Delta Air Lines annual report 1979

Delta Air Lines, Inc.
Annual Report 1979
Description of Business
Delta Air Lines, Inc., is a certificated trunk air carrier pro-
viding scheduled air transportation for passengers, freight
and mail over a network of routes throughout the United States
and abroad. Delta's route structure connects the Northeast
and Midwest with the Southern States from Texas to Florida;
the Southeast to the Midwest, West, and California; and the
East Coast to Florida. In addition, Delta operates flights to
Canada, Bermuda, the Bahamas, Puerto Rico, England and
Germany. 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 many other federal and state statutes.
Contents
Highlights of the Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Report to the Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 2
Earnings and Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Operating Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fuel Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Capitalization and Financing ...................... 10
Facilities ...................................... 10
Flight Equipment and Purchase
Commitments ................................ 11
Personnel. .................................... 11
Regulatory Matters .............................. 12
Route Map .................................... 14
Financial Statements-
Balance Sheets ............................... 16
Statements of Income .......................... 18
Statements of Retained Earnings ................. 19
Statements of Additional Paid-in Capital. ........... 19
Statements of Changes in Financial Position ......... 20
Notes to Financial Statements .................... 21
Auditors' Report. ............................. 24
Summary of Operations .......................... 25
Other Financial and Statistical Data ................. 25
Management's Analysis and Discussion
of Summary of Operations ...................... 26
Board of Directors .............................. 27
Officers ...................................... 27
The Cover
Delta is the first airline to fly the Dash 500 model of the
Lockheed L-1011 TriStar in transatlantic service. This long-
range TriStar gives passengers a smoother, quieter flight
between Atlanta and Frankfurt, Germany.
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.
1979
Operating Revenues ............................................ . $2,427,846
Operating Expenses ............................................ . $2,218,814
Net Income ................................................... . $ 136,744
Earnings Per Share ............................................. . $ 6.88
Revenue Passengers Enplaned .................................... . 39,360,368
Available Seat Miles (000) ....................................... . 39,826,891
Revenue Passenger Miles (000) .................................... . 25,518,520
Passenger Load Factor. ......................................... . 64.07%
1978
$2,050,911
$1,845,816
$ 131,127
$ 6.60
33,007,670
35,135,046
20,825,722
59.27%
Per Cent
Change
+18%
+20%
+ 4%
+ 4%
+19%
+13%
+23%
+ 8%
Report to the Stockholders
We are pleased to report that 1979 was the third
consecutive year in which Delta Air Lines set a new
record for fiscal year earnings. Net income totaled
$136.7 million, 4% above last year's record of
$131.1 million. When viewed against the background
of greatly increased competition, the return of double
digit inflation rates, uncontrolled fuel price increases,
and the proliferation of deep discount fares, all of
which were significant influences in fiscal 1979, a new
earnings record was an outstanding achievement. Delta's
performance, both for its customers and in financial
results, was largely the result of the skill and dedication
of the more than 36,000 Delta Professionals and was an
accomplishment of which they can be justly proud.
During the year, the Company set records in every
category of passenger operations. We were privileged
to serve over 39 million passengers, 6.4 million more
than 1978. Revenue passenger miles grew 23% to
25.5 billion. Passenger revenues rose 19% to
$2.2 billion surpassing the $2 billion level for the first
time. The passenger mile yield declined 3% as other
carriers, taking advantage of relaxed controls over
route entry, moved into new markets and filed many
uneconomic discount fares, some as low as one dollar,
in an effort to gain a share of these markets. Total
revenues grew 18% to $2.43 billion.
Growth in traffic and operations, rapidly rising
fuel prices, increases in the level of employment caused
by the confusing array of discount fares, and inflation
combined to drive up expenses to $2.22 billion, an in-
crease of 20%, while operating capacity grew 13% to
39.83 billion available seat miles.
The Company's financial position was strengthened
as we significantly reduced outstanding debt and made
substantial capital investments. Total funds generated
were $377.7 million of which $371.2 million was ex-
pended on new aircraft and ground support equipment,
consistent with our objective of maintaining the most
modern and efficient aircraft available. At June 30, 1979,
2
total debt was $140.3 million, including current
maturities, equal to 16% of equity, one of the lowest
debt-to-equity ratios in the airline industry.
Delta's financial strength was exemplified recently
as the Company borrowed $35 million from the Develop-
ment Authority of Clayton County, Georgia, to finance
several facilities at Atlanta's new airport terminal
complex, currently under construction. The loan was
from the proceeds of a bond issue, guaranteed by Delta
and sold at a 65/8% tax-free interest rate. The bond issue
received an A rating from two major rating agencies.
Delta is the only airline whose securities arecurrently
rated this high.
The Company continued to improve its aircraft
fleet as it took delivery of 14 Boeing B-727-200 aircraft
and four Lockheed L-1011 aircraft, one of which was a
long-range L-1011-500 used on Delta's European routes.
Five older aircraft were sold, resulting in a gain of 544'.
per share. Commitments were made for the sale of 12
additional aircraft, three of which were delivered in
July, 1979, and the remaining nine to be delivered by the
end of calendar 1983. During the year, Delta signed
contracts for the modification of its DC-8-61 and
DC-9-32 aircraft fleets. Upon completion of these
modifications, Delta's entire aircraft fleet will meet
all currently applicable noise regulations.
To provide for the continuation of the Company's
excellence in its aircraft fleet, orders were placed for 20
new Boeing B-767-200 advanced technology aircraft for
delivery beginning in the latter part of calendar 1982.
Options were obtained for an additional 22 such air-
craft. The B-767-200 is a two-engined, twin-aisle, wide-
body aircraft seating approximately 200 passengers.
It will allow Delta to add wide-body service in many
new markets and at the same time make significant
gains in operating and fuel efficiency.
Taking advantage of the opportunities for new
service offered by relaxed route regulation, Delta began
service to four new cities during 1979: Austin, Reno,
San Antonio, and Frankfurt, West Germany. Many
new routes were added between cities which we were
already serving including Cleveland, Tampa, Jackson-
ville, Hartford, Nashville, Louisville, Phoenix,
Greensboro/High Point/Winston-Salem, Raleigh/
Durham, and San Juan. At the same time Delta's entire
route system has been opened up to unlimited competi-
tion. Those carriers who have chosen to enter many of
Delta's markets, however, have discovered that our
reputation as a strong competitor is no myth.
While fiscal 1979 was a year of significant accom-
plishments, it was also a year affected by deep frustra-
tions, both for the country and for the airline industry.
The Administration's anti-inflation programs have had
little noticeable impact on this problem. The country
continues to be buffeted by the lack of a sound national
energy policy. In fact, the national economy is largely at
the mercy of the oil exporting nations and the oil com-
panies. During the last quarter of fiscal 1979, Delta's
aircraft fuel price increased an average of 4.5 cents per
gallon each month. A one cent per gallon increase costs
Delta $12 million on an annualized basis.
Last year the value of the American dollar declined
precipitously relative to the other major world curren-
cies, and while the rate of inflation has continued to
climb, the country has moved into a recession of yet
unknown proportions.
The nation's air transportation system was funda-
mentally changed with the implementation of the
revised Federal Aviation Act in the past year. While
there has been a considerable increase in competition
among existing airlines, few of the expected new air-
lines have materialized. Our prediction of the concen-
tration of scheduled service in the hands of a few
carriers and the reduction in service to smaller cities
has already begun to be realized as a number of carriers
have sought to merge and service has been withdrawn
from a number of cities. While the average passenger
fare declined in 1979, this is a temporary situation
which will disappear in the coming year as carriers
realize the need to cover all costs including an adequate
return on investments. Regulatory reform has done little
if anything to improve the efficiency of airline opera-
tions, and increases in efficiency are the only lasting
sources of reduced fares.
While the immediate future for the economy and
the industry is cloudy and uncertain, we continue to be
optimistic about the prospects for Delta and the nation.
The economy is both dynamic and resilient. We as a
nation have no economic problems which cannot be
solved, given the proper direction and leadership by
the Congress and the Administration.
Delta enters its second half century of passenger
service believing that our most outstanding accomplish-
ments are still ahead. We have all the necessary resources
to maintain our leadership in the airline industry. We
have the aircraft and facilities to provide unsurpassed
service to our customers. We have the leadership of a
management whose experience in the airline industry
is measured in centuries, and we have the dedication
and skill of the people who are the Del,
ta family.
DAVID C. GARRETT,JR.
President and
Chief Executiue Officer
August 22, 1979
WT BEEBE
Chairman of the Board
3
Earnings and Dividends
Fiscal 1979 earnings were $136.7 million ( $6.88 per
share), an increase of 4% over the 1978 earnings of
$131.1 million ($6.60 per share). The following table
compares operating results for fiscal 1979 and 1978.
Operating Income .. . .. . . .. . . .
Other Expense (Income):
Interest Expense ..... . .. . . .
Less-Interest
Capitalized On
Advances for
Equipment. ..... . .. . .. .
Gain on Disposition
of Aircraft. ..... . . . . . .. .
Realized/Unrealized
Loss on Foreign
Currency Translation ... . . .
Miscellaneous Income,
Net . . ... ... ..... . .... .
Income Before Taxes . ...... . . .
Provision for Income Taxes:
Income Taxes Provided ..... .
Less -Amortization of
Investment Tax
Credits ...... . ....... . .
Net Income ... ...... ... .... .
Net Income Per Share . . . . .. .. .
1979 1978
(In Thousands)
Per Cent
Change
$209,032 $205,095 + 2%
16,178 22,107 - 27
(6,717) (4,794) + 40
- --
9,461 17,313 - 45
(20,514) (32,689) - 37
7,110 3,339 + 113
(9,069) (7,640) + 19
(13,012) (19,677) - 34
222,044 224,772 -
104,429 109,296 - 4
(19,129) (15,651) + 22
- - -
85,300 93,645 - 9
$136,744 $131,127 + 4%
$6.88 $6.60 + 4%
Operating income increased 2% to $209.0 million
on an 18% growth in operating revenue and a 20% in-
crease in operating expense. Other income totaled
$13 million, a reduction of $6.7 million from last year.
Net interest declined $7. 9 million, the result of a lower
level of outstanding debt and increased capitalized
interest, partially offset by higher interest rates. Gains
from the sale of five aircraft totaled $20.5 million, 54
per share in the current year, while fiscal 1978 results
included $32.7 million, or 83 per share from the sale
of 14 aircraft. Translation of foreign debt repayable in
pounds sterling resulted in a loss of $7.1 million or 19
per share compared to a loss of $3.3 million, 9 per
share, in fiscal 1978. Miscellaneous income increased
$1.4 million, principally from higher interest income.
4
Income taxes were provided on book income at a
rate of approximately 4 7% in fiscal 1979 and 49% in
fiscal 1978. The lower rate in 1979 reflects the reduc-
tion in the maximum Federal corporate tax rate from
48% to 46% beginning January 1, 1979. The provisions
were reduced by investment tax credit amortization of
$19.l million in 1979 and $15.7 million in 1978.
The Company made dividend payments of
$20. 9 million during the year, equal to $1.05 per share.
During the year the Board of Directors increased the
quarterly dividend rate twice to an annual rate of
$1.20 per share, a 50% increase over the rate at the
end of fiscal 1978.
Fiscal 1979 was the 30th consecutive year in
which Delta has made cash dividend payments.
Earnings per Share
In Dollars
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'78
'77
'76
'75
'74
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Dividends per Share
In Dollars
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.25 .50 .75 1.00 1.25
Operating Revenues
The following table compares operating revenues for
fiscal 1979 and 1978 by major revenue category.
1979 1978
(In Thousands)
Scheduled Passenger ...... . $2,213,024 $1,861,100
Cargo ................. . 167,904 153,233
Charter ................ . 24,691 18,284
Other, Net. ....... .. .... . 22,227 18,294
Total. ............. . $2,427,846 $2,050,911
Per Cent
Change
+19%
+ 10
+ 35
+ 22
+ 18%
Total operating revenues in 1979 increased by
$376.9 million to $2.43 billion from the $2.05 billion
reported last year. Scheduled passenger revenues grew
19% or $351.9 million to $2.21 billion. Revenue pas-
senger miles (RPM's) totaled 25.52 billion, a 23% gain
over the previous year. The passenger mile yield declined
3% to 8.67 despite fare increases granted during the
year totaling 7.2% and the carry-over effect of fare in-
creases granted in the last half of fiscal 1978. The
increased use of discount fares and reductions in the
first class fare premium were the most significant
The Distribution of Passenger Traffic
and Revenue by Fare Type
causes of the yield erosion. For 1979, discount fares
accounted for 3 7% of Delta's total domestic RPM's
compared to 27% in 1978.
Cargo revenues grew 10% to $167.9 million includ-
ing a $1.6 million mail pay adjustment applicable to
prior years. Fiscal 1978 cargo revenues included a
$12.3 million mail pay adjustment applicable to prior
years. Cargo ton miles increased 4%, reflecting an in-
crease in competition brought about by the deregulation
of cargo operations in 1978. The average yield per
cargo ton mile increased 6% to 54.25.
Charter revenues totaled $24.7 m1llion, a gain of
35%, which resulted from increased charter operations.
Other net revenues increased $3.-9 million, related
primarily to the growth in passengers and cargo.
Per Cent
Revenue Statistics 1979 1978 Change
Revenue Passenger
Miles (000) ............ 25,518,520 20,825,722 +23%
Revenue Passengers
Enplaned .............. 39,360,368 33,007,670 +19%
Cargo Ton Miles (000) ...... 309,518 298,246 + 4%
Passenger Load Factor ...... 64.07% 59.27% + 8%
Passenger Mile Yield ....... 8.67 8.94 3%
REVENUE PASSENGER MILES
PASSENGER
REVENUE
$2.21
BILLION
PASSENGER
REVENUE
$1.27
BILLION
2.55% -
11.39% -
73.17% -
12.89% -
1975 '75
INTERNATIONAL -
I
DISCOUNT
'76 '77
- 3.57%
- 25.98%
- 61.90%
- 8.55%
'78 '79 1979
5
Operating Expenses
Total operating expenses increased $373 million or
20% over the preceding year and cash expenses in-
creased 21 %. Growth in traffic and operating capacity,
start-up costs on new routes, and the accelerating rate
of inflation continued to affect substantially all
categories of expense. Operating capacity totaled
39.83 billion available seat miles, up 13%, while
revenue plane miles increased 9%.
The following table compares operating expenses
for fiscal year 1979 with 1978 by major category.
Per Cent
1979 1978 Change
(In Thousands)
Salaries and Related Costs . .. $1,014,144 $ 831,818 + 22%
Aircraft Fuel. ...... . ..... 475,683 382,159 + 24
Aircraft Maintenance
Materials and Repairs .... 52,689 44,794 + 18
Aircraft Rentals . ........ . 7,369 6,295 + 17
Other Rentals ....... . . . .. 33,819 32,629 + 4
Landing Fees ............. 41,446 38,354 + 8
Passenger Food and
Related Supplies ........ 92,223 71,863 + 28
Agency Commissions . .. ... 79,183 64,800 +22
Advertising ........ . ..... 32,760 28,835 + 14
Other Cash Costs .... . .... 206,211 176,114 + 17
Total Cash Costs . ... . . $2,035,527 $1,677,661 + 21%
Depreciation and
Amortization ..... .. .. . . 183,287 168,155 + 9
Total Operating
Expenses . . ... . .... $2,218,814 $1 ,845,816 + 20%
Increases in salaries and related costs and aircraft
fuel expense accounted for $276 million or 77% of the
total increase in cash operating expenses. Salaries and
related costs rose 22% as the result of wage increases,
payroll tax rate increases, and a 12% growth in the
Average Price of Jet Fuel
In Dollars per Gallon
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level of employment. Aircraft fuel expense increased
24% as consumption increased 11 %, and the average
price per gallon increased 12% to 41.55<1'..
Aircraft maintenance materials and repairs expense
was up 18% reflecting an increase in the number of
overhauls and checks due to the expanding aircraft
fleet. Aircraft rental expense rose $1 million or 17%,
resulting from a $6 million increase for the lease of two
long-range L-lOll's for London operations and a de-
crease of $5 million from the capitalization of other
long-term aircraft leases.
Passenger food and related supplies increased
28% due to passenger growth and price increases.
Passenger revenue increases and the continued rise in
the number of passengers using travel agencies ac-
counted for the 22% growth in agency commissions.
Landing fees increased 8 %, generally in line with the
growth in aircraft operations.
Advertising increased 14% reflecting the promo-
tion of new routes and fares. All other cash costs
increased 17% as the result of inflation, traffic growth,
and the higher level of operations. Depreciation and
amortization expense increased 9%.
For the current year, the average passenger load
factor was 64.07% and the breakeven load factor was
58.02% compared to 59.27% and 52.74%, respectively,
in the previous year.
Per Cent
Operating Statistics 1979 1978 Change
Revenue Plane Miles (000) . . . 262,115 240,234 + 9%
Available Seat Miles (000) .. . 39,826,891 35,135,046 + 13%
Available Ton Miles (000) .... 5,357,995 4,743 ,778 + 13%
Fuel Gallons Consumed (000) 1,144,823 1,029,597 + 11%
Average Price Per
Fuel Gallon ............ 41.55 37.12 + 12%
Passenger Load Factor ...... 64.07% 59.27% + 8%
Breakeven Load Factor. .... 58.02% 52.74% + 10%
Actual and Breakeven Load Factors
70% ,------ - - - - - -- - - - - - - - - ~
Actual
Break even
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Fares
The CAB approved two general increases in passenger
fares during the year; 3.2% which Delta implemented
on March 7, 1979, and 4% which became effective on
May 26, 1979. These increases combined with the carry-
over effect of increases granted in fiscal 1978 were not
enough to offset the increased use of deep discount
fares. The average passenger mile yield declined 3%
from that of fiscal 1978.
Delta has consistently maintained that these deep
discount fares are uneconomic as well as confusing to
the traveling public due to the great number of restric-
tions upon their use. The competitive situation within
the airline industry at the present time will not allow
Delta unilaterally to reduce the discounts contained in
these fares. However, the Company has notified the
CAB that effective September 8, 1979, it will replace
47 discount fares with one group fare and four individ-
ual excursion fares to be called "Supreme Super Saver"
fares. It is anticipated that this new simplified discount
fare structure will benefit both the traveling public
and the Company.
The Airline Deregulation Act which became effec-
tive during the year requires the CAB periodically to
determine the industry cost per available seat mile and
to allow adjustments to fares which reflect changes in
operating costs. Based on its calculations of the cost
per available seat mile for the period ended June 30,
1979, the CAB approved a 6.6% general fare increase
which became effective on August 1, 1979. Unfor-
tunately, the CAB's calculations did not fully take into
account the rapid increase in the price of fuel during
the last quarter of fiscal 1979. To correct this miscalcu-
lation and recognize the continued rapid rise in fuel
8
prices, the Board recently approved an additional gen-
eral fare increase of 9.5%. For Delta, the increase will
be effective September 8, 1979. In addition, Delta still
has the option, provided by the Deregulation Act, to
raise its fares 5% for 58 days.
Average Passenger Mile Yield
Cents per Mile
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Fuel Matters
During fiscal 1979, Delta's average price per gallon of
aircraft fuel increased 12% to 41.55. However, price
increases in the latter part of the year, particularly in
the June quarter, were significantly above the average
for the year. In the June quarter fuel prices averaged
49.20, 30% above that in the same 1978 quarter. The
average price for the month of June, 1979, was 54.08
compared to 38.06 for June, 1978.
Fuel consumption for the current year totaled
1.14 billion gallons, 11 % above 1978. During the year
the Company increased its efficiency in the use of fuel
by more than 10% to 22.3 revenue passenger miles per
fuel gallon. Since the original fuel crisis in 1973, Delta
has increased its fuel efficiency by 50%. In that same
period, the Company increased the amount of fuel con-
sumed by only 18%, an average of 3% increase per year,
while revenue passenger miles have grown at the rate
of 13% per year. During that six-year period, the price
per gallon has increased by 264% or more than 44%
per year.
On February 25, 1979, the Energy Department
exempted aviation jet fuel from both price and alloca-
tion controls. The expected benefits from this action
have not fully materialized. For a variety of reasons, the
supply of jet fuel has not significantly increased nor
has its price stabilized. To the contrary, prices recently
have increased almost weekly. Currently Delta, along
with most other airlines, is receiving approximately
87% of requirements from its historic suppliers, but this
shortfall is being made up by new suppliers and by
limited purchases on the spot market.
To counter these serious problems of fuel prices
and supply, Delta is making determined efforts to in-
crease its efficient use of fuel. A program was recently
implemented to reduce aircraft speeds to achieve mini-
mum fuel consumption, even though operating costs
will increase in other areas such as crew and mainte-
nance costs. Delta has spent well over a billion dollars
for fuel efficient aircraft since the 1973 fuel embargo
and has committed more than a billion dollars for future
purchases of such aircraft. Millions of dollars have been
spent for flight training simulators to save fuel.
In the coming year, the Company will redouble its
efforts to increase its fuel efficiency to minimize the
impact of the uncontrolled fuel situation.
Revenue Passenger Miles per Fuel Gallon
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'78
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Fuel Consumption
Millions of Gallons
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25
1000 1250
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Capitalization and Financing
During the past year, the Company required no new
long-term financing. In connection with a purchase of
Boeing B-767-200 aircraft, however, the Company is-
sued a note to the Boeing Company in the amount of
$30.1 million payable on or before February 26, 1980.
The interest rate on this note is equal to the prime rate.
To comply with the Financial Accounting Standards
Board Statement No. 13, the Company capitalized
$12.7 million of aircraft and other equipment leases
previously accounted for as operating leases and
$800,000 of other leases entered into in 1979. Internally
generated funds of $340.5 million were used to pur-
chase flight and ground equipment and to reduce
long-term debt.
Total debt at June 30, 1979, was $140.3 million,
including current maturities, down from $177.1 million
in the previous year. The year-end balance was equal to
16% of equity. At June 30, 1979, the Company had
voluntarily prepaid the next six quarterly installments
under the 1973 Bank Credit Agreement totaling
$66 million and $11.3 million of the final payment due
June 30, 1981. Also, $4.2 million of the 6 % Con-
vertible Subordinated Debentures had been acquired
for future sinking fund requirements. At June 30, 1979,
the Company had forward exchange contracts for the
purchase of pounds sterling to cover a portion of the
scheduled fiscal 1980 principal and interest payments
on the Lazard debt.
Outstanding purchase commitments at year-end
include commitments for new aircraft, related spare
engines, and modification of the DC-8-61 fleet which
will require future expenditures of approximately
$1.3 billion. Mandatory debt repayments due in fiscal
1980 total $44.9 million, including the $30.1 million
note payable to the Boeing Company.
Subsequent to June 30, 1979, the Company bor-
rowed $35 million from the Development Authority of
Clayton County, Georgia. The proceeds of the loan,
which carries a 65/s% interest rate, will be used to
finance the construction of a cargo terminal and a flight
kitchen at Hartsfield Atlanta International Airport.
The loan provides for interest-only payments through
1999 and interest and principal payments from the
year 2000 through 2011.
Total stockholder equity at June 30, 1979, was
$852.7 million or $42.89 per share, 16% over the
$37.06 per share last year.
10
Stockholder Equity per Share
In Dollars
'79
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'75
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'73
Facilities
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The new Atlanta Central PassengerTerminal Complex
is presently under construction. Upon completion,
scheduled for September 1980, the facility will be the
largest passenger terminal in the nation. The total cost
of the project is estimated at approximately $300 million,
excluding tenant improvements. Delta's share of the
project cost, including leasehold improvements and
construction of the world's largest air cargo facility and
an exclusive flight kitchen, will be approximately
$115 million.
All reservations offices were enlarged during the
year, with major expansion completed in 13 of Delta's
22 reservations centers. Also, plans are underway for
the relocation of the Washington, Cincinnati, San Juan
and Tampa offices. New or expanded terminal facilities
were occupied or begun in San Juan, Cleveland, Reno,
Frankfurt, Austin, San Antonio, San Francisco,
St.Louis, and Columbus, Ohio.
Flight Equipment and Purchase
Commitments
During the past fiscal year, Delta accepted delivery of
14 advanced model Boeing B-727-200 aircraft, three
Lockheed L-1011-1 aircraft and one long-range
L-1011-500 aircraft. The fleet was reduced by the sale
of four DC-9-32 and one DC-8-51 aircraft. At June 30,
1979, Delta operated the following aircraft:
Type of
Aircraft
L-1011-500 ......... .
L-1011-200 ......... .
L-1011-1. .......... .
DC-8-61. .......... .
DC-8-51. .......... .
B-727-200 ...... .... .
DC-9-32 ........... .
Seats
241
253
293
199
143/153
137
88
Owned
27
13
9
103
47
Leased
2
7
Total
1
2
27
13
9
110
47
Total. ........................ 200 9 209
At the end of the fiscal year, arrangements had
been finalized for the sale of three DC-9-32 aircraft,
two of which were delivered in July and the third sched-
uled for delivery in December, 1979. Nine DC-8-51 air-
craft had been sold, one of which was delivered in July
and four are scheduled for delivery by the end of
calendar 1979. Delivery dates for the remaining four
aircraft have not been determined.
The following table shows Delta's aircraft pur-
chase commitments for 1980 through 1985:
Years Ending Lockheed Lockheed Boeing Boeing
June 30: L-1011-500 L-1011-1 B-727-200 B-767-200
1980 ......... 2 2 10
1981. . . . . . . . . 3 8
1982 ......... 4
1983 ......... 11
1984 ......... 7
1985 ......... 2
Total. ..... 2 6 22 20
tsoou
At June 30, 1979, the Company had an agreement
providing for options of up to 15 additional Lockheed
L-1011-1 aircraft with ten ta ti ve deliveries in fiscal years
1982 through 1985. The Company also had an agree-
ment providing for options of up to 22 additional
Boeing B-767-200 aircraft with tentative deliveries
in fiscal years 1984 through 1987.
Personnel
At June 30, 1979, the team of Delta Professionals
numbered 36,546 (including 2,038 temporary and part-
time employees), compared to the June 30, 1978, total
of 32,855 (including 1,666 temporary and part-time
employees). Direct salaries totaled $822.2 million, a
21 % increase over last year, and related fringe benefits
increased 24% to $191.9 million. Expenditures for
salaries and fringe benefits equalled 42(!: of each
revenue dollar, versus 41 in fiscal years 1977 and 1978.
Delta further strengthened its position to effec-
tively meet the increased complexities and challenges in
a changing environment with promotions of the follow-
ing officers: Ronald W. Allen to Senior Vice President
-Administration and Personnel; Donald P. Hettermann
to Senior Vice President-Technical Operations; and
Mervin E. Dullum to Vice President - Government
Affairs.
The Delta family was deeply saddened by the
death of Hoyt T Fincher, Senior Vice President-
Technical Operations, who died in October, 1978, after
32 years of service with Delta. Mr. Pincher's leadership
and personal warmth greatly enriched Delta Air Lines,
and he will be missed by all who knew him .
During this fiscal year, L. G. Rodefeld, Assistant
Vice President-Communications, retired after 41 years
of service and Morris T Shipley, Vice President-
Government Affairs, retired after 16 years of service.
Subsequent to the end of the fiscal year, Jack S. King,
Assistant Vice President- Flight Control, retired after
43 years of service and Hugh H. Saxon, Assistant
Treasurer - Revenue Accounting, retired after 39 years
of service. During their careers with Delta these men
made significant contributions to the growth and
success of our Company.
11
Regulatory Matters
The regulatory environment for domestic air trans-
portation was radically altered in October of 1978 by
passage of the Airline Deregulation Act's various
amendments to the Federal Aviation Act. The revised
statute ended a debate of several years duration con-
cerning the economic principles to be applied to the
domestic airline industry. In sum, the Congress decided
that the 40-year regulatory regime which had governed
the nation's commercial air transport system should be
replaced with a phased transition to a more deregulated
climate by 1985, when -under the revised law -the
Civil Aeronautics Board (CAB) will be abolished and
some of its functions transferred to other agencies.
For the transition period, the law provides various
mechanisms for implementing on-going CAB policies
to remove regulatory constraints on market entry. The
revised Act's automatic market entry, unused authority,
and restriction removal provisions, coupled with expe-
dited, non-hearing procedures which permit a rapid,
high volume processing of route cases, will result in
the virtual elimination of regulatory barriers to domestic
market entry by the end of calendar year 1979. After
December 31, 1981, the CAB will lose all authority
over entry by air carriers into new domestic markets.
These developments have already resulted in the
opening of route entry to all interested air carriers with
respect to most domestic markets. Thus Delta's present
route authority includes numerous major new markets
where the Company has the opportunity (but no obli-
gation) to expand its system, when circumstances such
as aircraft and fuel availability allow, and market
conditions warrant (a number of new services have
been added during the year as depicted on the map on
page 14 ). These same developments have also exposed
historic Delta markets to the same open entry
opportunities for other airlines.
The new statute also revises the regulatory system
regarding service terminations and suspensions: in
some instances, the new law provides more flexibility
to exit markets by discontinuing service to a city; but
in other respects, the new law contains more rigidities
and impediments concerning market exit. Delta has
12
utilized provisions of the new statute to restructure its
system not only through expansions, but also by ter-
minating service to a number of cities: Asheville, .C.;
Beaumont/Port Arthur, Tex.; Meridian, Miss.;
Paducah, Ky.; Springfield, Mo.; and Caracas and
Maracaibo in Venezuela.
Delta has also given notice of an intent to termi-
nate service to Presque Isle, Maine; but because Delta
is the only regularly scheduled carrier certificated there,
the CAB has required Delta to continue service tempo-
rarily beyond the planned termination date of May 14,
1979, until Delta's services are replaced by another
carrier. In addition, Delta has given notice of intent to
terminate service to Freeport, Grand Bahama, and
Delta will discontinue operations at Dulles Airport
serving Washington, D.C., and at airports at Oakland
and San Jose, California. Delta will continue, of course,
to serve the Washington, D.C./Baltimore, Maryland,
area through the Washington National and Baltimore-
Washington International Airports, and to the California
Bay Area cities of Oakland and San Jose through San
Francisco International Airport.
Delta is considering the long-range restructuring
of its system in order to take optimum advantage of
resources and to make operational and marketing
changes consistent with the Company's growth and
success in the new regulatory environment and in
light of changing circumstances such as fuel
availability and price.
While the revised Act did not directly affect
international air transportation, the policies inherent
in the new law are being pursued by the CAB and the
Administration in negotiations for bilateral route
arrangements with other countries. These international
policies made it possible for Delta to obtain operating
rights between Atlanta and Frankfurt in the Federal
Republic of Germany in early 1979, and Delta inau-
gurated nonstop Atlanta-Frankfurt service on June 17,
1979. In addition, Senator Cannon of Nevada has pro-
posed legislation with the stated purpose of expanding
the pro-competitive policies of the revised Act to
foreign air transportation.
The new law also greatly changes the regulatory
environment in other respects. The CAB's powers of
suspension and investigation with respect to domestic
fares have been modified by providing for "zones"
within which a carrier may raise or lower fares with-
out CAB interference, subject to certain notice condi-
tions and residual CAB jurisdiction over predation,
unjust discrimination and undue preference or prejudice.
The law provides for an upward no-suspend zone of
5% above the Standard Industry Fare Level (SIFL),
defined as the fares in effect on July 1, 1977, as adjusted
for cost changes since that time. The law also permits
carriers to reduce fares as much as 50% below the
SIFL, unless the CAB finds that the reduced fares
violate the federal antitrust laws.
The CAB is currently reviewing its fare policies
to conform to and supplement the revised Act in order
to permit: fares as much as 10% above the SIFL in mar-
kets authorized to four or more carriers; fares as much
as 5% above the SIFL in markets authorized to two or
three carriers; and fares up to 5% above the SIFL for
58 days in one year in "monopoly" markets. The CAB
is also continuing the policy of encouraging discount
fares by allowing carriers to reduce fares even below
the statutory zone -up to 70% below the SIFL on 40%
of total available seat miles. On January 1, 1983, the
revised law divests the CAB of all jurisdiction over
domestic fares.
The revised Act changes the economic regulation
of airlines in other less significant ways as well, and
lays the groundwork for phased transfers of some of
the CAB's revised responsibilities to other agencies.
Thus, the U.S. Postal Service, which already has some
jurisdiction over the transportation of mail, will be
given full jurisdiction over air transportation of mail
when the CAB ceases to exist after 1984. Similarly,
after the CAB's abolition, other functions of the agency
will be handled by other departments of the government
-mergers by the Justice Department, a new program
to insure and subsidize small community service by
the Department of Transportation, and international
air transportation by the Departments of Transportation
and State. Like those of other industries, Delta's adver-
tising and trade practices will likely be subject to the
jurisdiction of the Federal Trade Commission after
the CAB 's demise.
13
Delta Air Lines System Route Map
r RENO
OAKLAND / SAN FRANCISCO / SAN JOSE
LEGEND:
--- Delta's Route System as of
June 1978.
- - - New Services added during
fiscal year 1979, and others
firmly planned.
14
LONDON
At June 30, 1979, Delta provided scheduled
air transportation to 81 domestic cities and
seven foreign cities in 31 states and six foreign
countries. During fiscal 1979, Delta initiated
service to four new cities: Austin, Reno,
San Antonio, and Frankfurt, West Germany.
15
DELTA AIR LINES, INC.
Balance Sheets June 30, 1979 and 1978
ASSETS
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 4 ):
Cost -
1979 . ..... . . ........ .... . .. ..... . ...... .
1978 ...... . ................. ..... ..... . .
Accumulated depreciation -
1979 ....... . ..... ... . . . .. ..... ........ . .
1978 . .. ......... . ............ .......... .
Flight
Equipment
$2,164,422
1,862,231
$ 895,532
755,747
Ground Property
and Equipment
$315,900
282,149
$165,397
148,081
Advance payments for new equipment (Note 2) ...... . .. .. . .. ........... .. .. . .
OTHER ASSETS ...... ............ ... . ................. ..... .. . .. ... . .. . .
16
1979 1978
(In Thousands)
$ 25,712
3,216
28,928
229,284
16,275
9,696
284,183
2,480,322
1,060,929
1,419,393
78,420
1,497,813
6,329
$1,788,325
$ 7,347
116,764
124,111
181,019
12,892
7,108
325,130
2,144,380
903,828
1,240,552
71 ,983
1,312,535
9,018
$1,646,683
LIABILITIES AND STOCKHOLDER EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ...... . . ... . ........ ........ ... ... ... .. .
Note payable (Note 3) ... . . .................... . .............. ......... . .
Accounts payable and accrued liabilities .......................... . ........ . .
Air traffic liability .................... . ................................ .
Accrued income taxes ...................... .. .......... . .... . .......... .
Total current liabilities ........... . ... ... . .......................... .
LONG-TERM DEBT ( ote 3) .......................... . .. . ... .. ... ..... . .. . .
DEFERRED CREDITS:
Deferred income taxes .... ..... ........... . .... ...... ...... . ... . ... . . .. .
Unamortized investment tax credits .......... . ..... . ..... ... ... . .. . ....... .
Other . . .. . .. .. .. . . ...... .. . ..... . ... . ... ... . . ...................... .
COMMITMENTS A D CONTINGENCIES (Notes 2, 4 and 7)
STOCKHOLDER EQUITY (Note 6):
Common stock, par value $3.00 per share -
Authorized 25,000,000 shares; outstanding
19,880,577 shares . ...... .. .... . ................ . ....... .. ....... . . .
Additional paid-in capital. ... .. .. .. ........................... .. ..... . . . .
Retained earnings ..................................................... .
The accompa nying notes are an integral part of these balance sheets.
DELTA AIR LINES, INC.
1979 1978
(In Thousands)
$ 14,832
30,104
198,117
148,060
17,276
408,389
125,483
314,126
81,927
5,732
401,785
59,642
80,088
712,938
852,668
$1,788,325
$ 9,73 1
166,966
129,607
66,490
372,794
167,331
296,239
68,094
5,426
369,759
59,642
80,088
597,069
736,799
$1,646,683
17
DELTA AlR LINES, INC.
Statements of Income For the years ended June 30, 1979 and 1978
OPERATING REVENUES:
Passenger ........ . ..... .. .... .... . . . . .......... . . ... .. ........ . . ... .
Cargo ................... . ..... ....... . .. . . . ... ......... . .......... .
Other, net. ....... . ............ ............. ................ . . . . . . .. .
Total operating revenues . . . .............. . ....... .. . ......... .... .
OPERATING EXPENSES:
Salaries and related costs ......... ... . .... ..... .... .. . . ....... . . . . .... . .
Aircraft fuel. .... . . . . ..... .......... ................. . . . ........... . .
Aircraft maintenance materials and repairs ..... ... ......... . .. ........... . .
Rentals and landing fees .... . . .............. . .. ...... . ..... .... ....... .
Passenger service .. . . ...... . .......... .......... . . ............. . ... .. .
Agency commissions ............. ....... ........ ....... .... . . ....... . .
Other cash costs ............... ....................... ... ...... .. ... . .
Depreciation and amortization ............. . ....... ... .................. .
Total operating expenses .... .... ....... . . .. . . ................. . .. .
OPERATING INCOME .............................. . .. .. .. ....... . ..... .
OTHER EXPENSE (INCOME):
Interest expense .......... . ........ . . ..... ........... . .. . ............ .
Less - Interest capitalized on advances for equipment. . ....... .. .... .... . . .
Gain on disposition of aircraft ... .... . . ... .. . .. ..................... .... .
Realized and unrealized loss on foreign currency translation, net .. . . . . .......... .
Miscellaneous income, net. ... . .. . ...................... . .. .. ..... .. . .. .
COME BEFORE INCOME TAXES . ...... ................. . .. ............ .
PROVISION FOR INCOME TAXES ( ote 5 ):
Income taxes provided . .. . .. . . .. ... .. . . ... . ................ . ..... . .. .. .
Less - Amortization of investment tax credits . . . ............ . ........ ... .
NET INCOME .............. ... .. ..... . . ... . .. ... . .......... . .... . .. . . . .
NET I COME PER COMMON SHARE ..... . ...... .. ..... . .... . ........ . . . . .
The accompanying notes are an integral part of these statements.
18
1979 1978
(In Thousands)
$2,213,024
167,904
46,918
2,427,846
1,014,144
475,683
52,689
82,634
106,088
79,183
225,106
183,287
2,218,814
209,032
16,1 78
6,717
9,461
(20,514)
7,110
(9,069)
(13,012)
222,044
104,429
(19,129)
85,300
$ 136,744
$6.88
$1,861,100
153,233
36,578
2,050,911
831,818
382,159
44,794
77,278
83,286
64,800
193,526
168,155
1,845,8 16
205,095
22,107
4,794
17,313
(32,689)
3,339
(7,640)
(19,677)
224,772
109,296
(15,651)
93,645
$ 131 ,127
$6.60
Statements of Retained Earnings For the years ended June 30, 1979 and 1978
BALANCE AT BEGINNING OF YEAR .................... . ........... .... .. .
ADD (DEDUCT):
Net income ...................................... ................... .
Cash dividends - $1.05 per share in 1979 and $. 75 per share in 1978 . . . .... ..... .
BALANCE ATE D OF YEAR ... ... . ............. .. ........ . .... . ... . . .... .
Statements of Additional Paid-In Capital For the years ended June 30, 1979 and 1978
BALANCE AT BEGI ING OF YEAR .......... ; .... .... ................... .
Transfer of amount assigned to common stock purchase warrants resulting
from the expiration of unexercised warrants ( ote 6) . .. ..... ... ......... .
BALA CE ATE D OF YEAR ....... . ..................... ............ .... .
The accompanying notes are an integral part of these statements.
DELTA AlR LI NE . IN
1979 1978
(In Thousands)
$597,069
136,744
(20,875)
$712,938
1979
$480,853
131,127
(14,911)
$597,069
1978
(In Thousands)
$80,088
$80,088
$73,338
6,750
$80,088
19
DELTA AIR LINES, INC.
Statements of Changes In Financial Position For the years ended June 30, 1979 and 1978
1979 1978
(In Thousands)
FUNDS PROVIDED BY:
Net income ......................................................... . $136,744 $131,127
Add ( deduct) items not affecting working capital-
Depreciation and amortization ...................................... . 183,325 168,194
Deferred income taxes ............................................. . 17,886 23,703
Unrealized loss on translation of long-term portion of debt
payable in pounds sterling ...................................... . 6,076 3,517
Investment tax credits, net of amortization ............................. . 13,833 2,550
Other ......................................................... . (319) (333)
Total from operations ........................................ . 357,545 328,758
Obligations under capitalized leases (Note 4 ) ............................... . 13,510 3,109
Disposition of property and equipment (book value) .......................... . 3,799 20,612
Other ............................................................. . 2,807 1,438
377,661 353,917
FUNDS USED FOR:
Property and equipment additions -
Flight equipment, including advances ................................. . 334,466 200,820
Ground property and equipment. .................................... . 36,716 30,837
371,182 231,657
Reduction of long-term debt, net of unrealized foreign currency
gains and losses ................................................. . 61,434 76,792
Prior years' income taxes .............................................. . 17,400
Cash dividends ..................................................... . 20,875 14,911
Increase in long-term notes receivable ..................................... . 2,671
Other ............................................................. . 712 2,415
454,203 345,846
INCREASE (DECREASE) IN WORKING CAPITAL. ........................... . $(76,542) $ 8,071
CHANGES IN WORKING CAPITAL COMPONENTS:
Increase (decrease) in -
Cash and short-term investments .................................... . $(95,183) $ 71,799
Accounts receivable, net. .......................................... . 48,265 36,427
Other current assets .............................................. . 5,971 164
Decrease (increase) in -
Current maturities of long-term debt .................................. . (5,101) 17,897
Note payable .................................................... . (30,104)
Accounts payable and accrued liabilities ......... .- ..................... . (31,151) (27,132)
Air traffic liability ................................................ . (18,453) (39,256)
Accrued income taxes ............................................. . 49,214 (51,828)
INCREASE (DECREASE) IN WORKING CAPITAL. ........................... . $(76,542) $ 8,071
The accompanying notes are an integral part of these statements.
20
Notes to Financial Statements June 30, 1979 and 1978
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 and Amortization- Substantially all of
the Company's flight equipment is being depreciated on a
straight-line basis to residual values (10% of cost) over a
ten-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 three to 30
years). Leased properties under capital leases are amortized
on a straight-line basis over the life of the lease.
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 at the Company's current 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 lower by approximately $1,482,000 in 1979
and $595,000 in 1978.
Foreign Currency Transactions -Realized and unrealized
foreign exchange adjustments are included in income on a
current basis.
Retirement Plans -All of the Company's permanent
employees are covered under its noncontributory trusteed
plans providing for retirement, disability and survivor bene-
fits. The total expense under these plans amounted to approx-
imately $75,897,000 in 1979 and $61,364,000 in 1978. The
Company's policy is to fund each year's accrued costs under
the plans, which costs include amortization of prior service
costs ($81,615,000 at June 30, 1978) over varying periods up
to 30 years. As of June 30, 1978 (date of most recent actuarial
study) the actuarially computed present value of vested
benefits under the retirement plans exceeded the assets of
those plans by approximately $16,636,000.
Income Taxes-Total income taxes are provided by
applying the applicable tax rates to book income before in-
come taxes. Deferred income taxes are provided for all signifi-
cant items (principally depreciation and other property items)
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 seven years. (See Note 5).
Earnings Per Share - Net income per common share is
computed based on the weighted average number of out-
standing shares during the year (19,880,577 shares in 1979
and 1978).
DELTA AIR LINES, INC.
2. Aircraft Purchase and Sale Commitments:
At June 30, 1979, the Company had outstanding pur-
chase commitments for the acquisition of 22 Boeing B-727-200
aircraft, 42 Boeing B-767-200 aircraft, 21 Lockheed L-1011-1
aircraft and two Lockheed L-1011-500 aircraft, including
related spare engines. The commitments include the follow-
ing aircraft for which the Company has options to purchase:
12 Boeing B-727-200's which can be confirmed at specified
interim dates to August, 1980, four of which were confirmed
subsequent to June 30, 1979, for delivery in 1981; 22 Boeing
B-767-200's which can be confirmed at specified dates through
June, 1985; and 15 Lockheed L-1011-l's which are cancelable
by specific interim dates 21 months prior to delivery.
Excluding the 22 Boeing B-767-200 and 15 Lockheed
L-1011-1 aircraft under options, these purchase commitments
at June 30, 1979, will require estimated future expenditures
of approximately $1,150,000,000 as follows: $245,000,000
-1980; $209,000,000-1981; $124,000,000-1982;
$312,000,000-1983; $202,000,000-1984; and
$58,000,000 thereafter.
The Company has entered into an agreement to re-
engine its fleet of 13 Douglas DC-8-61 aircraft which will
require total expenditures of approximately $137,500,000
in 1982 through 1984.
The Company presently anticipates financing these
commitments, including new aircraft purchases, from inter-
nally generated funds, supplemented as required by inter-
mediate-term loans.
The Company has entered into an agreement to sell
up to nine Douglas DC-8-51 aircraft to be delivered before
December, 1983, and three DC-9-32 aircraft to be delivered
before June, 1980. Subsequent to June 30, 1979, the
Company delivered one DC-8-51 and two DC-9-32's
under these agreements.
21
DELTA AIR LINES, INC.
3. Long-term Debt:
At June 30, 1979 and 1978, the Company's long-term
debt and capitalized lease obligations (including current
maturities) were as follows:
a) Due Lazard Brothers & Co., Limited,
under 5%, 6% and 7% unsecured
notes, repayable in pounds sterling in
semiannual installments to 1986
($8,526,000 payable in fiscal 1980)-
At original exchange rates ......... .
Less unrealized gain on -
Current maturities ............. .
Long-term portion ............. .
At current exchange rates ......... .
b) Due banks under 1973 unsecured
credit agreement (as amended) at
prime interest rate, repayable in
quarterly installments of $11,000,000
with the remaining $46,653,000
balance payable on June 30, 1981. The
remaining obligations at June 30, 1979
and 1978, are after deducting volun-
tary prepayments of $77,300,000
made without penalty ............ .
c) Convertible Subordinated Debentures,
6%, maturing August 1, 1986, with
annual sinking fund redemptions of
$1,100,000. The remaining obligations
at June 30, 1979 and 1978, are after
deducting $4,237,000 and $2,020,000
of debentures, respectively, acquired
for future sinking fund requirements
(Note 6) ....................... .
d) Other notes, with various interest rates
and maturity dates ($1,213,000 pay-
able in fiscal 1980) ............... .
e) Capitalized lease obligations
($5,093,000 payable in fiscal 1980)-
(Note 4) ....................... .
Total. ...................... .
Less - Current maturities ......... .
Total long-term debt. ........... .
22
1979 1978
(In Thousands)
$ 51,587
(677)
(2,604)
48,306
57,653
14,463
2,781
17,112
140,315
(14,832)
$125,483
$ 60,790
(1,957)
(10,021)
48,812
101,653
17,780
4,745
4,072
177,062
(9,731)
$167,331
In connection with a purchase of Boeing B-767-200 air-
craft, the Company issued a note in the amount of $30,104,000
payable on or before February 26, 1980. The interest rate on
the note is equal to the prime rate.
At June 30, 1979, the annual maturities of long-term
debt and capitalized lease obligations for the next five fiscal
years were as follows: Amount
1980 ..................... .
1981 ..................... .
1982 ..................... .
1983 ..................... .
1984 ..................... .
(In Thousands)
$14,832
72,077
13,394
10,559
10,339
The Company's debt agreements include limitations on
indebtedness 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 10%
of the average daily outstanding borrowings, with the average
balances and borrowings being computed over the term of
the agreement. There are no legal restrictions on the Company's
use of these funds. At June 30, 1979, there was no restriction
in the agreements as to the payment of cash dividends.
InJuly, 1979, the Company borrowed $35,000,000 under
a 65/8% loan agreement which debt is payable in installments
beginning in the year 2000, with the remaining balance pay-
able in 2011. Proceeds from this loan will be used to construct
a cargo terminal and a flight kitchen at Hartsfield Atlanta
International Airport.
4. Lease Obligations:
Effective July 1, 1978, under the provisions of Financial
Accounting Standards Board Statement No. 13, the Company
capitalized certain aircraft and other equipment leases that
were previously accounted for as operating leases. The capi-
talization and amortization of these capital leases did not
have a material effect on the financial statements.
At June 30, 1979, the Company leased seven Boeing
B-727 and two Lockheed L-1011 aircraft and certain airport
terminal and maintenance facilities, ticket offices, and other
property and equipment under agreements with terms of
more than one year. Amounts charged to rental expense for
operating leases were $41,188,000 in 1979 and $33,405,000
in 1978. In addition, an amount of $5,519,000 was charged
to rent expense in 1978, representing rentals under leases
capitalized in 1979.
At June 30, 1979, the Company's minimum rental com-
mitments under capital leases and noncancelable operating
leases with initial or remaining terms of more than one year
were as follows:
Payable for
Fiscal Year
1980 .... . .................... .
1981 .. . ... . .................. .
1982 ......................... .
1983 ......................... .
1984 ......................... .
After 1984 ................... . ... .
Total minimum lease payments ....... .
Amounts representing interest
Capital Operating
Leases Leases
(In Thousands)
$ 6,103 $ 26,714
6,049 20,595
4,659 19,315
1,522 18,617
987 18,196
__
3_36_ 222,968
19,656 $326,405
(at rates of 5.4% to 10.3%). . . . . . . . . . 2,544
Present value of minimum
lease payments.. .. . . . . .. .. .. . .. . $ 17,112
The Company is participating in a major expansion of
terminal facilities at Hartsfield Atlanta International Airport.
Total project cost ( excluding tenant improvements) is pres-
ently estimated at approximately $300,000,000. The Com-
pany's share of this project cost, plus estimated leasehold
improvements, is approximately $88,000,000. 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 approximately $19,000,000. Such
annual costs are expected to increase to approximately
$22,000,000 in 1986.
5. Income Taxes:
The provision for income taxes in 1979 and 1978
consisted of: 1979 1978
(In Thousands)
Current taxes .................... . $ 53,581 $ 67,392
Deferred taxes .................... . 17,886 23,703
Investment tax credits .............. . 32,962 18,201
Income taxes provided ............ . 104,429 109,296
Less-Amortization of
investment tax credits ......... . (19,129) (15,651)
$ 85,300 $ 93,645
Total income taxes provided were approximately 4 7%
in 1979 and 49% in 1978 of book income before taxes, which
reflects the reduction in the maximum Federal corporate
income tax rate from 48% to 46% beginning January 1, 1979.
As of June 30, 1979, all available investment tax credits had
been utilized to reduce Federal income taxes payable.
DELTA AIR LINES, INC.
The provision for def erred income taxes resulted from
the tax effect of the following timing differences:
Depreciation and other
property items .................. .
Other, net. ...................... .
1979 1978
(In Thousands)
$21,935
(4,049)
$17,886
$22,210
1,493
$23,703
In June, 1978, the Company reached agreement with
the Internal Revenue Service providing for settlement of
proposed income tax deficiencies for fiscal years 1966 through
1972. These taxes had been provided for in 'prior years. In
October, 1978, the Internal Revenue Service began a routine
review of the Company's Federal income tax returns for fiscal
years 1973 through 1976. In the opinion of management,
adequate provisions have been made for income taxes for all
fiscal years through 1979.
6. Common Stock:
At June 30, 1979, the Company had 57,852 common
shares reserved for conversion (at $250 per share) of the
Convertible Subordinated Debentures. Warrants for the pur-
chase of 500,000 shares of the Company's common stock at
$48 per share expired unexercised on May 1, 1978.
7. Contingencies: .
The Company is a defendant in certain legal actions
relating to environmental problems (primarily noise), employee
benefit plans, alleged employee discrimination 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 opinion of management and its legal
counsel, however, the disposition of these matters will not
have a material adverse effect on the Company's financial
position or significantly interfere with its operations.
23
DELTA AIR LINES, INC.
8. Quarterly Financial Data (Unaudited):
Three Months Ended
Sept.30 Dec.31 Mar.31 June30
Fiscal 1979 (/n Millions, Except Per Share)
Operating revenues ....... .
Operating income ........ .
Net income ............. .
Net income per share. . . . . .
Net income per share includes
gain on sales of aircraft of ...
Fiscal 1978
Operating revenues ....... .
Operating income ........ .
Net income ............. .
Net income per share ..... .
Net income per share includes
gain on sales of aircraft of. ..
$574.0
$ 57.7
$ 32.7
$ 1.65
$ .01
$465.1
$ 34.1
$ 27.1
$ 1.36
$ .39
$574.2 $597.3 $682.3
$ 46.4 $ 34.4 $ 70.5
$ 34.1 $ 26.2 $ 43.7
$ 1.71 $ 1.32 $ 2.20
$ .22 $ .16 $ .13
$508.6 $518.7 $558.5
$ 59.0 $ 42.1 $ 69.9
$ 33.5* $ 27.4 $ 43.1
$ 1.68 $ 1.38 $ 2.18
$ .16 $ .13 $ .16
*Includes after-tax income of $7. 7 million or 39 per share from
increases in temporary mail rates retroactive to 1973.
9. Property and Equipment Replacement
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 deprecia-
tion expense are based on historical cost. Although a major
portion of the Company's aircraft seat capacity has been
purchased in recent years, the financial statements do not
reflect the higher current replacement cost of the Company's
entire productive capacity resulting from the cumulative
impact of inflation. Further, the Civil Aeronautics Board
presently makes no allowance for these higher replacement
costs in determining airline fares and rates.
As required by the Securities and Exchange Commission,
the Company's 1979 Form 10-K Annual Report (copy of
which is available upon request) contains unaudited data on
the approximate replacement cost of the Company's property
and equipment as of June 30, 1979 and 1978, and the
approximate effect which replacement cost might have on
depreciation expense for fiscal 1979 and 1978.
24
Auditors' Report
ARTHUR ANDERSEN & Co.
ATLANTA, GEORGIA
To the Stockholders and the Board of Directors of
Delta Air Lines, Inc.:
We have examined the balance sheets of OELTA AIR
LINES, INC. (a Delaware corporation) as of June 30, 1979
and 1978, 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 stan-
dards 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 financial statements referred to above
present fairly the financial position of Delta Air Lines, Inc. as
of June 30, 1979 and 1978, 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 applied on a consistent basis.
Atlanta, Georgia,
August 17, 1979.
Summary of Operations For the years ended June 30
(Dollars expressed in thousands except per share figures)
1979
Operating revenues:
Passenger ...................... $2,213,024
Cargo ......................... 167,904
Other, net ...................... 46,918
Total operating revenues .............. 2,427,846
Operating expenses .................. 2,218,814
Operating income .................... $ 209,032
Interest expense, etc., net* ............. 392
Gain on disposition of aircraft. ......... 20,514
Realized and unrealized loss (gain) on
foreign currency translation ........ 7,110
Income before income taxes ............ $ 222,044
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 85,300
Net income ......................... $ 136,744
Net income per share. . . . . . . . . . . . . $6.88
Dividends paid ...................... $20,875
Dividends paid per share .......... $1.05
*Has been reduced by interest
capitalized of ................... $6,717
Other Financial and Statistical Data
1979
Long-term debt. ................... . $ 125,483
Stockholder equity .................. . $ 852,668
Stockholder equity per share .......... . $42.89
Shares of common stock outstanding .... . 19,880,577
Revenue passengers enplaned ......... . 39,360,368
Available seat miles (000) ............ . 39,826,891
Revenue passenger miles (000) ........ . 25,518,520
Passenger load factor. ............... . 64.07%
Break-even load factor. .............. . 58.02%
Available ton miles (000) ............. . 5,357,995
Revenue ton miles (000) .............. . 2,916,585
Passenger revenue per
passenger mile ................. . 8.67
Operating expenses per
available seat mile ............... . 5.57
Operating expenses per
available ton mile ............... . 41.41
1978
$1,861,100
153,233
36,578
2,050,911
1,845,816
$ 205,095
9,673
32,689
3,339
$ 224,772
93,645
$ 131,127
$6.60
$14,911
$.75
$4,794
1978
$ 167,331
$ 736,799
$37.06
19,880,577
33,007,670
35,135,046
20,825,722
59.27%
52.74%
4,743,778
2,426,265
8.94
5.25<!:
38.9H
DELTA AIR LINES. INC.
1977 1976 1975
$1,575,642 $1,406,417 $1,271,720
114,800 100,626 85,388
29,203 21,899 19,922
1,719,645 1,528,942 1,377,030
1,578,464 1,411,333 1,282,000
$ 141,181 $ 117,609 $ 95,030
18,236 29,103 28,984
29,403 7,680 7,944
(2,699) (13,357) (5,855)
$ 155,047 $ 109,543 $ 79,845
62,667 39,336 27,965
$ 92,380 $ 70,207 $ 51,880
$4.65 $3.53 $2.61
$13,916 $11,928 $11,928
$.70 $.60 $.60
$2,922 $3,247 $6,099
1977 1976 1975
$ 237,497 $ 350,968 $ 390,437
$ 620,583 $ 542,112 $ 483,833
$31.22 $27.27 $24.34
19,880,577 19,880,577 19,880,577
28,811,966 27,996,665 25,831,631
32,614,260 30,389,761 29,497,234
18,042,339 17,621,247 15,916,860
55.32% 57.98% 53.96%
50.36% 53.14% 49.93%
4,478,038 4,145,183 4,030,116
2,113,798 2,034,848' 1,822,574
8.73 7.98<!: 7.99<!:
4.84<!: 4.64<!: 4.35
35.25<!: 34.05 31.8H
25
DELTA AIR LINES, INC.
Management's Analysis and Discussion
of Summary of Operations
A comparison of the results of operations for fiscal
years 1979 and 1978 can be found in previous sections
of this report. The following is a comparison of the
results of 1978 and 1977.
Net income for the year ended June 30, 1978, was
a record $131,127,000 ($6.60 per share), a 42% increase
over the $92,380,000 ($4.65 per share) earned in 1977.
Operating revenues passed the $2 billion level for
the first time totaling $2.05 billion, an increase of 19%
from the $1.72 billion in 1977. Passenger revenue grew
18% to $1.86 billion as revenue passenger miles were
up 15% to 20.83 billion, and the passenger mile yield
was 8.94, a gain of 2%. Cargo revenue increased 33%
including a $15.2 million mail payment adjustment, of
which $12.3 million was applicable to prior years.
Other revenues were up 25% primarily as a result of
an increase in charter revenue.
Operating expenses for the year 197 8 totaled
$1.85 billion, up 17%, while operating capacity in-
creased 8% to 35.14 billion available seat miles.
Revenue plane miles were 240.2 million, an increase
of 6%. Salaries and related expenses grew 18% as a
result of wage and payroll tax increases and a 6%
growth in average employment. Aircraft fuel expense
rose 21 %, reflecting an 8% increase in consumption and
an 11 % increase in the annual average price per gallon
to 3 7.12. Aircraft maintenance materials and repairs
expense increased 45% due principally to an abnormally
low level of expense in 1977 and reflected initial over-
hauls on a number of the newer aircraft. Growth in
passenger traffic accounted for the 23% increase in
agency commissions and 22% increase in passenger
service costs. All other cash expenses rose 14% as the
result of inflation and the growth in operations.
Non-operating income for1978 increased 42% to
$19.7 million. Net interest expense declined 25%, the
result of a lower level of outstanding debt and an in-
crease in capitalized interest. Gains on aircraft sales
totaled $32. 7 million, up 11 % over the previous year.
The translation of foreign debt resulted in a
$3.3 million loss compared to a $2.7 million gain in
1977. Miscellaneous income increased $2.8 million,
principally the result of higher interest income.
Income taxes were provided on book income at a
rate of approximately 49% in both years. The provisions
were reduced by investment tax credit amortization of
$15.7 million in 1978 and $13.7 million in 1977.
26
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,JR.1
JOHN R. LONGMIRE 1
R. S. MAURER3
BILL MICHAELS 1
T. M. MILLER2,4
ROBERT OPPENLANDER3
STUART W. PATTON 1
CARLETON PUTNAM 1
Senior Vice President-Administration &
Personnel
Chairman of the Board
Chairman of the Board and Director, Ouachita
Coca-Cola Bottling Co. , Biedenharn Realty
Co., Inc., and Ouachita Candy Co.,
Monroe, 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., New Orleans, Louisiana
President and Chief Executive Officer
Partner of Gerry Brothers & Co., Investment
Management, New York, New York
President, Chief Executive Officer
and Director, Atlanta Life Insurance Company,
Atlanta, Georgia
Partner of investment banking firm of
I. M. Simon & Co., St.Louis, Missouri
Vice Chairman of the Board and Secretary
Chairman of the Audit Committee;
Chairman of the Board, Chief Executive
Officer and Director, Storer Broadcasting Co.,
Miami, Florida
Retired Senior Vice President- Marketing
Senior Vice President-Finance
Member of law firm of Patton, Kanner, Segal,
Zeller & King and Director of Storer Broad-
casting Co., Miami, Florida
Pnvate Investments
GEORGE M. SNELLINGS, JR~-4 Member of law firm of Snellings, Breard,
1 Audit Committee
2 Compensation Committee
3 Executive Committee
4 Finance Committee
Sartor, Inabnett & Trascher, Monroe, Louisiana
Officers
EXECUTIVE
W. T. BEEBE
DAVID C.GARRETT,JR.
R. S. MAURER
CORPORATE AFFAIRS
M. E. DULLUM
ROBERT H. COWART
C. G. SWEAZEA
IKE LASSETER
FINANCE
ROBERT OPPENLANDER
W. A. ATCHISON
J.D.DUNN
M. 0. GALLOWAY
REX A. McCLELLAND
JULIUS P. GWIN
FRANKS. CHEW
AUD LY TOLLER, JR.
FLIGHT OPERATIONS
FRANKF.ROX
C.A. SMITH
LEGAL
J. W. CALLISON
SIDNEY F. DAVIS
E. A. THOMPSON
MARKETING
J.A. COOPER
R. L. GIBSON
CHARLES P. KNECHT
J. T. MAPLES
R. A. McKINNON
HENRY ROSS
PASSENGER SERVICE
HOLLIS L. HARRIS
E. L.HAMNER
FOY PHILLIPS
JEANETTE EASLEY
C. A. THOMPSON
PERSONNEL
R.W.ALLEN
RUSSELL H. HEIL
JOHN HUME
J.A.YORK
H. M. JOHNSON
EUGENE H. STEWART
TECHNICAL OPERATIONS
D. P. HETTERMANN
J. K. BURNETTE
JOHN P. DAVIS
R. LAMAR DURRETT
A. C. FORD
C.J.MAY
W. L. MILLER
DELTA AIR LINES, INC.
Chairman of the Board
President and Chief Executive Officer
Vice Chairman of the Board & Secretary
Vice President- Government Affairs
Assistant Vice President- Consumer Affairs
Assistant Vice President- Public Affairs
Assistant Secretary
Senior Vice President- Finance
Vice President- Computer Services
Vice President- Purchasing
Vice President- Finance
Vice President- Properties
Comptroller
Treasurer
Assistant Treasurer
Senior Vice President-Flight Operations
Vice President- Flight Operations
Senior Vice President- General Counsel
Vice President-Assistant General Counsel &
Assistant Secretary
Assistant Vice President- Economic Research
Senior Vice President-Marketing
Vice President-Traffic
Vice President- Ma_rketing
Assistant Vice President-Marketing Planning
Assistant Vice President- Marketing
Administration
Assistant Vice President- Marketing Services
Senior Vice President- Passenger Service
Vice President-Stations
Vice President- Passenger Service
Assistant Vice President- Passenger Service
Assistant Vice President-Stations
Senior Vice President-Administration &
Personnel
Vice President- Personnel Administration
Vice President- Personnel
Vice President- Personnel Benefits
Assistant Vice President-Employment
Assistant Vice President- Corporate Secun'ty
Senior Vice President-Technical Operations
Assistant Vice President-Quality Control
Assistant Vice President-Maintenance
Assistant Vice President-Facilities
Assistant Vice President- Long Range Planning
Assistant Vice President- Engineering
Assistant Vice President- Materiel Services
27
DELTA AIR LINES, INC.
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 25, 1979, Monroe, Louisiana
Common Stock
Listed on the New York Stock Exchange
Market Prices and Dividends
Fiscal Year 1979
Quarter Ended:
September 30 ............ .
December 31. ............ .
March 31. ............... .
June 30 . . ............... .
Fiscal Year 1978
Quarter Ended:
September 30 ............ .
December 31. . . . . . . . . . . . . .
March 31. ............... .
June 30 ................. .
Market Price Range of
Common Stock on
New York Stock Exchange
High Low
58 451
/s
501
/s 381
/s
45 36
43 37
361/s
401
/s
40
495/s
32
323/s
36
381/s
Availability of Form 10-K
Cash
Dividends
Paid Per Share
$.25
.25
.25
.30
$.175
.175
.20
.20
The Company will supply, upon written request and without
charge, a copy of the Company's annual report for the fiscal
year 1979 on Form 10-K to any person beneficially owning or
owning of record any of the common stock of the Company on
September 4, 1979. Requests for the report should be directed
to R. S. Maurer, Secretary, Delta Air Lines, Inc., Hartsfield
Atlanta International Airport, Atlanta, Georgia 30320.
28
Notice to the Stockholders of
Delta Air Lines, Inc.
Part 245 of the Economic Regulations of the Civil Aeronautics
Board provides that: (1) any person who either owns, as of
December 31st of the year preceding issuance of this annual
report, or subsequently acquires, beneficially or as trustee,
more than 5%, in the aggregate, of any class of the capital
stock or capital of Delta Air Lines, Inc., shall file with the
Board a report containing the information required by Sec.
245.12 of Subpart 245, on or before April 1, as to the capital
stock or capital owned as of December 31 of the preceding
year, and, in the case of the stock subsequently acquired, a
report under Sec. 245.13, within 10 days after such acquisi-
tion, unless such person has otherwise filed with the Board
a report covering such acquisition or ownership, (2) any bank
or broker covered by (1), to the extent that it holds shares as
trustee on the last day of any quarter of a calendar year, shall
file with the Board, within 30 days after the end of the quarter,
a report in accordance with the provisions of Section 245.14;
and (3) any person required to report under this subpart who
grants a security interest in more than 5% of any class of the
capital stock or capital of Delta Air Lines, Inc. shall 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.
Delta Air Lines, Inc.
General Offices,
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
Delta operates the world's largest
fleet of Boeing B-727-200 aircraft.