Delta Air Lines annual report 1975

DELTA AIR LINES, INC.
ANNUALREPORT1975
Contents
Highlights of the Year 2
Description of Business 2
Letter to Stockholders 3
Earnings and Dividends 9
Operating Revenues 9
Operating Expenses 11
Capitalization and Financing 12
Flight Equipment and Purchase
Commitments 14
Personnel 15
Regulatory Matters 16
Route Map 24
Financial Statements -
Balance Sheets 26
Statements of Income 28
Statements of Retained Earnings 29
Statements of Additional Paid-in
Capital 30
Statements of Changes in Financial
Position 31
Notes to Financial Statements 32
Auditors' Report 41
Summary of Operations 42
Other Financial and Statistical Data 42
Management's Analysis and Discussion of
Summary of Operations 44
Board of Directors 45
Officers 46
1
Highlights of the Year
A comparative summary of the major yard-
sticks for evaluation of operations for years
ended June 30 is shown below. Dollars are
expressed in thousands, except per share
figures. Percent
197 5 1974 Change
Operating
Revenues $1 ,377 ,030 $1,227 ,127 + 12%
Operating
Expenses . $1 ,282,000 $1,070,043 + 20%
Net Income . $49,223 $90,649 - 46%
Earn ings Per
Share $2.48 $4.56 - 46%
Reven ue Passengers
Enplaned .. 25,832 ,608 25,565,208 + 1%
Available Seat
Miles (000) 29,497,234 28,4 17,679 + 4%
Revenue Passenger
Miles (000) . 15,916,860 15,445,89 1 + 3%
Passenger Load
Factor 53.96% 54.35% 1%
Description of Business
Delta Air Lines, Inc. is a certificated trunk
air carrier providing scheduled air transpor-
tation for passengers and cargo over a network
of routes covering approximately 34,000
miles . Delta's route structure connects the
Northeast and Midwest with the southern
states from Texas to Florida, the Southeast
to California, and the East Coast to Florida.
In addition Delta operates international
flights to Canada, Bermuda, the Bahamas,
Jamaica, Venezuela, and Puerto Rico. Service
over nearly all of Delta's routes is highly
competitive. As an air carrier, Delta is subject
to extensive federal regulation pursuant to
the Federal Aviation Act of 1958, as amended,
and other federal and state statutes.
2
Letter to Stockholders
This pas-t fiscal year has been a difficult one
for our nation and the airline industry as we
have struggled with the burdens of recession,
inflation, and the energy crisis. Despite the
extraordinary efforts of all who make up the
Delta family, we have not escaped the negative
influences of these problems. Net earnings
were $49.2 million, or $2.48 per share, a 46%
decline from the industry record earnings
reported last year. The recession and the
highest level of unemployment since the 1930's
brought a reduction in Del ta' s traffic after the
first four months of the year when traffic was
inflated by an extended strike against a major
competitor. Costs continued their upward
spiral, increasing 20% over last year, despite
a concerted effort by our people to minimize
controllable costs.
The problem of limited fuel supplies last
year was replaced by the even more significant
problem of soaring fuel prices this year. The
average price per gallon jumped 64% this
year over last year, and this fact alone ac-
counted for half of the total increase in our
cash operating expenses. Extensive efforts
were made to minimize the impact of these
fuel price increases. Revenue plane miles
were reduced 3% from last year and 8% from
1973, and total fuel consumption was reduced
1% from last year and 7% from 1973. Avail-
able seat miles flown per gallon of fuel used
increased 5% over last year and 14% over 1973.
Available seat miles rose 4% as the result
of using larger aircraft and a change in the
seating configuration of the B-727-200
aircraft. Good progress was made in our
program of modernizing and standardizing
the aircraft fleet, and improvements in the
efficient use of fuel were realized as the
3
Company accepted delivery of 9 L-1011 and
13 B-727-200 aircraft. Twenty-one aircraft
were removed from the fleet and either sold
or returned to the lessor. The aircraft sales
resulted in an after-tax gain of $4 million or
20<): per share.
Outside financing totaling $95 million
was arranged during the year including a new
$40 million Bank Credit Agreement, a
$35 million loan agreement with The Travelers
Indemnity Company, and an amendment to
the existing loan agreement with Lazard
Brothers & Co., Limited for an additional $20
million to finance the purchase of Rolls-Royce
engines used on the L-1011 aircraft. The
proceeds from these financing arrangements,
together with funds available from previous
financing and internally generated funds, are
expected to meet our capital needs for cur-
rently outstanding orders for new aircraft.
During the year the Civil Aeronautics
Board approved a temporary 4% increase in
passenger fares which was recently reviewed
and extended to January 14, 1976. Late in the
year the Board implemented the new pas-
senger fare structure formula which increases
short-haul coach fares by as much as 9% and
reduces long-haul coach fares by as much as
6%. At the same time first class fares were
raised to 140% of coach fares with further
increases scheduled over the next two years
to a level equal to 163% of coach fares. We do
not believe that this new fare structure is in
the best interest of the public or the industry.
Our initial experience with the new structure
has shown that significant numbers of pas-
sengers are being diverted from first class to
other classes of service. If this trend continues,
the whole fare level will have to be raised to
recover the revenue lost by this unnecessary
diversion.
David C. Garrett, Jr., President, and
W . T. Beebe, Chairman of the Board
& Chief Executive Officer, at Delta's
jet maintenance base.
5
Within the past year the efficacy and
economic effects of airline regulation by the
Civil Aeronautics Board have been the subject
of increasingly heavy debate by members of
Congress, the Administration, and others.
In addition, the Board has recently asked for
comments on a proposed experiment to test
the effect of loosening the regulations on en try
and exit into the airline business and of in-
creased freedom in setting fares. We seriously
doubt that the entry/exit part of the experi-
ment would provide significant public bene-
fits and Delta therefore will oppose it, but
will otherwise cooperate with the Board to
the extent that we reasonably can. We are
hopeful that the critics will soon recognize
that the present air transportation system in
this country, including its general regulatory
climate, is the best in the world and efficiently
serves the needs of all who require air
trans port a tion.
The CAB has also liberalized the charter
regulations so as to make charter services
available, for the first time and on a fairly
unrestricted basis, to members of the public
who do not belong to pre-existing groups.
Our outlook for fiscal 1976 is one of
caution and concern. It appears that the
economy has reached its low point, and some
modest recovery will take place in the coming
year. The problems of inflation and spiraling
fuel prices, however, are still with us and even
a financially strong airline such as Delta
cannot continue to counter the resultant
debilitating effects without timely fare and
rate increases. It is hoped that the Board will
not allow political pressures to interfere with
its approval of such increases as the need for
them is demonstrated.
The problems associated with fuel prices
are especially critical to the airline industry
since we have no alternatives to petroleum
based fuel. If we are to maintain a viable air
carrier industry in this country which re-
sponds effectively to the needs of the public,
the Congress and the Administration must
6
deal r alistically with fuel prices. It is impera-
tive that a national energy policy be developed
which deals fairly with all sectors of the
economy.
The coming year will present us with
new and formidable challenges. We are
confident, however, that the nearly 28,000
skilled and dedicated professionals who are
the foundation of Delta will successfully meet
these challenges, and your Company will
maintain its position as one of the outstanding
airlines in the world.
DAVID C. GARRETT, JR .
Presid ent
September 5, 1975
7
W. T. BEEBE
Chairman of the Board &
Chief Execu tive Officer
EARNINGS PER SHARE*
In Dollars
5
4
3
2
0
66 67 68 69 70 71 72 73 74 75
STOCKHOLDER EQUITY PER SHARE*
In Dollars
25
20
15
10
5
0
66 67 68 69 70 71 72 73 74 75
*These data reflect the operations of Delta Air Lines, Inc.,
and do not include the Northeast Airlines system
prior to August 1, 1972.
8
Earnings and Dividends
Net earnings for fiscal 1975 were $49.2
million, or $2.48 per share, a decline of 46%
from the record earnings of $90.6 million
($4.56 per share) reported last year. The
current year's results include a -$7. 9 million
(20<!: per share after taxes) gain on the dispo-
sition of aircraft while the previous year's
results include an $18.6 million ( 47<!: per share
after taxes) gain from aircraft sales.
Operating income declined 40% to
$95 million as the combined effects of general
inflation and the spiraling price of fuel caused
operating expenses to increase 20% to $1.28
billion while operating revenues were up only
12% to $1.38 billion. Net interest expense
increased 79% to $31.3 million as a result of
higher interest rates in 1975, increased bor-
rowings to finance new aircraft purchases,
and a reduced amount of interest capitalized.
Income taxes were provided on book income
at the rate of 49.25% in the current year and
48. 9% last year. The provisions for income
taxes were reduced by investment tax credit
amortization of $11.4 million in 1975 and
$8 .3 million in 1974.
Dividend payments for the year totaled
$11.9 million, or 60<!: per share. Fiscal 1975
was the 26th consecutive year in which Delta
has made cash dividend payments.
Operating Revenues
The following table com pares opera ting
revenues for fiscal 1975 and 1974 by major
revenue categories.
1975 1974 % Change
( In Thousands)
Passenger .. . ..... $1,261,138 $1,110,013 + 14%
Cargo . . . . . . . . . . . 85,388 86,685 - 1
Other, net .. 30 504 30 429
Total ...... $1 ,377,030 $1,227,127 + ll_%
9
Operating revenues increased by $149.9
million or 12% to $1.38 billion. During the
first four months of the year, revenues were
substantially boosted by a strike against a
major competitor. Revenue growth in the last
eight months of the year was adversely
affected by the recession as the national
economic posture was at its lowest point and
unemployment was at its highest level in
many years.
Passenger revenues rose 14% to $1.26
billion primarily as a result of a 10% gain in
revenue per passenger mile - up from 7.19<i: to
7. 92<i:. This increase in revenue per passenger
mile was attributable to the continued effect
of the 6% passenger fare increase granted by
the CAB in April last fiscal year and the
temporary 4% increase which took effect
November 15,1974. The latter increase was
recently reviewed by the CAB and extended
to January 14, 1976. During the last half of
the year various carriers filed , and the CAB
approved, a number of discount fares in an
effort to stimulate traffic growth, and as a
result some erosion of the passenger mile
yield has been experienced.
Revenue passenger miles totaled
15.92 billion for the year, up 3% from the 15.45
billion in 1974. During the competitor's strike
period, passenger mile growth averaged 15%.
Following the end of that strike, passenger
miles declined an average of 2%.
Cargo revenues declined 1% to $85.4
million. Included in the previous year's cargo
revenue was $3 .5 million in mail payments
retroactive to prior years. Excluding these
payments from the 1974 revenues, cargo
revenue gained 3% in 1975 over 1974. Cargo
yield rose 15% and ton miles dropped 10%.
Other net revenue remained virtually flat.
Security charges were down in 1975 by $4.2
million as the CAB reduced the allowable
security charge by 42%. This reduction was
offset by the non-recurring fees paid to Delta
related to the sale of 8 DC-9-31 aircraft pre-
viously leased from Storer Leasing, Inc.
Operating Expenses
The following table compares operating
expenses by major expense functions for
fiscal 1975 with 1974.
1975 __
1
_
9_
74
__ % Change
( In Thousands)
Salaries and Related
Costs . . ....... .. .. $ 572 ,982 $ 509,054 + 13%
Aircraft Fuels. 235 ,849 144,780 + 63
Aircraft Maintenance
Materials and Repairs 40,007 35,722 + 12
Aircraft Rentals . 24,954 29,498 - 15
Other Rentals .... 29,104 23,935 + 22
Landing Fees . 27,925 23,584 + 18
Passenger Food and
Related Supplies. 49,679 42,488 + 17
Passenger Commissions 37,329 32, 127 + 16
Advertising. 18,264 17,226 + 6
Other Cash Expenses . 117,472 111,753 + 5
Total Cash Expenses $1,153,565 $ 970, 167 + 19%
Depreciation and
Amortization ... 128,435 99,876 + 12_
Total Operating
Expenses . . ... $1,282,000 $1,070,043 + 20%
FUEL COST AS A PERCENT OF
PASSENGER REVENUE
% of Passenger
Revenue
20
18
16
14
12
10
0
71 72 73 74 75
11
Operating expenses increased 20% over
those reported for 1974, although operating
capacity was held to 29.5 billion available
seat miles, an increase of only 4% over last
year. Revenue plane miles were cut 3% to
210 million with the increase in available seat
miles achieved by the increased use of larger
aircraft.
Continuing escalation in fuel cost was
the major contributor to the rise in expenses,
accounting for $91 million or 50% of the $183
million increase in cash expenses. Fuel gallons
used in 197 5 totaled 903. 5 million, down 1 %
from 1974. The average price per gallon in-
creased 64% from 15 . 87<!: to 26.10<!: . Salaries
and related costs rose 13%, while the average
number of employees increased 2%. Aircraft
rentals declined 15% as 5 leased DC-10 air-
craft were returned to the lessor late in fiscal
197 5, and 8 leased DC-9 aircraft were removed
from the fleet and sold by Delta for the account
of the lessor. All other cash expenses rose 11 %
due to the high level of inflation experienced
throughout the year. Depreciation and
amortization expense increased $29 million
or 29% due to the continued introduction of
new aircraft related to Delta's fleet modern-
ization plan.
Capitalization and Financing
During fiscal 1975 a new three- year loan
agreement was negotiated with The Travelers
Indemnity Company providing for unsecured
borrowings of $35 million at an interest rate
of 9 3/ 8% per annum. The total amount has
been borrowed and repayment will be made
in installments of $17.5 million on April 30,
1977 and 1978. Also, the Company negotiated
a new Bank Credit Agreement with a group of
28 banks which provided an immediate
unsecured borrowing of $40 million. The
terms of the agreement include repayment
over five years beginning December 31, 1975
and require no compensating balances.
Shortly after this borrowing, a $40 million
repayment was made on the 1973 revolving
12
Bank Credit Agreement, which agreement
requires an average 15% compensating
balances.
The loan agreement with Lazard Brothers
& Co., Limited was amended during the
year to provide $20 million (based on the
exchange rate at the time the agreement was
signed) additional financing for the Rolls-
Royce engines used on Lockheed L-1011
aircraft. The new financing carries an interest
rate of 7 1/2%. Based on June 30, 1975 cur-
rency exchange rates, $19.3 million was
available under the amended agreement.
Long-term debt at June 30,1975 totaled
$442.7 million (including current maturities),
up $76.3 million from the previous year and
amounted to 92% of equity at year end. These
net borrowings together with net internally
generated funds of $242.6 million were used
primarily to purchase flight and ground
equipment in an aggregate amount of $300.1
million.
At June 30,1975, outstanding purchase
commitments for aircraft and related spares
will require future expenditures of $381
million during fiscal years 1976 through 1979.
Mandatory debt repayments due in fiscal
1976 amount to $47 million. It is expected
that the funds available under existing credit
agreements totaling approximately $59
million, together with funds provided from
operations, will be sufficient to cover these
purchase commitments and the repayment
of normal debt maturities.
Total stockholder equity at June 30,1975
was $481.2 million or $24.20 per share, up
8% over the $22.33 per share reported last year.
Subsequent to the close of the fiscal year,
the Company filed a registration statement
with the Securities and Exchange Commis-
sion to register 500,000 warrants to purchase
Delta stock at $48 per share. These warrants,
which expire on May 1, 1978, were issued to
Storer Broadcasting Company in connection
with the merger of Northeast Airlines, Inc.
into Delta Air Lines, Inc. on August 1, 1972.
13
Flight Equipment and
Purchase Commitments
During the past fiscal year Delta accepted
delivery of 9 Lockheed L-1011 aircraft and 13
advanced model Boeing 727-200 aircraft. The
fleet was reduced by the disposition of 21
aircraft, including the sale of 6 FH-227's,
and 2 Boeing B-747's. Five leased Douglas
DC-lO's and 8 leased DC-9's were returned
to their respective lessors. At June 30, 1975,
Delta operated the following aircraft fleet:
Ty p e of
Aircraft S eat s
B-747 ..... 370
L-1011 .. 250
DC-8-61 . 195
DC-8-51. 135
B-727-200 ...... 135
B-727-100 ... . . . 97
DC-9-32 .. . . . . . . . . 90
Totals .. .
Owned
3
18
13
21
44
_1_
161
Leased Total
3
18
13
21
13 57
5 5
_1_
18 179
The Company is currently negotiating
with The Boeing Company for the sale of its
remaining three B-7 4 7 aircraft for ten ta ti ve
delivery of two in early and one in mid-1977.
Negotiations are expected to be completed in
the near future, but it is also expected that
Boeing's obligation to purchase the three
aircraft will be subject to cancellation on De-
cember 31, 1975, if Boeing's prospective pur-
chaser, The Flying Tiger Line, is unable to
secure adequate financing to purchase the
three aircraft by that time.
The Company has entered into an agree-
ment with FBA Aircraft, S.A. for the sale of
its fleet of 21 DC-8-51 aircraft. The agreement
calls for deliveries to begin in the September
quarter of 197 5 and continue through the
June quarter of 1976. The agreement specifies
that delivery of certain of the aircraft can be
deferred for a limited period of time. If the
purchaser chooses to exercise the option to
defer delivery on any aircraft, the agreement
requires certain deposits and interest pay-
ments on the unpaid balance of the purchase
price.
At June 30, 1975, Delta had purchase
commitments for 18 B-727-200 aircraft with
14
deliveries scheduled from July, 197 5 througl;
August, 1976 and 12 L-1011 aircraft. Three
L-1011 aircraft are scheduled for delivery in
the June,1976 quarter. The nine remaining
L-lOll's are currently scheduled for delivery
in fiscal years 1977 through 1979 and are
subject to cancellation at a cost to Delta of
$40,000 per aircraft cancelled. At year end,
the Company had options for an additional
12 B-727-200 aircraft, scheduled for delivery
during fiscal 1977.
Personnel
At June 30,1975, the team of Delta Profes-
sionals numbered 27,800, up slightly from
the previous year's 27,600, excluding tem-
porary employees in both years. Salaries and
related fringe benefits totaled $57 3 million,
an increase of 13% over last year, and equal
to 41.M of each revenue dollar versus 41,5q:
for the previous year.
During the year,
when the level of
national unemployment
soared to its highest level
in decades, Delta con-
tinued its policy of
providing a stable and
rewarding work environ-
ment for all of its
personnel. This was ac-
complished with the help
and cooperation of all of our people. Vacancies
in certain critical jobs, created by retirement
and resignation, were filled by existing per-
sonnel. As the cutback in operations reduced
the need for people in certain job categories,
reassignments were made to other areas
where productive contributions could be
made. Also, the Company granted individual
requests for personal leaves of absence for
limited periods of time in those areas most
affected by the reduced levels of traffic and
operations .
With the increasing complexities in the
business environment, Delta further strength-
ened its position to effectively meet these
15
challenges of the future by advancing ten
executives to positions of increased responsi-
bility. Promoted to Vice President were
Messrs. Rex A. McClelland, Properties, and
J .A. York, Personnel Benefits. Promoted to
Assistant Vice President were Messrs.
Robert H. Cowart, Operations Administration;
Russell H. Heil, Personnel Administration;
John Hume, Training and Personnel
Communications; H. M. Johnson, Personnel
Services; Herman S. Stanley, Dining Services;
Eugene H. Stewart, Corporate Security;
C.A. Thompson, Stations; and E.A. Thompson,
Economic Research.
Regulatory Matters
The past year has seen renewed interest in
route proceedings, while basic fare and rate
investigations have continued; a growing
emphasis on liberalized charter and inclusive
tour regulations; and growing pressure by
various governmental and non-governmental
bodies for significant changes in the federal
statutes regulating commercial air
transportation.
Route Cases
Atlanta-London. Delta has concentrated
its efforts in the pending Transatlantic Route
Proceeding on seeking nonstop authority
between the major gateways of Atlanta,
Georgia and London, England which, unless
restricted, would also permit Delta to provide
single-plane London service via Atlanta for
other cities in the Southern United States.
Delta's application has been supported by
the CAB's Bureau of Operating Rights, the
U.S. Department of Transportation, and the
U.S. Department of Justice. The CAB is
expected to submit its decision to the President
in late 197 5, with final action not expected
until sometime in 1976. Implementation of
any new routes authorized by the decision
will have to await appropriate treaty pro-
visions between the United States and the
countries involved.
16
Atlanta-London Interchange. Delta has
served notice on Pan American terminating
the existing single-plane interchange service
operated by the two companies between
Atlanta and London via Washington, D.C.
effective October 26,1975. This notice was
served in light of the awaited decision in the
Transatlantic Route Proceeding, and the
absence of need for the amount of local
domestic capacity which has been made
available by the B-7 4 7 interchange service
between Atlanta and Washington Dulles
Airport. Delta and Pan American have negoti-
ated a replacement agreement which, subject
to CAB approval, will provide for a coordi-
nated change-of-gauge ( connecting) service
between Atlanta and London via Dulles.
Chicago-Montreal. The CAB has insti-
tuted a proceeding to determine if a U.S.
carrier should be certificated to operate
nonstop between Chicago, Illinois and Mon-
treal, Canada, as authorized by the most
recent U.S.-Canadian bilateral treaty. Delta
and a number of other U.S. carriers seek this
authority. A CAB decision is not expected
before mid-1976.
Fort Myers, Florida-Atlanta. Delta and
a number of other carriers seek nonstop
authority between Fort Myers, Florida and
the Atlanta gateway. There is presently no
single-carrier service between Fort Myers
and Atlanta or points beyond in the Midwest.
Delta's application has been supported by
Fort Myers civic parties, as well as most of
the mid western cities to which Delta proposes
Fort Myers service through the Atlanta gate-
way. An Administrative Law Judge, however,
has recommended selection of Eastern rather
than Delta, a recommendation which Delta
will vigorously contest on appeal to the CAB.
Boston-Atlanta. The CAB has recently
agreed to hear Delta's application, filed in
1970 (and competing proposals) for nonstop
authority between Boston and Atlanta.
Delta's participation in the traffic between
these two cities ( on intermediate-stop ser-
vices) has grown to a sizeable volume since
17
the Delta-Northeast merger in 1972. Decision
is not expected before mid-1976. The CAB
denied a related Delta application for immedi-
ate, temporary exemption authority pending
decision in the basic case.
Detroit-Boston. The CAB has instituted
a proceeding to consider certification of com-
petitive, nonstop service between Detroit
and Boston. Delta and a number of other
carriers are seeking this authority. The case
will go to hearing in the fall of 197 5, with final
decision not expected until well into 1976.
Miami-Los Angeles. The CAB is consider-
ing 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 the
authority to some other carrier. The Adminis-
trative Law Judge who heard the case recom-
mended selection of Pan American, and the
termination of Delta's stayed authority. Delta
has vigorously opposed this recommendation
and continues to seek the right to reinstitute
this service. The case is now awaiting CAB
decision.
Chicago-New Orleans. The CAB will
determine whether Eastern Air Lines' present
authority to compete against Delta in the
Chicago-New Orleans market (not currently
being operated by Eastern) should be sus-
pended or be deleted, and whether new
authority should be granted to another carrier.
18
A number of other carriers have applied.
United and Eastern Air Lines have entered
into an agreement for the transfer of Eastern's
Chicago-New Orleans authority to United.
These proceedings will be tried together. The
hearing will commence in December, 1975.
Atlanta-Cleveland/ Detroit/ Cincinnati.
In July 1975 the CAB decided once again to
examine the possible need for competitive
service in these three markets. In two earlier
hearings an Administrative Law Judge
recommended Delta for the Atlanta-Cleveland
market and a competitor in Delta's Atlanta-
Detroit/ Cincinnati markets, but those
proceedings ended with a denial of all appli-
cations based on the energy shortage as it
then existed and public interest considera-
tions. The new case is not expected to go to
hearing before late 1975 or early 1976.
Dallas/ Ft. Worth-Shreveport. The CAB
has started a proceeding, still in preliminary
stages, to consider authorizing competitive
nonstop service in this market, wherein only
Delta now has nonstop rights.
Route Transfer and Route Exchange Cases
On September 3, 1975, the CAB disap-
proved the application filed by Delta and
TWA for approval of their agreement whereby
Delta would have obtained TWA's existing
authority between Nashville, Tennessee and
St.Louis/ Atlanta/ Tampa-St.Petersburg-
Clearwater/ Miami-Ft.Lauderdale, with ter-
mination of all TWA Nash ville authority, in
exchange for payment of $1,000,000. This
decision remains subject to petitions for re-
consideration from interested parties.
Delta has terminated its agreement with
Piedmont Aviation, whereby Delta would
have transferred certain of its Asheville,
North Carolina authorities to Piedmont and
Piedmont would have transferred certain of
its Charleston, South Carolina authorities to
Delta. The termination notice was given in
accordance with the terms of the agreement,
based on the CAB's failure to approve the
agreement by June 15,1975.
19
Suspensions
Delta's authority to suspend its services
between Miami and San Francisco has been
continued until December 31, 1975.
Rate and Fare Cases
The CAB's overall investigation into the
structure and level of U.S. airline passenger
fares is now virtually completed. The most
recent decision, involving fare structure-
that is, the relationships between different
basic types of fares and between fares for
differing lengths of travel-took effect on
April 29,1975. This resulted in increases in
first class fares ( with additional increases
slated for future applicability); some increase
in short-haul day coach fares; and some de-
crease in long-haul day coach fares. A simul-
taneous decision in the so-called Joint Fares
Phase of the Investigation, establishing new
rules for the publication of joint fares and
division of such revenues between the carriers,
has also been implemented, but recent
decision on petitions for reconsideration will
require further technical changes in this area.
The CAB permitted passenger fares to
increase 4% in November, 1974, due to the
spiraling cost of inflation, and especially the
escalating cost of fuel. The original increase
was scheduled to expire on June 30,1975, but
the CAB has allowed this increase to remain in
effect until January 14,1976. Meanwhile, in
response to requests from some carriers for
additional fare increases, the CAB has decided
to investigate the need to retain the 4% in-
crease after January 14, 197 6 and the need for
additional fare increases above the 4%
increase. In addition, the CAB has decided
to start a rule-making proceeding to consider
changes in the industry load factor standard
and is contemplating review of the industry's
rate of return on investment standard. The
load factor standard is important in CAB
ra temaking proceedings because if carriers
20
do not maintain a load factor equal to or in
excess of the standard, now set at 55%,
portions of their operating costs are not taken
in to account as a basis for increases in fares.
The Domestic Night Coach Fare Investi-
gation, which is considering reduced "off-
peak" fares such as those used by Delta in its
famous "Early Bird" and "Owly Bird"
services, is slated to go to hearing in Septem-
ber, 197 5. Decision in this proceeding is not
expected until sometime well into 1976.
Two new types of discounts have been
allowed to take effect during the past fiscal
year. One is an" excursion" type fare generally
applicable to markets of more than 750 miles,
which affords a 20% discount on-season and
25% off-season if certain conditions on length
of stay are met. A second type of fare involves
a 35% discount for travel during certain non-
peak periods, if the passenger chooses to
travel in a cabin of the aircraft in which the
usual amenities (food and beverage service
and the like) are not provided. The latter
service is currently confined to certain East
Coast and southern transcontinental markets,
while the "excursion" fares are essentially
nationwide in scope. The 35% discount for
the austere service is currently under investi-
gation by the CAB in its No Frill Fares
Investigation, which went to hearing in
August, 1975. To date, the limited experience
of the Company has indicated that the no frill
fares apparently have not generated as much
additional traffic as was intended. Instead,
indications are that they have resulted in
diversion of many passengers who would
otherwise be flying at standard fares to the
no frill fares.
Charter and Tour Services
The CAB has recently issued exceedingly
liberal One Stop Inclusive Tour Charter and
Special Event Charter regulations. These
regulations, permitting members of the gen-
eral public to use charter services on a liberal
basis whether or not they are members of
21
pre-existing groups, will largely blur the
distinction between charter and scheduled
services. The new regulations are applicable
both to domestic and international trans-
portation, with some minor differences for
each type of service. Delta had opposed such
extreme liberalization because of the adverse
effect which such rules could have on the
economics of the nation's important scheduled
services, and the Company is currently
studying what action, if any, it should take
in light of the new regulations.
Regulatory Reform
The Administration and several members
of Congress have indicated their intentions to
introduce legislation during the current year
which, if enacted, would probably change the
current method and degree of regulation of the
air transport industry.
Some of the proposed changes most
widely discussed include a reduction or
elimination of certain antitrust exemptions,
which air carriers now have under the Federal
Aviation Act; a reduction in the authority of
the CAB to control the fares charged by air
carriers; and introduction of a "free market
entry" concept which would facilitate the
entry and exit of air carriers certificated by the
CAB, as well as other non-certificated air
carriers, into markets which are currently
certificated to a particular air carrier or air
carriers and in which, under present law:, no
other carriers can operate without prior
approval of the CAB .
The CAB has also given notice that it is
considering a series of actions designed to
assess the economic and operational conse-
quences of a reduction in regulatory con-
straints on the airline industry. The proposed
CAB action will consist of a series of limited
experiments dealing with both price flexi-
bility and the "free market entry" concept
between specified city pairs and in specified
markets. The CAB has invited comments
from the public, the Congress, the airline
22
industry and others with respect to its pro-
posal. Although it is too early to tell when
and, if so, in what form the experiments will
take place or what city pairs and markets will
be involved, Delta will give careful considera-
tion to cooperating to the extent that the
Company can reasonably do so.
Because of the uncertainties involved
and the lack of any comprehensive legislative
proposals, it is too early to adequately assess
the impact, if any, on the operations of Delta
of any change in the regulatory scheme
governing the airline industry.
23
Delta Air Lines System Route Map
DELTA AIR LINES, INC .
Balance Sheets
June30, 1975and 1974
ASSETS
CURRENT ASSETS:
Cash .
Short-term cash investments,
at cost ..
Accounts receivable, net .
Refundable income taxes .
Maintenance and operating
supplies, at average cost .
Prepaid expenses, etc .
Total current assets .
PROPERTY AND EQUIPMENT
(Notes 3 and 4):
Cost-
Flight
Equipment Other
1975 1974
[In Thousands)
$ 50,838 $ 29 ,886
31,145
50,838 61 ,031
81 ,544 68,427
17,300
14,109 11 ,023
8,033 11 ,887
171 ,824 152 368
1975 $1 ,482 ,767 $228,313 1,711 ,080
197 4 1,225,167 204 ,182 1,429,349
Accumulated depreciation -
1975 487 ,014 99 ,542 586,556
197 4 403 ,044 89 ,264 - - - - 492 ,308
937 ,041
Advance payments for neyv
equipment (Note 3) .
OTHER ASSETS :
Nonoperating property and
equipment .
Long-term receivables and
prepayments, etc.
26
1,124,524
47,950 104,793
1,172,474 1,041 834
2,643
6,769
604
52 1
9,412 1,125
$1 ,353,710 $1 ,195,327
DELTA AIR LINES, INC.
LIABILITIES AND
STOCKHOLDER EQUITY 1975 1974
(In Thousands)
CURRENT LI ABILITI ES:
Current maturities of long-term
debt . $ 46,991 $ 21,244
Short-term notes payable . 3,000
Accounts payable and accrued
liabilities . 126,673 115,174
Unearned transportation
revenue . 25,993 26,997
Accrued income taxes . 13 362
Total current liabilities . 202,657 176 777
LONG-TERM DEBT(Note 2) . 395,673 345 119
DEFERRED CREDITS:
Deferred Federal income taxes . 230,302 184,813
Unamortized investment tax
credits . 37,059 44,792
Other . 6,843
274,204 229,605
COMMITMENTS (Notes 3 and 4)
STOCKHOLDER EQUITY
(Note 6):
Common stock, par value
$3.00 per share - Authorized
25,000,000 shares;
Outstanding 19,880,577
shares in 1975 and
19,879,377 shares in 197 4 . 59,642 59,638
Common stock purchase
warrants . 6,750 6,750
Additional paid-in capital . 73,331 73,280
Retained earni ngs (of which
$221 ,884,000 is restricted
at June 30, 1975 as to the
payment of cash dividends
under credit agreements) . 341 ,453 304 158
481 ,176 443,826
$1 ,353,710 $1 ,195,327
The accompanying notes are an integral part of these balance sheets.
27
DELTA AIR LINES, INC
Statements of Income
FortheyearsendedJune30, 1975and 1974
1975 1974
[In Thousands)
OPERATING REVENU ES:
Passenger . . $1 ,261 ,138 $1,11 0,0 13
Cargo . 85,388 86 ,685
Other, net . 30,504 30,429
Total operating revenues .. 1,377,030 1,227,127
OPERATING EXPENSES:
Flying operations . 425,300 3 16,207
Maintenance . 162,486 145,287
Aircraft and traffic servicing . 259,522 233 ,181
Promotion and sales . 147,055 130,763
Passenger service . 127,452 113,885
Depreciation and amortization . 127,191 98 ,303
General and administrative . 32,994 32,417
Total operating expenses . 1,282,000 1,070,043
OPERATING INCOM E . 95,030 157,084
OTH ER EXPEN SE (INCO ME):
Interest expense . 37,380 28,275
Less - Interest capitalized on
advances for equipment . 6,099 10,810
31 ,281 17,465
Miscellaneous income, net. (2,916) (3 ,088)
Gain on disposition of aircraft . (7,944) (18,607)
20,421 (4 ,230)
INCOME BEFORE INCOM E
TAXES. 74,609 161 ,314
PROVISION FOR INCOME
TAXES (Note 5): .
Income taxes provided . 36,745 78,953
Less - Amortization of
investment tax credits . (11 ,359) (8,288)
25,386 70 665
NET INCOME . $ 49,223 $ 90,649
NET INCOME PER COMMON
SHARE . $2.48 $4.56
The accompanying notes are an integral part of these statements.
28
DELTA AIR LINES, INC.
Statements of Retained Earnings
FortheyearsendedJune30, 1975 and 1974
1975 1974
(In Thousands)
BALANCE AT BEGINNING
OF YEAR . . $304,158 $225,435
Add (Deduct):
Net income . 49,223 90,649
Cash dividends -$.60 per
share . (11,928) (11 ,926)
BALANCE AT END OF YEAR
(restricted as indicated on
balance sheet) . $341,453 $304,158
The accompanying notes are an integral part of these statements.
29
DELTA AIR LINES, INC.
Statements of Additional Paid-in Capital
For the years ended J une 30, 1975 and 1974
BALANCE AT BEGINNING
OF YEAR .
Add:
Excess of proceeds over par value of
common shares issued (1,200
shares in 1975 and 12,853 shares in
1974) 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 ..
BALANCE AT END OF YEAR .
1975 1974
[In Thousands)
$73,280 $72,768
38 408
13 104
- - -
$73,331 $73,280
The accompanying notes are an integral part of these statements
30
DELTA AIR LINES, INC.
Statements of Changes in Financial Position
Forthe yearsendedJune30, 1975and 1974
1975 1974
(In Thousands)
FUNDS PROVIDED BY:
Net income. . $ 49,223 $ 90 ,649
Add (deduct) items not affecting
working capital -
Depreciation and amortization 128,435 99,876
Deferred income taxes . 45,489 27 ,316
Investment tax credits, net . (7,733) 19,281
Other . 78 1,177
Total from operations . 215,492 238,299
Long-term financing , less in 1974
$124 ,000,000 long-term portion of
bank debt refinanced . 97,833 195,619
Disposition of property and
equipment (book value) . 39,001 40,629
Common stock issued under
employee stock option plan ,
including income tax reduction 55 550
Other . 517
352,898 475 ,097
FUNDS USED FOR :
Property and equipment additions -
Flight equipment, including
advances . 266,374 385 ,228
Other . 33,741 54 ,563
300,115 439 ,791
Reduction of long-term debt .. . . . 47,279 18,500
Cash dividends . 11,928 11 ,926
Preoperating expenses . 1,366
Settlement of prior years' income
taxes (Note 5) . 3,850
359,322 475,433
DECREASE IN WORKING CAPITAL $ (6,424) $ (336)
CHANGES IN WORKING CAPITAL
COMPONENTS:
Increase (decrease) in -
Cash and short-term investments $ (10,193) $(35 ,774)
Receivables, net . 13,117 10,384
Refundable income taxes . 17,300
Other current assets . (768) 13,316
Decrease (increase) in -
Current maturities of long-term
debt . (25,747) 30,156
Short-term notes payable . (3,000)
Accounts payable and accrued
liabilities . (11 ,499) (24,482)
Other current liabilities . . 14,366 6,064
$ (6,424) $ (336)
The accompanying notes are an integral part of these statements.
31
DELTA AIR LINES, INC .
Notes to Financial Statements
June 30 ,1975 and 1974
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
overhauls, are charged to maintenance expense
when incurred. Major replacements and better-
ments are capitalized.
Interest Capitalized- Interest on advances
for new equipment is capitalized based on the
Company's current interest rate on long-term debt
in order to properly reflect the total cost of acquir-
ing such equipment. Capitalization of interest
ceases when the equipment is placed in service.
Assuming all interest had been charged to expense
as incurred, net income would have been lower by
approximately $850,000 in 1975 and $4,420,000 in
1974.
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. As of March 31, 1974, all pre-
operating expenses were fully amortized.
Foreign Currency Transactions-Foreign ex-
change adjustments are included in income on a
current basis, except for adjustments related to
32
DELTA AIR LINES, INC
long-term debt which are recorded when such
debt becomes due within one year (see Note 2).
Foreign exchange adjustments included in 1975
and 1974 income were not significant.
Retirement Plans - All of the Company's per-
manent employees are covered under its noncon-
tributory trusteed plans providing for retirement,
disability and survivor benefits. The total expense
under these plans amounted to approximately
$35,600,000 in 1975 and $31,000,000 in 1974. The
Company's policy is to fund each year's accrued
costs under the plans, which costs include amor-
tization of prior service costs ($37,200,000 at
June 30,1975) over a thirty-year period to 1991.
As of June 30,1975, the assets of the plans ex-
ceeded the actuarially computed present value of
vested benefits under the plans.
The Pension Reform Act of 1974 requires the
Company to amend its retirement plans to con-
form with certain provisions of the Act, which
will become effective in 1976. The Company be-
lieves that the effect on annual pension costs and
the funding of such costs for 1976 and subsequent
years and the effect on vested benefits and prior
service costs resulting from such amendments will
not be significant.
Income Taxes- Total income taxes are pro-
vided by applying the applicable tax rates to book
income before income taxes. Deferred Federal in-
come taxes are provided for all significant items
(principally depreciation and interest capitalized)
where there is a timing difference in recording
such items for financial reporting purposes and
for income tax purposes. Investment tax credits
are amortized ( as a reduction of the provision for
income taxes) over approximately seven years.
(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
(19,880,277 shares in 1975 and 19,875,610 shares
in 1974 ). Outstanding stock options and warrants
(see Note 6) have no material dilutive effect on
net income per common share in 1975 and 1974.
33
DELTA AIR LINES, INC
2. LONG-TERM DEBT:
At June 30, 1975 and 1974, the Company's
long-term debt (including current maturities) was
as follows: 1915 1914
(a) Due banks under unsecured
notes carrying an interest rate
of 1/ 4% above the prime rate . $
(b) Due banks under 1973 credit
agreement which provides for
unsecured borrowings up to
$300,000,000 on a revolving
basis through September,
1975, at which time the out-
standing balance will be
converted to a five-year term
loan, repayable in quarterly
installments of $11 ,000,000
beginning December 31,
1975, with the remaining
$91 ,000,000 balance payable
on September 30, 1980. The
interest rate is equal to the
prime rate through Septem-
ber, 1975, then 1/ 4% above
the prime rate through
September, 1978, then 1/ 2%
above the prime rate through
September, 1980
($33,000,000 payable in
fiscal 1976) .
(c) Due banks under 1975
unsecured credit agreement,
repayable in quarterly install-
ments of $1 ,500,000 begin-
ning December 31, 1975, with
the remaining $11 ,500,000
balance payable on Septem-
ber, 30, 1980. The interest
rate is equal to 11 9% of the
prime rate through Septem-
ber, 1975, then 119% of the
prime rate plus 1/4% through
September, 1978, and then
119% of the prime rate plus
1 /2% through September,
1980 ($4,500,000 payable in
fiscal 1976).
34
[In Thousands)
$ 6,667
260,000 270,000
40,000
(d) Due Lazard Brothers & Co ,
Limited under 5-1 /2% and 6%
unsecured notes, repayable
in pounds sterling in 20 semi-
annual installments to 1985
(translated at June 30
exchange rates, total debt was
$46,725,000 in 1974 and
$70,890,000 in 1975, of
which $7,527,000 is payable
in fiscal 1976) .
(e) Due Rolls-Royce (1971 )
Limited in monthly install-
ments (including 6-1 / 2%
interest) to January, 1984
($464,000 payable in fiscal
1976)
(f) Due insurance companies
under 6% and 7% unsecured
notes, repayable in install-
ments to December 31 , 1979
($1 ,500,000 payable in fiscal
1976)
(g) Due an insurance company
under a 9-3/ 8% unsecured
note, repayable in installments
of $17,500,000 on April 30,
1977 and 1978
(h) Convertible Subordinated
Debentures, 6-1/ 2%, maturing
August 1, 1986, with annual
sinking fund redemptions of
$1 ,100,000 beginning July
31 , 1976($1 , 100,000 acquired
in fiscal 1975 for future sinking
fund purposes)-(Note 6) .
Total.
Less - Current maturities
DELTA AIR LINES, INC .
1975 1974
(In Thousands)
76,129
3,885
6,750
35,000
20,900
442,664
46,991
$395,673
46,348
4,348
17,000
22,000
366,363
21,244
$345,119
At June 30,1975, the Company may borrow
an additional $40,000,000 under the 1973 bank
credit agreement, of which $15,000,000 was bor-
rowed on July 1,1975. In addition, approximately
$19,300,000 (based on June 30,1975 currency ex-
change rates) is available under loan agreements
with Lazard Brothers & Co., Limited to finance
the purchase of engines for the Company's
L-1011 aircraft. In the opinion of management, these
35
DELTA AIR LI NES, INC .
borrowings, together with funds provided from
operations, will sufficiently cover future expen-
ditures for aircraft (see Note 3) and scheduled
debt maturities. At June 30,1975, the aggregate
annual maturities of long-term debt for the next
five fiscal years were as follows:
Amount
[In Thousands)
1976 .
1977 .
. . . .... $46,99 1
1978 ................. .
1979 .
1980.
77,579
78,679
61,179
60,429
In addition to restrictions on cash dividends
as indicated on the balance sheet, the Company's
credit agreements include requirements for main-
tenance of working capital (as defined) and limi-
tations on indebtedness , leases and other
obligations. In connection with the 1973 bank
credit agreement, 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 out-
standing borrowings, with the average balances
and borrowings being computed over the term
of the agreement. While a substantial portion of the
cash balances shown on the accompanying balance
sheet is maintained for this purpose, there are no
legal restrictions on the Company's use of these
funds. No such balance requirements or agree-
ments apply to the 1975 bank credit agreement.
36
DELTA AIR LINES, INC .
3. PURCHASE AND SALE COMMITMENTS:
At June 30,1975, the Company had outstand-
ing purchase commitments for the acquisition of
18 Boeing B-727-200 aircraft and 12 Lockheed
L-1011 aircraft, including related spare engines,
which will require future expenditures of approxi-
mately $381 million during fiscal years 1976
through 1979. The last 9 Lockheed L-1011 aircraft
are cancelable by specified interim dates to July
31, 1977. The Company also held options for an
additional 12 Boeing B-727-200 aircraft for de-
livery in fiscal year 1977. At June 30, 1975, advance
payments and other capitalized expenditures re-
lating to aircraft to be delivered amounted to
$13,883,000 on the Lockheed aircraft and $38,570,000
on the Boeing aircraft.
The Company has entered into an agreement
to sell its 21 Douglas DC-8-51 aircraft, which agree-
ment provides for delivery of the aircraft between
September, 1975 and June, 1976.
37
DELTA AIR LI NES, INC.
4. LEASE OBLIGATIONS:
At June 30,1975, the Company leased 18 Boe-
ing B-727 aircraft and certain airport terminal
and maintenance facilities, ticket offices, etc. under
long-term agreements. Leases for 5 Douglas DC-10
aircraft expired in May, 1975, and 8 leased Douglas
DC-9-31 aircraft were disposed of during the year
on behalf of the lessor. Rental expense was
$54,058,000 in 1975 and $53,433,000 in 1974, in-
cluding rentals under "financing leases" (as de-
fined by the Securities and Exchange Commission)
of $28,662,000 in 1975 and $29,354,000 in 1974.
At June 30,1975, the Company's minimum
rental commitments under noncancelable leases
with initial or remaining terms of more than one
year were as follows :
Payable for Financing Other
Fiscal Year Leases Leases ~
(In Thousands)
1976 $ 28,150 $ 2,920 $ 31 ,070
1977 28,070 2,380 30,450
1978 27,330 1,680 29,010
1979 25,700 1,370 27 ,070
1980 23,990 970 24,960
1981-1985 76,590 2,550 79,140
1986-1990 60,000 190 60,190
1991-1995 50,570 70 50,640
After 1995 45,950 10 45,960
$366,350 $12,140 $378,490
The estimated present value (based on a
weighted average interest rate of 6.4%, with such
interest rates used ranging from 3.5% to 13.0%)
of the minimum rental commitments under fi-
nancing leases was as follows at June 30,1975
and 1974:
Applicable to 1975 1974
(In Thousands]
Terminal facilities . . ... $ 89,930 $ 89,520
Maintenance facilities .... . 67,630 70,660
Aircraft .............. . . . . 47,640 55 ,390
Other ...... ... . . . . 11 ,380 12,050
$2 16,580 $227 ,620
Assuming all financing leases were capital-
ized and the related leasehold rights amortized
on a straight-line basis and interest accrued on
the outstanding present value, the effect on 1975
and 1974 net income would have been less than 3%.
38
DELTA AIR LIN ES, INC.
5. INCOME TAXES :
The provision for income taxes in 197 5 and
1974 consisted of:
1975 1974
(In Thousands)
Currently payable (refundable) -
Federal . . $( 13,300) $22,051
State . 930 2,017
Deferred Federal income taxes . 45,489 27,316
Investment tax credits .. 3,626 27 ,569
Inco me taxes provided . 36,745 78,953
Less - Am ortization of investment
tax credits . (11 ,359) (8 ,288)
$25,386 $70,665
Total income taxes provided were 49.25%
and 48 .9% of 1975 and 1974 book income before
income taxes, respectively, representing taxes
provided at the 48.0% Federal statutory rate plus
net state income taxes. As of June 30,1975, ap-
proximately $22,500,000 of unutilized investment
tax credits, expiring in fiscal year 1982, are avail-
able to reduce future Federal income taxes payable.
The provision for def erred Federal income
taxes resulted from the tax effect of the following
timing differences:
Depreciation .
Interest capitalized .
Preoperating expenses .
Other expenses, net .
1975 1974
(In Thousands)
.. $38,478
2,928
4,083
$45,489
$22,616
5,189
(853)
364
$27 ,316
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
peen made in prior years. The Internal Revenue
Service has recently completed an examination
of the Company's income tax returns for the years
1966 through 1972 and has raised certain issues
which the Company intends to contest. In the
opinion of management, adequate provisions
have been made for potential tax deficiencies and
interest thereon.
39
DELTA AIR LINES, INC.
6. COMMON STOCK:
At June 30, 1975, the Company had 1,090,550
shares of unissued common stock reserved for
stock options (506,950 shares), stock purchase
warrants (500,000 shares at $48 per share) and
conversion of Convertible Subordinated Deben-
tures (83,600 shares at $250 per share) .
Under the Company's Qualified Stock Option
Plans, options for 8,200 shares were outstanding
at June 30,1975 (6,950 shares at $30.25 per share
and 1,250 shares at $51.75 per share) . Transactions
during 1975 and 1974 were as follows:
Outstanding at beg inning of year .
Exercised .
Expired .
Terminated (see below) .... . . . . . . .. .
Option Shares
1975 1974
13,150
(1,200)
(3,750)
150,116
(12,853)
(1,613)
(122 ,500)
Outstanding at end of year .. . .. . . . . . . 8,200 13,150
Exercisable at end of year . 7,575 9,338
Options granted in May, 1973, for the pur-
chase of 122,500 shares of common stock at $51.75
per share were terminated in fiscal 1974 in con-
nection with the implementation of the 1972 Per-
formance Share Unit Plan for officers and key
employees. This plan has no effect on the Com-
pany's authorized and unissued common stock.
40
DELTA AIR LIN ES, INC.
Auditors' Report
ARTH UR ANDERSEN & Co.
ATLANTA, GEORG IA
To the Stockholders and the 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, 1975 and 1974, and the related state-
ments of income, retained earnings, additional
paid-in capital and changes in financial 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
statements present fairly the financial position
of Delta Air Lines, Inc. as of June 30, 1975 and
1974, and the results of its operations and the
changes in its financial position for the years then
ended, in conformity with generally accepted
accounting principles consistently applied
during the periods.
Atlanta, Georgia,
August 15, 1975 .
41
DELTA AIR LINES, INC
Summary of Operations For the years ended June 30
(Dollars expressed in thousands except per share figures)
1975
Operating revenues
Passenger . ........ . . . . . ... . .
. . . . . . $1 ,261 ,138
Cargo . . ... . .. . 85,388
Other, net . ........ .. ... 30,504
Total operating revenues . ........ '
.... $1 ,377,030
Operating expenses . 1,282,000
Operating income . $ 95,030
Interest expense, etc ., net* . 28,365
Gain on disposition of aircraft . 7,944
Income before taxes . ... .. ... . . $ 74,609
Income taxes . 25,386
Net income before extraordinary items . $ 49,223
Extraordinary items . . . . . . . . . . . . . . .
Net income . $ 49,223
Net income per share . $2.48
Dividends paid . ..... . . .. $11,928
Dividends paid per share . ..... . .. . $.60
*Has been reduced by interest capitalized of .. $ 6,099
Other Financial and Statistical Data
Long-term debt . .. . ... . .. .... . .. . $ 395,673
Stockholder equity . . . . . . . . . . . . . . . $ 481 ,176
Stockholder equity per share . $24.20
Shares of common stock outstanding . 19,880,577
Revenue passengers enplaned . 25,832,608
Available seat miles (000). 29,497,234
Revenue passenger miles (000). 15,916,860
Passenger load factor . 53.96%
Break-even load factor . 49.89%
Available ton miles (000) ..... 4,030,116
Revenue ton miles (000). 1,822,574
Passenger revenue per passenger mile . 7.92~
Operating expenses per available seat mile . 4.35~
0 perating expenses per available ton mile . 31.8H
42
1974
$1 ,11 0,013
86 ,685
30,429
$1,227 ,127
1,070,043
$ 157,084
14,377
18,607
$ 161 ,3 14
70,665
$ 90 ,649
$ 90,649
$4 .56
$1 1,926
$.60
$ 10,810
$ 345 ,119
$ 443 ,826
$22.33
19,879,377
25,565 ,208
28,41 7,679
15,445 ,891
54 .35%
46.66%
3,847 ,226
1,800,400
7.19q;
3_
77q;
27 81():
DELTA AIR LINES, INC .
1973 1972 1971
$ 960 ,215 $806 ,068 $7 13,665
76 ,323 65 ,160 60,097
13,161 12,338 10,320
$1,049 ,699 $883 ,566 $784,082
928 ,940 816,000 735,605
$ 120,759 $ 67 ,566 $ 48,477
9,171 13,500 15,699
4,653 1 897
$ 11 6,24 1 $ 55,963 $ 32 ,778
50 ,246 27,489 12,419
$ 65 ,995 $ 28 ,474 $ 20,359
(700)
$ 65 ,995 $ 28,474 $ 19,659
$3 .32 $1.44 $.99
$9 ,925 $9 ,570 $9 ,562
$.50 $.50 $.50
$ 6,345 $ 3,770 $ 4,639
$ 168,000 $199 ,585 $229 ,339
$ 364,553 $306,637 $278 ,239
$18.35 $ 15.46 $14.06
19,866 ,524 19,828,385 19,793 ,515
23 ,702 ,870 20,562 ,953 18,880 ,818
27 ,958,095 26,018 ,780 24,838 ,909
14,449 ,748 12,433,986 11 ,575 ,358
51 .68% 47 .79% 46.60%
45.18% 43 .80% 43.40%
3,815 ,285 3,613,790 3,403 ,838
1,711 ,229 1,482,453 1,381 ,954
6.65(): 6.48(): 6.17():
3.32(): 3.14(): 2 95q;
24.35(): 22 .ssq; 21 .6 1q;
43
DELTA AIR LINES, INC.
Management's Analysis and Discussion of
Summary of Operations
Net earnings in fiscal 1975 were $49.2 million, a
decline of 46% from fiscal 1974. Earnings in 1974 were
a record $90.6 million, 37% higher than fiscal 1973.
Included in these years were after-tax gains on the
sale of aircraft totaling $4.0 million in 1975, $9.4 million
in 1974, and $2.4 million in 1973. Also included in 1973
was a non-recurring charge of $2.3 million after taxes
for expenses related to the August 1, 1972 merger with
Northeast Airlines.
Total operating revenues rose 12% in fiscal 1975
on a 3% gain in revenue passenger miles and a 10%
increase in passenger mile yield. Cargo revenue
declined 1% on a 10% reduction in cargo ton miles and
15% gain in yield. In fiscal 1974 operating revenues
were up 17% over 1973 as revenue passenger miles and
passenger mile yield each increased 8%. Cargo revenue
grew 14% on an 11% gain in yield and a 2% decline in ton
miles. Cargo revenue in fiscal 1974 included $3.5 million
in mail payments retroactive to prior years. Other net
revenue increased $17 .3 million primarily as a result of
the introduction of security charges.
Passenger mile yield in both 1975 and 1974
benefited from fare increases granted by the CAB to
counter the effects of fuel price increases and general
inflation.
Operating expenses in fiscal 197 5 were up $212
million or 20%. Increases in the price of fuel accounted
for $91 million, or 50% of the increase in cash expenses.
Depreciation totaled $128.4 million, up 29%. Revenue
plane miles were reduced 3% and available seat miles
rose 4%, reflecting the increased use of larger aircraft.
In fiscal 1974, operating expenses increased 15%
primarily as the result of increases in aircraft and
facility rental expenses and the substantial effect of
inflation on other cash costs, especially fuel. Available
seat miles increased only 2%, and revenue plane miles
were reduced 5% as a result of the reduced fuel
availability.
Net interest expense increased 79% in fiscal 1975
and 85% in fiscal 1974. The increases in both years
resulted from higher interest rates and increased
borrowings to finance new aircraft purchases.
The extraordinary item of $700,000 ( 4<1'. per share)
in fiscal 1971 represents write-down of flight equip-
ment to estimated realizable values made by Northeast
Airlines prior to the 1972 merger.
44
DELTA AIR LINES, INC .
Board of Directors
W. T. BEEBE Chairman of the Board &
Chief Executive Officer
8. W. BI ED EN HARN President and Director of
Ouachita Coca-Cola Bottling Co.,
Ouachita Candy Co., and
Biedenharn Realty Co., Inc.
R. W. COURTS Director and Chairman of the Executive
Committee, Atlantic Realty Co.
C.H. DOLSON Chairman of the Executive Committee
EMERY FLINN President, Specialized Investments, Inc.,
In vestment Counselor
R. W. FREEMAN Chairman of the Finance and
Compensation Committees;
Chairman of the Board and Director,
Louisiana Coca-Cola Bottling Co., L_
td.
DAVID C. GARRETT, JR. President
EDWARD H. GERRY Chairman of the Audit Committee;
Partner of Gerry Brothers & Co.,
Investment Management
CHARLES H. KELLSTADT Retired Chairman of the Board,
Sears, Roebuck and Co; Director and
Chairman of the Executive Committee,
General Development Corporation
JOHN R. LONGMIRE Partner of investment banking firm of
I. M . Simon & Co.
R. S. MAURER Senior Vice President-
General Counsel & Secretary
BILL MICHAELS Director and Chairman of the Board of
Storer Broadcasting Company
T. M. MILLER Retired Senior Vice President-Marketing
ROBERT OPPENLANDER Senior Vice President-Finance
& Treasurer
STUART W. PATTON Me mber of the law firm of Patton, Kanner,
Nadeau, Segal, Zeller & LaPorte and
Director of Storer Broadcasting Company
CARLETON PUTNAM Private In vestments
GEORGE M. SNELLINGS, JR. Member of the law firm of Snellings,
Breard, Sartor, Shafto & Inabnett
45
DELTA AIR LI NES, INC .
Officers
W. T. BEEBE Chairman of the Board & Chief
Executive Officer
DAVI D C. GARRETT, JR. President
Fl NANCI;
ROBERT OPPENLANDER Senior Vice President - Finance & Treas urer
W. A. ATCHISON Vice President - Computer S ervices
J . D. DUNN Vice President - Purchas ing
M . 0 . GALLOWAY
REX A. McCLELLAND
J . R. HOWELL
HUGH H . SAXON
AUDLY TOLLER, JR.
Vice President - Comptroller
Vice President - Properties
A ss t. Treasurer
A sst. Treasurer
A sst. Treasurer
LEGAL & CORPORATE AFFAIRS
R. S. MAURER
J . W. CALLISON
FRANK F. ROX
MORRIS SHIPLEY
SIDNEY F. DAVIS
A. C. FORD
G EORGE E . SH E DD
C. G. SWEAZEA
E . A. THOMPSON
IKE LASSETER
MARKETING
J . A. COOPER
SHELBY D. DEMENT
CHARLES P. KNECHT
R. L. GIBSON
J . T. MAPLES
J . W. MEYER
HENRY ROSS
OPERATIONS
HOYT T. FINCHER
D. P. HETTERMANN
C. A. SMITH
J . K. BURNETTE
ROBERT H . COWART
JOHN P . DAVIS
JACKS . KI NG
C. J . MAY
W. L. MILLER
L. G . RODEFELD
Se nior Vice President - General Counsel
& S ecretary
Vice President - Law & Regulatory Affairs
Vice President - Law & Public Affairs
Vice President - Government Affairs
A sst. Vice President - Corporate Legal Affairs
& A sst. S ecretary
A sst. Vice President -Long Range Planning
A sst. Vice President -Pu blic Relations
A sst. Vice President - Civic Affairs
A sst. Vice Preside nt -Economic Research
Asst. Secreta ry
Se nior Vice President - Ma rketing
Vice President - Consumer Affairs
Vice President- Marketing
A sst. Vice President - Traffic
A sst. Vice President - M ark eting Planning
A sst. Vice President -Customer Relations
A sst. Vice President- Sales Promotion
Senior Vice President - Operations
Vice President - Technical Operations
Vice President - Flight Operatio ns
A sst. Vice Presid ent - Quality Co ntrol
A sst. Vice President-Operations
Adminis tration
A sst. Vice President -Maintenance
A sst. Vice President - Fligh t Cont rol
A sst. Vice President -Engineering
A sst. Vice Presid ent - Ma teriel Services
A sst. Vice President - Communications
OPERATIONS - PASSENGER SERVICE
HOLLIS L. HARRIS
E. L. HAMNER
FOY PHILLIPS
HERMANS. STANLEY
C. A. THOMPSON
PERSONNEL
R. W. ALLEN
J . A. YORK
RUSSELL H . HEIL
JOHN HUME
H . M . JOHNSON
EUGENE H . STEWART
Se nior Vice President - Operations -
Passenger Se rvice
Vice President - Statio ns
Vice President - Passenger S ervice
A sst. Vice President - Dining Service
A sst. Vice President -Stations
Se nior Vice President - Personnel
Vice President - Personnel Benefit s
A sst. Vice President - Personnel
Adminis tratio n
A sst. Vice Pres ident - Training &
Personnel Communications
A sst. Vice President - Personnel Services
A sst. Vice President - Corporate Secu rity
46
Transfer Agent and Registrar
The Citizens and Southern National Bank
99 Annex
Atlanta, Georgia 30399
Auditors
Arthur Andersen & Co .
25 Park Place, N .E.
Atlanta, Georgia 30303
Annual Meeting
October 23, 1975, Monroe, Louisiana
Common Stock
Listed on the New York Stock Exchange
Market Prices and Dividends
Markel Price Range of
Common Stock on
DELTA AIR LIN ES, INC
Cas h
Dividends
Fiscal 1975 New York Stock Exchange Paid Per Share
Quarter Ended: High Low
September 30. 49 31 $.15
December 31 . 43 27 7/g .15
March 31. 41 3/g 25 3/s .15
June 30 ....... . 38 7/g 31 7/g .15
Fiscal 1974
Quarter Ended :
September 30. 57 7/s 42 3/s $. 15
December 31 . 56 1
/ 2 35 .15
March 31. 54 3/4 33 l/ 4 .15
June 30 . 56 1
/ 8 47 3/s .15
Availability of Form 10-K
The Company will supply, upon written request and
without charge, a copy of the Company's annual report
for the fiscal year 1975 on Form 10-K to any person bene-
ficially owning or owning of record any of the common
stock of the Company on September 5, 1975. Requests
for the report should be directed to R. S. Maurer,
Secretary, Delta Air Lines, Inc., Hartsfield Atlanta
International Airport, Atlanta, Georgia 30320.
47
DELTA AIR LIN ES, INC
Notice to the Stockholders of Delta Air Lines, Inc.
Part 245 of the Econom ic Regula tions of th e Civil
Aerona utics Board provides tha t : ( l) a ny per on who
either ow ns , as of Decem ber 31st o f the yea r preceding
issua nce of this a nnua l report, or s ubsequently acquired ,
beneficia lly or a trus tee, more tha n 5%, in the aggrega te,
of a ny class of the capita l stock or capita l of Delta Air
Lines, In c., s hall file with the Board a report containing
the inform a tio n required by Sec. 245.12 of Subpart 245 ,
on or before April 1, as to the capita l s tock or capita l
owned as of Decem ber 31 of the precedin g year, a nd , in
the case of s tock s ubsequently acquired, a report under
Sec. 245 .13, within 10 d ays after s uch acquis ition, unless
s uch person has otherwise fil ed with the Board a report
covering s uch acquisi tio n or owners h ip , (2) any bank or
broker covered by ( l ), to the extent that il holds s hares as
trus tee on the las t d ay of a ny quarter of a calendar year,
shall file with the Board , w ithin 30 days after the end of
the quarter, a report in accordan ce with the provisions of
Section 245.14; an d (3) a ny person required to report
under this s ubpa rt who gra nts a security interes t in more
than 5% of a ny class of the ca pita l stock or capital of
Delta Air Lines, Inc. s ha ll within 30 d ays after grantin g
such secu rity interest file with the Board a report con-
taining the information required in Section 245.15. Any
stockholder who believes that he m ay be required to file
such a report may o btain further information by writing
to the Director, Burea u of Operating Rights, Civil
Aerona utics Board , Was hin gton, D .C. 20428.
Delta Air Lines, Inc.
General Offices
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
48