Delta Air Lines reported results for the quarter and year ending December 31, 2005 with a fourth quarter net loss of $1.2 billion. Excluding reorganization and special items, the fourth quarter net loss was $782 million.
For 2005, Delta’s net loss was $3.8 billion. Excluding reorganization and special items, the full year 2005 net loss was $2.2 billion.
Despite significant losses, Delta achieved important milestones
in its reorganization during the fourth quarter of 2005, including
strengthening its route network, making progress in restructuring
its aircraft fleet and reducing its employment costs.
As of December 31, 2005, Delta had $2.9 billion in cash and cash
equivalents, of which $2.0 billion was unrestricted.
Delta reported a net loss of $1.2 billion in the fourth quarter of 2005, compared to a net loss of $2.2 billion in the fourth quarter of 2004. Excluding the reorganization and special items described below, the net loss was $782 million in the fourth quarter of 2005. Excluding the special items described below, the net loss was $780 million in the fourth quarter of 2004.
For the full year 2005, Delta recorded a net loss of $3.8 billion, compared to 2004’s full year net loss of $5.2 billion. Excluding reorganization and special items, the net loss was $2.2 billion in 2005. Excluding the special items described below, the net loss was $2.3 billion in 2004.
“Losses of the magnitude that Delta recorded in 2005 are not sustainable,” said Edward H. Bastian, Delta’s executive vice president and chief financial officer. “These losses emphasize the need for the urgency with which we have to pursue route network and revenue improvements and the use of the bankruptcy process to reduce the cost and complexity of our business.”
On September 14, 2005, Delta filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Since the filing, Delta has worked diligently to become a simpler, more efficient and customer-focused company. Through its restructuring efforts, Delta:
Strengthened its route network by adjusting capacity to match
demand, including reducing capacity in its Cincinnati hub,
utilizing smaller aircraft in its Atlanta domestic operations
and shifting wide-body aircraft to its expanded international
operations. The Company also announced plans to begin non-stop
service from Atlanta and New York’s John F. Kennedy International
Airport to new markets in Europe, Latin America, Africa and the
Middle East, and to launch a new long-haul domestic Song(r)
Made significant progress in restructuring its aircraft fleet
to reduce its cost structure and match its fleet to future needs.
In addition to a number of restructured aircraft arrangements for
which it is seeking bankruptcy court approval, Delta has already
reduced its fleet by 76 aircraft through the bankruptcy
restructuring process and lease returns.
Reduced employment costs through employee productivity
improvements; pay and benefit reductions for non-pilot employees,
including executives; and an interim agreement with the union
representing Delta’s pilots, ALPA.
“2006 will be a year for Delta to stabilize our financial situation,” Bastian continued. “While masked by the high cost of fuel, our restructuring initiatives have begun to produce tangible results this quarter in the form of increased unit revenue and lower mainline non-fuel costs. By maintaining our focus on these efforts, I am confident that we can be successful in positioning Delta to emerge from bankruptcy as a profitable, competitively strong airline.”
For the fourth quarter of 2005, consolidated passenger unit revenue increased 7.8 percent and consolidated passenger mile yield increased 7.7 percent, compared to the fourth quarter of the previous year. Total revenue for the fourth quarter of 2005 and full year 2005 improved 6.2 percent and 6.3 percent, respectively, compared to the same periods in the prior year. Delta is beginning to see the expected unit revenue improvement from the structural changes it has made to strengthen its route network.
As a result of higher fuel prices, Delta paid $410 million more for fuel in the fourth quarter of 2005 than it did in the fourth quarter of 2004, and $1.5 billion more for the full year 2005 as compared to the full year 2004.(3) Driven by fuel and special items, Delta’s mainline unit costs increased by 15.7 percent in comparison to the fourth quarter of 2004. Excluding fuel and special items, mainline unit costs decreased 7.1 percent for the quarter as compared to the fourth quarter of 2004.(4) For the full year 2005, mainline unit costs increased 4.8 percent as compared with 2004; however, excluding fuel and special items, mainline unit costs decreased 12.5 percent.
At December 31, 2005, the company had $2.9 billion in cash and cash equivalents, of which $2.0 billion was unrestricted. In January 2006, Delta completed a letter of credit facility with Merrill Lynch that enables the company to utilize up to $300 million in cash that would have been held in reserve by Delta’s Visa/MasterCard processor. At December 31, 2005, Delta was in compliance with all of the financial covenants in its post-petition financing arrangements.
Reorganization and Special Items
In the fourth quarter of 2005, Delta recorded $453 million in charges for reorganization and special items. These items are described below:
—a $277 million charge for reorganization items. This net charge
primarily reflects estimated pre-petition bankruptcy claims for
aircraft and facilities lease matters, as well as professional
fees in the company’s Chapter 11 case.
—a $176 million net charge associated with pension and
restructuring items. Pension settlement charges totaled
$129 million and represent the accelerated recognition of
deferred actuarial losses, in accordance with SFAS 88,(5) due
primarily to lump sum retirement distributions from retirement
plan assets. Restructuring charges totaled $47 million and
represent estimated severance costs associated with
2005 workforce reduction programs.