Delta Air Lines annual report 1977

Contents
Highlights of the Year 1
Report to the Stockholders 2
Earnings and Dividends 6
Operating Revenues 8
Operating Expenses 10
Capitalization and Financing 12
Flight Equipment and Purchase
Commitments 14
Personnel 16
Facilities 17
Regulatory Matters 18
Route Map 24
Financial Statements -
Balance Sheets 26
Statements of Income 28
Statements of Retained Earnings 29
Statements of Additional Paid-in Capital 29
Statements of Changes in Financial Position 30
Notes to Financial Statements 31
Auditors' Report 40
Management's Analysis and Discussion
of Summary of Operations 41
Summary of Operations 42
Other Financial and Statistical Data 42
Board of Directors 44
Officers 45
Description of Business
Delta Air Lines, Inc., is a certificated trunk air carrier
providing scheduled air transportation for passengers
and cargo over a network of routes covering approxi-
mately 33,000 miles. Delta's route structure connects
the Northeast and Midwest with the Southern States
from Texas to Florida, the Southeast to the Midwest and
West, 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 federal regulation
pursuant to the Federal Aviation Act of 1958, as
amended, as well as other federal and state statutes.
Pictured on the cover is Delta's spectacular electric sign in
downtown Atlanta. The FLY DELTA letters sit atop a computer-
controlled bank of lights flashing selling messages every
two seconds.
Highlights of the Year
The following comparative summary highlights
the accomplishments of the past year in a number
of major categories. Dollars are expressed in
thousands, except per share figures.
Per Cent
1977 1976 Change
Operating
.Revenues ... . .. . ... . . $1,71 9,645 $1 ,528,942 + 12%
Operating
Expenses ........... . $1,578,464 $1,411 ,333 + 12%
Net Income .. . ....... $92,380 $70,207 + 32%
Earnings Per
Share . . ............. $4.65 $3.53 + 32%
Revenue Passengers
Enplaned ............ 28,811,966 27,996,665 + 3%
Available Seat
Miles (000) .. . .. .. .. . . 32,614,260 30,389,761 + 7%
Revenue Passenger
Miles (000) . .. ........ 18,042,339 17,621 ,247 + 2%
Passenger Load
Factor . ... ... . . .. .... 55.32% 57.98% - 5%
1
Report to the Stockholders
We are very pleased to report that fiscal 1977 was
the most successful year in the history of Delta Air
Lines. Earnings totaled $92.4 million ($4.65 per
share), the largest net profit ever earned in a fiscal
year by any airline and 32% above the $70.2 million
reported to you last year. During the past year 11
aircraft were sold for an after-tax gain of 75 per
share while last year's results included an after-tax
gain from aircraft sales of 20 per share. Operating
revenues set a company record at $1. 72 billion,
12% above fiscal 1976. Revenue passenger miles
increased 2% over last year when traffic was
inflated by strikes against major competitors
involving 142 strike days. The passenger mile yield
was up 9%. Operating expenses were up 12% while
operating capacity grew 7%.
The Company's financial position was signif-
icantly strengthened during the past year as total
long-term debt was reduced by $137.3 million. At
June 30, 1977, long-term debt totaled $265.1 million,
equal to 43% of equity, one of the lowest debt to
equity ratios in the airline industry. Expenditures
for flight and ground equipment totaled
$249 million. Both the debt repayment and the
capital expenditures were financed almost entirely
with internally generated funds.
Progress in the fleet modernization program
continued during the year with the delivery of 17
new B-727-200 aircraft. In addition, the Company
purchased Storer Leasing, Inc., whose assets con-
sisted of 11 B-727 aircraft and 18 spare engines,
all of which were previously leased to Delta.
Delta's record setting achievements in 1977,
accomplished in the face of strengthened competi-
tion, could not have been possible without the
more than 28,500 skilled and dedicated people
who make Delta truly the "Airline Run by
Professionals:' Their commitment to excellence in
service to Delta's customers is the foundation of
the Company's success. To them we say "thank
you" for a job well done.
The coming year is viewed with a mixture of
concern and optimism. The concern is in two
2
vitally important areas, fuel and airline regulation.
Another year has passed without the implementa-
tion of a national energy policy. President Carter
has submitted an energy plan to Congress which it
is now considering. While a new Department of
Energy has been created, it is too early to tell what
other legislation Congress will pass. Until a com-
prehensive national policy on energy production,
consumption, and conservation is developed and
implemented, fuel prices and supply will continue
to be a major concern.
Efforts to radically alter the present regulation
of the airline industry gained momentum during
the year with most attention being focused on a bill
introduced by Senators Cannon and Kennedy. Delta
does not oppose the review and refinement of the
existing statute under which air transportation is
currently regulated. But the existing statute is a
good one, which has fostered the development of
the best air transportation system in the world,
and it should not be changed fundamentally. The
current version of the Cannon-Kennedy bill does
propose such fundamental change. In addition, it
discriminates against Delta and other carriers by
unduly favoring smaller scheduled carriers, new
entrants, and supplemental (charter) carriers. The
bill, as now drafted, would also increase rather
than decrease regulation in a number of areas.
The Cannon-Kennedy bill proposes consider-
able freedom for carriers to enter and exit air
transportation markets without prior CAB certifi-
cation. The hope is that the increased competition
will produce significantly lower fares. Nothing in
these proposals, however, would significantly lower
airline costs and, therefore, there is no reason to
believe that the legislation will result in a perma-
nent reduction in airline fares. In fact, during the
initial competitive battle airline costs would prob-
ably rise, and substantial quantities of scarce and
expensive fuel would be wasted. In the long run
freer entry and exit rights would result in normal
scheduled service being concentrated in the hands
of a few carriers operating primarily in the larger
markets. Small city and small carrier service would
be retained only at the cost of increased regulation
and increased subsidy by the Government.
3
While the various regulatory reform measures
are being debated, the CAB has embarked upon a
number of programs which will increase the degree
of industry competition and result in a number of
new fare experiments. In this regard, in recent
months the Board has allowed almost any discount
fare proposal, however diversionary, to take effect
while keeping a brake on essential fare increases
required to cover escalating costs. The industry
cannot long endure what in essence is "deregula-
tion" of fares only in the direction of fare decreases.
Those changes which we believe the CAB should
make to improve the nation's air transportation
and which it could make under the existing statute
have not yet been forthcoming. These include a
reduction in the length of time required for a
decision on fare and route matters and a more
realistic view concerning airline costs.
Optimism for the coming year stems from the
belief that the economy will continue a pattern of
moderate but stable growth. Personal income
should continue to rise in response to the Admin-
istration's efforts to reduce inflation and unemploy-
ment, and airline traffic should continue to grow
at a reasonably good rate. Delta's traffic is
expected to grow at a faster rate than the industry's
as a number of programs are implemented to
improve the Company's competitive posture. These
include the continued replacement of less efficient
aircraft with new B-727-200's and L-101 l's, add-
ing additional seats to several aircraft types, and
increasing the capacity of ground facilities at
several key cities, including Atlanta. Capital
expenditures will continue to be financed with
internally generated funds, and debt will continue
to be reduced.
In July, 1977, Delta's unsurpassed customer
service was introduced in two new major markets,
Denver and Tulsa, connecting them to the South-
east with non-stop service for the first time. We are
hopeful that the CAB will resubmit its recommen-
dation that Delta be awarded the Atlanta-London
route and that President Carter will approve it,
4
allowing us to connect the cities of the Southeast
and Southwest directly to Europe. We will intensify
our efforts to minimize the impact of inflation on
controllable expenditures without compromising
service to our customers.
In summary, we look forward to fiscal 1978
as an opportunity to continue to grow and build
upon our strengths and further solidify our
position as the best airline in the world.
~c~
DAVID C. GARRETT, JR
President
WT.BEEBE
Chairman of the Board and
Chief Executive Officer
August 26, 1977
5
Earnings and Dividends
Net earnings for fiscal 1977 were $92.4 million
( $4.65 per share), a new airline industry record,
and 32% above the $70.2 million ($3.53 per share)
earned by Delta last year. The following chart com-
pares operating results for fiscal 1977 and 1976.
Per Cent
1977 1976 Change
(In Th ousands)
Operating Income . .. . .... $141 ,181 $117,609 + 20%
Other Expense (Income):
Interest Expense . . ... . . 25,983 34,634 - 25
Less-Interest
Capitalized on
Advances for
Equipment . ... . . .. . . (2,922) (3,247) - 10
23,061 31 ,387 - 27
Gain on Disposition of
Aircraft. . . . . . . ... . . . (29,403) (7,680) + 283
Realized and Unrealized
Gain on Foreign
Currency Translation . . (2,699) (13,357) - 80
Miscellaneous Income,
Net. .. . . .. .. ..... (4,825) (2 ,284) + 111
(13,866) 8,066
Income Before Taxes . . . .. 155,047 109,543 + 42
Provision for Income Taxes:
Income Taxes Provided 76,362 53,949 + 42
Less-Amortization of
lnvestmentTax
Credits . . . . . . . .. . . . . (13,695) (14,613) - 6
62,667 39,336 + 59
Net Income ..... .. $ 92 ,380 $ 70,207 + 32%
Net Income Per Share . .. . $4.65 $3.53 + 32%
Operating income increased 20% to
$141.2 million on a 12% increase in both operating
revenue and operating expense. Interest expense
declined 25% as the result of a lower average
interest rate and a reduced level of outstanding
debt. Capitalized interest was down 10% due to a
lower average of outstanding deposits on equip-
ment on order and a lower average interest rate.
Gains from the sale of aircraft rose sharply to
$29.4 million, 75 per share after taxes, while
fiscal 1976 results included flight equipment gains
of $7.7 million or 20 per share after taxes. Gains
from the translation of foreign debt totaled
6
$2.7 million, 7cJ: per share after taxes, in the current
year and $13 .4 million, 34(): per share after taxes,
in the previous year. Miscellaneous income
increased $2.5 million.
Income taxes were provided on book income
at the rate of 49.25% in both the current and the
previous year. The provisions for income taxes
were reduced by investment tax credit amortiza-
tion of $13.7 million in 1977 and $14.6 million
in 1976.
Dividend payments were 70cJ: per share, a
17% increase over the 60cJ: per share paid last year.
Total dividend payments for the year amounted to
$13.9 million. Fiscal 1977 marked the 28th
consecutive year in which Delta has made cash
dividend payments.
Earnings per Share*
In Dollars
68 69 70 71 72 73 74 75 76 77
5
4
3
2
0
*These data reflect the operations of Delta Air Lines, Inc.,
and do not include the ortheast Airlines' system prior
to August 1, 1972.
7
Operating Revenues
The following table compares operating revenues
for fiscal 1977 and 1976 by major revenue
categories.
1977 1976
Per Cent
Change
(In Thousands)
ScheduledPassenger $1 ,575,642 $1,406,417 + 12%
Cargo. . . . . . . . . . . . . . . 114,800 100,626 + 14
Charter. .. ... ... . . . . 13,039 5,511 + 137
Other, Net. . . . . . . . . . . 16 164 16,388 - 1
Total. .. . ... .. . . ... $1,719,645 $1 ,528,942 + 12%
Total operating revenues in 1977 increased
$190.7 million to $1.72 billion from the
$1.53 billion reported last year. Revenues in fiscal
1976 were favorably impacted by a strike against a
major competitor from September 1, 1975, to
January 6, 1976, and by a strike against another
competitor from December6 to December 22, 1975.
Scheduled passenger revenues rose 12% or
$169.2 rrullion to $1.58 billion. Revenue passenger
rrules totaled 18.04 billion, a 2% gain over the 1976
results which were inflated by strikes against
major competitors. The passenger rrule yield in the
current year increased 9% to 8.73<!: from 7.98<!:
last year, reflecting two fare increases approved by
the CAB totaling 4 %, plus the carry-over effect of
fare increases granted in 1976, and a reduction in
the number of passengers using discount fares.
Subsequent to the end of the current fiscal year,
the CAB approved a 1 % increase in passenger
fares which Delta implemented August 18, 1977,
and a % increase which will be implemented on
September 10, 1977.
Cargo revenues, reflecting the general growth
in the economy, increased 14% to $114.8 rrullion.
Cargo ton rrules grew 6%, and the average yield
increased 6%, excluding a $1.8 rrullion retroactive
adjustment in mail payments.
Charter revenues increased $7 .5 rrullion to
$13.0 rrullion. The Company transferred six
DC-8-51 aircraft from scheduled service to charter
operations to take advantage of the liberal new
8
charter regulations approved by the CAB in fiscal
1976. Late in the current year, charter revenues
were negatively influenced by the CAB's approval
of very substantial discounts to scheduled service
fares in several of our major charter markets.
Other net revenue remained approximately
the same as last year.
Per Cent
Revenue Statistics 1977 1976 Change
Revenue Passenger
Miles (000) ...... .. . 18,042,339 17,621 ,247 + 2%
Revenue Passengers
Enplaned . ... .. . ... 28,811 ,966 27,996,665 + 3%
Cargo Ton Miles (000) 277,498 261 ,622 + 6%
Passenger Load
Factor .. . .... . . . . . . 55.32% 57.98% - 5%
Passenger Mile Yield . . 8.73q; 7.98q; + 9%
9
Operating Expenses
The following table compares operating expenses by
major expense functions for fiscal 1977 and 1976.
Per Cent
_ _
19
_7_
7 _ _ _
19
_7_
6 _ Change
(I n Thousands)
Salaries and Related
Costs . .. . . . . . .. . . . . $ 706,770 $ 626,511 + 13%
Aircraft Fuel. ... . . . . . . 316,478 272,404 + 16
Aircraft Maintenance
Materials and Repairs 30,818 36,023 - 14
Aircraft Rentals .. . 5,248 10,451 - 50
Other Rentals . . . . . . . . . 30,887 27,874 + 11
Landing Fees . ... . .... 35,941 31 ,840 + 13
Passenger Food and
Related Supplies . ... 59,224 52,316 + 13
Passenger Commissions 52,846 45,320 + 17
Advertising . . . ... . ... . 23,461 21 ,143 + 11
Other Cash Costs ... . .. 150,751 138,554 + 9
Total Cash Costs .. . . $1,412,424 $1 ,262,436 + 12%
Depreciation .. . . . . .. . . 166,040 148!897 .....1.L
Total Operating
Expenses . . ... .. .. $1 !578!464 $1!411 !333 + 12%
Total operating expenses increased
$167.1 million or 12% over last year and cash
expenses were also up 12%. Operating capacity
grew 7% to 32.61 billion available seat miles while
revenue plane miles increased 5%. A continuing
high level of wage inflation and the unchecked
spiral of fuel prices accounted for 61 % of the
$150 million increase in cash costs. Salaries and
related costs were up 13% while the average level
of employment rose 2%. The average price of fuel
escalated 11% to 33.34 per gallon and gallons
consumed increased 4% to 949.4 million.
Delta's fleet modernization and standard-
ization program continued to provide significant
benefits as reflected in a 14% reduction in the cost
of aircraft maintenance materials and repairs and
a 3% improvement in seat miles flown per gallon
of fuel used. Aircraft rentals were down by 50% as
a result of the July, 1976 acquisition of 11 aircraft
10
previously leased from Storer Leasing, Inc.
Growth in passenger revenues and an increase in
the number of passengers using the services of
travel agents accounted for the 17% rise in
passenger commissions. Other cash costs were up
9% as a result of inflation and the growth in
operations.
Depreciation expense increased 12% due to
the continued introduction of new aircraft and the
acquisition of the aircraft from Storer Leasing, Inc.,
early in the fiscal year.
Per Cen t
Operating Statistics 1977 1976 Change
Revenue Plane
Miles (000) ......... 227,171 216,257 + 5%
Available Seat
Miles (000) ......... 32,614,260 30,389,761 + 7%
Available Ton
Miles (000) ......... 4,478,038 4,145,183 + 8%
Fuel Gallons
Consumed (000) .... 949,369 908,776 + 4%
Average Price per Fuel
Gallon ............. 33.34 29.97 + 11 %
Breakeven Load Factor 50.36% 53.14% - 5%
11
Capitalization and Financing
During fiscal 1977 no new borrowing was
required. However, the Company assumed
$3. 6 million in Storer Leasing, Inc., obligations
and capitalized a long-term lease of approximately
$900,000 as required by the provisions of the
Financial Accounting Standards Board Statement
No.13. Internally generated funds of $340.7 million
were used primarily to purchase $249 million of
flight and ground equipment and reduce long-term
debt by $113.7 million.
Long-term debt at June 30, 1977, totaled
$265.1 million, including current maturities, a
reduction of $13 7. 3 million from the previous
year. The year-end balance is equal to 43% of
equity. At June 30, 1977, the Company had
voluntarily prepaid the entire outstanding balance
on the 1975 Bank Credit Agreement, and volun-
tarily prepaid $55 million on the 1973 Bank Credit
Agreement. Also, $2.2 million of the 6%
Stockholder Equity per Share*
In Dollars
~ ~ - - r - - ~- --.----.----r----,---.----,--, 35
1-----1---1-----1--4----1----+--+----l-------+---Y 30
t----+--+---+--+---+--+---+----+--t~ - -H 25
>---+---+----+---+----+---+-11-----+--1- - - ->-1
20
f-----l---l-----l-~-+----ll.-+----+-11- - - ----+--1____,_l-f 15
t-------9...-+-----~a-+------+-ll.-+-----+-tl- - - ----+--t____, __ H
10
5
0
68 69 70 71 72 73 7 4 75 76 77
*These data reflect the operations of Delta Air Lines, Inc.,
and do not include the ortheast Airlines' system prior
to August 1, 1972.
12
Convertible Subordinated Debentures had been
acquired for future sinking fund requirements. At
June30,1977, the Company had forward contracts
for the purchase of pounds sterling to cover
scheduled fiscal 1978 principal and interest
payments on the Lazard debt. Mandatory repay-
ments due in fiscal 1978 on all long-term debt
total $27.6 million.
Outstanding purchase commitments at year-
end for aircraft and related spares will require
future expenditures of approximately $618 million
during fiscal years 1978 through 1981.
Total stockholder equity atJune30,1977, was
$620.6 million or $31.22 per share, 14% over the
$27.27 per share last year.
13
Flight Equipment and
Purchase Commitments
During the past fiscal year Delta accepted delivery
of 17 advanced model Boeing 727 -200 aircraft.
The fleet was reduced by the disposition of 11
aircraft, including three B-747's, three DC-8-51's,
oneB-727-100, and four DC-9-32's. At June 30,1977,
Delta was operating the following aircraft fleet:
Type of
Aircraft Seats
L-1011 .... .. . . . 264
DC-8-61 ......... 199
DC-8-51 . . 135/ 153
B-727-200. 135
B-727-100. 97
DC-9-32. . ... ..... 88/ 90
Total.
Owned
21
13
10
81
4
56
185
Leased Total
21
13
10
7 88
4
----2._
7 192
Excluding the DC-8-51 aircraft, the average
age of Delta's aircraft fleet was 5.3 years at
June30,1977.
Twelve DC-8-51 aircraft were removed from
revenue service during the year of which three
aircraft were sold. Prior to the end of the year, four
DC-8-51's were temporarily returned to revenue
service to meet the aircraft requirements for the
new Denver and Tulsa route awards. Subsequent
to the end of the year, one DC-8-51 aircraft was
sold and delivered.
At the end of the year, arrangements had been
finalized for the sale of four DC-9-3 2 aircraft, two
of which were delivered in July, 1977. The remaining
two aircraft are scheduled for delivery, one in the
September, 1977 quarter and one in the March,
1978 quarter. One B-727-100 has been sold and
will be delivered in the September, 1977 quarter.
At June 30, 1977, the Company had outstand-
ing agreements for the purchase from the Boeing
Company of 36 B-727-232 aircraft, 12 of which
have been confirmed for delivery between Septem-
ber, 1977, and July, 1978. Subsequent to the end of
the fiscal year, six additional such aircraft were
confirmed for delivery in the December, 1978
quarter. The Company has the right to confirm
delivery dates for the remaining 18 aircraft at
specified interim dates to August, 1979. These
aircraft are tentatively scheduled for delivery
between May, 1979, and December, 1980. The
14
Company has outstanding commitments to
acquire nine Lockheed L-1011 aircraft, four of
which were on firm order at year-end and two of
which were subsequently placed on firm order.
These six aircraft are scheduled for delivery in late
1977 through 1979. The remaining three aircraft
are cancellable by specified interim dates to
February 28, 1979.
As a result of a shift in the mix of passenger
traffic from first class to coach, Delta will
implement programs during the coming year to
increase the number of coach seats in the B-727-200
and L-1011 aircraft types. Six coach seats will be
added to the B-727-200's replacing four first class
seats, and 29 coach seats will be added to the
L-1011. The changes will produce added capacity
equal to two B-727-200's and three L-lOll's and
significantly increase the productivity of Delta's
aircraft fleet.
15
Personnel
At June 30, 1977, the team of Delta Professionals
numbered 28,527 (an average of 28,234 during
the year), compared to the June 30, 1976 total of
27,894 (an average of 27,678 during the year),
excluding temporary personnel in both years.
Direct salaries totaled $579.4 million, a 13%
increase over last year, and related fringe benefits
increased 13% to $127.3 million. Expenditures
for salaries and fringe benefits equal 41<!: of each
revenue dollar, the same as fiscal 1976.
To meet the challenges of the increasingly
complex business environment, the Board of
Directors elected two new officers during the year.
Miss Jeanette Easley was elected to the position of
Assistant Vice President-Passenger Service, and
Mr. Frank S. Chew was advanced to the position
of Assistant Vice President-Treasury.
Subsequent to the end of the fiscal year,
Mr. Shelby Dement, Vice President-Consumer
Affairs , elected to retire after more than 36 years
service to Delta. Also retiring is Mr. J. R. Howell,
Assistant Treasurer-Investment Management, a
veteran of 27 years with the Company. These two
officers made many contributions to the growth
and success of Delta during their long careers.
16
Facilities
Delta, along with several other airlines and the
City of Atlanta, is participating in the development
of the largest passenger terminal building complex
in the nation at Hartsfield Atlanta International
Airport. The project was begun in May, 1977, and
is scheduled for completion in early 1981. The total
cost, excluding tenant improvements, is presently
estimated at $240 million. The project will be
primarily financed with revenue bonds, of which
$305 million have been sold by the City of Atlanta
at an effective interest rate of 6.3%. Delta will
occupy 37 of the 104 wide-bodied aircraft loading
positions. Delta's share of the project including
estimated tenant improvements will total approxi-
mately $72 million. Rentals and other costs to be
incurred beginning with the first year of operation
of the new facility are estimated at $16 million
annually.
During the year, the Company announced
plans for the construction of a five story, 135,000
square foot office building at Hartsfield Atlanta
International Airport. The facility will contain the
Atlanta reservations operation and other staff
functions. Completion of the $5.1 million building
is scheduled for the spring of 1978.
Also during the year, Delta occupied new or
expanded terminal facilities at Ft.Lauderdale,
LaGuardia, Philadelphia, St.Louis, and San Diego.
In fiscal 1978 new reservations facilities will be
completed in Miami and Chicago.
17
Regulatory Matters
Regulatory Reform
Proposals to modify the Federal Aviation Act
continue to multiply, on the theory - to which
Delta does not subscribe- that that statute has
become seriously outmoded. Delta has endeavored
to play a constructive role in the regulatory reform
debate, and is not opposed to review and
refinement of the present statute.
For example, Delta has not opposed proposals
which would increase air carrier pricing freedom,
require prompt disposition of air carrier route
applications, and provide for greater administrative
expedition in general. But Delta believes that the
existing statute is basically a good and flexible
one, which requires no fundamental change.
The reform proposal which has received the
most recent attention would be highly discrimina-
tory against carriers in Delta's position. The
proposal would unfairly favor the supplemental
air carrier industry, new entrants, and the smaller
scheduled carriers. Delta has provided the Senate
Committee which is considering this matter a list
of suggested changes to the proposed bill which
would eliminate this discrimination and other
problems, while still achieving many of the
reformers'major goals. Delta has indicated that if
these changes are not adopted, Delta will have to
oppose this particular proposal in its entirety.
The reform debate, which has raged for over
two years, is beginning to come to a head. Some
Congressional decisions on the subject are
expected during 1978. As the focus of the debate
sharpens, Delta will endeavor to keep its
shareholders apprised of the potential impact of
proposed changes upon Delta's operations and
upon the industry.
In the meantime, regulatory activity under the
present law greatly increased during the past year,
including the following matters of major interest:
Delta Route Development
Delta was granted two significant new service
responsibilities: ( 1) nonstop routes between Atlanta
and both Denver and Tulsa, with the right also to
operate between Denver and Atlanta via Tulsa;
and (2) nonstop Memphis-Tampa authority. Service
18
was inaugurated over the former route on July 28,
1977, and will be inaugurated on the latter route
on September 15, 1977. A competitor was also
certificated between Atlanta and Denver. No other
carrier currently operates nonstop Memphis-
Tampa or Atlanta-Tulsa service. Disappointed
applicants have appealed the Denver/Tulsa award
to the Federal Court of Appeals, but Delta's service
may operate during the pendency of the appeal.
Decision in the court case is not expected until at
least the latter part of 1977.
The July, 1976, CAB recommendation that
Delta be authorized to operate nonstop between
Atlanta and London, England, with the right also
to operate London services beyond Atlanta to
points on Delta's domestic system, remains
outstanding. That decision was subject to
Presidential approval and, late in December, 1976,
President Ford sent the case back to the CAB for
additional study, primarily in light of the then-
pending negotiations between the United States
and the United Kingdom concerning air transport
operations between the two countries. These
negotiations have now been completed; President
Carter has asked for a CAB decision by early
October so that he can complete his review by
November 1, with service to start soon thereafter;
and the CAB has heard further argument in the
case. Early conclusion of the case is expected.
Delta has also been recommended by
Administrative Law Judges for two other important
routes: (1) nonstop Cleveland-Atlanta and
(2) nonstop Cleveland-Indianapolis. Both routes
would be competitive. The first recommendation
is being reviewed, and the second is subject to
review by the CAB. Final decisions are expected
later in 1977 or early in 1978.
In another case, an Administrative Law Judge
has recommended an applicant other than Delta
for nonstop authority between Memphis and both
Minneapolis/St.Paul and Milwaukee. The CAB is
reviewing this case, however, and Delta is
continuing to press its own application for
these authorities.
In other pending cases, Delta seeks
nonstop authority in the following markets:
(1) Wichita-Denver, (2) Wichita-Memphis,
19
20
(3) Louisville-Memphis, (4) Louisville-Houston,
(5) Cincinnati-Houston, (6) Las Vegas-Reno,
(7) Las Vegas-Phoenix, (8) Sarasota/
Bradenton-Atlanta, (9) Daytona Beach-Atlanta,
(10) Tallahassee-Atlanta, (11) Nashville-
St.Louis/Tampa/Miami, and ( 12) Chicago
Midway-Kansas City/Twin Cities/Detroit/
Cleveland. These various proceedings are all in
early stages of processing.
Delta has filed for the right to serve Atlanta
as an intermediate point between Miami and
San Francisco in addition to presently authorized
nonstop operations. An application has also been
filed for the right to carry local, domestic traffic
between Los Angeles/Long Beach/ Ontario and
San Francisco/Oakland/San Jose on flights
operating between the California points and
San Juan. Delta has requested that both of these
applications be processed expeditiously, without
hearing. The CAB has not yet responded to these
requests.
Delta has a number of other applications on
file, including requests for nonstop authority in
the following markets which either relate to cases
which the CAB has indicated that it will institute,
or to requests by interested parties for expedition:
( 1) Atlanta-Austin, (2) Atlanta-San Antonio,
(3) Atlanta-Raleigh-Durham/Greensboro-High
Point, ( 4) San Juan-Miami/ Atlanta/ Chicago,
and ( 5) Bahamas-Miami/ Atlanta/ Chicago.
During the past year Delta's applications for
Detroit-Boston and Chicago-Montreal authority
were denied.
A court of appeals has remanded the CAB's
decision in the Miami-Los Angeles case for further
proceedings. The CAB' s decision had selected a
carrier other than Delta for this authority.
Although Delta also appealed the case, the court
decision rejected Delta's arguments and based the
remand on arguments of another carrier. Delta
remains a party to the remanded proceedings.
Delta's appeal of the CAB's denial of its
Atlanta-Fort Myers, Fla. application in favor of
another applicant remains pending, but is ripe for
decision.
21
Route Cases - Competitive
Other carriers seek authority in a number
of Delta markets, including Atlanta-Detroit,
Atlanta-Cincinnati, Dallas/Ft.Worth-Las Vegas,
Atlanta-Savannah, and Atlanta-Charleston. A
Law Judge has recommended certification of a
competitor in the first two markets, and the
recommendation is currently under review by the
CAB. The cases involving the other listed markets
are in early stages. The case involving
Atlanta-Savannah also is considering the possible
deletion of Delta's authority at Brunswick, Georgia,
which is currently suspended. A Law Judge has
recommended substitution of Eastern Air Lines for
Piedmont between Atlanta and Columbia, and
Piedmont for Eastern between Chicago and
Louisville. Delta has asked the CAB to review the
recommended approval of this Eastern/Piedmont
route exchange. During the year nonstop
competition was authorized in the Shreveport-
Dallas/Ft.Worth market, and a new competitor
was substituted for Eastern Air Lines in the
Chicago-New Orleans market.
Route Suspensions
Delta remains suspended at Brunswick,
Georgia pending CAB decision in the Savannah-
Brunswick case; is suspended at Havana, Cuba
and at a number of points in New England
currently served by other carriers; and will soon
suspend at Montego Bay, Jamaica.
Rate and Fare Cases
The Domestic Night Coach Fare Investigation
has been completed. The CAB's decision adopts
most of the positions advocated by Delta. This is
important to the Company because Delta is the
world's largest operator of standard, low-fare
night coach services.
A number of CAB proceedings in early stages
are considering revision of certain of the fare
standards which were developed in the Domestic
Passenger Fare Investigation (DPFI) during the
early 1970's. Decision in these proceedings could
affect both the procedures by which the industry
seeks change in the fare structure or level, and
the CAB's basic policy with respect to any
22
particular proposal. All of these proceedings are
in preliminary stages.
In the meantime, various adjustments have
been made to the fare level, and numerous new
discount fares have been allowed to go into effect,
many in disregard of the discount fare standards
developed in the DPFI. The industry's general air
freight and mail rates remain under investigation
in other proceedings.
Charter and Tour Services
The recently finalized, highly liberal One-Stop
Inclusive Tour, Special Event Charter, and Advance
Booking Charter regulations are already being
amended in various ways which will further
liberalize them. In the meantime, various other
proposals are pending before the CAB for revision
of the rules under which both scheduled and
supplemental air carriers operate charter services.
The CAB is also considering special rules for
business incentive charters, and the authorization
of "contract bulk inclusive tours'.' The latter would
permit groups to purchase reduced rate trans-
portation on regularly scheduled flights from tour
operators, with minimal limitations. Delta has
opposed this concept. The "part charter" concept
in international transportation also remains under
study, although an Administrative Law Judge has
recommended that the practice be disapproved.
23
'
n een Atlanta and De
an his and Tampa.
24
DELTA AIR LIN ES, INC.
Balance Sheets
June 30, 1977 and 1976
ASSETS 1977 1976
(In Thousands)
CURRENT ASSETS:
Cash .. .. .. .. . . .. .. . .. . . . .. $
Short-term cash investments,
at cost. . . . . ... . .. . . . .. .. . .
Accounts receivable, net. . . . .
Maintenance and operating
supplies, at average cost. .. .
Prepaid expenses, etc .. .. .. . .
Total current assets .... . . .
PROPERTY AND EQUIPMENT
(Notes 2 and 5):
Flight
Equipment Other
Cost-
26,209
26,103
52,312
144,592
12,567
7,269
216,740
1977 $1 ,720,843 $256,949 1,977,792
$ 28,773
54 135
82,908
126,228
12,807
81
510
2301453
1976 1,6581
359 2391
108 1,897,467
Accumulated depreciation-
1977 630,260 133,470 763,730
1976 592,092 116,023 - - - -
1,214,062
Advance payments for new
equ ipment (Note 2)... . . . . . . . 45
1
084
7081
115
1,189,352
411302
1,259,146 11
2301
654
OTHER ASSETS:
Nonoperating flight
equipment held for sale . . . . .
Long-term receivables and
prepayments, etc .. . ..... . . .
26
11,394
4,539
15,933
1,238
5 149
61
387
$1,491,819 $1,467.494
LIABILITIES AND
STOCKHOLDER EQUITY
CURRENT LIABILITIES:
Current maturities of long-
term debt. . . .... . .. .
Accounts payable and accrued
liabilities .... . .. . .. . . . ... .
Air traffic liability .. . . .. .... . .
Accrued income taxes ..... . .
Total current liabilities .... .
LONG-TERM DEBT (Note 4) .. .
DEFERRED CREDITS:
Deferred income taxes .. .
Unamortized investment tax
credits . .... . .. ..... .. ... .
Other ... .. . .. ... .. ....... .
COMMITMENTS AND
CONTINGENCIES (Notes 2,
5, and 8)
$
STOCKHOLDER EQUITY (Note 6):
Common stock, par value
$3.00 per share-Authorized
25,000,000 shares;
Outstanding 19,880,577
shares ... . ..... . . .
Common stock purchase
warrants . .. ... . . .. .. . .... .
Additional paid-in capital. . .
Retained earnings (of wh ich
$284,631 ,000 is restricted
at June 30, 1977 as to the
payment of cash dividends
under credit agreements) ...
DELTA AIR LIN ES, INC.
1977 1976
(In Thousands)
27,628
139,834
90,351
14,662
272,475
237,497
288,783
66,697
5,784
361,264
59,642
6,750
73,338
480,853
620,583
$ 51,454
128,253
76,856
8 769
265,332
350,968
273,664
28,954
6,464
309,082
59,642
6,750
73,331
402,389
542 112
$1,491,819 $1467494
The accompanying notes are an integral part of these balance sheets.
27
DELTA AIR LINES, INC.
Statements of Income
For the years ended June 30 , 1977 and 1976
1977 1976*
OPERATING REVENUES:
(In Thousands)
Passenger .... .... ......... $1,575,642 $1,406,417
Cargo .. .. . .. . ..... . . .. .... 114,800 100,626
Other, net. . .. . ... . ... .. . . .. 292203 21 ,899
Total operating revenues .. 127191645 1,528,942
OPERATING EXPENSES:
Salaries and related costs . . .. 706,770 626,511
Aircraft fuel. .... . . . . . ...... 316,478 272,404
Aircraft maintenance materials
and repairs ...... .. . . . .... 30,818 36,023
Rentals and landing fees .. ... 72,076 70,165
Passenger service .......... . 68,276 60,228
Agency commissions . ....... 52,846 45,320
Other cash costs .. . . . ..... . . 165,160 151 ,785
Depreciation ............... 1661040 148,897
Total operating expenses . . 125782464 1,411 ,333
OPERATING INCOME ........ 1412181 117,609
OTHER EXPENSE (INCOME):
Interest expense . . ..... . . .. . 25,983 34,634
Less- Interest capitalized on
advances for equipment . . . . 22922 3 247
23,061 31 ,387
Gain on disposition of aircraft (29,403) (7,680)
Real ized and unrealized gains
on foreign currency
translation . . . . . . . ... . ..... (2,699) (13,357)
Miscellaneous income, net . . . (42825) (2,284)
(131866) 8,066
INCOME BEFORE INCOME
TAXES ......... . ... .. . . .. . 1552047 109,543
PROVISION FOR INCOME
TAXES (Note 3):
Income taxes provided ... . . . . 76,362 53,949
Less- Amortization of
investment tax credits .. . ... (132695) (14,613)
622667 39,336
NET INCOME . ............... $ 922380 $ 70,207
NET INCOME PER COMMON
SHARE .. . ...... .. .... .. ... $4.65 $3.53
*Operating expenses for 1976 have been reclassified to conform with the
1977 presentation.
The accompanying notes are an integral part of these statements.
28
DELTA AIR LINES, INC.
Statements of Retained Earnings
For the years ended June 30, 1977 and 1976
BALANCE AT BEGINNING
OF YEAR ... . .. .. . ..... . . . .
Add (Deduct):
Net income .. .. . ...... . . .. .
Cash dividends-$.70 per
share in 1977 and $.60 per
share in 1976 . ...... ...... .
BALANCE AT END OF YEAR
(restricted as indicated on
balance sheet) . ....... ... . . .
1977 1976
(In Thousands)
$402,389 $344,110
92,380 70,207
(13,916) (11,928)
$480,853 $402,389
Statements of Additional Paid-in Capital
For the years ended June 30, 1977 and 1976
BALANCE AT BEGINNING
OF YEAR . ...... . .... .. . .
Income tax reduction to
Company resulting from sales
by employees of common
shares issued under stock
option plan .... . .. ... . . .. . . .
BALANCE AT END OF YEAR ..
1977 1976
(In Thousands)
$73,331 $73,331
7
$73,338 $73,331
The accompanying notes are an integral part of these statements.
29
D ELTA A IR LIN ES, INC.
Statements of Changes in Financial Position
Fo r the years ended June 30 , 1977 and 1976
1977 1976
(In Thousands)
FUNDS PROVID ED BY:
Net income. . . . . . . . . . . . .. $ 92,380 $ 70,207
Add (deduct) items not affecting
working capital-
Depreciation . .. . ..... . 166,238 150,189
Deferred income taxes .. . . 15,119 36,849
Unrealized gain on translation
of long-term portion of debt
payable in pounds sterling . . . . (1 ,819) (10,620)
Investment tax credits, net .. . . . 37,743 (6,282)
Other . .. . . . .. . . ... .. .. . . . 886 1,003
Total from operations ..... . . 310,547 24 1,346
Long-term financing .. . .. . .. . ... . 2,019 50,543
Disposition of property and
equipment (book value). . . . . . . . . 44,093 5,790
3,465
Other. . . . . . . . . . .. .... . . . ___
5_
8_
0
FUNDS USED FOR:
Property and equipment additions-
Flight equipment, including
advances and acquisition of
Storer Leasing, Inc. in fiscal
1977 (Note 7).
Ground property and equipment
Reduction of long-term debt, net of
357,239 301 ,144
228,189
20,790
248,979
197,328
15,426
212,754
unrealized foreign currency gains 113,671 79,392
Cash dividends. . . . . . . . . . . . . . . . . 13,916 11 ,928
Other. . . . . . . . . . . . . . . . . . . . . . . . . 1,529 1,11 6
378,095 305, 190
DECREASE IN WORKING CAPITAL $ (20,856) $ (4,046)
CHANGES IN WORKING CAPITAL
COMPONENTS:
Increase (decrease) in-
Cash and short-term investments
Accounts receivable, net.
Refundable income taxes.
Other current assets ...... .
Decrease (increase) in -
Current maturities of long-term
debt. .. . ....... . ..... . .... . .
Short-term notes payable ... .
Accounts payable and accrued
liabilities . .................. .
Air traffic liability ..... . .. .
Accrued income taxes . ... . ... .
$ (30,596) $ 32,070
18,364 18,284
(17,300)
(1 ,481 ) (825)
23,826 (4,463)
3,000
(11 ,581 ) (1,580)
(13,495) (24,463)
(5,893) (8,769)
$ (20,856) $ (4,046)
The accompanying notes are an integral part o f these statements.
30
DELTA AIR LINES, INC
Notes to Financial Statements
June 30, 1977 and 1976
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 lia-
bilities in the financial statements.
Depreciation- Substantially all of the Company'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 betterments are capitalized.
Interest Capitalized-Interest on advances for new
equipment is capitalized based on the Company's cur-
rent interest rate on long-term debt in order to properly
reflect the total cost of acquiring 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
higher by approximately $1,118,000 in 1977 and
$88,000 in 1976.
Foreign Currency Transactions-Realized and un-
realized foreign exchange adjustments are included in
income on a current basis.
Retirement Plans-All of the Company's perma-
nent employees are covered under its noncontributory
trusteed plans providing for retirement, disability and
survivor benefits. The total expense under these plans
amounted to approximately $52,324,000 in 1977 and
$44,291,000 in 1976. The Company's policy is to fund
each year's accrued costs under the plans, which costs
include amortization of prior service costs ($41,153,000
at June 30, 1976) over a thirty-year period to 1991. As of
June30,1976 (date of most recent actuarial study), the
assets of the plans exceeded the actuarially computed
present value of vested benefits under the plans.
31
DELTA AIR LINES, INC.
Income Taxes - Total income taxes are provided by
applying the applicable tax rates to book income before
income taxes. Deferred income taxes are provided for
all significant items (principally depreciation) where
there is a timing difference in recording such items for
financial reporting purposes and for income tax pur-
poses. Investment tax credits are amortized (as a reduc-
tion of the provision for income taxes) over seven years.
(See Note 3 ).
Earnings Per Share - Net income per common
share is computed based on the weighted average num-
ber of outstanding shares during the year (19,880,577
shares in 1977 and 1976). Outstanding stock options
and warrants (see Note 6) have no material dilutive ef-
fect on net income per common share in 1977 and 1976.
2. AIRCRAFT PURCHASE AND SALE
COMMITMENTS:
At June 30, 1977, the Company had outstanding
purchase commitments for the acquisition of 36 Boeing
B-727-200 aircraft and nine Lockheed L-1011 aircraft,
including related spare engines, which will require
future expenditures of approximately $618,000,000
during fiscal years 1978 through 1981. The delivery of
the last 24 Boeing B-727-200 aircraft can be confirmed
by the Company at specified interim dates to August,
1979. Subsequent to June 30,1977 the Company con-
firmed delivery of six of the Boeing B-727-200 aircraft.
The last three Lockheed L-1011 aircraft are cancellable
by specified interim dates to February 28,1979. At
June 30, 1977, advance payments and other capitalized
expenditures relating to aircraft to be delivered
amounted to $30,200,000 on the Boeing aircraft and
$16,400,000 on the Lockheed aircraft.
The Company has entered into agreements to sell
four Douglas DC-9-32 aircraft, one Boeing B-727-100
aircraft, and one Douglas DC-8-51 aircraft, which
agreements provide for delivery of the aircraft during
fiscal 1978.
32
DELTA AIR LINES, INC.
3. INCOME TAXES:
The provision for income taxes in 1977 and 1976
consisted of:
1977 1976
(In Thousands)
Currently payable. . . . . . . . . . . . . . . . . . $ 9,805 $ 8,769
Deferred income taxes. . . . . . . . . . . . . . 15,119 36,849
Investment tax credits. . . . . . . . . . . . . . 51,438 8,331
Income taxes provided. .. . . .... . . 76,362 53,949
Less-Amortization of investment
tax credits . . . ............ ... . .... (13,695) (14,613)
$62,667 $39,336
Total income taxes provided were 49.25% of 1977
and 1976 book income before income taxes, represent-
ing taxes provided at the 48.0% Federal statutory rate
plus state income taxes. As of June 30, 1977, all avail-
able investment tax credits have been utilized to reduce
Federal income taxes payable.
The provision for deferred income taxes resulted
from the tax effect of the following timing differences:
Depreciation and other property
items .... ... . .
Unrealized gain on foreign currency
translations .. ... .. .
Other, net.. . .. .. . . . . . . .
1977 1976
(In Thousands)
$14,124 $34,069
15
980
5,992
(3,212)
$15,119 $36,849
The Internal Revenue Service has completed an
examination of the Company's income tax returns for
fiscal years 1966 through 1972, and on September25,
1975, issued a statutory notice of deficiency proposing
additional income taxes of $25,681,000. The Company
is contesting the proposed deficiency and believes that
it has substantial defenses to most of the issues involved.
The applicable law, however, is unsettled and the ulti-
mate outcome of the matter is therefore uncertain. In
the opinion of management, adequate provisions have
been made for the alleged tax deficiency plus related
interest, and the outcome of this matter will not have a
material adverse effect on the Company's financial
condition.
33
DELTA Al R LIN ES, I NC.
4. LONG-TERM DEBT:
At June 30, 1977 and 1976, the Company's long-
term debt (including current maturities) was as follows:
(a) Due Lazard Brothers & Co.,
Limited, under 5%, 6% and
7 % unsecured notes, repay-
able in pounds sterling in 20
semiannual installments to
1986 ($6,783,000 payable in
fiscal 1978).
At original exchange rates .. .
Less unrealized gain on -
Current maturities ...... . .
Long-term portion ...... .
At current exchange rates .. .
(bl Due banks under 1973
unsecured credit agreement,
repayable in quarterly install-
ments of $11 ,000,000 with
the remaining $80,000,000
balance payable on Septem-
ber 30, 1980. The interest rate
is equal to % above the
prime rate through Septem-
ber, 1978, then % above the
prime rate through Septem-
ber, 1980 ($55,000,000 vol-
untarily prepaid at June 30,
1977, without penalty) . . . .
(c) Due ban ks under 1975
unsecured credit agreement,
repayable in quarterly install-
ments of $1 ,500,000, with the
remaining $11 ,500,000 bal-
ance payable on September
30, 1980. On March 31 , 1977,
the notes under this agree-
ment were voluntarily prepaid
in full without penalty. The
interest rate was equal to
119% of the prime rate
plus % ... . .... . . . . . . .
34
1977 1976
(In Thousands)
$ 69,993
(2,420)
(15,572 )
52,001
168,000
$ 79,091
(2,107)
(15,857)
61 ,127
245,000
32,500
DELTA AIR LIN ES, INC.
1977 1976
(In Thousands)
(d) Convertible Subordinated
Debentures, 6 %, maturing
August 1, 1986, with annual
sinking fund redemptions of
$1 ,100,000which began July
31 , 1976.The remaining obli-
gations at June 30, 1977 and
1976 are after deducting
$2,200,000 and $1,876,000
of debentures, respectively,
acquired for future sinking
fund requirements (Note 6) ..
(el Due an insurance company
under a 9 % % unsecured note,
repayable in installments of
$17,500,000 on April 30, 1977
and 1978 (remaining
$17,500,000 payable in fiscal
1978) ....
(fl Other debt, with various
interest rates and maturity
dates ($3,345,000 payable in
fiscal 1978) ... . . . . .
Total ... .... . . . . ..... . .
Less-Current maturities.
18,700
17,500
8 924
265,125
(27,628)
$237,497
20,124
35,000
8 671
402,422
(51,454)
$350,968
In the opm10n of management, funds provided
from operations will sufficiently cover future expendi-
tures for aircraft (see Note 2) and scheduled debt ma-
turities. At June 30, 1977, the aggregate annual maturi-
ties of long-term debt for the next five fiscal years were
as follows:
Amount
(In Thousands)
1978 . . . . . ... $27,628
1979 . . 52,881
1980 . . . . . . . . . . . . . . . . . . 53,243
1981 . . . . . . . . . . . . . . . . . . . . . . 88,507
1982 . . . . . . . . . . . . . . . . . . 8,521
In addition to restrictions on cash dividends as
indicated on the balance sheet, the Company's credit
agreements include requirements for maintenance of
working capital (as defined) and limitations on indebt-
edness, leases and other obligations. In connection with
the 1973 bank credit agreement, the Company has in-
formally agreed to maintain on deposit with the lending
banks average balances (including normal working
balances) equal to 15% of the average daily outstanding
35
DELTA Al R LIN ES, I NC.
borrowings, with the average balances and borrowings
being computed over the term of the agreement. While
a substantial portion of the cash balances at June 30,
1977 and 1976, is maintained for this purpose, there
are no legal restrictions on the Company's use of these
funds.
5. LEASE OBLIGATIONS:
At June 30, 1977, the Company leased seven Boeing
B-727 aircraft and certain airport terminal and main-
tenance facilities, ticket offices, etc., under long-term
agreements. Rental expense was $36,135,000 in 1977
and $38,326,000 in 1976, including rentals under
"financing leases" (as defined by the Securities and
Exchange Commission) of $23,747,000 in 1977 and
$29,360,000 in 1976.
At June 30, 1977, the Company's minimum rental
commitments under noncancellable leases with initial or
remaining terms of more than one year were as follows:
Payable tor
Fiscal Year
Financing
Leases
Municipal Aircraft
Leases and Other
Other
Leases Total
(In Thousands)
1978 $ 15,960 $ 6,390 $ 3,41 0 $ 25,760
1979 15,250 6,050 3,020 24,320
1980 15,300 5,930 2,420 23,650
1981 14,330 5,970 2,030 22,330
1982 13,700 4, 250 1,550 19,500
1983-1987 63,160 5,290 4,990 73,440
1988-1 992 57,390 3,650 2,510 63,550
1993-1997 49,980 920 2,460 53,360
After 1997 32,260 2,190 34,450
$277,330 $38,450 $24,580 $340,360
The estimated present value (based on a weighted
average interest rate in 1977 of 7 .1 % , with such interest
rates used ranging from 3 .1 % to 13. 5%) of the minimum
rental commitments under financing leases was as
follows at June 30, 1977 and 1976:
Applicable to
Municipal leases-
Terminal facilities ..... . .
Maintenance facilities ..... . . . .
Aircraft leases . ..... . .......... .
Other leases . . . .. . . . . . ... . .... .
36
1977 1976
(In Thousands)
$ 91 ,890
64,330
156,220
18,970
8,980
$ 95,930
66,270
162,200
22,740
9,980
$184,170 $194,920
DELTA AIR LINES, INC.
Assuming all financing leases were capitalized and
amortized, the effect on 1977 and 1976 net income
would have been less than 3%.
In fiscal 1977, the Company capitalized all new
leases defined as capital leases under Financial Account-
ing Standards Board Statement No.13. The effect on
the 1977 financial statements of capitalizing these
leases is not significant. Leases with municipalities and
other governmental units for airport terminal and main-
tenance facilities are specifically defined as operating
leases under Statement No.13.
The Company is participating in a major expan-
sion of terminal facilities at Hartsfield Atlanta Inter-
national Airport. Total project costs ( excluding tenant
improvements) is presently estimated at approximately
$240,000,000. The Company's share of this project
cost, plus estimated leasehold improvements, is approx-
imately $72,000,000. The Company's annual rentals
beginning in 1981 (the planned first year of operation)
and other costs associated with the new facility are
presently estimated at $16,000,000.
6. COMMON STOCK:
The Company has 74,800 common shares reserved
for conversion (at $250 per share) of the Convertible
Subordinated Debentures, and has warrants outstand-
ing for the purchase of 500,000 shares of its common
stock at $48 per share on or prior to May 1, 1978.
Under the Company's Qualified Stock Option Plan,
options for 1,250 shares at $51.75 per share were out-
standing at June 30, 1977, and 1976. All of these options
were exercisable at June 30, 1977, and 937 were exer-
cisable at June 30, 1976.
37
DELTA AIR LINES, INC.
7. ACQUISITION AND LIQUIDATION
OF STORER LEASING, INC.:
On July27,1976, the Company purchased all of
the outstanding capital stock of Storer Leasing, Inc., a
wholly owned subsidiary of Storer Broadcasting Com-
pany, for cash of $30,350,000 and assumption of exist-
ing indebtedness of $3,649,000, payable in monthly
installments through January, 1978, with interest at
5 % per annum. The assets of Storer Leasing con-
sisted of six Boeing 727-200 and five Boeing 727-100
aircraft and 18 spare engines, all of which were pre-
viously leased to the Company. On July 30, 1976, Storer
Leasing was liquidated and the assets transferred to
the Company.
If the purchase had taken place on July 1, 1975,
there would have been no significant effect on the Com-
pany's 1977 and 1976 results of operations.
8. CONTINGENCIES:
The Company is a defendant in certain legal actions
relating to environmental problems (primarily noise),
employee benefit plans, alleged employee discrimina-
tion and other matters. Given the unsettled status of
the law in many of the areas involved, the outcome of
these actions is difficult to predict. In the present opin-
ion of management and its legal counsel, however, the
disposition of these matters will not have a material
adverse effect on the Company's financial condition or
significantly interfere with its operations.
9. QUARTERLY FINANCIAL DATA (Unaudited):
Summarized unaudited quarterly financial data
for fiscal 1977 are as follows:
Three Months Ended
Sept.30 Dec.31 Mar.31 June30
(In millions, except per share)
Operating revenues . . . $402.8 $420.1 $440.3 $456.4
Operating income . .. . $ 26.6 $ 32.2 $ 31.9 $ 50.5
Net income.* ......... $ 17.9 $ 18.5 $. 22.2 $ 33.8
Net income per
share . ... .. . .. . .. . . ~ ~ L1J1.. $ 1.70
*Includes after-tax gain
on sales of aircraft
of . ... . . ..... .. ... . Lli L...U!_ ~ ~
38
DELTA AIR LINES, INC.
10. PROPERTY AND EQUIPlVIENT
REPLACE1\1ENT COST (Unaudited):
For operating expenses such as salaries and wages,
fuel, supplies, etc., the Company's financial statements
generally reflect current prices. However, the Company's
substantial investment in productive capacity (flight
equipment and ground property and equipment) and
the related depreciation expense are based on historical
cost. Although a major portion of the Company's air-
craft seat capacity has been purchased in recent years,
the financial statements do not reflect the higher cur-
rent replacement cost of the Company's entire produc-
tive capacity resulting from the cumulative impact of
inflation. Further, the Civil Aeronautics Board makes
no allowance for these higher replacement costs in
determining airline fares and rates.
As required by the Securities and Exchange Com-
mission, the Company's 1977 Form 10-K Annual
Report ( copy of which is available on request) contains
unaudited data on the approximate replacement cost of
the Company's property and equipment as of June 30,
1977, and the approximate effect which replacement
cost might have on depreciation expense for fiscal 1977.
39
DELTA AIR LIN ES, INC.
Auditors' Report
40
A R T H UR ANDE R SEN & Co.
ATLANTA, GEORG I A
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, 1977 and 1976, and the related
statements of income, retained earnings,
additional paid-in capital and changes in
financial position for the years then ended. Our
examinations were 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, 1977 and
1976, 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.
~ a,,_~ ,!/Co .
Atlanta, Georgia,
August 19, 1977.
DELTA AIR LINES, INC.
Management's Analysis and Discussion
of Summary of Operations
A comparison of the results of operations for fiscal years
1977 and 1976 can be found in previous sections of this
report. The following is a comparison of the results of
1976 and 1975.
Fiscal 1976 earnings of $70.2 million were 35%
above the restated 1975 earnings of $51.9 million.
Included in 1976 earnings are after-tax gains of
$6.8 million from the translation of long-term debt
payable in foreign currency and $3.9 million from the
sale of aircraft. Fiscal 1975 results include a $3.0 million
after-tax gain from foreign currency translations and a
$4.0 million after-tax gain from aircraft sales.
Total operating revenues rose 11% principally as
the result of an 11 % increase in revenue passenger miles,
a 15% growth in cargo ton miles, and an increase in
charter operations. The passenger mile yield was
approximately the same in both years, and the 1976
cargo yield was up 2%. Traffic in both years was
influenced by strikes against major competitors for a
total of 142 strike days in fiscal 1976 and 109 strike
days in fiscal 1975.
Operating expenses in fiscal 1976 were up
$129.3 million or 10% higher than fiscal 1975 while
operating capacity was up 3%. Salaries and related
costs increased 9% while average employment was 1 %
below the average for 1975. Aircraft fuel expenses were
up 15% as the average price per gallon of fuel rose 15%
and total gallons used increased less than 1 %. Aircraft
rentals declined 58% as a result of the phase-out of
leased DC-10 aircraft during fiscal 1975. A 10% decline
in aircraft maintenance materials and repairs resulted
from Delta's fleet modernization and standardization
program. Passenger commissions expenses grew 21%
as much of the traffic gained during and after the
competitors' strike period used the services of travel
agents. Other cash expenses were up generally as a
result of inflation and the growth in operations.
Depreciation expense was 16% higher than fiscal 1975
due to the introduction of new aircraft as part of
Delta's fleet modernization plan.
Net interest expense of $31.4 million was essentially
the same as the previous year. The effect of reduced
interest rates in 1976 was offset by a higher average
level of outstanding debt and a reduced amount of
capitalized interest.
41
DELTA AIR LIN ES, INC.
Summary of Operations FortheyearsendedJu ne30
(Dollars expressed in thousands except per share figures)
Operating revenues:
Passenger ... . . . . . . . ...... . ........... .
Cargo ... . . . .......... . . . ........ . .... .
Other, net .. . . . ........... . ..... . .. .. .. .
Total operating revenues . . ...... . .... ... . .
Operating expenses .. .. ......... . .
Operating income .. .. .... ..... .. . . . ..... .
Interest expense, etc., net* .. .. .. . . .... . . . .
Gain on disposition of aircraft. .. . ........ . .
Realized and unrealized gains on foreign
currency translation .. ... .. . . . ... .... . . . .
Income before income taxes . .. . .... .. .... .
Income taxes . . . ... .... . . ........... . ... .
Net income ........ .. ........ .. . . . . .. . . . .
Net income per share ..... ... . ... . . . .... .
Dividends paid .. . .. . ......... . .. . . .. .... .
Dividends paid per share .. ... .. .. . . . .... .
*Has been reduced by interest capitalized of
Other Financial and Statistical Data
1977
$1,575,642
114,800
29,203
1,719,645
1,578,464
$ 141,181
18,236
29,403
2,699
$ 155,047
62,667
$ 92,380
$4.65
$13,916
$.70
$2,922
Long-term debt. .. ... . .. .. . .. .... .. . . ... . $ 237,497
Stockholder equ ity .. ... .... .... ........ .. $ 620,583
Stockholder equity per share. . . . . . . . . . . . . . . $31.22
Shares of common stock outstanding. .. . . . . . 19,880,577
Revenue passengers enplaned ... . .. . . . . .. .
Available seat miles (000) .. . ....... .. . . . .. .
Revenue passenger miles (000) ..... ...... .
Passenger load factor . . ... ..... ....... .. . .
Break-even load factor .... .. ..... . .... ... .
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 ...
42
28,811,966
32,614,260
18,042,339
55.32%
50.36%
4,478,038
2,113,798
8.73~
4.84~
35.25~
1976
$1,406,417
100,626
21 ,899
1,528,942
1,411 ,333
$ 117,609
29,103
7,680
13 357
$ 109,543
39,336
$ 70,207
$3.53
$11 ,928
$.60
$3,247
$ 350,968
$ 542,112
$27.27
19,880,577
27,996,665
30,389,761
17,621 ,247
57.98%
53.14%
4,145,183
2,034,848
7.98
4.64
34.05
DELTA AIR LIN ES, INC.
1975 1974 1973
$1 ,271 ,720 $1 ,124,759 $ 962,558
85,388 86,685 76,323
19,922 15,683 10,818
1,377,030 1,227,127 1,049,699
1,282,000 1 ,0701
043 928,940
$ 95,030 $ 157,084 $ 120,759
28,984 14,377 9,171
7,944 18,607 4,653
5 855
$ 79,845 $ 161 ,314 $ 116,241
27,965 70,665 50,246
$ 51 ,880 $ 90,649 $ 65,995
$2.61 $4.56 $3.32
$11 ,928 $11 ,926 $9,925
$.60 $.60 $.50
$6,099 $10,810 $6,345
$ 390,437 $ 345,119 $ 168,000
$ 483,833 $ 443,826 $ 364,553
$24.34 $22.33 $18.35
19,880,577 19,879,377 19,866,524
25,831 ,631 25,565,208 23,702,870
29,497,234 28,417,679 27,958,095
15,916,860 15,445,891 14,449,748
53.96% 54.35% 51.68%
49.93% 46.76% 45.20%
4,030,116 3,847,226 3,815,285
1,822,574 1,800,400 1,711 ,229
7.99 7.28 6.66
4.35 3.77 3.32
31 .81 27.81 24.35
43
DELTA A IR LIN ES, INC.
Board of Directors
R. W. ALLEN3
W.T. BEEBE3
B. W. BIEDENHARN3
R. W. COURTS2,4
C.H . DOLSON3
R. W. FREEMAN2,4
DAVID C. GARRETT, JR?
EDWARD H. GERRY4
JESSE HILL, JRI
JOHN R. LONGMIRE1
R.S. MAURER3
BILL MICHAELS1
T. M. MILLER2,4
ROBERT OPPENLANDER3
STUART W. PATTON1
CARLETON PUTNAM1
S enior Vice President - Personnel
Chairman of the Board and
Chief Executive Officer
Chairman of the B oard and
Director, Ouachita Coca-Cola Bottling Co.
and Biedenharn R ealty Co., Inc.
President and Director, Ouachita
Candy Co., M onroe, Louisiana
Director and Chairman of the Executive
Committee, Atlantic Realty Co.,
Atlanta, Georgia
Chairman of the Executive Committee
Chairman of the Compensation and
Finance Committees;
Chairman of the Board and Director,
Louisiana Coca-Cola Bottling Co., Ltd.
N ew Orleans, Louisiana
President
Partner of Gerry Brothers & Co.,
Investment Managem ent, New York,
New York
President, Chief Executive Officer and
Director, Atlanta L,fe Insurance
Company, Atlanta, Georgia
Partner of investment banking firm of
I. M . Simon & Co., St.Louis, Missouri
S enior Vice President -
General Counsel and S ecretary
Chairman of the Audit Committee;
Chairman of the Board,
Chief Executive Officer and Director,
Storer Broadcasting Co., M iami, Florida
R etired S enior Vice President -
Marketing
S enior Vice President - Finance
and Treasurer
Member of law firm of Patton, Kanner,
Nadeau, S egal, Zeller & LaPorte and
Director of Storer Broadcasting Co.,
Miami, Florida
Private Investm ents
GEORGE M. SNELLINGS,JR~,4 Member of law/irm of Snellings,
Breard, Sartor, Shafto & lnabnett,
Monroe, Louisiana
1 Audit Committee
2 Compensation Committee
3 Executive Committee
4 Finance Committee
44
DELTA AIR LINES, INC.
Officers
W. T. BEEBE Chairman of the Board and
Chief Executive Officer
DAVID C . GARRETT, JR. Pres ident
FINANCE
ROBERT OPPENLA NDER Senior Vice P resident - Finance & 'lreasurer
W. A. ATCHISO N Vice President - Computer S ervices
J. D. DUNN Vice President - Purchasing
M. 0. GALLOWAY Vice President - Comptroller
REX A. McCLELLAN D Vice President - Properties
FRANKS . CHE W A sst. Vice President - Treasury
J. R. HOWELL Asst. Treasurer
HUGH H. SAXON Asst. Treasurer
AUD LY TOLLER, JR. A sst. Treasurer
LEGAL & CORPORATE AFFAIRS
R.S. MAURER
J. W. CALLISON
FRANKF. ROX
MORRIS SHIPLEY
SIDNEY F. DAVIS
A. C. FORD
GEORGE E. SHEDD
C. G . SWEAZEA
E. A. THOMPSON
IKE LASSETER
MARKETING
J. A. COOPER
SHELBY D. DEMENT
R. L. GIBSON
CHARLES P. KNECHT
J.T. MAPLES
HENRY ROSS
OPERATIONS
HOYT T. FINCHER
D. P. HETTERMANN
C. A. SMITH
J. K. BURNETTE
ROBERT H. COWART
JOHN P. DAVIS
JACKS . KING
C. J. MAY
W.L. MILLER
L. G. RODEFELD
S enior Vice President - General Counsel
& S ecretary
Vice President - Law & R egulatory Affairs
Vice President - Law & Public Affairs
Vice President - Government Affairs
Asst. Vice President- C orporate Legal A ffairs
& Asst. S ecretary
Asst. Vice Preside nt - Long R ange Planning
Asst. Vice Preside nt - Public R elations
Asst. Vice President - Public Affairs
Asst. Vice President-Econo m ic R esea rch
Asst. S ecretary
S enior Vice President - M arketing
Vice President - Consumer Affairs
Vice President- Traffic
Vice President -Marketing
Asst. Vice President-Marketing Planning
Asst. Vice President- S ales Promotion
S enior Vice President - Operations
Vice President - Technical Operations
Vice President - Flight Operations
Asst. Vice President - Quality Control
A sst. Vice President- Operations
Administration
Asst. Vice President-Maintenance
Asst. Vice President- Flight Control
Asst. Vice President- Engineering
Asst. Vice President- M ateriel S ervices
Asst. Vice President - Communications
OPERATIONS- PASSENGER SERVICE
HOLLIS L. HARRIS
E.L. HAMNER
FOY PHILLIPS
JEANETTE EASLEY
C. A. THOMPSON
PERSONNEL
R. W. ALLEN
].A.YORK
RUSSELL H. HEIL
JOHN HUME
H. M. JOHNSON
EUGENE H. STEWART
S enior Vice President- Operations-
Passenger S ervice
Vice President - S tations
Vice President - Passe nger S ervice
A sst. Vice President-Passenger S ervice
Asst. Vice President - Stations
S enior Vice President- Personnel
Vice President - Personnel Benefits
A sst. Vice Preside nt - Personnel
Administration
Asst. Vice President -Training &
Personnel Commu nications
A sst. Vice President- Personnel S ervices
Asst. Vice President - Corporate S ecurity
45
DELTA A IR LINES, INC.
46
Transfer Agent and Registrar
The Citizens and Southern National Bank
99Annex
Atlanta, Georgia 30399
Auditors
Arthur Andersen & Co.
25 Park Place, N.E.
Atlanta, Georgia 30303
Annual Meeting
October 27, 1977, Monroe, Louisiana
Common Stock
Listed on the New York Stock Exchange
Market Prices and Dividends
Fiscal Year 1977
Quarter Ended:
September 30 ... . . .
December 31 . .. . . .
March 31 ... . . .. . .
June 30 ... . ... . . .
Fiscal Year 1976
Quarter Ended:
September 30 ..... .
December 31. . . . . .
March 31 . ... .. . . .
June 30 ... .. .. . . .
Market Price Range of
Common Stock on
New York Stock Exchange
High
44
41
39
38
39
38 5
/s
44
45 1/s
Low
36
34
30
30
28 3/s
28
37
39
Availability of Form 10-K
DELTA A IR LINES, INC.
Cash
Dividends
Paid Per Share
$.175
.175
.175
.175
$.15
.15
.15
.15
The Company will supply, upon written request and without
charge, a copy of the Company's annual report for the fiscal
year 1977 on Form 10-K to any person beneficially owning or
owning of record any of the common stock of the Company
on September 6, 1977. 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 LINES, INC
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, ben ficially 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, un-
less 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 within
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 Aeronautics
Board, Washington, D.C. 20428.
48
Delta Air Lines, Inc.
General Offices
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320