Investment Proposal
Delta Air Lines, Inc. (NYSE: DAL)
December 7th, 2014
Agenda
1.  Industry Overview
1.  Airline Industry
2.  Industry Distribution
3.  Current Situation
2.  Company Information
1.  Timeline
2.  Company Overview
3.  Operations
4.  Corporate Strategy
5.  Labor Peace
6.  Delta Trading Overview
3.  Valuation
1.  Trading Comparable
2.  Discounted Cash Flow Analysis
3.  Valuation Ranges (Football Field)
4.  Recommendation
1.  Merits & Risks
2.  Conclusion
2
Industry Overview
3
Airline Industry
Major Players
4 Year Index Performance
Global Commercial Airline Revenue ($ Billions)
$800
110%
XAL
S&P
60%
10%
Crude
-40%
Nov-10
Other
$400
Cargo
Passenger
$200
$0
Nov-11
Nov-12
Nov-13
Source:Yahoo Finance, Bloomberg, International Air Transportation Association (IATA)
4
$600
2010
2011
2012
2013
2014E
Industry Distribution
Airline Domestic Market Share September 2013 - August 2014
Spirit, 2.00%
SkyWest, 2.30%
Other, 14.80% Delta, 16.60%
ExpressJet,
2.40%
Alaska, 4.20%
Southwest,
16.40%
JetBlue, 5.10%
United, 15.30%
US Airways,
8.40%
American,
12.50%
Current Situation
Plummeting Oil Prices
1 Year Overview
§  Since June, the price of oil has declined about 40%
§  Increased amount of fracking in United States
§  OPEC’s decision to maintain current oil production
§  Decrease in global demand of oil
§  Currently, crude oil (WTI) is trading at $66.81
§  Analysts estimate that price will average $63.72 in
Jan 2015
110
90
70
WTI
50
Dec-13
Relevance to Airlines
§  On average, jet fuel accounts for 34% of an airline’s
operating costs. Lower fuel prices directly
increases airlines’ revenues.
§  Richard Anderson, Delta CEO, on oil prices during
CBS interview: “For every penny the price of jet
fuel declines means savings of $40 million for Delta
Airlines”
Source: Bloomberg, Seeking Alpha,Yahoo Finance
6
Apr-14
Aug-14
Lower Oil Prices ≠ Lower Air Fare
§  Airlines have not lowered fares
§  Planes are in full capacity
§  investors want a payout
§  new planes are in order
§  Historical Reference
§  All carriers tried to raise fares due to sharp spike in
energy prices during 2008. Efforts were futile and five
airlines went bankrupt
Company Information
7
Timeline of Major Events
May 1924
Founded in Macon, GA
September 2005
Filed for bankruptcy
April 1957
Began trading on New York
Stock Exchange
November 2006
Failed takeover attempt by
US Airways
Source: Company Website, New York Times, Wall Street Journal
8
April 1987
Merged with Western Airlines
and became the fifth largest
carrier in the world
April 2007
Emerged from bankruptcy
November 1991
Purchased substantially all of
Pan Am’s trans-Atlantic
routes and the Pan Am
Shuttle
April 2012
Purchased an oil refinery
to pursue vertical
integration
Company Overview
Company Summary
Headquarters
Atlanta, GA
Share Price
$47.28
Market Cap
39.43 Billion
P/E
4.09
52-Wk Range
Dividend Yield
$26.40 - $47.63
0.80%
Financial Performance
FY 2010 FY 2011
FY 2012
FY 2013 FY 2014E
Revenue
$31,755
$35,115
$36,670
$37,773
$40,195
Gross Margin
39.59%
36.97%
37.41%
40.66%
40.86%
10.51%
9.84%
9.80%
13.33%
13.8%
Net Income
$593
$854
$1,009
$10,540
$2,075
EPS
1.71
1.41
1.83
3.15
3.25
EBITDA Margin
Revenue Breakdown
2.50%
1 Year Trading Overview
50
Passenger Segment
10.30%
DAL
40
Cargo Segment
30
87.20%
Other Sources
Source: Capital IQ,Yahoo Finance, Seeking Alpha, Company public filings
9
20
12/3/13
3/3/14
6/3/14
9/3/14
Operations
Currently the 3rd largest airline, Delta has added more international capacity than any major U.S. airline in the past few
years. Through its vast network and partnership, Delta provides more than 325 destinations on six continents.
Whitehorse
Ft. McMurray
Prince George
U.S.
Edmonton
Vancouver
Abbotsford
Bellingham
Victoria
Calgary/Banff
Kelowna
Deer Lake
St. John’s, NL
CANADA
Seattle/Tacoma
Wenatchee
ALASKA
Portland
CANADA
Fairbanks
Eugene
Anchorage
Spokane
Regina
Pasco/Richland
Kalispell
Yakima /Kennewick
Pullman
Great Falls
Walla
Missoula
Walla Lewiston
Redmond/Bend
Helena
Butte
Winnipeg
Medford
Idaho Falls
Twin
Falls
Fargo
Aberdeen
Gillette
Sioux Falls
Vernal
Hayden/Steamboat Springs
Omaha
Eagle/Vail/Beaver Creek
Grand Junction
Denver
Moab
Aspen/
Snowmass
Colorado Springs
Montrose/
Telluride
Cedar City
Las Vegas
Santa Barbara
Burbank
Ontario
Long Beach
Bismarck
Casper
Rock Springs
St. George
Los Angeles
Bemidji
Salt Lake City
Fresno/Yosemite
Pacific
Ocean
Grand
Forks
Rapid City
Jackson Hole
Pocatello
Elko
Santa Rosa
Reno/Tahoe
San
Sacramento
Francisco
Oakland
San Jose
Mammoth
Lakes
International Falls
Minot
Dickinson
Billings
West Yellowstone
Cody
Boise
Sun Valley
Lincoln
Palm Springs
Wichita
Orange County
San Diego
Albuquerque
Tulsa
Phoenix/Scottsdale
Oklahoma City
Killeen/Ft. Hood
Oahu
San Antonio
Kahului
Houston
(IAH, HOU)
Hilo
Kona
Duluth
Greensboro/High Point/Winston-Salem
Raleigh/Durham
New Bern
Charlotte
Jacksonville/Camp Lejeune
Greenville/
Fayetteville/Ft. Bragg
Chattanooga Spartanburg
Wilmington
Huntsville/
Columbia Myrtle Beach
Decatur
Nashville
Memphis
Columbus/
Starkville/
West Point
Monroe
Shreveport
Jackson
Birmingham
Atlanta
Augusta
Minneapolis/
St. Paul
Milwaukee
Salt Lake City
Los Angeles
Hermosillo
Atlantic Ocean
Los Mochis
Torreon
Detroit
Tampa
Managua
Liberia
San José
Málaga
Destination served by one of Delta’s
Worldwide Codeshare Partners
Ft. Lauderdale/
Hollywood
Miami
BAHAMAS
Effective November 2014. Select routes are seasonal. Some
future services subject to government approval. Service may
be operated by one of Delta’s codeshare partner airlines or
one of Delta’s Connection Carriers. Flights are subject to
change without notice.
Reykjavik
Montego
Bay
Aberdeen
Glasgow
Santo
Domingo
San
Juan
Antigua
St. Kitts
Helsinki
Nizhny
Novgorod
Riga
Edinburgh
Copenhagen
Billund
Durham
Kaliningrad
Leeds/Bradford Bremen
Hamburg
Manchester
Humberside
Berlin
Dublin
Norwich Amsterdam
Hannover
Irkutsk
Birmingham
Shannon
Warsaw
(LHR)
Cardiff
Düsseldorf
Bristol
(LGW)
Cologne
Prague Ostrava
London
Brussels
Frankfurt
Luxembourg Nuremberg
Paris (CDG)
Kosice
Brest Rennes
Strasbourg Stuttgart Munich
Vienna Bratislava
Zürich
Nantes Basel/Mulhouse
Budapest
Ljubljana
Geneva
Beijing
Zagreb
Lyon
Milan Venice Trieste
Clermont
Bordeaux -Ferrand Turin
Verona
Belgrade
Bologna
Genoa
Toulouse
Nic
A Coruña
M M
Seoul
e Pisa Florence
on ar
Bilbao Pau
Vigo
s
Tokyo (HND,tpNRT)
Busan
ell eille
Rome
Bari
ier
Tirana
Naples
NagoyaBarcelona
Brindisi
Palma de
Osaka
Madrid
Mallorca
Shanghai
Fukuoka
Reggio Calabria Lamezia Terme
Valencia
Ibiza
(PVG) Lisbon
Palermo
Athens
Catania
Málaga
Okinawa
Malta
Bermuda
Orlando
Freeport/Grand Bahama
Hanoi
Chiang
Mai
Panama
City
Quito
Aalborg
St. Petersburg
Stockholm
Linköping
Gothenburg
Moscow
Newcastle
Fortaleza
Natal
Belém Teresina
Recife
Manaus
Hong
Kong
Goiânia
Lima
Cuiabá
Bangkok
Siem Reap
Phnom Penh
Manila
Ho Chi Minh City
Phuket
Penang
Kuala
Lumpur
Singapore
Campo Grande
Brasília
Portland
Istanbul
Guam
Sapporo
Hakodate
Aomori
Akita
Denpasar Bali
Niigata
Darwin
Komatsu
Tokyo - Narita (NRT)
Okayama
Tokyo - Haneda (HND)
Nagoya
Fukuoka
Osaka
Oita
Kagoshima
JAPAN
Detroit
New
York
(JFK)
Sochi
Palau
Jakarta
Minneapolis/
St. Paul
Seattle/Tacoma
Krasnodar
Bucharest
Honolulu
Uberlandia
Vitória
SãoPaulo (CGH)
Volgograd
Saipan
Belo Horizonte
Rio de Janeiro
Londrina
Rio de Janeiro (SDU)
São Paulo
Kiev
Taipei
Kaohsiung
Maceió
Turks and Caicos
Kingston
Asia Pacific
Bergen Oslo
Sandefjord
Stavanger
Salvador
St. Thomas
St. Maarten
Trondheim
Alesund -Vigra
Raleigh/Durham
CARIBBEAN
Source: Delta Company
Website
Punta Cana
Barcelona
Madrid
Destination served by Delta / Delta
Connection
Boston
Hartford/Springfield
New York (JFK, LGA)
Washington DC (IAD)
Nassau
Santiago
Port-auPrince
Miami
Route served by Alaska Airlines/
Horizon Air
Bogotá
10
Orlando
Cancun
Key West
Freeport/Grand Bahama
Grand Cayman
Shannon
Future Route Service
Monterrey
Nassau Turks and Caicos
La Paz Culiacán Durango
Saltillo
Los Cabos Mazatlán Zacatecas
San Luis Potosi
Exuma
Punta Cana
Tampico
Aguascalientes
Cancún
León Querétaro
St. Thomas
Mérida
Cozumel
Puerto Vallarta
Poza Rica
Santiago
St. Maarten
Campeche
Guadalajara
Port-au-Prince
San
Antigua
Morelia Mexico City Ciudad Del Carmen Grand
Manzanillo
Cayman
Veracruz
Kingston Santo Juan
Villahermosa
Minatitlán
Ixtapa/Zihuatanejo
Montego
St.
Croix St. Kitts
Domingo
Belize City
Bay
Acapulco
St. Lucia
Roatán
Barbados
Oaxaca HuatulcoTuxtla Gutierrez
San Pedro Sula
Grenada
Tapachula
Aruba
Tegucigalpa
Bonaire
Guatemala City
San Salvador
Caracas
Exuma
Montreal
Pittsburgh
Boston
Washington DC
New York (JFK)
(IAD)
Newark
Atlanta
Philadelphia
Mexico
City
Ciudad Juarez
Chihuahua
Toronto
Sochi
Yerevan
Prague
Amsterdam
Düsseldorf
Brussels
Frankfurt
(LHR)
Munich
London
(LGW)
Stuttgart
Istanbul
Venice
Zürich
Paris
Milan
(CDG)
Pisa
Athens
Rome
Nice
Manchester
Dublin
Kristiansand
Columbus
Indianapolis
Cincinnati
Nashville
Memphis
Atlanta
San Diego
Detroit
(IAH)
Delta Air Lines/Delta Connection/
Delta Joint Venture Route
West Palm Beach
Gulf
of Mexico
Latin America
Seattle
Glasgow
Cincinnati
Houston
Charleston
Ft. Myers/Naples
Harlingen/
South Padre Island
Copenhagen
Chicago
Dallas/
Fort Worth
Volgograd
Baku
Minneapolis/
St. Paul
Savannah
Brunswick
Valdosta
Pensacola
Alexandria Baton
Jacksonville
Tallahassee
Rouge
Panama City
Gulfport/Biloxi
Lafayette
Daytona Beach
New Orleans
Ft. Walton
Gainesville
Beach
Orlando
Tampa/St. Petersburg
Melbourne
Sarasota/Bradenton
MEXICO
Moscow
Stockholm
Reykjavik
Las Vegas
Knoxville
Asheville
Columbus/Ft. Benning
Montgomery
Hawaii
Pacific Ocean
Salt Lake City
Los Angeles
Tri-Cities
Fayetteville/
Northwest Arkansas
Novosibirsk
Yekaterinburg
Chelyabinsk
Perm
Ufa
Kazan
Samara
Almaty
Nizhny Novgorod
Calgary
San Francisco
Dothan Albany
Maui
H AWA I I
Portland
Sault Ste.
Marquette
Montreal
Marie
Bangor
Ottawa
Rhinelander Iron Mountain
Pellston/Mackinac Island
Escanaba
Portland
Burlington
Minneapolis/
Alpena
Wausau Green Bay
Traverse City
St. Paul
Manchester
Toronto
Appleton/
Albany
Boston
Syracuse
Fox Cities
Midland/
Rochester
Grand
La Crosse
Rochester
Hartford/
Saginaw
Rapids
Ithaca
Springfield
Milwaukee
Martha’s Vineyard
Buffalo/ Elmira/
Flint
Binghamton
Nantucket
Niagara FallsCorning
Madison Kalamazoo/
Providence
Lansing
Newburgh
Cedar Rapids/
Wilkes-Barre/ White Plains
Battle Creek
Iowa City
Scranton
Detroit
Erie
Cleveland
New York (JFK, LGA)
South Bend
Chicago
State
Newark
(ORD, MDW)
Akron/Canton College Allentown
Des Moines
Peoria
Philadelphia
Moline/
Pittsburgh
Ft. Wayne
Bloomington
Harrisburg
Quad
Columbus
Cities
Baltimore
Dayton
Washington, D.C. (DCA, IAD)
Indianapolis
Kansas City
Cincinnati
Charlottesville
Charleston
St. Louis
Richmond
Louisville Lexington
Newport News/Williamsburg
Evansville
Springfield/
Norfolk/Virginia Beach
Roanoke
Branson
Brainerd
Mobile
Austin
Kauai
Québec
Halifax
Little Rock
Dallas/
Ft. Worth
(DFW)
Dallas Love
Field (DAL)
El Paso/
Ciudad Juárez
Honolulu
Vancouver
Seattle/
Tacoma
Moncton
Thunder Bay
Chisholm/
Hibbing
Ft. Smith
Tucson
Lihue
Sydney
Charlottetown
Williston
Bozeman
Juneau
Sitka
Ketchikan
Europe
Saskatoon
Yerevan
Atlanta
Los Angeles
Corporate Strategy: Expansion
Since the beginning of 2014, Delta has rapidly expanded in Seattle to increase transpacific routes
Increased Gates in Seattle Airport
§  Delta currently has 11 gates at Seattle-Tacoma
International Airport
§  Delta plans to increase the number up to 30
§  Delta has designated Seattle as a hub from which to offer
an increasing number of transpacific flights
Actions
§  At the beginning of 2014, Delta operated just 34 peak-day
departures from Seattle to 15 destinations
§  Delta now operates about 80 peak-day departures to 25
destinations
§  By the end of the year, these totals will rise to 93
departures to 32 destinations
§  Delta recently placed a big order for A350 and A330 planes
to be used on transpacific routes from Seattle
Amount of Chinese Travelers to U.S. (in Thousands)
Opportunities
§  On November 10, United States and China signed a treaty
that will reciprocally increase the validity of short-term
business, tourist, and student visas
§  In the long run, this would lead to more flights between
United States and China. Delta’s expansion in Seattle would
catch on this trend
3000
2000
1000
0
2013
2014E 2015E 2016E
Source: Company Filings,Yahoo Finance, Wall Street Journal, United States Department of State Website, Trade.gov
11
Corporate Strategy: Financial Objectives
Since 2009, Delta has been efficient with meeting its financial objectives
Debt Reduction Remains A Priority
§  Delta’s debt is currently at lowest level in 20 years.
Delta targets $5 billion as its adjusted net debt by
the end of 2016
§  At 5 billion target, interest expense will be nearly
$1 billion lower than 2009
§  Balance Sheet would reach investment grade
quality
Adjusted Net Debt ($ Billions)
$20
$15
§
§
§
§
§
Domestic refleeting
Maintenance
Headcount/ productivity
Supply chain
Technology
12
12.9
11.7
9.4
7.4
$5
5
$0
2009
2010
2011
2012
2013
3Q 2016E
2014
Non-Fuel Unit Cost Growth (%)
5
4
<2%
Growth
3
2
<1.0%
1
0
2012
Source: Delta Company Website, Bloomberg
15
$10
Sustaining Cost Performance
§  Delta leverages the strengths across the business
to sustain the cost performance going forward
17
2013
2014E
Long Term
Corporate Strategy:Vertical Integration
In 2012, Delta purchased an oil refinery outside of Philadelphia, a novel approach to reduce its fuel costs
Information
§  Delta bought the Trainer refinery for $150 million
from Phillips 66
§  Spent about $100 million to convert the refinery’s
existing infrastructure to maximize jet fuel
production
§  The site offers easy access to New York airports
and Delta hubs LaGuardia and JFK
Partnership
Jet Fuel Cost ($/gal)
§  Long term agreements together with BP plc and
Phillips 66
§  “They can take all the output of the plant that we don’t
need, which will be the gasoline products, the diesel
products, and some of the chemical products, and swap
those in return for jet fuel in other parts of the country”
- Ed Bastian, Delta president and board member
Source: Company Website, Factset
13
Q3 '14
Q2 '14
Q1 '14
Q4 '13
Delta
$2.90
$2.93
$3.03
$3.05
American
$2.98
$3.03
$3.10
$3.06
United
$3.01
$3.08
$3.18
$3.09
Labor Peace
Unlike its peers, Delta does not face contract issues with its employees
Delta
American Airlines
§  Delta Airlines is largely unrepresented by unions
§  AFA and IAM, the major players, have failed multiple times
to organize Delta’s employees
§  So far, Delta is the only airline to have a unified flight
attendants and pilot contract
§  Last year, American Airlines and US Airways formed a
merger
§  One of American’s primary concern for 2015 is joining
employees under single contracts
§  Last month, the union representing AAL flight attendants
rejected the deal
§  The dispute now goes to binding arbitration
United Airlines
Southwest Airlines
§  Similar to American Airlines, the merger between United
and Continental in 2010 also raised issues
§  The company has still yet to reach joint contracts with all
its employees
§  After more than two years of negotiations on a new labor
agreement, the union that represents 8,000 Southwest
pilots filed for mediation
§  Other unions also filed for mediation
§  Transport Workers Union: ramp and cargo workers
§  International Association of Machinist Union: Customerservice and reservation agents
Source: Wallstreet Journal, Nasdaq, Dallasnews
14
Delta Trading Overview
60%
50%
40%
June 9,2014
World Bank’s dismal
revision to global
growth and Luftansa
lowering earning
forecast
December 1,2014
Delta cuts flights to
Africa
DAL
XAL
30%
20%
S&P 500
10%
November 27,2014
OPEC announces no
cut in oil
production
0%
-10%
-20%
-30%
August 6,2014
Delta reported
impressive Q2
results
-40%
Source: Bloomberg, Factset,Yahoo Finance
15
October 13,2014
Delta falls after lowering
Q3 Targets
Complaint from American
Airlines to regulators
October 16,2014
Delta’s profit tops
estimates on domestic
Crude Oil
Valuation
16
Trading Comparables
Share
Enterprise
Price
Value
Company Name
EPS
EBITDA
2014E
2015E
2014E
EV/EBITDA
2015E
P/E
2014E
2015E
2014E
2015E
American Airlines Group
$
48.24
$
43,155.8
$
5.70
$
7.57
$
7,640
$
8,079
6.0 x
5.7 x
8.4 x
6.3 x
United Continental
$
59.29
$
28,430.2
$
4.99
$
6.99
$
4,307
$
5,474
7.3 x
5.5 x
11.9 x
8.5 x
Southwest Airlines
$
22.47
$
27,034.4
$
1.95
$
2.60
$
3,261
$
3,969
8.9 x
7.1 x
20.8 x
15.6 x
Alaska Air Group
$
56.76
$
7,001.4
$
4.08
$
4.61
$
1,121
$
1,343
6.2 x
5.6 x
13.9 x
12.3 x
Jetblue Airways
$
14.82
$
6,435.7
$
0.68
$
1.12
$
848
$
1,136
8.0 x
5.9 x
22.0 x
13.3 x
Maximum
$
59.29
$
43,155.8
$
5.70
$
7.57
$
7,640
$
8,079
8.9 x
7.1 x
22.0 x
15.6 x
75th Percentile
$
56.76
$
28,430.2
$
4.99
$
6.99
$
4,307
$
5,474
8.0 x
5.9 x
20.8 x
13.3 x
Mean
$
40.32
$
22,411.5
$
3.48
$
4.58
$
3,435
$
4,000
7.3 x
6.0 x
15.4 x
11.2 x
Median
$
48.24
$
27,034.4
$
4.08
$
4.61
$
3,261
$
3,969
7.3 x
5.7 x
13.9 x
12.3 x
25th Percentile
$
22.47
$
7,001.4
$
1.95
$
2.60
$
1,121
$
1,343
6.2 x
5.6 x
11.9 x
8.5 x
Minimum
$
14.82
$
6,435.7
$
0.68
$
1.12
$
848
$
1,136
6.0 x
5.5 x
8.4 x
6.3 x
Financial Information
DAL Valuation
EBITDA
$6,941
Net Debt
$5,699
EV/EBITDA
P/E
Multiple
Mid
7.3 x
13.9 x
Prefered stock
$0
High
8.9 x
22.0 x
Minority Interest
$0
Low
6.0 x
8.4 x
Mid
$52.82
$45.18
High
$65.86
$71.50
Low
$42.22
$27.30
EPS
$3.25
Diluted Shares
Outstanding
851.4
Source: Factset
Implied Price/Share
Discounted Cash Flow Analysis
Free Cash Flow Calculation
2014P
2015P
Multiple Method
2016E EBITDA
2016P
$4,892.97
$7,351.77
35%
1713
2573
1,742.13
1,864.08
1,975.93
Less: Increase in Working Capital:
Less: Capital Expenditures
PV of Terminal Value
$36,820.52
Sum of PV FCF
$13,521.98
EV
$50,342.50
346.18
(534.81)
Debt
($7,843.00)
$180
$180
$180
Cash
$4,123.00
Equity Value
Present Value of Free Cash Flow
$49,544.70
(236.89)
Unlevered Free Cash Flow
Terminal Value
2568
Plus: Depreciation & Amortization
$4,979
$6,116
$7,099
$4,510.08
$5,018.17
$5,276.15
Terminal Multiple
4.5x
5.0x
5.3x
6.0x
7.0x
Cost W*C 13.10% 9.80% Debt Cost (A-­‐T) 25.10% 2.00% 0.50% 0 0 0 $58.10
$63.95
$72.55
10%
$49.55
$53.74
$56.41
$62.10
$70.47
10.4%
$48.97
$53.11
$55.76
$61.38
$69.66
11%
$48.11
$52.18
$54.78
$60.32
$68.47
Preferred Equity 12%
$46.71
$50.68
$53.21
$58.60
$66.53
WACC 18
Weight 74.90% $55.35
Source: Factset, Bloomberg
$55.76
Equity $51.05
$836.20
Share Price
9%
$46,622.50
FDSO
WACC
$5.32
$7,336.99
Less:Taxes
$9,312.91
Purchase Multiple
EBIT:
10.40% Valuation Range (Football Field)
Target
Current
$46.7 DCF Analysis
$72.6 $33.0 Analyst Estimates
$73.0 $27.3 P/E - Trading
$71.5 $42.2 EV/EBITDA - Trading
52-Week Range
$47.63 $26.4 20
$65.9 30
40
50
$47.28
19
60
$54.2
70
80
Recommendation
20
Merits & Risks
Delta maintains a global presence with an expansion for growth. However, Delta is also exposed to a variety of
risks stemming from factors beyond its control
Merits
Risks
§  Increasing global airline industry
§  Expansion in Seattle airport in response to
the increasing flights between United States
and China
§  Decrease in oil prices should provide a
bump for Delta’s revenue in Q4 2014
§  Delta’s refinery provides a good hedging
alternative that no other airline enjoys
§  Strong emphasis on debt reduction and
increasing shareholder returns
§  Lower fuel costs may prompt Delta to
boost capacity unwisely and unprofitably
§  Oil prices might bounce back, resulting the
public to panic and oversell Delta’s shares
§  Potential global epidemic of Ebola
§  Intensified price competition with Alaska
Airlines when expanding in Seattle
§  43.47% ROI compared to industry’s 12.92%
§  89.67% debt-to-equity ratio in contrast to
industry’s 283.78%
§  $2 billion share repurchase program to
provide flexibility to return additional cash
to shareholders
Source: Fidelity Investments
Conclusion
Strong
Positioning
Vertical
Integration
Efficient
Management
Currently the 3rd largest airline, Delta has strong presence in the airline industry
Increasing trend of global revenue within industry
Controls approximately 16% of domestic market share
Expansion of transpacific routes in Seattle and increasing flight trend between U.S. and
China
§  Labor peace compared to its peers
§
§
§
§
Purchased an refinery to help lower jet fuel costs
The asset has helped Delta achieve lower fuel prices than its peers
Provides an alternative to jet fuel future contracts
The agreement with BP plc and Phillips66 to outsource extra capacity in exchange for
jet fuel in other parts of country
§  Unique only to Delta
§
§
§
§
§
§
§
§
§
Emphasis on debt reduction and increasing shareholder returns
Successfully reduced net debt by $7.6 Billion within 4 years
Initiate share repurchase program to increase investor returns
Maintains cost performance through fleet restructuring
Impressive key statistics compared to industry
Source: Capital IQ, Bloomberg, Factset, Delta Investor Relations, Fidelity Investments
22
Disclaimer: These materials has been prepared by the Goizueta Investment Management Group. This document is for information and illustrative purposes only and does not
purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice. Reasonable people may disagree
about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail
risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a
long term especially during periods of a market downturn. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or
results similar to those discussed, if any. No part of this document may be reproduced in any manner, in whole or in part, without the prior written permission of the
Goizueta Investment Management Group, other than to your employees. This information is provided with the understanding that with respect to the material provided
herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is
appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. The Goizueta Investment
Management Group does not purport to and does not, in any fashion, provide broker/dealer, consulting or any related services. You may not rely on the statements contained
herein. The Goizueta Investment Management Group shall not have any liability for any damages of any kind whatsoever relating to this material. You should consult your
advisors with respect to these areas. By accepting this material, you acknowledge, understand and accept the foregoing. © 2014 Goizueta Investment Management Group. All
Rights Reserved.
Appendix
Discounted Cash Flow Analysis
Assumptions
Historical 2011 2012 Projec9ons 2013 2014P 2015P 2016P Revenue Growth %: 10.8% 4.2% 2.6% 6.8% 7.0% 6.0% COGS % Revenue: 84.6% 83.3% 81.9% 79.3% 74.3% 75.3% SG&A % Revenue: 5.5% 4.3% 4.3% 4.3% 4.3% 4.3% DepreciaQon & AmorQzaQon % Revenue: 4.3% 4.3% 4.4% 4.3% 4.3% 4.3% CapEx % Revenue: 3.6% 5.4% 6.8% 5.8% 6.7% 6.7% ST Receivables % Revenue: 4.4% 4.6% 4.3% 4.4% 4.4% 4.4% Inventories % Revenue: 1.0% 2.8% 2.8% 2.8% 2.8% 2.8% Other Current Assets: 5.3% 4.9% 8.1% 6.1% 6.1% 6.1% 5.4% 7.5% 7.5% 7.5% 7.5% 7.5% 28.8% 28.7% 31.2% 29.6% 29.6% 29.6% ASSETS LIABILITIES Accounts Payable % COGS: Other Current LiabiliQes % COGS: 25
Discounted Cash Flow Analysis
EBIT
Historical 2011 Projec9ons 2012 2013 2014P 2015P 2016P Revenue: $35,176 $36,670 $37,638 $40,195 $43,009 Cost of Goods Sold: $29,744 $30,555 $30,835 $31,880 $31,961 $34,335 $5,432 $6,115 $6,803 $8,315 $11,048 $11,255 Gross Profit: $45,589 OperaQng Expenses: Selling, General & AdministraQve: EBITDA: DepreciaQon & AmorQzaQon: EBIT: $1,946 $1,590 $1,603 $1,680 $1,832 $1,942 $3,486 $4,525 $5,200 $6,635 $9,216 $9,313 $1,523 $1,565 $1,658 $1,742 $1,864 $1,976 $1,963 $2,960 $3,542 $4,893 $7,352 $7,337 Capex
Historical 2011 Capital Expenditures Projec9ons 2012 ($1,254) 2013 ($1,968) 2014P ($2,568) 2015P ($2,331) 2016P ($2,882) ($3,054) Change in NWC
Historical 2011 Projec9ons 2012 2013 2014P 2015P 2016P Assets Short-­‐Term Receivables Inventories Other Current Assets Current Assets 1563 1693 1609 $1,786.69 $1,911.76 $2,026.47 367 1023 1063 $1,125.46 $1,204.25 $1,276.50 1879 1807 3054 $2,463.10 $2,635.52 $2,793.65 3809 4523 5726 5375 5752 6097 1600 2293 2300 $2,391.00 $2,397.09 $2,575.10 8563 8765 9632 $9,427.15 $9,451.15 $10,153.03 10163 11058 11932 11818 11848 12728 ($6,354) ($6,535) ($6,206) ($6,443) ($6,097) ($6,632) ($181) $329 ($237) $346 ($535) Liabili9es Accounts Payable Other Current LiabiliQes Current LiabiliQes Net Working Capital Change in NWC 26
Key Statistics
Compared to its peers, Delta has attractive key statistics
Key Statistic Comparison
Delta American United P/E (ttm) 4.09 99.55 19.59 Profit Margin (ttm) 24.75% 0.71% 3.20% ROE (ttm) 158.45% N/A 44.49% 87.51 343.79 312.99 Debt to Equity (mrq) Souce:Yahoo Finance