Delta Reports Third Quarter Results

Delta Air Lines (NYSE:DAL) today reported results for the quarter ending September 30, 2002 and other significant news. The key points are, Delta:

Reports a third quarter net loss of $326 million, or $2.67 loss per common share. / Excluding unusual items, reports a third quarter net loss of $212 million, or $1.75 loss per common share. / Announces changes to its fleet plan for 2003 and 2004 that will reduce operating costs, capital expenditures and capacity.


Delta Air Lines today reported a net loss of $326 million and a loss per share of $2.67 for the September 2002 quarter versus a net loss of $259 million and loss per share of $2.13 in the September 2001 quarter. Excluding unusual items, the September 2002 quarter net loss and loss per share were $212 million and $1.75, respectively, versus a net loss of $295 million and loss per share of $2.43 in the September 2001 quarter. Note 2 to the attached consolidated statements of operations shows a reconciliation of the net loss excluding unusual items to the reported net loss.


“Clearly, today’s results are disappointing. Our industry is experiencing unprecedented financial challenges,” said Leo F. Mullin, chairman and chief executive officer. “As we have done for the past year, Delta will maintain tight control of all facets of our business and make the difficult but necessary decisions to ensure that our airline makes it successfully through these challenging times.”


Year-over-year comparisons of both financial and operational performance are significantly impacted by the 9/11 terrorist attacks, as well as the return to a normal schedule following the strike by Comair pilots in 2001. Third quarter operating revenues increased 0.6 percent, and passenger unit revenues increased 1.5 percent, compared to the September 2001 quarter.

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Excluding unusual items, operating expenses decreased 3.7 percent, unit costs decreased 1.3 percent and unit costs on a fuel price neutralized basis decreased 1.6 percent. Operating expenses, including unusual items, for the September 2002 quarter increased 4.3 percent. The load factor for the quarter was 74.3 percent on a 2.4 percent reduction in capacity, compared to 71.3 percent for the same period a year ago. For the September 2002 quarter, Delta’s completion factor was 99.3 percent versus 93.0 percent during the same period last year.


“We will continue to manage costs and liquidity while maintaining our financial flexibility,” said
M. Michele Burns, executive vice president and chief financial officer. “We are working to stay ahead of the business environment rather than allow these challenges to control our decisions.”


During the September 2002 quarter, and as outlined below, Delta has taken and will continue to take significant actions to help control costs. These include:


Grounding all MD-11 aircraft and deferring all deliveries of mainline aircraft to the fleet in 2003 and 2004. These actions will reduce domestic capacity, operating costs through fleet simplification, and $1.3 billion in capital expenditures over the two-year period. / Continued review of non-performing markets including the cancellation of flights to Rio de Janeiro and Buenos Aires. / Implementation of new customer service technology in airports and through delta.com that provides an increase in productivity.


In additional savings, Delta’s fuel hedging program reduced costs by $32 million, pretax, for the quarter. Delta hedged 50 percent of its jet fuel requirements in the September 2002 quarter at an average hedge price of $0.66 per gallon. Delta’s total fuel price for the period was $0.71 per gallon. For the December 2002 quarter, Delta has hedged 50 percent of its expected jet fuel requirements at an average price of $0.67 per gallon. For 2003, Delta has hedged 26 percent of its expected jet fuel requirements at an average price of $0.72 per gallon.


Delta continued to adjust capacity during the third quarter. Using the year 2000 for comparison, system capacity for the September quarter was down 8.3 percent and mainline capacity was down 10.6 percent. Delta’s fourth quarter system capacity is expected to be down 9.0 - 10.0 percent with mainline capacity down 12.0 percent from the December 2000 quarter.


Delta continued to preserve its financial flexibility, as discussed in its Form 8-K filed on September 27, 2002. For the September 2002 quarter, Delta had breakeven cash flow from operations. At September 30, 2002, Delta had cash and cash equivalents totaling $1.7 billion. Delta also had liquidity totaling $920 million available under existing credit agreements, as well as unencumbered aircraft with an estimated value of approximately $5.0 billion of which about $2.0 billion is Section 1110 eligible. These aircraft are available for use in potential financing transactions.


Delta expects to meet its obligations as they become due through available cash and cash equivalents, investments, internally generated funds, borrowings under existing credit agreements and new financing transactions.


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