Delta Air Lines Reports $383 Million Loss

Delta Air Lines reported a net loss of $383 million and a loss per share of $3.12 for the March 2004 quarter. The First Call mean estimate for the March 2004 quarter was a loss per share of $3.02 with estimates ranging between a loss per share of $2.49 and $3.15. In the March 2003 quarter, Delta reported a net loss of $466 million and a loss per share of $3.81. The March 2003 quarter included unusual charges described below of $40 million, or $0.32 per share1.
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“This was a disappointing quarter for Delta and there are more challenging times ahead,” said Gerald Grinstein, Delta’s chief executive officer. “Continued losses of this magnitude are unsustainable.Ê Delta must regain sustained profitability so we can compete effectively. The urgent task is to achieve a competitive cost structure so that Delta can generate a positive cash flow, reduce its debt burden and return to profitability.”
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Earnings Performance
First quarter operating revenues increased 4.3 percent and passenger unit revenues increased 0.6 percent, compared to the March 2003 quarter. The load factor for the March 2004 quarter was 70.6 percent, a 1.7 point increase as compared to the March 2003 quarter. System capacity was up 3.5 percent and mainline capacity was up 1.2 percent from the prior year.
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Operating expenses for the March 2004 quarter remained flat with the prior year, although capacity increased. Despite record high fuel costs, Delta’s unit costs decreased 3.6 percent from the March 2003 quarter. Fuel price neutralized unit costs2,3, excluding unusual items, decreased 3.8 percent.
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“These results clearly show the progress we have made in reducing costs through our profit improvement initiatives,” said M. Michele Burns, Delta’s executive vice president and chief financial officer. “These initiatives must be combined with achieving a lower pilot cost structure if the company is to reach its goal of cost competitiveness.”
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In the March 2004 quarter, Delta’s fuel hedging program reduced operating expenses by $32 million, pretax. Delta hedged 34 percent of its jet fuel requirements for the quarter at an average price of $0.76 per gallon, excluding fuel taxes. Delta’s average total fuel price for the March 2004 quarter was $0.95 per gallon.
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Guidance on fuel hedging, capacity, unit costs and other items is provided below.

Liquidity and Financing Transactions
At March 31, 2004, Delta had $2.5 billion in cash, of which $2.2 billion was unrestricted. The $500 million reduction in unrestricted cash from the Dec. 31, 2003 balance of $2.7 billion was primarily due to Delta’s contributions to its pension plans and debt repayments.
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During the quarter, Delta made a $325 million contribution to the Delta Retirement Plan. Delta also made a contribution of $71 million to the Delta Pilot Retirement Plan in March 2004. Delta’s debt payments for the quarter totaled approximately $400 million, including $236 million in principal repayments of unsecured notes that matured on March 15, 2004. Also during the quarter, Delta issued $325 million of convertible senior notes.
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For the March 2004 quarter, Delta had negative cash flow from operations of $280 million. Excluding pension funding, Delta had positive cash flow from operations of $116 million. Capital expenditures for the quarter were $227 million, including $102 million for aircraft and $125 million for non-fleet expenditures.
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Strategic Investments
While Delta is undergoing its strategic reassessment, the company continues to invest in products and services to strengthen its competitive position. In January, Delta announced that it is expanding its presence in New York City with enhancements to its service and terminal at John F. Kennedy International Airport (JFK), including an investment of approximately $300 million over the next six years to upgrade systems and processes which will enhance the customer’s travel and airport experience.
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Song, Delta’s low-fare unit, celebrated its one year anniversary this month. Song currently operates 36 aircraft and, this month, will complete the installation of its industry-leading in-flight entertainment system, featuring 24 channels of live, satellite television, 24 channels of audio programming and an interactive music trivia game.
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As previously announced, during the quarter Delta entered into an agreement to purchase 32 Bombardier CRJ-200 aircraft to be delivered in 2005. A third party has committed to finance, on a secured basis at the time of acquisition, the future deliveries of these aircraft. Delta plans to allocate this capacity growth primarily to serve its hubs.
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Explanation of Unusual Items
March 2003 Quarter
In the March 2003 quarter, Delta recorded, net of tax, (1) a $27 million charge for the cost of pension benefits related to the workforce reduction programs announced in October 2002; (2) a $9 million charge related to the purchase of a portion of outstanding ESOP Notes; and (3) a $4 million charge related to derivative and hedging activities accounted for under Statement of Financial Accounting Standard (SFAS) No. 133. The attached Consolidated Statement of Operations for the March 2003 quarter shows Delta’s net loss as reported under GAAP, as well as net loss excluding these items. Delta believes this information is helpful to investors to evaluate recurring operational performance because the unusual items are not representative of core operations.
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