchase
Commitments
During the past fiscal year Delta accepted
delivery of 21 advanced model Boeing 727-200
aircraft and 9 Lockheed L-1011 aircraft. Delta's
fleet was reduced by the retirement of 39 air-
craft during the year including the sale of 6
DC-9-14's, 1 leased and 4 owned DC-9-31's, 15
Convair 880's, 7 DC-8-33's, 1 leased B-727-100,
and 3 all-cargo L-lO0's. A leased DC-9-31 and
a DC-9-32 aircraft were destroyed in accidents.
As of June 30, 1974, Delta operated the follow-
ing aircraft fleet:
Type of
Aircraft Seats Owned Leased
B-747 ......... 370
DC-10 ........ 250
L-1011 ........ 250
DC-8-61 ..... . . 195
DC-8-51 . ...... 135
B-727-200 ..... 131
B-727-100. . . . . 97
DC-9-31/32. . . . 90
FH-227 ........ 43
Totals ...... .
10
5
9
13
21
31
62
__Q
147
5
13
5
8
31
Fleet
Total
5
5
9
13
21
44
5
70
6
178
Arrangements have been made with the owners
of the 8 leased DC-9-311s to dispose of these
aircraft. Deliveries will incJ.ude 4 in the Sep-
tember, 1974 quarter and the remaining 4 dur-
ing the latter part of fiscal 1975. The 5 leased
DC-l01s will be returned to United Air Lines in
April and May, 1975.
During the year the Company entered
into an agreement with the Lockheed Aircraft
Corporation to advance delivery of 4 L-10l11s
from early 1975 to the last quarter of calendar
1974. With these deliveries, Delta will have a
total of 18 of these aircraft on hand by the end
of the year. The agreement also provides that
orders for 12 "second buy11 L-10111s, originally
scheduled for delivery in calendar years 1975
and 1976, will now be delivered in calendar
years 1976 and 1977. These 12 aircraft are now
cancellable at various intervals between
October 31, 1974 and January 31, 1976.
At June 30, 1974, Delta had purchase
commitments for 21 L-1011 and 11 Boeing
727-200 aircraft. Subsequent to year-end, the
Company exercised 16 of 20 B-727-200 air-
craft options for delivery beginning in June,
1975 and obtained 12 additional B-727-200
options for delivery in 1976. The Company has
also recently contracted to sell one B-747
aircraft for delivery in September, 1974.
Personnel
At June 30, 1974, the team of Delta Profes-
sionals numbered 27,600, up only slightly from
the previous year's 27,500, excluding temporary
summer employees in both years. Total salaries
and related fringe benefits increased 13% to
$509.1 million, equal to 41.5q: of each revenue
dollar versus 42.9q: for the previous year.
During the March quarter of this year,
when fuel crisis related flight reductions were
at their peak, 200 pilots and 468 flight atten-
dants were temporarily reassigned to other
duties in the Company. This was in keeping
with Delta's tradition and policy to provide
stable employment and the need for additional
temporary staffing to meet the added work
load caused by increased passenger demand for
available seats and the attendant higher load
factors. By August 1, 1974, all reassigned flight
11
These are the professionals of Delta Air Lines-27,600
strong. And they go all out to give passengers a smooth
flight on Delta, the airline run by professionals.
12
attendants had returned to flying status due to
turnover and expansion of the L-1011 fleet. It is
expected that the reassigned pilots will begin
returning to flying status during the coming
winter.
After more than thirty years of distin-
guished service, Mr. T. M. Miller, Senior Vice
President-Marketing, retired on October 31,
1973. Delta is grateful that Mr. Miller's expe-
rience and judgment will continue to benefit
the Company as he continues to serve on the
Board of Directors and as a Consultant in the
areas of advertising, scheduling and overall
marketing policies. To succeed Mr. Miller,
Mr. J. A. Cooper was advanced to Senior Vice
President-Marketing.
During the past year, Delta established
the Operations-Passenger Service Division to
ensure continued emphasis on efficient per-
sonalized service to our customers.
Mr. Hollis L. Harris was named to head the
new division as Senior Vice President.
To assure that Delta will continue to effec-
tively meet the challenges presented by an
increasingly complex business environment
and in keeping with Delta's commitment to
develop and promote management personnel
from within the Company, eleven other execu-
tives were advanced to positions of increased
responsibility. These were Messrs. J. W. Callison
to Vice President-Law & Regulatory Affairs;
Shelby D. Dement to Vice President-Consumer
Affairs; J. D. Dunn to Vice President-
Purchasing; Charles P. Knecht to Vice President-
Marketing; Foy Phillips to Vice President-
Passenger Service; Frank F. Rox to Vice
President-Law & Public Affairs; Sidney F. Davis
to Assistant Vice President-Corporate Legal
Affairs; C. J. May to Assistant Vice President-
Engineering; Rex A. McClelland to Assistant
Vice President-Properties; C. G. Sweazea to
Assistant Vice President-Civic Affairs; and
Audly Toller, Jr. to Assistant Treasurer. The
combined Delta experience of these gentlemen
totals over 270 years.
Subsequent to the close of the fiscal year,
Mr. J. F. Nycum, Assistant Vice President-
Flight Equipment Development, retired on July
13
31, 1974. In his 34 years of outstanding service
to Delta, Mr. Nycum has been closely asso-
ciated with the development of many aircraft,
including the McDonnell Douglas DC-8 and
DC-9 and the Lockheed L-1011.
Fuel Problems
Effective November 1, 1973, the Federal Gov-
ernment instituted a program of fuel allocation
to all airlines. Fuel was allocated monthly
based on actual fuel usage for the same month
during 1972. Effective January 7, 1974, the
amount allocated was further reduced. In order
to meet these reductions in fuel availability,
Delta had to curtail plans for capacity in-
creases and reduced its planned flight schedules
by about 13% and available seat miles by 8%.
At the same time that supply of fuel was
being curtailed, the price was increasing
rapidly. As of June 30, 1974, Delta's average
price was 22.oq: per gallon, an 86% increase
over the price at June 30, 1973. To counter the
effects of reduced supply and sharply increas-
ing price, every available fuel saving technique
was employed, including retiring older and less
fuel efficient DC-8-33's and Convair 880's
earlier than planned, reduced cruising speeds,
increased use of flight simulators for crew
training, and revised ground handling pro-
cedures. The result of these changes was an
approximate 9% increase in fuel efficiency over
last year. Even with this increased fuel effi-
ciency, Delta's total fuel cost increased 30% for
the year including a 39% increase in average
price and a 6% reduction in the amount of fuel
used.
In the last quarter of the fiscal year fuel
supplies eased, and Delta is currently receiving
sufficient fuel to meet our current needs. The
flight schedules which were eliminated during
the worst part of the shortage are being rein-
stated as traffic demand requires. However, the
price of fuel is expected to continue to escalate.
At June 30, 1974, Delta had 48% of its projected
fuel requirements under contracts which allow
for price increases based only on the escalation
of crude oil prices.
14
The Company is presently engaged in
litiga tion with the Federal Energy Administra-
tion concerning the jet fuel allocation program.
In addition, the Company has suits pending
against Exxon Company and Gulf Oil Corpora-
tion which challenge certain price increases to
Delta for jet fuel. It is too early to predict the
outcome of these matters.
It is expected that jet fuel will be de-
allocated by the Federal Government later this
year. We are hopeful that this action will have
a moderating effect on the rise of fuel prices.
Regulatory Matters
In general, the Civil Aeronautics Board is con-
tinuing to emphasize proceedings which hold the
prospect of improving the economic condition of
the airline industry, while de-emphasizing new
route proceedings. Economic regulation affect-
ing Delta Air Lines during the past year has been
concentrated in two areas-route transfers and
route exchanges between carriers, and continuing
examination of the industry's fare level and fare
structure and both freight and mail rate levels
and structure.
New Route Cases.
The major route case now in process before the
CAB - and one of the largest ever to be pro-
cessed by that agency- is the Transatlantic
Route Proceeding. The case involves possible
certification of new trans-Atlantic services out of
"inland" gateways in such areas as the Southeast
and Southwest, and the possibility of renewing
or revising existing trans-Atlantic U.S . Flag air-
line certifications. Delta has concentrated its
efforts in this proceeding on seeking nonstop
authority between the major gateways of
Atlanta, Georgia and London, England. Unless
restricted by the United States or the United
Kingdom, grant of Delta's application would
also permit it to provide single-plane service via
Atlanta to and from London for cities lying
beyond Atlanta in the southern United States.
The CAB's decision is expected to be submitted
to the President of the United States for approval
or disapproval sometime in late 1974 or early 1975.
15
On the domestic system, the CAB has
decided against certificating any new competi-
tion in the Atlanta-Cleveland, Atlanta-Detroit
and Atlanta-Cincinnati markets. Accordingly,
Delta's bid to compete with United in the
Cleveland market was denied, while all applica-
tions to compete against Delta in the Atlanta-
Detroit/ Cincinnati markets were also denied.
One of the applicants for the Detroit and
Cincinnati authority has appealed this CAB
decision to a federal court of appeals, and
Delta has intervened in the proceeding.
In other court cases, a federal court of
appeals has affirmed the CAB's grant to Delta
of Memphis-Miami nonstop authority. The
same court has upheld the CAB's grant of
Houston-Miami authority to another carrier
in lieu of an earlier grant to Delta which
had been reversed by a previous court of
appeals decision.
Delta's motion to dismiss its application
for Nashville-Detroit authority in the Detroit-
Nashville Nonstop Service Investigation,
remains pending before the CAB with no
decision.
Further proceedings in the Miami-Los
Angeles Competitive Nonstop Service Investi-
gation, which is considering whether to lift
the present stay on Delta's authority in this
market (imposed at the time of the Delta-
Northeast merger) or to grant competitive
authority to some other carrier, have been
delayed pending formulation of an environ-
mental impact statement. The Administrative
Law Judge who heard the economic issues
recommended the selection of Pan American
Airways for this market and the termination
of Delta's stayed authority. Delta is vigorously
opposing this decision, and is seeking the right
to reinstitute service in the market.
The New England Service Investigation
was decided in July of 197 4. Delta's certificate
obligations were deleted at a number of smaller
New England cities which had been on the
former Northeast routes prior to its merger
into Delta. Delta's services had been suspended
at these cities, but in some cases service had
been provided by a substitute "commuter"
16
carrier, in some instances under contract with
Delta. At the same time the CAB indefinitely
suspended Delta's authority at nine other New
England points and authorized service to these
cities by a newly-certificated carrier. Delta's
authority at Boston, Hartford, Burlington,
Manchester-Concord, Portland, Bangor,
Presque Isle and Worcester is unaffected by
this decision. The decision provides for an
October 15, 1974 effective date, subject to
possible reconsideration.
A combination of dwindling traffic
volumes, increased competition by a com-
muter carrier in the Atlanta-Brunswick,
Georgia market, and the planned closing of
the Glynco Naval Air Station has caused the
CAB to approve Delta's application to suspend
all services at Brunswick for the near future.
Route Transfer and Route Exchange Cases.
Delta and TWA have contracted for the trans-
fer to Delta of TWA's existing authority be-
tween Nashville, Tennessee, on the one hand,
and St.Louis, Atlanta, Tampa/St.Petersburg/
Clearwater, and Miami/Ft.Lauderdale, on the
other hand, with termination of TWA's
authority at Nashville, in exchange for a
payment of $1 million by Delta to TWA for its
past developmental efforts at Nashville. This
proceeding was heard during July, 1974, and
an initial decision by the Administrative Law
Judge is expected in the fall of 1974, with final
agency decision late in 1974 or reasonably
early in 1975.
Delta and Piedmont Aviation have
entered into an agreement whereby Delta
would transfer to Piedmont Delta's nonstop
authority between Asheville, North Carolina,
on the one hand, and Chicago, Illinois,
Columbus, Ohio, and Columbia, South Caro-
lina, on the other hand, in exchange for trans-
fer by Piedmont to Delta of Piedmont's
nonstop authority between Charleston, South
Carolina, on the one hand, and Charlotte,
Greensboro/High Point/Winston-Salem, and
Raleigh/Durham, North Carolina, on the other
hand. The agreement provides that, upon the
effective date of the route exchange, Asheville
17
will be deleted from Delta's routes and
Charleston will be deleted from Piedmont's
routes. The agreement has been filed with the
CAB for its approval and initial hearings are
expected in late 1974.
Other carriers have entered into various
route exchange agreements which could have
some adverse effect on Delta, if approved by
the CAB.
Rate and Fare Cases.
The CAB's overall investigation into the
structure and level of U.S. airline passenger
fares is now substantially completed, after
four and one-half years of processing. The
most recent decision in the Investigation
involved fare structure- that is, the relation-
ships between different basic types of fares
and between fares for differing lengths of
travel. Among other things, this decision
would require a large increase in first-class
fares; some increase in short-haul day coach
fares; and some decrease in long-haul day
coach fares. Simultaneously, the CAB issued
its decision on reconsideration in the so-called
Joint Fares Phase of the Investigation, estab-
lishing new rules for the publication of joint
fares (for routings involving two or more
carriers) and for division of revenue between
the carriers under such fares, the overall
effect of which would be to decrease industry
revenues, with part or all of the decrease
theoretically to be recouped from the new
overall fare structure. Petitions for further
clarification and for reconsideration of both of
these decisions remain pending before the
CAB. As indicated previously, the CAB has
stayed the effectiveness of both of these
decisions until further order of the Board.
The fare structure decision did not resolve
the issues which had been tried concerning
reduced "off-peak" fares such as those used by
Delta in its famous "Early Bird" and "Owly
Bird" services. Instead, the CAB has instituted
a new Domestic Night Coach Fare Investiga-
tion, in which all aspects of off-peak fare
18
operations and the related fare level and struc-
ture will be considered. This case should go to
trial sometime in 1975.
Judicial review continues of the CAB's
decision that passenger fares actually charged
from October 1969 to mid-October 1970 were
fully lawful. Decison in this court case is not
expected before 1975. Other court cases which
seek reparations for passengers on the theory
that the October 1969-October 1970 fares were
improper remain in abeyance pending final
conclusion of this appeal from the CAB's
decision.
The trial has now been completed in a
comprehensive investigation of the reason-
ableness and the structure of all domestic
airline air freight rates. An initial decision by
the Administrative Law Judge is expected in
this proceeding in 1975, following which the
entire proceeding will be reviewed by the CAB.
In yet another proceeding, the CAB is
considering the level of mail rates which should
be paid to the carriers on and after October 12,
1973, as compensation for services rendered
in carrying the various U.S. mails. Rates for
the "past period" from December of 1970
through October 12, 1973 have been finally
decided by the agency, resulting in a payment
to Delta of $3,800,000 in addition to mail pay
previously received for that period.
The CAB has decided that the previous
agreement between the airlines and the Rail-
way Express Agency, under which air express
service has been provided for many years,
should be disapproved. Delta withdrew from
the airline/REA agreement, effective in mid-
June of 1974. Delta filed a tariff with the CAB
providing for on-line air express services on the
Delta system, and is negotiating with other
carriers for the creation of a new, industry-
wide air express system. In the meantime, REA
has appealed the CAB's decisions to court.
Miscellaneous other rate and fare pro-
ceedings remain in preliminary stages before
the CAB.
19
Delta Air Lines System Route Map
20
DELTN
PAN AM
THAU-JETS
TO AND FROM
EUROPE
DELTA AIR LINES, INC.
Balance Sheets
June 30, 1974 and 1973
ASSETS
CURRENT ASSETS:
1974 197 3
{In Thousands)
Cash ..................... $ 29,886 $ 23,709
Short-term cash investments,
at cost .................. . 31,145 73,096
61,031 96,805
Accounts receivable, net ..... . 68,427 58,043
Maintenance and operating
supplies, at average cost . . .. . 11,023 6,566
11,887
Prepaid expenses, etc .... . ... . __ _ 3,028
Total current assets ....... .
PROPERTY AND EQUIPMENT
(Note 2):
Flight
Equipment Other
Cost-
1974 $1,225,167
1973 978,428
$204,182
152,464
Accumulated depreciation-
1974 403,044 89,264
1973 439,635 75,841
Advance payments for new
equipment (Note 2) ..... .. . .
OTHER ASSETS, being
amortized :
Nonoperating property and
152,368
1;429,349
492,308
937,041
104,793
1,041,834
164,442
1,130,892
515,476
615,416
123,915
739,331
equipment . . . . . . . . . . . . . . . 604 1,797
Preoperating expenses. . . . . . . . 1,777
Unamortized debt expense ..... ___
5_2_1 579
1,125 4,153
$1,195,327 $ 907,926
22
DELTA AIR LINES, INC.
LIABILITIES AND
STOCKHOLDER EQUITY 1974 1973
(In Thousands)
CURRENT LIABILITIES:
Current maturities of
long-term debt . ... . .. ..... $ 21,244 $ 51,400
Accounts payable and accrued
liabilities . . . ... . . . . .. ... . . 115,174 90,692
Unearned transportation
revenue ... . ... ... . . .. .. .. 26,997 19,114
Accrued income taxes ....... . 13,362 27,309
Total current liabilities .. . .. 176,777 188,515
LONG-TERM DEBT (Note 3) .. . 345,119 168,000
DEFERRED CREDITS (No te 5):
Deferred Federal income taxes .. 184,813 161,347
Unamortized investment tax
credits . .... ... . .......... 44,792 25,511
229,605 186,858
COMMITMENTS (Notes 2 and 4)
STOCKHOLDER EQUITY (Notes
6 and 7):
Common stock, par value
$3.00 per share-Authorized
25,000,000 shares; O utstanding
19,879,377 shares in 1974 and
19,866,524 shares in 1973 ..... 59,638 59,600
Common stock purchase
warrants ............ . .... 6,750 6,750
Additional paid-in capital. .... 73,280 72,768
Retained earnings ( of which
$204,297,000 is restricted at
June 30, 1974 as to the
payment of cash dividends
under credit agreements) .. . .. 304,158 225,435
443,826 364,553
$1,195,327 $ 907,926
The accompanying notes are an integral part of these balance sheets.
23
DELTA AIR LINES, INC.
Statements of Income
For the years ended June 30, 1974 and 1973
1974 1973
{In Thou sands)
OPERA TING REVENUES:
Passenger .................. $1,114,868
Cargo. . . . . . . . . . . . . . . . . . . . 86,685
Other, net. . . . . . . . . . . . . . . . . 25,574
Total operating revenues. . . . 1,227,127
OPERATING EXPENSES:
Flying operations ........... .
Maintenance. . . ........... .
Aircraft and traffic servicing .. .
Promotion and sales .. . ..... .
Passenger service ....... . ... .
Depreciation and
amortization ..... .. . .. . .. .
General and administrative ... .
316,207
145,287
233,181
130,763
113,885
98,303
32,417
Total operating expenses. . . . 1,070,043
OPERATING INCOME.... . . . . 157,084
OTHER EXPENSE (INCOME):
Interest expense ........ . . ... 28,275
Less- Interest capitalized on
advances for equipment . . .. .. (10,810)
17,465
Miscellaneous income, net ..... (3,088)
Gain on disposition of aircraft. . (18,607)
Merger integration costs .... . .
(4,230)
INCOME BEFORE INCOME
TAXES 161,314
PROVISIO N FO R INCOME
TAXES (Note 5):
Income taxes provided ....... . 78,953
Less-Amortization of
investment tax credits . .... . . (8,288)
70,665
NET INCO ME ............... $ 90,649
NET INCOME PER COMMON
SHARE .. ... . ...... ...... . $4.56
$ 960,215
76,323
13,161
1,049,699
259,649
141,330
202,173
110,452
102,153
84,301
28,882
928,940
120,759
15,808
(6,345)
9,463
(4,316)
(4,653)
4,024
4,518
116,241
56,736
(6,490)
50,246
$ 65,995
$3.32
The accompanying notes are an integral part of these statements.
24
DELTA AIR LINES, INC.
Statements of Retained Earnings
For the years ended June 30, 197 4 and 1973
197 4 1 973
(In Thou sands)
BALANCE AT BEGINNING
OF YEAR ........... .. ... .. . $225,435 $169,365
Add (Deduct):
Net income .. -. . . . . . . . . . . . . . . . 90,649
Cash dividends -$.60 and
$.SO per share in 1974 and
1973, respectively. . . . . . . . . . . . (11,926)
BALANCE AT END OF YEAR
(restricted as indicated on
65,995
(9,925)
balance sheet) .. . . .. .... . .. .. . $304,158 $225,435
Statements of Additional Paid-in Capital
For the years ended June 30, 1974 and 1973
BALANCE AT BEGINNING
_fil.1__-1J!IL
(In Thousands)
OF YEAR .... ................. $72,768 $71,037
Add:
Excess of proceeds over par value of
common shares issued (12,853 in
1974 and 38,139 in 1973) under
employee stock option plan
(Note 6) ....... . ....... ...... .
Income tax reduction to Company
resulting from sales by employees
of common shares issued under
stock option plan .. ... ....... . . .
Capital contributed to Northeast by
Storer Broadcasting Company ... ..
408 1,126
104 435
170
BALANCE AT END OF YEAR . . . . .. . $73,280 $72,768
The accompanying notes are an integral part of these statements.
25
DELTA AIR LINES, INC.
Statements of Changes in Financial Position
For the years ended June 30, 1974 and 1973
1974 1973
(In Thousands)
FUNDS PROVIDED BY:
Net income ..... .............. $ 90,649 $ 65,995
Add expenses not requiring current
outlay of working capital-
Depreciation and amortization .. 99,876 84,914
Deferred income taxes ........ 27,316 14,466
Investment tax credits, net . .... 19,281 1,586
Other. ....... .... . .... . ... 1,177 720
Total from operations ....... 238,299 167,681
Disposition of property and
equipment (book value) . . .. . . .. 40,629 17,876
Long-term financing, less
$124,000,000 long-term portion
of bank debt refinanced in 1974 ... 195,619 5,000
Common stock issued under
employee stock option plan,
including income tax reduction . .. 550 1,676
Other . .. . .. ............. . ... 499
475,097 192,732
FUNDS USED FOR:
Property and equipment additions-
Flight equipment and advances .. . 385,228 135,036
Other ................. . ... 54,563 18,695
439,791 153,731
Reduction of long-term debt . . . ... 18,500 36,585
Cash dividends ................ 11,926 9,925
Preoperating expenses . ..... .... . 1,366 2,611
Settlement of prior years' income
taxes (Note 5) ....... . ........ 3,850
475,433 202,852
DECREASE IN WORKING
CAPITAL. .... . ... . . .. ... .... $ (336) $ (10,120)
CHANGES IN WORKING
CAPITAL COMPONENTS:
Increase (decrease) in -
Cash and short-term
investments ......... .. . .... $ (35,774)
Receivables, net. . . . . . . . . . . . . . 10,384
Other current assets. . . . . . . . . . . 13,316
Decrease (increase) in-
Current maturities of long-term
debt. . . . . . . . . . . . . . . . . . . . . . 30,156
Accounts payable and accrued
$ 22,086
2,312
(775)
(7,504)
liabilities ... .. ... . .... ..... . (24,482) (12,223)
Other current liabilities . .. ..... . 6,064 (14,016)
$ (336) $ (10,120)
======
The accompanying notes are an integral part of these statements.
26
DELTA AIR LINES, INC.
Notes to Financial Statements
June 30, 1974 and 1973
1. SUMMARY OF ACCOUNTING POLICIES:
Passenger Revenue-Passenger ticket sales are
recorded as revenue when the transportation is
used. The value of unused tickets is included in
current liabilities in the financial statements.
Depreciation-Substantially all of the Com-
pany's flight equipment is being depreciated on a
straight-line basis to residual values (10% of cost)
over a 10-year period from dates placed in service.
Ground property and equipment is depreciated on
a straight-line basis over its estimated service life
(various lives ranging from 3 to 30 years).
Maintenance and Repairs-All maintenance and
repair costs, including engine and airframe over-
hauls, are charged to maintenance expense when
incurred. Major replacements and betterments are
capitalized.
Interest Capitalized-Interest on advances for
new equipment is capitalized based on the Com-
pany's current interest rate on long-term debt.
Capitalization of interest ceases when the equip-
ment is placed in service.
Preoperating Expenses-When new aircraft
fleets are introduced, training and other major
costs incurred are deferred and then amortized on
a straight-line basis generally over a period of two
years or less. DC-10 preoperating expenses were
amortized over a period of 12 months through
February, 1974; L-1011 preoperating expenses were
deferred through February, 1974 and fully amortized
in March, 1974.
Retirement Plans-All of the Company's per-
manent employees are covered under its non-
contributory trusteed plans providing for
retirement, disability, and survivor benefits. The
27
DELTA AIR LINES, INC.
total expense under these plans amounted to ap-
proximately $31,000,000 in 1974 and $26,100,000
in 1973. The Company's policy is to fund each year's
accrued costs under the plans, which costs include
amortization of prior service costs over a thirty-
year period to 1991. As of June 30, 1974, the assets
of the plans exceeded the actuarially computed pres-
ent value of vested benefits under the plans.
Income Taxes- Total income taxes are provided
by applying the applicable tax rates to book in-
come before income taxes. Deferred Federal income
taxes are provided for all significant items (prin-
cipally depreciation and interest capitalized) where
there is a timing difference in recording such items
for financial reporting purposes and for income tax
purposes. Utilized investment tax credits are amor-
tized ( as a reduction of the provision for income
taxes) over the approximate life of the related
equipment. (See Note 5.)
Earnings Per Share-Net income per common
share is computed based on the weighted average
number of outstanding shares during the year
(19,875,610 shares in 1974 and 19,852,842 shares in
1973). Outstanding stock options and warrants (see
Note 6) have no material dilutive effect on net in-
come per common share in 1974 and 1973.
28
DELTA AIR LINES, INC.
2. PURCHASE COMMITMENTS:
The Company has purchase agreements for
the following aircraft and related spare engines
(including estimated expenditures under purchase
options for 16 Boeing 727-200 aircraft exercised sub-
sequent to June 30, 1974):
21 Lockheed L-1011
27 Boeing 727-200
Adv ances and Estimated
O ther Expenditures
Expenditures to During Fisca l
Ju ne 30, 1974 1975 through 1978
(In Thousands)
$ 91,048 $363,000
22,461
$113,509
207,000
$570,000
The Company also has options to purchase 16
additional Boeing 727-200 aircraft for delivery in
1976 (including 12 obtained subsequent to June 30,
1974). The Lockheed Aircraft Corporation, manu-
facturer of the L-1011 aircraft, has encountered
renewed financial difficulties as a result of pro-
duction cost increases and other factors . An
agreement is presently pending whereby Textron,
Inc. would provide additional financing to Lock-
heed. At June 30, 1974, the Company had received
delivery of 9 L-1011 aircraft, and had firm orders
for another 9 L-1011 aircraft scheduled for delivery
by the end of December, 1974. Company manage-
ment believes this contract will be fulfilled. Orders
for an additional 12 aircraft are cancellable by the
Company by various specified dates between Octo-
ber 31, 1974 and Janu ary 31, 1976. Advances to
Lockheed on the cancellable orders amounted to
$10,324,000 at June 30, 1974, which advances (except
for $40,000 per aircraft) are to be applied, in the
event of cancellation, against the purchase price of
the last 2 aircraft to be delivered under firm orders.
In July, 1974, the Company sold 1 Boeing 747
aircraft for delivery in fiscal 1975.
29
DELTA AIR LINES, INC.
3. LONG-TERM DEBT:
At June 30, 1974 and 1973, the Companis
long-term debt (including current maturities) was
as follows: 1974 1913
(a)Due banks under unsecured notes
carrying an interest rate of 1/ 4%
(In Thou sands)
above the prime rate, $156,000,000
repaid in September, 1973, with
the proceeds from the 1973 bank
credit agreement ($6,667,000
payable in fiscal 1975) ........ . . $ 6,667 $177,150
(b) Due banks under 1973 credit agree-
ment which provides for un-
secured borrowings up to
$300,000,000 on a revolving basis
through September, 1975, at which
time the outstanding balance will
be converted to a five-year term
loan. The interest rate is equal
to the prime rate through Septem-
ber, 1975, then % above the
prime rate through September,
1978, then % above the prime
rate through September, 1980 ....
(c) Due Lazard Brothers & Co.,
Limited under 5% and 6%
unsecured notes, payable in
pounds sterling in 20 semiannual
installments to 1985 ($3,864,000
270,000
payable in fiscal 1975). . . . . . . . . . 46,348
( d) Due Rolls-Royce (1971) Limited
in monthly installments (including
6% interest) to January, 1984
($463,000 payable in fiscal 1975) . . 4,348
( e) Due insurance companies under
6% and 7% unsecured notes,
payable in installments to
December 31, 1979 ($10,250,000
payable in fiscal 1975). . . . . . . . . . 17,000
(f) Convertible Subordinated
Debentures, 6%, maturing
August 1, 1986, with annual
sinking fund redemptions of
$1,100,000 beginning July 31,
1976 (Note 6) . . . . . . . . . . . . . . . . 22,000
20,250
22,000
Total. . . . . . . . . . . . . . . . . . . . . . 366,363 219,400
Less-Current maturities . . . . . . . 21,244 51,400
$345,119 $168,000
30
DELTA AIR LINES, INC.
In connection with the bank credit agreements,
the Company has informally agreed to maintain on
deposit with the lending banks average balances
(including normal working balances) equal to 15%
of the average daily outstanding borrowings, with
the average balances and borrowings being com-
puted over the term of the agreements. There are
no legal restrictions on the Company's use of
these funds.
The Company may borrow an additional
$30,000,000 under the 1973 bank credit agreement
and approximately $36,000,000 under the present
loan agreement with Lazard Brothers & Co.,
Limited. Further, the Company is presently negotiat-
ing with Lazard for additional long-term financing
of approximately $20,000,000. Company manage-
ment feels that these borrowings, together with
funds provided from operations, will sufficiently
cover future expenditures for aircraft (see Note 2)
and scheduled debt maturities. Scheduled maturities
of June 30, ;1974, long-term debt amount to
$21,244,000in 1975, $39,664,000 in 1976, $51,764,000
in 1977 through 1979, $51,014,000 in 1980,
$67,264,000 in 1981 and $31,885,000 thereafter.
4. LEASE OBLIGATIONS:
At June 30, 1974, the Company leased 31 air-
craft and certain airport terminal and maintenance
facilities, ticket offices, etc. Leases for 5 Douglas
DC-10 aircraft expire in May, 1975, and arrange-
ments have been completed on behalf of the lessor
for the disposition of 8 leased Douglas DC-9-31
aircraft in fiscal 1975. Total rental expense was
$53,433,000 in 1974 and $39,820,000 in 1973, includ-
ing rentals under "financing leases" ( as defined by
the Securities and Exchange Commission) of
$29,354,000 in 1974 and $27,856,000 in 1973.
At June 30, 1974, the Company's minimum
rental commitments under noncancellable leases
31
DELTA AIR LINES, INC.
with initial or remaining terms of more than one
year were as follows:
Payable fo r Financing O th er
Fisca l Year Leases Leases To tal
(In T ho usands )
1975 $ 28,640 $16,910 $ 45,550
1976 27,400 3,720 31,120
1977 27,240 2,130 29,370
1978 26,570 1,510 28,080
1979 24,850 1,220 26,070
1980-1984 84,070 3,170 87,240
1985-1989 58,190 460 58,650
1990-1994 49,630 70 49,700
After 1994 53,580 30 53,610
$380,170 $29,220 $409,390
The estimated present value (based on a
weighted average of 6.3 % of interest rates used
ranging from 3.125% to 10.0%) of the minimum
rental commitments under financing leases was as
follows at June 30, 1974 and 1973:
Applicable to
Terminal facilities .. ... ..... . . .
Maintenance facilities ..... .. .. .
Aircraft ... .... . ... . ....... .
Other . .... . . . ... .. ..... ... .
1974 1973
(In Th o usands )
$ 89,520
70,660
55,390
12,050
$227,620
$ 71,190
72,500
80,530
8,960
$233,180
Assuming all financing leases were capitalized
and the related leasehold rights amortized on a
straight-line basis and interest accrued on the out-
standing present value, the effect on 1974 and 1973
net income would have been less than 3%.
32
DELTA AIR LINES, INC.
5. INCOME TAXES :
The provision for income taxes in 1974 and
1973 consisted of the following elem ents:
C urrently payable-
Federal .. .. ............... .
State ................ . . .. .
Deferred Federal income
taxes ... . . . . . . . .......... .
Investment tax credits . . ....... .
Income taxes provided ...... .
Less- Amortization of
utilized investment
credits over approximate
1974 197 3
- -
(/-11 Th o usands)
$22,051 $33,027
2,017 1,167
27, 316 14,466
27,569 8,076
78,953 56,736
life of related equipment. . . . . . (8,288) (6,490)
$50,246
$70,665
Total income taxes provided were 48.9% and
48.8% of 1974 and 1973 book income before income
taxes, respectively, representing taxes provided at
the 48.0% Federal statutory rate plus net state in-
come taxes. At June 30, 1974 and 1973, all available
investment tax credits had been utilized to reduce
the Companis Federal income taxes payable.
The provision for deferred Federal taxes
resulted from the tax effect of the following timing
differences:
Depreciation .. ........ .. . ... .
Interest capitalized ... . . . , ... .. .
Preoperating expenses . . ... .. . . .
Other, net. ...... .... ..... .. .
1974 197 3
(In Th o usands)
$22,616
5,189
(853)
364
$27,316
$ 8,009
3,046
853
2,558
$14,466
In October, 1973, the Company reached a
final agreement with the Internal Revenue Service
providing for a $3,850,000 settlement of income tax
deficiencies proposed for the taxable years 1963
through 1965. Provision for these taxes had been
made in prior years. The Internal Revenue Service
is presently examining the Company's income tax
returns for the years 1966 through 1972. In the
opinion of management adequate provisions have
been made for potential tax deficiencies and interest
thereon.
33
DELTA AIR LINES, INC.
6. COMMON STOCK:
At June 30, 1974, the Company had 1,098,650
shares of unissued common stock reserved for stock
options (510,650 sha res), stock purchase warrants
(500,000 shares at $48 per share) and conversion of
Convertible Su bord ina ted Debentures (88,000
shares at $250 per share) .
Under the Companis Qualified Stock Option
Plans for 600,000 shares of common stock, options
for 224,250 shares have been granted and options
for 13,150 shares were outstanding at June 30, 1974
(3,700 shares at $34.50 per share, 6,950 shares at
$30.25 per share and 2,500 shares at $51.75 per
share). Transactions during 1974 and 1973 were as
follows:
Op tio n Shares
1974 1973
Outstanding at beginning
of year. . . . . . . . . . . . . . . . . . . . 150,116
Granted .. .. .. .. .. . .. .... . . . .
Exercised. . . . . . . . . . . . . . . . . . . . (12,853)
Expired. . . . . . . . . . . . . . . . . . . . . (1,613)
Terminated (see below) . .. ... . .. (122,500)
Outstanding at end of year. . . . . . 13,150
Exercisable at end of year. . . . . . . 9,338
67,505
125,000
(38,139)
(4,250)
150,116
18,304
- - -
Options granted in May, 1973, for the purchase
of 122,500 shares of common stock at $51.75 per
share were terminated in fiscal 197 4 in connection
with the implementation of the 1972 Performance
Share Unit Plan for officers and key employees.
This Plan has no effect on the Company's authorized
and unissued common stock.
34
DELTA AIR LINES, INC.
7. MERGER WITH
NORTHEAST AIRLINES, INC.:
On August 1, 1972, Delta's merger with North-
east Airlines, Inc. was consummated. Delta issued
( a) 668,515 shares of its common stock for all of
the outstanding common stock of Northeast, and
(b) warrants to Storer Broadcasting Company
(majority stockholder of Northeast) to purchase
500,000 shares of Delta common stock at $48.00
per share on or prior to May 1, 1978, in exchange
for Storer transferring to Delta the $40,085,000
owed by Northeast to Storer at August 1, 1972.
The estimated fair value of the warrants at the date
of the merger agreement (May 12, 1971) was
$6,750,000. The merger was accounted for as a
pooling of interests and, accordingly, prior financial
statements of Delta have been restated.
Northeast's operating revenues and net loss
for the month of July, 1972, which are included in
the fiscal 1973 results of operations, amounted to
$12,464,000 and $131,000 ( $. 01 per share),
respectively.
Auditors' Report
ARTHUR ANDERSEN & Co.
ATLANTA , G EORGIA
To the Stockholders and Board of Directors
of Delta Air Lines, Inc. :
We have examined the balance sheets of Delta Air
Lines, Inc. (a Delaware corporation) as of June 30, 1974
and 1973, and the related statements of income, retained
earnings, additional paid-in capital and changes in finan-
cial position for the years then ended. Our examination
was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the
accounting records and such other auditing procedures as
we considered necessary in the circumstances.
In our opinion, the accompanying financial state-
ments present fairly the financial position of Delta Air
Lines, Inc. as of June 30, 1974 and 1973, and the results of
its operations and the changes in its financial position for
the years then ended, in conformity with generally ac-
cepted accounting principles consistently applied during
the periods.
Atlanta, Georgia,
August 23, 1974.
~ a,._~ <I G .
35
DELTA AIR LINES, INC.
Five Years of Delta Air Lines Growth Years ended June 30
(Dollars expressed in thousands except per hare figures)
DELTA ONLY RESULTS:
Operating revenues ..................... .
Net income .... . ........ . ..... ......... .
Net income per share .................. .
AS RESTATED TO REFLECT POOLING OF
NORTHEAST AIRLINES, INC. (1):
Operating revenues
197 4
Passenger. ........................... $1,114,868
Cargo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,685
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,574
Total operating revenues ............ . .... . $1,227,127
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . 1,070,043
Operating income ...... . ................ .
Interest expense, etc., net. ................ .
Gain (loss) on disposition of aircraft . . . . ... . .
Income before taxes .. .... ...... ..... .... . $
Income taxes ..... . . . ................ . .. .
Income before extraordinary items ......... . $
157,084
14,377
18,607
161,314
70,665
90,649
Extraordinary items ................. ... .. ___ _
Net income ................ . ............ $
Net income per share ................... .
Dividends paid ......................... .
Dividends paid per share .... . ..... ...... .
90,649
$4.56
$11,926
$.60
Stockholder equity ................... . ... $ 443,826
Stockholder equity per share. . . . . . . . . . . . . . . $22.33
Shares of common stock outstanding ......... 19,879,377
Revenue passengers enplaned ............... 25,565,208
Available seat miles (000) ..... .. ........... 28,417,679
Revenue passenger miles (000) . ... . .... . .... 15,581,370
Passenger load factor. . . . . . . . . . . . . . . . . . . . . 54.83%
Break-even load factor. . . . . . . . . . . . . . . . . . . . 47.10%
Available ton miles (000) ................. .
Revenue ton miles (000) .................. .
Passenger revenue per passenger mile .. . ... . . .
Operating expenses per available seat mile .... .
Operating expenses per available ton mile ..... .
3,847,226
1,807,321
7.lM
3.77({:
27.8H
(1) The restated amounts and statistical data for years 1970
through 1972 combine Delta-only results of operations for the
three years ended June 30, 1972 with Northeast's results for
the three years ended December 31, 1971.
36
1973
$ 960,215
76,323
13,161
$1,049,699
928,940
$ 120,759
9,171
4,653
$ 116,241
50,246
$ 65,995
$ 65,995
$3.32
$9,925
$.50
$ 364,553
$18.35
19,866,524
23,702,870
27,958,095
14,449,748
51.68%
45.18%
3,815,285
1,711,229
6.65({:
3.32({:
24.35({:
197 2
$757,569
$ 42,169
$2.20
$806,068
65,160
12,338
$883,566
816,000
$ 67,566
13,500
1,897
$ 55,963
27,489
$ 28,474
$ 28,474
$1.44
$9,570
$.50
$306,637
$15.46
19,828,385
20,562,953
26,018,780
12,433,986
47.79%
43.80%
3,613,790
1,482,453
6.48({:
3.14({:
22.58({:
DELTA AIR LINES, INC.
197 1
$661,246
$ 29,994
$1.57
$713,665
60,097
10,320
$784,082
735,605
$ 48,477
15,699
$ 32,778
12,419
$ 20,359
(700)
$ 19,659
$.99
$9,562
$.50
$278,239
$14.06
19,793,515
18,880,818
24,838,909
11,575,358
46.60%
43.40%
3,403,838
1,381,954
6.17({:
2.9M
21.6H
1970
$622,129
$ 44,527
$2.33
$679,018
56,615
8,585
$744,218
669,429
$ 74,789
18,477
(227)
$ 56,085
33,511
$ 22,574
(7,224)
$ 15,350
$.78
$7,650
$.40
$257,142
$12.99
19,793,515
18,830,393
22,820,681
11,232,679
49.22%
43.76%
3,094,437
1,323,265
6.05({:
2.93({:
21.63({:
37
vJ
\()
Board of Directors
Top Row
R. W. FREEMA CARLETO PUT AM
Washington, D.C.
DAVID C. GARRETT, JR. R. S. MAURER
Atlanta, Georgia
New Orleans, Louisiana
Chairman of the
Finance Committee C.H. DOLSO
Atlanta, Georgia
Chairman of the
Executive Committee
Bottom Row
R. W. COURTS
Atlanta, Georgia
STUART W. PATTO
Miami, Florida
Atlanta, Geo rgia
ROBERT OPPE LANDER
Atlanta, Georgia
EMERY FLIN
Mia111i, Florida
BILL MICHAELS
Miami, Florida
W. T. BEEBE
Atlanta, Georgia
EDWARD H. GERRY
ew York, ew York
B. W. BIEDE HAR
Monroe, Louisiana
T. M. MILLER
Atlanta, Georgia
CHARLES H. KELLSTADT
Miami, Florida
JOHN R. LO GMIRE
St. Louis, Missouri
GEORGE M. S ELLI GS, JR.
Monroe, Louisiana
DELTA AIR LI ES, I C.
Officers
W T. BEEBE Clia11111an of t/1e Boa,d [-< Chief
E,erntn,e Offici>1
DAVID C. GARRETT, JR . P1eside11t
FINANCE
ROBERT OPPE LA DER Senio, V,ce P1es ide11t-F11ta11ce
[-< Treasu,cr
W. A . ATCHISON
J.D.D N
1\.1 . 0 . GALLOWAY
REX A. MCCLELLAND
J. R. HOWELL
HUGHH . SA O t
AUD LY TOLLER, JR
Vice P1es1dc11t-Co111pute 1 Se1v1ces
Vice Pres1de 11t - P111 chasing
Vice Pres1de11t -Co,nptro/le,
Asst. Vice P,es1de11t-Properties
Asst. Treas11re 1
Asst. Treas111er
Ass t. Treas111er
LEGAL & CORPORATE AFFAIRS
R. S. MAURER
J. W. CALLISON
FRANK F. ROX
MORRIS SH IPLEY
SID EY F. DAV IS
A. C. FORD
GEORGE E. SHEDD
C. G . SWEAZEA
IKE LASSETER
MARKETING
J. A . COOPER
SHELBY D . DEMENT
CHARLES P. KNECHT
R. L. GIBSON
J. T. MAPLES
J. W. MEYER
HE RY ROSS
OPERATIONS
HOYT T. FINCHER
D . P. HETTERMAN
C. A . SM ITH
J. K. BUR ETTE
JOHN P. DAVIS
JACKS . KING
. ).MAY
W. L. M ILLER
J. F. YCUM
L. G. RODEFELD
Se,1101 Vice Preside11t-Ce11e1al Co11nsel
& Sec,etary
V,ce President-Law[-, Regula to, y Affairs
V,ce President -Law & Public Affairs
V,ce President - G 011er111ne11t Affairs
Asst. Vice Pres1dent-Corpo1ate Legal Affa11s
& Asst. Sec,etary
Asst . Vice President- Long Range Planning
Asst. Vice Pres1de11t-P11b/1c Relations
A,st. Vice Pres1de11t-Civ1c Affai,s
Asst. 5Pcreta, y
Se,1101 Vice Preside11t-Market111g
Vice Preside11t- Cons11111er Affai, s
Vice President-Ma,1-.eting
Asst. Vice Preside11t-Traffic
Asst. Vice President-Marketing Pla1111i11g
Asst. Vice Preside11t-C11sto111er Relations
Asst. Vice President-Sales Pro111ot1on
Senior Vice P,esident-Operations
Vi ce President- Teclinical Operatio11s
Vice President-Flight Operations
Asst. Vice Pres1dent-Q11al,ty Control
Asst. Vice Pres1d(n1t-Maintcnance
Asst. Vice President-Flight Cont,ol
Asst. Vice President-Engineering
Asst. Vice P,esident-Materie/ Services
Asst. Vice President-Flight Eq11ip111ent
Development
Asst. Vice President- Co1111m111ications
OPERATIONS - PASSENGER SERVICE
HOLLIS L. HARRIS
E. L. H AMNER
FOY PHILLIPS
PERSONNEL
R. W. ALLEN
). A. YORK
40
Senior Vice Pres,dent-Operntions-
Passenger Sen,ice
Vice President-Stations
Vice P,esident- Passenger Service
Senior Vice President-Personnel
Asst. Vice President-Employee Services
Tran sfer Agent and Reg istrar
The Citizens and Southern ational Bank
99 Annex
Atlanta, Georgia 30399
Common Stock
List don the ew York Stock Exchange
Auditors
Arthur Andersen & Co.
25 Pryor Street, .E.
Atlanta, Georgia 30303
Annual Mee ti ng
O ctober 24, 1974, Monroe, Louisiana
DELTA AIR LI ES, I C.
Notice to the Stockholders of Delta Air Lines, Inc.
Part 245 of the Economic Regulations of the Civil Aeronautics
Board provides that: (1) any person who either owns, as of
December 31st of the year preceding issuance of this annual
report, or subsequently acquires, beneficially or as trustee, more
than 5%, in the aggregate, of any class of the capital stock or
capital of Delta Air Lines, Inc., shall file with the Board a report
containing the information required by Sec. 245.12 of Subpart
245, on or before April 1, as to the capital stock or capital owned
as of December 31 of the preceding year, and, in the case of stock
subsequently acquired, a report under Sec. 245.13, within 10 days
after such acquisition, unless such person has otherwise filed
with the Board a report covering such acquisition or ownership,
(2) any bank or broker covered by (1), to the extent that it holds
shares as trustee on the last day of any quarter of a calendar year,
shall file with the Board, within 30 days after the end of the
quarter, a report in accordance with the provisions of Section
245 .14; and (3) any person required to report under this subpart
who grants a security interest in more than 5% of any class of the
capital stock or capital of Delta Air Lines, Inc. shall wi thin 30
days after granting such security interest file with the Board a
report containing the information required in Section 245.15.
Any stockholder who believes that he may be required to file
such a report may obtain further information by writing to the
Director, Bureau of Operating Rights, Civil Aeronau tics Board,
Washington, D . C. 20428.
Delta Air Li ne s, Inc.
General Office s, H artsfield Atlan ta Internationa l Airport
Atlanta, Georg ia 30320