Delta Air Lines annual report 1998

~ .Delta Air Lines
1998 ANNUAL REPORT
BUSINESS DESCRIPTION
Delta Air Lines, Inc. provides scheduled air transportation over an extensive route network. Based on calendar 1997 data, the
Company is the largest U.S. airline in terms of aircraft departures and passengers enplaned, and the third largest U.S. airline as
measured by operating revenues and revenue passenger miles flown. Delta is the leader across the North Atlantic, offering the
most daily flight departures, serving the largest number of nonstop markets and carrying the most passengers of any U.S. airline.
As of August 1, 1998, the Company provided scheduled air service to 148 cities in 42 states, the District of Columbia,
Puerto Rico and the U.S. Virgin Islands, and to 46 international cities in 31 countries. With its domestic and international
code-share partners, Delta's route network covers 231 domestic cities in 48 states, and 118 international cities in 59 countries.
In addition to scheduled passenger service, the Company provides air freight, mail and related aviation services.
Delta is incorporated under the laws of the State of Delaware and is subject to government regulation under the Federal
Aviation Act of 1958, as amended, as well as many other federal, state and foreign laws and regulations. The Company's
corporate headquarters is in Atlanta, Georgia.
OPERATING REVENUE PER AVAILABLE SEAT MILE
In Cents
::1 9.33
9.53
9.94
10.09
1998
8.00 8.75 9.50 10.25 11.00
Unit revenue increased 2% due primarily to record passenger traffic levels,
increased contributions from cargo and other non-passenger revenue.
OPERATING INCOME *
In Billions of Dollars
1.6
:: :r-==-==-==-==-==:=::-
0
. _
7
___________________
1._
3 __
1998 .
, - - - - - - - - - - - - - - - -
1.7
0 0.5 1.0 1.5 2.0
A strong revenue performance combined with solid cost control drove
record operating income of $1.7 billion.
SHAR E OWNERS ' EQUITY
In Billions of Do!lars
:: :
1;:;:;:;:;:;:;::_
/
:
_
8:_-
::_-
::_-
_
2
:
.5
:~
-3-
.0---------
1998 .
, - - - - - - - - - - - - - -
4.0
I
2 3 4 5
Record net income of $1.0 billion in fiscal 1998 increased shareowners'
equity by 33% to $4.0 billion.
OPERATING COST PER AVAILABLE SEAT MILE*
In Cents
:::1
8.83
8.54
8.18
8.88
1998
8.00 8.15 9.50 10.25 11.00
Unit cost increased slightly despite significant investments in customer
service. Lower aircraft fuel prices contributed to the strong cost performance.
DILUTED INCOME PER COMMON SHARE *
In Dollars
;:-1
4.01 8.51
11.44
12.68
1998
3 6 9 12
Record net income for the third consecutive year resulted in an 11 %
increase in diluted income per common share.
:: I
1998
0
LONG-TERM DEBT AND CAPITAL LEASES
In Billions of Dollars
---------------3.3
-----------2.3
- - - - - - - - - - 2. 1
-------- 1.9
I
2 3
15
4
Scheduled debt repayments and voluntary debt repurchases have reduced
total long-term debt and capital leases by 40% since fiscal 1995.
*Excludes restructuring and other non-recurring charges and the cumulative effect of an accounting change.
FINANCIAL HIGHLIGHTS
F ISCAL Y EAR ENDED J UNE 3 0 , 1998
Dollar amounts in millions, except per share data.
Excludes restructuring and other non-recurring charges.
Operating Revenues
Operating Expenses
Operating Income
Operating Margin
Net Income
Basic Income Per Common Share
Diluted Income Per Common Share
Dividends Declared on Common Stock
Dividends Per Common Share
Common Shares Issued and Outstanding at Year End
Debt-to-Equity Position
Passenger Mile Yield
Operating Revenue Per Available Seat Mile
Operating Cost Per Available Seat Mile
O PERATING H IGHLIGHTS
FI SCAL Y EAR E NDED J UNE 30, 1998
Excludes restructuring and other non-recurring charges.
Revenue Passengers Enplaned (Thousands)
Revenue Passenger Miles (Millions)
Available Seat Miles (Millions)
Passenger Load Factor
Breakeven Passenger Load Factor
Cargo Ton Miles (Millions)
Cargo Ton Mile Yield
Fuel Gallons Consumed (Millions)
Average Aircraft Fuel Price Per Gallon
Number of Aircraft in Fleet at Year-End
Average Age of Aircraft Fleet at Year-End (Years)
Stage 3 Aircraft at Year-End (As a Percent of Total Aircraft)
Average Seats Per Aircraft Mile
Average Passenger Trip Length (Miles)
Average Aircraft Flight Length (Miles)
Average Aircraft Utilization (Hours per Day)
Full-Time Equivalent Employees at Year-End
1998
$ 14,138
$ 12,445
$ 1,693
12.0%
$ 1,001
$ 13.28
$ 12.68
$ 15
$ 0.20
75,225,197
32%/68%
12.83
10.09
8.88
1998
104,148
101,136
140,149
72.2%
62.8%
1,745
33.35
2,664
56.54
569
12.3
81%
180
971
804
8.7
70,846
$
$
$
$
$
$
$
$
1997 ___ Change
13,594
12,011
1,583
11.6%
886
11.81
11.44
15
0.20
73,695,987
41 %/59%
12.79</:
9.94</:
8.78</:
1997
101,147
97,758
136,821
71.4%
62.4%
1,532
36.14</:
2,599
66.23</:
553
11.8
71%
181
966
789
8.6
65,383
4%
4%
7%
0.4 pts.
13%
12%
11%
2%
NA
2%
1 %
Change
3%
3%
2%
0.8 pts.
0.4 pts.
14%
(8%)
3%
(15%)
3%
4%
10.0 pts.
(1 %)
1 %
2%
1%
8%
LETTE R TO SHAREOWNERS
DEAR SHAREOWNERS: YOUR COMPANY,
BY ALMOST ANY MEASURE, HAD A GREAT
YEAR IN FISCAL 1998, AND WE ARE EXCITED
ABOUT WHAT IS AHEAD. THIS PAST YEAR
WE RESUMED A JOURNEY, SOMEWHAT
INTERRUPTED BY EARLY 1990S ECONOMIC
TURMOIL, WITH A CLEAR VIEW TO OUR
DESTINATION: W E WANT TO BUILD THE
BEST AIRLINE IN THE WORLD.
In this letter, I would like to tell you about what we've
done this year and what we plan to do. I'll touch briefly
on recent accomplishments and what those accomplish-
ments mean to you, our owners. I'll share with you
our plans to strengthen Delta's partnerships with key
constituents - our customers, our employees, and you, our
owners. And I'll tell you about some other important
partnerships - our alliances with other airlines around
the world and how they position us strategically to suc-
ceed in a competitive global industry. Continued on page 2
Leo F. Mullin
President and Chief Executive Officer
HAR
A
Delea i a proud airline built on ch fin c rv1 tradi-
cion . How v r at ch tart of fi cal 1998 the erv1 e
foundacion had b n hak n. Difficult onorru ondi-
cion in ch arly 1990 r quired that D lea, during ch
fir c half of chi decad tak o t r du tion a tion
to ounter ch ompany' w ak finan ial performan
Th a tion , while ne e ary, threat n d Delea' or
valu of high employ moral and ptional rv1
We began fiscal 1998 with a red dication to our
employe and to our cor efVl valu . We ar pleased
to report chat ch e effort are paying off:
Employee morale improved dramatically as D lea p o-
ple regained onfiden in the ompany' rv1ce om-
mi tment and future as measured by an independ nt
urvey company. cati ti how chat ov rail employe
aci faction improved by a remarkable 20 percent
from 1996 to 1998.
Delta's on-time performance over the past twelve
months has taken ch Company from an unacceptable
tench place to our current consi tent ranking among
the industry' top performer . In fact, Delea was fir t
among hub-and-spoke carriers for June and July. In
another key area of operacional performance, Delta has
one of the highest completion races - lowe t number
of canceled flights - among hub-and-spoke carriers.
Baggage delivery performance has improved chis
past year, placing Delea back in the top tier of the
industry. For the month ofJune, Delea ranked first
in baggage handling.
Delta's Crown Room Clubs received recognition
from Conde Nast as best domestic airline club in
the business.
2 DELTA AIR LINES
W NE R NT IN U
RE
In Billions of Dollars
1989
1998
'--------'-----------'---------'
0 2 3
Ground Property and quipment Flight Equipment
(including certain leased aircraft)
trong operating cash flows provide the foundation for customer
service investments, fleet simplification and rationalization and
disciplined growth.
Mor than anything else, these accompli hments and
chi progr are the result of excellent performance by
Delta mployee aero the board. Our gain were also
upport d by major incr ase in expenditures for phys-
ical improvements. Most importantly, Delea launched
in October a program co refurbish within 16 months
ch interior of all Delea airplanes - interiors chat had
been allowed to become exceedingly run-down during
the period of co t reduction. Today, more than 50 per-
cent of Delea' plane have new interiors, and we are
on chedule to complete all refurbi hments by April
1999. In addition, Delea has upgraded 19 of 47 Crown
Room Club , and significant ocher facility improvements
have been made at more than 50 percent of Delta's
terminals. All of chis was done in a cost effective way
so chat Delta maintained its hard-won efficiency
advantage relative co competitors.
WHAT THAT MEANS TO You
For you, our shareowners, these efforts generated a record
financial performance in fiscal 1998. Earnings, for the
first time in Delta's history, reached $1 billion, and oper-
ating cash flow was close to $3 billion. The strength of
our financial posicion allowed the Company to announce
a $750 million Common Stock repurchase program to
be carried out during calendar years 1998 and 1999.
LETTER TO SHAREOWNERS (CO NTINU ED)
1995
1996
1997
1998
0
DELTA AIR LINES COMMON STOCK PRICE *
In Doll.ars
73
83
82
1291/4
I I I I
30 60 90 120
~closing price on NYSE on June 30
150
Delta's Common Stock price appreciated 57 % in fiscal 1998, compared
to 28% for the S&P 500 Index.
Ultimately, of course, the value of corporate perform-
ance must be reflected in stock price increases. Delea
performed well in chis regard in fiscal 1998. From July 1,
1997, co June 30, 1998 (our fiscal year), Delta's stock
price increased from $82 to $129. Delea has, however,
been subject co the market swings of the recent widespread
stock market turmoil, which caused a significar1c decline
in stock price. Nonetheless - and an important positive
for the future - Delta's stock price multiple now exceeds
the average of the ocher major hub-and-spoke carriers.
We are proud of these accomplishments, but more
importantly, we believe chat this is just the beginning.
BUILDING PARTNERSHIPS
Even as fiscal 1998 for Delea was about stabilization
and building momentum, the coming year is about
acceleration - building stronger partnerships with our
customers, employees and shareowners.
Customer bonds - building positive exceptions while
eliminating the negative. Delta's service traditions
were built on unique relationships with our customers.
During close to 70 years of doing business, we have
always understood the value of special touches and
the personal satisfaction chat comes from acts of
service kindness. They are the very fabric of your
Company's culture.
Our focus in the year ahead is to re-ignite and reward
chis passion in Delta people for the extraordinary and
the special. Similarly, we will work relentlessly co mini-
mize unpleasant experiences. We cannot prevent adverse
weather or air traffic congestion. However, we can do
a better job of managing delays when they occur. We
can serve you promptly, treat you courteously, and
keep you informed. Our journey to excellence man-
dates that commitment as we seek to give you, the
customer, an exceptionally positive experience on every
flight you cake.
We also are redoubling our efforts to maintain the
gains we have made by traditional industry measure-
ments of customer satisfaction. Thus, for example, we
are working to make on-time a consistent part of flying
Delta and co continue getting your bags there on time.
Our employee partnership - the centerpiece of success.
Delta's ability to accelerate the pace of success is in the
able hands of our team, which includes every flight
attendant, pilot, customer service agent, mechanic,
reservation sales agent, baggage agent, and administra-
tive person. Creating a true service powerhouse requires
chat each team member be world class and chat the
team function cohesively. Our supporting philosophy
is quite simple. We wane Delea people co receive top-of-
induscry compensation for top-of-industry perform-
ance and productivity. This standard requires service,
operational, and financial accountability.
This coming year, we are asking Delta's entire team
to focus on building the positive service experiences
chat our culture is uniquely positioned to provide. At
the same time, we muse remind each ocher that every
service breakdown impacts every one of us and neutral-
izes the countless instances of service excellence. We
can never forget chat while we - along with the media
and the U.S. Department of Transportation - measure
statistics, our customers relate solely to experiences.
1998 ANNUAL REPORT 3
L 1 T R T HAR W N R NT L NUE
Shareowner rewards - sustaining and buiUing value.
The reward of a winning organization are maniD t d
in harehold r r turns. Delta h thr finan ial obj -
ti e for enhancing har owner value.
J. We are working to a eel rate our earning growth and
cash return by building on our trategi hub trength ,
by inve ting in r venu nhan ing technology, and
by vigilantly attacking wa te.
Atlanta i arguably th world' mo t important air-
port hub, with more connecting pas enger tl1an any
other ingle facility. The Atlanta Worldport offer not
only unparalleled a ce to the entire U. . but also
non top ervice to key market in Europe, Latin
America and Asia. imilarly, Delta' key hub in New
York Cincinnati, alt Lake icy, and Dallas/Fort Worth
are increasing their collective contributions. trategi-
cally, the ompany's hub-and- poke y tern is trong.
Regarding technology, we mu t acknowledge that
earlier this decade, Delta fell well behind it competi-
tors in technological capabilitie . That ituation i
rapidly being rectified. We have significantly reori-
ented our technological effort - both in prioritie
and in pending - without increasing technology-
related expenditures. We've made major technolog-
ical improvements in seat inventory control, flight
cheduling and yield management. As a re ult, Delta's
previously lagging revenue per available seat mile has
reached industry average - with more improvement
NET I COME
In Millions of Dollars
::1 294
662
886
1,001
1998
0 300 600 900 1,200
&clu,us restructuring and other non-recurring charg~ and the cumul.ative effect of an accounting change.
Strong demand for Delta's product and favorable fuel prices were catalysts
for the Company's first $1.0 billion year.
4 DELTA AIR LINES
ATLANTA AVERAGE DAILY DEPARTURES
AND NONSrOP MARKEfS'
125 650
122
120
633
625
IJ5 600
IJ0 575
105 550
1995 1996 1997 1998
Nonstop Markets Departures
'Effictwe December 1
Delta is leveraging Atlanta's superior geographic position and the hub's
powerful ability to connect passengers to build Atlanta into a Worldport
with comprehensive coverage to the world's most important markets.
expected. In addition, Delta will begin this fall to
roll out a treamlined and simplified gate and board-
ing proces . Year 2000 is ue are clearly documented;
the change needed for readiness are well underway.
Technology - far too long a weakness at Delta - is
quickly becoming a strength.
On the expenditure side, our priority is the cus-
tomer. We want our customers to see and feel the
concrete results of our expenditures in the services
we deliver. We are working to eliminate redundan-
cies and unnecessary activities, ridding ourselves of
bureaucracies that complicate the travel life of the
customer and weigh us down in our efforts to pro-
vide the best service. We want to focus our great
Delta talent on core activities like flying, maintenance
and customer service, all central to our franchise.
2. We are working to protect and maximize our strong
balance sheet. Our financial strength allowed the
establishment of a $750 million Common Stock
repurchase program. At the same time, Delta main-
tained investment-grade credit status and provided
fully adequate resources to invest for the future.
LETTER TO SHAREOWNERS (CONT I NUED)
3. We are particularly emphasizing efforts to improve
our fixed-to-variable cost mix. While we are cautiously
optimistic about general economic conditions, we
nonetheless are aggressively looking to minimize our
fixed costs and avoid staffing our business for the peaks.
This is not only good for shareowners, it is also key
to protecting the security of permanent Delta jobs.
ALLIANCES: STRATEGIC
POSITIONING FOR A
GLOBAL INDUSTRY
The airline industry is increasingly global. All major
airlines want to appeal to their customers on the basis
of their ability to get customers from anywhere to every-
where. Yet no carrier alone has that capability.
Alliances among airlines have emerged as an increas-
ingly important response to the challenge. Delta made
substantial progress in fiscal 1998 on this front. Our
Atlantic Excellence alliance, which has the advantage
of anti-trust immunity, was increasingly successful in
strengthening our European services. This strength was
supplemented by the new code-share with Air France,
a direct outgrowth of the successful U.5.-France bilateral
negotiation in which Delta played an important part.
We are moving to develop a stronger alliance position
in Latin America through an expanded marketing alliance
with Aeromexico. And in Asia, our position was enhanced
immensely by the successful U.5.-Japan bilateral negoti-
ation that allowed, for the first time, direct Delta flights
between Atlanta and Tokyo.
The alliance evolution is also important domestically.
T he key step in this regard has been the establishment
of a broad-gauged marketing relationship with United
Airlines. This relationship has reciprocity of frequent
flier programs as its most important component, and
both Delta and United intend to seek other customer
initiatives over time to build the market positions of
both airlines through this partnership.
Delta will proceed aggressively with worldwide alliance
discussions in the future, not just because alliances are
desirable from a business standpoint - although they are -
but also because we must. Airline alliances are revolution-
izing the nature of worldwide competition, and Delta
intends to be a leader as these changes occur. Fortunately,
Delta's strategic position and the capabilities of our peo-
ple are so strong that Delta clearly has the opportunity
to chart its own destiny as competitive changes unfold.
In summary, we have just finished a great year, set-
ting many new milestones for Delta. As we go forward,
we are committed to accelerating the pace of our success
by building on our key partnerships with our customers,
employees, investors and alliance partners.
The Delta management team is exhilarated to be
on this journey with you, and we thank you for your
continued support.
Leo F. Mullin
President and Chief Executive Officer
September 1, 1998
1998 "lNUA.L REPORT 5
Partner with
ustomers
Delta will build customer loyalty through a total commitment to quality service.
Deltas partner hip commitment with customers is
traightforward- be the b t airline in the world in their
e e . Delta will work hard to provide a safe, on-time,
comfortable and ha le-free travel experience delivered
by courteou profe sional Delta people. Delta' com-
mitment i to quality ervice through flawless execution
each and every day.
SAFETY
Safety is Delta' first priority. Today, the airline is an
extraordinarily safe organization with no tolerance for
errors. Building on this firm base, Delta will enhance
safety further by utilizing leading-edge tools and tech-
nology, such as:
Enhanced Ground Proximity Warning Systems
Cargo bin fire detection and suppression
Advanced flight data recorder
Head-up cockpit display units
On-board heart defibrillators and enhanced
emergency medical kits
PERFORMANCE STATISTICS
The airline industry uses three key performance statistics
to measure customer service: on-time arrivals, mishan-
dled baggage reports and consumer complaints reported
to the U.S. Department of Transportation (DOT).
Delta's goal is to be at, or very near, the top of the
industry in all these measures.
6 DELTA AIR LINES
DELTA ON - TIME ARRIVAL RANKING
Major Carriers
]un97 =:= 10th
ep97 8th
Dec97 6th
Mar98 4th
jun 98
10 9 8 7 6 5 4 3
2nd
2
Delta's year-over-year on-time arrival performance improved in 10 out of
12 months in fiscal 1998, allowing the ompany to move into the upper
tier of the DOT rankings. In June 1998, Delta ranked #2 among the 10
major carriers and #1 among the major network carriers (AA, CO, DL,
NW, UA, US).
Delta is committed to becoming the on-time leader
among major network carriers. During fiscal 1998, the
Company made rapid improvements in this area by
developing an integrated, cross-divisional team which
focused on every aspect of on-time performance - from
the development of flight schedules to the day-to-
day execution and management of the schedule. This
improvement is a tribute to the team and the thousands
of Delta people responsible for daily flight operations.
An on-time operation contributes to a better bag-
gage handling performance, which is also critical to
Delta's customer partnership. Frontline employees
from around the system have developed and imple-
mented solutions to improve baggage handling. The
employees adopted a back-to-basics approach with
renewed attention to communication, training and
accountability. The result: a strong move to the top
of the industry in 1998.
Ensuring a smooth, comfortable and on-time travel experience for
passengers requires mapping an optimal flight plan.
8
4
MISHANDLED BAGGAGE AND ENPLANEMENTS
Percent Change for the 12 Months Ended June 1998
64
5.7
2.9
0 f--- - ----- - ------ - - - 1 - - - - -
-4
-5.4
-8 L.,_ _ _ _ _ _ _ _ _ _ _ __JL_ _ _ _ _ _ _ _ _ _ _ _J
Delta
Mishandled Baggage
Major Carriers
Enplanements
In fiscal 1998, Delta reduced the total number of mishandled bags by
5% despite 3% more passengers, while total mishandled bags for major
carriers increased more than total passenger growth. Delta's year-over-year
mishandled baggage rate improved every month of fiscal 1998 and Delta
ranked # 1 among major carriers in June 1998.
To become the best airline in the world to its customers, Delta must deliver
a hassle-free travel experience every time.
1998 ANNUAL REPO R T 7
PARTN R WITH U T M ER NT I NU D )
A winning partn r hip with cu tom r m an fewer
complainr.s. D lea' improv m nt.s in on-time p rformanc
and baggag handling hav olidifi d D lea's 1 ad r-
hip po ition among major network carri r in thi
mo t ba ic mea ur of ustom r ati fa tion.
6197
9197
12197
3198
6/98
6
I
5
Major Network Carriers
I I
4 3
'DOT Quarterly Average
T RANK
2nd
I I
2
1st
1st
1st
1st
Delta consistently ranks in the top tier of major network carriers for lowest
consumer complaint statistics, placing either # 1 or #2 in 10 out of 12
months during.fiscal 1998. For the same period, Delta's consumer com-
plaint rate was 6% Lower than the average for major network carriers.
AIRPORT FA C ILI T I E A D
AIR R FT l TE RIOR
Customer expect and deserve clean, modern and effi-
cient terminal facilities and Crown Room Clubs. Delta
has renovated concourses and gate areas at 72 cities and
will complete similar work at an additional 67 cities by
June 1999. The Company has also completed improve-
ments at major Crown Room Clubs, adding modern
conference rooms and catering services. In fi cal 1998,
Conde Nast named Delta's Crown Room Clubs the
best in the business among domestic carriers.
Delta is also refurbishing the interiors of its aircraft,
including installation of new curtains, carpets and seat
covers. More than 50 percent of the targeted fleet has
been refurbished and 100 percent will be complete
by April 1999.
8 DELTA AIR LINES
Q u r K AND EA y TRAN A T I N
K y to a strong partn r hip i Ii t ning to cu comers
and d igning Delta' a tivitie and product to meet
their n d . New and faster pro es to upgrade, refund
and rei sue ticket have b n impl m nted. Over the
n xt two y ar , cu comer will exp rienc a treamlined
check-in proc back d by new technology and more
effici nt gate and boarding procedur . New hand-held
gate reader will u e bar cod anning technology to
update information automatically and peed the proce s
of pas nger check-in and aircraft b arding.
Dr TRIBUTION INITIATIVE
A commitment to quality ervi e includes answering
telephone reservation line promptly. ustomers are
experiencing improved service l v l as a re ult of a
commitment to new technology, proce improvements
and increased staffing. In fi cal 1999, Delta will open
three new reservation ale atellite call centers with
advanced telecommunication technology to add cost-
effective call-handling capacity.
Three new reservation sales satellite call centers will open in fiscal 1999
and will further improve service L
evels.
Delta is investing heavily in pilot training and leading-edge technology, such as flight simulators to emphasize the number one priority - customer safety.
Delta is also making it easier for customers to book
travel by adding and expanding alternative customer ser-
vice channels, such as the Internet. The Delta SkyLinks
web site [www.delta-air.com] is accessed more than
40,000 times a day, providing schedule, pricing, flight
and SkyMiles account balance information. Quick and
convenient electronic ticketing is now offered on all
Delta Express, Delta Shuttle and Delea flights within
ELECTRONIC TICKETING
Percent of All Tickets by Quarter
,~
r=.=:=:=:=:=:=:=:=:=.=7=-==---10======-1-5-18
6~8
_
.
, ----------------24
0 7 14 21 28
Electronic ticket sales are growing rapidly and represent significant
potential for lowering distribution costs. Electronic ticketing enhances
customer convenience by eliminating the need for ticket confirmation
while reducing Delta's handling costs.
the 50 states, San Juan, Puerto Rico, the U.S. Virgin
Islands, Bermuda, the Caribbean and Canada.
GREATER ACCESS TO THE WORLD
Customers want more convenient access to the world's
most important markets. But no single airline can take
travelers everywhere in the world. The Company's strate-
gic alliances with ocher high-quality carriers greatly extend
the number of destinations Delta can offer customers.
Linking the Company's hubs with those of partners
creates interconnected travel networks to key destina-
tions in Europe, Asia and Latin America. In addition,
alliances are good business. They allow the Company
to take advantage of partners' route networks and more
efficiently allocate Delta's aircraft to the most profitable
markets. Through alliances, Delta also can serve key
markets that otherwise could not be served because
of economic or political issues.
1 998 ANNUAL REPORT 9
Partner with
oyees
Delta will build a world-class organization through a partnership culture
focused on performance, teamwork and winning.
In the airline business, succe s depends on committed,
enthu ia tic people who know how to deliver good ser-
vice. Delta people are the best in the business. Their hard
work and dedication were critical in achieving record
financial re ult and significant operational improve-
ments in fi cal 1998. Delta people are the foundation
upon which the Company will build its future.
BUILD THE BE T AIRLINE
Delta will build the best airline in the world by
attracting and retaining excellent people who share
a commitment to winning. Delta will create a win-
ning organization by engaging employees in a work
environment that focuses on customers, inclusion,
communication and performance.
Inclusion is a key element. It is being fostered in part
through employee forums or councils created to repre-
sent operating units. Inclusion and participation also
are core values for more than 370 employee Continuous
Improvement Teams which have collectively identified
and delivered $66.3 million in cost savings, 182 safety
improvements and thousands of process improvements
since the program's inception in 1995.
10 D E L TA AIR LI NES
The Company took on a special challenge in fiscal
1998, providing nearly every Delta per on the oppor-
tunity to meet face-to-face with senior management
to discuss corporate goals. Thi sharing of information
and ideas is essential to teamwork and has contributed
to an atmosphere of partnership and inclusion.
Pay-for-performance programs trengthen the link
between employee and shareowner . Delta will be
able to offer compensation at or near the top of the
industry as long as the Company' productivity is at
or near the top of the industry. Profit-sharing and
stock option programs, which cover substantially all
employees, are key elements of thi philosophy.
PROFIT-SHARING AWARDS
In Millions of Dollars
::: :r=-:=-:::_
3
:6
:::.
60 _______ 145
1998 ., - - - - - - - - - - - - - - - - 180
0 50 JOO 150 200
Delta people earned a record profit-sharing payment of more than
$180 million based on the Company's financial performance in fiscal
1998, representing an average 6% of annual salary.
Sharing information and ideas is essential to building
a successful partnership.
A PARTNERSHIP CULTURE
Employees are responding positively to this partnership
culture. A 1998 survey of Delta personnel, conducted by
an independent firm, showed substantial improvements
in employee support for Delta's strategic direction and
management. Many key measures of employee satis-
faction showed double-digit improvement, moving
the Company to ratings at or above average against a
normative base of 250 other companies.
Delta people are dedicated to delivering quality customer
service each and every day.
1998 ANNUAL REPORT 11
Partner with
areowners
Building on its strengths, Delta will sustain and build value for shareowners
by accelerating earnings growth and cash returns, maximizing the balance
sheet and minimizing fixed costs.
By focu ing on winning with cu comers and strength-
ening it partnership with employee , Delta will sustain
and build value for shareowners. The Company ha
established a clear et of prioritie designed to pur ue
three fundamental financial objective .
1. ACCELERATE EARNINGS
GROWTH A D CA H RETURNS
Accelerating earning growth and generating more cash
is about winning and being better than the competi-
tion. Improving the Company's revenue performance
relative to the industry will be critical in delivering
value to Delta's shareowners. The opportunities for
capturing incremental revenue are significant and are
both process- and technology-oriented.
Maintaining Delta's unit cost advantage versus the
industry is a major priority, equal in importance to
revenue growth. Delta has an approximate five percent
unit cost advantage versus the major network carriers.
Future cost management of the Company will involve
clear rules. Expenditures which make the customer
travel experience better or generate additional revenue,
will always be a priority.
12 D E LT A A I R L I N E S
A focu on generating more cash is inextricably linked
with accelerating earnings growth. Increasing cash-
generating abilities enable the ompany to invest for
the future while continuing to reward shareowners.
OP ERAT ING M ARGIN
Percent
1995 5.4
1996 10.4
1997 11.6
1998 12.0
3 6 9 12 15
'Excltu:ks restructuring nnd other non-reC11rring charge, and the cumul,mve effect of an accounting change.
Disciplined growth and optimization of Delta's operating margin will
drive earnings growth. Revenue initiatives, process-based productivity
improvements and a relentless focus on eliminating redundant processes
will expand Delta's industry-Leading operating margin.
OP ERATING C ASH FLOW
In Billions of Dollars
;::: :
:-::::::::::::
l. l
:
l.4
- - 2.0
ms
j.
,
-------------2
.
9
0 2 3 4
Record earnings and cash flow in fiscal 1998 allowed Delta to internally
fund investments in aircraft and ground equipment, reduce Long-term
debt and capital L
eases by $183 million, and build cash and short-term
investments ftom $1.2 billion to $ 1.6 billion.
Delta's Operations Control Center plays a critical role in the efficiency of the Company's daily operations.
2. MAXIMIZE THE BALANCE SHEET
Delta's industry-leading financial performance over the
past several years has built a solid foundation. A strong
balance sheet and financial flexibility are catalysts for
the Company's $750 million common stock repurchase
program which began in July 1998. In addition to
holding investment-grade ratings from both major
credit-rating agencies, Delta has financial ratios among
the strongest in the industry. This solid financial posi-
tion provides significant flexibility and will allow the
Company to aggressively seek additional opportunities
to create and return value to shareowners.
1995
1996
1997
1998
DEBT-TO-TOTAL CAPITALIZATION
Percent
-----------------8
4
- - - - - - - - - - - - 76
-----------73
--------6
1
50 60 70 80 90
Delta's debt-to-total capitalization ratio (including leases) of 67 % is
within the Company's targeted 65-70% range. Delta's targeted range
includes the prudent use of debt to lower the cost of capital while
p reserving investment-grade ratings.
I 9 9 8 A N N U A L R E P R T 13
P R TN R I T H H A R WN E R NT I NU D)
The ability to successfully manage through economic downturns will
differentiate Delta as a winning organization and will generate
value for shareowners.
3. MI IMIZE FI ED C T
Becau Delta op rat s a r latively high fixed-co t bu i-
ne in a c clical indu try, th focu on making co ts
mor ariabl i a top priority. The ability to ucce fully
manag through conomi downturn will diffi r ntiate
Delta a a winning organization and gen rat value for
hareowner . It r quire th ompany to focu on the
i ue of fixed ver u variabl co ts today while time are
good. ucce sful companies do not yield to the t mp-
tacion to permanently size their operation for the peaks.
Delta mu t be right-sized with variable components
to react quickly to economic and market conditions.
Delta performance through the next recession will
be impacted by its ability to manage capacity. D lea is
well po itioned to react to an economic contraction
by virtue of its ignificant fleet flexibility. Lever for
contracting growth include accelerated retirement of
aircraft and contractual delivery deferral rights in Delta's
long-term agreement with The Boeing Company.
14 D EL TA A I R L I E S
Delta's employee stock option plan is designed to align employee interests
with those of shareowners.
FIS AL 1998 OPERATING E X PENSE DISTRIBUTION
Percent
A. Salaries and Related osrs 39%
B. Aircraft ruel 12%
. Pa senger omm1ssions 8%
D. Depreciation and Amortization 7%
E. ontracted Services 6%
F. Landing Fees and Other Rents 5%
G. Other elling Expenses 5%
H. Aircraft Maintenance 4%
I. Aircraft Rent 4%
J. Passenger ervice 4%
K. Other 6%
Maintaining a unit cost advantage versus the industry and making costs
L
ess fixed and more variable requires focusing on every Delta activity to
determine what is important to customers and what is core to the delivery
of Delta's product. The goal is process-based productivity with rigorous
measurement and accountability.
Partner with the

ommun1ty
Partnering with employees also means partnering with the
communities Delta serves.
Delta believes in being a responsible, active corporate
citizen. The Company focuses its corporate giving on
programs that strengthen communities. Delta supports
programs that tackle such issues as unemployment and
poverty through training and personal development. The
Company also focuses its resources on programs that sup-
port disadvantaged families with young children and pro-
grams that foster cultural understanding and diversity.
Delta donates more than money and free air travel.
Delta's Community Partners, a volunteer resource cen-
ter of active and retired employees, supports efforts and
requests from many nonprofit organizations. Major events
The June 1998 CIGNA Sports Challenge in Atlanta involved more
than 1,500 corporate athletes and volunteers helping to raise fonds
for the fight against Cystic Fibrosis. Delta sponsored four teams to
participate in nine athletic events.
More than 300 Delta flight attendants helped build a Habitat for Humanity
house in Riverdale, Georgia &st year. The house was financed with proceeds
.from recycled soft drink cans collected on Delta flights by flight attendants.
in fiscal 1998 included: AIDS Walk Atlanta, CIGNA
Sports Challenge and March of Dimes WalkAmerica.
Delta people have contributed more than 10,000 vol-
unteer hours, including the construction of numerous
Habitat for Humanity homes funded through In-Flight
Service personnel's aluminum can recycling program.
In fiscal 1998, the Delta Air Lines Foundation made
the largest contribution in its history, an $890,000 grant
to the University of Georgia to establish the Delta Prize
for Global Understanding. This program will recognize
individuals or groups whose efforts have promoted peace
and cooperation among cultures and nations. The award
will be presented annually in Atlanta, beginning in the
spring of 1999.
1 9 9 8 A N N U A L R E P O RT 15
NORTH AMERICA
D elta's North American network of five geographically
balanced hubs -Atlanta, Cincinnati, Dallas-Fort Worth,
Salt Lake City and New York-Kennedy - provides broad
market coverage with a superior position in the Southeast
and Florida. The Company's competitive advantage in the
Southeast is driven by its operations in the Atlanta World-
port, the world's largest single-carrier hub, with 633 daily
departures to 122 nonstop markets (December 1998).
The Atlanta hub provides high-frequency service to major
business markets, comprehensive domestic market cover-
age, convenient access to Florida from the Midwest and
Northeast, and access to major international markets. The
economic and demographic forecasts for Atlanta and the
Southeast reflect significant future growth opportunities
for this key strategic region.
Delta is also strengthening its competitive position in
the Northeast and Midwest by expanding the New York-
Kennedy gateway to Europe, increasing frequencies between
Atlanta and key business markets (including hourly services)
and expanding service to Florida via Delea Express. Delta's
December 1998 schedule will offer unparalleled access from
major Northeast and Midwest business centers to Atlanta.
To Atlanta From:
New York City Area
Washington/Baltimore Area
Chicago
Boston
Daily Flights
40
35
18
15
The Company's competitive position in the Northeast
is also enhanced by its market share-leading Delta Shuttle
operation. The Delea Shuttle offers Northeast business
passengers reliable and distinctive hourly shuttle service
from New York City to Boston and to Washington, D.C.
Delta's Western operations include its hub in Salt Lake
City and a niche gateway to Asia via service from Portland.
Delta will strengthen its market position in this region
by building market and frequency coverage primarily
from its hubs in Atlanta, Cincinnati and Sale Lake City.
16 DELTA A I R LINES

WEST
Delta improved asset efficiency in Salt
Lake City by reallocating aircraft from
north-to-south, short-haul and leisure-
oriented markets to higher-value, longer-
haul, east-to-west traffic flows such as
Newark, Detroit and Philadelphia.
MIDWEST
Delta enhanced its Midwest market
position by inaugurating hourly service
from Chicago to Atlanta and adding
new Delta E
xpress service to Florida.

Delta strengthened its position in the North-
east by adding domestic and international
service from New York-Kennedy, the leading
transatlantic gateway, and adding frequen-
cies in key business markets.
SOUTHEAST
Delta continued to grow the Atlanta Worldport
by increasing service to numerous domestic
markets and adding 10 new international des-
tinations (including Lima, Peru subsequent to
fiscal 1998), solidifying its position as the largest
single-carrier hub in the world. E
xpansion of
Delta E
xpress continues to strengthen Delta's
market leadership in Florida.

18 DELTA A IR LINES
Delta's leadership position across the North
Atlantic and superior market position in New
York-Kennedy are supplemented by a com-
prehensive alliance strategy with Swissair,
Austrian and Sabena and a new code-sharing
agreement with Air France.
LATIN AMERICA
Building on the hub strength of the Atlanta
Worldport, Delta launched direct service into
six new Latin American countries. Delta also
expanded its Aeromexico and Transbrasil
code-sharing relationships and established
new marketing agreements with Aeroperu
and Aeropostal (Venezuela).
Delta initiated daily nonstop service from Atlanta
to Tokyo, announced new service from P
ortland
to Fukuoka and Osaka, and received authority to
serve Honolulu to Tokyo (new service subject to
slot availability). As a result of a new bilateral
agreement, Delta announced expanded code-
sharing services with Korean Air including access
to beyond markets in Asia through Seoul.
GLOBAL REACH
I n fiscal 1998, Delta continued to build on its trans-
atlantic leadership position and extended its reach to Asia
and rapidly-expanding Latin American markets.
In the North Atlantic, the second-largest aviation market
in the world, Delta began service from New York-Kennedy
to Barcelona, Stockholm, Warsaw and Stuttgart. Delta also
initiated service from Atlanta to Zurich and Hamburg.
Over the past several years the Company has taken aggres-
sive steps to rationalize transatlantic flying and grow
market share. Once a money-losing operation, Delta's
transatlantic entity is now an important contributor to
overall profitability.
In Latin America, Delta built upon the Company's
successful service to Brazil and Mexico by inaugurating
service from Atlanta to six countries: Costa Rica, El
Salvador, Guatemala, Panama, Peru (subsequent to fiscal
1998) and Venezuela. Based on its superior geographic
location and connecting capabilities, the Atlanta Worldport
is a natural gateway to Central and South America. Delta's
Atlanta Worldport is well positioned to capture a signifi-
cant amount of the rapidly growing traffic to Central and
South America. Approximately 65 percent of all U.S.-to-
Latin America traffic can be accessed via Atlanta, and 50
percent of the total market is best accessed via Atlanta.
In Asia/Pacific, Delta launched nonstop service from
Atlanta to Tokyo. New nonstop access to one of the world's
most important markets and the hub-gathering strength of
the Atlanta Worldport will allow Delta to build a leader-
ship position between the southeastern U.S. and Asia.
With the addition of service from Portland to Fukuoka
(effective October 29, 1998) and Osaka (effective June
1999), Delta will serve more Japanese cities nonstop from
the mainland U.S. than any other carrier.
DELTA EXPRESS
Delea E pre ch ompany su e sful low-fare opera-
ignificanr economic and trat gi value
to Delea. Delea Expr enables the ompany to capture
and grow it hare of Florida lei ur traffic from high-
d mand area in both the Northeast and Midwe t. Delea
E pre a commodar low r-yielding l i ur pa sengers at
a ignifi andy lower co t on non top flight chat overfly
Delea danra and incinnari hub . Improved personnel
and aircraft efficiencie allow Delea Expre s to profitably
expand the ompany' hare of Florida traffic while increas-
ing the capacity of its hub to carry higher-yielding traffic.
During fiscal year 1998, Delea Expre s added four
aircraft to its fleer, increa ed ervice in exi ring marker ,
20 D E L T A A I R L I N E S
and began ervice to Ral igh-Durham, I lip-Long Island,
l veland and Kan a 1 ry.
D lea Expres will continu to expand operation in fis-
cal 1999 by increasing its dedicated fleet of B-737-200 jet
aircraft from 29 co 40 and by beginning service co Orlando
from four citie in New York (Albany, Buffalo, Rochester
and yracu e). In resp on e to the growing demand for
nonstop ervice to the ouch Florida region, Delta Expre s
also ha announced plan to develop Fort Lauderdale as
a second focu ci ry. Service will be expanded to Fort
Lauderdale from Washington, D. .-Dulles (October 1),
Newark (December 1) and Hartford (December 1).
DEL
TA EXPRr. ITIES
EFFECTIVE DI:CEMBER 1, 1998:
Albany, NY
Boston, MA
Buffalo, NY
Cleveland, O H
Columbus, O H
Fort Lauderdale, FL*
Fort Myers, FL
H artford, CT
Indianapolis, IN
Islip, NY
Kansas City, MO
Louisville, KY
Nashville, TN
Newark, NJ
Orlando, FL*
Providence, RI
Raleigh-Durham, NC
Rochester, NY
Syracuse, NY
Tampa, FL
Washington, D . C.-Dulles
West Palm Beach, FL
* Focus city
AIRCRAFT FLEET
At the heart of the Company's operations is Delta's aircraft
fleet. To maintain a young and technologically advanced
fleet, Delta has entered into a long-term aircraft purchase
agreement with The Boeing Company (Boeing). The
agreement covers firm orders, options and rolling options
for certain aircraft through calendar year 2017, and sup-
ports the Company's plan for disciplined growth, aircraft
rationalization and fleet replacement.
The agreement with Boeing provides Delta with long-
term price controls, risk sharing and the flexibility to adjust
scheduled aircraft deliveries or substitute between aircraft
models and aircraft types, subject to certain conditions.
The majority of the aircraft under firm order will be
used to replace older aircraft. Delta's long-term plan is
to reduce aircraft family types from six to three. A move
to a more standardized fleet is expected to improve relia-
bility and result in long-term cost savings. As previously
announced, the Company plans to retire its remaining
L-1011 aircraft by August 2001, replaced primarily by
B-767 aircraft. Delta also has announced a three-year
acceleration of the planned retirement of the B-727 air-
craft fleet which it now plans to retire by the end of fis-
cal 2005. The B-727 aircraft will be replaced primarily
by new generation B-737 aircraft.
Delta accepted delivery of 15 new aircraft and acquired
10 aircraft from other carriers during fiscal 1998, com-
posed of two B-727-200 aircraft, six B-737-300 aircraft,
four B-757-200 aircraft, 12 B-767-300ER aircraft and
one MD-11 aircraft. In addition, Delta purchased four
727-200 aircraft that it previously leased. The Company
expects to take delivery of seven aircraft from other carriers
in fiscal 1999, five of which have been delivered. Delta
retired nine L-1011 aircraft from the fleet in fiscal 1998.
AIRCRAFT FLEET AT JUNE 30 , 1998
Average Leased
Ai rcraft Type Age Owned Capital Operating Total
B-727-200 21.2 121 10 131
B-737-200 13.6 1 45 8 54
B-737-300 11.6 3 16 19
B-757-200 9. 1 54 41 95
B-767-200 15. 1 15 15
B-767-300 9. 1 2 24 26
B-767-300ER 4.2 31 8 39
L-1011-1 19.8 18 18
L-1011-250 15.7 6 6
L-1011-500 17.3 15 15
MD-11 4.4 8 7 15
MD-88 8.0 63 57 120
MD-90 2.6 16 16
Tocal 12.3 350 48 171 569
AIRCRAFT DELIVERY SCHEDULES AT AUGUST 14 , 1998
Delivery in Year Ending June 30:
After
Ai rcraft on Firm Order 1999 2000 200 1 2002 2002 Total
B-737-600/700/800 7 12 5 9 54 87
B-757-200 5 7 12
B-767-300/300ER 14 14
B-767-400 2 19 21
B-777-200 2 10 2 14
Total 28 31 26 9 54 148
Delivery in Year Ending June 30:
After Rolling
Ai rcraft on O ption* 1999 2000 200 1 2002 2002 Total Options
B-73 7-600/700/800 - 5 12 7 36 60 275
B-757-200 4 3 8 5 20 85
B-767-300/300ER 4 2 4 11 19
B-767-400 12 12 24 25
B-777-200 5 14 20 30
Total 10 20 34 71 135 434
* Aircraft options have scheduled delivery slots, while roLLing options replace options
and are assigned delivery slots as options expire or are exercised.
I 9 9 8 A N N U A L R E P O RT 21
-
,,-~
,~.._'.\
...
oY
-- ..
~~
,,
B AR F D I R T R
EDW1N L. ARTZT hairman of the Executive ,ommittee of the Board of Directors,
The Procter & amble ompany; Retired hairnzan of the Board and hief Executive
Office,; The Procter & amble ompany, incinnati, Ohio
HENRY A. BIEDENHARN, III Retired hairman of the Board, President and hie/ Executive )jficer,
Ouachita Coca- o/,a Bottling ompany, Inc., Monroe, Louisiana
JAME L. BROADHEAD hairman of the Board and Chief Executive Officer, FPL
Group, Inc.; hairma11 of the Board and hie/ Executive Officer, Florida Power & Light
ompany, Juno Beach, Florida
EDWARD H. BUDD Retired hairman of the Board and hie/Executive Office,;
The Trave/,ers orporation, Hartford, onnecticut
R. EUGENE ARTLEDGE Former Chairman of the Board, Savannah Foods &
Industries, Inc., Savannah, Georgia; Retired Chairman of the Board and Chief Executive
Officer, Union Camp Corporation, ~yne, New Jersey
GERALD GRINSTEIN Non-Executive Chairman of the Board, Delta Air Lines, Inc.;
Retired Chairman, Burlington Northern Santa Fe Corporation; Retired Chairman and
Chief Executive Officer, Burlington Northern Inc., Fort Worth, Texas; former Chief
Executive Officer, Western Air Lines, Inc.
JESSE HILL, JR. Retired Chairman of the Board, Atwnta Life Insurance Company, Atwnta, Georgia
Mr. HiLL wiLL retire from the Board of Directors on October 22, 1998. He has been a director of Delta since 1975.
LEO F. MULLIN President and Chief Executive Officer, Delta Air lines, Inc.; former
Vice Chairman, Unicom Corporation and Commonwealth Edison; former President and
Chief Operating Officer, First Chicago, Chicago, Illinois
ANDREW J. YOUNG Co-Chairman and Senior Partner, Goodworks International, Inc., Atlanta, Georgia;
Chairman of the Southern Africa Enterprise Development Fund; former Mayor of Atlanta, Georgia; former US.
Ambassador to the United Nations; former member of the US. House of Representatives
22 D E L T A A I R L I N E S
BOARD COMM I TTEES
AUDIT
James L. Broadhead, Chairman
Henry A. Biedenharn, III
Mary Johnston Evans
Jesse Hill, Jr.
BENEFIT FUNDS
INVESTMENT
Jesse HiLL, Jr., Chairman
Henry A. Biedenharn, III
James L. Broadhead
Andrew J. Young
CORPORATE GOVERNAN E
Mary Johnston Evans, Chairman
James L. Broadhead
Gerald Grinstein
Andrew j. Young
CORPORATE STRATEGY
Edward H. Budd, Chairman
Edwin L. Artzt
R. Eugene Cartledge
Gerald Grinstein
EXECUTIVE
Mary Johnston Evans, Chairman
Edwin L. Artzt
James L. Broadhead
Edward H. Budd
R. Eugene Cartledge
Jesse Hill, Jr.
FINANCE
Edwin L. Artzt, Chairman
Edward H. Budd
R. Eugene Cartledge
Gerald Grinstein
PERSONNEL &
COMPENSATION
R. Eugene Cartledge, Chairman
Edward H. Budd
Mary Johnston Evans
Gerald Grinstein
R E P RESENTAT I VE OF A I R L I NE P I LOTS ASSOC I A TI ON, I NTE R N A T I ONA L
Captain Mark D. Halsor -Associate
non-voting member of
the Board of Directors
DELTA B OA R D COUNC IL R E PR ESENTAT I VES
AIRPORT CUSTOMER
SERVICE AND CARGO
C. Bradley Bray
FLIGHT ATTENDANTS
Cathy Cleveland Cone
TECHNICAL OPERATION
john C. James
SUPERVISORY/
ADMINISTRATIVE
Duff j. O'DeLL
Employee representatives to the Board of Directors
OFF I CERS
LEO F. MULLIN
President and Chief Executive Officer
MAURICE W WORTH
Chief Operating Officer
HARRY C. ALGER
Executive Vice President -
Operations
VICKI B. ESCARRA
Executive Vice President -
Customer Service
WARREN C. JENSON
Executive Vice President and
Chief Financial Officer
FREDERICK W REID
Executive Vice President and
Chief Marketing Officer
VIN CENT F. CAMINITI
Senior Vice President -
Sales and International
WE. DOLL
Senior Vice President - Cargo
ROBERTS. HARKEY
Senior Vice President -
General Counsel and Secretary
PAUL G. MATSEN
Senior Vice President - ALiiance
Strategy and Development
JENNY R. POOLE
Senior Vice President -
In-Flight Service
THOMAS J. SLOCUM
Senior Vice President -
Corporate Communications
RAYVALEIKA
Senior Vice President -
Technical Operations
D. SCOTT YOHE
Senior Vice President -
Government Affairs
MALCOLM B. ARMSTRONG
Vice President - Corporate Safety
and Compliance
BRENDA A. BARNES
Vice President - Pricing and
Revenue Management
W E. (SKIP) BARNETTE
Vice President - Atlanta Worldport
HAROLD L. BEVIS
Vice President - Public Affairs
OPERATIONAL
SUPPORT/CLERICAL
Joseph W Gooch
RESERVATION SALES AND
CITY TICKET OFFI ES
Wi/Liam M. Morey
JOHN W BOATRIGHT
Vice President -
Properties and Facilities
W MARTIN BRAHAM
Vice President - Delta Staffing
Services Business Unit Development
FREDERICK WP. BUTTRELL
Vice President - Operation Planning
Control and Reliability
ANTHONY N. HARAF
Vice President -
Power Plant Maintenance
RICHARD E. COLBY
Vice President - Flight Operations
MARKA. P. DRUSCH
Vice President -
Marketing Development
STEPHAN J. EGLI
Vice President - Atlantic/Pacific
Business Unit
MICHAEL . ELLENBURG
Vice President - Aircraft
Maintenance and Engineering
FIELD/CARGO SALES
Nancie W Parker
TERRY M. ERSKINE
Vice President - Personnel Relations
LEE A. MACENCZAK
Vice President - Reservation Sales
and Distribution Planning
LEON A. PIPER
Vice President - Personnel Benefits
UDO RIEDER
Vice President - Purchasing
EDWARD H. WEST
Vice President - Financial
Planning and Analysis
MICHAEL M. YOUNG
Vice President - Community Affairs
DEAN C. ARVIDSON
Assistant Secretary
SUSAN T. HUDSON
Assistant Secretary
LE LIE P. KLEMPERER
Assistant Secretary
1 9 9 8 A N N U A L R E P O R T 23
FINANCIAL REVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED BALANC E SHEETS
CONSOLIDATED STATEM ENTS OF OPERATIONS
CONSOLIDATED S TATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF MANAGEMENT
SHAREOWNER INFORMATION
DELTA AIR LINES AT-A-GLANCE
24 D E l. T A A I R l. I N E S
PAGE 25
PAGE 34
PAGE 36
PAGE 37
PAGE 38
PAGE 39
PAGE 53
PAGE 53
PAGE 56
PAGE 57
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES , INC .
RESULTS OF OPERATIONS
SUMMARY OF RESULTS
For fiscal 1998, Delta recorded operating income of $1.7 bil-
lion and net income of$1.0 billion ($13.28 basic and $12.68
diluted income per common share). These results represent
the strongest financial performance ever reported by Delta for
a fiscal year. In fiscal 1997, Delta recorded operating income
of $1.5 billion and net income of $854 million ($11.39 basic
and $11.03 diluted income per common share).
Financial Results Summary
(In Milliom, Except Share Amounts)
Operating Revenues
Operating Expenses
Operating Income
Ocher Expense, Nee
Income Before Income Taxes
Income Taxes Provided
Nee Income
Preferred Srock Dividends
Nee Income Available co
Common Shareowners
Income per common share:
Basic
Diluted
Number of Shares Used
co Compute Income
Per Common Share:
Basic
Diluted
1998
$14,138
12,445
1,693
45
1,648
647
1,001
11
$ 990
$ 13.28
$ 12.68
1997
$13,594
12,063
1,531
116
1,415
561
854
9
$ 845
$ 11.39
$ 11.03
74,567,059 74,233,606
78,630,519 76,964,892
Change
4%
3
11
(61)
16
15
17
22
17%
17%
15%
Fiscal 1997 results include pretax restructuring and other
non-recurring charges of $52 million ($32 million after-tax
or $0.43 basic and $0.42 diluted income per common share)
related to the realignment of the Company's transatlantic
and European operations.
FISCAL 1998 COMPARED WITH FISCAL 1997
OPERATING REVENUES
Operating Revenue Detail
(In Milliom) 1998 1997
Passenger $12,976 $12,505
Cargo 582 554
Ocher, Nee 580 535
Total $14,138 $13,594
Change
4%
5
8
4%
Operating revenues for fiscal 1998 were $14.1 billion,
up 4% from $13.6 billion in fiscal 1997. Passenger revenue
increased 4%, which reflects a 3% increase in revenue pas-
senger miles on capacity growth of2%. The passenger mile
yield was 12.83<t, virtually unchanged from fiscal 1997.
During fiscal 1998, Delta benefited from continued favorable
economic conditions, increased demand for air travel and the
strategic reallocation of certain aircraft.
Domestic passenger revenue increased 4%, to $10.7 billion,
driven by a 3% increase in domestic revenue passenger miles
on a 2% increase in domestic capacity. The increase in domes-
tic revenue passenger miles is primarily due to favorable
economic conditions and improved asset utilization.
Domestic passenger mile yield increased 1 % due to a domestic
fare increase implemented during the September 1997 q uar-
ter, largely offset by the full-year impact of the U.S. trans-
portation excise tax and increased low-fare competition.
Consistent with the Company's strategy to expand its
global reach, international passenger revenue increased 3%,
to $2.3 billion, reflecting a 6% increase in international
revenue passenger miles on a 5% increase in international
capacity. The increase in international revenue passenger
miles is primarily due to the addition of new routes, improved
asset utilization, and continued strong demand in the
Atlantic market, as well as the Company's recent expansion
into Latin America. The international passenger mile yield
decreased 3% year over year, mainly due to overall capacity
growth in the Atlantic market.
Cargo revenues increased 5% to $582 million, reflect-
ing a 14% increase in cargo ton miles and an 8% decrease
in cargo ton mile yield. All other revenues increased 8% to
$580 million, mainly due to higher administrative service
charge revenues.
Revenue-Related Statistics
1998 1997 Change
Revenue Passengers
Enplaned (Thousands) 104,148 101,147 3%
Revenue Passenger
Miles (Millions) 101,136 97,758 3%
Passenger Load Factor 72.2% 7 1.4% 0.8 pcs.
Passenger Mile Yield 12.83 12.79
Cargo Ton Miles (Milliom) 1,745 1,532 14%
Cargo Ton Mile Yield 33.35 36.14 (8)%
Operating Revenue
Per Available Seat Mile 10.09 9.94 2%
I 9 9 8 A N N U A L R E P O R T 25
MANAGEMENT' DI CU ION AND ANALYSI
OF FINAN IAL CONDITION AND RE ULT OF OPERATION continued
DELTA AIR LINE , IN
OPERATING Ex!>ENSES
Operating expenses in fiscal 1998 totaled $12.4 billion,
up 3% from $12.1 billion in fiscal 1997. Operating cost
per available seat mile increased 1 % to 8.88.
Operating Expense Detail
(In Millions) 1998 1997 Change
alaries and Related Costs $ 4,850 $ 4,534 7%
Aircraft Fuel 1,507 1,722 (12)
Passenger Commissions 980 1,01 7 (4)
Depreciation and Amortization 861 710 21
Contracted Services 694 630 10
Other Selling Expenses 681 677
Landing Fees and Other Rents 649 649
Aircraft Rent 552 547
Aircraft Maintenance Materials
and Outside Repairs 495 434 14
Passenger Service 450 389 16
Restructuring and
Other on-recurring Charges 52
Other 726 702 3
Total $12,445 $12,063 3%
Salaries and related costs increased 7% due to an 8%
increase in full-time equivalent employees, primarily in cus-
tomer service areas, and compensation and benefit enhance-
ments for non-contract domestic employees, which became
effective July 1, 1997. Aircraft fuel expense decreased 12%
as the average fuel price per gallon declined 15% to 56.54.
Passenger commissions expense decreased 4% due to the
implementation of a lower commission race structure in the
September 1997 quarter and increased utilization of lower
cost distribution channels, partially offset by higher total
commissions resulting from increased passenger revenue.
Depreciation and amortization expense increased 21 % due
to the acquisition of additional aircraft and ground equip-
ment, as well as increased investment in information systems.
Contracted services expense rose 10% due to higher infor-
mation technology coses and increased airport contract
expenses associated with customer service initiatives and
higher passenger volume. Aircraft maintenance materials
and outside repairs expense increased 14% largely due to
increased scheduled maintenance visits. Passenger service
expense increased 16% due to onboard service enhance-
ments and increased passenger traffic.
26 D E L T A A I R L I N E S
Operating Statistics
1998 1997 Change
Available Seat Miles (Millions) 140,149 136,821 2%
Operating Margin 12.0% 11.3% 0.7 pts.
Fuel Gallons onsumed (Millions) 2,664 2,599 3%
Average Fuel Price Per Gallon 56.54 66.23 (15)%
Breakeven Passenger Load Factor 62.7% 62.7%
Operating ost Per Available
Seat Mile 8.88 8.82 1%
OTHER INCOME (Ex.PENSE)
Ocher expense for fiscal 1998 decreased $71 million to
$45 million, primarily due to lower interest expense result-
ing from lower average levels of debt outstanding and
higher interest income resulting from higher cash balances.
In addition, fiscal 1997 other expense included a $20 mil-
lion payment to settle certain class action antitrust lawsuits
filed by travel agents.
FISCAL 1997 COMPARED WlTH FISCAL 1996
For fiscal 1997, Delta recorded operating income of$ 1. 5 bil-
lion and net income of $854 million ($11.39 basic and
$11.03 diluted income per common share). In fiscal 1996,
Delea recorded operating income of $463 million and net
income of $156 million ($1.43 basic and diluted income
per common share).
As discussed previously, fiscal 1997 results include
pretax restructuring and other non-recurring charges of
$52 million. Fiscal 1996 results include pretax restructur-
ing and other non-recurring charges totaling $829 million
($506 million after-tax or $9.77 per common share) related
to the write-down of Delta's L-1011 fleet and certain cost
reduction initiatives.
OPERATING REVENUES
Operating revenues for fiscal 1997 were $13 .6 billion, up 9%
from $12.5 billion in fiscal 1996. Passenger revenue increased
8%, the result of 10% growth in revenue passenger miles
partially offset by a 2% decline in the passenger mile yield.
Domestic passenger revenue increased 9%, to $10.3 bil-
lion, reflecting a 13% increase in domestic revenue passenger
miles on a 6% increase in domestic capacity, and a 3% decline
in the domestic passenger mile yield. Domestic traffic growth
was primarily due to the Company's realignment of domes-
tic routes which increased Delta's operations at its Atlanta
and Cincinnati hubs; reduced operations by a competitor;
and favorable economic conditions. The decrease in the
domestic passenger mile yield was due to the use of more
competitive pricing strategies and the reimposition of the
U.S. transportation excise tax on March 7, 1997.
International passenger revenue rose 1 %, to $2.2 billion,
due to a 3% increase in international revenue passenger miles
which was largely offset by a 2% decline in the international
passenger mile yield. The increase in international revenue
passenger miles was primarily due to improved asset utiliza-
tion and favorable economic conditions. The decrease in the
international passenger mile yield was due to the Company's
use of more competitive pricing strategies.
Cargo revenues increased 6% to $554 million, reflect-
ing a 12% increase in cargo ton miles and a 5% decline
in cargo ton mile yield. Other revenues were up 68% to
$535 million, mainly due to increased revenues from
expanded joint marketing programs and improved results
from code-sharing arrangements.
OPERATING EXPENSES
Operating expenses in fiscal 1997 totaled $12.1 billion, up
1 % from $12.0 billion in fiscal 1996. Operating capacity
increased 5% to 136.8 billion available seat miles, and oper-
ating cost per available seat mile decreased 4% to 8.82<t.
Excluding restructuring and other non-recurring charges,
operating expenses were up 8%, and operating cost per
available seat mile increased 3%. This increase was pri-
marily due to higher salaries and related costs, aircraft fuel
expense and certain traffic-related costs.
OTHER INCOME (EXPENSE)
Other expense for fiscal 1997 decreased $71 million, to
$116 million, primarily due to lower interest expense and
higher equity income from associated companies. Other
expense for fiscal 1997 included Delta's $20 million pay-
ment to settle certain class action antitrust lawsuits filed by
travel agents.
LIQUIDilY AND CAPITAL RESOURCES
FISCAL YEAR 1998
During fiscal 1998, strong operating results enabled the
Company to continue to strengthen its financial position.
Cash and cash equivalents and short-term investments totaled
$1.6 billion at June 30, 1998, compared to $1.2 billion at
June 30, 1997. The principal sources of funds during fiscal
1998 were $2.9 billion of cash from operations, $402 million
(including an income tax benefit of $84 million related to
the exercise of stock options) from the issuance of Common
Stock, primarily under the Company's broad-based employee
stock option plans, and $125 million from the issuance of
long-term obligations.
During fiscal 1998, Delta invested $1.8 billion in flight
equipment and $531 million in ground property and equip-
ment. The Company also made payments of $307 million on
long-term debt and capital lease obligations; paid $354 mil-
lion to repurchase Common Stock; and paid cash dividends
of $28 million on its Series B ESOP Convertible Preferred
Stock, and $15 million on its Common Stock. The Company
may repurchase additional long-term debt and Common
Stock from time to time.
As ofJune 30, 1998 and 1997, the Company had nega-
tive working capital of $1.2 billion. A negative working capi-
tal position is normal for Delta and does not indicate a lack
ofliquidity. The Company expects to meet its current and
long-term obligations as they become due through available
cash, short-term investments and internally generated funds,
supplemented as necessary by debt financing and proceeds
from sale and leaseback transactions. At August 14, 1998,
the Company had $1.25 billion of credit available under its
1997 Bank Credit Agreement. See Note 6 of Notes to
Consolidated Financial Statements.
I 9 9 8 A N N U A L R E P O R T 27
MANA
OF Fr
EMENT' DI U ION AND ANALYSI
AN IAL C NDITION AND RE ULT OF OPERATION continued
DELTA AIR LINE , IN
Long-term debt and capital lease obligations, including
current maturities, totaled $1.9 billion at June 30, 1998, com-
pared to $2.1 billion at June 30, 1997. hareowners' equity
was 4.0 billion at June 30, 1998, compared to $3.0 billion
at June 30, 1997. The Company's debt-to-equity position,
including current maturities, was 32% debt and 68% equity
at June 30, 1998, compared to 41 % debt and 59% equity at
June 30, 1997.
At August 14, 1998, there was outstanding $290 million
principal amount of the Delta Family-Care Savings Plan's
Series C Guaranteed Serial ESOP Notes (Series C ESOP
Notes), which are guaranteed by Delta. Delta is required to
purchase the Series C ESOP Notes in certain circumstances.
See ote 6 of Notes to Consolidated Financial Statements.
FISCAL YEAR 1997
During fiscal 1997, the principal source of funds was
$2.0 billion of cash from operations. Delta invested
$1.6 billion in flight equipment and $350 million in
ground property and equipment. The Company also
made payments of $196 million on long-term debt and
capital lease obligations; paid $379 million to repurchase
Common Stock; and paid cash dividends of $29 million
on its Series B ESOP Convertible Preferred Stock and
$15 million on its Common Stock.
FISCAL YEAR 1996
In fiscal 1996, the principal source of funds was $1.4 billion
of cash from operations. During fiscal 1996, Delea invested
$639 million in flight equipment, and $297 million in ground
property and equipment. The Company made payments of
$440 million on long-term debt and capital lease obligations;
paid cash dividends of $80 million on its Series C Convertible
Preferred Stock, $30 million on its Series B ESOP Convertible
Preferred Stock and $10 million on its Common Stock; and
paid $66 million to repurchase Common Stock.
28 D E L T A A I R L I N E S
COMMITMENTS
Future expenditures for aircraft, engines and engine hush-
kits on firm order as of August 14, 1998, are estimated co be
$6.9 billion. The Company has also authorized fiscal 1999
capital expenditures of approximately $550 million for
improvement of airport and office facilities, ground equip-
ment and other assets. See Notes 7 and 8 of Notes co Consoli-
dated Financial tacements for additional information on
the Company's lease obligations and commitments.
YEAR 2000 I SUE
Background
Many computer systems in use today were designed and
developed using two digits, rather than four, co specify the
year. As a result, such systems will recognize the year 2000
as "00." This could cause many computer applications to
fail completely or co create erroneous results unless correc-
tive measures are taken.
Delta's Year 2000 Program
The Company's flight operations, flight support units and
other business support units depend on internal and exter-
nal computer systems and equipment chat will be affected
by the Year 2000 issue. Accordingly, achieving Year 2000
readiness is a cop priority of the Company. Delea has imple-
mented a Year 2000 program for its internal systems and
equipment which has four phases: (1) identification;
(2) assessment (including prioritization); (3) remediation
(including modification, upgrading and replacement); and
(4) testing. The Company is also reviewing the Year 2000
readiness of third parties who provide goods or services
which are essential co Delta's operations. In addition, Delea
is revising its existing business interruption contingency
plans to address issues specific to the Year 2000 problem.
The Company's senior managef!lent and the Board of
Directors receive regular updates on the status of the
Company's Year 2000 program.
Safety-of Flight Systems
The Company has completed its review of the impact of
Year 2000 issues on its aircraft fleet and onboard flight sup-
port systems and has determined chat there are no safety-of-
flighc issues with such equipment or systems. The Company
has completed the assessment phase for its onboard flight
management systems, which maximize operating efficiency
but are not essential to the safe operation of flights, and
expects to complete the remediation and testing phases for
these systems by June 1999.
The Company also uses ground-based, safety-related
computer systems and equipment which are vital to the
maintenance of aircraft and the control of flight opera-
tions. The identification and assessment phases are com-
plete with respect to such systems and equipment and the
Company expects to complete the remediation and testing
phases by June 1999.
Critical Internal Business Systems
The Company's critical internal business systems and equip-
ment include computer hardware, software and related
equipment which are essential for customer reservations,
ticketing, flight scheduling and seat inventory management;
airport customer services; finance systems, such as revenue
management, revenue accounting and payroll; and other
functions, such as internal voice and data communications,
aircraft ground handling, baggage handling, facility man-
agement and security.
The identification and assessment phases for all of the
Company's critical internal business systems and equipment
are complete. The remediation phase is complete for Delta's
internal customer reservations, ticketing, flight scheduling
and seat inventory management systems and the Company
expects to complete the testing phase for these systems by
June 1999. These are the internal business systems which
are the most critical for Delta to continue its operations
without interruption. The Company expects to complete
the remediation and testing phases for all other critical inter-
nal business systems and equipment by December 1998 and
June 1999, respectively, except for customer service hard-
ware installed at the Company's airport facilities, which will
be replaced with upgraded, Year 2000-compliant hardware.
The Company will begin installing chis new hardware in
September 1998 and expects to complete all installations
by the end of the December 1999 quarter.
Interfaces with Third Parties
The Company is reviewing, and has initiated formal commu-
nications with, third parties which provide goods or services
which are essential to Delta's operations in order to: (1) deter-
mine the extent to which the Company is vulnerable to
any failure by such material third parties to remediate their
respective Year 2000 problems; and (2) resolve such prob-
lems to the extent practicable. These entities include the
suppliers of infrastructure critical to the airline industry,
such as the air traffic control and related systems of the U.S.
Federal Aviation Administration and international aviation
authorities, the U.S. Department ofTransportation and
local airport authorities. Ocher critical third parties on
which Delta relies include airlines and the suppliers of air-
craft fuel, utilities, external computer reservations services,
and communication services. As part of this review, the
Company is actively involved in airline industry Year 2000
review efforts led by the Air Transport Association and the
Internacional Air Transport Association (IATA).
Estimated Year 2000 Costs
The Company estimates that the total cost of achieving
Year 2000 readiness for its internal systems and equipment
is approximately $160 million to $175 million, of which
$40 million has been recognized as expense in the Com-
pany's Consolidated Statements of Operations through
June 30, 1998. The Company believes a majority of the
estimated total Year 2000 compliance cost will be funded
by reallocating existing resources rather than incurring
incremental costs.
1 9 9 8 A N N U A L R E P O R T 29
MANAGEMENT' DI U ION AND ANALY IS
0 F F I NAN I AL C O N D IT I O N AN D RE ULT O F O P E RAT I O N continued
DELTA AIR LINE , IN
Contingency Planning
The Company is revising its existing business interruption
contingency plans to address internal and external issues
specific to the Year 2000 problem, to the extent practicable.
uch revisions are expected to be completed by July 1999.
These plans, which are intended to enable the Company
to continue to operate to the extent that it can do so safely,
include performing certain processes manually; repairing
or obtaining replacement systems; changing suppliers; and
reducing or suspending operations. The Company believes,
however, that due to the widespread nature of potential Year
2000 issues, the contingency planning process is an ongoing
one which will require further modifications as the Company
obtains additional information regarding ( 1) the Company's
internal systems and equipment during the remediation and
testing phases of its Year 2000 program; and (2) the status
of third party Year 2000 readiness.
Possible Consequences of Year 2000 Problems
Delta believes that completed and planned modifications
and conversions of its internal systems and equipment will
allow it to be Year 2000 compliant in a timely manner. There
can be no assurance, however, that the Company's internal
systems or equipment or those of third parties on which Delta
relies will be Year 2000 compliant in a timely manner or that
the Company's or third parties' contingency plans will miti-
gate the effects of any noncompliance. The failure of the
systems or equipment of Delta or third parties (which Delta
believes is the most reasonably likely worst case scenario)
could result in the reduction or suspension of the Company's
operations and could have a material adverse effect on the
Company's business or consolidated financial statements.
Forward-Looking Statements
The preceding "Year 2000 Issue" discussion contains various
forward-looking statements which represent the Company's
beliefs or expectations regarding future events. When used in
the "Year 2000 Issue" discussion, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements
30 D E L T A A I R L I N E S
include, without limitation, the ompany's expectations as
to when it will complete the remediation and testing phases
of its Year 2000 program as well as its Year 2000 contingency
plans; its estimated cost of achieving Year 2000 readiness;
and the Company's belief that its internal systems and equip-
ment will be Year 2000 compliant in a timely manner. All
forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ mate-
rially from the projected results. Factors that may cause these
differences include, but are not limited to, the availability
of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensi-
tive lines of computer code or to replace embedded computer
chips in affected systems or equipment; and the actions of
governmental agencies or other third parties with respect
to Year 2000 problems.
EURO CURRENCY ISSUE
On January 1, 1999, eleven of the fifteen countries which are
members of the European Union are scheduled to introduce
a new currency unit called the "euro." Prior to the full imple-
mentation of the new currency for the participating coun-
tries on January 1, 2002, there will be a transition period
during which parties may use either the existing currencies
or the euro. However, all exchanges between currencies of
the participating countries are required to be converted first
into the euro and then into the other country's currency.
Delta's internal customer reservations systems and busi-
ness support systems and processes are currently being modified
to operate effectively in the euro environment. The Company
expects these modifications to be completed by the end of
the December 1998 quarter. Delta also depends on third
party financial institutions, computer reservation systems
and IATA programs to process most of its international ticket
payment and refund transactions and therefore is reviewing
their respective euro-related conversion plans. Delta does
not expect the implementation of the euro currency to have
a material adverse impact on the Company's business or
consolidated financial statements.
Delta's expectations regarding the euro currency issue
are forward-looking statements that involve a number of
risks and uncertainties that could cause the actual results to
differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the
ability or willingness of third parties to convert affected sys-
tems in a timely manner; the ability of the Company to
modify its systems and processes in a timely manner; and
the actions of governmental agencies or other third parties
with respect to euro currency issues.
OTHER MATTERS
Stock Split
In July 1998, Delta's Board of Directors approved a two-for-
one Common Stock split, subject to shareowner approval
of an amendment to the Company's Certificate oflncorpo-
ration to increase the number of shares of Common Stock
the Company is authorized to issue and to effect the pro-
posed split. If the amendment is approved by shareowners
at Delta's October 22, 1998 annual meeting, the split would
be effective for common shareowners of record at 5 p.m.,
eastern standard time, on November 2, 1998.
Common Stock Repurchase Programs
For information regarding the Company's Common Stock
repurchase programs, see Note 14 of Notes to Consolidated
Financial Statements.
Broad-Based Employee Stock Option Plans
During fiscal 1997, the Company's shareowners approved
two plans providing for the issuance of non-qualified stock
options to substantially all of Delta's non-officer personnel.
For additional information regarding these plans, see Note 13
of Notes to Consolidated Financial Statements.
Change in Estimate
As a result of a review of its aircraft fleet plan and comparable
industry practices, the Company increased the depreciable
life of certain new generation aircraft types from 20 to 25 years.
The change in estimate is effective July l, 1998.
Alliance Agreement
On April 29, 1998, Delta and United Air Lines, Inc. (United)
entered into a marketing alliance agreement (Agreement) pur-
suant to which the two airlines would engage in code-sharing
arrangements, reciprocal frequent flyer programs and other
areas of marketing cooperation.
The implementation of the code-sharing aspects of the
Agreement is subject to the approval of both companies'
pilot unions. In August 1998, Delta's Board of Directors
(Board) decided not to grant the request of the Delta pilot
union for a voting seat on the Board. Following this deci-
sion, the Delta pilot union said it would no longer consider
the approval of the code-sharing aspects of the Agreement.
As a result, Delta has discontinued consideration of code-
sharing arrangements with United.
On September 1, 1998, Delta and United began
reciprocal frequent flyer program participation.
Personnel Matters
On May 1, 1996, the Company and the Air Line Pilots
Association, International (ALPA) entered into a new
collective bargaining agreement covering the rates of pay,
rules and working conditions of the Company's approxi-
mately 8,800 pilots. The contract, which becomes amend-
able on May 2, 2000, provides in part (1) that if the Company
operates an aircraft type (New Equipment) for which the
rates of pay, rules and working conditions (collectively,
Pay Rates) are not set forth in the collective bargaining
agreement, the Company and ALPA will negotiate the Pay
Rates applicable to the New Equipment; (2) that pilots
will fly the New Equipment whether or not Pay Rates for
the equipment have been agreed upon; but (3) that the
pilots' obligation to fly the New Equipment will end if Pay
Rates have not been agreed upon within six months after
the Company places the New Equipment into operation.
The Company has placed orders to purchase the following
aircraft types, each of which constitutes New Equipment under
the collective bargaining agreement: B-737-600/700/800
aircraft; B-777-200 aircraft; and B-767-400 aircraft. Delta
plans to place these aircraft types in service shortly after
their delivery, which is expected to begin in October 1998,
1 9 9 8 AN N UAL RE PO R T 31
MA AGEMENT' DI U ION AND ANALYSI
OF FI A IAL C NDITION AND R ULTS OF OP E RATIO N continued
D E LTA AIR LIN E , IN
March 1999, and May 2000, respectively. In addition, the
Company is leasing from a third party eight B-737-300
aircraft and has agreed, subject to certain conditions, to lease
one additional B-737-300 aircraft which also constitutes
New Equipment under the collective bargaining agreement.
The Company placed the first of these leased aircraft in
service in July 1998.
In October 1997, the Company andALPA began dis-
cussions on the Pay Rates applicable to B-737-600/700/800
aircraft and the nine B-737-300 aircraft discussed above.
ALPA has announced plans to request pilots not to fly these
aircraft types subsequent to the six-month period after such
aircraft are initially placed in service unless and until Pay
Rates for these aircraft are agreed upon. Additionally, in
January 1998, the Company's pilots voted to authorize
ALPA to assess pilots 1 % of their gross pay for up to nine
months to finance a contingency fund for pilots who would
have flown these aircraft.
On June 23, 1998, the CompanyandALPA reached
an agreement regarding Pay Rates applicable to the B-737
aircraft discussed above (B-737 Agreement). The B-737
Agreement is subject to the approval of Delta's pilots. ALPA
is planning to distribute ballots to pilots beginning in Sep-
tember to vote on the B-737 Agreement, and to announce
the results of the voting in October. The outcome of this mat-
ter cannot presently be determined.
Governmental Matters
On April 6, 1998, the U.S. Department of Transportation
(DOT) published a proposed statement of enforcement
policy to address DOT concerns that major carriers are
taking actions designed to exclude new entrants in certain
airline markets, particularly at hub airports. The proposed
DOT guidelines focus on unreasonable price cuts and/ or
capacity increases by major carriers in response to entry by
new carriers at hub airports, and whether the major carrier
could have pursued a more reasonable alternative strategy
for competing with the new entrant. The proposed policy,
if adopted, could adversely affect Delta's ability to respond
to competitive challenges by new entrant carriers.
32 D E L T A A I R L I N E S
Competitive Environment
Delta expects that low-fare competition will continue in
domestic and international markets. If price reductions are
not offset by increases in traffic or changes in the mix of
traffic that improve the passenger mile yield, Delta's
operating results will be adversely affected.
Environmental and Legal Contingencies
The Company is a defendant in certain legal actions
relating to alleged employment discrimination practices,
antitrust matters, environmental issues and other matters
concerning the Company's business. Although the ultimate
outcome of these matters cannot be predicted with cer-
tainty, management believes that the resolution of these
actions is not likely to have a material adverse effect on
Delta's consolidated financial statements.
Forward-Looking Information
Delta and its representatives may make forward-looking
statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, about the Company and its
business from time to time, either orally or in writing. These
forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ
materially from the projected results. It is not possible to
list all of the many factors and events that could cause the
actual results to differ materially from the projected results.
Such factors and events may include, but are not limited to:
(1) competitive factors such as the airline pricing environ-
ment and the capacity decisions of other airlines; (2) general
economic conditions; (3) changes in aircraft fuel prices;
(4) fluctuations in foreign currency exchange rates; (5) actions
by the United States and foreign governments; and (6) the
willingness of customers to travel.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130),
and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards
for the reporting and presentation of comprehensive income
and its components. SFAS 131 establishes standards for
reporting information about operating segments. Delta is
required to adopt both SFAS 130 and SFAS 131 in fiscal
1999. The adoption ofSFAS 130 and SFAS 131 will not
have a material effect on the Company's financial statements.
In March 1998, the American Institute of Certified
Public Accountants (AICPA) issued Statement of Position
98-1, ''Accounting for Costs of Computer Software Devel-
oped or Obtained for Internal Use" (SOP 98-1), which
defines the type of costs related to such activities that should
be capitalized versus expensed as incurred.
In April 1998, the AI CPA issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5), which requires all costs incurred in the start-
up of a new business or business segment to be expensed
as incurred.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, ''Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which
establishes accounting and reporting standards for derivatives
and hedging activities.
Delta is required to adopt SOP 98-1, SOP 98-5 and
SFAS 133 in fiscal 2000. The adoption of these statements
is not expected to have a material impact on the Company's
financial statements.
MARKET RISKS ASSOCIATED WITH
FINANCIAL INSTRUMENTS
Commodity Price Risk
The Company's results of operations are significantly
impacted by changes in the price of aircraft fuel. During
fiscal 1998, aircraft fuel accounted for 12% of the Com-
pany's operating expenses. Based on the Company's fiscal
1999 projected aircraft fuel consumption of 2. 7 billion gal-
lons, a one-cent change in the average annual price per gal-
lon of aircraft fuel would impact Delta's annual aircraft fuel
expense by approximately $27 million. The Company uses
fuel swap and option contracts to manage aircraft fuel price
risk. At June 30, 1998, the Company had entered into
hedge agreements for 2.1 billion gallons of its projected
fiscal 1999 aircraft fuel requirements. (See Note 4 of Notes
to Consolidated Financial Statements.)
Equity Price Risk
At June 30, 1998, the quoted fair value of Delta's equity
investments in ASA Holdings, Inc., Comair Holdings, Inc.,
Singapore Airlines Limited, SAirGroup and SkyWest, Inc.
was approximately $1.3 billion.
The aggregate unrealized gain from these investments
was $785 million at June 30, 1998. The market risk associ-
ated with these equity investments is the potential loss in
fair value resulting from a decrease in market prices. In addi-
tion, Delta has exposure to foreign currency exchange rate
risk relating to its investments in Singapore Airlines and
SAirGroup. See Notes 2 and 3 of Notes to Consolidated
Financial Statements.
Interest Rate Risk
The Company's exposure to market risk for changes in
interest rates relates to its long-term debt obligations and
cash investment portfolio.
At June 30, 1998, the fair value of the Company's long-
term fixed-rate debt was estimated at approximately $1.9 bil-
lion using quoted market prices where available, or discounted
cash flow analyses. Market risk associated with the Company's
long-term debt is the potential increase in fair value resulting
from a decrease in interest rates. A 10% decrease in assumed
interest rates would increase the fair value of Delta's long-
term debt by approximately $117 million.
Based on the Company's average balance of cash equiv
alents and short-term investments during fiscal 1998, a 10%
decrease in the average interest rate experienced in fiscal 1998
would not materially impact Delta's annual interest income.
Foreign Currency Exchange Rate Risk
Delta is exposed to foreign currency exchange rate fluctua-
tions on the U.S. dollar value offoreign currency denomi-
nated transactions. Based on the Company's average net
currency positions in fiscal 1998, the potential loss due to a
10% adverse change in foreign currency exchange rates is
immaterial. The Company enters into certain foreign
exchange forward contracts, generally with maturities ofless
than two months, to manage its foreign currency exchange
rate risk. The principal amount of such contracts was approxi-
mately $26 million at June 30, 1998.
I 9 9 8 A N N U A L R E P O R T 33
CON OLIDATED BALAN E SHEET
JUNE 30 , 1998 AND 199 7
DELTA AIR LINE IN
(In Millions)
Current Assets:
Cash and cash equivalents
hort-term investments
Accounts receivable, net of allowance for uncollectible accounts of
$36 atJune30, 1998 and $48 atJune30, 1997
Deferred income taxes
Prepaid expenses and other
Total current assets
Property and Equipment:
Flight equipment
Less: Accumulated depreciation
Flight equipment under capital leases
Less: Accumulated amortization
Ground property and equipment
Less: Accumulated depreciation
Advance payments for equipment
Total property and equipment
Other Assets:
Marketable equity securities
Deferred income taxes
Investments in associated companies
Cost in excess of net assets acquired, net of accumulated amortization of
$112 at June 30, 1998 and $102 at June 30, 1997
Leasehold and operating rights, net of accumulated amortization of
$209 at June 30, 1998 and $199 at June 30, 1997
Other
Total other assets
Total assets
34 D E L T A A I R L I N E S
$
- - - - - - -
1998
1,077
557
938
464
326
3,362
11,180
3,895
7,285
515
216
299
3,285
1,854
1,431
306
9,321
424
326
265
124
781
1,920
$14,603
$
1997
662
508
943
413
341
2,867
9,619
3,510
6,109
523
176
- -
347
3,032
1,758
1,274
312
8,042
432
103
299
275
134
589
1,832
$12,741
LIABILITIES AND SHAREOWNERS' EQUITY
(In Millions, Except Share Data)
Current Liabilities:
Current maturities oflong-term debt
Current obligations under capital leases
Accounts payable and miscellaneous accrued liabilities
Air traffic liability
Accrued rent
Accrued salaries and vacation pay
Total current liabilities
Noncurrent Liabilities:
Long-term debt
Postretirement benefits
Accrued rent
Capital leases
Deferred income taxes
Other
Total noncurrent liabilities
Deferred Credits:
Deferred gain on sale and leaseback transactions
Manufacturers' and other credits
Commitments and Contingencies (Notes 6, 7, 8 and 9)
Employee Stock Ownership Plan Preferred Stock:
Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and
liquidation value; issued and outstanding 6,603,429 shares at June 30, 1998
and 6,668,248 shares at June 30, 1997
Unearned compensation under employee stock ownership plan
Shareowners' Equity:
Common stock, $3.00 par value; authorized 150,000,000 shares; issued
88,283,089 shares at June 30, 1998 and 83,645,047 shares at June 30, 1997
Additional paid-in capital
Retained earnings
Net unrealized gain on marketable equity securities
Treasury stock at cost, 13,057,892 shares at June 30, 1998 and
9,949,060 shares at June 30, 1997
Total shareowners' equity
Total liabilities and shareowners' equity
The accompanying notes are an integral part of these Consolidated Balance Sheets.
$
1998
67
63
2,025
1,667
202
553
4,577
1,533
1,873
651
249
262
511
5,079
694
55
749
475
(300)
175
265
3,034
1,687
89
(1,052)
4,023
$14,603
$
1997
236
62
1,691
1,418
213
463
4,083
1,475
1,839
602
322
406
4,644
746
105
851
480
(324)
156
251
2,645
711
101
(701)
3,007
$12,741
I 9 9 8 A N N U A L R E P O R T 35
C LIDATED S TATEMENT F O PERATIONS
F R THE EAR ENDED JUNE 30, 1 998, 199 7 AND 1 996
DELT AIR LI E , IN
{In Millions, Except Per 'hare Data) 1998 1997 1996
-- - -
Operating Revenues:
Passenger $12,976 $12,505 $11 ,616
Cargo 582 554 521
Other, net 580 535 318
- - - - - -
Total operating revenues 14,138 13,594 12,455
Operating Expenses:
alaries and related costs 4,850 4,534 4,206
Aircraft fuel 1,507 1,722 1,464
Passenger commissions 980 1,017 1,042
Depreciation and amortization 861 710 634
Contracted services 694 630 704
Other selling expenses 681 677 594
Landing fees and other rents 649 649 627
Aircraft rent 552 547 555
Aircraft maintenance materials and outside repairs 495 434 376
Passenger service 450 389 368
Restructuring and other non-recurring charges 52 829
Other 726 702 593
Total operating expenses 12,445 12,063 11,992
Operating Income 1,693 1,531 463
Other Income (Expense):
Interest expense (186) (207) (269)
Interest capitalized 38 33 26
Interest income 79 63 86
Miscellaneous income (expense), net 24 (5) (30)
(45) (116) (187)
Income Before Income Taxes 1,648 1,415 276
Income Taxes Provided (647) (561) (120)
- - - -
Net Income 1,001 854 156
Preferred Stock Dividends (11) (9) (82)
Net Income Available to Common Shareowners $ 990 $ 845 $ 74
Basic Income Per Common Share $ 13.28 $ 11.39 $ 1.43
Diluted Income Per Common Share $ 12.68 $ 11.03 $ 1.43
The accompanying notes are an integral part of these consolidated statements.
36 0 E L T A A I R L I N E S
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30 , 1 998 , 19 9 7 AND 1996
DELTA AIR LINES , INC.
(In Millions) 1998
Cash Flows from Operating Activities:
Net income $ 1,001
Adjustments to reconcile net income to cash provided
by operating activities:
Restructuring and other non-recurring charges
Depreciation and amortization 861
Deferred income taxes 294
Rental expense less than rent payments (17)
Pension, postretirement and postemployment expense in excess
of (less than) payments 179
Changes in certain current assets and liabilities:
Decrease (increase) in accounts receivable 5
Decrease (increase) in prepaid expenses and other
current assets 15
Increase in air traffic liability 249
Increase (decrease) in other payables and accrued expenses 330
Other, net (1)
Net cash provided by operating activities 2,916
Cash Flows from Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments (1,760)
Ground property and equipment (531)
Decrease (increase) in short-term investments, net (43)
Proceeds from sale of flight equipment 10
Net cash used in investing activities (2,324)
Cash Flows from Financing Activities:
Payments on long-term debt and capital lease obligations (307)
Cash dividends (43)
Issuance oflong-term obligations 125
Issuance of Common Stock 318
Income tax benefit from exercise of stock options 84
Repurchase of Common Stock (354)
Net cash used in financing activities (177)
Net Increase (Decrease) in Cash and Cash Equivalents 415
Cash and cash equivalents at beginning of fiscal year 662
Cash and cash equivalents at end of fiscal year $ 1,077
The accompanying notes are an integral part of these consolidated statements.
1997 1996
$ 854 $ 156
52 829
710 634
240 (57)
(58) (32)
92 (67)
25 (213)
(31) (47)
4 271
186 (91)
(35) 8
2,039 1,391
(1,598) (639)
(350) (297)
(1) 22
8 26
(1,941) (888)
(196) (440)
(44) (120)
38 35
(379) (66)
(581) (591)
(483) (88)
1,145 1,233
$ 662 $1,145
I 9 9 8 A N N U A L R E P O R T 37
CON OLIDATED STATEMENT OF SHAREOWNER ' EQUITY
F R THE YEAR ENDED JUNE 30, 1998, 199 7 AND 1996
DELTA AIR LINE , I
Unrealized
Additional Retained Gain (Los)
ommon Paid-In Earning on Equity Treasury
(In Millions, Except Share Data) tock apical (Deficit) Securities tock Total
-- ---~-- -
Balance at June 30, 1995 $164 $2,016 $ (184) $ 83 $ (252) $1,827
Fiscal Year 1996:
et income 156 156
Dividends on Series C Convertible Preferred cock (74) (74)
Dividends on Common Srock ($0.20 per share) (10) (10)
Dividends on Series B ESOP Convertible
Preferred Srock allocated shares (8) (8)
Issuance of719,562 shares of Common Srock under
dividend reinvestment and stock purchase plan
and stock options ($58.15 per share) 2 40 (5) 37
Issuance of 6,861,377 shares of Common Stock on
conversions of Series C Preferred Stock ($64.37 per share) 21 (21)
Issuance of 10,147,952 shares of Common Srock
on conversions of 3.23% Convertible
Subordinated Notes ($61.17 per share) 30 592 622
Transfer of 176,794 shares of Common Srock
from treasury under ESOP and stock
incentive plan ($67.77 per share) 12 13
Repurchase of821,300 common shares ($80.00 per share) (66) (66)
Net unrealized gain on marketable equity securities and other 43 43
Balance at June 30, 1996 217 2,627 (119) 126 (311) 2,540
- - - - -
Fiscal Year 1997:
Net income 854 854
Dividends on Common Srock ($0.20 per share) (15) (15)
Dividends on Series B ESOP Convertible
Preferred Srock allocated shares (9) (9)
Issuance of748,492 shares of Common Srock under
dividend reinvestment and stock purchase plan
and stock options ($65.22 per share) 2 47 (7) 42
Issuance of 10,629,465 shares of Common Stock on
conversions of Series C Preferred Stock ($64.38 per share) 32 (32)
Repurchase of 5,378,700 common shares ($70.53 per share) (379) (379)
Net unrealized loss on marketable equity securities and ocher 3 (25) (4) (26)
Balance at June 30, 1997 251 2,645 711 101 (701) 3,007
Fiscal Year 1998:
Net income 1,001 1,001
Dividends on Common Stock ($0.20 per share) (15) (15)
Dividends on Series B ESOP Convertible
Preferred Srock allocated shares (11) (11)
Issuance of 4,638,042 shares of Common Stock under
dividend reinvestment and stock purchase plan
and stock options ($68.56 per share) 14 304 318
Repurchase of3, 158,373 common shares
($112.08 per share) (354) (354)
Income Tax Benefit from exercise of stock options 84 84
Transfer of 49,541 shares of Common Stock from treasury
under stock incentive plan ($77.17 per share) 3 3
Net unrealized loss on marketable equity securities and ocher 1 1 (12) (1 O)
Balance at June 30, 1998 $265 $3,034 $1,687 $ 89 $(1,052) $4,023
The accompanying notes are an integral part of these consolidated statements.
38 D E L T A A I R L I N E S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 3 0 , 1998 , 199 7 AND 1996
DELTA AIR LINE S , IN C.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Delta Air Lines, Inc. (a Delaware
corporation) is a major air carrier providing scheduled air
transportation for passengers, freight and mail over a net-
work of routes throughout the United States and abroad.
At August 1, 1998, Delta served 148 domestic cities in 42
states, the District of Columbia, Puerto Rico and the U.S.
Virgin Islands, as well as 46 cities in 31 foreign countries.
Basis of Presentation - The consolidated financial state-
ments include the accounts of Delta Air Lines, Inc. and its
wholly owned subsidiaries (Delta or the Company). All
significant intercompany account balances and transac-
tions have been eliminated. Certain prior year amounts
have been reclassified to conform with the current year
financial statement presentation.
Use of Estimates- The Company follows generally accepted
accounting principles (GMP). The preparation of financial
statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Actual results could differ from
those estimates.
Accounting Changes - During fiscal 1998, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" (SFAS 128), and
SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS 132). (See Notes 11
and 10, respectively.) During fiscal 1997, the Company
adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). (See Note 13.)
Cash and Cash Equivalents - Investments with an original
maturity of three months or less are classified as cash and
cash equivalents. These investments are stated at cost,
which approximates fair value.
Short-Term Investments - Cash in excess of operating
requirements is invested in short-term, highly liquid
investments. These investments are classified as available-
for-sale under SFAS No. 115, ''Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115),
and are stated at fair value. (See Note 2.)
Depreciation andAmortiza.tion - Effective July 1, 1998,
the Company increased the depreciable life of certain new
generation aircraft types from 20 to 25 years. Owned flight
equipment is depreciated on a straight-line basis to a residual
value equal to 5% of cost. Flight equipment under capital
leases is amortized on a straight-line basis over the original
terms of the respective leases, which generally range from
4 to 11 years. Ground property and equipment are depreci-
ated on a straight-line basis over their estimated service lives,
which range from 3 to 30 years. Costs assigned to the pur-
chase ofleasehold rights and landing slots are amortized
over the lives of the respective leases at the associated airports.
Purchased international route authorities are amortized
over the lives of the authorities as determined by their expi-
ration dates. Permanent route authorities with no stated
expiration dates are amortized over 40 years.
Interest Capitalized - Interest attributable to funds used to
finance the acquisition of new aircraft and construction of
major ground facilities is capitalized as an additional cost
of the related asset. Interest is capitalized at the Company's
weighted average interest rate on long-term debt or, where
applicable, the interest rate related to specific borrowings.
Capitalization of interest ceases when the property or
equipment is placed in service.
Investments in Associated Companies - The Company's
investments in the following companies are accounted
for under the equity method: WORLDSPAN, L.P.
(WORLDSPAN), a computer reservations system partner-
ship; ASA Holdings, Inc. (ASA), the parent of Atlantic
Southeast Airlines, Inc.; Comair Holdings, Inc. (Comair),
the parent of Comair, Inc.; and Empresa de Transporte
Aereo del Peru, SA., Aeroperu (Aeroperu). Effective July 1997,
the Company began accounting for its investment in
SkyWest, Inc. (SkyWest), the parent of SkyWest Airlines,
Inc., under the cost method. (See Note 2.) Atlantic
Southeast Airlines, Inc., Comair, Inc., and SkyWest Airlines,
Inc. are participants in the Delta Connection program.
Cost in Excess of Net Assets Acquired - The cost in excess of
net assets acquired (goodwill), which is being amortized
over 40 years, is primarily related to the Company's acqui-
sition of Western Air Lines, Inc. in December 1986.
Frequent Flyer Program - The Company accrues the esti-
mated incremental cost of providing free travel awards earned
under its SkyMiles frequent flyer program when free travel
I 9 9 8 A N N U A L R E P O R T 39
NOTE TO C N OLIDATED FINAN IAL TAT E M E N T S continued
JU E 30, 1998 , 199 7 AND 1996
DELTA AIR LI E , INC .
award levels are achieved. The accrued incremental cost is
included in accounts payable and miscellaneous accrued
liabilities in the Company's Consolidated Balance Sheets.
The Company also ells mileage credits to participating
partners in the kyMiles program such as hotels, car rental
agencies and credit card companies. The resulting revenue
is recorded as other operating revenue in the Company's
Consolidated tatements of Operations during the period
in which the credits are sold.
Passenger and Cargo Revenues - Passenger ticket sales are
recorded as air traffic liability in the Company's Consoli-
dated Balance Sheets. Passenger and cargo revenues are
recognized when the transportation is provided, reducing
the air traffic liability, as applicable.
Deferred Gains on Sale and Leaseback Transactions - Gains
on the sale and leaseback of property and equipment under
operating leases are deferred and amortized over the lives of
the respective leases as a reduction in rent expense. Gains on
the sale and leaseback of property under capital leases are
credited directly to the carrying value of the related asset.
Manufacturers' Credits-In connection with the acquisi-
tion of certain aircraft and engines, the Company receives
certain credits. These credits are deferred until the aircraft
and engines are delivered, at which time the credits are
applied on a pro rata basis as a reduction of the acquisition
cost of the related equipment.
Advertising Costs -Advertising costs are expensed when
incurred and are included as a component of other sell-
ing expense. Advertising expense for fiscal 1998, 1997
and 1996 was $105 million, $121 million and $109 mil-
lion, respectively.
Foreign Currency Remeasurement-Assets and liabilities
denominated in foreign currencies are remeasured generally
at exchange rates in effect at the balance sheet date, except
fixed assets are recorded at exchange rates in effect when
the assets were acquired. The resulting foreign exchange
gains and losses are recognized as a component of miscella-
neous income (expense). Revenues and expenses from
foreign operations are recorded using applicable average
monthly exchange rates prevailing during the year, except
depreciation and amortization charges are recorded at the
exchange rate in effect when the related assets were acquired.
40 D E L T A A I R L I N E S
Stock-Based Compensation - The Company accounts for
its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting
for tock Issued to Employees" (APB 25). Under APB 25,
no compensation expense is recognized for a stock option
grant if the exercise price of the stock option at the measure-
ment date is equal to or greater than the fair market value of
the ommon Stock on the dace of grant. (See Note 13.)
2. FINANCIAL INSTRUMENTS
All financial instruments, except long-term debt, are car-
ried at fair value or have a carrying value which approxi-
mates fair value.
Long-Term Debt- The fair values and carrying values of
long-term debt, including current maturities, at June 30,
1998 and 1997, were as follows:
(In Billions)
Fair value
Carrying value
1998
$1.9
1.6
1997
$1.8
1.7
These values are based on quoted market prices, where
available, or discounted cash flow analyses.
Marketable Equity Securities - Effective July 1, 1997, the
Company began accounting for its investment in SkyWest
under the cost method due co dilution in the Company's
equity ownership in SkyWest. The Company's investments
in Singapore Airlines Limited (Singapore Airlines), SAirGroup
(formerly Swissair, Swiss Air Transport Company Ltd.) and
SkyWest are classified as available-for-sale under SFAS 115
and are recorded at fair value. The following table summa-
rizes the Company's investments in Singapore Airlines,
SAirGroup and SkyWest:
Quoted Cost Unrealized
(in Millions) Fair Value Basis Gain (Loss)
June 30, June 30,
1998 1997 1998 1997
Singapore Airlines $165 $315 $181 $(16) $134
SAirGroup $172 $117 $ 85 $ 87 $ 32
SkyWest $ 87 NIA* $ 14 $ 73 NIA*
* Prior to fiscal I 998, the Company accounted for its investment in Sky West under the equity
method. (See Note 3.)
The aggregate unrealized gains, net of the related deferred
tax provision, of these investments at June 30, 1998 and 1997
are reflected in shareowners' equity. Delta's right to vote, to
transfer or to acquire additional shares of the stock of Singa-
pore Airlines and SAirGroup is subject to certain restrictions.
Short-Term Investments- The Company invests its cash in
excess of operating requirements in short-term, highly-liquid
investments. These investments are classified as available-
for-sale securities, have an average stated maturity of eight
months, and are recorded as short-term investments in the
Company's Consolidated Balance Sheets. The aggregate fair
value of these investments was $557 million and $508 mil-
lion at June 30, 1998 and 1997, respectively. Unrealized
gains and losses from these investments, net of deferred taxes,
are reflected in shareowners' equity. Such amounts were
immaterial at June 30, 1998 and 1997.
3. INVESTMENTS IN ASSOCIATED COMPANIES
The Company's percentage ownership and quoted fair
value (where applicable) of its investment in associated
companies at June 30, 1998, and equity earnings (losses)
for fiscal 1998, 1997 and 1996, were as follows:
Quoted
Percentage Fair
Investment Ownership Value 1998 1997
(In Millions}
WORLDSPAN 38% NIA 14 $23
ASA 27 $397 17 15
Comair 21 434 25 16
Aeroperu 35 NIA
SkyWest 13 87 NIA 2
1996
$(5)
13
13
4. RISK MANAGEMENT
Fuel Price Risk Management- Delta enters into fuel swap
and option contracts up to one year in duration to manage
risk associated with changes in aircraft fuel prices. Under
these contracts, Delta receives or makes payments based on
differences between fixed and variable prices for certain
fuel commodities. Gains and losses from fuel swap and
option contracts are deferred and recognized as a component
of fuel expense when the underlying fuel being hedged is
used. Premiums paid to enter into hedging contracts are
recorded as a prepaid expense and amortized to fuel expense
over the respective contract period. At June 30, 1998, the
Company had entered into hedge agreements for 2.1 billion
gallons of its projected fiscal 1999 aircraft fuel requirements.
At June 30, 1998, unrealized gains and losses from these
contracts were immaterial.
Foreign Exchange Risk Management- Delta enters into
foreign exchange forward contracts, generally with maturi-
ties ofless than two months, to manage risk associated with
its net foreign currency denominated positions. The prin-
cipal amount, which approximates fair value, of outstand-
ing foreign exchange forward contracts was approximately
$26 million at June 30, 1998. Gains and losses resulting
from foreign exchange forward contracts are recognized as
a component of miscellaneous income (expense).
Credit Risks- To manage credit risk associated with its fuel
price risk and foreign exchange risk management programs,
the Company selects counterparties based on their credit rat-
ings, limits its exposure to any one counterparty under defined
guidelines, and monitors the market position of the program
and its relative market position with each counterparty.
Concentration of Credit Risk - Delta's accounts receivable
are generated primarily from airline ticket and cargo service
sales to individuals and various commercial enterprises that
are economically and geographically dispersed, and the
accounts receivable are generally short-term in duration.
Accordingly, Delta does not believe it is subject to any
significant concentration of credit risk.
I 9 9 8 A N N UAL R E PO RT 41
NOTE TO CON OLIDATED FINAN IAL STATEMENT continued
JU E 30, 1998, 199 7 AND 1996
DELTA AIR LI E , IN
5. INCOME TAXE
Deferred income taxes reflect the net tax effect of tempo-
rary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and for income
tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of June 30, 1998 and
1997 are a result of temporary differences related to the
items described below:
(In Millions)
Deferred Tax Assets:
Postretiremenc benefits
Other employee benefits
Gains on sale and leaseback
transactions (net)
Rene expense
Spare parts repair expense
Alternative minimum tax
credit carryforwards
Other
Total Deferred Tax Assets
Deferred Tax Liabilities:
1998
$ 756
405
257
200
139
107
159
$2,023
Depreciation and amortization $1,446
Other 375
- - - - - - - - - - - - - - - - -
Tot al Deferred Tax Liabilities $1,821
1997
$ 741
328
302
212
122
216
212
$2,133
$1,239
378
$1,617
Income taxes provided in fiscal 1998, 1997 and 1996
consisted of:
(In Millions)
Current taxes
Deferred taxes
Tax benefit of dividends on
allocated Series B ESO P
Convertible Preferred Stock
Income taxes provided
42 D E L T A A I R L I N E S
1998
$(353)
(298)
4
$(647)
1997
$(321)
(244)
4
$(561)
1996
$(177)
54
3
$(120)
The income tax provisions generated for fiscal 1998,
1997 and 1996 differ from amounts which would result
from applying the federal statutory tax race to pretax
income, as follows:
(In Millions) 1998 1997 1996
Income before income taxes $1,648 $1,415 $ 276
Items not deductible for
tax purposes:
Meals and entertainment 42 39 36
Amortization 9 9 9
Ocher, net (27) (17) (8)
Adjusted pretax income 1,672 1,446 313
Federal statutory tax rate 35% 35% 35%
Income tax provision at
statutory rate (585) (506) (110)
State and ocher income taxes, net
of federal income tax provision (62) (55) (10)
Income taxes provided $ (647) $ (561) $(120)
The Company made income tax payments, nee ofincome
tax refunds, of $244 million in fiscal 1998, $336 million in
fiscal 1997 and $192 million in fiscal 1996.
6. LONG-TERM D EBT
At June 30, 1998 and 1997, the Company's long-term debt (including current maturities) was as follows:
(In Millions)
93/s% Notes, unsecured, due January 1, 1998
Medium-Term Notes, Series A and B, unsecured, interest rates from
7.79% to 9.15%; maturities ranging from 1998 to 2007
93/s% Notes, unsecured, due May 15, 2000
8% Notes, unsecured, due March 15, 2002
1998
$
128
142
71
1997
$ 207
157
142
71
8.10% Series C Guaranteed Serial ESOP Notes, unsecured, due in installments between 2002 and 2009
Development Authority of Fulton County, unsecured loan agreement, due $10 million on November 1, 2007
290 290
and $20 million on November 1, 2012. Interest rates from 6.85% to 6.95%
10V
s% Debentures, unsecured, due May 15, 2010
30
113
30
113
103/s% Debentures, unsecured, due February 1, 2011 175 175
Development Authority of Fulton County, unsecured loan agreement, due $19 million on May 1, 2013,
$85 million on May 1, 2023, and $21 million on May 1, 2033. Interest rates from 5.30% to 5.50%
9% Debentures, unsecured, due May 15, 2016
125
101 101
75/s% Development Authority of Clayton County, unsecured loan agreement, due on January 1, 2020
9% Debentures, unsecured, due May 15, 2021
45
250
45
250
9% Debentures, unsecured, due March 15, 2022
103/s% Debentures, unsecured, due December 15, 2022
Total
Less: Current maturities
Total long-term debt
Under its 1997 Bank Credit Agreement with a group
of banks, the Company may borrow up to $1.25 billion on
an unsecured and revolving basis until May 1, 2002, sub-
ject to compliance with certain conditions. Up to $700
million of this facility may be used for the issuance oflet-
ters of credit. The interest rate under this facility is, at the
Company's option, the London Interbank Offered Rate or
the prime rate, in each case plus a margin which is subject
to adjustment based on certain changes in the credit rat-
ings of the Company's long-term senior unsecured debt.
The Company also has the option to obtain loans through
a competitive bid procedure. The 1997 Bank Credit Agree-
ment contains certain covenants that restrict the Company's
ability to grant liens, to incur or guarantee debt and to
enter into flight equipment leases. It also provides that if
there is a change of control (as defined) of the Company,
the banks' obligation to extend credit terminates, any
amounts outstanding become immediately due and payable
and the Company will immediately deposit cash collateral
with the banks in an amount equal to all outstanding
letters of credit. At August 14, 1998, no borrowings or
letters of credit were outstanding under the 1997 Bank
Credit Agreement.
64 64
66 66
1,600 1,711
67 236
$1,533 $1,475
At June 30, 1998, there were outstanding $290 million
principal amount of the Delta Family-Care Savings Plan's
Series C Guaranteed Serial ESOP Notes (Series C ESOP
Notes), which are guaranteed by Delta and are payable in
installments between July 1, 2002 and January 1, 2009.
The Series C ESOP Notes were issued under note purchase
agreements (1) which require Delta to purchase the Series
C ESOP Notes at the option of the holders thereof (Note-
holders) if the credit rating of Delta's long-term senior
unsecured debt falls below Baa3 by Moody's and BBB -
by Standard & Poor's (Purchase Event); but (2) which pro-
vide that Delta has no obligation to purchase the Series C
ESOP Notes under the note purchase agreements so long
as Delta obtains, within 127 days of a Purchase Event,
certain credit enhancements (Approved Credit Enhance-
ment) that result in the Series C ESOP Notes being rated
A3 or higher by Moody's and A- or higher by Standard &
Poor's (Required Ratings). If Delta is required to purchase
the Series C ESOP Notes because of the occurrence of a
Purchase Event, such purchase would be made at a price
(Purchase Price) equal to the outstanding principal amount
of the Series C ESOP Notes being purchased, together
1 9 9 8 A N N U A L R E P O R T 43
NOTE TO CON LIDATED FINAN IAL TAT E M N T continued
JUNE 30, 1998, 199 7 AND 1996
DELTA AIR LI E , IN
with accrued interest and a Make Whole Premium Amount.
The Make Whole Premium Amount is based on, among
ocher factors, the yield to maturity ofU .. Treasury notes
having maturities equal to the remaining average life to
maturity of the Series CE OP Notes as of the date Delta
purchases the eries CE OP Notes.
On May 11, 1993, a Purchase Event occurred, and Delta
became obligated to purchase on September 15, 1993 any
Series C ESOP Notes tendered to it. Prior to September 15,
1993, Delta obtained an Approved Credit Enhancement in
the form of a letter of credit to credit enhance the eries C
ESOP Notes. This letter of credit was issued in favor of
Wilmington Trust Company, as trustee (Trustee), under
Delta's then-existing bank credit agreement. Due to the
issuance of chis letter of credit, the Series C ESOP Notes
received the Required Ratings, and Delta no longer had an
obligation to purchase the Series C ESOP Notes as a result
of the Purchase Event that occurred on May 11, 1993.
On June 6, 1996, the Company entered into a credit
agreement with ABN AMRO Bank, N. V. and a group of
banks (Letter of Credit Facility) which, as amended, provides
for the issuance ofletters of credit for up to $500 million in
stated amount to credit enhance the Series C ESOP Notes.
The Letter of Credit Facility contains negative covenants and
a change of control provision chat are substantially similar
to chose contained in the 1997 Bank Credit Agreement. In
the event of any drawing under the Letter of Credit Facility,
Delta is required, at its election, (1) to immediately repay
the amount drawn; or (2) to convert its reimbursement
obligation to a loan for a period not to exceed one year at
varying rates of interest. On June 6, 1996, Delta obtained
a letter of credit under the Letter of Credit Facility to replace
the letter of credit issued under its then-existing bank credit
agreement to credit enhance the Series C ESOP Notes. The
Letter of Credit Facility expires June 6, 2000.
At August 14, 1998, the face amount of the letter of
credit issued under the Letter of Credit Facility was $445 mil-
lion. It covers the $290 million outstanding principal amount
of the Series C ESO P Notes, up to $123 million of Make
Whole Premium Amount and approximately one year of
interest on the Series C ESOP Notes.
An Indenture of Trust, dated August 1, 1993 (Indenture),
among Delta, the Trustee, and Fidelity Management Trust
Company, as ESOP trustee, contains certain terms and con-
ditions relating to any letter of credit used to credit enhance
the Series C ESOP Notes. The Indenture requires the Trustee
to draw under the letter of credit to make regularly scheduled
44 D E L T A A I R L I N E S
payments of principal and interest on the Series C ESOP
Notes. The Indenture also requires the Trustee to draw under
the letter of credit to purchase the Series C ESOP Notes in
certain circumstances in which Delea would not be required
to purchase the Series C ESOP Notes under the note pur-
chase agreements. Subject to certain conditions, the Inden-
ture requires the Trustee to purchase the Series C ESOP
Notes at the Purchase Price at the option of the Noteholders
in the event that (1) the Required Ratings on the Notes are
not maintained; (2) the letter of credit is not extended 20
days before its scheduled expiration dace; (3) Delta elects
to terminate the letter of credit; or (4) the Trustee receives
notice chat there has occurred an event of defaulc under the
credit agreement relating to the letter of credit; unless, gen-
erally within 10 days of any such event, the Series C ESOP
Notes receive the Required Ratings due to Delta's obtaining
a substitute credit enhancement or otherwise.
The Required Racings on the Series C ESOP Notes
are subject to reconsideration at any time, and to annual
confirmation, by Moody's and Standard & Poor's. Circum-
stances that might cause either rating agency to lower or
fail to confirm its rating include, without limitation, a
downgrading of the deposits of the letter of credit issuer
below A3 by Moody's or A- by Standard & Poor's, or a
determination that the Make Whole Premium Amount
covered by the letter of credit is insufficient.
Subject to certain conditions, the Indenture does not
permit the Trustee to purchase the Series C ESOP Notes at
the option of the Noteholders if the Series C ESOP Notes
receive the Required Ratings without the benefit of a credit
enhancement. The Series C ESOP Notes are not likely to
receive the Required Ratings absent a credit enhancement
unless Delta's long-term senior unsecured debt is rated at
least A3 by Moody's and A- by Standard & Poor's. On
August 14, 1998, Delta's long-term senior unsecured debt
was rated Baa3 by Moody's and BBB- by Standard & Poor's.
At June 30, 1998, the annual scheduled maturities of
long-term debt during the next five fiscal years were as follows:
Years Ending June 30
(In Millions)
1999
2000
2001
2002
2003
Amount
$ 67
142
75
43
The Company's debt agreements contain cenain restrictive
covenants, but do not limit the payment of dividends on
the Company's capital stock. The terms of the Series B
ESOP Convertible Preferred Stock limit the Company's
ability to pay cash dividends on the Company's Common
Stock (Common Srock) in certain circumstances.
(See Note 12.)
Cash payments for interest, net of interest capitalized,
totaled $152 million in fiscal 1998; $171 million in fiscal
1997; and $232 million in fiscal 1996.
7. LEASE OBLIGATIONS
The Company leases certain aircraft, airport terminal and
maintenance facilities, ticket offices and other property
and equipment. Rent expense is generally recorded on a
straight-line basis over the lease term. Amounts charged
to rental expense for operating leases were $0.9 billion in
fiscal 1998, 1997 and 1996.
At June 30, 1998, the Company's minimum rental
commitments under capital leases (primarily aircraft) and
noncancelable operating leases with initial or remaining
terms of more than one year were as follows:
Years Ending June 30 Capital Operating
(In Millions) Leases Leases
1999 $100 $ 950
2000 67 950
2001 57 940
2002 57 960
2003 48 960
After 2003 71 10,360
Total minimum lease payments $400 $15,120
Less: Amounts representing interest 88
Present value of future minimum
capital lease payments 312
Less: Current obligations under capital leases 63
Long-term capital lease obligations $249
As ofJune 30, 1998, Delta leased 219 aircraft. These
leases have remaining terms ranging from 18 months to
19 years and expiration dates ranging from 1999 to 2017.
Of these leases, 48 are accounted for as capital leases.
Certain municipalities and airport authorities have
issued special facility revenue bonds to build or improve
airport terminal and maintenance facilities that Delta
leases under operating leases. Under these lease agreements,
the Company is required to make rental payments suffi-
cient to pay principal and interest on the bonds as they
become due.
8. PURCHASE COMMITMENTS
Future expenditures for aircraft, engines and engine hush-
kits on firm order as of August 14, 1998 are estimated to
be $6.9 billion, as follows:
Years Ending June 30
(In Millions) Amount
1999 $1 ,580
2000 1,610
2001 1,570
2002 300
2003 370
After 2003 1,460
Total $6,890
The Company has authorized capital expenditures of
approximately $550 million for fiscal 1999 for improve-
ment of airport and office facilities, ground equipment and
other assets.
The Company expects to finance its aircraft, engine
and engine hushkit commitments, as well as other authorized
capital expenditures, using available cash, short-term
investments and internally generated funds, supplemented
as necessary by debt financings and proceeds from sale and
leaseback transactions.
The Company has entered into code-sharing agreements
under which it has agreed to purchase seats at established
prices from specific airlines, subject to certain conditions.
None of these agreements has material noncancelable terms
in excess of one year.
l 9 9 8 A N N U A L R E P O R T 45
N TE TO C LI DATED F I NAN I AL S TAT EM E N T continued
JU E 0 , 1998 , 199 7 AND 1996
DELTA AIR LI E , IN C .
9. Co TINGENCIES
The Company is a defendant in certain legal actions relating
to alleged employment discrimination practices, antitrust
matters en ironmental issues and other matters concerning
the Company's business. Although the ultimate outcome of
these matters cannot be predicted with certainty, manage-
ment believes that the resolution of these actions is not likely
to have a material adverse effect on Delta's consolidated
financial statements.
Delta's approximately 8,800 pilots are represented by
the Air Line Pilots Association, International (ALPA). The
collective bargaining agreement between the Company and
ALPA becomes amendable on May 2, 2000. The Company
and ALPA are currently in negotiations to establish pay rates
for certain aircraft equipment types. See "Personnel Matters"
on page 31 of Management's Discussion and Analysis for
additional information on this subject.
10. EMPLOYEE BE EFIT PLANS
The Company sponsors various pension plans, medical plans
and disability and survivorship plans for employees who
meet certain service and other requirements. In addition,
the Company sponsors the Delta Family-Care Savings Plan
(Savings Plan) in which employees who meet certain service
and other requirements may elect to participate.
During fiscal 1997, the Company changed the annual
measurement date for its employee benefit plan assets
and liabilities from June 30 to March 31. This change in
measurement date has been accounted for as a change in
accounting principle. The change in measurement date had
no material cumulative effect on employee benefit expense
for prior years.
Defined Benefit Pension Plans - The Company's primary
retirement plans consist of defined benefit pension plans.
The Company has reserved the right to modify these plans
to the extent permitted by the Internal Revenue Code and
the Employee Retirement Income Security Act of 197 4
(ERISA). The qualified defined benefit plans are funded,
on a current basis, to meet the minimum funding require-
ments ofERISA.
46 D E L T A A I R L I N E S
The following table sets forth the defined benefit pension
plans' change in projected benefit obligation for the plan
years ended June 30, 1998 and 1997:
(In Millions) 1998 1997
Projected benefit obligation at
beginning of year $7,572 $7,430
ervice cost 207 188
Interest cost 574 568
Actuarial (gain) loss 605 (46)
Benefits paid (648) (568)
Projected benefit obligation
at end of year $8,310 $7,572
The weighted average discount rate and rate of
increase in future compensation levels used in determining
the actuarial present value of the projected benefit obliga-
tions in the above table was 7.0% and 4.3%, respectively,
at March 31, 1998, and 7.75% and 4.7%, respectively, at
March 31, 1997. The expected long-term rate of return
on assets was 10.0% at March 31, 1998 and 1997.
The following table sets forth the defined benefit pension
plans' change in the fair value of plan assets for the plan years
ended June 30, 1998 and 1997:
(In Millions) 1998 1997
- - -
Fair value of plan assets
at beginning of year $7,512 $7,233
Actual return on plan assets 2,203 744
Employer contributions 54 103
Beneft cs paid (648) (568)
Fair value of plan assets at end of year $9,121 $7,512
The accrued pension cost recognized in the Consolidated
Balance Sheets is computed as follows:
(In Millions) 1998 1997
- -
Funded status $ 811 $ (60)
Unrecognized nee actuarial gain (1,239) (331)
Unrecognized transition obligation 61 63
Unrecognized prior service cost 27 29
Contributions made between
April 1 and June 30 11 18
Accrued pension cost recognized in
the Consolidated Balance Sheets $ (329) $(281)
Net periodic defined benefit pension cost for fiscal
1998, 1997 and 1996 included the following components:
(In M illions) 1998 1997 1996
Service cost $ 207 $ 188 $ 225
Interest cost 574 568 526
Expected return on plan assets (685) (653) (591)
Amortization of prior service cost 2 2 1
Recognized net actuarial (gain) loss (4) 3 8
Amortization of net
transition obligation 2 2
Nee periodic pension cost $ 96 $ 110 $ 169
Delta also sponsors several non-qualified pension plans
which are funded from current assets. The accumulated benefit
obligation of these plans totaled $259 million at March 31, 1998.
Defined Contribution Pension Plans:
Delta Pilots Money Purchase Pension Plan - The Company
sponsors the Delta Pilots Money Purchase Pension Plan
(MPPP) to which the Company contributes 5% of covered
pay for each eligible pilot. The MPPP is a continuation of
the Delta Pilots Target Benefit Plan and is related to the
Delta Pilots Retirement Plan through a floor-offset arrange-
ment whereby the defined benefit pension payable to a pilot
is subject to reduction by the actuarial equivalent of the
accumulated account balance in the MPPP. During fiscal
1998, 1997 and 1996, the Company recognized expense
of $54 million, $49 million and $2 million, respectively,
for these plans.
Employee Stock Ownership Plan - The Company sponsors
the Savings Plan, a qualified defined contribution pension
plan under which eligible Delta personnel may contribute
a portion of their earnings. The Savings Plan includes an
employee stock ownership plan (ESOP) feature. Subject to
certain conditions, the Company matches 50% of a partici-
pant's contributions to the Savings Plan, up to a maximum
employer contribution of 2% of a participant's earnings.
The Company's contributions are made quarterly through
the allocation of Series B ESO P Convertible Preferred
Stock (ESOP Preferred Stock), Common Stock or cash,
and are recorded as salaries and related costs in the Com-
pany's Consolidated Statements of Operations. Delta's
contributions to the Savings Plan were $49 million in fiscal
1998 and $45 million in fiscal 1997 and fiscal 1996.
In connection with the adoption of the ESOP in 1989,
the Company sold 6,944,450 shares ofESOP Preferred
Stock to the Savings Plan for approximately $500 million.
The Company has recorded unearned compensation to
reflect the value ofESOP Preferred Stock sold to the Savings
Plan but not yet allocated to participants' accounts. As shares
of the ESOP Preferred Stock are allocated to participants'
accounts, unearned compensation is reduced. Dividends
on unallocated shares ofESOP Preferred Stock are used by
the ESOP for debt service on the Series C ESOP Notes and
are not considered dividends for financial reporting purposes.
Dividends on allocated shares ofESOP Preferred Stock are
credited to participants and considered dividends for finan-
cial reporting purposes. For purposes of computing basic
and diluted income per common share, allocated shares
of ESOP Preferred Stock are considered outstanding, but
unallocated shares ofESOP Preferred Stock are not
considered outstanding.
Postretirement Benefits Other Than Pensions-Delta's
medical plans provide medical and dental benefits to sub-
stantially all retirees and their eligible dependents. Benefits
are funded from general assets on a current basis. Plan ben-
efits are subject to co-payments, deductibles and certain
other limits described in the plans and are reduced once a
retiree is eligible for Medicare. The Company has reserved
the right to modify or terminate the medical plans for both
current and future retirees.
The following table sets forth the postretirement benefit
plans' change in accumulated postretirement benefit obligation
(APBO) for the plan years ended June 30, 1998 and 1997:
(In Millions) 1998 1997
APBO at beginning of year $1,565 $1 ,505
Service cost 33 25
Interest cost 110 115
Actuarial gain (17) (35)
Benefits paid (64) (45)
APBO at end of year $1,627 $1,565
I 9 9 8 A N N U A L R E P O R T 47
TE T C LI DAT D f INAN IAL TAT E M E N T continued
J U E 3 0 , 1 99 8 , 199 7 AND 1 9 96
D E LTA AIR LI E , I
The accrued po tretirement benefit co t recognized in
the Consolidated Balance heets is computed as follows:
(In Millions) 1998 1997
Funded tatu $(1,627) $(1 ,565)
Unrecognized net loss 61 76
Unrecognized prior service co t (388) (426)
Contributions made between April 1
and June 30 16 14
Accrued postretirement benefit cost
in the Consolidated Balance heets $(1,938) $(1 ,901)
Net periodic postretirement benefit cost for fiscal 1998,
1997 and 1996 included the following components:
(In Millions) 1998 1997 1996
ervice cost $ 33 $ 25 $ 32
Interest cost 110 115 118
Amortization of prior service cost (38) (38) (31)
Recognized net actuarial (gain) loss (2) 4
Net periodic postretiremem
benefit cost $103 $103 $123
The weighted average discount rate used to estimate the
APBOwas7.0% at March 31, 1998 and 7.75% at March 31,
1997. The assumed health care cost trend rate used in mea-
suring theAPBO was 6.0% in fiscal 1998 and 8.0% in fiscal
1997, declining gradually to 4.25% by March 31, 2000, and
remaining level thereafter. A one-percentage-point change
in the health care cost rate used in measuring the APBO at
March 31, 1998 would have the following effects:
(In Millions)
- - - - - -
Increase (decrease) in the total
service and interest cost
Increase (decrease) in the APBO
0 ne-Percentage-
Point Increase
$ 14
130
48 D E L T A A I R L I N E S
One-Percen rage-
Point Decrease
$ (13)
(117)
Postemployment Benefits - The ompany provides certain
welfare benefit to its former or inactive employees after
employment but before retirement. uch benefits primarily
include those related to disability and survivorship plans.
The Company has reserved the right to modify or terminate
these plans at any time for all participants.
The ompany's postemployment benefit expense for
fiscal years 1998, 1997 and 1996 was $7 4 million, $71 mil-
lion and $78 million, re pectively. The amount funded in
excess of the liability is included in other noncurrent assets
in the Company's Consolidated Balance Sheets. Future
period expenses will vary based on actual claims experience
and the return on plan assets.
Gains and losses that occur because actual experience
differs from that assumed will be amortized over the aver-
age future service period of employees. Amounts allocable
to prior service for amendments to retiree and inactive
insurance plans are amortized in a similar manner.
The Company continues to evaluate ways to better
manage employee benefits and control costs. Any changes
in the plans or revisions to assumptions that affect the
amount of expected future benefits may have a significant
effect on the amount of the reported obligation and future
annual expense.
11. INCOME PER SHARE
During fiscal 1998, Delta adopted SFAS 128, which
establishes new standards for computing, presenting, and
disclosing income per share data. All prior year income per
share data have been restated to conform with SFAS 128.
Application of SFAS 128 did not have a material impact
on previously reported income per share amounts for the
fiscal years ended June 30, 1997 and 1996.
The following table shows a reconciliation of the
numerator (net income) and the denominator (average
shares outstanding) used in computing basic and diluted
income per share:
Fiscal Year Ended June 30, 1998 1997 1996
(In Millions, except per share data)
Basic:
Net income $1 ,001 $ 854 $ 156
Dividends on allocated Series B ESOP
Convertible Preferred Stock (11) (9) (8)
Dividends on Series C
Convertible Preferred Stock (74)
Income available to common
shareowners $ 990 $ 845 $ 74
Weighted average shares outstanding 74.6 74.2 51.8
Basic income per common share $13.28 $11.39 $1.43
Diluted:
Nee Income $1,001 $ 854 $ 156
Adjustment to net income assuming
conversion of allocated Series B ESOP
Convertible Preferred Stock (4) (5) (5)
Dividends on Series C
Convertible Preferred Stock (74)
Income available to common
shareowners $ 997 $ 849 $ 77
Weighted average shares outstanding 74.6 74.2 51.8
Additional shares assuming:
Exercise of stock options 1.9 .6 .3
Conversion of allocated Series B ESOP
Convertible Preferred Stock 2.1 1.9 1.6
Conversion of Series C
Convertible Preferred Stock .3
Weighted average shares
outstanding as adjusted 78.6 77.0 53.7
Diluted income per common share $12.68 $11.03 $1.43
Fiscal 1996 diluted income per common share calcula-
tion does not assume conversion of the 3.23% Convertible
Subordinated Notes due June 15, 2003 and the Series C
Convertible Preferred Stock, because to do so would have
been antidilutive.
12. COMMON AND PREFERRED STOCK
During fiscal 1998, the Company issued 4,160,501 shares
of Common Stock under its broad-based employee stock
option plans, and a total of 477,541 shares of Common
Stock under its 1989 Stock Incentive and Dividend Reinvest-
ment and Stock Purchase Plans. In addition, the Company
distributed a total of 49,541 shares of Common Stock from
treasury under its 1989 Stock Incentive Plan. Also during
fiscal 1998, the Company repurchased 3,158,373 shares of
Common Stock.
At June 30, 1998, 20,539,449 shares of Common Stock
were reserved for issuance under the Company's broad-based
employee stock option plans; 7,663,763 shares of Common
Stock were reserved for issuance under the 1989 Stock
Incentive Plan; 5,664,421 shares of Common Stock were
reserved for conversion of the ESOP Preferred Stock; and
248,215 shares of Common Stock were reserved for issuance
under the Non-Employee Directors' Stock Plan. In addition,
1,500,000 shares of preferred stock were reserved for issuance
under the Shareowner Rights Plan.
The Shareowner Rights Plan is designed to enhance
the ability of the Board of Directors to protect shareowners
against attempts to acquire Delta that do not offer an adequate
price to all shareowners, or that are otherwise not in the best
interest of the Company and its shareowners. Under this
plan, each outstanding share of Common Stock is accom-
panied by a preferred stock purchase right which entitles the
holder co purchase from the Company 1/100 of a share of
Series D Junior Participating Preferred Stock for $300, sub-
ject to adjustment in certain circumstances (Purchase Price).
The rights become exercisable only after a person or group
acquires beneficial ownership of 15% or more of the Com-
mon Stock or commences a tender or exchange offer that
would result in such person or group beneficially owning
15% or more of the Common Stock. The rights expire on
November 4, 2006, and may be redeemed by Delta for $0.01
per right until 10 business days following the announcement
that a person or group beneficially owns 15% or more of the
Common Stock. Subject to certain conditions, if a person or
group becomes the beneficial owner of 15% or more of the
Common Stock, each right will entitle its holder (other than
certain acquiring persons) to purchase, for the Purchase Price,
Common Stock having a market value of twice the Purchase
Price. In addition, subject to certain conditions, if Delta is
involved in a merger or certain other business combination
I 9 9 8 A N N U A L R E P O R T 49
N TE To Co 0 LI DATE D F I NAN I AL S TAT EM ENT S continued
JU E 0 , 1998 , 199 7 AND 1996
DELTA IR LINE , IN
transactions or the Company sells or otherwise transfers
more than 50% of its asset or earning power, each right
will entitle its holder to purchase, for the Purchase Price,
Common tock of the other party having a market value
of twice the Purchase Price.
Each share ofE OP Preferred Stock has a stated value
of 72; bears an annual cumulative cash dividend of 6% or
4.32; is convertible into 0.8578 share of Common tock
(a conversion price of $83.94) subject to adjustment in cer-
tain circumstances; has a liquidation preference of $72, plus
any accrued and unpaid dividends; generally votes together
as a single class with the Common tock on matters upon
which the Common Stock is entitled to vote; and has one
vote, subject to adjustment in certain circumstances. The
ESOP Preferred tock is redeemable at Delta's option at
specified redemption prices payable, at Delta's election, in
cash or Common Stock. If full cumulative dividends on the
ESOP Preferred Stock have not been paid when due, Delta
may not pay cash dividends on the Common Stock.
13. STOCK OPTIONS AND AWARDS
Under its 1989 Stock Incentive Plan and a predecessor
plan, the Company has granted non-qualified stock options
and, prior to fiscal 1993, tandem stock appreciation rights
(SARs) to officers and other key employees. The exercise
price for all stock options, and the base price upon which
the SARs are measured, is the fair market value of the Com-
mon Stock on the date of grant. Awards exercised as SARs
are payable in a combination of cash and Common Stock.
The Company recognized compensation expense
(included in salary and related costs) related to SARs in
fiscal 1998, 1997 and 1996 of $8 million, $3 million
and $14 million, respectively. Stock options are generally
exercisable beginning one year, and ending ten years, after
their grant date.
On October 24, 1996, the Company's shareowners
approved two plans providing for the issuance of non-qualified
stock options to substantially all of Delta's non-officer
personnel to purchase a total of24.7 million shares of
Common tock. One plan is for eligible Delta personnel
who are not pilots (Nonpilot Plan); the other plan covers
the Company's eligible pilots (Pilot Plan).
The Nonpilot and Pilot Plans involve non-qualified
stock options to purchase 14.7 million and 10 million
shares of Common Stock, respectively. The plans provide
for grants in three annual installments at an exercise price
equal to the opening price of the Common Stock on the
New York Stock Exchange on the grant date. Stock options
awarded under these plans are generally exercisable begin-
ning one year and ending ten years after their grant dates,
and are not transferable other than upon the death of the
person granted the stock options. On October 30, 1997
and 1996, Delta granted eligible personnel non-qualified
stock options to purchase 8.3 million and 8.2 million
shares of Common Stock, respectively, at exercise prices
of $98 per share and $69 per share, respectively. The third
grant date under the Nonpilot and Pilot Plans is scheduled
to occur on October 30, 1998.
Transactions involving stock options and SARs during fiscal 1998, 1997 and 1996 were as follows:
Fiscal 1998 Fiscal 1997 Fiscal 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Srock Options Shares Price Shares Price Shares Price
(000) (000) (000)
Outstanding at beginning of fiscal year 9,901 $ 69 2,332 $65 3,386 $63
Granted 9,849 100 8,932 70 644 71
Exercised (4,659) 69 (1,279) 67 (1,654) 63
Forfeited (88) 92 (84) 75 (44) 65
Outstanding at end of fiscal year 15,003 89 9,901 69 2,332 65
Srock options exercisable at fiscal year end 5,211 $ 70 1,049 $63 1,698 $63
50 D E L T A A I R L I N E S
The following table summarizes information about stock options outstanding at June 30, 1998:
Stock Options Outstanding Stock Options Exercisable
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding at Average Average Exercisable at Average
Prices June 30, 1998 Remaining Life Exercise Price June 30, 1998 Exercise Price
(000)
$52-$68 276
$69-$83 4,935
$84-$125 9,792
SFAS 123 requires proforma information regarding net
income and income per share, determined as if the Company
accounted for its employee stock option plans under the fair
value method ofSFAS 123. The fair value of stock options
granted in fiscal 1998, 1997 and 1996 was derived using the
Black-Scholes stock option pricing model. The assumptions
and the weighted average fair values were as follows:
Stock Options
Granted in Fiscal Year
Assumptions 1998 1997 1996
Risk-free interest rate 5.8% 6.0% 5.4%
Average expected life of
stock options (Years) 3.3 2.7 5.1
Expected volatility of
Common Stock 25.3% 26.4% 26.5%
Expected annual dividends on
Common Stock $0.20 $0.20 $0.20
Weighted average fair value
of stock options $ 26 $ 17 $ 24
Pro Forma Net Income and Income per Common Share:
Fiscal Year Ended June 30, June 30, June 30,
(In M illions): 1998 1997 1996
Net income:
As reported $1,001 $ 854 $ 156
Proforma 875 791 152
Basic income per common share:
As reported $13.28 $11.39 $1.43
Proforma 11.59 10.53* 1.36*
Diluted income per
common share:
As reported $12.68 $11.03 $1.43
Proforma 11.07 10.21 * 1.35*
*Restated in accordance with SFAS 128. See Note 11.
(Years) (000)
5 $ 56 276 $56
8 71 4,935 71
9 100
Under SFAS 123, stock options granted prior to fiscal
year 1996 are not required to be included as compensation
in determining pro forma net income. Therefore, the pro
forma effects on net income and income per common
share for fiscal 1998 may not be representative of the pro
forma effects SFAS 123 may have in future years.
14. STOCK REPURCHASE AUTHORIZATION
In April 1996, Delta's Board of Directors authorized the
Company to repurchase up to 24.7 million shares of
Common Stock and Common Stock equivalents. Under
this authorization, the Company could repurchase up to
6.2 million of these shares before October 30, 1997 - the
date the initial stock option grants under the broad-based
employee stock option plans became exercisable - and may
purchase the remaining shares as Delta personnel exercise
their stock options under those plans. (See Note 13.) The
Company repurchased 3,079,000, 5,378,700 and 821,300
shares of Common Stock for $345 million, $379 million
and $66 million during fiscal 1998, 1997 and 1996,
respectively, under this authorization.
In July 1998, Delta's Board of Directors authorized
the Company to repurchase Common Stock and Common
Stock equivalents for an aggregate purchase price of up to
$750 million from time to time through December 31, 1999.
This authorization is in addition to the Company's stock
repurchase plan discussed in the preceding paragraph.
Repurchases under both of the above authorizations
are subject to market conditions and may be made on the
open market or in privately negotiated transactions.
1 998 ANNUA L R E PORT 51
N TE T C N LID TED FINAN IAL TATEM ENT continued
J U E 3 0 , 1998 , 1 997 A D 1996
DE LT AIR LI E , IN
15. RE TRU TURI G D O THER
No -RECURRI G CHARGE
During fiscal 1997 and 1996 the Company recorded
pretax restructuring and ocher non-recurring charges of
52 million and 829 million, respectively. These charges
were due to the writedown of Delta's L-1011 fleet in
accordance with FA 121; employee early retirement
programs lease termination costs related to abandoned
facilities and discontinued routes; and co cs related to
the realignment of the Company's transatlantic and
European operations.
The Company made payments of $51 million
related to these charges during fiscal 1998. The remain-
ing liability related co the charges was $36 million as
ofJune 30, 1998.
Actual costs incurred, realization on the sales of excess
inventories, and costs associated with lease terminations
17. Q UARTERLY FI ANCIAL D ATA (U AUDITED)
and abandoned facilities may vary from current estimates.
The appropriate accrued liability will be adjusted upon
completion of these activities.
16. INT RNATIONAL REVENUES
Delta provides scheduled air transportation for passengers,
freight and mail over a network of routes throughout the
United rates and abroad. Delta's operating revenues by
international region are as follows:
(In Millions) 1998 1997 1996
Entity:
Atlantic 2,092 2,024 1,909
Pacific 304 325 342
Latin America 245 218 187
2,641 2,567 2,438
The following is a summary of the unaudited quarterly results of operations for fiscal 1998 and 1997 (in millions, except per
share data):
Fiscal 1998
Operating revenues
Operating income
Nee income
Basic income per common share
Diluted income per common share
Fiscal 1997
Operating revenues
Operating income
Net income
Basic income per common share
Diluted income per common share __ __ _ _ _ __ _
*Restated to conform with SPAS 128. See Note 11.
The sum of the quarterly income per common share
does not equal the fiscal income per common share due to
changes in average share calculations.
52 D E LT A A I R L I N E S
Three Months Ended
Sepe. 30 Dec. 31 Mar. 31 June 30
$3,553 $3,434 $3,390 $3,761
$ 431 $ 332 $ 336 $ 594
$ 254 $ 190 $ 195 $ 362
$ 3.41 * $ 2.52 $ 2.57 $ 4.77
$ 3.26* $ 2.40 $ 2.45 $ 4.52
$3,433 $3,198 $3,421 $3,542
$ 439 $ 227 $ 346 $ 519
$ 238 $ 125 $ 190 $ 301
$ 3.10* $ 1.66* $ 2.56* $ 4.06*
$ 2.98* $ 1.63* $ 2.47* $ 3.90*
Operating expenses for the March 1997 quarter include
$52 million pretax restructuring and ocher non-recurring
charges related to the realignment of the Company's
transatlantic and European operations. (See Note 15.)
REPORT OF INDEPENDEN T PUBLI C A CC OUNTAN T S
DELTA AIR LINES , IN C.
To the Shareowners and
Board of Directors of Delta Air Lines, Inc.:
We have audited the accompanying consolidated balance
sheets of Delta Air Lines, Inc. (a Delaware corporation) and
subsidiaries as ofJune 30, 1998 and 1997, and the related
consolidated statements of operations, cash flows and share-
owners' equity for each of the three years in the period ended
June 30, 1998. These financial statements are the responsi-
bility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
R E POR T OF M ANAGEMENT
D E LTA AIR LI NES , I NC .
The integrity and objectivity of the information presented in
this Annual Report are the responsibility of Delta manage-
ment. The financial statements contained in this report have
been audited by Arthur Andersen LLP, independent public
accountants, whose report appears on this page.
Delta maintains a system of internal financial controls
which are independently assessed on an ongoing basis through
a program of internal audits. These controls include the selec-
tion and training of the Company's managers, organizational
arrangements that provide a division of responsibilities,
and communication programs explaining the Company's
policies and standards. We believe that this system provides
reasonable assurance that transactions are executed in
accordance with management's authorization; that transac-
tions are appropriately recorded to permit preparation of
financial statements that, in all material respects, are pre-
sented in conformity with generally accepted accounting
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Delta Air Lines, Inc. and subsidiaries as
ofJune 30, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles.
~ ~ L L P
Atlanta, Georgia
August 14, 1998
principles; and that assets are properly accounted for and
safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for
these financial statements through its Audit Committee,
which consists solely of directors who are neither officers nor
employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the
internal auditors and representatives of management to dis-
cuss internal accounting control, auditing and financial
reporting matters.
Executive Vi'ce President
and Chief Financial Officer
Leo F. Mullin
President and
Chief Executive Officer
I 9 9 8 A N N U A L R E P O RT 53
CONSOLIDATED SUMMARY OF OPERATIONS
DELTA AIR LINES, INC.
For the fiscal years ended June 30
(In Millions, Except Per Share Data)
Operating revenues
Operating expenses
Operating income (loss)
Interest expense, net
Gain (loss) on disposition of flight equipment
Miscellaneous income, net6
Income (loss) before income taxes
Income tax benefit (provision)
Amortization of investment tax credits
Net income (loss)
Preferred stock dividends
Net income (loss) attributable to common shareowners
Net income (loss) per common share: 7
Basic
Diluted
Dividends declared on Common Stock
Dividends declared per common share
1998
$14,138
12,445
1,693
(148)
103
1,648
(647)
1,001
(11)
$ 990
$ 13.28
$ 12.68
$ 15
$ 0.20
OTHER FIN ANCIAL AND STATISTICAL DATA
For the fiscal years ended June 30
(Financial Data In Millions)
Total assets
Long-term debt and capital leases (excluding current maturities)
Shareowners' equity
Shares of Common Stock outstanding at year end
Revenue passengers enplaned (ThoU5ands)
Available seat miles (Millions)
Revenue passenger miles (Millions)
Operating revenue per available seat mile
Passenger mile yield
Operating cost per available seat mile
Passenger load factor
Breakeven passenger load factor
Available ton miles (Millions)
Revenue ton miles (Millions)
Operating cost per available ton mile
1998
$14,603
$ 1,783
$ 4,023
75,225,197
104,148
140,149
101,136
10.09
12.83
8.88
72.2%
62.7%
19,890
11,859
62.57
19971
$13,594
12,063
1,531
(174)
58
1,415
(561)
854
(9)
$ 845
$ 11.39
$ 11.03
$ 15
$ 0.20
199?1
$12,741
$ 1,797
$ 3,007
73,695,987
101,147
136,821
97,758
9.94
12.79
8.82
71.4%
62.7%
18,984
11,308
63.54
19962
$12,455
11,992
463
(243)
2
54
276
(120)
$
156
(82)
74
$ 1.43
$ 1.43
$ 10
$ 0.20
19962
$12,226
$ 2,175
$ 2,540
67,778,106
91,341
130,751
88,673
9.53
13.10
9.17
67.8%
65.1%
18,084
10,235
66.31
1 Summary of operations and other financial and statistical data include $52 million in pretax restructuring and other non-recurring charges ($0.43 basic and
$0.42 diluted after-tax income per common share).
19953
$12,194
11,533
661
(262)
95
494
(200)
294
(88)
$ 206
$ 4.07
$ 4.01
$ 10
$ 0.20
19953
$12,143
$ 3,121
$ 1,827
50,816,010
88,893
130,645
86,417
9.33
13.10
8.83
66.2%
62.3%
18,150
10,142
63.55
2 Summary of operations and other financial and statistical data include $829 million in pretax restructuring charges and other non-recurring charges ($9. 77 after-tax per common share).
3 Summary of operations and other financial and statistical data exclude$ 114 million after-tax cumulative effect of change in accounting standards ($2.25 basic and
$1. 43 diluted income per common share).
~ Summary of operations and other financial and statistical data include $526 million in pretax restructuring charges ($659 after-tax per common share).
5 Summary of operations and other financial and statistical data include $82 million pretax restructuring charge($ 1. 05 after-tax per common share).
Summary of operations exclude $587 million after-tax cumulative effect of changes in accounting standards ($11. 78 after-tax per common share).
6 Includes interest income.
1 Income per share data far fiscal years 1988-1997 have been restated in accordance with SPAS 128. See Note 11 of Notes to Consolidated Financial Statements.
54 D E L T A A I R L I N E S
j
i
19944 19935
$12,077 $11,657
12,524 12,232
(447) (575)
(271) (177)
2 65
56 36
(660) (651)
250 233
1 3
(409) (415)
(110) (110)
$ (519) $ (525)
$ (10.32) $ (10.54)
$ (10.32) $ (10.54)
$ 10 $ 35
$ 0.20 $ 0.70
19944 19935
$11 ,896 $11,871
$ 3,228 $ 3,716
$ 1,467 $ 1,913
50,453,272 50,063,841
87,399 85,085
131,906 132,282
85,268 82,406
9.16 8.81
13.23 13.23
9.49 9.25
64.6% 62.3%
67.2% 65.6%
18,302 18,182
9,911 9,503
68.43 67.27
1992 1991 1990 1989 1988
$10,837 $9,171 $8,583 $8,089 $6,915
11,512 9,621 8,163 7,411 6,418
(675) (450) 420 678 497
(151) (97) (27) (39) (65)
35 17 18 17 (I)
5 30 57 55 25
(786) (500) 468 711 456
271 163 (187) (279) (181)
9 13 22 29 32
(506) (324) 303 461 307
(19) (19) (18)
$ (525) $ (343) $ 285 $ 461 $ 307
$ (10.60) $ (7.73) $ 5.79 $ 9.37 $ 6.30
$ (10.60) $ (7.73) $ 5.28 $ 9.37 $ 6.30
$ 59 $ 54 $ 85 $ 59 $ 59
$ 1.20 $ 1.20 $ 1.70 $ 1.20 $ 1.20
1992 1991 1990 1989 1988
$10,162 $8,411 $7,227 $6,484 $5,748
$ 2,833 $2,059 $1 ,315 $ 703 $ 729
$ 1,894 $2,457 $2,596 $2,620 $2,209
49,699,098 49,401,779 46,086,110 49,265,884 49,101,271
77,038 69,127 67,240 64,242 58,565
123,102 104,328 96,463 90,742 85,834
72,693 62,086 58,987 55,904 49,009
8.80 8.79 8.90 8.91 8.06
13.91 13.80 13.63 13.56 13.15
9.35 9.22 8.46 8.17 7.48
59.1% 59.5% 61.2% 61.6% 57. 1%
63.0% 62.6% 58.0% 56.1% 52.7%
16,625 13,825 12,500 11,725 11,250
8,361 7,104 6,694 6,338 5,557
69.24 69.59 65.30 63.21 57.05
I 9 9 8 A N N U A L R E P O RT 55
H RE ER INF RM TI N
DELTA AIR LINE , IN
TRAN FER
MM
Regi tered shareowner inquiries regarding tock tran fers, addres
changes, lo t tock certificates, dividend payments or account
con olidation should be directed to:
Fir t Chicago Trust Company of ew York
P. 0 . Box 2500
Jersey City, ew Jer ey 07303-2500
Telephone (201) 324-1225
(http://www.fctc.com)
DMDE DREI TME T D TO KPUR HA EPLAN
Registered owners of Common tock may purchase additional shares
of such stock through automatic dividend reinvestment or cash con-
tributions under the Company's Dividend Reinvestment and tock
Purchase Plan. Inquiries, notices, requests and other communica-
tions regarding participation in the plan should be directed to:
First Chicago Trust Company of ew York
P. 0 . Box 2598
Jersey City, ew Jersey 07303-2598
Telephone (201) 324-1225
I DEPE DE T PUBLI ACCO
Arthur Andersen LLP
133 Peachtree treet, .E.
Atlanta, Georgia 30303
UALMEETI G
The Annual Meeting of Shareowners will be held on Thursday,
October 22, 1998, at 9:00 a.m., local time, at The Waldorf=Astoria,
301 Park Avenue, ew York, New York 10022.
AVAJLABILITYOF FORM 10-K AND
OTHER FI ANCIAL I FORMATION
A copy of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 will be provided without charge upon
written request. Requests for other financial documents may also be
directed to:
Delea Air Lines, Inc.
Investor Relations, Department 829
P. 0. Box 20706
Atlanta, Georgia 30320-6001
Telephone (404) 715-2170
Company documents filed electronically with che U.S. Securities
and Exchange Commission (SEC) can also be found on che SEC's
Web Site (http://www.sec.gov). A copy of chis Annual Report can
be found on Delta's Web Site (http://www.delca-air.com).
Telephone inquiries related to financial information, other than
requests for financial documents, may be directed to Investor
Relations at ( 404) 715-6679.
56 D E LT A A I R L I N E S
OMM N T K
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF HARE WNER
As of August 1, 1998, there were 21,672 registered owners of
ommon Stock.
MARKET PRl E AND DIVJDEND
losing Price of
ommon Srock on
Fiscal Year 1998 New York rock Exchange
Quarter Ended: High Low
September 30 $1071/s $ 82
December 31 120 3/s 94 5
/s
March 31 123 1/s 110 1/s
June 30 129 3
/s 110
Fiscal Year 1997
Quarter Ended: High Low
eptember 30 $ 821/s $ 661/s
December 31 77 67
March 31 87 69
June 30 981/s 82
AVAJLABILITY OF EQUAL
EMPLOYMENT OPPORTUNITY REPORT
Cash Dividends Per
Common Share
$0.05
0.05
0.05
0.05
$0.05
0.05
0.05
0.05
A copy of the Company's Equal Employment Opportunity Report
is available without charge upon written request. Requests may be
directed to:
Delta Air Lines, Inc.
Equal Opportunity, Department 955
P.O. Box 20706
Atlanta, Georgia 30320-6001
Photography by Delta Photography Department
Designed and produced by Corporate Reports Inc.I Atlanta
@ Printed on recycled paper
DELTA AIR LINES AT-A-GLANCE
GLOBAL NETWORK*
Delea flies to 194 cities in 32 countries, carrying
more passengers than any other carrier in the world.
Delta's Atlanta Worldport is the largest single carrier
hub in the world, with 622 daily departures to 123
nonstop destinations. Approximately 80 percent of
Delta's operating revenue is from domestic operations,
and 20 percent is from the international system.
NORTH AMERICAN NETWORK*
Delea is the largest U.S. airline measured by aircraft
departures and passengers enplaned and the third-
largest U.S. airline measured by operating revenues
and revenue passenger miles flown. Delta's North
American flight operations provides scheduled ser-
vice to 148 cities in the U.S., Puerto Rico and the
U.S. Virgin Islands and 10 cities in Canada, Bermuda,
Mexico, the Bahamas and the Caribbean. Mexico is
also served through eight cities on a code-share basis.
Delta's domestic route service is supplemented by the
Delea Connection carriers, which include Atlantic
Southeast Airlines, Business Express Airlines, Comair,
SkyWest Airlines and Trans States Airlines.
INTERNATIONAL NETWORK*
Delta is the leading transatlantic airline among U.S.
carriers, with the most departures, nonstop destinations
and passengers. Delea provides scheduled passenger
service to 36 cities in 26 countries throughout Europe,
Africa, Asia and Latin America. Including flights
operated on a code-sharing basis, Delta's international
network serves 95 cities in 51 countries.
*Service as of August 1, 1998.
DELTA EXPRESS
Delea began operating Delta Express, a low-fare service
targeting the Florida leisure traveler within the Delta
system, on October 1, 1996. Delta Express initiated
service with a dedicated fleet of 12 Boeing 737-200
jet aircraft and 62 daily departures to 13 cities. By
December 1, 1998, Delta Express will operate 37 air-
craft to 22 cities and offer 170 daily departures. The
route system connects the Northeast and Midwest
with Orlando and other Florida destinations.
DELTA SHUTTLE
The Delta Shuttle is a specialized, high-frequency
product targeted coward the business customer. A
dedicated fleet of 14 Boeing 727 aircraft provides
64 daily departures on the half hour. Service is pro-
vided between the Marine Air Terminal at New York's
LaGuardia Airport to both Boston's Logan Inter-
national Airport and Washington, D.C.'s Ronald
Reagan National Airport. Delea Shuttle customers
receive guaranteed seating and are offered compli-
mentary juices, beer and wine. With an on-time
departure rate exceeding 97 percent for fiscal 1998,
the Delta Shuttle provides excellent service and reli-
ability for travelers in the Northeast Corridor. In
addition, Shuttle passengers have access to the Delea
Water Shuttle, which offers quick access between
LaGuardia Airport and downtown Manhattan.
DELTA AIR CARGO
Delea, the Delta Shuttle, Delea Express and the Delta
Connection carriers offer over 4,600 flights daily to
cities all over the world, and every flight has the ability
to carry cargo. In addition, Delta Air Cargo and Swissair
Cargo launched a worldwide alliance chat creates one
of the largest air cargo networks over the North Atlantic.
The combined Delta and Swissair Cargo networks
provide access to a global network. Delea services
include expedited small package shipping (Delta
DashTM
) and time-definite heavy weight shipments.
~ .Delta Air Lines
P. . Bo , 070 Atlanta, or0 ia 0 20-6001 U .. A.
http:// .delta-air. om