Delta Air Lines annual report 1999

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~ .Delta Air Lines
1999 ANNUAL REPORT
BUSINESS DESCRIPTION
D lta ir Lin Inc. pro ide ch duled air tran portation o er an e t n ive
route network. Ba ed on alendar 1998 data Delta is the largest U . . airline
in tenns of aircraft departures and passengers enplaned and th third-
large ta mea ured b operating re enue and re enu pa nger mile
flown. Delta i the leader aero the orth tlanti off ring the mo t daily
flight departure er ing the large t number of non t p market and carr ing
the mo t pa enger of an U. . airline.
As of August 1, 1999, Delta served 184 domestic cities in 44 states the
District of Columbia, Puerto Rico and the U. . Virgin Islands as well as 42
cities in 29 international countries. With its domestic and international code-
share partners, Delta's route network covers 225 domestic cities in 48 states,
and 126 cities in 58 international countries. In addition to cheduled pa enger
ervice Delta pro ide air freight mail and related aviation ervice .
Delta i incorporated under the law of the tate of Delaware and i
ubject to go ernment regulation under the Federal A iation Act of 1958,
a amended, a well a many other federal, tate and foreign law and
regulation . Delta's corporate headquarter i located in Atlanta, Georgia.
TABLE OF CONTENTS
CELEBRATING DELTA'S 70TH YEAR
On June 17, 1929, a Travel Air Model -6000-B departed from Dallas, Texas,
for Jack on, Mis i sippi, with five pa senger . From thi humble beginning, Delta
has grown into the most-flown airline in the world, carrying approximately 107
million passengers to their destinations in fi cal 1999. Started as Delta Air Service,
with its fir t headquarter in Monroe, Louisiana, the Company has always mirrored
the optimism of its founder, C.E. Woolman. Delta weathered the economic
storms of the late 1920s and early '30s with the innovation and resilience that
remain its hallmarks. As the years passed, Delta merged with other airline
companies and expanded its reach into new regions and international markets
to become a truly global enterprise. Today, Delta is approximately 74,000
employees strong and offers more than 2,600 flights per day. While the indus-
try has changed dramatically since 1929, Delta's customer service philosophy
has not. Whether it's flying five passengers or 107 million, superior customer
service continues to be at the heart of the Company, responsible for its success
in 1999 and defining its focus for the next 70 years and beyond.
2 Letter to Shareowners 7 Creating The World's Greatest Airline 16 Supplemental Data 25 Financial Review
Back Cover Foldout Delta Route Maps
CONSOLIDATED FINANCIAL HIGHLIGHTS
Delta Air Lines, Inc.
[Fiscal 1999 data includes Atlantic Southeast Airlines (ASA)]
Dollar amounts in millions, except per share data.
Fiscal Year Ended June 3 0 1999 1998 Change
Operating Revenues $14,711 $14,138 4.1 %
Operating Expenses $12,841 $12,444 3.2%
Operating Income $ 1,870 $ 1,694 10.4%
Operating Margin 12.7% 12.0% 0.7pts.
Net Income $ 1,101 $ 1,001 10.0%
Basic Earnings Per Share $ 7.63 $ 6.64 14.9%
Diluted Earnings Per Share $ 7.20 $ 6.34 13.6%
Dividends Declared on Common Stock $ 14 $ 15 (6.7%)
Dividends Per Common Share $ 0.10 $ 0.10 -
Common Shares Issued and Outstanding at Year End 138,553,719 150,450,394 (7.9%)
Debt-to-Equity Position 36%164% 32%/68 % NA
CONSOLIDATED OPERATING HIGHLIGHTS
Delta Air Lines, Inc.
[Fiscal 1999 data includes Atlantic Southeast Airlines (ASA)]
Fiscal Year Ended June 3 0 1999 1998 Change
I
Revenue Passengers Enplaned (Thousands) 106,902 104,148 2.6%
Revenue Passenger Miles (Millions) 104,575 101,136 3.4%
Passenger Mile Yield 12.83 12.85 (0.2% )
Available Seat Miles (Millions) 144,003 140,149 2.7%
Operating Revenue Per Available Seat Mile 10.22 10.09 1.3%
Operating Cost Per Available Seat Mile 8.92 8.88 0.5%
Operating Cost (Excluding Fuel) Per Available Seat Mile 7.97 7.80 2.2%
Passenger Load Factor 72.6% 72.2% 0.4 pts.
Breakeven Passenger Load Factor 62.5% 62.8 % (0.3)pts.
- - - - - -
Cargo Ton Miles (Millions) 1,690 1,745 (3.2%)
Cargo Ton Mile Yield 32.97 33.35 (1.1 %)
Fuel Gallons Consumed (Millions) 2,730 2,664 2.4%
Average Aircraft Fuel Price Per Gallon 49.83 56.54 (11.9% )
Number of Aircraft in Fleet at Year End 676 569 18.8%
Average Age of Aircraft Fleet at Year End (Years) 11.6 12.3 (5.7%)
Stage 3 Aircraft at Year End (As a Percent of Total Aircraft) 92% 81 % 11.0 pts.
--
Average Seats Per Aircraft Mile 176 180 (2.2% )
Average Passenger Trip Length (Miles) 978 971 0.7%
Average Aircraft Flight Length (Miles) 852 804 6.0%
Average Aircraft Utilization (Hours per Day) 8.7 8.7 -
Average Full-Time Equivalent Employees 74,000 67,400 9.8%
DELTA AIR LINES 1999 ANNUAL REPORT
1
LETTER TO SHAREOWNERS
During the la t ear D lta ir Lin on i t ntl
delivered r cord br a king finan ial r ult and
indu tr leading u t mer er i tati ti whil
gro ing and panding in imp rtant trat gi
direction . Our pr gre ha garn r d bu ine and
indu try recognition including the a ard and
commentar indicated on the e page .
e are proud of our achievement and honored
b the e prizes. We did not et our cour e with the
goal of inning a ard - we ve charted our journe
with the goal of creating the world greate t airline.
But though good work wa the goal, recognition
urel followed a a con equence. We are deeply
gratified.
At this intermediate point in Delta' Journey,
our strategic direction remains clear and offer the
continuing pro pect of an extremely bright future for
our Company. In thi letter, I will review for you -
the owner of Delta Air Lines - the key component
of our strategy, the progress we've made so far, and
our plans going forward. Those strategic points of
focus are that we will:
Become #1 in the eyes of our customers.
Develop an airline network that takes
passengers from anywhere to everywhere.
Continue to build a superior Delta team.
Continue to achieve superior financial results.
Leverage our strengths.
Become #1 in the eyes of our customers
Providing excellent customer service is at the very
heart of Delta Air Lines. Other than safety - which,
of course, is the underpinning of everything we
do - nothing matters more to us than satisfying
our customers.
Leo F. Mullin
President and hie( Executive Officer
La t year, we were proud to report to you that
we had made real trides in returning our Company
to high level of cu tomer atisfaction. This year, we
made sure tho e hard won gains were firmly estab-
lished as we raised the bar even higher.
For the fiscal year ended June 30, 1999, Delta
was the only major U.S. airline to rank in the top
three for each of the U.S. Department of Transporta-
tion's key service indicators: on-time performance,
mishandled bags and customer complaints.
In addition, Delta made significant improvements
to our fleet and facilities. We completed refurbish-
ment of all aircraft interiors and reconfigured the
business class seating in our transoceanic fleet for
Delta's industry-leading BusinessElite service. We
also completed renovations of 139 airport facilities,
including our Crown Room Clubs.
During fiscal 1999, Delta implemented inno-
vative technology such as our new check-in and
boarding system that shortens airport lines and
frees up agents to interact more with customers.
Delta also developed a customer service initia-
tive that ~ill reach to every part of our Company
with a concise, articulated plan to ensure that we
deliver the reliable, courteous air travel experience
that passengers expect. This initiative provides the
focus and the impetus to move our Company's pur-
suit and attainment of service excellence to higher
levels during the coming year.
Develop an airline network that takes passengers
from anywhere to everywhere
Airline customers want to arrive at their destina-
tions in the easiest, fastest, and most seamless way
possible, regardless of where in the world that
destination might be. But realistically, no single
airline can accomplish that objective - due to both
finite resources and governmental restrictions. So
Delta is adding to its own list of destinations and
also expanding partnerships and alliances.
We are particularly excited about the Delta-
Air France alliance announced earlier this summer.
LETTER TO SHAREOWNERS continued
The combined trength and r our e of Delta and
Air France alone create e cellent era el opportuni-
tie for our cu comer . However both carri r are
committed to e panding current bilateral agree-
ments to include other carrier worldwide o that
the alliance founded by Delta and Air France can
and will become the be tin the world. Thi part-
nership lays the corner tone for that global multi-
carrier alliance. Delta took another important tep
this ear with the purcha e of Atlantic outheast
Airlines (ASA), a Delta Connection carrier that
links smaller communi-
ur ompany ha long enjoyed the dependabil-
ity and ac umulated knowledge of an employee
group with many year of company affiliation. More
recently, we've buttre sed this trength by drawing
new team members from other companies and indus-
trie whenever kills or experience levels we need
can't be found within Delta. Because of this, our team
increa ingly better balanced and more capable.
A we build chi team, we're also working to
make Delta a highly productive environment that
helps people reach their full growth potential and to
become a preferred com-
ties in the economically
vital Southeast to Delta
hubs. This move not
only provides excellent
support of our highly
We did not set our course with the goal pany for employment.
of winning awards - we've charted our
journey with the goal of creating
Delta is examining and
improving the tools and
training we provide for
the world's greatest airline.
prized Atlanta hub, it also gives Delta an important
strategic position in the emerging market of regional
jet service. The smaller, cost-effective regional jets
have the potential to alter the aviation landscape,
opening up untapped point-to-point markets too
small for more expensive larger aircraft. Delta
intends to be a part of this new market, and own-
ership of ASA will help us reach that objective.
Continue to build a superior Delta team
Delta is building an exemplary workforce by
recruiting, retaining, and incentivizing the most
talented people in the marketplace.
personnel at every level.
We've increased educational reimbursement limits;
we're making the workplace more responsive with,
for example, extended flextime and relaxed dress
codes; and we're responding to work-life issues
with enhancements such as adoption benefits and
flexible maternity p og am .
In addition, we remain committed to providing
Delta people with top compensation for top perfor-
mance. That commitment extends to Delta pilots,
who are represented by the Air Line Pilots Asso-
ciation. When we introduced the new generation
Boeing 737 to our fleet last year, Delta and ALPA
reached a timely agreement for top-of-industry pilot
pay rates and work rules.
We also offered top-of-industry pay rates for the
Boeing 777. However, since we were unable to reach
agreement with ALPA, that aircraft is no longer part
of Delta's current fleet plan. Delta has once more
opened ALPA negotiations with top-of-industry pay
rates and work rules as we seek to add the Boeing
767-400 to our fleet. We are hopeful that a mutually
satisfactory agreement will be reached soon on that
aircraft so that we can continue to provide Delta
passengers with the very best travel options, includ-
ing the optimal aircraft types.
Maintained our unit cost advantage relative to
hub-and-spoke competitors
Diluted earnings per share of $7.20, up 14%
year over year
Our long-term financial plan provides for sus-
tainable growth so that we can continue to produce
consistently superior financial results.
Leverage our strengths
Our passenger service operations - Delta domestic
Continue to achieve superior
financial results
We remain committed to
providing Delta people with
and international flights,
Delta Express, Delta
Connection carriers,
Delta Shuttle, and our
alliances - comprise a
Financial results are the
universal measurement
top compensation for top performance.
of a company's success. And excellent financial
performance derives from operating a sound
business with a well-conceived, well-executed
strategy. In fiscal 1999, Delta had outstanding
financial results:
Record net income of $1.1 billion, up 10% year
over year
Recor~ operating revenues of $14.7 billion, up
4 % year over year
Record operating income of $1.9 billion, up 10%
year over year
Excellent unit revenue performance, outperforming
the industry in year over year domestic unit rev- .
enue growth every month of the fiscal year
powerful engine that drives our Company's success.
The complexity and variety of components required
for these operations spawn business opportunities
that are ancillary but related to the passenger airline
company. We will find new ways to exploit these
opportunities.
One such arena is the emerging potential
for Internet travel and ticket commerce that has
prompted Delta to create a new business unit -
e-Delta - to capture distribution savings and
added revenue from this new channel. Delta also
launched a partnership with priceline.com that
generates incremental revenue in exchange for the
sale of airplane seats that may otherwise fly empty.
Delta is realizing significant financial benefits from
LETTER TO SHAREOWNERS continued
tock purcha rrant rec 1 d a part f our
agr ment ith pri elin om.
In et another ar a of our airlin p rati n
and apabilit m
aircraft maintenan e. ur ompan urrentl pr -
ide contract maintenance r ic to irb rn
.
..
rtainly p t ntial hallenge li ahead: mode t
ag re ive apacity growth by
th r airlin , pr ur n unit revenue growth in
omp titi unt airline and r gional jet , and
br ad ning mp titiv international alliance .
But at D lta wear well prepared to meet any
and all of tho e challenge .
E pre and e 11 oon
add Boeing etJ et
commercial fleet to our
li t of customer . E ti-
mate how that total
We ve laid a firm foundation that allows us
to maintain a clear focus on our Company's
goals even as we accelerate the pace.
We have ucceeded in
creating for our Company
not ju t operational and
potential indu try revenue for airline maintenance
contract i ver high o additional bu ine
opportunitie in thi field are exten ive.
We will find avenue imilar to the e that will
allow u to leverage the trengths of our pa senger
airline operation as we tap additional future bu i-
ne s opportunities.
Looking ahead
In the past year, Delta Air Lines not only led the
major airlines in operational and financial perfor-
mance, we al o laid a foundation that will allow
our success to continue and to grow. Fiscal 2000
will be a challenging year, but it will also be a year
of acceleration.
financial achievement ,
but al o the capacity to control our de tiny. We've
laid a firm foundation that allow u to maintain
a clear focu on our Company' goal even as we
accelerate the pace. Delta i entering the next mil-
lennium with the re ource and the trategic direc-
tion needed to continue and extend our success.
Leo F. Mullin
President and Chief Executive Officer
September 1, 1999
Retiring
Henry A. Biedenharn, Ill
Henry A. Biedenharn, Ill is retiring from the Delta Board of
Directors after 13 years of service . The Biedenharn family has
been deeply involved with Delta Air Lines since the 1920s as
original investors and officers of the Company. A member of
the Biedenharn family has been on the Delta Board since 1930.
Delta's Board of Directors, management team and employees
are sincerely grateful for the many contributions Mr. Biedenharn
and the Biedenharn family have made to our Company's success.
6 DELTA AIR LINES 1999 ANNUAL REPORT
Maurice W. Worth
Maurice W. Worth, Chief Operating Officer, will retire October 1,
1999 after a 38-year career with Delta that began when he joined
the Company as a ramp agent. Mr. Worth has been a strong part
ner during Delta's transition to a new leadership team and his focus
on superior customer service and operational excellence contributed
significantly to Delta's readiness to take th_
e next essential steps
in our journey to become the world's greatest airline. We owe him
special thanks for all that he has accomplished .
y ...
Delta Air Lines is committed to becoming #1 in the eyes
of our customers. We strive to show we care for our
customers and value their time. Our strategy is to unite
high-tech, our cutting-edge tools, systems and processes,
with high-touch, our way of delivering distinctive customer
service. Here's how we are doing it.
Safety and Operational Excellence
Keeping Delta safe for our customers and employees is
always our #1 priority. Operational excellence is the key:
the flawless execution of every task, every time, every day.
For fiscal 1999, we ranked 2nd in on-time performance,
2nd in fewest mishandled bags and 3rd in fewest customer
complaints. We are the only airline to rank among the top
three positions in all of these measures. We are particu-
larly proud of this achievement because it occurred in a
year in which we carried a record 107 million customers.
BusinessElite
Our customers r~sponded positively to one of the largest
initiatives we've undertaken this year. BusinessElite is our
industry-leading product for intercontinental business class
travelers. This service offers superior seating comfort, a
redesigned food service, a new wine selection from Delta's
award-winning VmumTM program, personalized flight
attendant service, worldwide concierge service, and many
other on-board amenities and ground product enhance-
ments. BusinessElite is available on Delta operated aircraft
flying between North America and Europe, Japan, Brazil
and India.
Faster Aircraft Boarding
In fiscal 1999, we began implementing new gate and board-
ing technology and our customers are beginning to notice
shorter lines and improved
boarding processes in major
cities. We will have our top 26
cities completed by the end of
this calendar year. Also, pas-
sengers with electronic tickets
who check in curbside are now
able to check their bags and
receive a boarding pass with-
out standing in line at the
ticket counter or gate.
Other technology and process initiatives aimed at
simplifying the air travel experience are also underway.
These include installing kiosks for self-service ticketing,
enhancing gate information displays and equipping our
agents with handheld electronic devices for check-in and
informational purposes.
Booking and Ticketing
Delta's Internet website is becoming one of the top sites
in our industry. Early next calendar year, customers will
see a friendlier gateway with enhanced reservation and
ticketing capabilities. Our partnerships with priceline.com
and iXL are creating a new level of web-based links, low-
cost distribution channels and electronic commerce
opportunities for our products and services.
Better Menu
Beginning this fall, newly enhanced breakfast menus will
be served on more flights. We are also introducing new
menus throughout the day for increased variety. Still in
the development stage are
special occasion foods to
surprise and delight our
customers. We will con-
tinue to expand our use
of name-brand foods,
such as Omaha Steaks
and Caribou Coffee.
Delta-Style Service
Delta-Style Service is the
"high-touch" aspect of distinctive customer service.
It's also a philosophy that guides our leadership team
to coach and mentor our customer contact employees
in ways that serve our customer be t. Our goal is to
deliver courteous, efficient and professional service
every time we encounter a passenger.
Going forward, we will continue our focus on excel-
lence as we implement the Air Transport Association's
Airline Customer Service Commitment. We have volun-
tarily j0ined with other airlines in a plan to improve
customer service across our industry. We value and respect
our customers, and are devoting the time, energy and
resources necessary to truly become #1 in their eyes.
DELTA AIR LINES 1999 ANNUAL REPORT 9
Delta Air Lines is committed to providing passengers
with convenient access to any destination they choose.
By optimizing our network assets, we offer customers
more schedule choices, better connections and more
reasons to fly Delta. Including domestic and international
code-share partners, our route network offers over 5,200
daily flights to 225 domestic cities in 48 states and 126
cities in 58 international countries. Delta is the #1 U.S.
carrier across the North Atlantic, with more nonstop
destinations than any other U.S. airline. We will continue
to capitalize on the power of our Atlanta Worldport,
the world's largest airline hub, by building an exciting
new gateway to Latin America and extending our reach
in other key business and leisure markets.
Delta's Network Assets
(5) Delta Express, which holds a leadership position
in low-fare travel on the East Coast, offers our
customers nonstop, low-fare service to leisure des-
tinations in Florida (Fort Lauderdale, Fort Myers,
Orlando, Tampa and West Palm Beach) from high
demand areas in the Northeast and Midwest.
( 6) Our alliances with global airlines of distinction
enable us to pursue our goal of growth while pro-
viding our customers with a seamless, integrated
worldwide network.
ASA Acquisition
In fiscal 1999, we acquired ASA to solidify our posi-
tion in the increasingly important regional jet market,
as well as to enhance service to
our customers. ASA is a successful
To expand our network, we utilize
an integrated strategy that leverages
the strength of six key components.
AIR FRANCE
regional jet operator and Delta
Connection carrier at our Atlanta
and Dallas/Fort Worth hubs. Use
of regional jets has grown substan-
tially throughout our industry, from
48 aircraft flown at year end 1996
to 3 70 aircraft expected in service
by year end 1999, an average annual
growth ate of 98 %.
(1) Our mainline system, encom-
passing 148 cities in North
America, commands a strong
competitive position in
A.Delta Air Lines
the Southeast and Florida.
(2) Our international system
enables us to grow our
transatlantic leadership position and extend our
reach into Latin America and Asia.
(3) Delta Shuttle, our specialized, high-frequency
product serving the Northeast corridor, provides
distinctive customer service to our business pas-
sengers in that region.
( 4) Our regional jet service, operated by ASA, as
well as other Delta Connection carriers, enables
us to provide reliable jet service to many smaller
domestic cities.
Alliance with Air France
In June 1999, we announced an enhanced strategic
marketing agreement with Air France that laid the
foundation for a major global alliance. Air France
operates one of the continent's most efficient and
well-positioned hubs at Charles de Gaulle Airport in
Paris and is a leader in Europe's largest domestic
market. Delta and Air France bring valuable and
unique assets to the partnership and combined we
provide a comprehensive route system.
DELTA AIR LINES 1999 ANNUAL REPORT
11
A Great Place to Work
Delta employees are the
foandat.ion-upon which
we._will build the greatest
All efforts to foster a dynamic work environment will be
based on our Company's core values: safety, customer-
focused professionalism, teamwork and participation,
world-class performance, trust and respect.
leaves of absence to accom-
modate a variety of personal
needs, including the pursuit
airline in the world. Our Company recognizes that the
hard work and dedication of our employees enabled
us to achieve our record financial performance and
significant operational improvements in fiscal 1999.
To build on this success, we must continue to develop
a highly skilled, globally diverse and motivated work-
force. We will continue to recruit and retain the most
talented people in the marketplace to build our team.
Our strategy is to provide:
Industry-Leading Compensation and Benefits
A Great Place to Work
Open Communication
Opportunities for Development
Industry-Leading Compensation and Benefits
We believe that to attract and retain the best, we must
offer a performance-based total compensation package
valued at or near the top of the airline industry. Delta's
package allows employees to customize benefit options
and services to best meet their individual needs. Improve-
ments have also been made to pay and benefits for
part-time workers.
of an advanced degree, caring for an ill family member,
raising a family or participating in a volunteer program.
Open Communication
We also promote open, two-way communication to
foster the employer-employee partnership. We have
created employee forums and councils to enhance
communication. The Delta Board Council, made up
of frontline employees, serves as the eyes, ears and
voice to the Board of Directors. Quarterly leadership
meetings and regularly scheduled executive roadshows
give nearly every employee the opportunity to meet
face-to-face with senior management to discuss corpo-
rate goals and strategies.
Opportunities for Development
During fiscal 1999, we created the Learning Services
organization to provide professional training and
development to employees at all levels. These programs
help our people to strengthen customer service skills,
enhance leadership abilities, and further their career
growth and development.
A Great Place to Work
The Chairman's Club
We are also in the process
of developing the "Delta
Delta continues to provide
programs to help employ-
ees balance the demands
of work and family life.
In addition to paid time-
off benefits like vacations
and holidays, we offer
flextime, and educational
and adoption assistance.
Our Company allows
employees extended
The Chairman's Club is an annual tradition recognizing
100 employees who consistently exemplify superior job
performance and offer our customers nothing less than
the best. These employees are selected by their peers
as the "best of the best" and are honored at a gala
reception and banquet hosted by Delta's CEO and other
senior officers.
University," which is an
accredited program offer-
ing employees on-site and
Internet-based courses. This
program will be offered in
association with national
and international colleges
and universities, providing
employees the opportunity
to earn bachelors and
masters degrees.
DELTA AIR LINES 1999 ANNUAL REPORT
1 J
Strong Financial Results and Cash Returns -
A Foundation for Profitable Growth
During fiscal 1999, Delta
focused on three key funda-
mental financial objectives
to create value for our
shareowners: accelerating
earnings growth and cash
returns, maximizing the
$4,000
$3,500
$3,000
$2,500
$2,000
$1 ,500
$1 ,000
$ 500
I I
I I I I
investing in strategic ini-
tiatives to improve cus-
tomer service, to develop
our network, to build a
balance sheet and mini- FY97 FY98 FY99 FY97 FY98 FY99 FY97 FY98 FY99
superior Delta team and to
create value for our share-
owners. Capital expendi-
tures for fiscal 2000 will
be approximately $3.1 bil-
mizing fixed costs. Our
relentless pursuit of these
Net Income Operating
Cash Flows
Share
Repurchases
objectives resulted in record financial results and strength-
ened our position for future growth.
Record Financial Results
Fiscal 1999 was a year of record financial performance
for Delta. Operating revenues of $14.7 billion and net
income of $ 1. 1 billion were the highest in our Company's
70-year history.
Revenue Performance
During fiscal 1999, our year over year domestic unit
revenue growth exceeded the industry average in every
month. This was achieved by better managing our
network, leveraging and growing upon our strengths
and capturing incremental revenue through process-
and technology-oriented initiatives.
Cost Management
While producing record results, we were able to maintain
our enviable cost leadership position. Delta's unit cost
continues to be the lowest among the major network
carriers. One way we have been able to decrease costs
is through more effective and efficient use of alternate
distribution channels such as the Internet.
Reinvesting in Our Business
Strong cash returns, together with a solid capital struc-
ture, have provided the foundation to pursue our goal of
becoming the world's greatest airline. We will continue
lion, consisting primarily
of aircraft acquisitions and technology enhancements.
We expect these investments to drive additional rev-
enue and operating efficiencies.
Fiscal 2000 - A Year of Acceleration
During fiscal 2000, we will build upon our recent suc-
cess while accelerating the pace of change. The ASA
operation will continue to add incremental revenue
through better market selection and aircraft realloca-
tion. During fiscal 2000, we plan to introduce new
revenue management technology which will enable us
to forecast demand more accurately and allow us to
better manage unit revenues.
We will also continue to diligently attack costs. By
hedging approximately 80% of our estimated fiscal
2000 fuel consumption, we have reduced our exposure
to jet fuel price volatility. Also, as more consumers
book travel over the Internet, we expect distribution
costs to continue to decrease.
While our exposure to economic uncertainty will
never be eliminated, we are better positioned today to
deal with its consequences. We have a flexible fleet plan
that allows us to match aircraft deliveries with market
demand. We are also building a strong presence in the
regional jet market to increase the reach and growth of
our key hub airports. Finally, we will allocate Delta's
resources, focusing our efforts in those areas that
promise the greatest long-term growth, to continue
building and sustaining greater shareowner value.
DELTA AIR LINES 1999 ANNUAL REPORT 15
GLOSSARY OF TERMS
Accumulated Postretirement Benefit Obligation - a measure
of the deferred compensation obligation, other than
pensions, that Delta has to its employees under post-
retirement welfare benefit plans.
Air Traffic Liability - a liability on Delta's balance sheet
that represents the payment received for passenger
ticket sales and cargo transportation services which
have not yet been provided. As the transportation ser-
vice is provided by Delta, the amount is removed from
the air traffic liability and is recognized as revenue.
ASM - Available Seat Miles. A measure of capacity
which is calculated by multiplying the total number of
seats available for transporting passengers by the total
number of miles flown during a reporting period.
Cargo Ton Miles - The total number of tons of cargo
transported during a reporting period, multiplied by
the number of miles flown.
CASM - (Operating) Cost per Available Seat Mile. The
amount of operating cost incurred per available seat mile
during a reporting period. Also referred to as unit cost.
Collective Bargaining Agreement - an agreement between an
employer and a union representing a group of employ-
ees which details pay rates and working conditions for
that group of employees.
Common Stock - the common stock, par value $1.50 per
share, of Delta Air Lines, Inc.
Debt-to-Equity Position - a measure of liquidity which
is calculated by dividing long-term debt and capital
lease obligations, including current maturities, by share-
owners' equity, including Series B ESOP Convertible
Preferred Stock.
ERISA - The Employee Retirement Income Security Act
of 1974. This federal law governs employee benefit
and retirement plans.
Non-Fuel CASM - the amount of operating cost, exclud-
ing aircraft fuel expense, incurred per available seat
mile during a reporting period.
Operating Margin - operating income divided by operat-
mg revenues.
Passenger Load Factor - a measure of aircraft occupancy
which is calculated by dividing RPMs by ASMs.
Passenger Mile Yield - amount of passenger revenue earned
per revenue passenger mile during a reporting period.
Projected Benefit Obligation - a measure of the deferred
compensation obligation that Delta has to its employees
under its pension plans.
RASM - (Operating) Revenue per Available Seat Mile.
The amount of operating revenue earned per available
seat mile during a reporting period. Also referred to
as unit revenue.
RPM - Revenue Passenger Mile. One revenue-paying
passenger transported one mile. RPMs are calculated
by multiplying the number of revenue passengers by
the number of miles that they are flown.
Series B ESOP Convertible Preferred Stock - convertible
preferred stock, $1.00 par value, $72.00 stated and
liquidation value, which is allocated to participants
as part of the Employee Stock Ownership Plan.
Ton Mile Yield - amount of cargo revenue earned per
cargo ton mile during a reporting period.
Working Capital Position - current assets less
current liabilities.
DELTA'S AIRCRAFT FLEET
t the enter of our ompan operation i Delta'
aircraft fleet. To maintain a oung and te hn logi all
ad anced fleet Delta ha entered into long-term air-
raft purcha e agreement with The Boeing ompany
(Boeing). The agreement cover firm order , option
and rolling option for certain air raft through cal ndar
ear 2017 and upport Delta plan for di ciplined
growth, aircraft rationalization and fleet replacement.
The al o provide Delta with fle ibility to adju t ched-
uled aircraft deliverie or ub titute between aircraft
model and aircraft type .
Increased Fleet Standardization
Delta' long-term plan is to reduce aircraft family type
from even to three. Moving to a more tandardized
fleet should impro e reliability and result in long-term
cost savings. The majority of the aircraft under firm order
will replace older aircraft. As previously announced, the
Company plans to retire its remaining L-1011 aircraft
by August 2001, replacing them primarily with B-767
aircraft. The Company also completed an agreement to
sell 119 B-727 aircraft during the next six years. Thi
agreement supports the Company's plan to retire the
B-72 7 fleet by the end of fiscal 2005, replacing it
primarily with new generation B-73 7 aircraft.
Status of B
-777-200
In April 1999, Delta entered into an agreement with
Boeing to defer four B-777 deliveries from fiscal 2000
to fiscal 2005, and ordered four B-767-300ER aircraft
for delivery in fiscal 2000. In June 1999, the Company
announced that it is deferring deliveries of all 11 remain-
ing B-777 aircraft on firm order. These actions are a
consequence of the lack of a collective bargaining agree-
ment with ALPA on pilot pay rates and working con-
ditions for the B-777 aircraft.
DELTA AIRCRAFT FLEET AT JUNE 30, 1999
(For 111format1on regarding A As fleet, see page 21 of this report.)
erage Lea ed
ir raft T pe ge wned apital perating Total
B-727-200 21.9 110 10 120
B-737-200 14.6 1 45 8 54
B-737-300 12.6 3 23 26
B-737-800 0.6 7 7
B-7 7-200 9.6 59 41 100
B-767-200 16.1 15 15
B-767-300 9.4 4 24 28
B-767-300ER 4.1 43 8 51
B-777-200 0.3 2 2
L-1011-1 19.9 13 13
L-1011-250 16.7 6 6
L-1011-500 18.4 11 11
MD-11 5.4 8 7 15
MD-88 9.0 63 57 120
MD-90 3.6 16 16
Total 12.3 358 48 178 584
AIRCRAFT DELIVERY SCHEDULES AT JUNE 30, 1999
Delivery in Year Ending June 30
After
Aircraft on Firm Order 2000 2001 2002 2003 2003 Total
B-73 7-600/700/800 17 17 12 11 43 100
B-757-200 11 8 19
B-767-300/300ER 7 1 8
B-767-400 2 19 21
B-777-200 ':- 5 1 1 4 11
Total 42 45 13 12 47 159
*Delivery of B-777's have been deferred indefinitely (see "Pilot Collective
Bargaining Agreement" on page 32 of this report).
AIRCRAFT ON OPTION
Delivery in Year Ending June 30
After Rolling
Aircraft on Option* 2000 2001 2002 2003 2003 Total Option
B-73 7-600/700/800 - 9 7 7 37 60 267
B-757-200 2 8 10 20 80
B-767-300/300ER 2 2 2 5 11 16
B-767-400 12 5 7 24 25
B-777-200 1 5 5 9 20 30
Total 14 34 29 58 135 418
* Aircraft options have scheduled delivery slots, while rolling options replace
options and are assigned delivery slots as options expire or are exercised.
DELTA EXPRESS
Point-to-point low-fare flying is one of the fastest
growing segments in the airline industry. Delta Express
offers customers nonstop, low-fare, high value service
between Northeast and Midwest cities and leisure
destinations in Florida. Since its launch on October 1,
1996, Delta Express has established a leadership
position in this market. Our cost position enables
Delta Express to offer competitive fares in major origin-
destination markets, which contributes significant
economic and strategic value to Delta. In addition to
competitive fares and reliable service, Delta Express
passengers are provided with advanced seat selection
and earn SkyMiles on each flight.
Delta Express continued to grow in fiscal 1999,
adding eight aircraft to its fleet and initiating service
between Orlando, FL and Albany, NY; Allentown, PA
and Syracuse, NY. Also, in response to the growing
demand for nonstop service to the South Florida
region, Delta Express expanded its flights between
Fort Lauderdale, FL and Hartford, CT; Newark, NJ
and Washington, D.C.-Dulles.
As of June 30, 1999, Delta Express operated 168
daily flights with a fleet of 37 B-737-200 jet aircraft,
offering service between 17 cities to Orlando and four
other popular Florida destinations.
DELTA EXPRESS FACTS
Fleet size and type - 37 B-737-200 aircraft; plans are to
increase to 41 B-737-200 aircraft during fiscal 2000
168 daily flights between 17 Northeast and Midwest
cities to five Florida cities - Fort Lauderdale, Fort
Myers, Orlando, Tampa and West Palm Beach
On-time arrival percentage within 15 minutes - 86%
As of June 30, 1999, Delta Express operated 168 daily flights.
Kansas
\City
DELTA SHUTTLE
As of June 30, 1999, Delta Shuttle operated 80 daily flights.
Delta Shuttle is our Company's very successful, high-
frequency specialty product providing service targeted
to the Northeast business traveler. It provides a strong
presence in the highly competitive Northeast market,
offering hourly service between New York's LaGuardia
Marine Air Terminal and Washington, D.C.'s Ronald
Reagan National Airport and Boston's Logan Interna-
tional Airport. Effective June 1, 1999, Delta Shuttle
expanded its service by inaugurating nonstop service
HIGHLIGHTS OF DELTA SHUTTLE
Market leader in Northeast Corridor with 58% share
Carried over 14 million passengers since September 1991
FISCAL 1999 PERFORMANCE
Operated over 25,000 flights
On-time departure rate: 97% (most reliable shuttle service
in the industry)
SERVICE
Boston-Washington, D.C. (inaugurated June 1999)
New York-Boston (hourly service)
New York-Washington, D.C. (hourly service)
LaGuardia
Marine Air Terminal
between Boston and Washington, D.C. Delta Shuttle
has gained its leading market position by providing
an unparalleled customer experience that focuses on
a premium product and service; the value of the cus-
tomer's time; and exceptional operational reliability.
The Delta Shuttle fleet consists of 16 specially
designed B-727-200 aircraft which offer all-leather
seats and more leg room than any of its competitors.
ATLANTIC SOUTHEAST AIRLINES (ASA)
Atlantic Southeast Airlines (ASA) became a wholly
owned subsidiary of Delta on May 11, 1999. Through
more closely integrated schedules, Delta and ASA will
offer customers better connections and service. ASA
service is being enhanced by the introduction of opera-
tional improvements that have been successful at Delta.
These improvements will produce positive results in the
areas of on-time performance, baggage handling and
other customer service activities. Delta's acquisition
of ASA also enables both airlines to allocate aircraft
more efficiently across their respective route systems.
AIRCRAFT FLEET AT JUNE 30, 1999
Average Leased
Aircraft Type Age Owned Capital Operating Total
EMB-120 10.0 56 1 57
ATR-72 5.7 4 8 12
CRJ-200 (Regional Jet) 0.9 2 21 23
Total 7.2 62 30 92
AIRCRAFT DELIVERY SCHEDULES AT JUNE 30, 1999
Delivery in Year Ending June 30
After
Aircraft on Firm Order 2000 2001 2002 2003 2003 Total
CRJ-200 (Regional Jet) 12 10 22
CRJ-700 (Regional Jet) - 5 7 12
Total 12 10 5 7 34
ASA has options to purchase 45 CRJ-200 aircraft and eight CRJ-700 aircraft.
On August 9, 1999, ASA entered into a memorandum of understanding to
lease seven ATR-72 aircraft during fiscal 2000.
ASA HIGHLIGHTS
Atlanta's largest regional airline with service to 44 markets
Dallas/Fort Worth hub serves 17 markets
Average number of full-time equivalent employees: 2,500
CANADAIR REGIONAL JET (CRJ) SERVICE
As of August 1, 1999, ASA provided CRJ service to 32
cities from Atlanta. Most recent additions include:
Austin, Texas
Daytona Beach, Florida
Houston (Hobby), Texas
Long Island/Islip, New York
Melbourne, Florida
Montgomery, Alabama
San Antonio, Texas
By the end of calendar 1999, additional CRJ service is
planned for:
Des Moines, Iowa
Fort Wayne, Indiana
Toledo, Ohio
See ASA's route map on back cover foldout of this Annual Report.
COMMUNITY AND ENVIRONMENTAL CONCERN
Community Service
Delta belie e it ha a re pon ibility t impro e th qualit
of life in th ommuniti it r e through both
financial and non-finan ial contributi n . Finan ial on-
tribution ar pro ided through the Delta Foundati n,
orporate ontribution and from Delta pe pl through
th Fair har program. Delta al o ork to rganiz
the energie and kill of ur emplo ee to upport com-
munitie through the ommunit Partner pr gram.
Each ear, thou and of dedicat d Delta people giv
their time to build home donate blood 1 an up park
lead organization parti ipate in harit walk and
do the other work nece ary to build communitie .
Delta al o make contribution in the form of in-kind
ervice , uch as airline ticket , to qualified organization .
Delta focus i on the following three area for
the Compan ' giving:
Building trong communitie . Delta upport our
employee in making our communitie better place
to live and work.
upporting familie with children. Delta wants to
help young familie provide their children with a
good tart in life.
Fostering cultural/international under randing. A
an international airline, Delta understands that
awarene and personal contact between culture
brings understanding.
1999 MAJOR RECIPIENTS
AIDS Walk (Atlanta and New York)
American Red Cross
CARE
Children's Miracle Network
Cystic Fibrosis Foundation
Delta's International Scholars Program
Habitat for Humanity
High Museum of Art
Juvenile Diabetes Foundation
March of Dimes
National Black Arts Festival
Project Open Hand
Environmental Leadership
Delta i al o committed to the pre ervation of the envi-
ronment. The core of our environmental management
program focu e on compliance with regulation and
requirement de igned to control the potential impact of
our operation on the environment. Delta has responded
in the following ways to these concern :
Pioneered the practice of u ing one engine to taxi
aircraft between the airport gate and the runway.
This imple innovation allows Delta to cut fuel con-
sumption by approximately 40 million gallons per
year and to reduce aircraft engine emissions.
Delta worked closely with other airlines, suppliers, and
airport authorities to reduce the quantities of de-icing
fluids necessary to ensure safe flights in winter weather.
The environment benefits because less de-icing fluid
means less impact on water quality.
Sponsored "Waste to Work Day" in conjunction
with Earth Day, to provide employees with the oppor-
tunity to safely dispose of household hazardous waste.
A copy of our 1999 Environmental Report is available
upon request.
BOARD OF DIRECTORS
Retired Chairman of the Board,
President and Chief Executive Officer,
l:ichita Coca-Cola Bottling Company, Inc.
I
Retired Chairman of the Board
and Chief Executive Officer,
The Travelers Corporation
Director of Baxter International, Inc.;
Dun & Bradstreet Corporation;
Household International, Inc.;
and Sun Company, Inc.
Non-Executive Chairman of the Board,
Delta Air Lines, Inc.;
Non-Executive Chairman of the Board,
Agilent Technologies, Inc.;
Retired Chairman, Burlington Northern
Santa Fe Corporation;
Former Chief Executive Officer,
Western Air Lines, Inc.
Co-Chairman and Senior Partner,
GoodWorks International, Inc.;
Chairman of the Southern
Africa Enterprise Development Fund;
Former Mayor of Atlanta, Georgia;
Former United States Ambassador
to the United Nations;
Former member of the
United States House of Representatives
Henry A. Biedenharn, ill
Edward H. Budd
Mary Johnston Evan
Andrew J. Young
Retired Chairman of the Board
and Chief Executive Officer,
The Procter & Gamble Company
Chairman of the Board and Chief Executive
Officer, FPL Group, Inc.; Chairman of the
Board and Chief Executive Officer,
Florida Power & Light Company
Former Chairman of the Board,
Savannah Foods & Industries, Inc.;
Retired Chairman of the Board and
Chief Executive Officer,
Union Camp Corporation
Chairman, President
and Chief Executive Officer,
Norfolk Southern Corporation
President and Chief Executive Officer,
Delta Air Lines, Inc.;
Former Vice hairman, Unicom Corporation
and Commonwealth Edison Company;
Former President and Chief Operating Officer,
First Chicago orporation
Chairman and Chief Executive Officer,
Eastman Kodak Company
(Nominee for election to the Board of Directors
at the 1999 Annual Meeting of Shareowners)
BOARD COMMITTEES
Audit
James L. Broadhead, Chairman
Henry A. Biedenharn III
Mary Johnston Evans
David R. Goode
Benefit Funds love tment
Andrew]. Young Chairman
Henry A. Biedenharn, III
James L. Broadhead
David R. Goode
Corporate Governance
Mary Johnston Evans, hairman
James L. Broadhead
Gerald Grinstein
Andrew]. Young
Corporate trategy
Edward H. Budd Chairman
Edwin L. Artzt
R. Eugene Cartledge
Gerald Grinstein
ecutive
Mary Johnston Evans,
Edwin L. Artzt
James L. Broadhead
Edward H. Budd
R. Eugene artledge
Andrew J. Young
hairman
REPRESENTATIVE OF AIR LINE PILOTS ASSOCIATION, INTERNATIONAL
Captain Mark D. Halsor - Associate
on-voting member of the Board of Directors
DELTA BOARD COUNCIL REPRESENTATIVES
Airport Customer Service and Cargo
C. Bradley Bray
Technical Operation
Paul A. Letourneau
OFFICERS
Leo F. Mullin
President and
Chief Executive Officer
Maurice W. Worth
Chief Operating Officer, Retiring
October 1, 1999
Malcolm B. Armstrong
Executive Vice President -
Operations
Robert L. Colman
Executive Vice President -
Human Resources
Vicki B. Escarra
Executive Vice President -
Customer Service
Frederick W. Reid
Executive Vice President and
Chief Marketing Officer
Edward H. West
Chief Financial Officer
W. E. (Skip) Barnette
President - ASA Holdings and
Atlantic Southeast Airlines
David S. Bushy
Senior Vice President -
Flight Operations
Vincent F. Caminiti
Senior Vice President -
Sales and Distribution
Mark A. P. Drusch
Senior Vice President -
Network Management
Robert S. Harkey
Senior Vice President -
General Counsel and Secretary
Paul G. Matsen
Senior Vice President -
Alliances
Supervisory/ Administrative
Curt D. Bryant
Re ervation ale
and City Ticket Offices
William M. Morey
Rick ixon
Senior Vice President -
Delta Air Logistics
Jenny R. Poole
Senior Vice President -
In-Flight Service, Retired
September 1, 1999
John N. Selvaggio
Senior Vice President -
Airport Customer Service
Thomas J. Slocum
Senior Vice President -
Corporate Communications
Ray Valeika
Senior Vice President -
Technical Operations
Sharon I. Wibben
Senior Vice President -
In-Flight Service
D. Scott Yohe
Senior Vice President -
Government Affairs
Anthony L. Austin
Vice President -
Human Resources - Marketing
Brenda A. Barnes
Vice President -
Revenue Management
Edward H. Bastian
Vice President and Controller
R. Michael Bell
Vice President -
Schedule Development
Harold L. Bevis
Vice President - Public Affairs
Douglas W. Blissit
Vice President -
Network Analysis
Operational Support/Clerical
Richard C. Buckalew
Field/Cargo Sales
Nancie W. Parker
John W. Boatright
Vice President -
Properties and Facilities
W. Martin Braham
Vice President - Delta Air Lines
Global Services
M. Michele Burns
Vice President and Treasurer
Frederick W.P. Buttrell
Vice President -
Atlanta Worldport
Anthony N. Charaf
Vice President - Maintenance -
Engines, Components and
Ground Support Equipment
Stephan J. Egli
Vice President -
Atlantic Region
Michael S. Ellenburg
Vice President - Purchasing
Terry M. Erskine
Vice President -
Employee Relations
Jeffrey T. Fisher
Vice President - Finance -
Customer Service
Subodh Karnik
Vice President - Finance -
Sales and Marketing
J.B. Kirk
Vice President - Finance -
Operations
William D. Kline
Vice President -
Chief Learning Officer
Joseph Licitra
Vice President - Airport
Customer Service
Finance
Edwin L. Artzt, hairman
Edward H. Budd
R. ugene art/edge
erald rinstein
Per onnel & Compensation
R. ugene Cartledge, Chairman
dward H. Budd
Mary Johnston Evans
Gerald Grinstein
In-Flight Service
athy Cleveland Cone
Lee A. Macenczak
Vice President - Reservation Sales
John C. Marshall
Vice President - Corporate
Safety and Compliance
Patrice G. Miles
Vice President -
Distribution Planning
Leon A. Piper
Vice President -
Compensation and Benefits
Joseph V. Pollino
Vice President - Human
Resources - Customer Service
Udo Rieder
Vice President -
Engineering and Quality
Gregory L. Riggs
Vice President -
Deputy General Counsel and
Assistant Secretary
William F. Wangerien
Vice President - Operational
Planning, Control and Reliability
Martin C. White
Vice President -
Consumer Marketing
Michael M. Young
Vice President -
Community Affairs
Dean C. Arvidson
Assistant Secretary
Susan T. Hudson
Assistant Secretary
Leslie P. Klemperer
Assistant Secretary
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, IN .
Consistently superior financial performance is an
integral part of our goal to become the world's greatest
airline. For Delta, "consistently superior financial per-
formance" means that our management team is focused
on executing business strategies that increase share-
owner value and provide the resources needed to rein-
vest in our business.
Using the capital generated by our business in fiscal
1999, we are laying the foundation to continue produc-
ing strong financial results by concentrating reinvestment
on high-priority business initiatives. Current initiatives
include network growth, customer service and technol-
ogy enhancements and partnering with employees. Focus
on these initiatives in fiscal 1999 contributed to financial
results that were the best in Delta's 70-year history.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Net Income and Earnings per Share
For the year ended June 30, 1999, our Company
reported record net income of $1.1 billion, a 10 %
increase from our previous record of$ 1.0 billion
reported for fiscal 1998. Our fiscal 1999 results include
the results of operations for ASA Holdings, Inc. (ASA
Holdings) for the period April 1, 1999 through June 30,
1999 (see Note 17 of the Notes to the Consolidated
Financial Statements).
Diluted EPS*
In Dollars
$6.34
$5 60 $5.73
$2.72
$720
Basic earnings per share
totaled $7.63 in fiscal 1999, com-
pared to $6.64 in fiscal 1998, a
15% increase. Diluted EPS was
$7.20 for fiscal 1999, a 14%
increase from fiscal 1998 diluted
EPS of $6.34. EPS for years prior
to fiscal 1999 has been restated to
reflect our two-for-one common
stock split, which became effective
L.__ 95 96 91 98_ :j_
b
in Novem er 1998. Excluding
~ Excludes restructuring and
other non-recurri1:$ char;es
and cumulative effects o
changes in accounting
standards.
restructuring and other non-
recurring charges and cumulative
effects of changes in accounting
standards, diluted EPS has grown
over 150% over the past four fiscal years.
Operating Revenues
Operating revenues were $14.7 billion for fiscal
1999, increasing 4% from $14.1 billion in fiscal 1998.
2 6 DELTA AIR LINES 1999 ANNUAL REPORT
Operating Revenues
In Millions of Dollars
$14.138
$13 594
$12,455
$12,194
95
$14.711
Passenger revenue growth of
3 % reflects a 3 % increase in
RPMs on 3 % capacity growth.
Passenger mile yield remained
virtually flat at 12.83.
Domestic Passenger
Revenues - Domestic passenger
revenues grew 4 % to $11.1 bil-
lion, driven by a 3 % increase
in RPMs on capacity growth of
2 % . The increase in RP Ms is a result of favorable eco-
nomic conditions and increased traffic (including the
effects of pilot labor actions at two of our competitors),
as well as our reallocation of aircraft to higher-demand
markets. Passenger mile yield rose 1 % due to the full-
year effect of a domestic fare increase in September
1997 and improved asset utilization, partially offset by
increased low-fare competition and matching sale fares
implemented by a competitor after its pilot strike.
International Passenger Revenues - International
passenger revenues remained flat at $2.3 billion during
fiscal 1999. A 5% increase in RPMs on capacity growth
of 7% was offset by a 6% decline in passenger mile yield.
The increase in RPMs reflects the addition of new Atlantic
routes, continued expansion into Latin America and
implementation of additional service to Japan. The
decline in passenger mile yield is a result of increased
competitive pressures due to industry-wide capacity
growth in the Atlantic and Latin American markets.
Cargo Revenues and Other Revenues - Cargo rev-
enues fell 4% to $557 million, reflecting a 3% decrease
in cargo ton miles and a 1 % decrease in ton mile yield.
The decrease in cargo ton miles reflects an industry-wide
decrease in demand in the Atlantic freight market. Mail
volume also decreased as the U.S. Postal Service shifted
certain business from major passenger carriers to ground
service and dedicated air freight carriers. The decrease in
ton mile yield is due to competitive pricing strategies.
Other revenues increased 31 % to $737 million,
mainly a result of higher revenues from frequent flyer
programs. During fiscal 1999, we initiated programs
with new frequent flyer partners and expanded pro-
grams with existing partners. Other revenues also
increased due to higher revenue from code-sharing
programs and other fee-based income.
Operating Expenses
Operating expenses totaled $12.8 billion for fiscal
1999, increasing 3 % from $12.4 billion in fiscal 1998.
Operating capacity rose 3 % to 144 billion ASMs.
CASM remained flat year over year. Non-fuel CASM
grew 2% to 7.97.
Salaries and related costs increased 3 % during fiscal
1999. We increased the number of full-time equivalent
employees to implement our customer service initiatives
and support our growth. On January 1, 1999, we imple-
mented a general salary increase for most domestic
employees. The increase in salary expense due to our
increase in staffing and the general salary increase is
partially offset by lower retirement and survivor expense,
mainly due to higher returns on plan assets.
Aircraft fuel expense decreased 10% in fiscal 1999,
with the average fuel price per gallon falling 12 % to
49.83. Total gallons consumed increased 2% due to
increased operations on a 3 % rise in capacity. Passenger
commissions expense declined 12 %, reflecting lower
effective commission rates and increased utilization of
low-cost distribution channels, partially offset by higher
passenger volume. Depreciation and amortization
expense rose 12 % due to the acquisition of additional
aircraft and ground equipment, partially offset by an
increase in the useful lives of certain aircraft types
(see Note 1 of the Notes to the Consolidated Finan-
cial Statements).
Contracted services expense grew 11 % due to
expanded operations into new and existing markets, rate
increases in ground handling and cabin cleaning contracts,
and higher passenger volume. Other selling expenses
increased 11 % , resulting from increased advertising and
promotional activities, as well as an increase in credit
card charges due to higher passenger volume. Landing
fees and other rents increased 9% primarily due to
increased terminal rentals, resulting from our expan-
sion into new and existing markets.
Aircraft rental expense increased 7% due to an
increased number of leased aircraft. Aircraft mainte-
nance materials and outside repair expense grew 13 %
due to the expiration of certain engine warranties and
other costs associated with the maturation of the fleet.
Passenger service expense increased 11 % due to higher
food costs, which are associated with higher passenger
volume and product upgrades. Other costs increased
7% due to higher expenses associated with enhanced
customer loyalty programs, supplies, and communica-
tions expense, partially offset by lower insurance costs.
Operating Income*
In Millions of Dollars
$1 ,294
$661
$1,583
$1,870
$1 ,694
Operating Margin*
116% 120% 127%
10.4%
l
951 97 98 99
* Excludes restructuring and
other non-recurring charges.
Operating Income and
Operating Margin
Operating income totaled
$1.9 billion for fiscal 1999,
which represented an increase
of 10% over fiscal 1998.
Delta has nearly tripled
operating income ( excluding
restructuring and other non-
recurring charges) over the
past four fiscal years.
Our revenue growth
combined with our focus on
cost management resulted in
a fiscal 1999 record operat-
ing margin of 12. 7%, a 6%
increase from the prior year.
Other Income (Expense)
Other expense decreased
4% to $44 million during
fiscal 1999. Higher interest
expense, due to higher aver-
age outstanding debt bal-
ances, and lower interest income, due to lower average
balances in short-term investments, were offset by a
$34 million increase in miscellaneous income. Miscel-
laneous income increased primarily due to a $26 million
gain on the sale of a portion of our interest in Equant
N.V., an international data network services company.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Income and Earnings per Share
Net income grew 17% during fiscal 1998, from
$854 million reported in fiscal 1997. Basic EPS was $6.64
in fiscal 1998 and $5.70 in fiscal 1997. Diluted EPS was
$6.34 for fiscal 1998, compared to $5.52 for fiscal 1997.
Fiscal 1997 operating results include pretax restructur-
ing and other non-recurring charges of $52 million
($32 million after-tax or $0.22 basic and $0.21 diluted
EPS) related to the realignment of our transatlantic and
European operations.
Operating Revenues
Fiscal 1998 operating revenues rose 4% over fiscal
1997. Passenger revenues increased 4%, reflecting a 3%
rise in RP Ms on ASM growth of 2 % . Passenger mile
yield increased slightly to 12.85 .
DELTA AIR LINES 1999 ANNUAL REPORT 2 7
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANAL
YSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LI E , I C.
Domestic Passenger Revenues - During fiscal 1998,
domestic passenger revenues grew 4% to $10.7 billion,
driven by a 3 % rise in RPMs on a 2 % increase in capac-
ity, and 1 % passenger mile yield growth. We experi-
enced greater demand for air traffic and favorable
economic conditions in fiscal 1998, and allocated more
aircraft to higher-demand markets. Passenger mile yield
increa ed due to a domestic fare increase implemented
during the September 1997 quarter, offset by more low-
fare competition and the full-year impact of the U.S.
transportation excise tax.
International Passenger Revenues - As a result of
our efforts to expand our global reach, international
passenger revenues increased 3 % to $2.3 billion during
fiscal 1998. RPMs grew 6% on a 5% increase in ASMs.
The growth in RP Ms was offset by a 3 % decline in
passenger mile yield. The increase in RPMs is due to
our addition of new routes to Latin America and other
markets, strong demand in the Atlantic market and
improved asset utilization. The decline in passenger mile
yield was mainly due to overall industry capacity growth
in the Atlantic market.
Cargo Revenues and Other Revenues - Cargo rev-
enues grew 5% during fiscal 1998, reflecting a 14%
increase in cargo ton miles and an 8 % decline in ton
mile yield. Other revenues increased 5%, mainly due to
higher revenues from frequent flyer programs and fee-
based income.
Operating Expenses
In fiscal 1998, operating expenses grew to $12.4 bil-
lion, up 3% from $12.1 billion in fiscal 1997. Operat-
ing capacity increased 2 % to 140 billion ASMs. CASM
increased 1 % during fiscal 1998. Non-fuel CASM
increased 3% to 7.80. The increase in operating
expenses resulted from higher salaries and related
costs due to headcount growth and compensation
enhancements, increased technology spending,
onboard passenger enhancements and increased pas-
senger volume, offset by lower fuel expense.
Operating Income and Operating Margin
During fiscal 1998, operating income grew to
$1. 7 billion, an 11 % increase. Operating margin increased
from 11.3 % in fiscal 1997 to 12.0% in fiscal 1998.
2 8 DELTA AIR LINES 1999 ANNUAL REPORT
Other Income (Expense)
Other expense for fiscal 1998 decrea ed $70 million
to $46 million, primarily a re ult of lower interest
expense and higher interest income.
FINANCIAL CONDITION AND LIQUIDITY
FI CAL YEAR 1999
Cash and cash equivalent and short-term invest-
ments totaled $1.1 billion at June 30, 1999, compared
to $1.6 billion at June 30, 1998. The decrease in cash
and cash equivalents and short-term investments is due
to aircraft acquisitions and common stock repurchases
during fiscal 1999. Our principal sources and uses of
cash are detailed below.
Sources:
Generated $2.9 billion of cash from operations.
Borrowed $500 million under our 1999 Bank Credit
Agreement to finance a portion of our purchase of ASA
Holdings. These borrowings are due on March 22,
2001 (see Note 5 of the Notes to the Consolidated
Financial Statements).
Issued $300 million of Medium-Term Notes, a portion
of which were used to fund our purchase of ASA Hold-
ings. These notes mature during fiscal 2004 (see Note 5
of the Notes to the Consolidated Financial Statements).
Received $325 million from the sale of a defined pool
of our accounts receivable, accelerating our cash flows
at a low effective rate (see Note 16 of the Notes to
the Consolidated Financial Statements).
Issued 3.2 million shares of common stock for $165 mil-
lion (including an income tax benefit of $34 million
for stock options exercised). These shares were pri-
marily issued under our broad-based stock option
plans (see Note 1,5 of the Notes to the Consolidated
Financial Statements).
Uses:
Invested $2.3 billion in flight equipment and $561 mil-
lion in ground property and equipment.
Repurchased 15.1 million shares of common stock
for $885 million as part of our share repurchase pro-
grams (see Note 11 of the Notes to the Consolidated
Financial Statements).
Paid $700 million to acquire ASA Holdings (see Note 17
of the Notes to the Consolidated Financial Statements).
Repaid $431 million of long-term and short-term
debt and capital lease obligations.
Paid $43 million in cash dividends on our preferred
and common stock.
Cash Used in
Investing Activities
In Millions of Dollars
$2,791
$2,324
$1,941
Tl
95 96 97 98 99
Cash flows from opera-
tions for fiscal 1999 totaled
$2.9 billion, a slight increase
over the prior year and a new
record for our Company.
We have reinvested cash
generated during fiscal 1999
in future growth opportunities
by purchasing ASA Holdings,
implementing fleet initiatives,
upgrading airport and admin-
istrative technology and
investing in customer service improvements. We have
increased the amount of cash used in investing activities
every year since fiscal 1995, highlighting our emphasis
on business reinvestment and growth opportunities.
As of June 30, 1999, our Company had a negative
working capital position of $2. 7 billion, compared to
negative working capital of $1.2 billion at June 30, 1998.
The increase results from our use of cash for aircraft
acquisitions and common stock repurchases, as well as
increased current maturities of long-term debt.
A negative working capital position is normal for us,
primarily due to our air traffic liability, and does not
indicate a lack of liquidity. We expect to meet our obli-
gations as they become due through available cash,
short-term investments and internally generated funds,
supplemented as necessary by debt financings and pro-
ceeds from sale and leaseback transactions. At August 13,
1999, we had $1.25 billion of credit available under our
1997 Bank Credit Agreement (see Note 5 of the Notes
to the Consolidated Financial Statements).
Long-term debt and capital lease obligations, includ-
ing current maturities, totaled $2. 7 billion at June 30,
1999, compared to $1.9 billion at June 30, 1998. The
increase in debt is a result of borrowings to finance our
acquisition of ASA Holdings. Shareowners' equity was
$4.5 billion at June 30, 1999, compared to $4.0 billion
at June 30, 1998. Our debt-to-equity position, includ-
ing current maturities, was 36% debt and 64% equity
at June 30, 1999, compared to 32% debt and 68%
equity at June 30, 1998.
In July 1999, we issued $538 million of 8.125%
notes in a public offering. We will use the proceeds of this
offering for general corporate purposes. The notes mature
on July 1, 2039, but may be redeemed at par on or after
July 1, 2004.
At August 13, 1999, $290 million in Delta Family-
Care Savings Plan's Series C Guaranteed Serial ESOP
Notes were outstanding. Delta guarantees the Series C
ESOP Notes and is required to purchase these notes in
certain circumstances (see Note 5 of the Notes to the
Consolidated Financial Statements).
PRIOR YEARS
Fiscal 1998
During fiscal 1998, our principal source of funds
was $2.9 billion of cash from operations. We invested
$1.8 billion in flight equipment and $531 million in
ground property and equipment, and made payments
of $307 million on long-term debt and capital lease
obligations. Delta also repurchased $354 million of
common stock and paid cash dividends of $43 million
to our preferred and common shareowners.
Fiscal 1997
In fiscal 1997, our principal source of funds was
$2.0 billion of cash from operations. We invested
$1.6 billion in flight equipment and $350 million in
ground property and equipment. We made payments
of $196 million on long-term debt and capital lease
obligations. We also repurchased $379 million of
common stock and paid cash dividends of $44 mil-
lion to our preferred and common shareowners.
COMMITMENTS
Estimated future expenditures for aircraft and engines
on firm order as of August 13, 1999 total approximately
$10 billion. In addition, we have authorized capital
expenditures of approximately $794 million for fiscal
2000 to be used for facilities improvements, aircraft
modifications and the purchase of ground equipment
and other assets. See Notes 6 and 7 of the Notes to the
Consolidated Financial Statements for additional informa-
tion on our lease obligations and purchase commitments.
OTHER MATTERS
YEAR 2000 READINESS
Background
Many computer systems in use today were designed
and developed using two digits, rather than four, to
specify the year. As a result, these systems may recognize
the year 2000 as "00." This could cause many computer
applications to fail or to create errors unless corrective
measures are taken.
Our Year 2000 Program
Our Company's flight operations, flight support
units and other business support units depend on inter-
nal and external computer systems and equipment that
DELTA AIR LINES 1999 ANNUAL REPORT
2 9
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LI E , I C.
may be affected by the Year 2000 issue. Accordingly,
achieving Year 2000 readiness is one of our top priori-
ties. We have implemented a Year 2000 program for our
internal systems and equipment which has four phases:
1. identification;
2. assessment of issues (including prioritization);
3. remediation, which includes the modification, upgrad-
ing and replacement of noncompliant systems; and
4. testing of remediated systems, including monitoring.
We are also reviewing the Year 2000 readiness of
third parties who provide goods or services essential to
our operations. In addition, we have revised our exist-
ing business interruption contingency plans to address
issues that could arise from the Year 2000 problem.
Senior management and the Board of Directors receive
regular status updates on our Year 2000 program.
Safety-of-Flight Systems
We have completed our review of the potential
impact of Year 2000 issues on our aircraft fleet and
onboard flight support systems, and have determined
that there are no safety-of-flight issues with this equip-
ment or these systems. We have also completed all
phases of our Year 2000 program for onboard flight
management systems. These management systems help
us to operate efficiently but are not essential to the safe
operation of flights.
We use ground-based, safety-related computer systems
and equipment that are vital to the maintenance of aircraft
and the control of flight operations. All Year 2000 program
phases for these systems and equipment are complete.
Selective testing of safety-of-flight systems will con-
tinue through December 31, 1999 as part of normal
systems maintenance. In addition, we will monitor reme-
dia ted and tested systems well into calendar year 2000
to confirm that these systems operate correctly.
Critical Internal Business Systems
Our critical internal business systems and equip-
ment include computer hardware, software and related
equipment essential for the following functions:
customer reservations
ticketing
flight scheduling
seat inventory management
airport customer services
finance administration
internal voice and data communications
aircraft ground handling
J Q DELTA AIR LINES 1999 ANNUAL REPORT
baggage handling
facility management
security
We have completed the identification and assess-
ment phases for all of our critical internal business sys-
tems and equipment. Remediation is in process for one
of our vendor-supported baggage handling systems,
and we expect to complete its remediation and testing
by October 1999. We have completed the remediation
and testing phases for all other critical internal business
systems and equipment. We will continue selective test-
ing of our critical internal business systems through
December 31, 1999 as part of normal systems mainte-
nance. We will monitor remediated and tested systems
well into calendar year 2000 to confirm that our hard-
ware and software operates correctly.
We are replacing customer service hardware that is
currently installed at our airport facilities with upgraded,
Year 2000 compliant hardware. We began this effort in
September 1998 and expect to complete installation dur-
ing the December 1999 quarter.
Interfaces with Third Parties
Our Company has communicated with, and contin-
ues to review, third parties that provide essential goods
or services to our Company in order to:
1. determine the extent to which we are vulnerable to
the failure of these third parties to remediate their
Year 2000 issues, and
2. resolve any problems discovered to the extent
practicable.
These third parties include suppliers of infrastruc-
ture critical to the airline industry, such as air traffic
control and related systems of the U.S. Federal Aviation
Administration and international aviation authorities, the
U.S. Department of Transportation (DOT) and local
airport authorities. Other critical third parties include
other airlines as well as suppliers of aircraft fuel, utilities,
external computer reservations services and communica-
tion services. We are actively involved in airline indus-
try Year 2000 review efforts led by the Air Transport
Association (ATA), the International Civil Aviation
Organization (ICAO) and the International Air Transport
Association (IATA). This review has identified potential
Year 2000 compliance issues at several international
locations. Delta, along with other airlines and the ATA,
ICAO and IATA, is continuing to assess these specific
situations. We will make future flight schedule revisions
if necessary to ensure safe operations.
Estimated Year 2000 Costs
Our Company estimates the total cost of achieving
Year 2000 readiness for our internal systems and equip-
ment is approximately $105 million to $120 million, of
which $91 million has been recognized as expense in the
Consolidated Statements of Operations through June 30,
1999. The majority of the estimated Year 2000 compli-
ance costs have been funded by reallocating existing
resources rather than incurring incremental costs.
Contingency Planning
We revised our existing business interruption contin-
gency plans to address internal and external issues spe-
cific to the Year 2000 problem. These plans are intended
to enable us to continue to operate, to the extent that
we can do so safely. Our contingency plans include
performing processes manually, repairing or obtaining
replacement systems, changing suppliers and reducing
or suspending operations.
We believe, however, that due to the widespread nature
of potential Year 2000 issues, the contingency planning
process is ongoing and will require further modifica-
tions as we receive information about the results of the
Year 2000 programs of Delta and of third parties.
Possible Consequences of Year 2000 Problems
Management believes that completed and planned
modifications and conversions of our Company's inter-
nal systems and equipment will allow us to be Year
2000 compliant in a timely manner. There can be no
assurance, however, that our internal systems or equip-
ment or those of the third parties on whom we rely will
be Year 2000 compliant in a timely manner, or that our
Company's or third parties' contingency plans will mit-
igate the effects of issues that arise. The failure of our
systems or equipment or of an essential third party
(whose failure we believe is the most reasonably likely
worst-case scenario) could result in the reduction or
suspension of our operations and could have a mate-
rial adverse effect on our business or consolidated
financial statements.
Other Matters
The section above entitled "Year 2000 Readiness" is
a "Year 2000 Readiness Disclosure" within the meaning
of the Year 2000 Information and Readiness Disclosure
Act (Public Law 105-271) enacted in October 1998.
This "Year 2000 Readiness" section includes forward-
looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Our Company uses the
words "believes," "expects," "estimates" and similar
expressions to identify forward-looking statements. See
the "Forward-Looking Information" section on page 35.
PRICELINE.COM
During fiscal 1999, Delta entered into an agree-
ment with priceline.com Incorporated. Under this agree-
ment, ticket inventory provided by Delta is sold through
priceline.com's Internet-based e-commerce system. As
part of this agreement, we received warrants to purchase
up to 18.6 million shares of priceline.com's common
stock for $0.93 per share. These warrants are exercis-
able beginning when certain performance thresholds are
met and ending December 31, 2005. Delta has now met
the performance thresholds relating to the exercise of
the warrants. These warrants, and the shares issuable
when the warrants are exercised, are not registered under
the Securities Act of 1933. We have certain demand and
piggyback registration rights relating to the shares.
On August 10, 1999, priceline.com filed a registra-
tion statement with the SEC for a proposed public
offering of its common stock. On August 17, 1999,
we exercised 1.8 million of our warrants and sold the
related shares in the public offering. The exercise of
the warrants and the sale of the related stock resulted
in a pretax gain of approximately $115 million.
ALLIANCE AGREEMENTS
On June 22, 1999, we entered into a long-term
marketing agreement with Air France which facilitates
our growth in Atlantic markets. The alliance will include
code-sharing arrangements, reciprocal frequent flyer
programs and coordinated cargo operations.
PERSONNEL MATTERS
Compensation Changes
During fiscal 1999, we changed the compensation
program for most of our domestic, noncontract employ-
ees. On January 1, 1999, we discontinued our broad-
based employee profit-sharing program. We converted the
annual profit-sharing payout, of up to 6% of annual base
salary, to a 6% base salary increase for all eligible employ-
ees. On the same date, we also increased base salaries by
an additional 2 % for all eligible personnel. In January
1999, eligible employees received a profit-sharing payment
equal to 6% of their base salary for the period July 1,
1998 through December 31, 1998. Our Company made
similar compensation program changes for our pilots and
flight superintendents.
DELTA AIR LINES 1999 ANNUAL REPORT
J 1
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LI E , I C.
Collective Bargaining Agreements
Group of Employee Representing Union
Delta Pilots
Delta Flight Superintendents
ASA Pilots
Approximate Number
of Employees
9,000
210
770
370
30
Air Line Pilots Association,
International (ALPA)
Professional Airline Flight
Controller Association
ALPA
Amendable Date of
ollective Bargaining Agreement
May 2000
January 2003
September 2002
eptember 2002
ASA Flight Attendants
ASA Flight Dispatchers
Association of Flight Attendants
Transport Worker ' Union
of Amenca (TWU)
*In ovember 1998, the National Mediation Board ( MB) certified the TWU as the collective bargammg representative of ASA's flight dis-
patchers. egotiations for the initial collective bargaining agreement between ASA and TWU have not yet begun.
No other domestic employees of our Company are
represented by unions.
In March 1999, the TWU filed an application with
the NMB to represent Delta's approximately 110 pilot
ground training instructors. On August 9, 1999, the NMB
authorized an election to determine whether to certify the
TWU as the collective bargaining representative of this
group of employees. Unions are currently seeking to become
the collective bargaining representative of various groups
of our employees. None of these unions other than the
TWU has filed an application with the NMB. The out-
come of these matters cannot presently be determined.
Pilot Collective Bargaining Agreement
In May 1996, our Company and ALPA entered
into a new collective bargaining agreement that estab-
lishes the pay rates and working conditions for Delta
pilots. This agreement becomes amendable on May 2,
2000. It provides in part that, if we operate an aircraft
type for which the pay rates and working conditions
are not set forth in the collective bargaining agreement:
(1) our Company and ALPA will negotiate the pay rates
and working conditions for the new aircraft type;
(2) Delta pilots will fly the new aircraft type whether
or not these matters have been agreed to; but (3) the
obligation of Delta pilots to fly the new aircraft type
will end six months after we place that new aircraft
type in service if an agreement has not been reached
on pay rates and working conditions.
In October 1997, we entered into aircraft pur-
chase agreements with Boeing under which we agreed
to purchase various aircraft, including the following
three types that we had not previously operated: the
737-600/700/800, the 777-200 and the 767-400. The
May 1996 collective bargaining agreement with ALPA
J 2 DELTA AIR LINES 1999 ANNUAL REPORT
does not cover the pay rates and working conditions
for these aircraft types.
73 7-600/700/800 Negotiations
Our Company and ALPA began negotiations on pilot
pay rates and working conditions for the 737-600/700/
800 aircraft types in October 1997. In July 1998, we
and ALPA reached an agreement, subject to ratification
by Delta pilots, that established industry-leading pilot
pay rates for these new aircraft types. In October 1998,
ALPA announced that 60% of voting Delta pilots
approved this agreement.
777-200 Negotiations
In February 1999, Delta and ALPA began negotia-
tions on pay rates and working conditions for 777 air-
craft, but the parties remain far apart. We have offered
to provide industry-leading pay rates for 777 pilots;
ALPA is seeking pay rates significantly higher than our
offer, as well as work rules that would further increase
our cost of operating 777 aircraft.
During fiscal 1999, our Company accepted deliv-
ery of two 777 aircraft, which we placed in service on
May 1, 1999. We have orders to purchase 11 additional
777 aircraft. The scheduled delivery dates for these air-
craft are as follows: five in fiscal 2000; one in each of
fiscal 2002 and fiscal 2003; and four in fiscal 2005.
ALPA has announced plans to request Delta pilots
not to fly 777 aircraft as early as November 1, 1999 -
six months after we initially placed that aircraft type
in service - unless an agreement on pay rates and work-
ing conditions for 777 aircraft is reached by that time.
In June 1999, Delta pilots authorized ALPA to assess
pilots 3.5% of their gross pay for up to nine months
to finance a contingency fund for pilots who would
have flown 777 aircraft.
In June 1999, our Company announced that we
would indefinitely defer the delivery of the eleven 777
aircraft on order, and would remove from service on
November 1, 1999 the two 777 aircraft we currently
operate. We made this decision to protect our customers
against schedule disruptions that would result if Delta
pilots stopped flying 777 aircraft. We published our win-
ter 1999/2000 flight schedule, which begins November 1,
1999, in computer reservations systems on or about
August 1, 1999. ALPA had previously informed us that
a tentative agreement on 777 pay rates and working
conditions would have to be reached by May 28, 1999
to achieve a pilot-ratified 777 agreement by August 1,
1999. Accordingly, 777 aircraft are not included in our
winter flight schedule.
Delta intends to continue to negotiate in good faith
with ALPA on 777 pay rates and working conditions.
Concurrently, we are marketing the two 777 aircraft
we own and are reviewing our alternatives regarding
the 11 remaining 777 aircraft on order.
767-400 Negotiations
In August 1999, our Company and ALPA began
negotiations on pay rates and working conditions for 767-
400 aircraft. We have 21 767-400 aircraft on order, which
are scheduled to be delivered beginning in May 2000.
Other Personnel Matters
Our Company will begin negotiations with ALPA
in September 1999 on a new collective bargaining
agreement to replace the existing contract that
becomes amendable on May 2, 2000.
The outcome of our negotiations with ALPA regard-
ing 777 aircraft, 767-400 aircraft and a new collective
bargaining agreement cannot presently be determined.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified
Public Accountants issued Statement of Position 98-1,
"Accounting for Costs of Computer Software Developed
or Obtained for Internal Use," which defines the type of
costs related to internal use software that should be capital-
ized, versus those that should be expensed as incurred.
In April 1998, the AICPA issued SOP 98-5, "Report-
ing on the Costs of Start-Up Activities," which requires
all costs related to the start-up of a new business or busi-
ness segment to be expensed as incurred. Any start-up
costs which have been capitalized are required to be
expensed when SOP 98-5 is adopted.
Delta is required to adopt SOP 98-1 and SOP 98-5
in fiscal 2000. The adoption of these statements will
not have a material impact on our Company's consoli-
dated financial statements.
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Stan-
dards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting
and reporting standards for derivatives and hedging
activities. We are required to adopt SFAS 133 during
fiscal 2001. We are currently evaluating whether the
implementation of SFAS 133 will have a material
impact on our consolidated financial statements.
GOVERNMENTAL MATTERS
During fiscal 1999, the ATA and the major U.S.
airlines worked with Congressional leaders to create a
voluntary program to improve customer service. Under
this program, known as the "Airline Customer Service
Commitment," each major carrier will develop a plan
for achieving stated goals. These goals include providing
customers with timely information concerning flight
delays and cancellations, on-time baggage delivery, meet-
ing customers' needs during lengthy delays and being
responsive to customer complaints.
Each major U.S. carrier agreed to file its customer
service plan with the DOT by September 15, 1999 and
implement its plan by December 15, 1999. The DOT will
audit carriers for compliance starting on June 15, 2000
and ill issue its first assessment on December 15, 2000.
On April 6, 1998, the DOT published a proposed
statement of enforcement policy to address DOT con-
cerns that major air carriers were taking actions designed
to exclude new carriers in certain airline markets, par-
ticularly at hub airports. The proposed guidelines focus
on unreasonable price cuts and/or capacity increases by
major carriers in response to entry by new carriers at
hub airports, and on whether the major carriers could
have pursued a more reasonable alternative strategy for
competing with new entrants. The proposed policy, if
adopted, could adversely affect our ability to respond
to competitive challenges by new entrant carriers.
COMPETITIVE ENVIRONMENT AND SEASONALITY
We expect low-fare competition to 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 our passenger mile yield,
our operating results will be adversely affected.
DELTA AIR LINES 1999 ANNUAL REPORT
J J
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
There are seasonal variations in the demand for
air travel. Therefore, operating results for an interim
period do not necessarily indicate results for an entire
year. In general, demand for air travel is higher in the
June and September quarters, particularly in interna-
tional markets, because there is more vacation travel
during these periods than during the remainder of the
year. Demand is also affected by factors such as eco-
nomic conditions and fare levels.
ENVIRONMENTAL AND LEGAL CONTINGENCIES
Delta is a defendant in legal actions relating to
alleged employment discrimination practices, antitrust
matters, environmental issues and other matters con-
cerning our business. Although the ultimate outcome of
these matters cannot be predicted with certainty, we
believe that the resolution of these actions is not likely
to have a material adverse effect on our consolidated
financial statements.
MARKET RISKS ASSOCIATED WITH
FINANCIAL INSTRUMENTS
Our Company has market risk exposure related to
aircraft fuel prices, stock prices, interest rates and for-
eign currency exchange rates. The market risk is the
potential negative impact of adverse changes in these
prices or rates on our consolidated financial statements.
To manage the volatility relating to these exposures,
our Company enters into derivative transactions pur-
suant to our stated policies. See Note 4 of the Notes to
the Consolidated Financial Statements for further dis-
cussion of our policies for managing such exposures.
The following sensitivity analyses do not consider
the effects that an adverse change would have on
demand for air travel, the economy as a whole, or addi-
tional actions by management to mitigate our exposure
to that risk. For these and other reasons, the actual
results of adverse changes in these prices or rates may
differ materially from the following hypothetical results.
] 4 DELTA AIR LINES 1999 ANNUAL REPORT
Aircraft Fuel Price Risk
Our Company's results of operations could be sig-
nificantly impacted by changes in the price and avail-
ability of aircraft fuel. During fiscal 1999, aircraft fuel
accounted for 11 % of our operating expenses. Based
on our projected fiscal 2000 aircraft fuel consumption
of 2.8 billion gallons, a 10% increase in our projected
jet fuel prices would increase our aircraft fuel expense by
approximately $31 million for fiscal 2000. This analy-
sis includes the effects of fuel hedging instruments in
place at June 30, 1999. Based on our fiscal 1999 aircraft
fuel consumption of 2.7 billion gallons, a 10% rise in
our jet fuel prices would have increased our aircraft fuel
expense by approximately $25 million in fiscal 1999.
This analysis includes the effects of fuel hedging instru-
ments in place at June 30, 1998.
For additional information regarding our aircraft
fuel price risk management program, see Note 4 of the
Notes to the Consolidated Financial Statements.
Equity Securities Risk
At June 30, 1999, the estimated fair value of our
marketable equity investments in Comair Holdings,
Inc., Singapore Airlines Limited, SAirGroup and Sky-
West, Inc. totaled $962 million. The aggregate unrealized
gain from these investments was $568 million at June 30,
1999. At June 30, 1998, the estimated fair value of our
equity investments totaled $1.3 billion, with an aggre-
gated unrealized gain of $785 million. The decrease in
fair value of these investments at June 30, 1999 compared
to June 30, 1998 is due to the inclusion of our equity inter-
est in ASA Holdings at June 30, 1998. ASA Holdings
was not included in these investments at June 30, 1999,
because it was consolidated into our Company as a wholly
owned subsidiary during fiscal 1999 (see Note 17 of the
Notes to the Consolidated Financial Statements). The
market risk associated with these investments is the poten-
tial loss in fair value resulting from a decrease in the
stock prices of these companies.
We also have exposure to foreign currency exchange
rate risk relating to our investments in Singapore Airlines
and SAirGroup. We believe the foreign currency exchange
rate risk related to these investments is not material to
our Company. See Notes 2 and 4 of the Notes to the
Consolidated Financial Statements.
We are a member of the SITA Foundation, whose
principal asset is its equity interest in Equant, N.V.,
an international data network services company. The
market risk relating to our remaining investment in
Equant is the potential reduction in the value of our
investment resulting from decreases in Equant's stock
price. For further discussion of our membership in
the SITA Foundation, see Note 2 of the Notes to the
Consolidated Financial Statements.
At June 30, 1999, we had warrants to purchase
approximately 18.6 million shares of the common stock
of priceline.com. Our market risk associated with these
warrants is the potential loss of gain based on decreases
in the price of the common stock of priceline.com. For
additional information regarding these warrants, see
"Priceline.com" on page 31 and Note 2 of the Notes to
the Consolidated Financial Statements.
Interest Rate Risk
Our exposure to market risk due to changes in
interest rates relates to our long-term debt obligations
and cash investment portfolio.
Market risk associated with our long-term debt is the
potential change in fair value resulting from a change in
interest rates. A 10% adverse change in assumed inter-
est rates would increase the estimated fair value of our
long-term debt by $100 million and $117 million at
June 30, 1999 and June 30, 1998, respectively. A 10%
increase in average annual interest rates would not
have had a material impact on our interest expense for
fiscal 1999 or fiscal 1998.
Based on our average balance of cash and cash
equivalents and short-term investments during fiscal
1999, a 10% decrease in average annual interest rates
would not have a material impact on our interest income.
Foreign Currency Exchange Rate Risk
Our Company is subject to foreign currency
exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated transactions. Based on
our average annual net currency positions in fiscal 1999
and 1998, a 10% adverse change in average annual
foreign currency exchange rates would not have been
material to our consolidated financial statements for
the years ending June 30, 1999 or 1998.
We use foreign currency options and forward con-
tracts with maturities of up to 12 months to manage
our foreign currency exchange rate risk.
In fiscal 1998, we used foreign currency forward
contracts, generally with maturities of less than two
months, to mitigate foreign currency risk. We did not use
foreign currency option contracts in fiscal 1998. For
additional information regarding our foreign currency
exchange rate risk management program, see Note 4 of
the Notes to the Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
This Annual Report to Shareowners includes for-
ward-looking statements as defined in the Private Securi-
ties Litigation Reform Act of 1995. We may also make
forward-looking statements about our Company and our
business either verbally or in writing. We use the words
"believes," "expects," "estimates" and similar expres-
sions to identify forward-looking statements.
All forward-looking statements involve a number
of risks and uncertainties that could cause actual
results to differ materially from projected results.
Factors and events that could cause these differences
include, but are not limited to:
general economic conditions;
competitive factors, such as the airline pricing envi-
ronment, international alliances, code-sharing pro-
grams and capacity decisions by competitors;
outcomes of negotiations on collective bargaining
agreements;
changes in aircraft fuel prices;
fluctuations in foreign currency exchange rates;
actions by the United States and foreign governments;
and
the willingness of customers to travel.
In addition, the following factors relate to our
Year 2000 program:
the ability to identify and remediate all date-sensitive
lines of computer code or to replace embedded com-
puter chips in affected systems or equipment;
the availability of qualified information technology
personnel and other information technology
resources; and
the actions of governmental agencies or other third
parties with respect to Year 2000 problems.
DELTA AIR LINES 1999 ANNUAL REPORT
J 5
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 A D 1998
DELTA AIR LIN E , I
ASSETS 1999 1998
(In Millions)
Current Assets:
Cash and cash equivalents $ 1,124 $ 1,077
Short-term investments 19 557
Accounts receivable, net of allowance for
uncollectible accounts of $30 at June 30,
1999 and $36 at June 30, 1998 602 938
Deferred income taxes 403 464
Prepaid expenses and other 524 326
Total current assets 2,672 3,362
Property and Equipment:
Flight equipment 13,389 11,180
Less: Accumulated depreciation 4,405 3,895
8,984 7,285
Flight equipment under capital leases 515 515
Less: Accumulated amortization 264 216
251 299
Ground property and equipment 3,862 3,285
Less: Accumulated depreciation 2,123 1,854
1,739 1,431
Advance payments for equipment 493 306
Total property and equipment 11,467 9,321
Other Assets:
Marketable equity securities 523 424
Investments in associated companies 300 326
Cost in excess of net assets acquired, net of
accumulated amortization of $121 at
June 30, 1999 and $112 at June 30, 1998 782 265
Leasehold and operating rights, net of accumulated
amortization of $220 at June 30, 1999 and
$209 at June 30, 1998 113 124
Other noncurrent assets 687 781
Total other assets 2,405 1,920
Total assets $16,544 $14,603
J 6 DELTA AIR LINES 1999 ANNUAL REPORT
LIABILITIES AND SHAREOWNERS' EQUITY
(In Millions, Except Share Data)
Current Liabilities:
Current maturities of long-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
Total deferred credits
Commitments and Contingencies (Notes 4, 5, 6, 7 and 8)
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 6,547,495 shares
at June 30, 1999 and 6,603,429 shares at June 30, 1998
Unearned compensation under employee stock ownership plan
Total Employee Stock Ownership Plan Preferred Stock
Shareowners' Equity:
Common stock, $1.50 par value; authorized 450,000,000 shares;
issued 179,763,547 shares at June 30, 1999
and 176,566,178 shares at June 30, 1998
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock at cost, 41,209,828 shares at June 30, 1999
and 26,115,784 shares at June 30, 1998
Total shareowners' equity
Total liabilities and shareowners' equity
The accompanying notes are an integral part of these Consolidated Balance Sheets.
$
1999
660
39
2,144
1,819
195
470
5,327
1,756
1,894
720
196
820
470
5,856
642
76
718
471
(276)
195
270
3,208
2,756
149
(1,935)
4,448
$16,544
$
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
DELTA AIR LINES 1999 ANNUAL REPDRT J 7
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR E DED JUNE 30, 1999, 1998 A D 1997
DELTA AIR LI E , I C.
(In Millions, Except Per Share Data) 1999 1998 1997
Operating Revenues:
Passenger $13,417 $12,994 $12,505
Cargo 557 582 554
Other, net 737 562 535
Total operating revenues 14,711 14,138 13,594
Operating Expenses:
Salaries and related costs 4,993 4,850 4,534
Aircraft fuel 1,360 1,507 1,722
Passenger commissions 867 980 1,017
Depreciation and amortization 961 860 710
Contracted services 772 694 630
Other selling expenses 755 681 677
Landing fees and other rents 707 649 649
Aircraft rent 590 552 547
Aircraft maintenance materials and outside repairs 561 495 434
Passenger service 500 450 389
Restructuring and other non-recurring charges 52
Other 775 726 702
Total operating expenses 12,841 12,444 12,063
Operating Income 1,870 1,694 1,531
Other Income (Expense):
Interest expense (199) (186) (207)
Interest capitalized 46 38 33
Interest income 52 79 63
Miscellaneous income (expense), net 57 23 (5)
Total other income (expense) (44) (46) (116)
Income Before Income Taxes 1,826 1,648 1,415
Income Taxes Provided (725) (647) (561)
Net Income 1,101 1,001 854
Preferred Stock Dividends (11) (11) (9)
Net Income Available To Common Shareowners $ 1,090 $ 990 $ 845
Basic Earnings Per Share $ 7.63 $ 6.64 $ 5.70
Diluted Earnings Per Share $ 7.20 $ 6.34 $ 5.52
The accompanying notes are an integral part of these consolidated statements.
J 8 DEL
TA AIR LINES 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES , INC .
(In Millions)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to cash
provided by operating activities:
Restructuring and other non-recurring charges
Depreciation and amortization
Deferred income taxes
Rental expense in excess of (less than) rent payments
Pension, postretirement and postemployment expense
in excess of payments
Changes in certain current assets and liabilities:
Decrease in accounts receivable
(Increase) decrease in prepaid expenses and other
current assets
Increase in air traffic liability
Increase in other payables and accrued expenses
Other, net
Net cash provided by operating activities
Cash Flows From Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments
Ground property and equipment
Decrease (increase) in short-term investments, net
Proceeds from sale of flight equipment
Acquisition, net of cash acquired
Net cash used in investing activities
Cash Flows From Financing Activities:
Payments on long-term debt and capital
lease obligations
Payments on notes payable
Cash dividends
Issuance of long-term obligations
Issuance of short-term obligations
Issuance of common stock
Income tax benefit from exercise of stock options
Repurchase of common stock
Net cash used in financing activities
Net Increase (Decrease) In Cash and Cash Equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these consolidated statements.
1999 1998 1997
$ 1,101 $ 1,001 $ 854
52
961 860 710
418 294 240
10 (17) (58)
34 179 92
339 5 25
(176) 15 (31)
152 249 4
12 330 186
78 (35)
2,929 2,916 2,039
(2,258) (1,760) (1,598)
(561) (531) (350)
568 (43) (1)
30 10 8
(570)
(2,791) (2,324) (1,941)
(154) (307) (196)
(277)
(43) (43) (44)
324 125
779
131 318 38
34 84
(885) (354) (379)
(91) (177) (581)
47 415 (483)
1,077 662 1,145
$ 1,124 $ 1,077 $ 662
DELTA AIR LINES 1999 ANNUAL REPORT J 9
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999, 1998 A D 1997
DELTA AIR LI E , I
Accumulated
Additional Retained Ocher
ommon Paid-In Earnings omprehensive Treasury
(In Millions, Except hare Data) rock apical (Deficit) Income Stock Total
Balance at June 30, 1996 $21 7 $2,627 $ (119) $126 $ (311) $2,540
Fiscal Year 1997:
Net income 854 854
Dividends on common stock ($0.10 per share) (15) (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares (9) (9)
Issuance of 1,496,984 shares of common stock
under dividend reinvestment and stock purcha e
plan and stock options ($32.61 per share::) 2 47 (7) 42
Issuance of 21,258,930 shares of common stock
on conversions of Series C Preferred Stock
($32.19 per share"") 32 (32)
Repurchase of 10,757,400 common shares
($35.27 per share':) (379) (379)
Accumulated other comprehensive income (25) (25)
Other 3 (4) (1)
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 ($0.10 per share) (15) (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares (11) (11)
Issuance of 9,276,084 shares of common stock
under dividend reinvestment and stock purchase
plan and stock options ($34.28 per share::) 14 304 318
Repurchase of 6,316,746 common shares
( $5 6. 04 per share,:-) (354) (354)
Income tax benefit from exercise of stock options 84 84
Transfer of 99,082 shares of common stock from
treasury under stock incentive plan ($38.59 per share':) - 3 3
Accumulated other comprehensive income (12) (12)
Other 1 1 2
Balance at June 30, 1998 265 3,034 1,687 89 (1,052) 4,023
Fiscal Year 1999:
Net income 1,101 1,101
Dividends on common stock ($0.10 per share) (14) (14)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares (11) (11)
Issuance of 3,197,369 shares of common stock
under dividend reinvestment and stock purchase
plan and stock options ($41.01 per share': ) 5 126 131
Repurchase of 15,149,658 common shares
($58.45 per share':-) (885) (885)
Income tax benefit from exercise of stock options 34 34
Transfer of 55,614 shares of common stock from
treasury under stock incentive plan ($36.54 per share':) - 2 2
Accumulated other comprehensive income 60 60
Other 14 (7) 7
Balance at June 30, 1999 $270 $3,208 $2,756 $149 $(1,935) $4,448
Y.Average price per share.
The accompanying notes are an integral part of these consolidated statements.
40 DELTA AIR LINES 1999 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Delta Air Lines, Inc. (a Delaware
corporation) is a major air carrier that provides air trans-
portation for passengers, freight and mail throughout
the United States and around the world. As of August
1999, we served 184 domestic cities in 44 states, the
District of Columbia, Puerto Rico and the U.S. Virgin
Islands, as well as 42 cities in 29 international countries.
Basis of Presentation - Our consolidated financial
statements contain information for Delta Air Lines, Inc.
and our wholly owned subsidiaries (Delta or our Com-
pany). We have eliminated all significant intercompany
account balances and transactions. We have also reclas-
sified certain amounts from prior years to be consistent
with the presentation in our 1999 financial statements.
Use of Estimates - Preparing our financial statements in
conformity with generally accepted accounting princi-
ples requires us to make estimates and assumptions
that affect the amounts reported in our financial state-
ments and the accompanying footnotes. Actual results
could differ from those estimates.
New Accounting Standards - During fiscal 1999, we
adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (see
Note 12) and SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information" (see Note 13).
During fiscal 1998, we adopted SFAS 128, "Earnings
Per Share" (see Note 14) and SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits" (see Note 9). During fiscal 1997, we adopted
SFAS 123, "Accounting for Stock-Based Compensation"
(see Note 15).
Cash and Cash Equivalents - We classify short-term,
highly liquid investments with original maturities of
three months or less as cash and cash equivalents.
These investments are stated at cost, which approxi-
mates fair value.
Depreciation and Amortization - Owned flight
equipment is depreciated on a straight-line basis over
the estimated service lives, which range from 15 to 25
years, to a residual value ranging from 5% to 10% of
cost. We amortize flight equipment under capital leases
on a straight-line basis over the original terms of the
leases, which range from 6 to 13 years. Ground prop-
erty and equipment is depreciated on a straight-line
basis over the estimated service lives, which range from
3 to 30 years. Costs assigned to the purchase of lease-
hold rights and landing slots are amortized over the lives
of the leases at the associated airports. We amortize pur-
chased international route authorities over the lives of
the authorities as determined by their expiration dates.
Permanent route authorities with no stated expiration
dates are amortized over 40 years. Our cost in excess of
net assets acquired (goodwill) is amortized over 40 years
and is primarily related to our acquisition of ASA Hold-
ings, Inc. (ASA Holdings) in March 1999 and Western
Air Lines, Inc. in December 1986. ASA Holdings is the
parent of Atlantic Southeast Airlines, Inc. (ASA).
As of July 1, 1998, we increased the depreciable
lives of certain aircraft types from 20 to 25 years. The
change in estimate reduced depreciation expense by
$92 million ($0.64 basic and $0.60 diluted earnings
per share) for fiscal 1999.
Interest Capitalized - Interest paid on funds used to
acquire new aircraft and to construct ground facilities
is capitalized as an additional cost of the related assets.
We capitalize interest at our weighted average interest
rate on long-term debt or, if applicable, the interest
rate related to specific borrowings. Interest capitaliza-
tion ends when the property or equipment is ready for
service or its intended use.
Investments in Associated Companies - The equity
method of accounting is used for our investments in
WORLDSPAN, L.P., a computer reservations system
partnership, and Comair Holdings, Inc., the parent of
Comair, Inc. We own a 40% interest in WORLDSPAN
and a 22 % interest in Comair Holdings. Our equity
earnings in these investments totaled $54 million in fis-
cal 1999, $39 million in fiscal 1998 and $39 million in
DELTA AIR LINES 1999 ANNUAL REPORT 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LI E , I
fiscal 1997. We accounted for our investment in ASA
Holdings under the equity method until April 1, 1999,
when we began to con olidate its results (see ote
17). We acquired a majority interest in ASA Holdings
on March 22, 1999 and completed the acquisition on
May 11, 1999. Its results of operations for the period
March 22, 1999 through March 31, 1999 were not
material to our consolidated financial statements.
Frequent Flyer Program - The estimated incremental
cost of providing free travel awards earned under our
SkyMiles frequent flyer program is accrued as our
customers achieve free travel award levels. The accrued
cost is included in accounts payable and miscellaneous
accrued liabilities on our Consolidated Balance Sheets.
Delta also sells mileage credits to participating partners
in the SkyMiles program, such as hotels, car rental
agencies and credit card companies, and recognizes
the resulting revenue as other operating revenue at
the time of sale.
Passenger and Cargo Revenues - We record sales of
passenger tickets and cargo services as air traffic liability
on our Consolidated Balance Sheets. Passenger and cargo
revenues are recognized and the related air traffic lia-
bility is reduced when we provide the transportation.
Periodically, we evaluate the estimated air traffic liability
based on statistical and other reviews. Any resulting
adjustments, which can be significant, are included in
our Consolidated Statements of Operations in the period
that the evaluations are completed.
Def erred Gains on Sale and Leaseback
Transactions - Deferred gains on the sale and lease-
back of property and equipment under operating leases
are amortized over the lives of these leases. The gains
are reflected as a reduction in rent expense. Gains on
the sale and leaseback of property and equipment
under capital leases reduce the carrying value of the
related assets.
Manufacturers' Credits - Delta periodically receives
credits in connection with the acquisition of aircraft
and engines. These credits are deferred until the aircraft
4 2 DELTA AIR LINES 1999 ANNUAL REPORT
and engines are delivered, then applied on a pro rata
basis as a reduction to the cost of the related equipment.
Advertising Costs - We expense advertising costs
as other selling expense in the fiscal year incurred.
Advertising expense for fiscal 1999, 1998 and 1997
totaled $136 million, $105 million and $121 million,
res pecti vel y.
Foreign Currency Remeasurement- Assets and lia-
bilities denominated in foreign currencies are generally
remeasured using exchange rates in effect on the balance
sheet date. We recognize the resulting foreign exchange
gains and losses as a component of miscellaneous income
(expense). Fixed assets and the related depreciation or
amortization charges are recorded at the exchange
rates in effect on the date we acquired the assets.
Stock-Based Compensation - Stock-based compen-
sation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under
APB 25, we do not recognize compensation expense
for a stock option grant if the exercise price at the
measurement date is equal to or greater than the fair
market value of our common stock on the grant date
(see Note 15).
Stock Split - On October 22, 1998, our shareown-
ers approved an amendment to the Certificate of
Incorporation to increase our authorized common
stock from 150 million shares to 450 million shares,
and to decrease the par value of our common stock
from $3.00 to $1.50 per share. As part of this amend-
ment, which became effective on November 2, 1998,
our shareowners also approved a two-for-one split of
the issued common stock. All references in this annual
report to the number of shares of common stock
(including references to our broad-based employee
stock option programs and our common stock repur-
chase programs), our earnings per share and our per
share common stock prices have been restated to
reflect the stock split.
2. FINANCIAL INSTRUMENTS
Our financial instruments, except long-term debt
and certain investments, are carried at fair value or
have a carrying value which approximates fair value.
Long-Term Debt - The following table shows the
estimated fair value and carrying value of long-term
debt, including current maturities, at June 30, 1999
and 1998:
(In Billions)
Fair value
Carrying value
1999
$2.6
$2.4
1998
$1.9
$1.6
Fair values are estimated based on quoted market
prices, where available, or on discounted cash flow
analyses. Changes in assumptions or estimation meth-
ods may significantly affect these fair value estimates.
Marketable Equity Securities - On July 1, 1997, we
began accounting for our investment in SkyWest, Inc.
under the cost method due to a decrease in our owner-
ship percentage. Our investments in Singapore Airlines
Limited, SAirGroup and SkyWest are classified as
available-for-sale securities and are recorded at fair value.
The following table summarizes these investments:
(In Millions)
Singapore Airlines
SAirGroup
SkyWest
Quoted
Fair Value
June 30,
1999 1998
$335 $165
$110 $172
$ 78 $ 87
Cost Unrealized
Basis Gain (Loss)
June 30,
1999 1998
$181 $154 $(16)
$ 85 $ 25 $ 87
$ 14 $ 64 $ 73
Accumulated other comprehensive income reflects
the aggregate unrealized gains of these investments, net
of the related deferred tax provision, at June 30, 1999
and 1998. Our right to vote, transfer or acquire addi-
tional shares of stock of Singapore Airlines and
SAirGroup is subject to certain restrictions.
Short-Term Investments - Delta invests cash in
excess of operating requirements in short-term, highly
liquid investments. These investments are classified as
available-for-sale securities under SFAS 115 and are
stated at fair value. The aggregate fair value of short-
term investments totaled $19 million at June 30, 1999
and $557 million at June 30, 1998. Accumulated other
comprehensive income reflects unrealized gains and
losses from these investments, net of related deferred
taxes. The unrealized gains and losses on our short-
term investments were not material at June 30, 1999
and 1998.
Convertible Securities - During fiscal 1999, we entered
into an agreement with priceline.com Incorporated. Under
this agreement, ticket inventory provided by Delta is
sold through priceline.com's Internet-based e-commerce
system. As part of this agreement, we received warrants
to purchase up to 18.6 million shares of priceline.com's
common stock for $0.93 per share. The warrants are
exercisable beginning when certain performance thresh-
olds are met and ending December 31, 2005. We have
now met the performance thresholds relating to the
exercise of the warrants. These warrants, and the shares
issuable when the warrants are exercised, are not regis-
tered under the Securities Act of 1933; accordingly, the
fair value of these warrants is not reflected on our Con-
solidated Balance Sheets as of June 30, 1999.
The value of the priceline.com common stock
underlying our warrants is $1.2 billion, based upon the
NASDAQ closing price as quoted on August 13, 1999.
However, due to the nature of our equity interest in
priceline.com, the fair value of our unexercised war-
rants in priceline.com cannot be readily determined.
Subsequent to June 30, 1999 we executed a regis-
tration rights agreement with priceline.com which gives
us certain demand and piggyback registration rights for
the priceline.com common stock underlying our warrants.
We are currently evaluating which portion of the war-
rants will become readily available within the next year.
Upon completion of thi evaluation during the first quar-
ter of fiscal 2000, we will record the estimated fair value
of these warrants on our Consolidated Balance Sheets.
DELTA AIR LINES 1999 ANNUAL REPORT 4]
NOTES TO THE CONSOLIDATED FINANCIAL STA
TEMENTS
JUNE 30, 1999, 1998 A D 1997
DELTA AIR LINE , INC .
We are a member of the SITA Foundation, whose
principal asset is its equity interest in Equant, N.V., an
international data network services company. In February
1999, SITA sold a portion of its interest in Equant and
distributed the proceeds on a pro rata basis to members
that elected to participate in the offering. We sold approx-
imately one-third of our ownership in Equant as part of
this offering, resulting in a pretax gain of $26 million.
We now hold depository certificates that may become
convertible into 816,228 shares of Equant, N.V. Our
equity interest is not recorded on our Consolidated
Balance Sheets at June 30, 1999. The shares underlying
the value of these certificates had an estimated fair mar-
ket value of $72 million at August 13, 1999.
3. INCOME TAXES
Deferred income taxes reflect the net tax effect of
timing differences between the carrying amounts of
assets and liabilities for financial reporting and for
income tax purposes. The table below shows signifi-
cant components of our deferred tax assets and liabili-
ties at June 30, 1999 and 1998:
(In Millions)
Deferred Tax Assets:
Postretirement benefits
Other employee benefits
Gains on sale and leaseback
transactions (net)
Rent expense
Spare parts repair expense
Alternative minimum tax credit
carryforwards
Other
Total deferred tax assets
Deferred Tax Liabilities:
Depreciation and amortization
Other
Total deferred tax liabilities
44 DELTA AIR LINES 1999 ANNUAL REPORT
1999 1998
$ 766 $ 756
335 405
278 257
206 200
151
27
157
$1,920
$1,960
139
107
159
$2,023
$1,446
377 375
- - - -
$2,337 $1,821
Income taxes provided in fiscal 1999, 1998 and
1997 consisted of:
(In Millions)
Current taxes
Deferred taxes
Tax benefit of dividends on
allocated Series B ESOP
1999
$(307)
(423)
Convertible Preferred Stock 5
Income taxes provided $(725)
1998
$(353)
(298)
4
$(647)
1997
$(321)
(244)
4
$(561)
The following table shows the difference between
the income tax provision recorded for fiscal 1999,
1998 and 1997 and the amount that would result if we
applied the federal statutory tax rate to pretax income:
(In M1l/1ons) 1999
Income before income taxes $1,826
Items not deductible for
tax purposes:
Meals and entertainment
Amortization of goodwill
Other, net
Adjusted pretax income
Federal statutory tax rate
Federal income tax provision
at statutory rate
State and other
income taxes
Income taxes provided
41
11
(20)
1,858
35%
(650)
(75)
$ (725)
1998 1997
$1,648 $1,415
42 39
9 9
(27) (17)
1,672 1,446
35% 35%
(585) (506)
(62) (55)
$ (647) $ (561)
Our income tax payments, net of income tax
refunds, totaled $242 million in fiscal 1999, $244 mil-
lion in fiscal 1998 and $336 million in fiscal 1997.
4. RISK MANAGEMENT
Fuel Price Risk Management - Our Company uses
options and other non-leveraged, over-the-counter
instruments, which have maturities of up to 36 months,
to manage the risk associated with changes in aircraft
fuel prices. In fiscal 1998, we primarily entered into
swap contracts to manage fiscal 1999 risk. The changes
in the market value of fuel hedging contracts have a
high correlation to changes in aircraft fuel prices. Gains
and losses from fuel hedging contracts are recognized
as part of fuel expense when we use the underlying fuel
hedged. Premiums paid to enter into hedging contracts
are recorded as prepaid expenses and amortized to fuel
expense over the contract settlement period. We do not
enter into fuel hedging contracts for trading purposes.
At June 30, 1999, we had entered into hedge
agreements for a total of 4.6 billion gallons of our
projected aircraft fuel requirements for fiscal years
2000 through 2002, including approximately 80%
of our projected fiscal 2000 fuel requirements. At
June 30, 1999, these contracts had an estimated
fair value of $333 million with unrealized gains of
$137 million.
At June 30, 1998, we had entered into hedge agree-
ments for 2.1 billion gallons of our projected aircraft
fuel requirements for fiscal 1999. On that date, these
contracts were in a loss position of $19 million, with
unrealized losses of $32 million.
During fiscal 1999, our Board of Directors increased
our maximum fuel hedging horizon from 12 months to
36 months. This change impacted the notional amounts
and estimated fair values of our fuel hedging contracts
at June 30, 1999 compared to June 30, 1998.
Foreign Currency Exchange Risk Management -
Foreign currency options and forward contracts are
used to manage the risk associated with our net foreign
currency-denominated transactions. The contracts are
denominated in the same currency in which the projected
foreign cash flows are expected to occur and have matu-
rities of up to 12 months. The principal amount of out-
standing foreign currency forward contracts totaled
approximately $26 million at June 30, 1999. The
notional amount of option contracts outstanding at
June 30, 1999 was approximately $330 million. At
June 30, 1998, the principal amount of foreign cur-
rency forward contracts outstanding totaled approxi-
mately $26 million. The estimated fair value of our
foreign currency contracts was not material at June 30,
1999 or 1998. We do not enter into foreign currency
hedging contracts for trading purposes.
We recognize the gains and losses from foreign
currency exchange contracts as a component of mis-
cellaneous income (expense) as we recognize the
underlying transaction. These gains and losses are not
material for any period presented in our consolidated
financial statements.
Credit Risk Management- To manage credit risk
associated with our fuel price and foreign currency
exchange risk management programs, we select counter-
parties based on their credit ratings and limit our expo-
sure to any one counterparty under defined guidelines.
We also monitor the market position of these programs
and our relative market position with each counterparty.
The credit exposure related to these programs was not
significant to our Company at June 30, 1999.
Concentration of Credit Risk - Our accounts
receivable are generated largely from the sale of airline
tickets and cargo services to customers who are eco-
nomically and geographically dispersed. In addition,
our accounts receivable are generally short-term in
duration. Therefore, we believe we have no significant
concentration of credit risk.
DELTA AIR LINES 1999 ANNUAL REPORT 4 5
NOTES TO THE CONSOLIDATED FINANCIAL STA
TEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LI E , I
5. LONG-TERM DEB
T
The following table summarizes our long-term debt, including current maturities, at June 30, 1999 and 1998:
(In Millions) 1999 1998
Medium-Term ote, Series A and B, unsecured, intere t rates from 8.25% to 9.15%;
maturities ranging from 1999 to 2007 $ 61 $ 128
97/i % otes, unsecured, due May 15, 2000 142 142
1999 Bank Credit Agreement, 5.92% interest, due March 22, 2001
8% otes, unsecured, due March 15, 2002
500
71 71
6.65% Medium-Term otes, Series C, unsecured, due March 15, 2004 300
8.10% Series C Guaranteed Serial ESOP otes, unsecured, due in installments between 2002 and 2009
101/s Debentures, unsecured, due May 15, 2010
290
113
290
113
103/s Debentures, unsecured, due February 1, 2011 175 175
Development Authority of Fulton County, unsecured loan agreement, $19 million due 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
125
101
9% Debentures, unsecured, due May 15, 2021
103/s Debentures, unsecured, due December 15, 2022
Other
Total
Less: Current maturities
Total long-term debt
Our variable interest rate long-term debt is shown
using interest rates in effect at June 30, 1999.
1999 Bank Credit Agreement - During fiscal 1999,
we entered into a $500 million credit agreement with
a group of banks to finance a portion of our purchase
of ASA Holdings (see Note 17). Our interest rate under
this agreement is either the base rate or the Eurodollar
rate, plus a margin that is dependent on Delta's long-
term senior unsecured debt ratings. This agreement
expires on March 22, 2001, but we may prepay the
outstanding borrowings at any time.
The 1999 Bank Credit Agreement contains negative
covenants. These covenants restrict our ability to grant
liens, to incur or guarantee debt and to enter into
flight equipment leases. This agreement also provides
that, if our long-term senior unsecured debt is rated
below investment grade, we are required to maintain a
specific coverage ratio as of the last day of each fiscal
quarter. The banks have the right to terminate the
4 6 DELTA AIR LINES 1999 ANNUAL REPORT
250 250
66 66
222 139
2,416 1,600
660 67
$1,756 $1,533
agreement if there is a change of control of Delta. In
this event all outstanding borrowings would become
due immediately.
At August 13, 1999, $500 million was outstanding
under our 1999 Bank Credit Agreement. This obligation
is included in current maturities of long-term debt on
our Consolidated Balance Sheets because we intend to
repay the amounts outstanding before June 30, 2000.
1997 Bank Credit Agreement - Under our 1997
Bank Credit Agreement with a group of banks, we
may borrow up to $1.25 billion on an unsecured and
revolving basis until May 1, 2002, subject to our com-
pliance with certain conditions. We may use up to
$700 million of this facility for the issuance of letters
of credit. Our interest rate under this facility is either
LIBOR or the prime rate, plus a margin that is depen-
dent on Delta's long-term senior unsecured debt rat-
ings. We can also obtain loans through a competitive
bid procedure.
The 1997 Bank Credit Agreement contains negative
covenants and a change of control provision similar to
the corresponding provisions of the 1999 Bank Credit
Agreement. At June 30 and August 13, 1999, no amounts
were outstanding under the 1997 Bank Credit Agreement.
Series C ESOP Notes - At June 30, 1999, there were
$290 million of Delta Family-Care Savings Plan's
Series C Guaranteed Serial ESOP Notes outstanding.
We guarantee the Series C ESOP Notes, which are
payable in installments between July 1, 2002 and
January 1, 2009. Under the note purchase agreements
related to the Series C ESOP Notes, the noteholders
have the option to require us to purchase the Series C
ESOP Notes if the credit rating of our long-term
senior unsecured debt falls below Baa3 by Moody's
and BBB- by Standard & Poor's (a purchase event).
We have no obligation to purchase the Series C ESOP
Notes if we obtain, within a certain amount of time
of a purchase event, a credit enhancement that
increases the debt rating for the Series C ESOP
Notes to at least A3 by Moody's and A- by Standard &
Poor's (required ratings). The purchase price of the
Series C ESOP Notes would include their outstanding
principal amount, accrued interest and, potentially, a
make whole premium amount.
During fiscal 1993, a purchase event occurred. We
obtained a credit enhancement that resulted in the
Series C ESOP Notes receiving the required ratings.
Accordingly, we were not required to purchase the
Series C ESOP Notes as a result of this purchase event.
The credit enhancement for the Series C ESOP Notes
is currently provided in the form of a letter of credit
issued under a $425 million letter of credit facility
with ABN AMRO Bank and a group of banks. This
facility, which expires June 6, 2000, contains negative
covenants and a change of control provision similar to
those in the 1999 and 1997 Bank Credit Agreements.
If there is a drawing on the letter of credit, we must
repay it immediately or convert our repayment obliga-
tion to a short-term loan. At August 13, 1999, the
face amount of the letter of credit was $421 million.
It covers the $290 million of outstanding principal
of the Series C ESOP Notes, up to $98 million of
make whole premium amount and approximately one
year of interest on the Series C ESOP Notes.
We also have a trust indenture with a third-party
trustee and the Delta Family-Care Savings Plan which
contains terms and conditions 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 payments
of principal and interest on the Series C ESOP Notes,
and to purchase the Series C ESOP Notes in certain
circumstances in which we would not be required to
purchase the Series C ESOP Notes under the note pur-
chase agreements. The indenture requires the trustee
to purchase the Series C ESOP Notes at the option of
the noteholders if:
1. the required ratings on the Series C ESOP Notes are
not maintained;
2. the letter of credit is not extended 20 days before its
scheduled expiration date;
3. we terminate the letter of credit; or
4. the trustee receives notice that an event of default
has occurred under the letter of credit facility.
In the situations described above, the trustee may not
repurchase the Series C ESOP Notes if the Series C
ESOP Notes receive the required ratings within 10 days
of the event.
The required ratings on the Series C ESOP Notes
can be changed at any time, and are subject to confir-
mation annually, by Moody's and Standard & Poor's.
Circumstances that might cause either rating agency to
lower or fail to confirm its rating include, but are not
limited to, the following:
1. downgrading of the deposits of the issuer of the
letter of credit to below A3 by Moody's or below
A- by Standard & Poor's; or
2. a determination that the make whole premium
amount covered by the letter of credit is insufficient.
DELTA AIR LINES 1999 ANNUAL REPORT 4 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 A D 1997
DELTA AIR LI E , I
The indenture doe not permit the tru tee to pur-
cha e the erie ESOP ote if they receive the required
rating without a credit enhancement. The erie C
E OP ote are not likely to receive the required rat-
ing without a credit enhancement unle our long-term
enior unsecured debt is rated at lea t A3 by Moody's
and A- by tandard & Poor's. On Augu t 13, 1999,
our long-term enior unsecured debt was rated Baa3
by Moody's and BBB- by tandard & Poor' .
Future Maturities - At June 30, 1999, the annual
scheduled maturities of long-term debt during the next
five fi cal years were as follow :
Year Ending June 30
(In Milltons) Amount
2000 $ 660
2001 16
2002 86
2003 22
2004 312
After 2004 $1,320
Cash payments for interest, net of interest capital-
ized, totaled $130 million in fiscal 1999, $152 million
in fiscal 1998 and $171 million in fiscal 1997.
Debt Covenants - Our debt agreements contain
negative covenants, but these covenants do not limit
the payment of dividends on our capital stock. The
terms of the Series B ESOP Convertible Preferred Stock
limit our ability to pay cash dividends to our common
shareowners in certain circumstances (see Note 10).
ASNs credit agreements contain negative covenants
that apply only to the financial position of ASA. The
covenants, among other things, limit ASNs ability to
transfer funds in the form of cash dividends, loans or
advances. At June 30, 1999, approximately $218 mil-
lion of ASNs net assets were subject to these restric-
tions and approximately $57 million of net assets were
available for distribution by ASA to Delta under the
most restrictive of these provisions.
48 DELTA AIR LINES 1999 ANNUAL REPORT
6. LEASE OBLIGATIONS
Our Company lea e aircraft, airport terminal and
maintenance facilitie , ticket office and other property
and equipment. We record rent expen e on a straight-
line ba i over the life of the lea e. Rental expense for
operating lea e totaled $1.1 billion in fi cal 1999,
$0.9 billion in fiscal 1998 and $0.9 billion in fiscal
1997. Amount due under capital leases are recorded
a liabilitie , and our intere t in a et acquired under
capital lease are hown as assets on our Consolidated
Balance heets.
The following table summarize our minimum
rental commitment under capital lease and operating
lea es with initial or remaining terms of more than
one year a of June 30, 1999:
Year Ending June 30 Capital
(In M1/l1ons)
2000
2001
2002
2003
2004
After 2004
Total minimum lease payments
Less: Amounts of lease payments which
represent interest
Present value of future minimum capital
lease payments
Less: Current obligations under capital leases
Long-term capital lease obligations
Leases
$ 63
57
57
48
32
40
297
62
235
39
$196
Operating
Leases
$ 1,020
1,030
1,040
1,020
980
9,440
$14,530
As of June 30, 1999, we operated 208 aircraft
under operating leases and 48 aircraft under capital
leases. These leases have remaining terms ranging from
6 months to 18 years. Several municipalities and air-
port authorities have issued special facility revenue
bonds to build or improve airport terminal and main-
tenance facilities that we lease. Under these operating
lease agreements, we are required to make rental pay-
ments that are sufficient to pay principal and interest
on these bonds.
7. PURCHASE COMMITMENTS
Future expenditures for aircraft and engines on
firm order as of August 13, 1999 are estimated at
approximately $10.0 billion. The following table
shows the timing of these commitments:
Year Ending June 30
(In Millions) Amount
2000 $2,310
2001 2,710
2002 1,190
2003 920
2004 740
After 2004 2,080
Total $9,950
Our purchase commitments at August 13, 1999
include future payments for eleven 777 aircraft on order.
These future payments have been included in the above
table based on their delivery dates under the purchase
agreement. As discussed in "Personnel Matters - 777-200
Negotiations" on page 32 of Management's Discussion
and Analysis, delivery of these aircraft has been deferred
indefinitely. These deferrals may impact the timing of
future payments.
Capital expenditures of approximately $794 million
have also been authorized for fiscal 2000 for airport
and office facility improvements, aircraft modifica-
tions, and the purchase of ground equipment and other
assets. We expect to finance our commitments and
other capital expenditures with available cash, short-
term investments and internally generated funds,
supplemented as necessary by debt financings and
proceeds from sale and leaseback transactions.
Delta has code-sharing agreements with several air-
lines. Under some of these agreements, we have com-
mitments to purchase a block of seats at negotiated
prices. None of these agreements require a purchase
commitment in excess of one year.
8. CONTINGENCIES
Delta is a defendant in legal actions related to
alleged employment discrimination practices, antitrust
matters, environmental issues and other matters con-
cerning our business. Although the ultimate outcome of
these matters cannot be predicted with certainty, we
believe that the resolution of these actions is not likely
to have a material adverse effect on our consolidated
financial statements.
Approximately 14 % of our employees are repre-
sented by unions. See "Personnel Matters - Collective
Bargaining Agreements" on page 32 of Management's
Discussion and Analysis for additional information on
this subject.
9. EMPLOYEE BENEFIT PLANS
Delta sponsors defined benefit and defined contri-
bution pension plans, medical plans and disability and
survivorship plans for eligible employees, their eligible
family members and retirees. We reserve the right to
modify or terminate these plans as to all participants
and beneficiaries at any time, except as restricted by
the Internal Revenue Code or ERISA.
Defined Benefit Pension Plans:
The retirement plans we sponsor include defined
benefit pension plans. The qualified defined benefit
plans are currently funded to meet the minimum
ERISA funding requirements.
The following table shows the change in projected
benefit obligation for our defined benefit pension plans
for the plan years ended June 30, 1999 and 1998:
(In Millions)
Projected benefit obligation at
beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Curtailment loss
Plan amendments
Projected benefit obligation at
end of year
1999 1998
$8,342 $ 7,591
240 209
585 575
158 608
(456) (648)
1
3 6
$8,872 $8,342
DELTA AIR LINES 1999 ANNUAL REPORT 4 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
J E 0, 1999, 1998 D 1997
DELTA AIR LI E , I
The following table show the change in the fair
value of defined benefit pension plan a et for the plan
years ended June 30, 1999 and 1998:
(In Millions) 1999 1998
Fair value of plan a sets at beginning
of year 9,121 $7,512
Actual return on plan assets 310 2,203
Employer contributions 45 54
Benefits paid (456) (648)
Fair value of plan assets at end of year $9,020 $9,121
The accrued pension cost recognized for these
plans on our Consolidated Balance Sheets is computed
as follows:
(In Millions) 1999 1998
Funded status $ 148 $ 779
Unrecognized net actuarial gain (607) (1,231)
Unrecognized transition obligation 60 62
Unrecognized prior service cost 37 39
Contributions made between April 1
and June 30 12 12
Intangible asset (13) (12)
Other comprehensive income (2) (2)
Accrued pension cost recognized on the
Consolidated Balance Sheets $(365) $ (353)
Net periodic pension cost for fiscal 1999, 1998
and 1997 included the following components:
(In Millions) 1999 1998 1997
Service cost $ 240 $ 209 $ 188
Interest cost 585 575 570
Expected return on plan assets (776) (685) (653)
Amortization of prior service cost 5 3 3
Recognized net actuarial (gain) loss (4) 3
Amortization of net transition
obligation 2 2 2
Net periodic pension cost $ 56 $ 100 $ 113
5 Q DELTA AIR LINES 1999 ANNUAL REPORT
We u ed the following actuarial assumptions
to determine the actuarial pre ent value of our pro-
jected benefit obligation:
March 31: 1999 1998
Weighted average di count rate 7.25% 7.00%
Rate of increase in future
compensation levels 4.43% 4.30%
Expected long-term rate of return
on plan as ets 10.00% 10.00%
Delta also sponsors several non-qualified pension
plans which are funded from current assets. The accu-
mulated benefit obligation of these plans totaled
$301 million at March 31, 1999 and $285 million
at March 31, 1998.
Defined Contribution Pension Plans:
Delta Pilots Money Purchase Pension Plan
(MPPP) - We contribute 5% of covered pay to the
MPPP for each eligible Delta pilot. The MPPP is related
to the Delta Pilots Retirement Plan. The defined bene-
fit pension payable to a pilot is reduced by the actu-
arial equivalent of the accumulated account balance
in the MPPP. During fiscal 1999, 1998 and 1997, we
recognized expense of $53 million, $54 million and
$49 million, respectively, for this plan.
Delta Family-Care Savings Plan - Our Savings
Plan includes an employee stock ownership plan
(ESOP) feature. Eligible personnel may contribute a
portion of their earnings to the Savings Plan. Delta
matches 50% of those contributions with a maximum
employer contribution of 2 % of a participant's earn-
ings. We make quarterly employer contributions by
allocating Series B ESOP Convertible Preferred Stock,
common stock or cash to the plan. These contribu-
tions, which are recorded as salaries and related costs
in our Consolidated Statements of Operations, totaled
$52 million in fiscal 1999, $49 million in fiscal 1998
and $45 million in fiscal 1997.
When we adopted the ESOP in 1989, we sold
6,944,450 shares of Series B ESOP Convertible
Preferred Stock to the Savings Plan for approximately
$500 million. We have recorded unearned compensa-
tion equal to the value of the preferred stock sold to
the Savings Plan but not yet allocated to participants'
accounts. We reduce the unearned compensation as
shares of the preferred stock are allocated to partici-
pants' accounts. Dividends on unallocated shares of
preferred stock are used for debt service on the
Savings Plan's Series C ESOP Notes and are not con-
sidered dividends for financial reporting purposes.
Dividends on allocated shares of preferred stock are
credited to participants and are considered dividends
for financial reporting purposes. Only allocated shares
of preferred stock are considered outstanding when we
compute diluted earnings per share.
ASA Investment Savings Plan - ASA sponsors a
defined contribution retirement plan for its eligible
employees. Eligible personnel may contribute a portion
of their earnings to the plan and ASA matches from
20% to 75% of those contributions, depending on the
number of years an employee has participated in the
plan. The maximum annual employer contribution is
6% of a participant's earnings. The ASA Investment
Savings Plan did not have a material impact on our
consolidated financial statements for the year ended
June 30, 1999.
Postretirement Benefits Other Than Pensions:
Our medical plans provide medical and dental ben-
efits to substantially all Delta retirees and their eligi-
ble dependents. Benefits are funded from general assets
on a current basis. Plan benefits are subject to copay-
ments, deductibles and other limits as described in the
plans. Benefits are reduced when a retiree is eligible
for Medicare.
The following table shows the change in our accu-
mulated postretirement benefit obligation (APBO) for
the plan years ended June 30, 1999 and 1998:
(In Millions) 1999 1998
APBO at beginning of year $1,627 $1,565
Service cost 37 33
Interest cost 112 110
Benefits paid (71) (64)
Actuarial gain (65) (17)
Substantive plan change (28)
APBO at end of year $1,612 $1,627
The following table shows the calculation of the
accrued postretirement benefit cost recognized on our
Consolidated Balance Sheets:
(In Millions) 1999 1998
Funded status $(1,612) $(1,627)
Unrecognized net loss 1 61
Unrecognized prior service cost (371) (388)
Contributions made between April 1
and June 30 17 16
Accrued postretirement benefit cost
on the Consolidated Balance Sheets $(1,965) $(1,938)
Net periodic postretirement benefit cost for
fiscal 1999, 1998 and 1997 included the following
components:
(In Millions) 1999 1998 1997
Service cost $ 37 $ 33 $ 25
Interest cost 112 110 115
Amortization of prior
service cost (40) (38) (38)
Recognized net actuarial
(gain) loss (2) 1
Other (10)
Net periodic postretirement
benefit cost $ 99 $103 $103
DELTA AIR LINES 1999 ANNUAL REPORT 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 199 AND 1997
DELTA AIR LI ES , I C .
We used the following actuarial assumptions to
determine the actuarial present value of our APBO:
March 31: 1999 1998
Weighted average discount rate 7.25% 7.00%
As urned health care cost trend rate~ 5.50% 6.00%
"The assumed health care cost trend rate is assumed to decline gradually to
4.2510 by March 31, 2000 and remain level after that pomt.
A 1 % change in the health care cost rate used in
measuring the APBO at March 31, 1999 would have
the following effects:
(In Millions)
Increase (decrease) in total
service and interest cost
Increase (decrease) in the APBO
1 % Increase 1 % Decrease
$ 15
$141
$ (13)
$(127)
Postemployment Benefits - Delta provides certain
other welfare benefits to eligible former or inactive
employees after employment but before retirement,
primarily as part of disability and survivorship plans.
Postemployment benefit (income) expense was
$(13) million in fiscal 1999, $74 million in fiscal 1998
and $71 million in fiscal 1997. We include the amount
funded in excess of the liability in other noncurrent
assets on our Consolidated Balance Sheets. Future period
expenses will vary based on actual claims experience
and the return on plan assets.
Gains and losses occur because actual experience
differs from assumed experience. These gains and
losses are amortized over the average future service
period of employees. We also amortize differences in
prior service costs resulting from amendments affecting
the benefits of retired and inactive employees.
We continually evaluate ways to better manage
employee benefits and control costs. Any changes to
the plans or assumptions used to estimate future bene-
fits could have a significant effect on the amount of
the reported obligation and future annual expense.
5 2 DELTA AIR LINES 1999 ANNUAL REPORT
10. COMMON AND PREFERRED STOCK
In fiscal 1999, we issued 2,463,427 shares of com-
mon stock under our broad-based employee stock
option plans and a total of 733,942 shares of common
stock under our 1989 Stock Incentive Plan and Dividend
Reinvestment and Stock Purcha e Plan. We also distrib-
uted 55,614 shares of common stock from treasury
under the 1989 Stock Incentive Plan. During fiscal
1999, we repurchased 15,149,658 shares of common
stock as part of our share repurchase programs
described in Note 11.
At June 30, 1999, our Company had shares of
stock reserved as follows:
38,615,471 shares of common stock for issuance
under our broad-based employee stock option plans;
14,538,639 shares of common stock for issuance
under our 1989 Stock Incentive Plan;
11,232,228 shares of common stock for conversion
of Series B ESOP Convertible Preferred Stock;
500,000 shares of common stock for issuance under
our Non-Employee Directors' Stock Option Plan;
494,341 shares of common stock for issuance under
our Non-Employee Directors' Stock Plan; and
2,250,000 shares of preferred stock for issuance
under our Shareowner Rights Plan.
Each share of Series B ESOP Convertible Preferred
Stock pays a cumulative cash dividend of 6% per year.
Each preferred share is convertible into 1.7155 shares
of common stock at a conversion price of $41.97 and
has a liquidation price of $72, plus accrued and unpaid
dividends. The preferred stock generally votes together
as a single class with the common stock and has two
votes per share. The preferred stock is redeemable at
our option at $72 per share, payable in cash or com-
mon stock. We cannot pay cash dividends on common
stock until all cumulative dividends on the preferred
stock have been paid. The conversion rate, conversion
price and voting rights of the preferred stock are sub-
ject to adjustment in certain circumstances.
The Shareowner Rights Plan is designed to protect
shareowners against attempts to acquire our Company
that do not offer an adequate purchase price to all
shareowners, or are otherwise not in the best interest
of our Company and our shareowners. Under the plan,
each outstanding share of common stock is accompa-
nied by one-half of a preferred stock purchase right.
Each whole right entitles the holder to purchase 1/100
of a share of Series D Junior Participating Preferred
Stock at an exercise price of $300, which is subject
to adjustment.
The rights become exercisable only after a person
acquires, or makes a tender or exchange offer that
would result in the person acquiring, beneficial owner-
ship of 15% or more of our common stock. If a per-
son acquires beneficial ownership of 15% or more of
our common stock, each right will entitle its holder
(other than the acquiring person) to exercise his or her
rights to purchase our common stock having a market
value of twice the exercise price.
Alternatively, if a person acquires beneficial own-
ership of 15% or more of our common stock and
either (a) we are involved in a merger or other busi-
ness combination in which our Company is not the
surviving corporation or (b) we sell more than 50%
of our assets or earning power, then each right will
entitle its holder (other than the acquiring person) to
exercise his or her rights to purchase the common
stock of the acquiring company, having a market
value of twice the exercise price.
The rights expire on November 4, 2006. Delta may
redeem the rights for $0.01 per right until 10 business
days following the announcement that a person benefi-
cially owns 15% or more of our common stock.
11 . SHARE REPURCHASE AUTHORIZATIONS
In April 1996, our Board of Directors authorized
us to repurchase a total of 49.4 million shares of com-
mon stock and common stock equivalents. Under this
authorization, we could repurchase up to 12.4 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. We
may purchase the remaining shares as employees exer-
cise their stock options under those plans (see Note 15).
Repurchases are subject to market conditions, and
may be made on the open market or in privately
negotiated transactions.
The following table summarizes our repurchase
activity under this authorization:
Amount
Number of Shares Spent
Repurchased (In Millions)
Fiscal 1999 1,943,053 $128
Fiscal 1998 6,158,000 $345
Fiscal 1997 10,757,400 $379
In July 1998, our Board of Directors authorized us
to repurchase up to $750 million of common stock
through December 31, 1999. We completed this repur-
chase program during fiscal 1999 by repurchasing
13 095 420 shares of common stock for approximately
' '
$750 million.
12. COMPRE
HENSIVE INCOME
During fiscal 1999, we adopted SPAS 130, which
establishes standards for reporting comprehensive
income and its components. The adoption of SPAS
130 had no net effect on our net income or shareown-
ers' equity for fiscal years ended June 30, 1999, 1998
and 1997. Comprehensive income for the fiscal years
ended June 30, 1999, 1998 and 1997 included the fol-
lowing components:
For the Year Ended June 30,
(In Mzllions) 1999 1998 1997
Net income $1,101 $1,001 $854
Unrealized gain (loss) on
marketable equity securities 99 (22) (40)
Other 1 (1)
Total other comprehensive
income 99 (21) (41)
Income tax effect on other
comprehensive income (39) 9 16
Total other comprehensive
income, net of income taxes 60 (12) (25)
Comprehensive income,
net of income taxes $1,161 $ 989 $829
DELTA AIR LINES 1999 ANNUAL REPORT 5 J
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
J E 30, 1999, 1998 D 1997
DELTA AIR LI E , I
13. GEOGRAPHIC INFORMATION
During fiscal 1999, we adopted SFAS 131, which
require us to disclose information about all operating
segments. Under SFAS 131, operating segments are
defined as components of an enterprise with separate
financial information which is evaluated regularly by
the chief operating decision maker and is used in
resource allocation and performance assessments. We
are managed as a single business unit that provides air
transportation of passengers and cargo. Our operating
revenues by geographic region are summarized in the
following table:
(In Millions)
Domestic
Atlantic
Pacific
Latin America
Total
1999 1998 1997
$12,070 $11,497 $11,027
1,973
326
2,092
304
342 245
$14,711 $14,138
2,024
325
218
$13,594
Operating revenues are assigned to a specific geo-
graphic region based on the origin and destination of
each flight segment. Our tangible assets consist pri-
marily of flight equipment, which is mobile across
geographic markets. Therefore, assets are not allocated
to specific geographic regions.
14. EARNINGS PER SHARE
We calculate basic earnings per share by dividing
the income available to common shareowners by the
weighted average number of common shares out-
standing. Diluted earnings per share includes the dilu-
tive effects of stock options and convertible securities.
The following table shows our computation of basic
and diluted earnings per share:
5 4 DELTA AIR LINES 1999 ANNUAL REPORT
Fiscal Year Ended June 30,
\ (In M,ll,ons, Except Per Share Data)
Basic:
Net income
Dividends on allocated
Series B ESOP Convertible
Preferred Stock
Income available to
common shareowners
Weighted average shares
outstanding
Basic earnings per share
Diluted:
et income
Adjustment to net income
assuming conversion of
allocated Series B ESOP
Convertible Preferred Stock
Income available to
1999
$1,101
(11)
$1,090
142.9
$ 7.63
$1,101
(4)
common shareowners $1,097
Weighted average shares
outstanding 142.9
Additional shares assuming:
Exercise of stock options 4.7
Conversion of allocated
Series B ESOP Convertible
Preferred Stock
Conversion of Series C
Convertible Preferred Stock
Weighted average shares
outstanding as adjusted
Diluted earnings per share
4.7
152.3
$ 7.20
1998
$1,001
(11)
$ 990
149.2
$ 6.64
$1,001
(4)
$ 997
149.2
3.8
4.2
157.2
$ 6.34
1997
$ 854
(9)
$ 845
148.3
$5.70
$ 854
(5)
$ 849
148.3
1.2
3.8
.6
153.9
$5.52
15. STOCK OPTIONS AND AWARDS
Under our 1989 Stock Incentive Plan and a prede-
cessor plan, we 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 mea -
suring price of the SARs, is the fair market value of
our common stock on the grant date.
In fiscal 1997, our shareowners approved two
broad-based employee stock option plans. One plan is
for eligible nonpilot personnel and the other plan covers
eligible pilots.
The nonpilot and pilot plans involve non-qualified
stock options to purchase a total of 49.4 million shares
of common stock. The plans provided for grants in
three annual installments on October 30, 1998, 1997
and 1996. The exercise price of each grant equaled the
opening per share price of the common stock on the
New York Stock Exchange on the grant date. Stock
options are generally exercisable during the period
beginning one year after their grant date and ending
ten years after their grant date, and are not transfer-
able for any reason other than the death of the eligible
employee. The following table summarizes grant activ-
ity under the broad-based plans for the years ended
June 30, 1999, 1998 and 1997:
Options Granted Exercise Price
Grant Date (In Millions) (Per Share)
October 30, 1996 16.4 $34.50
October 30, 1997 16.6 $49.00
October 30, 1998 16.4 $50.59
The following table summarizes all stock option and SAR activity during fiscal 1999, 1998 and 1997:
Fiscal 1999 Fiscal 1998 Fiscal 1997
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Stock Options (000) Price (000) Price (000) Price
Outstanding at beginning of fiscal year 30,006 $45 19,802 $35 4,664 $33
Granted 19,639 51 19,698 50 17,864 35
Exercised (3,256) 41 (9,318) 35 (2,558) 34
Forfeited (245) 51 (176) 46 (168) 38
Outstanding at end of fiscal year 46,144 48 30,006 45 19,802 35
Stock options exercisable at fiscal
year end 26,640 $45 10,422 $35 2,098 $32
The following table summarizes information about stock options outstanding and exercisable at June 30, 1999:
Stock Options Outstanding Stock Options Exercisable
Number Weighted Number
Range of Outstanding at Average Expected Weighted Exercisable at Weighted
Exercise June 30, 1999 Remaining Life Average June 30, 1999 Average
Prices (000) (Years) Exercise Price (000) Exercise Price
$26-$34 240 5 $26 240 $26
$35-$41 8,242 4 35 8,242 35
$42-$63 37,662 5 50 18,158 50
DELTA AIR LINES 1999 ANNUAL REPORT 5 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 D 1997
DELTA AIR LI E , I
The e timated fair value of tock option granted
in fi al 1999 1998 and 1997 wa derived u ing the
Black- choles tock option pricing model. The follow-
ing table how our a umption and the weighted
average fair value of tock option :
tock Options Granted m Fi cal Year
As umption 1999 1998 1997
Risk-free intere t rate 4.3% 5.81
0
6.010
Average e pected life of
stock option (m years) 5.1 3.3 2.7
Expected volatility of
common tock 26.3% 25.3 10
26.4%
E pected annual dividend
on common tock 0.10 0.10 $0.10
Weighted average fair
value of stock options 16 $ 13 $ 9
The following table hows our net income and
earnings per share as if we accounted for our tock
option plans under the fair value method of SFAS 123:
For the Year Ended June 30,
1999 1998 1997
et income (in millions}:
As reported $1,101 $1,001 $ 854
Fair value method
under SFAS 123 935 875 791
Basic earnings per share:
As reported $ 7.63 $ 6.64 $5.70
Fair value method
under SFAS 123 6.47 5.80 5.27"
Diluted earnings per share:
As reported $ 7.20 $ 6.34 $5.52
Fair value method
under SFAS 123 6.11 5.54 5.11 *
Restated in accordance wtth SFAS 128.
5 6 DELTA AIR LINES 1999 ANNUAL REPORT
Under FAS 123, we are not required to include
tock option granted before fiscal 1996 a compensa-
tion in determining pro forma net income. Therefore,
the pro forma effect of FA 123 on net income and
earning per share for fiscal 1999 may not be repre enta-
tive of the pro forma effect of SFA 123 in future years.
In July 1999, we granted approximately 1.7 million
tock option , with exerci e price ranging from $60 to
$63 per hare.
16. SALE OF RECEIVABLES
During June 1999, we entered into an agreement
under which we sold a defined pool of our accounts
receivable, on a revolving ba i , through a pecial pur-
po e, wholly owned sub tdiary to a third party. We ini-
tially old receivable with a fair value of $54 7 million
to the ub idiary. In exchange for the receivables sold,
we received (a) $325 million in cash from the sub-
sidiary's ale of an undivided interest in the pool of
receivables to a third party and (b) a $222 million sub-
ordinated promissory note from the subsidiary. The
amount of the promissory note fluctuates because it rep-
resent the portion of the purcha e price payable for the
volume of receivables old. We retained servicing and
record-keeping responsibilities for the receivables sold.
This agreement expire on June 15, 2000.
As part of the agreement, the subsidiary is obli-
gated to pay fees to a third party based on the amounts
invested by the third party. For fiscal 1999, these fees
totaled approximately $2 million and are included in
other income (expense) under miscellaneous income
(expense), net in our Consolidated Statements of Oper-
ations. The promissory note totaled $17 5 million at
June 30, 1999 and is included as accounts receivable
on our Consolidated Balance Sheets.
17. ACQUISITION OF ASA HOLDINGS, INC.
On February 16, 1999, we entered into an agree-
ment with ASA Holdings to acquire its outstanding
common stock for approximately $700 million. ASA
Holdings is a holding company whose principal assets
are its wholly owned subsidiaries, ASA and ASA
Investments, Inc. ASA is a regional air carrier that
serves airports primarily in the southeastern United
States. ASA Investments, Inc. manages cash for ASA
Holdings and ASA. Prior to this agreement, we owned
approximately 28 % of ASA Holdings' outstanding
common stock.
Delta acquired ASA Holdings in two steps. In the
first step, our wholly owned subsidiary made a tender
offer to purchase all of the outstanding shares of ASA
Holdings for $34 per share. At the completion of the
tender offer in March 1999, we owned approximately
91 % of the outstanding common stock of ASA Holdings.
The second step occurred in May 1999, when our
wholly owned subsidiary merged into ASA Holdings.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
As a result of this merger, ASA Holdings' remaining out-
standing shares of common stock were converted into
the right to receive $34 per share. ASA Holdings became
an indirect, wholly owned subsidiary of our Company.
We used the purchase method of accounting to
record the acquisition of ASA Holdings. The purchase
price of the shares acquired was allocated to the assets
acquired and the liabilities assumed. The allocation was
based on the preliminary estimated fair values at the
acquisition date. Based on the allocation as of June 30,
1999, the total cost of the acquisition exceeded the
estimated fair value of the underlying net assets by
approximately $508 million, which will be amortized
over 40 years. Our consolidated financial statements
as of June 30, 1999 include ASA Holdings' balance
sheet as of June 30, 1999, as well as its results of oper-
ations from April 1, 1999. The pro forma effects had
ASA Holdings been consolidated as of July 1, 1998
would not have been material to our revenues, net
income, or earnings per share for fiscal 1999.
The following table summarizes our unaudited quarterly results of operations for fiscal 1999 and 1998
(in millions, except per share data):
Three Months Ended
Fiscal 1999 Sept. 30 Dec. 31 Mar. 31 June 30
Operating revenues $3,802 $3,448 $3,504 $3,957
Operating income $ 552 $ 320 $ 356 $ 642
Net income $ 327 $ 194 $ 216 $ 364
Basic earnings per share'''' $ 2.19 $ 1.34 $ 1.51 $ 2.59
Diluted earnings per share'''' $ 2.08 $ 1.29 $ 1.42 $ 2.40
Fiscal 1998 Sept. 30 Dec. 31 Mar. 31 June 30
Operating revenues $3,553 $3,434 $3,390 $3,761
Operating income $ 431 $ 332 $ 336 $ 595
Net income $ 254 $ 190 $ 195 $ 362
Basic earnings per share'''' $ 1.71" $ 1.26 $ 1.29 $ 2.39
Diluted earnings per share'''' $ 1.63'' $ 1.20 $ 1.23 $ 2.26
*Restated to conform with SPAS 128.
* *The sum of the quarterly earnings per share may not equal the fiscal earnings per share due to changes in average share calculations.
DELTA AIR LINES 1999 ANNUAL REPORT 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
DELTA AIR LI E
TO DELTA AIR LINES, INC.:
We have audited the accompanying consolidated balance
sheets of Delta Air Lines, Inc. (a Delaware corporation)
and subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations, cash flows
and shareowners' equity for each of the three years in
the period ended June 30, 1999. These financial state-
ments are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with gen-
erally 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 support-
ing the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting
5 8 DELTA AIR LINES 1999 ANNUAL REPORT
principles used and significant estimates made by man-
agement, as well as evaluating the overall financial state-
ment 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 of June 30, 1999 and 1998, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
June 30, 1999, in conformity with generally accepted
accounting principles.
~ ~ J_ j_ p
Atlanta, Georgia
August 13, 1999
REPORT OF MANAGEMENT
DELTA AIR LINES, INC.
The integrity and objectivity of the information pre-
sented in this Annual Report are the responsibility of
Delta management. The financial statements contained
in this report have been audited by Arthur Andersen LLP,
independent public accountants, whose report appears
on page 5 8 of this report.
Delta maintains a system of internal financial con-
trols which are independently assessed on an ongoing
basis through a program of internal audits. These con-
trols include the selection and training of the Company's
managers, organizational arrangements that provide a
division of responsibilities, and communication pro-
grams explaining the Company's policies and standards.
We believe that this system provides reasonable assur-
ance that transactions are executed in accordance with
management's authorization; that transactions are
appropriately recorded to permit preparation of financial
statements that, in all material respects, are presented in
conformity with generally accepted accounting princi-
ples; and that assets are properly accounted for and safe-
guarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities
for these financial statements through its Audit Com-
mittee, which consists solely of directors who are neither
officers nor employees of the Company. The Audit
Committee meets periodically with the independent pub-
lic accountants, the internal auditors and representatives
of management to discuss internal accounting control,
auditing and financial reporting matters.
Edward H. West
Chief Financial Officer
Leo F. Mullin
President and
Chief Executive Officer
DELTA AIR LINES 1999 ANNUAL REPORT 5 9
CONSOLIDATED SUMMARY OF OPERATIONS
DELTA AIR LINES, INC.
For the fiscal year ended June 30
(In Millions, Except Per Share Data)
Operating revenues
Operating expenses
Operating income (loss)
Interest expense, net
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
Earnings (loss) per share7
Basic
Diluted
Dividends declared on common stock
Dividends declared per common share7
OTHER FINANCIAL AND STATISTICAL DATA
For the fiscal year ended June 30
Total assets (millions)
Long-term debt and capital leases
(excluding current maturities) (millions)
Shareowners' equity (millions)
1999 1998
$14,711 $14,138
12,841 12_,444
1,870 1,694
(153) (148)
109 102
1,826 1,648
(725) (647)
1,101 1,001
(11) (11)
$ 1,090 $ 990
$ 7.63 $ 6.64
$ 7.20 $ 6.34
$ 14 $ 15
$ 0.10 $ 0.10
1999 1998
$16,544 $14,603
$ 1,952 $ 1,782
$ 4,448 $ 4,023
19971 19962
$13,594 $12,455
12,063 11,990
1,531 465
(174) (243)
58 54
1,415 276
(561) (120)
854 156
(9) (82)
$ 845 $ 74
$ 5.70 $ 0.72
$ 5.52 $ 0.72
$ 15 $ 10
$ 0.10 $ 0.10
19971 19962
$12,741 $12,226
$ 1,797 $ 2,175
$ 3,007 $ 2,540
Shares of common stock outstanding at year end7 138,553,719 150,450,394 147,391,974 135,556,212
Revenue passengers enplaned (thousands)
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
106,902
144,003
104,575
10.22
12.83
8.92
72.6%
62.5%
20,627
12,115
62.25
104,148 101,147
140,149 136,821
101,136 97,758
10.09 9.94
12.85 12.79
8.88 8.82
72.2% 71.4%
62.8% 62.7%
19,890 18,984
11,859 11,308
62.56 63.54
1 Summary of operations and other financial and statistical data include $52 million in pretax restructuring and other non-recurring charges
($0.22 basic and $0.21 diluted after-tax earning_s per share).
2 Summary of operations and other financial and statistical data include $829 million in pretax restructuring and other non-recurring charges
($4.88 after-tax earnings per share).
3 Summary of operations and other financial and statistical data excludes $114 million after-tax cumulative effect of change in accounting standards
($1.13 basic and $0.71 diluted earnings per share).
4 Summary of operations and other financial and statistical data include $526 million in pretax restructuring charge ($3.30 after-tax per share).
5 Summary of operations and other financial and statistical data include $82 million pretax restructuring charge ($0.53 after-tax per share).
Summary of operations excludes $587 million after-tax cumulative effect of changes in accounting standards ($5.89 after-tax per share).
6 Includes interest income.
7 All share and earnings per share amounts for fiscal years prior to 1999 have been restated to reflect the two-for-one common stock split that became
effective on November 2, 1998.
6 Q DELTA AIR LINES 1999 ANNUAL REPORT
91,341
130,751
88,673
9.53
13.10
9.17
67.8%
65.1%
18,084
10,235
66.30
19953 19944 19935 1992 1991 1990 1989
$12,194 $12,077 $11,657 $10,837 $9,171 $8,583 $8,089
11~5_TI_ __!b522 12_,_167 11,477 9,604 8,145 7,394
661 (445) (510) (640) (433) 438 695
(262) (271) (177) (151) (97) (27) (39)
95 56 36 5 30 57 55
494 (660) (651) (786) (500) 468 711
(200) 250 233 271 163 (187) (279)
1 3 9 13 22 29
294 (409) (415) (506) (324) 303 461
(88) (110) (110) (19) (19) (18)
$ 206 $ (519) $ (525) $ (525) $ (343) $ 285 $ 461
$ 2.04 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.90 $ 4.69
$ 2.01 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.64 $ 4.69
$ 10 $ 10 $ 35 $ 59 $ 54 $ 85 $ 59
$ 0.10 $ 0.10 $ 0.35 $ 0.60 $ 0.60 $ 0.85 $ 0.60
19953 19944 19935 1992 1991 1990 1989
$12,143 $11,896 $11,871 $10,162 $8,411 $7,227 $6,484
$ 3,121 $ 3,228 $ 3,716 $ 2,833 $2,059 $1,315 $ 703
$ 1,827 $ 1,467 $ 1,913 $ 1,894 $2,457 $2,596 $2,620
101,632,020 100,906,544 100,127,682 99,398,196 98,803,558 92,172,220 98,531,768
88,893 87,399 85,085 77,038 69,127 67,240 64,242
130,645 131,906 132,282 123,102 104,328 96,463 90,742
86,417 85,268 82,406 72,693 62,086 58,987 55,904
9.33 9.16 8.81 8.80 8.79 8.90 8.91
13.10 13.23 13.23 13.91 13.80 13.63 13.56
8.83 9.49 9.20 9.32 9.21 8.44 8.15
66.2% 64.6% 62.3% 59.1% 59.5% 61.2% 61.6%
62.3% 67.2% 65.6% 63.0% 62.6% 58.0% 56.1%
18,150 18,302 18,182 16,625 13,825 12,500 11,725
10,142 9,911 9,503 8,361 7,104 6,694 6,338
63.54 68.42 66.92 69.03 69.47 65.16 63.06
DELTA AIR LINES 1999 ANNUAL REPORT 61
SHAREOWNER INFORMATION
D LT IR LI , I
TRAN F R GENT, REG! TRAR AND
DIVID D P YING GENT FOR COMMO TO K
Regi tered hareowner inquirie regarding tock tran fer ,
addre change , lo t tock certifi ate dividend payments
or ac ount con olidation hould be directed to:
Fir t hicago Tru t a di i ion of Equi erve
P. 0. Bo 2500
Jer e it , e Jer ey 07303-2500
Telephone (201) 324-1225
(http://www.equi er e.com)
TOCK PUR HA E PL
Regi tered owner of common tock ma purcha e additional
hare of uch tock through automatic dividend reinve t-
ment or ca h contribution under the Company' Dividend
Reinve tment and tock Purcha e Plan. Inquiries, notices,
reque t and other communication regarding participation
in the plan hould be directed to:
Fir t Chicago Trust a divi ion of Equi erve
P. 0. Bo 2598
Jer ey City, ew Jer ey 07303-2598
Telephone (201) 324-1225
(http://www.equiserve.com)
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Ander en LLP
133 Peachtree Street .E.
Atlanta, Georgia 30303
ANNUAL MEETING
The Annual Meeting of Shareowners will be held on
Thursday, October 28, 1999, at 9:00 a.m., local time, at
the Bo ton Harbor Hotel at 70 Rowes Wharf on Atlantic
Avenue, Boston, Massachussetts 02110.
AVAILABILITY OF FORM 10-K AND
OTHER FINANCIAL INFORMATIO
A copy of our Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999 will be provided
without charge upon written request. Requests for other
financial documents may also be directed to:
Delta Air Lines, Inc.
Investor Relations, Department 829
P. 0. Box 20706
Atlanta, Georgia 30320-6001
Telephone (404) 715-2170
A copy of this Annual Report and Company documents
filed electronically can be found on Delta's website
(http://www.delta-air.com).
Telephone inquiries related to financial information, other
than requests for financial documents, may be directed to
Delta Investor Relations at (404) 715-5039.
62 DELTA AIR LINES 1999 ANNUAL REPORT
OMMON TOCK
Li ted on the New York Stock Exchange under the ticker
symbol DAL.
NUMBER OF SHAREOWNERS
A of August 1, 1999, there were approximately 21,550 reg-
i tered owners of common stock.
MARKET PRICES AND DMDENDS
Cash Dividends
per
Fiscal Year 1999 Common tock Common Share
Quarter Ended: High Low
September 30 $71 2 $46 % $0.025
December 31 57 '6 41 1
2 0.025
March 31 70'6 49 0.025
June 30 71 % 55 6 0.025
Fiscal Year 1998
Quarter Ended: High Low
September 30 $53 % $41 $0.025
December 31 60 6 47 6 0.025
March 31 61 '6 55 6 0.025
June 30 64 '6 55 0.025
ore: The stock prices listed above have been adjusted to
reflect the two-for-one common stock split effective
ovember 2, 1998.
AVAILABILITY OF EQUAL EMPLOYMENT
OPPORTUNITY REPORT
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
AVAILABILITY OF ENVIRONMENTAL REPORT
A copy of the Company's Environmental Report is
available on-line at http://www.delta-air.com or upon
written request. Requests may be directed to:
Delta Air Lines, Inc.
Corporate Communications, Department 978
P.O. Box 20706
Atlanta, Georgia 30320-6001
Photography by Delta Photography Department
Designed and produced by Corporate Reports Inc./Atlanta
(D Printed on recycled paper.
I
Guangzhou
Asia/Pacific
Delta continued to experience weakness
in the Pacific due to the decline in the
Asian economy.
--------
service will b e discontinued on Oc tober 1, 1999.
West
DELTA TAKES YOU FROM ANYWHERE TO EVERYWHERE
Midwest
Delta enhanced its Midwest market
position by adding new Delta Express
service to Florida.
Northeast
Delta continued to strengthen its position by
adding new international service from New
York-Kennedy, by adding frequencies in key
Northeast business markets, by expanding
the Delta Shuttle to the Boston-Washington-
Reagan market and by adding new
Delta Express markets to Florida.
Southeast
Delta had strong traffic and revenue
growth in East-West markets, which
resulted from the strategy of reallocating
assets from North-South short-haul
leisure markets to East-West long-haul
Delta continued to grow the Atlanta
Worldport by increasing service to
numerous domestic markets and
four new international markets
(Athens, Barcelona, Istanbul, and
Rome). The Atlanta Worldport
remains the largest single-carrier
hub in the world.
business markets.
Latin America
Delta's Latin America entity achieved strong
revenue improvement over fiscal 1998, when Delta uma
initiated service to six new Latin America countries.
Delta is expanding its presence to Mexico by adding
frequencies to key business markets (Mexico City,
Monterrey, and Guadalajara). The Delta/AeroMexico
code-share agreement continues to grow and enhance
Delta's Latin America entity.
Fortaleza f
I Recife
f i SaoPaul
Curitiba\ /
j Florian6polls
PO
rto Alegre
Banjul
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North Atlantic
Delta maintained its leadership position across
the North Atlantic with new flights from the Atlanta
and New York-Kennedy gateways. Delta's global
position will be greatly enhanced by the
Delta/Air France Alliance.
otonou
Lome
Harare
Johannesburg
Moscow
Effective Summer 1999
Delhi
Mumbai
(B
ombay)
Flights are subject to change without notice.
- - Delta Air Lines route
- - Code-share route operated by
one of Delta's Airline Partners
T0Color,d0Sprlng1
DELTA'S CONNECTION CARRIERS DELTA'S NORTH AMERICAN NETWORK
Delta's strategic partnerships with regional connection carriers allow it to extend
its domestic reach. These allies make it possible for Delta travelers to reach
even more U.S. destinations easily and quickly. Connection carriers - just one
more way Delta is working to take passengers from anywhere to everywhere.
Corpu1Ch1U
Mlnn11p0Ut1
St,Paur.
CedarRlpldt/
Iowa City
D
"~'"" '-. Ch
/
Hou1ton
...
Orle1n1
Albuquerque
K1yWHI //
I
~acuN M
anchtster .
-.. AJ.b1:n
.1,/:
Phl11delphl1
~\\oe\9'rlla
i . "'f"
\
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6
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Delta's hub operations in Atlanta, Cincinnati, Salt Lake City, Dallas/Fort Worth and
New York-Kennedy form the backbone of the continent's largest airline and offers
customers the most efficient connections across North America. From Atlanta
alone, Delta provides travelers with 647 daily flights to 127 destinations including
the premier gateway to Latin America. Today, travelers want to go in many different
directions and Delta's North American network gives them a good start on taking
them from anywhere to everywhere.
Oaxaca
Acapulco
Grand cayman
Effective Summer 1999
Flights are subject to change without notice.
- - Delta Air Lines route
- - Delta Air Lines Express route
- - Code-share route operated by
one of Delta 's Airline Partners
Destination served by Delta Air Lines
* State capital (destination)
S\'"o"'as
S\,cto\'j.
~ .Delta Air Lines P.O. Box 20706. Atlanta, Georgia 30320-6001 U.S.A. http://www.delta-air.com