What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-12 compared with 2020-02-13 · 862 added, 444 removed, 1067 unchanged (55% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 20 20 , 201 9 and 201 8

Consolidated Statements of Comprehensive Income for the years ended December 31, 201 9 , 201 8 and 201 7

Consolidated Statements of Comprehensive ( Loss)/ Income for the years ended December 31, 20 20 , 201 9 and 201 8

Consolidated Statements of Cash Flows for the years ended December 31, 20 20 , 201 9 and 201 8

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Note 1 - Summary of Significant Accounting Policies

Note 2 - Impact of the COVID-19 Pandemic

Note 3 - Revenue Recognition

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Note 6 - Derivatives and Risk Management

Note 6 - Intangible Assets

N ote 7 - Debt

Note 7 - Goodwill and Intangible Assets

Note 8 - Debt

Note 9 - Leases

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Note 1 6 - Segments

Note 1 6 - Earnings Per Share

Note 1 7 - Quarterly Financial Data (Unaudited)

Note 1 7 - (Loss)/ Earnings Per Share

Delta Air Lines, Inc.

2020 Form 10-K 57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc.

(the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive (loss)/income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 12, 2021 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for leases in 2018.

Basis for Opinion

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Critical Audit Matters

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Loyalty Program - Mileage Breakage

Description of the Matter At December 31, 2019 the Company’s aggregate current and noncurrent loyalty program deferred revenue balance was $6.7 billion.

For the year ended December 31, 2019, the Company recognized revenue of $2.9 billion classified as travel miles redeemed within passenger revenue and revenue of $2.0 billion classified as loyalty program revenue within other revenue in the consolidated statement of operations.

As disclosed in Note 2 to the consolidated financial statements, the Company defers revenue for mileage credits earned and recognizes loyalty travel awards in passenger revenue as the miles are redeemed and services are provided.

In determining the value of mileage credits earned, the Company applies an estimate of mileage credits earned that are not expected to be redeemed (“breakage”).

The Company recognizes breakage proportionally during the period in which the remaining mileage credits are actually redeemed.

Under the Company’s loyalty program, mileage credits do not expire.

Therefore, the Company uses statistical models to estimate breakage based on historical redemption patterns.

Auditing the Company’s accounting for its loyalty program required significant estimation in determining the breakage estimate for mileage credits.

In particular, there is complexity and subjectivity in estimating breakage based on expectations of future redemption patterns due to the absence of historical expirations as the Company’s mileage credits do not expire.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its loyalty program, including controls over management’s review of the estimation of the mileage breakage and the completeness and accuracy of the data underlying the breakage estimate.

To test the estimate of breakage of mileage credits, our audit procedures included, among others, involving an actuarial specialist to assist in assessing the method used to develop the breakage estimate and independently developing a range of breakage estimates and comparing them to the Company's estimates.

Additionally, we tested the completeness and accuracy of the underlying mileage data used in the Company’s statistical models and performed sensitivity analyses to evaluate the changes to the Company’s deferred revenue that would result from changes in the breakage estimate.

Loyalty Program - American Express Contract Brand Value

Description of the Matter At December 31, 2019 the Company’s aggregate current and noncurrent loyalty program deferred revenue balance was $6.7 billion.

For the year ended December 31, 2019, the Company recognized revenue of $2.9 billion classified as loyalty travel awards within passenger revenue and revenue of $2.0 billion classified as loyalty program revenue within other revenue in the consolidated statement of operations.

As disclosed in Note 2 to the consolidated financial statements, effective January 1, 2019, the Company amended its co-brand agreement with American Express.

The Company allocates the consideration received from American Express based on its best estimate of the relative selling price of the products and services delivered, including the use of the Company’s brand.

Auditing the Company’s accounting for its co-brand agreement with American Express was complex and highly judgmental due to the significant estimation required in determining the selling price of the Company’s brand deliverable primarily resulting from the absence of an observable standalone selling price.

A change in the estimated selling price of the brand deliverable could have a material impact on the deferred revenue balance and the timing of revenue recognition.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its co-brand agreement with American Express, including controls specific to the estimated selling price of the Company’s brand deliverable and the completeness and accuracy of the data underlying the brand deliverable estimate.

To test the estimated selling price of the brand deliverable, our audit procedures included, among others, involving a valuation specialist to assist in testing the method used to develop the selling price of the Company’s brand deliverable, and assessing the reasonableness of the inputs used to develop the estimate, which included corroborating those inputs to publicly available data.

Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s deferred revenue that would result from changes in the estimated standalone selling price of the Company’s brand deliverable.

Delta Air Lines, Inc.

2020 Form 10-K 58

Employee Benefit Plans

Description of the Matter At December 31, 2019 the fair value of the Company’s benefit plan investments totaled $16.3 billion, of which $9.9 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient.

Description of the Matter At December 31, 2020, the fair value of the Company’s benefit plan assets measured at fair value on a recurring basis totaled $16.6 billion, of which $10.4 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient.

Management determines the fair value of NAV assets by applying the methodologies described in Note 11 to the consolidated financial statements.

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We involved an actuarial specialist to assist in evaluating the appropriateness of the Company’s estimate, including independently calculating a range of expected long-term rates of return based on the Company’s current investment portfolio and strategy, and assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments.

Additionally, we tested the completeness and accuracy of the data used by management and performing sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long-term rate of return on plan assets.

Additionally, we tested the completeness and accuracy of the data used by management and performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long-term rate of return on plan assets.

Delta Air Lines, Inc.

2020 Form 10-K 59

Fair Value of Fleet Assets

Description of the Matter For the year ended December 31, 2020, the Company recognized $4.4 billion of impairment-related charges for certain owned and leased fleet assets.

These impairment-related charges are classified within restructuring charges in the Company’s consolidated statement of operations.

As discussed in Note 2 to the consolidated financial statements, the Company retired or plans to early retire certain owned and leased fleet types from active service as part of capacity reductions in response to the negative effect on the Company’s business from the global COVID-19 pandemic.

To assess assets for impairment, the Company groups assets at the fleet type level or at the contract level for aircraft operated by third-party regional carriers.

The Company concluded that the management-initiated permanent retirements or planned early retirements of aircraft were impairment indicators which required the Company to test the recoverability of the related asset groups.

The Company concluded the book value of these asset groups were not recoverable due to changes to the estimated future cash flows based primarily on the significant reductions to the remaining operating lives.

As a result, the Company recognized $4.4 billion in impairment-related charges for the amount by which book value of each asset group exceeded its related fair value.

The impairment-related charges were estimated using fair value inputs based primarily upon recent market transactions and third-party bids and corroborated by published pricing guides and the Company’s assessment of existing market conditions based on industry knowledge.

Auditing the Company’s impairment analysis was highly subjective due to the significant estimation required in determining the fair value of the Company’s aircraft.

As a result of the COVID-19 pandemic, there is currently a very limited market for aircraft and limited data on how the COVID-19 pandemic has affected the fair value of aircraft.

For example, we tested controls over management’s review over determining the relevant measures of fair value of fleet assets.

To test the Company’s estimate of the fair value of the aircraft, our audit procedures included, among others, obtaining an understanding of market conditions through inquiries of the Company’s fleet management and comparing the aircraft fair value to recent market transactions, bids from third parties and published pricing guides.

We also performed procedures to independently identify contrary or confirmatory evidence of the fair values used in the Company’s analysis through review of other third-party sources of information.

Realizability of Deferred Tax Assets

Description of the Matter At December 31, 2020, the Company had gross deferred tax assets of $9.5 billion and a related valuation allowance of $460 million.

As discussed in Notes 1 and 13 to the consolidated financial statements, the Company records a valuation allowance based on the assessment of the realizability of the Company’s deferred tax assets.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Auditing management’s assessment of recoverability of deferred tax assets involved subjective estimation and complex auditor judgment in weighing the positive and negative evidence to determine whether a valuation allowance for deferred tax assets is needed including the Company’s estimate of future taxable income that may be affected by market and economic conditions.

Delta Air Lines, Inc.

2020 Form 10-K 60

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets.

This included controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and estimate of future taxable income.

To test the realizability of the Company’s deferred tax assets, our audit procedures included, among others, evaluating the assumptions to develop the scheduling of the future reversal of existing taxable temporary differences, evaluating tax planning strategies and evaluating the assumptions used by the Company to develop projections of future taxable income.

We compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

We also compared the projections of future taxable income with other forecasted financial information prepared by the Company.

In addition, we involved our tax specialists to evaluate the application of tax law in the performance of these procedures.

/s/ Ernst & Young LLP

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Delta Air Lines, Inc.

2020 Form 10-K 61

Financial Statements

DELTA AIR LINES, INC.

Consolidated Balance Sheets

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Cash and cash equivalents $ 8,307 $ 2,882

Accounts receivable, net of an allowance for uncollectible accounts of $ 13 and $ 12 at December 31, 2019 and 2018, respectively

Short-term investments 5,789 —

Accounts receivable, net of an allowance for uncollectible accounts of $ 89 and $ 13 as of 2020 and 2019, respectively

Fuel inventory 377 730

Expendable parts and supplies inventories, net of an allowance for obsolescence of $ 82 and $ 102 at December 31, 2019 and 2018, respectively

Expendable parts and supplies inventories, net of an allowance for obsolescence of $ 188 and $ 82 as of 2020 and 2019, respectively

Prepaid expenses and other 1,180 1,262

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Noncurrent Assets:

Property and equipment, net of accumulated depreciation and amortization of $ 17,027 and $ 15,823 at December 31, 2019 and 2018, respectively

Property and equipment, net of accumulated depreciation and amortization of $ 17,511 and $ 17,027 as of 2020 and 2019, respectively

26,529 31,310

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Goodwill 9,753 9,781

Identifiable intangibles, net of accumulated amortization of $ 873 and $ 862 at December 31, 2019 and 2018, respectively

Identifiable intangibles, net of accumulated amortization of $ 883 and $ 873 as of 2020 and 2019, respectively

Cash restricted for airport construction 1,556 636

Equity investments 1,665 2,568

Deferred income taxes, net 1,988 120

Other noncurrent assets 1,357 1,078

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Debt and finance leases 27,425 8,873

Noncurrent air traffic liability 500 —

Pension, postretirement and related benefits 10,630 8,452

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Common stock at $ 0.0001 par value;

1,500,000,000 shares authorized, 651,731,443 and 688,136,306 shares issued at December 31, 2019 and 2018, respectively

1,500,000,000 shares authorized, 647,352,203 and 651,731,443 shares issued as of 2020 and 2019, respectively

Additional paid-in capital 11,259 11,129

Retained earnings 12,454 10,039

Retained earnings/(deficit) ( 428 ) 12,454

Accumulated other comprehensive loss ( 9,038 ) ( 7,989 )

Treasury stock, at cost, 8,959,730 and 8,191,831 shares at December 31, 2019 and 2018, respectively

Treasury stock, at cost, 9,169,683 and 8,959,730 shares as of 2020 and 2019, respectively

( 259 ) ( 236 )

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Delta Air Lines, Inc.

2020 Form 10-K 62

Financial Statements

DELTA AIR LINES, INC.

Consolidated Statements of Operations

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Regional carriers expense, excluding fuel 2,479 3,584 3,438

Contracted services 2,641 2,175 2,108

Depreciation and amortization 2,312 2,581 2,329

Passenger commissions and other selling expenses 1,993 1,941 1,827

Ancillary businesses and refinery 1,785 1,245 1,695

Contracted services 1,778 2,641 2,175

Landing fees and other rents 1,518 1,762 1,662

Aircraft maintenance materials and outside repairs 822 1,751 1,575

Profit sharing 1,643 1,301 1,065

Passenger commissions and other selling expenses 582 1,993 1,941

Passenger service 523 1,251 1,178

Ancillary businesses and refinery 1,245 1,695 1,495

Aircraft rent 399 423 394

Restructuring charges 8,219 — —

Government grant recognition ( 3,946 ) — —

Profit sharing — 1,643 1,301

Other 1,163 1,771 1,723

Total operating expense 29,564 40,389 39,174

Operating Income 6,618 5,264 5,966

Operating (Loss)/Income ( 12,469 ) 6,618 5,264

Non-Operating Expense:

Interest expense, net ( 929 ) ( 301 ) ( 311 )

Impairments and equity method losses ( 2,432 ) ( 62 ) ( 60 )

Gain/(loss) on investments, net ( 105 ) 119 38

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Total non-operating expense, net ( 3,118 ) ( 420 ) ( 113 )

Income Before Income Taxes 6,198 5,151 5,500

Income Tax Provision ( 1,431 ) ( 1,216 ) ( 2,295 )

Net Income $ 4,767 $ 3,935 $ 3,205

Basic Earnings Per Share $ 7.32 $ 5.69 $ 4.45

Diluted Earnings Per Share $ 7.30 $ 5.67 $ 4.43

(Loss)/Income Before Income Taxes ( 15,587 ) 6,198 5,151

Income Tax Benefit/(Provision) 3,202 ( 1,431 ) ( 1,216 )

Net (Loss)/Income $ ( 12,385 ) $ 4,767 $ 3,935

Basic (Loss)/Earnings Per Share $ ( 19.49 ) $ 7.32 $ 5.69

Diluted (Loss)/Earnings Per Share $ ( 19.49 ) $ 7.30 $ 5.67

Cash Dividends Declared Per Share $ 0.40 $ 1.51 $ 1.31

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Delta Air Lines, Inc.

Consolidated Statements of Comprehensive Income

2020 Form 10-K 63

Financial Statements

DELTA AIR LINES, INC.

Consolidated Statements of Comprehensive (Loss)/Income

Year Ended December 31,

(in millions) 2020 2019 2018

Net Income $ 4,767 $ 3,935 $ 3,205

Net (Loss)/Income $ ( 12,385 ) $ 4,767 $ 3,935

Other comprehensive (loss)/income:

Net change in derivative contracts 6 15 ( 29 )

Net change in derivative contracts and other ( 66 ) 6 15

Net change in pension and other benefits ( 983 ) ( 170 ) ( 113 )

Net change in investments — — 142

Total Other Comprehensive (Loss)/Income ( 1,049 ) ( 164 ) ( 98 )

Comprehensive Income $ 4,603 $ 3,837 $ 3,220

Comprehensive (Loss)/Income $ ( 13,434 ) $ 4,603 $ 3,837

The accompanying notes are an integral part of these Consolidated Financial Statements.

Delta Air Lines, Inc.

2020 Form 10-K 64

Financial Statements

DELTA AIR LINES, INC.

Consolidated Statements of Cash Flows

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Cash Flows From Operating Activities:

Net income $ 4,767 $ 3,935 $ 3,205

Net (loss)/income $ ( 12,385 ) $ 4,767 $ 3,935

Adjustments to reconcile net income to net cash provided by operating activities:

Restructuring charges 4,111 — —

Depreciation and amortization 2,312 2,581 2,329

Deferred income taxes ( 3,110 ) 1,473 1,364

Pension, postretirement and postemployment payments greater than expense ( 922 ) ( 790 ) ( 3,302 )

Pension, postretirement and postemployment payments less/(greater) than expense 898 ( 922 ) ( 790 )

Impairments and equity method losses 2,432 62 60

Changes in certain assets and liabilities:

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Fuel inventory 354 ( 139 ) 324

Prepaid expenses and other current assets 94 ( 440 ) ( 57 )

Noncurrent assets 210 111 ( 221 )

Air traffic liability ( 572 ) 454 297

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Profit sharing ( 1,650 ) 354 233

Accounts payable and accrued liabilities 144 ( 418 ) 955

Other payables, deferred revenue and accrued liabilities 240 144 ( 418 )

Noncurrent liabilities 1,185 ( 16 ) 47

Other, net 559 244 ( 573 )

Net cash provided by operating activities 8,425 7,014 5,023

Net cash (used in)/provided by operating activities ( 3,793 ) 8,425 7,014

Cash Flows From Investing Activities:

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Ground property and equipment, including technology ( 1,003 ) ( 1,592 ) ( 1,464 )

Proceeds from sale-leaseback transactions 465 — —

Purchase of equity investments ( 2,099 ) ( 170 ) —

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Cash Flows From Financing Activities:

Proceeds from short-term obligations 3,261 1,750 —

Proceeds from long-term obligations 22,790 2,057 3,745

Proceeds from sale-leaseback transactions 2,306 — —

Payments on debt and finance lease obligations ( 8,559 ) ( 3,320 ) ( 3,052 )

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Fuel card obligation 364 ( 339 ) 7

Proceeds from short-term obligations 1,750 — —

Proceeds from long-term obligations 2,057 3,745 2,454

Other, net ( 202 ) ( 21 ) 58

Net cash used in financing activities ( 2,880 ) ( 1,726 ) ( 730 )

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash 982 895 ( 973 )

Net cash provided by/(used in) financing activities 19,356 ( 2,880 ) ( 1,726 )

Net Increase in Cash, Cash Equivalents and Restricted Cash 6,325 982 895

Cash, cash equivalents and restricted cash at beginning of period 3,730 2,748 1,853

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Non-Cash Transactions:

Treasury stock contributed to our qualified defined benefit pension plans $ — $ — $ 350

Right-of-use assets acquired under operating leases $ 1,077 $ 464 $ 1,041

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Operating leases converted to finance leases — 190 7

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:

Year Ended December 31,

(in millions) 2019 2018 2017

Current assets:

Cash and cash equivalents $ 2,882 $ 1,565 $ 1,814

Restricted cash included in prepaid expenses and other 212 47 39

Noncurrent assets:

Cash restricted for airport construction 636 1,136 —

Total cash, cash equivalents and restricted cash $ 3,730 $ 2,748 $ 1,853

The accompanying notes are an integral part of these Consolidated Financial Statements.

Delta Air Lines, Inc.

2020 Form 10-K 65

Financial Statements

DELTA AIR LINES, INC.

Consolidated Statements of Stockholders' Equity

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Paid-In Capital Retained

Earnings Accumulated

Earnings / (Deficit) Accumulated

Comprehensive Loss Treasury Stock

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Net income — — — 3,935 — — — 3,935

Change in accounting principle and other — — — ( 154 ) ( 106 ) — — ( 260 )

Dividends declared — — — ( 909 ) — — — ( 909 )

Other comprehensive income — — — — 15 — — 15

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $ 48.31 (1) per share)

Other comprehensive loss — — — — ( 98 ) — — ( 98 )

Common stock issued for employee equity awards (1)

1 — 91 — — 1 ( 40 ) 51

Stock options exercised 1 — 13 — — — — 13

Treasury stock, net, contributed to our qualified defined benefit pension plans — — 188 — — ( 8 ) 155 343

Stock purchased and retired ( 29 ) — ( 486 ) ( 1,089 ) — — — ( 1,575 )

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— — — 4,767 — — — 4,767

Change in accounting principle and other

— — — ( 154 ) ( 106 ) — — ( 260 )

Dividends declared

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— — — — ( 164 ) — — ( 164 )

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $ 54.90 (1) per share)

Common stock issued for employee equity awards (1)

2 — 114 — — 1 ( 38 ) 76

Stock options exercised 1 — 13 — — — — 13

Stock purchased and retired ( 38 ) — ( 656 ) ( 1,371 ) — — — ( 2,027 )

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— — — — ( 1,049 ) — — ( 1,049 )

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $ 50.20 (1) per share)

Common stock issued for employee equity awards and other (1)

1 — 120 — — — ( 23 ) 97

Stock purchased and retired ( 6 ) — ( 104 ) ( 240 ) — — — ( 344 )

Government support warrant issuance — — 114 — — — — 114

Balance at December 31, 2020 647 $ — $ 11,259 $ ( 428 ) $ ( 9,038 ) 9 $ ( 259 ) $ 1,534

(1) Weighted average price per share.

(1) Treasury shares were withheld for payment of taxes, at a weighted average price per share of $ 52.17 , $ 50.20 and $ 54.90 in 2020, 2019 and 2018, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Delta Air Lines, Inc.

2020 Form 10-K 66

Notes to the Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc.

and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S.

We do not consolidate the financial statements of any company in which we have voting rights of 50 % or less.

We are not the primary beneficiary of, nor do we have a controlling financial interest in, a material variable interest entity.

Accordingly, we have not consolidated a material variable interest entity.

and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S.

We are the primary beneficiary of, and have a controlling financial interest in, certain immaterial entities in which we have voting rights of 50% or less, which we consolidate in our financial results.

We have marketing alliances with other airlines to enhance our access to domestic and international markets.

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Recent Accounting Standards

Standards Effective in Future Years

Credit Losses.

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This model requires consideration of a broader range of reasonable and supportable information and requires an entity to estimate expected credit losses over the lifetime of the asset.

This standard is effective for interim and annual reporting periods beginning after December 15, 2019.

We do not expect adoption of this standard to have a material impact on our consolidated financial statements.

We will adopt the standard effective January 1, 2020.

Recently Adopted Standards

Comprehensive Income.

In February 2018, the FASB issued ASU No.

2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220)." This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income/(loss) ("AOCI") to retained earnings due to the U.S.

federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017.

We adopted this standard effective January 1, 2019 with the election not to reclassify $ 1.2 billion of stranded tax effects, primarily related to our pension plans, from AOCI to retained earnings.

We adopted this standard effective January 1, 2020 and due to the COVID-19 pandemic, we recorded reserves on certain receivables, which are discussed further in Note 5, "Investments."

Income Taxes.

In 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes." This standard simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of ASC 740.

This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly owned subsidiaries.

We adopted the new standard effective January 1, 2020 with no impact on our Consolidated Financial Statements.

Delta Air Lines, Inc.

2020 Form 10-K 67

Notes to the Consolidated Financial Statements

Significant Accounting Policies

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Our short-term investments were classified as fair value investments and gains and losses were recorded in non-operating expense.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets ("balance sheets") that sum to the total of the same such amounts shown within the Consolidated Statements of Cash Flows ("cash flows statement").

Reconciliation of cash, cash equivalents and restricted cash

Year Ended December 31,

(in millions) 2020 2019 2018

Current assets:

Cash and cash equivalents $ 8,307 $ 2,882 $ 1,565

Restricted cash included in prepaid expenses and other 192 212 47

Noncurrent assets:

Cash restricted for airport construction 1,556 636 1,136

Total cash, cash equivalents and restricted cash $ 10,055 $ 3,730 $ 2,748

As part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel, our wholly owned subsidiaries, Monroe Energy, LLC and MIPC, LLC (collectively, "Monroe"), operate the Trainer oil refinery.

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In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change.

We recognize derivative contracts at fair value on our Consolidated Balance Sheets ("balance sheets").

We recognize derivative contracts at fair value on our balance sheets.

Delta Air Lines, Inc.

2020 Form 10-K 68

Notes to the Consolidated Financial Statements

The following table summarizes the risk hedged and the classification of related gains and losses in our income statement, by each type of derivative contract:

2 unchanged sentences

Interest rate contracts Increases in interest rates Interest expense, net

Foreign currency exchange contracts Fluctuations in foreign currency exchange rates Passenger revenue or non-operating expense (See Note 5)

Foreign currency exchange contracts Fluctuations in foreign currency exchange rates Non-operating expense

The following table summarizes the accounting treatment of our derivative contracts:

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Not designated as hedges Change in fair value (1) of hedge is recorded in earnings

Designated as cash flow hedges Market adjustments are recorded in AOCI

Designated as cash flow hedges Market adjustments are recorded in Accumulated Other Comprehensive Income ("AOCI")

Designated as fair value hedges Market adjustments are recorded in debt and finance leases

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If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings.

We believe our derivative contracts that continue to be designated as hedges, consisting of interest rate and foreign currency exchange contracts, will continue to be highly effective in offsetting changes in fair value or cash flow, respectively, attributable to the hedged risk.

We believe our derivative contracts that continue to be designated as hedges, consisting of interest rate exchange contracts, will continue to be highly effective in offsetting changes in fair value attributable to the hedged risk.

Cash flows associated with purchasing and settling hedge contracts generally are classified as operating cash flows.

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We do not offset margin funded to counterparties or margin funded to us by counterparties against fair value amounts recorded for our hedge contracts.

Long-Lived Assets

Property and Equipment, net

Our flight equipment, which consists of aircraft and associated engines and parts, and other long-lived assets, which are classified as property and equipment, net on our balance sheet, have a recorded value of $ 26.5 billion at December 31, 2020.

The following table summarizes our property and equipment:

Property and equipment by classification

(in millions, except for estimated useful life) Estimated Useful Life 2020 2019

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(1) Includes accumulated amortization for flight and ground equipment under finance leases in the amount of $ 793 million and $ 546 million at December 31, 2020 and 2019, respectively.

Delta Air Lines, Inc.

2020 Form 10-K 69

Notes to the Consolidated Financial Statements

We record property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated residual values over their estimated useful lives.

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Included in the depreciation and amortization expense discussed above, we recorded $ 304 million, $ 239 million and $ 205 million for amortization of capitalized software for the years ended December 31, 2020, 2019 and 2018, respectively.

The net book value of these assets, which are included in information technology-related assets above, totaled $ 1.1 billion and $ 819 million at December 31, 2019 and 2018, respectively.

The net book value of these assets, which are included in information technology-related assets above, totaled $ 1.0 billion and $ 1.1 billion at December 31, 2020 and 2019, respectively.

Our tangible assets consist primarily of flight equipment, which is mobile across geographic markets.

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For long-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell.

To determine whether impairments exist for aircraft used in operations, we group assets at the fleet-type level or at the contract level for aircraft operated by regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors.

If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value.

We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available.

Goodwill and Other Intangible Assets

Our goodwill and identifiable intangible assets relate to the airline segment.

We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.

We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach.

Under a qualitative approach, we consider various market factors, including certain of the key assumptions listed below.

We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets.

If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment.

Under a quantitative approach, we calculate the fair value of the asset incorporating the key assumptions listed below into our calculation.

We value goodwill and indefinite-lived intangible assets primarily using market and income approach valuation techniques.

These measurements include the following key assumptions:

(1) forecasted revenues, expenses and cash flows, (2) terminal period revenue growth and cash flows, (3) an estimated weighted average cost of capital, (4) assumed discount rates depending on the asset and (5) a tax rate.

These assumptions are consistent with those that hypothetical market participants would use.

Because we are required to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates.

Changes in certain events and circumstances could result in impairment or a change from indefinite-lived to definite-lived.

Factors which could cause impairment include, but are not limited to, (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U.S.

and global economies, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e.g., diminished slot access or additional Open Skies agreements), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets.

When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering both comparable public company multiples (a market approach) and projected discounted future cash flows (an income approach).

If the reporting unit's fair value exceeds its carrying value, no further testing is required.

If it does not, we recognize an impairment charge if the carrying value of the reporting unit exceeds its estimated fair value.

Identifiable Intangible Assets.

Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to alliances and collaborative arrangements.

Definite-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements.

Costs incurred to renew or extend the term of an intangible asset are expensed as incurred.

We assess our indefinite-lived assets under a qualitative or quantitative approach.

We analyze market factors to determine if events and circumstances have affected the fair value of the indefinite-lived intangible assets.

If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment.

We perform the quantitative impairment test for indefinite-lived intangible assets by comparing the asset's fair value to its carrying value.

Fair value is estimated based on (1) recent market transactions, where available, (2) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using our tradename) or (3) projected discounted future cash flows (an income approach).

We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value.

See Note 2, "Impact of the COVID-19 Pandemic," for information on impairments and related charges recorded during 2020.

To determine whether impairments exist for active and temporarily parked aircraft, we group assets at the fleet type level or at the contract level for aircraft operated by third-party regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel and labor costs and other relevant factors.

Given the substantial reduction in our active aircraft and diminished projections of future cash flows in the near term as a result of the COVID-19 pandemic, we evaluated our fleet during 2020 and determined that only the fleet types discussed in Note 2, "Impact of the COVID-19 Pandemic," were impaired, as the future cash flows from the operation of all other fleet types through the respective retirement dates exceeded the carrying value.

As we obtain greater clarity about the duration and extent of reduced demand and potentially execute further capacity adjustments, we will continue to evaluate our fleet compared to network requirements and may decide to retire additional aircraft.

Future decisions regarding the temporarily parked aircraft and the timing of any return to service will be dependent on the evolution of the demand environment.

We account for deferred income taxes under the liability method.

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We establish valuation allowances if it is not likely we will realize our deferred income tax assets.

In making this determination, we consider all available positive and negative evidence and make certain assumptions.

In making this determination, we consider available positive and negative evidence and make certain assumptions.

We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies.

See Note 13, "Income Taxes," for further information on our deferred income taxes.

Fuel Card Obligation

We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil.

The card currently carries a maximum credit limit of $ 1.1 billion and must be paid monthly.

At December 31, 2019 and 2018, we had $ 736 million and $ 1.1 billion outstanding on this purchasing card, respectively, and the activity was classified as a financing activity in our Consolidated Statements of Cash Flows.

The card carried a maximum credit limit of $ 1.1 billion as of December 31, 2020 and must be paid monthly.

At December 31, 2020 and 2019, we had $ 1.1 billion and $ 736 million outstanding on this purchasing card, respectively, and the activity was classified as a financing activity in our cash flows statement.

Delta Air Lines, Inc.

2020 Form 10-K 70

Notes to the Consolidated Financial Statements

Retirement of Repurchased Shares

We immediately retire shares repurchased pursuant to our share repurchase program.

We immediately retire shares repurchased pursuant to any share repurchase program.

We allocate the share purchase price in excess of par value between additional paid-in capital and retained earnings.

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Advertising expense was $ 119 million, $ 288 million and $ 267 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Passenger sales commissions are recognized in operating expense when the related revenue is recognized.

Subsequent Event

Starting in February 2020, we temporarily suspended flights between the U.S.

and China as the result of an outbreak of a novel coronavirus originating in Wuhan, Hubei Province, China.

We have suspended flights between the U.S.

and China through April 30, will continue to monitor the situation closely and may make additional adjustments.

Given the uncertainty about the situation, we currently cannot estimate the impact to our financial statements.

Flights to and from China have historically represented less than 2 % of our revenue.

We are currently exploring options for the redeployment of aircraft to other routes within our diverse global network.

Commissions and Merchant Fees

Passenger sales commissions and merchant fees are recognized in operating expense when the related revenue is recognized.

IMPACT OF THE COVID-19 PANDEMIC

The unprecedented, widespread and persistent impact of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world have significantly reduced demand for air travel.

After initially impacting our service to China beginning in January 2020, the spread of the virus and the resulting global pandemic have significantly affected our entire network.

Beginning in March 2020, large public events were cancelled, governmental authorities began imposing restrictions on non-essential activities, businesses suspended travel and popular leisure destinations temporarily closed to visitors.

Certain countries that are key markets for our business have imposed bans on international travelers for specified periods or indefinitely.

As a result, demand for travel declined at a rapid pace in the March 2020 quarter and has remained depressed, which has had an unprecedented and materially adverse impact on our results of operations and financial position.

Although demand has improved at a slow pace since that time, it remains significantly below pre-pandemic levels.

The exact timing and pace of the recovery remain uncertain as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, remain closed or are enforcing extended quarantines for most U.S.

and numerous other countries are now also requiring airline passengers to provide negative COVID-19 test results prior to travel into their countries.

Additionally, some states have instituted travel restrictions, advisories or quarantines for travelers from other states within the U.S.

We expect the demand environment to remain depressed until effective vaccines become broadly available, vaccination becomes widespread globally and travel restrictions and advisories begin to ease.

Our forecasted expense and liquidity management initiatives may be modified as the demand environment evolves.

In response to these developments, we have implemented enhanced measures focusing on the safety of our customers and employees, while at the same time seeking to mitigate the impact on our financial position and operations and to position our business for recovery.

Delta Air Lines, Inc.

2020 Form 10-K 71

Notes to the Consolidated Financial Statements

Taking Care of our Customers and Employees.

The safety of our customers and employees is our primary focus.

As the COVID-19 pandemic has progressed, we have taken numerous steps to help promote the safety of our customers and employees on the ground and in the air in keeping with current health-expert recommendations, including:

• Adopting new cleaning procedures on all flights, including regular disinfectant electrostatic spraying on aircraft and sanitizing high-touch areas like tray tables, entertainment screens, armrests and seat-back pockets.

• Taking steps to help employees and customers practice social distancing and promote safety, including:

◦ Creating a Global Cleanliness Division to ensure a consistently safe and sanitized experience across our facilities and aircraft.

◦ Beginning in May 2020, requiring all customers and customer-facing employees to wear masks.

◦ Capping load factors throughout our aircraft and blocking middle seats through at least April 30, 2021.

◦ Modifying our boarding and deplaning processes, while providing limited food and beverage service that is designed to reduce physical touch points.

◦ Encouraging social distancing throughout all aspects of our operation.

◦ Implementing significant workforce social distancing and protection measures, including reconfiguring call center spaces to promote social distancing, increasing cleaning and disinfecting of our facilities and encouraging employees to work remotely when possible.

• Giving customers flexibility to plan and re-book travel, including extending expiration on certain tickets and travel credits through December 2022, eliminating change fees for domestic tickets and international tickets originating from North America, with the exception of Basic Economy tickets, and waiving change fees for all tickets purchased before March 30, 2021.

Additionally, we are extending 2020 Medallion Status an additional year, rolling Medallion Qualification Miles into 2021 and extending Delta SkyMiles American Express Card benefits and Delta Sky Club memberships.

• Offering pay protection to employees who have tested positive for COVID-19, who must quarantine due to exposure to COVID-19, who are considered being at high-risk for illness from COVID-19 according to the Centers for Disease Control and Prevention ("CDC") guidelines and do not have the ability to work remotely.

• Offering on-site rapid COVID-19 testing in most locations and making at-home testing available for all U.S.-based employees.

We have also added rapid testing in most U.S.

hubs for active flight crews.

Capacity Reductions.

Beginning in the second half of March 2020, we experienced a precipitous decrease in demand as COVID-19 spread throughout the world.

While we have increased capacity compared to the lowest levels in April 2020, system capacity remains significantly lower than prior to the COVID-19 pandemic.

During 2020, system capacity was reduced approximately 50 % compared to 2019, with international capacity reduced by approximately 65 % and domestic capacity reduced by approximately 45 %.

System capacity for the March 2020 through December 2020 period, excluding the pre-pandemic months of January and February, was reduced by approximately 60 %, with international capacity reduced by approximately 75 % and domestic capacity reduced by approximately 50 %.

For the March 2021 quarter, system capacity is expected to be down approximately 30 - 40 % compared to the March 2019 quarter.

As a result of reduced demand and lower capacity, we retired 227 aircraft in 2020 and have temporarily parked approximately 125 aircraft as of December 31, 2020.

Expense Management.

In response to the reduction in revenue, we have implemented, and will continue to implement, cost saving initiatives, including the following in 2020:

• Reducing capacity as described above to align with expected demand, which has resulted in removing from active service approximately 350 aircraft as of December 31, 2020, including certain fleets or aircraft that we have decided to early retire as described below.

• Consolidating our footprint at our airport facilities, including temporarily closing some Delta Sky Clubs.

• Avoiding furloughs for our U.S.

employees and reducing employee-related costs, through the following:

◦ Voluntary unpaid leaves of 30 days to 12 months offered to most employees.

Approximately 50,000 of our employees have taken or have elected to take voluntary leaves at various times during 2020 and, for those taking leaves up to 12 months, continuing through 2021.

◦ Offering employees early retirement and voluntary separation programs, with approximately 18,000 employees electing to participate.

See Note 11, "Employee Benefit Plans," for additional information.

◦ Reaching an agreement with ALPA that protects our pilots from furlough through April 2022.

◦ From April 1 through December 31, 2020, salary reductions of 100 % for our CEO, 50 % for our officers and a 25 % reduction in work hours for all other management and most front-line employee work groups.

• Delaying or eliminating nearly all other discretionary spending.

Delta Air Lines, Inc.

2020 Form 10-K 72

Notes to the Consolidated Financial Statements

Balance Sheet, Cash Flow and Liquidity.

Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity") as of December 31, 2020 was $ 16.7 billion as a result of the following actions to increase liquidity and strengthen our financial position during the year ended December 31, 2020:

• Completing financing transactions for an aggregate principal amount of approximately $ 25.9 billion.

• Receiving $ 5.6 billion as part of the CARES Act payroll support program as described in "Government Support Programs" below.

• Reducing planned capital expenditures by approximately $ 2.8 billion for the year to $ 1.9 billion, including restructuring our aircraft order books for future aircraft deliveries, delaying aircraft modifications and postponing certain information technology initiatives and ground equipment replacement.

See Note 12, "Commitments and Contingencies," for additional information about our aircraft purchase commitments.

• Amending our credit facilities to replace fixed charge coverage ratio covenants with liquidity-based covenants.

• Suspending share repurchases and dividends indefinitely and postponing voluntary pension funding.

In addition, in January 2021 we received $ 1.4 billion with respect to the payroll support program extension described below, with the remaining $ 1.5 billion expected in the March 2021 quarter.

In response to the impact that the demand environment has had on our financial condition, our credit rating was downgraded by Standard & Poor's to BB in March 2020 and by Fitch to BB+ in April 2020.

Our credit rating from Moody's remains Baa3.

See "Financial Condition and Liquidity - Sources and Uses of Liquidity" for additional information.

See Note 8, "Debt," and Note 9, "Leases," for more information on our financing activities during the year ended December 31, 2020.

Government Support Programs

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law.

The CARES Act is a support package intended to assist many aspects of the American economy, including providing the airline industry with up to $25 billion in grants and loans to be used for employee wages, salaries and benefits.

In April 2020, we entered into an agreement with the U.S.

Department of the Treasury to receive emergency support through the CARES Act payroll support program, which totaled $ 5.6 billion.

The support payments were conditioned on our agreement to comply with a variety of conditions, including to refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020.

The support payments consisted of $ 4.0 billion in a grant and $ 1.6 billion in an unsecured 10 -year low interest loan.

The loan bears interest at an annual rate of 1.00 % for the first five years (through April 2025) and the Secured Overnight Financing Rate ("SOFR") plus 2.00 % in the final five years.

In return, we issued to the U.S.

Department of the Treasury warrants to acquire more than 6.7 million shares of Delta common stock, which represented approximately 1 % of our outstanding shares.

These warrants have an initial exercise price of $ 24.39 per share, subject to adjustment in certain cases, and a five-year term.

The relative fair value of the warrants issued in 2020 is recorded within stockholder's equity and as a discount reducing the carrying value of the loan which is being amortized as interest expense in our income statement over the term of the loan.

The proceeds of the 2020 CARES Act grant were recorded in cash and cash equivalents when received and were recognized as contra-expense in government grant recognition in our income statement over the periods that the funds were intended to compensate.

See Note 8 "Debt," for further discussion of the unsecured loan and warrants to acquire Delta shares issued under the CARES Act payroll support program.

Finally, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

This provided us with approximately $ 200 million of additional liquidity during 2020.

Delta Air Lines, Inc.

2020 Form 10-K 73

Notes to the Consolidated Financial Statements

On December 27, 2020, an additional COVID-19 support bill was enacted into law, which extends the payroll support program of the CARES Act and provides an additional $15 billion in grants and loans to be used for airline employee wages, salaries and benefits.

In January 2021, we entered into a payroll support program extension agreement with the U.S.

Department of the Treasury.

We expect to receive $ 2.9 billion in payroll support payments, which must be used exclusively for the payment of employee wages, salaries and benefits and are conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs from the date of the extension agreement through March 2021.

Other conditions include prohibitions on share repurchases and dividends through March 2022 and certain limitations on executive compensation until October 2022.

The Department of Transportation also has the authority until March 1, 2022 to require airlines that received payroll support program funds to maintain scheduled air service deemed necessary to any point served by the airline before March 1, 2020.

The expected support payments consist of approximately $ 2.0 billion in grants and $ 830 million in an unsecured 10 -year low interest loan.

We received the first installment of $ 1.4 billion under the agreement on January 15, 2021 and expect to receive the balance in the March 2021 quarter.

The loan bears interest at an annual rate of 1.00 % for the first five years (through January 15, 2026) and the applicable SOFR plus 2.00 % in the final five years.

Approximately 70 % of the payment received on January 15, 2021 was in the form of a grant, and approximately 30 % was in the form of an unsecured loan.

We issued a promissory note for approximately $ 400 million with respect to the term loan, which will increase to its full principal amount as the balance of payroll support payments is received.

In connection with receipt of these payments, we also expect to issue to the U.S.

Department of the Treasury warrants to acquire shares of Delta common stock, which we expect to be approximately 2.1 million shares representing less than 0.5 % of our outstanding shares.

Approximately one-half of the expected warrants were issued on January 15, 2021 and the remaining warrants will be issued as the balance of payroll support payments is received.

These warrants have an initial exercise price of $ 39.73 per share, subject to adjustment in certain cases, and a five-year term.

Delta Air Lines, Inc.

2020 Form 10-K 74

Notes to the Consolidated Financial Statements

Restructuring Charges

The restructuring charges incurred during 2020 as part of our response to the COVID-19 pandemic are summarized as follows:

Restructuring charges by category

(in millions) Year Ended

December 31, 2020

Fleet Retirements $ 4,409

Voluntary Programs and Other Employee Benefit Charges 3,409

Receivables and Other 401

Total Restructuring Charges $ 8,219

Fleet Retirements.

As a result of the COVID-19 pandemic and our response, we have removed certain aircraft from active service as of December 31, 2020, which includes owned and leased aircraft that are being retired early.

Fleet retirements by aircraft type

Fleet Type Number of Aircraft Estimated Final Retirement During the Quarter Ended Impairment-Related Charge (in millions)

777 18 December 2020 $ 1,440

767-300ER 56 December 2025 1,084

717 91 December 2025 950

MD-90 26 June 2020 335

125 December 2023 320

737-700 10 September 2020 223

A320 10 June 2020 57

47 June 2020 —

Total 383 $ 4,409

(1) Certain of the CRJ-200 aircraft scheduled to be retired by the December 2023 quarter are operated for us by SkyWest Airlines under a revenue proration agreement.

(2) During the March 2020 quarter, we recorded a $ 22 million charge related to accelerating the planned retirement of the MD-88 fleet from December 2020 to June 2020.

However, this amount was recorded in depreciation and amortization, rather than in restructuring charges, as it would have been incurred during 2020 prior to the onset of the COVID-19 pandemic.

These impairment and other related charges are recorded in restructuring charges in our income statement.

These charges were calculated using Level 3 fair value inputs based primarily upon recent market transactions and third-party bids, which were corroborated with published pricing guides and our assessment of existing market conditions based on industry knowledge.

Following the impairment charges, the remaining aggregate net book value of these aircraft as of December 31, 2020 is approximately $ 500 million.

Voluntary Programs and Other Employee Benefit Charges.

See Note 11, "Employee Benefit Plans," for further information on these charges.

Receivables and Other.

See Note 5, "Investments," for further information on certain of these charges.

Delta Air Lines, Inc.

2020 Form 10-K 75

Notes to the Consolidated Financial Statements

REVENUE RECOGNITION

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Passenger revenue is primarily composed of passenger ticket sales, loyalty travel awards and travel-related services performed in conjunction with a passenger’s flight.

Year Ended December 31,

Passenger revenue by category Year Ended December 31,

(in millions) 2020 2019 2018

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Passenger Tickets.

We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in air traffic liability.

We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in our air traffic liability.

Passenger revenue is recognized when we provide transportation or when ticket breakage occurs.

For tickets that we sell on behalf of other airlines, we reduce the air traffic liability when consideration is remitted to those airlines.

The air traffic liability primarily includes sales of passenger tickets to be flown in the future and credits which can be applied as payment toward the cost of a ticket ("travel credits").

Travel credits are typically issued as a result of ticket cancellations prior to their expiration dates.

We periodically evaluate the estimated air traffic liability and record any adjustments in our income statement.

These adjustments relate primarily to refunds, exchanges, ticket breakage, transactions with other airlines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price.

The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months.

However, the ongoing reduction in demand for air travel due to the COVID-19 pandemic has resulted in an unprecedented low level of advance bookings and the associated cash received, as well as significant ticket cancellations which led to issuance of cash refunds or travel credits to customers.

The total value of cash refunds, excluding taxes and related fees, issued to customers during 2020 was approximately $ 3.1 billion.

Travel credits represented approximately 65 % of the air traffic liability as of December 31, 2020.

Prior to April 2020, passenger tickets sold and credits issued were generally valid for one year from the date of original ticket issuance .

During 2020, we announced the extension of expiration on certain tickets and travel credits through December 2022.

The air traffic liability classified as noncurrent as of December 31, 2020 represents our current estimate of tickets and credits to be used or refunded beyond one year, while the balance classified as current represents our current estimate of tickets and credits to be used or refunded within one year.

We will continue to monitor our customers' travel behavior and may adjust our estimates in the future.

Approximately $ 3.1 billion, $ 3.8 billion and $ 3.5 billion of the prior year air traffic liability related to passenger ticket sales (which excludes those tickets sold on behalf of other airlines) was recognized in passenger revenue during the years ended December 31, 2020, 2019 and 2018, respectively.

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We estimate the value of tickets that will expire unused and recognize revenue at the scheduled flight date.

We periodically evaluate our breakage estimates, which are based on historical experience, ticket contract terms and customers’ travel behavior, and may adjust our estimates in the future.

Regional Carriers .

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We record revenue related to our capacity purchase agreements in passenger revenue and the related expenses in regional carriers expense, excluding fuel.

Delta Air Lines, Inc.

2020 Form 10-K 76

Notes to the Consolidated Financial Statements

Loyalty Travel Awards

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We recognize revenue for these services when the related transportation service is provided.

During 2020, we waived change fees for all tickets purchased through March 30, 2021 and eliminated change fees for domestic tickets and international tickets originating from North America, with the exception of Basic Economy tickets.

Loyalty Program

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This program allows customers to earn mileage credits ("miles") by flying on Delta, Delta Connection and other airlines that participate in the loyalty program.

When traveling, customers earn redeemable miles based on the passenger's loyalty program status and ticket price.

When traveling, customers earn miles based on the passenger's loyalty program status and ticket price.

Customers can also earn miles through participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies.

To facilitate transactions with participating companies, we sell miles to non-airline businesses, customers and other airlines.

Miles are redeemable by customers in future periods for air travel on Delta and other participating airlines, membership in our Sky Club and other program awards.

To reflect the miles earned, the loyalty program includes two types of transactions that are considered revenue arrangements with multiple performance obligations:

(1) miles earned with travel and (2) miles sold to participating companies.

To facilitate transactions with participating companies, we sell miles to non-airline businesses, customers and other airlines.

The loyalty program includes two types of transactions that are considered revenue arrangements with multiple performance obligations (1) passenger ticket sales earning miles and (2) sale of miles to participating companies.

Passenger Ticket Sales Earning Miles.

Passenger ticket sales earning miles under our loyalty program provide customers with (1) miles earned and (2) air transportation, which are considered performance obligations.

Passenger ticket sales earning miles provide customers with (1) miles earned and (2) air transportation, which are each considered performance obligations.

We value each performance obligation on a standalone basis.

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We use statistical models to estimate breakage based on historical redemption patterns.

A change in assumptions as to the actual redemption activity for miles or the estimated fair value of miles expected to be redeemed could have a material impact on our revenue in the year in which the change occurs and in future years.

A change in assumptions to the redemption activity for miles or the estimated fair value of miles expected to be redeemed could have a material impact on our revenue in the year in which the change occurs and in future years.

We recognize breakage proportionally during the period in which the remaining miles are actually redeemed.

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We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize passenger revenue when we provide transportation or if the ticket goes unused.

Sale of Miles.

Customers may earn miles based on their spending with participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies with which we have marketing agreements to sell miles.

Sale of Miles to Participating Companies.

Customers earn miles based on their spending with participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies with which we have marketing agreements to sell miles.

Our contracts to sell miles under these marketing agreements have multiple performance obligations.

Payments are typically due monthly based on the volume of miles sold during the period, and the terms of our marketing contracts are from one to eleven years.

Payments are typically due to us monthly based on the volume of miles sold during the period, and the initial terms of our marketing contracts are from three to eleven years.

During the years ended December 31, 2020, 2019 and 2018, total cash sales from marketing agreements were $ 2.8 billion, $ 4.2 billion and $ 3.5 billion, respectively, which are allocated to travel and other performance obligations, as discussed below.

Delta Air Lines, Inc.

2020 Form 10-K 77

Notes to the Consolidated Financial Statements

Our most significant contract to sell miles relates to our co-brand credit card relationship with American Express.

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We sell miles at agreed-upon rates to American Express which are then provided to their customers under the co-brand credit card program and the Membership Rewards program.

Effective January 1, 2019, we amended our co-brand and other agreements with American Express which increased the value we receive and extended the terms to 2029.

The products and services delivered are consistent with previous agreements.

We account for marketing agreements, including those with American Express, by allocating the consideration received to the individual products and services delivered.

We allocate the value based on the relative selling prices of those products and services, which generally consist of award travel, priority boarding, baggage fee waivers, lounge access and the use of our brand.

We determine our best estimate of the selling prices by using a discounted cash flow analysis using multiple inputs and assumptions, including:

(1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation adjusted for breakage, (3) published rates on our website for baggage fees, discounted access to Delta Sky Club lounges and other benefits while traveling on Delta, (4) brand value (using estimated royalties generated from the use of our brand) and (5) volume discounts provided to certain partners.

Effective January 1, 2019, we amended our co-brand agreement with American Express, and we also amended other agreements with American Express during the current year.

The new agreements increase the value we receive and extend the terms to 2029.

The products and services delivered are consistent with previous agreements, and we continue to allocate the consideration received based on the relative selling prices of those products and services.

We defer the amount for award travel obligation as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the miles are used for travel.

We determine our best estimate of the selling prices by using a discounted cash flow analysis using multiple inputs and assumptions, including (1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation adjusted for breakage, (3) published rates on our website for baggage fees, discounted access to Delta Sky Club lounges and other benefits while traveling on Delta, (4) brand value (using estimated royalties generated from the use of our brand) and (5) volume discounts provided to certain partners.

We defer the amount allocated to award travel as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the miles are redeemed and transportation is provided.

Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel-related services in passenger revenue when the related service is performed.

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Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue as miles are delivered.

In September 2020, we raised $ 9.0 billion through the issuance of notes and entry into a term loan facility, each secured by certain assets related to our SkyMiles program.

See Note 8, "Debt," for further discussion of these transactions.

Current Activity of the Loyalty Program.

Miles are combined in one homogeneous pool and are not separately identifiable.

As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

The table below presents the activity of the current and noncurrent loyalty program liability, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.

Therefore, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

The table below presents the activity of the current and noncurrent loyalty program deferred revenue, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.

Loyalty program activity

(in millions) 2020 2019 2018

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The timing of mile redemptions can vary widely;

however, the majority of new miles are redeemed within two years .

however, the majority of new miles have historically been redeemed within two years .

The loyalty program deferred revenue classified as a current liability represents our current estimate of revenue expected to be recognized in the next twelve months based on projected redemptions, while the balance classified as a noncurrent liability represents our current estimate of revenue expected to be recognized beyond twelve months.

As a result of the COVID-19 pandemic, a larger portion of mile redemptions is projected to occur beyond twelve months and is therefore reflected as a noncurrent liability as of December 31, 2020.

We will continue to monitor redemptions as the situation evolves.

Delta Air Lines, Inc.

2020 Form 10-K 78

Notes to the Consolidated Financial Statements

Revenue by Geographic Region

Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment.

The majority of the revenues of the refinery, consisting of fuel sales to the airline, have been eliminated in the Consolidated Financial Statements.

A significant portion of the refinery's revenues typically consists of fuel sales to support the airline, which is eliminated in the Consolidated Financial Statements.

The remaining operating revenue for the refinery segment is included in the domestic region.

Our passenger and operating revenue by geographic region is summarized in the following table:

Passenger Revenue Operating Revenue

Revenue by geographic region Passenger Revenue Operating Revenue

Year Ended December 31, Year Ended December 31,

10 unchanged sentences

(in millions) 2020 2019 2018

Loyalty program $ 1,962 $ 1,459 $ 1,269

Ancillary businesses and refinery $ 1,798 $ 1,297 $ 1,801

Loyalty program 1,458 1,962 1,459

Miscellaneous 348 718 558

Total other revenue $ 3,604 $ 3,977 $ 3,818

Loyalty Program.

Loyalty program revenues relate primarily to brand usage by third parties and include the redemption of miles for non-travel awards.

These revenues are included within the total cash sales from marketing agreements, discussed above.

Ancillary Businesses and Refinery.

Ancillary businesses and refinery includes aircraft maintenance provided to third parties, our vacation wholesale operations, our private jet operations and refinery sales to third parties.

Ancillary businesses and refinery includes refinery sales to third parties, aircraft maintenance provided to third parties and our vacation wholesale operations.

Third-party refinery production sales are at or near cost;

1 unchanged sentence

See Note 16, "Segments," for more information on revenue recognition within our refinery segment.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up.

Upon closing, we received an equity stake in Wheels Up and Delta Private Jets will no longer be reflected in ancillary businesses and refinery.

In January 2020, we combined Delta Private Jets, our former wholly owned subsidiary which provided private jet operations, with Wheels Up.

Upon closing, we received an equity stake in Wheels Up, and Delta Private Jets is no longer reflected in ancillary businesses and refinery.

See Note 5, "Investments," for more information on this transaction.

In 2018, we sold DAL Global Services, LLC ("DGS"), which provides aviation-related, ground support equipment maintenance and professional security services, to AirCo Aviation Services, LLC ("AirCo"), a subsidiary of Argenbright Holdings, LLC.

Accordingly, DGS is no longer reflected within ancillary businesses and refinery in 2019.

Loyalty Program.

Loyalty program revenues relate primarily to brand usage by third parties and include the redemption of miles for non-travel awards.

These revenues are included within the total cash sales from marketing agreements, discussed above.

Miscellaneous.

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Accounts receivable primarily consist of amounts due from credit card companies from the sale of passenger tickets, ancillary businesses and refinery sales and other companies for the purchase of miles under the loyalty program.

We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses.

Bad debt expense was not material in any period presented.

We provide an allowance for uncollectible accounts using an expected credit loss model which represents our estimate of expected credit losses over the lifetime of the asset.

In 2020, due to the COVID-19 pandemic, we recorded reserves on certain receivables, which are discussed further in Note 5, "Investments."

Delta Air Lines, Inc.

2020 Form 10-K 79

Notes to the Consolidated Financial Statements

Passenger Taxes and Fees

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December 31, 2020 Valuation

(in millions) Total Level 1 Level 2

(in millions) Total Level 1 Level 2 Level 3

Cash equivalents $ 5,755 $ 5,755 $ — $ — (a)

Restricted cash equivalents 1,747 1,747 — — (a)

Long-term investments 1,099 881 218 (a)

Short-term investments

Government securities 5,789 3,919 1,870 — (a)

Long-term investments 1,417 948 38 431 (a)(b)

Hedge derivatives, net

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December 31, 2019 Valuation

(in millions) Total Level 1 Level 2

(in millions) Total Level 1 Level 2 Level 3

Cash equivalents $ 586 $ 586 $ — $ — (a)

Restricted cash equivalents 847 847 — — (a)

Short-term investments

government securities 50 45 5 (a)

Asset- and mortgage-backed securities 36 — 36 (a)

Corporate obligations 90 — 90 (a)

Other fixed income securities 27 — 27 (a)

Long-term investments 1,090 880 210 (a)

Long-term investments 1,099 881 33 185 (a)(b)

Hedge derivatives, net

3 unchanged sentences

(1) See Note 11, "Employee Benefit Plans," for fair value of benefit plan assets.

Delta Air Lines, Inc.

2020 Form 10-K 80

Notes to the Consolidated Financial Statements

Cash Equivalents and Restricted Cash Equivalents.

Cash equivalents generally consist of money market funds.

Restricted cash equivalents generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance a portion of the construction costs for the new terminal facilities at New York's LaGuardia Airport.

Restricted cash equivalents are recorded in prepaid expenses and other and cash restricted for airport construction on our balance sheet and generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance, among other things, a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport.

The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets.

Short-Term Investments.

The fair values of our short-term investments were based on a market approach using industry standard valuation techniques that incorporated observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security or other observable information and were recorded in prepaid expenses and other on the balance sheet.

The fair values of our short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security or other observable information.

Long-Term Investments.

Our long-term investments that are measured at fair value primarily consist of equity investments which are valued based on market prices or other observable transactions and are recorded in other noncurrent assets on our balance sheet.

See Note 4, "Investments," for further information on our equity investments.

Our long-term investments that are measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet.

In addition, our equity investments in private companies (such as the interests we received in Wheels Up during 2020), are classified as Level 3 in the fair value hierarchy as their equity is not traded on a public exchange and our valuations incorporate certain unobservable inputs, including non-public equity issuances and forecasts provided by our investees.

Our equity investments in LATAM and Grupo Aeroméxico, which have no remaining value following impairment charges recorded in 2020 due to their entry into bankruptcy proceedings, became classified as Level 3 fair value investments during 2020.

Fair value measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair values.

During the year ended December 31, 2020 there were no material gains or losses as a result of fair value adjustments.

See Note 5, "Investments," for further information on our long-term investments.

Hedge Derivatives.

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These contracts are classified within Level 1 of the fair value hierarchy.

• Fuel Contracts.

• Fuel Hedge Contracts.

Our fuel hedge portfolio consists of options, swaps and futures.

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Our foreign currency derivatives consist of forward contracts and are valued based on data readily observable in public markets.

Short-Term Investments

At December 31, 2020, the estimated fair value of our short-term investments was $ 5.8 billion, which approximates cost.

Of these investments, $ 4.9 billion are expected to mature in one year or less, with the remainder maturing during 2022.

Investments with maturities beyond one year when purchased may be classified as short-term investments if they are expected to be available to support our short-term liquidity needs.

Long-Term Investments

We have developed strategic relationships with a number of airlines and airline services companies through equity investments and other forms of cooperation and support.

Our equity investments reinforce our commitment to these relationships and provide us with the ability to participate in strategic decision-making, often through representation on the boards of directors of the investee.

During the years ended December 31, 2019 and 2018, we recorded net gains on our equity investments of $ 119 million and $ 38 million, respectively, which were recorded in gain/(loss) on investments in our income statement within non-operating expense.

These net gains were primarily driven by changes in stock prices and foreign currency fluctuations as well as the sale of certain investments, as described below.

During 2017, before we adopted the new financial instruments accounting standard in 2018, we recorded unrealized gains and losses on available-for-sale investments in AOCI.

We have developed strategic relationships with a number of airlines and airline services companies through joint ventures and other forms of cooperation and support, including equity investments.

Our equity investments reinforce our commitment to these relationships and generally enhance our ability to offer input to the investee on strategic issues and direction, in some cases through representation on the board of directors.

Delta Air Lines, Inc.

2020 Form 10-K 81

Notes to the Consolidated Financial Statements

In January 2020, we acquired 20 % of the shares of LATAM for $ 1.9 billion, or $ 16 per share, through a tender offer as part of our plan to create a strategic alliance with LATAM.

In addition, to support the establishment of the strategic alliance, we agreed to make transition payments to LATAM totaling $ 350 million, of which $ 75 million remains to be paid by the end of 2021.

As part of our planned strategic alliance with LATAM, we also agreed to acquire four A350 aircraft from LATAM (which agreement has subsequently been terminated, as discussed below) and assumed 10 of LATAM's A350 purchase commitments with Airbus for deliveries through 2025.

The total consideration of $ 2.3 billion, including the tender offer and the transition payments, was allocated in the March 2020 quarter to the shares ($ 1.1 billion) and to the alliance-related indefinite-lived intangible asset ($ 1.2 billion) based on their relative fair values.

We expect to record the 10 aircraft at cost upon delivery.

In May 2020, LATAM filed for bankruptcy under Chapter 11 of the United States bankruptcy code as the result of the impact of the pandemic on its business and, as part of LATAM's reorganization, we terminated the purchase agreement for the four A350 aircraft from LATAM for a fee of $ 62 million, which was recorded in restructuring charges in our income statement.

While our ownership interest remains at 20 %, we no longer have significant influence with LATAM during their bankruptcy proceedings and discontinued accounting for the investment under the equity method in the June 2020 quarter and began accounting for the investment at fair value.

During the June 2020 quarter, we eliminated the carrying value of our investment in LATAM and recorded expense of $ 1.1 billion in impairments and equity method losses within non-operating expense in our income statement.

This charge reflected the recognition of both our 20 % share of LATAM's March 2020 quarter losses (due to the timing of information available from LATAM) and the decline in our expected realizable value for LATAM's shares following its bankruptcy filing.

The impairment charge for our investment in LATAM was calculated using Level 3 fair value inputs.

During the September 2020 quarter, LATAM’s debtor-in-possession financing was approved by the bankruptcy court to provide LATAM with near-term liquidity and the ability to continue progressing toward a plan of reorganization.

We expect that no more than an immaterial amount will be distributed to current equity holders following the settlement of unsecured claims upon LATAM's emergence from bankruptcy.

The carrying value of our investment in LATAM remains zero at December 31, 2020.

In May 2020, we signed a trans-American joint venture agreement with LATAM that, subject to regulatory approvals, will combine our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity.

In addition, the bankruptcy court has approved the assumption of our strategic partnership agreement, which contributes to supporting the value of our $ 1.2 billion alliance-related indefinite-lived intangible asset.

We believe this alliance will generate growth opportunities, building upon Delta's and LATAM's global footprint and joint ventures.

See Note 7, "Goodwill and Intangible Assets," for further discussion of our quantitative impairment assessment of indefinite-lived intangible assets.

Grupo Aeroméxico.

In June 2020, Grupo Aeroméxico filed for bankruptcy under Chapter 11 of the United States bankruptcy code as the result of the impact of the pandemic on its business.

We have a non-controlling 51 % ownership interest in Grupo Aeroméxico, however Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to a maximum of 49 %.

Therefore, we accounted for our investment under the equity method prior to Grupo Aeroméxico's bankruptcy filing.

As a result of Grupo Aeroméxico's bankruptcy filing, while our ownership interest has not changed, we no longer have significant influence with Grupo Aeroméxico during their bankruptcy proceedings and discontinued accounting for the investment under the equity method in the June 2020 quarter and began accounting for the investment at fair value.

During the June 2020 quarter, we eliminated the carrying value of our investment in Grupo Aeroméxico and recorded expense of $ 770 million in impairments and equity method losses within non-operating expense in our income statement.

This charge reflected the recognition of both our 51 % share of Grupo Aeroméxico's June 2020 quarter losses and the decline in our expected realizable value for Grupo Aeroméxico's shares following its bankruptcy filing.

The impairment charge for our investment in Grupo Aeroméxico was calculated using Level 3 fair value inputs.

During the December 2020 quarter, Grupo Aeroméxico's debtor-in-possession financing was approved by the bankruptcy court to provide Grupo Aeroméxico with near-term liquidity and the ability to continue progressing toward a plan of reorganization.

We expect that no more than an immaterial amount will be distributed to current equity holders following the settlement of unsecured claims upon Grupo Aeroméxico's emergence from bankruptcy.

The carrying value of our investment in Grupo Aeroméxico remains zero at December 31, 2020.

Delta Air Lines, Inc.

2020 Form 10-K 82

Notes to the Consolidated Financial Statements

In addition, we believe Grupo Aeroméxico intends to request the bankruptcy court's approval to assume our joint cooperation agreement.

As a result of the significantly decreased demand for air travel caused by the COVID-19 pandemic, LATAM and Grupo Aeroméxico are undergoing in-court restructurings.

In order to support our relationships with these carriers, we have provided them with strategic and operational assistance through their restructurings.

We recorded notes payable of $ 165 million, which are recorded in current maturities of debt and finance leases, and receivables from those partners within other noncurrent assets as of December 31, 2020.

In 2019, we sold our ownership stake of GOL Linhas Aéreas Inteligentes, the parent company of GOL Linhas Aéreas (operating as GOL), and have ended our commercial agreements.

During 2015, in conjunction with our investment in GOL we agreed to guarantee GOL’s $ 300 million five -year term loan facility with third parties that matured in August 2020.

During the September 2020 quarter, we loaned GOL $ 250 million, to be used exclusively to repay the 2015 term loan.

The $ 250 million loan to GOL reduced our financial exposure and provides us with additional collateral while providing GOL more time to address its obligations during the pandemic.

Our loan to GOL is secured by GOL’s ownership interest in Smiles, GOL’s publicly traded loyalty program, as well as other collateral.

As of December 31, 2020, the outstanding principal balance of the loan, which was prepaid in part during 2020 and is now scheduled to be repaid in monthly installments through June 2021, was $ 93 million.

Fair Value Investments

Our investments accounted for at fair value are summarized in the following table:

Fair value investments ownership interest and carrying value

Ownership Interest Carrying Value

(in millions) December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Hanjin-KAL 13 % 10 % $ 512 $ 205

Air France-KLM 9 % 9 % 235 418

China Eastern 3 % 3 % 201 258

Hanjin-KAL 10 % — % 205 —

GOL — % 9 % — 213

Other investments 469 218

Total fair value investments $ 1,417 $ 1,099

During 2019, we acquired 10 % of the outstanding shares of Hanjin-KAL, the largest shareholder of Korean Air.

In the December 2019 quarter we sold our 9 % ownership stake of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), for $ 278 million.

The gain on sale of our investment in GOL is recorded in gain/(loss) on investments within non-operating expense in our income statement.

Additionally, GOL has a $ 300 million five -year term loan facility with third parties maturing in 2020, which we have guaranteed.

Our guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly-traded loyalty program.

Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability on our balance sheet as of December 31, 2019.

During the year ended December 31, 2020, we recorded net losses on these equity investments of $ 105 million compared to net gains of $ 119 million, including a gain from the sale of our ownership stake in GOL, during the year ended December 31, 2019 and $ 38 million during the year ended December 31, 2018.

These results were recorded in gain/(loss) on investments in our income statement within non-operating expense and were driven by changes in stock prices, foreign currency fluctuations and other valuation techniques for investments in companies without publicly-traded shares.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provided private jet operations, with Wheels Up.

This transaction resulted in a gain of $ 240 million which was recorded within miscellaneous, net in our income statement in the March 2020 quarter.

Upon closing, we received interests, which represented a 24 % equity stake in Wheels Up as of December 31, 2020, included in other investments above.

We elected to record our investment using the fair value option as this is expected to better reflect the economics of our ownership interest.

In February 2021, Wheels Up entered into a definitive agreement to become publicly-traded via a merger with Aspirational Consumer Lifestyle Corp.

The transaction is expected to close in the June 2021 quarter.

Delta Air Lines, Inc.

2020 Form 10-K 83

Notes to the Consolidated Financial Statements

Equity Method Investments

We account for the investments listed below under the equity method of accounting.

We account for the investments listed below and certain other immaterial investments under the equity method of accounting.

Equity method investments ownership interest and carrying value

Ownership Interest Carrying Value

(in millions) December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Grupo Aeroméxico (1)

51 % 51 % $ 833 $ 897

Virgin Atlantic (1)

49 % 49 % $ — $ 375

AirCo 49 % 49 % 142 109

(1) Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to a maximum of 49 %.

Therefore, we account for our investment under the equity method.

Due to Aeroméxico's share repurchase program, our equity stake in Grupo Aeroméxico has increased to a non-controlling 51 % interest.

Unifi Aviation 49 % 49 % 154 142

(1) We have a non-controlling equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways, and similar non-controlling interests in certain affiliated Virgin Atlantic companies.

Our portion of Grupo Aeroméxico's and Virgin Atlantic's financial results are recorded in miscellaneous, net in our income statement under non-operating expense, and our share of AirCo's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business.

Our equity method investments are recorded in equity investments on our balance sheet.

If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our carrying value of the investment to fair value and record the loss in impairments and equity method losses in our income statement .

Virgin Atlantic.

As a result of the COVID-19 pandemic and the resulting travel restrictions and quarantines, Virgin Atlantic has incurred significant losses during 2020.

In recording our 49 % share in Virgin Atlantic's results and based on our review of Virgin Atlantic's financial projections, in the June 2020 quarter we reduced the carrying value of our investment to zero .

During the September 2020 quarter, Virgin Atlantic undertook a voluntary recapitalization process in the U.K., which was subsequently approved by its creditors, and instituted ancillary proceedings in support of that process in the U.S.

Under related agreements, we recognized a note payable of $ 115 million, which is recorded in current maturities of debt and finance leases, and a corresponding receivable within other noncurrent assets.

During the year ended December 31, 2020, we recorded $ 510 million in impairments and equity method losses within non-operating expense in our income statement.

Under the equity method of accounting, we will track our share of Virgin Atlantic's future losses, but we will not reflect our share of their results in our financial statements until such time that our share of their earnings eliminates the losses beyond our carrying value of the investment.

We continue to monitor and support Virgin Atlantic's ongoing restructuring efforts.

Effective January 2020, we combined our separate transatlantic joint venture agreements with Air France-KLM and Virgin Atlantic into a single three -party transatlantic joint venture.

Under the new agreement, certain measurement thresholds were reset from the previous joint venture with Virgin Atlantic, reducing the value we would have received over the original term.

In consideration for this reduced value, we entered into a transition agreement with Virgin Atlantic, which would have resulted in payments to us in future periods.

However, as of December 31, 2020, based on our assessment of collectability, we do not have any assets or liabilities recorded on our balance sheet related to this transition agreement.

Unifi Aviation.

We have a 49 % ownership interest in AirCo Aviation Services, LLC, which together with its subsidiaries is operating as Unifi Aviation.

Our share of Unifi Aviation's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business and the services provided by Unifi Aviation are also recorded in contracted services in our income statement.

Based on discussions with Unifi Aviation's management and review of their liquidity and financial projections, we do not believe our investment is other than temporarily impaired as we have the intent and ability to retain this investment for a period of time sufficient to allow for anticipated recovery in value.

However, we will continue to monitor the continuing effects of the pandemic and self-help measures Unifi Aviation executes.

We also have an investment in JFK IAT Member LLC which is accounted for under the equity method and is discussed further in Note 10, "Airport Redevelopment."

Our equity method investments are recorded in other noncurrent assets on our balance sheet.

If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our basis in the investment to fair value and record the loss in gain/(loss) on investments.

In September 2019, we announced our plan to enter into a strategic alliance with LATAM Airlines Group S.A ("LATAM") as well as acquire up to a 20 % interest through a tender offer.

In January 2020, we acquired 20 % of the shares of LATAM for $ 1.9 billion, or $ 16 per share.

In addition, to support the establishment of the strategic alliance, we will invest $ 350 million, $ 200 million of which was disbursed in 2019.

As part of our planned strategic alliance with LATAM, we have also agreed to acquire four A350 aircraft from LATAM and plan to assume ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up.

Upon closing, we received a 27 % equity stake in Wheels Up, which will be accounted for under the equity method beginning in the March 2020 quarter.

Delta Air Lines, Inc.

2020 Form 10-K 84

Notes to the Consolidated Financial Statements

Receivables from Investees and Other Airlines

Based on our assessment of collectability, during the year ended December 31, 2020, we recorded approximately $ 100 million of reserves against outstanding receivables from LATAM, Grupo Aeroméxico, GOL, Virgin Atlantic, Virgin Australia and others.

These reserves reflect our expected recoveries given the impact of the COVID-19 pandemic on our investees and other airlines, and their restructuring efforts or recent bankruptcy filings.

In determining the appropriate amount to reserve, we also considered the valuation of and our ability to realize the value of any collateral associated with each receivable.

The reserves are recorded within accounts receivable, net or prepaid expenses and other on our balance sheet and within restructuring charges in our income statement.

DERIVATIVES AND RISK MANAGEMENT

2 unchanged sentences

We recognize derivative contracts at fair value on our balance sheets.

Cash flows associated with purchasing and settling hedge contracts generally are classified as operating cash flows.

Fuel Price Risk

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Pension, postretirement, postemployment and worker's compensation obligation risk relates to the potential increase in our future obligations and expenses from a decrease in interest rates used to discount these obligations.

In the March 2020 quarter, we unwound a majority of our interest rate swap contracts.

The unwind of these contracts generated approximately $ 100 million of cash in the March 2020 quarter.

Additionally, in January 2021 we unwound our remaining interest rate swap contract.

The unwind of this contract generated approximately $ 20 million of cash in January 2021.

These gains are being reflected in our income statement over the remaining term of the related debt agreements.

Foreign Currency Exchange Rate Risk

6 unchanged sentences

During the year ended December 31, 2020, we recorded an unrealized loss on this swap of $ 10 million, which is reflected in gain/(loss) on investments, net within non-operating expense.

In January 2018, we entered into a three -year U.S.

dollar-Euro cross currency swap with a notional value of € 375 million.

This swap was intended to mitigate foreign currency volatility resulting from our Euro-denominated investment in Air France-KLM.

In response to favorable changes in interest rates and the U.S.

dollar-Euro exchange rate, we settled the cross currency swap in August 2018.

Upon settlement, we recognized gains of $ 18 million in miscellaneous in our income statement within non-operating expense.

Subsequently, we entered into a new U.S.

dollar-Euro cross currency swap with a notional value of € 397 million and a maturity date in December 2020.

During the years ended December 31, 2019 and 2018, we recorded an unrealized gain of $ 13 million and an unrealized loss of $ 4 million, respectively, on this swap which is reflected in gain/(loss) on investments, net within non-operating expense.

Delta Air Lines, Inc.

2020 Form 10-K 85

Notes to the Consolidated Financial Statements

Hedge Position as of December 31, 2020

1 unchanged sentence

Designated as hedges

Interest rate contracts (fair value hedges) 1,872 U.S.

Interest rate contract (fair value hedges) 150 U.S.

dollars April 2028 $ 3 $ 20 $ — $ — $ 23

Not designated as hedges

Foreign currency exchange contract 397 Euros December 2020 9 — — — 9

Foreign currency exchange contract 177,045 South Korean won April 2023 — — — ( 13 ) ( 13 )

Fuel hedge contracts 243 gallons - crude oil and refined products July 2020 16 — ( 15 ) — 1

Fuel hedge contracts 157 gallons - crude oil and refined products April 2021 — — ( 9 ) — ( 9 )

Total derivative contracts $ 3 $ 20 $ ( 9 ) $ ( 13 ) $ 1

4 unchanged sentences

dollars April 2028 $ 12 $ 53 $ ( 4 ) $ — $ 61

Foreign currency exchange contracts 6,934 Japanese yen November 2019 1 — — — 1

Not designated as hedges

Foreign currency exchange contract 397 Euros December 2020 9 — — — 9

Fuel hedge contracts 219 gallons - crude oil and refined products December 2019 30 — ( 15 ) — 15

Foreign currency exchange contract 177,045 South Korean won April 2023 1 — — ( 4 ) ( 3 )

Fuel hedge contracts 243 gallons - crude oil and refined products July 2020 16 — ( 15 ) — 1

Total derivative contracts $ 38 $ 53 $ ( 19 ) $ ( 4 ) $ 68

4 unchanged sentences

Debt and finance leases ( 72 ) ( 1,783 ) 77 53

(1) As of December 31, 2020, these amounts include the cumulative amount of fair value hedging adjustments remaining for which hedge accounting has been discontinued of approximately $ 76 million.

Delta Air Lines, Inc.

2020 Form 10-K 86

Notes to the Consolidated Financial Statements

Offsetting Assets and Liabilities

2 unchanged sentences

The following table shows the net fair value of our counterparty positions had we elected to offset.

Derivative contracts offsetting assets and liabilities

(in millions) Prepaid Expenses and Other Other Noncurrent Assets Other Accrued Liabilities Other Noncurrent Liabilities Hedge Derivatives, Net

3 unchanged sentences

Net derivative contracts $ 24 $ 53 $ ( 5 ) $ ( 4 ) $ 68

Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts during the years ended December 31, 2019, 2018 and 2017 are as follows:

Gain (Loss) Reclassified from AOCI to Earnings Gain (Loss) Recognized in Other Comprehensive Income (Loss)

(in millions) 2019 2018 2017 2019 2018 2017

Foreign currency exchange contracts (1)

$ 1 $ ( 3 ) $ 10 $ — $ 1 $ ( 43 )

(1) Earnings on our designated foreign currency exchange contracts are recorded in passenger revenue in the income statement.

These hedge contracts settled during the year ended December 31, 2019.

Not Designated Hedge Gains (Losses)

Gains (losses) related to our foreign currency exchange and fuel contracts are as follows:

Not designated hedge gains/(losses) by category

Location of Gain (Loss) Recognized in Income Gain (Loss) Recognized in Income

7 unchanged sentences

The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change.

Due to the fair value position of our hedge contracts, we posted margin of $ 34 million as of December 31, 2019 and held margin of $ 9 million as of December 31, 2018.

Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services, the majority of which are processed through major credit card companies.

We also have receivables from the sale of miles under our loyalty program to participating airlines and non-airline businesses such as credit card companies, hotels, car rental agencies and ridesharing companies.

The credit risk associated with our receivables is minimal.

Due to the fair value position of our hedge contracts, we held or posted no margin as of December 31, 2020 and posted margin of $ 34 million as of December 31, 2019.

The credit risk associated with these receivables is minimal.

See Note 5, "Investments," for further information on our receivables from our investees and other airlines.

Self-Insurance Risk

We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability.

We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees, healthcare for retirees, disability and general liability.

Losses are accrued based on an estimate of the aggregate liability for claims incurred, using independent actuarial reviews based on standard industry practices and our historical experience.

INTANGIBLE ASSETS

Indefinite-Lived Intangible Assets

Carrying Value at December 31,

(in millions) 2019 2018

International routes and slots $ 2,583 $ 2,583

Delta Air Lines, Inc.

2020 Form 10-K 87

Notes to the Consolidated Financial Statements

GOODWILL AND INTANGIBLE ASSETS

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and identifiable intangible assets relate to the airline segment.

We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach.

Under a qualitative approach, we consider various market factors, including certain of the key assumptions listed below.

We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets.

If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment.

Under a quantitative approach, we calculate the fair value of the asset incorporating the key assumptions listed below into our calculation.

We value goodwill and indefinite-lived intangible assets primarily using market and income approach valuation techniques.

These measurements include the following key assumptions (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3) observable market transactions and (4) anticipated changes to the regulatory environment (e.g., diminished slot access, additional Open Skies agreements or changes to antitrust approvals).

These assumptions are consistent with those that hypothetical market participants would use.

We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value.

Changes in certain events and circumstances could result in impairment or a change from indefinite-lived to definite-lived.

Factors which could cause impairment include, but are not limited to (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U.S.

and global economies, global pandemics or other factors, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e.g., diminished slot access, additional Open Skies agreements or changes to antitrust approvals), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets.

Identifiable Intangible Assets.

Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to alliances and collaborative arrangements.

Costs incurred to renew or extend the term of an intangible asset are expensed as incurred.

As a result of the significant impact the COVID-19 pandemic has had on our market capitalization, profitability and overall travel demand, we performed a quantitative valuation of our goodwill and indefinite-lived intangible assets during 2020.

Our December 2020 quarter quantitative impairment tests of goodwill and intangibles concluded that there was no indication of impairment as the fair value exceeded our carrying value:

Goodwill and indefinite-lived intangible assets by category

Carrying Value at Excess Fair Value at 2020 Testing Date

(in millions) December 31, 2020 December 31, 2019

$ 9,753 $ 9,781 > 100 %

International routes and slots 2,583 2,583 10 % to 30 %

Airline alliances (2)

1,863 1,005 20 % to > 100 %

Delta tradename 850 850 > 100 %

Domestic slots 622 622

Domestic slots 622 622 60 % to > 100 %

Total $ 15,671 $ 14,841

(1) The reduction in goodwill relates to the combination of Delta Private Jets with Wheels Up in the March 2020 quart er.

See Note 5, "Investments," for more information on this transaction.

(2) As part of our strategic alliance with and investment in LATAM, we have recorded an alliance-related indefinite-lived intangible asset of $ 1.2 billion, which was not reflected in the December 31, 2019 balance.

Delta Air Lines, Inc.

2020 Form 10-K 88

Notes to the Consolidated Financial Statements

International Routes and Slots.

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Airline Alliances.

Our airline alliances intangible assets primarily relate to our commercial agreements with SkyTeam partners and LATAM.

Our airline alliances intangible assets primarily relate to our commercial agreements with LATAM and our SkyTeam partners.

Domestic Slots.

Our domestic slots relate to our slots at New York-LaGuardia and Washington-Reagan National airports.

Our domestic slots primarily relate to our slots at New York-LaGuardia and Washington-Reagan National airports.

Based on our impairment assessment as of our annual testing date of October 1, we determined that our goodwill and indefinite-lived intangible assets were not impaired.

However, there are a number of uncertainties including how long conditions related to the pandemic will persist, when effective vaccines will be broadly available, when vaccination will be widespread globally, when travel advisories and restrictions will be lifted, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel and our business.

Any measure that requires or encourages potential travelers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the air travel industry in general, and consequently our business, as these measures could delay the widespread return of demand for air travel.

Definite-Lived Intangible Assets

Definite-lived intangible assets by category

December 31, 2020 December 31, 2019

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Total $ 976 $ ( 883 ) $ 976 $ ( 873 )

Amortization expense was $ 11 million for the year ended December 31, 2019 and $ 17 million for each of the years ended December 31, 2018 and 2017.

Amortization expense was $ 10 million, $ 11 million and $ 17 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Based on our definite-lived intangible assets at December 31, 2020, we estimate that we will incur approximately $ 9 million of amortization expense annually from 2021 through 2025.

The following table summarizes our debt:

Maturity Interest Rate(s) (1)

Delta Air Lines, Inc.

2020 Form 10-K 89

Notes to the Consolidated Financial Statements

The following table summarizes our debt as of the dates indicated below:

Summary of outstanding debt by category

Maturity Interest Rate(s) Per Annum at

(in millions) Dates December 31, 2020 2020 2019

Unsecured notes 2021 to 2029 2.90 % to 7.38 % $ 5,350 $ 5,550

Unsecured CARES Act Payroll Support Program Loan (1)

2030 1.00 % 1,648 —

Financing arrangements secured by SkyMiles assets:

SkyMiles Notes (2)

2023 to 2028 4.50 % and 4.75 % 6,000 —

SkyMiles Term Loan (2)(3)

2023 to 2027 4.75 % 3,000 —

Financing arrangements secured by slots, gates and/or routes:

2020 Senior Secured Notes 2025 7.00 % 3,500 —

2020 Term Loan (2)(3)

2021 to 2023 5.75 % 1,493 —

2018 Revolving Credit Facility (3)

2021 to 2023 Undrawn — —

Financing arrangements secured by aircraft:

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2026 to 2045 4.00 % to 5.00 % 1,511 —

NYTDC Special Facilities Revenue Bonds, Series 2018 (2)

2022 to 2036 4.00 % to 5.00 % 1,383 1,383

Other financings (2)(3)

2021 to 2030 2.51 % to 8.75 % 412 196

2018 Unsecured Revolving Credit Facility 2021 to 2023 undrawn variable

Other revolving credit facilities 2020 to 2021 undrawn variable

Other revolving credit facilities (3)

2021 to 2022 Undrawn — —

Total secured and unsecured debt 28,214 9,991

Unamortized premium and debt issuance cost, net and other 115 60

Unamortized (discount)/premium and debt issuance cost, net and other ( 240 ) 115

Total debt 27,974 10,106

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Total long-term debt $ 26,531 $ 8,052

(1) See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of the terms, including the applicable interest rate.

(2) Due in installments.

(3) Certain aircraft and other financings are comprised of variable rate debt.

All variable rates are equal to LIBOR (generally subject to a floor) or another index rate, in each case plus a specified margin.

(2) Due in installments.

(3) Primarily includes unsecured bonds and debt secured by certain accounts receivable and real estate.

2020 Unsecured Notes

In October 2019, we issued $ 1.5 billion in aggregate principal amount of unsecured notes, consisting of $ 900 million of 2.9 % Notes due 2024 and $ 600 million of 3.75 % Notes due 2029 (collectively, the "Notes").

These Notes are included in Unsecured notes in the table above.

We used the net proceeds from the offering of these Notes to fund a portion of the tender offer to acquire common shares of LATAM in January 2020.

See Note 4, "Investments," for further information on our investment in LATAM.

We completed a $ 500 million offering of Pass Through Certificates, Series 2019-1 ("2019-1 EETC") utilizing a pass through trust during 2019.

This amount is included in Certificates in the table above.

In the June 2020 quarter, we issued $ 1.3 billion in aggregate principal amount of 7.375 % unsecured notes due 2026.

The unsecured notes are equal in right of payment with our other unsubordinated indebtedness and senior in right of payment to future subordinated debt.

The unsecured notes also contain event of default provisions consistent with those in our other recent unsecured debt offerings.

Unsecured CARES Act Payroll Support Program Loan

During 2020, we entered into a promissory note for the $ 1.6 billion CARES Act payroll support program loan and issued warrants to acquire more than 6.7 million shares of Delta common stock under the program in connection with the promissory note.

We have recorded the value of the promissory note and warrants on a relative fair value basis as $ 1.5 billion of noncurrent debt, net of discount, and $ 114 million in additional paid in capital, respectively.

See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of the terms of the payroll support program loan.

In January 2021, we issued a promissory note for approximately $ 400 million with respect to the term loan portion of the initial funds received from the payroll support program extension and issued warrants to acquire approximately 1 million shares of Delta common stock under the program as discussed in Note 2, "Impact of the COVID-19 Pandemic." The balance of the promissory note is expected to increase to approximately $ 830 million and the remaining warrants issued during the March 2021 quarter when we receive the remaining $ 1.5 billion in expected funding under the payroll support program extension.

Delta Air Lines, Inc.

2020 Form 10-K 90

Notes to the Consolidated Financial Statements

2020 SkyMiles Financing

In the September 2020 quarter, Delta and SkyMiles IP Ltd.

("SMIP"), an exempted company incorporated with limited liability under the laws of the Cayman Islands and an indirect wholly owned subsidiary of Delta, issued $ 2.5 billion in principal amount of 4.500 % senior secured notes due 2025 and $ 3.5 billion in principal amount of 4.750 % senior secured notes due 2028 (collectively, the “SkyMiles Notes”).

Concurrently with the issuance of the SkyMiles Notes, Delta and SMIP entered into a term loan credit agreement and borrowed $ 3.0 billion (the “SkyMiles Term Loan” and together with the SkyMiles Notes, the “SkyMiles Debt”).

The SkyMiles Term Loan matures in October 2027 and bears interest at a variable rate equal to LIBOR (but not less than 1.0 % per annum), plus a margin of 3.75 % per year.

The SkyMiles Debt is guaranteed by three other Delta subsidiaries that are also exempted companies incorporated with limited liability under the laws of the Cayman Islands, including SkyMiles IP Finance Ltd.

The SkyMiles Debt is secured by a first-priority security interest in certain of our co-branding, partnering or similar agreements relating to the SkyMiles program (including all payments thereunder), rights under certain intercompany agreements relating to the SkyMiles program, certain rights under our SkyMiles program, certain deposit accounts that receive revenue under our SkyMiles agreements, the equity of SMIP and substantially all other assets of SMIP and SMIF.

The assets and credit of SMIP and the Cayman entity guarantors are not available to satisfy obligations, including indebtedness, of Delta or our subsidiaries other than with respect to the SkyMiles Debt and any permissible priority lien or junior lien debt subsequently incurred.

2020 Senior Secured Notes and Term Loan

In the June 2020 quarter, we issued $ 3.5 billion of senior secured notes and entered into a $ 1.5 billion term loan secured by certain slots, gates and routes.

The senior secured notes bear interest at an annual rate of 7.00 % and mature in May 2025.

The term loan bears interest at a variable rate equal to LIBOR plus a specified margin and is subject to principal payments of 1 % per year, payable quarterly beginning in September 2020, with the balance due in April 2023.

2018 Revolving Credit Facility

In the June 2020 quarter, we amended the 2018 revolving credit facility agreement to be secured by our Pacific route authorities and certain related assets.

Additionally, the revolving credit facility was amended to extend the maturities of $ 1.3 billion of the revolver previously due in April 2021 to April 2022 and to include a minimum liquidity covenant, as discussed further below.

In October 2020, we repaid the borrowings under the revolving credit facility.

2020 Secured Term Loan Facility

In the March 2020 quarter, we entered into a $ 2.7 billion 364 -day secured term loan facility, and we increased the borrowings thereunder to $ 3.0 billion in April 2020.

Borrowings under this facility were secured by certain aircraft.

In October 2020, we repaid all borrowings under, and terminated, this facility.

We completed a $ 1.0 billion offering of Class AA and A Pass Through Certificates, Series 2020-1 ("2020-1 EETC") utilizing a pass through trust during the March 2020 quarter.

The proceeds of this issuance were used to repay unsecured notes that matured in the March 2020 quarter.

In the June 2020 quarter, we issued an additional $ 135 million of Class B certificates.

The details of the 2020-1 EETC, which is secured by 33 aircraft, are shown in the table below:

2020-1 EETC issuance by class

(in millions) Total Principal Fixed Interest Rate Issuance Date Final Maturity Date

2019-1 Class AA Certificates $ 425 3.204 % March 2019 April 2024

2019-1 Class A Certificates 75 3.404 % March 2019 April 2024

2019 Unsecured Term Loan

In February 2019, we entered into a $ 1 billion term loan issued by two lenders, which was subsequently repaid by the end of the June 2019 quarter.

We used the net proceeds of the term loan to accelerate planned 2019 repurchases under our share repurchase program.

Financial Covenants

We were in compliance with the covenants in our financing agreements at December 31, 2019.

Availability Under Revolving Credit Facilities

The table below shows availability under revolving credit facilities, all of which were undrawn, as of December 31, 2019:

(in millions)

2018 Unsecured Revolving Credit Facility $ 2,650

Other revolving credit facilities 459

Total availability under revolving credit facilities $ 3,109

2020-1 Class AA Certificates $ 796 2.00 % March 2020 June 2028

2020-1 Class A Certificates 204 2.50 % March 2020 June 2028

2020-1 Class B Certificates 135 8.00 % April 2020 June 2027

Total $ 1,135

Delta Air Lines, Inc.

2020 Form 10-K 91

Notes to the Consolidated Financial Statements

In the June 2020 quarter, we issued an additional $ 108 million of certificates under the 2019-1 EETC offering initially completed in March 2019.

The additional certificates were issued as 2019-1 Class B Certificates with a fixed interest rate of 8.00 % and mature in April 2023.

New York Transportation Development Corporation ("NYTDC") Special Facilities Revenue Bonds, Series 2020

In the September 2020 quarter, the NYTDC issued Special Facilities Revenue Bonds, Series 2020 (the "Series 2020 Bonds") in the aggregate principal amount of $ 1.5 billion.

We entered into loan agreements with the NYTDC to use the proceeds from the Series 2020 Bonds to finance a portion of the costs of the construction project that is currently in process at LaGuardia Airport, consisting of the demolition of existing Terminals C and D, the design and construction of new terminal facilities, the payment of capitalized interest on the Series 2020 Bonds and on a portion of the Special Facilities Revenue Bonds, Series 2018, and the payment of costs related to issuance of the Series 2020 Bonds.

The proceeds from the Series 2020 Bonds are recorded in cash restricted for airport construction on our balance sheet, along with the remaining proceeds of the Series 2018 Bonds.

See Note 10, "Airport Redevelopment," for further information on our LaGuardia Airport project.

We are required to pay debt service on the Series 2020 Bonds through payments under loan agreements with NYTDC, and we have guaranteed the Series 2020 Bonds.

Availability Under Revolving Facilities

As of December 31, 2020, we had approximately $ 2.6 billion undrawn and available under our revolving credit facilities.

In addition, we had outstanding letters of credit as of December 31, 2020, including approximately $ 300 million that reduced the availability under our revolvers and approximately $ 300 million that did not affect the availability under our revolvers.

Fair Value of Debt

Market risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.

The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral.

Debt is primarily classified as Level 2 within the fair value hierarchy.

Fair value of outstanding debt

(in millions) December 31,

2020 December 31,

Net carrying amount $ 27,974 $ 10,106

Fair value $ 29,800 $ 10,400

Our debt agreements contain various affirmative, negative and financial covenants.

For example, our credit facilities and our SkyMiles financing agreements, contain, among other things, a minimum liquidity covenant.

The minimum liquidity covenant requires us to maintain at least $ 2.0 billion of liquidity (defined as cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities).

Certain of our debt agreements also include collateral coverage ratios and limit our ability to (1) incur liens under certain circumstances, (2) dispose of collateral, (3) engage in mergers and consolidations or transfer all or substantially all of our assets and (4) pay dividends or repurchase our common stock through September 2021.

Our SkyMiles financing agreements include a debt service coverage ratio and also restrict our ability to, among other things, (1) modify the terms of the SkyMiles program, or otherwise change the policies and procedures of the SkyMiles program, in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Debt, (2) sell pre-paid miles in excess of $ 550 million in the aggregate and (3) terminate or materially modify the intercompany arrangements governing the relationship between Delta and SMIP with respect to the SkyMiles program.

Each of these restrictions, however, is subject to certain exceptions and qualifications that are set forth in these debt agreements.

We were in compliance with the covenants in our debt agreements at December 31, 2020.

Delta Air Lines, Inc.

2020 Form 10-K 92

Notes to the Consolidated Financial Statements

Future Maturities

The following table summarizes scheduled maturities of our debt for the years succeeding December 31, 2020:

Future debt maturities

(in millions) Total Debt Amortization of

Debt Premium and Debt Issuance Cost, net and other

Debt (Discount)/Premium and Debt Issuance Cost, net and other

2021 $ 1,480 $ ( 62 )

2 unchanged sentences

2024 3,126 ( 46 )

2025 5,157 ( 23 )

Thereafter 12,553 8

Total $ 28,214 $ ( 240 ) $ 27,974

Fair Value of Debt

Debt is primarily classified as Level 2 within the fair value hierarchy.

(in millions) 2019 2018

Net carrying amount $ 10,106 $ 9,368

Fair value $ 10,400 $ 9,400

During 2018, we adopted ASU No.

2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet.

We adopted the standard using the modified retrospective approach with an effective date of January 1, 2018.

Prior year financial statements were not recast under the new standard.

We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

We lease property and equipment under finance and operating leases.

For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term.

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These provisions primarily relate to our regional aircraft and the amounts are not significant.

We do not have other forms of variable interests with the lessors of our leased assets, other than at New York-JFK, in which we are not the primary beneficiary as discussed in Note 9, "Airport Redevelopment," and one lessor, in which we have a variable interest in certain immaterial aircraft leases, that we have consolidated.

We do not have other forms of variable interests with the lessors of our leased assets, other than at New York-JFK, in which we are not the primary beneficiary as discussed in Note 10, "Airport Redevelopment," and with respect to one lessor, in which we have a variable interest in certain immaterial aircraft leases, that we have consolidated.

As of December 31, 2020, including aircraft operated by our regional carriers, we leased 353 aircraft, of which 145 were under finance leases and 208 were operating leases.

Our aircraft leases had remaining lease terms of one month to 15 years.

Aircraft finance leases continue to be reported on our balance sheet, while operating leases were added to the balance sheet in 2018 with the adoption of the new standard.

In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the right-of-use ("ROU") asset and lease liability.

In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the operating right-of-use ("ROU") asset and lease liability.

We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value.

2 unchanged sentences

See Note 12, "Commitments and Contingencies," for additional information about our capacity purchase agreements.

With the adoption of the new lease standard in 2018, we determined that the CRJ-200 fleet operated by our wholly-owned subsidiary, Endeavor, was impaired due to insufficient future cash flows projected for the fleet.

Therefore, we recorded a transition adjustment that reduced equity by $ 284 million (net of tax) as of January 1, 2018, which reflects the difference in fair value compared to the basis of the ROU asset.

Delta Air Lines, Inc.

2020 Form 10-K 93

Notes to the Consolidated Financial Statements

Airport Facilities

Our facility leases are primarily for space at approximately 300 airports around the world that we serve.

These leases are classified as operating leases and reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities.

We generally lease space from government agencies that control the use of the airport.

These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities.

We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases.

The remaining lease terms vary from one month to 30 years.

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We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment.

The remaining lease terms range from one month to seven years .

Certain leased IT assets are embedded within various service agreements.

The lease components included in those agreements are included in the ROU asset and lease liability, and the amounts are not significant.

The remaining lease terms range from one month to nine years .

Certain leased assets are embedded within various ground and IT service agreements.

For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet.

For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet.

The amounts of these lease and nonlease components are not significant.

Sale-Leaseback Transactions

In 2020, we entered into $ 2.8 billion of sale-leaseback transactions for 85 aircraft including 25 A321-200s, 25 A220-100s, 23 CRJ-900s, 10 737-900ERs and two A330-900s.

Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price.

The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease.

These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet.

The cash proceeds are treated as financing inflows on the cash flows statement.

The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets.

The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet.

The cash proceeds are treated as investing cash inflows on the cash flows statement.

Delta Air Lines, Inc.

2020 Form 10-K 94

Notes to the Consolidated Financial Statements

Lease Position

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

Lease asset and liability balance sheet position by category

(in millions) Classification on the Balance Sheet 2020 2019

14 unchanged sentences

Finance leases 3.61 % 3.46 %

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2018.

The table below presents certain information related to the lease costs for finance and operating leases.

Lease cost by category

Year Ended December 31,

4 unchanged sentences

Operating lease cost (1)

1,019 1,013 994

Short-term lease cost (1)

Variable lease cost (1)

1,406 1,456 1,427

Total lease cost $ 2,852 $ 3,108 $ 3,001

(1) Expenses are classified within aircraft rent, landing fees and other rents and regional carriers expense, excluding fuel on the income statement.

For the year ended December 31, 2019, $ 174 million and $ 64 million of the operating and variable lease costs, respectively, and for the year ended December 31, 2018, $ 150 million, $ 18 million and $ 48 million of the operating, short-term and variable lease costs, respectively, are attributable to our regional carriers.

In 2017, operating lease expense, excluding landing fees, was approximately $ 1.6 billion, which includes leases of certain aircraft under capacity purchase agreements.

Expenses were primarily classified within aircraft rent, landing fees and other rents and regional carriers expense.

For the year ended December 31, 2020, $ 187 million and $ 50 million of the operating and variable lease costs, respectively, for the year ended December 31, 2019, $ 174 million and $ 64 million of the operating and variable lease costs, respectively, and for the year ended December 31, 2018, $ 150 million, $ 18 million and $ 48 million of the operating, short-term and variable lease costs, respectively, are attributable to our regional carriers.

Delta Air Lines, Inc.

2020 Form 10-K 95

Notes to the Consolidated Financial Statements

Other Information

The table below presents supplemental cash flow information related to leases.

Supplemental lease-related cash flow information

Year Ended December 31,

6 unchanged sentences

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

Future lease cash flows and reconciliation to the balance sheet

(in millions) Operating Leases Finance Leases

13 unchanged sentences

In December 2010, we entered into a 33 -year agreement with IAT ("Sublease") to sublease space in Terminal 4.

Also, in 2010, the Port Authority issued approximately $ 800 million principal amount of special project bonds to fund the majority of the project.

We managed the project and bore the construction risk, including cost over-runs.

Prior to 2018, we accounted for this project by recording an asset for project costs (e.g., design, permitting, labor and other general construction costs), regardless of funding source, and a construction obligation equal to project costs funded by parties other than us.

Our rental payments reduced the construction obligation and resulted in the recording of interest expense, calculated using the effective interest method.

Upon adoption of the new lease standard during 2018, the project cost asset and construction obligation were derecognized and we recorded a transition adjustment that increased equity by $ 40 million (net of tax).

Following derecognition of these assets and liabilities, we recognized a ROU asset and lease liability representing the fixed component of the lease payments.

Also, in 2010, the Port Authority issued approximately $ 800 million principal amount of special project bonds (the "Series 8 Bonds") to fund the majority of the project.

In December 2020, the NYTDC issued approximately $ 611 million principal amount of special project bonds to refinance the outstanding balance of the Series 8 Bonds.

We have recognized a ROU asset and lease liability representing the fixed component of the lease payments for this facility.

Delta Air Lines, Inc.

2020 Form 10-K 96

Notes to the Consolidated Financial Statements

We have an equity method investment in JFK IAT Member LLC, which owns IAT, our sublessor at Terminal 4.

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Accordingly, we do not consolidate this entity in our Consolidated Financial Statements.

We are now planning for further expansion of Terminal 4.

Subject to approval of the Board of the Port Authority, IAT and the Port Authority will finalize and enter a lease amendment for the expansion and renovation of the Terminal 4 arrivals and departures hall, the addition of 16 new gates to Concourse A, the renovation of existing concourses and roadway upgrades to improve access for vehicles.

We continue to plan for further expansion of Terminal 4, however changes in the JFK market due to the COVID-19 pandemic have caused us to reevaluate our original plan to expand the terminal by 16 gates.

We are working with the Port Authority and IAT to evaluate our options and determine the optimal size, scope and phasing of the expansion.

Los Angeles International Airport ("LAX")

We executed a modified lease agreement during 2016 with the City of Los Angeles ("the City") which owns and operates LAX, and announced plans to modernize, upgrade and connect Terminals 2 and 3 at LAX.

Under the lease agreement, we have relocated certain airlines and other tenants from Terminals 2 and 3 to Terminals 5 and 6 and undertaken various initial projects to enable operations from Terminals 2 and 3 during the project.

We are now designing and constructing the redevelopment of Terminal 3 and enhancement of Terminal 2, which also includes rebuilding the ticketing and arrival halls and security checkpoint, construction of core infrastructure to support the City's planned airport people mover, ramp improvements and construction of a secure connector to the north side of the Tom Bradley International Terminal.

We executed a modified lease agreement during 2016 with the City of Los Angeles (the "City"), which owns and operates LAX, and announced plans to modernize, upgrade and provide post-security connection to Terminals 2 and 3.

Construction is underway, which includes a new centralized ticketing and arrival hall, a new security checkpoint, core infrastructure to support the City's planned airport people mover, ramp improvements and a post-security connector to the north side of the Tom Bradley International Terminal.

Given reduced passenger volumes resulting from the COVID-19 pandemic, we have accelerated the construction schedule for this project.

Additionally, in 2020, we enhanced the project’s scope to include a more customer-friendly design of Terminal 3, a Delta One lounge and expanded Delta Sky Club, and baggage system upgrades designed to increase the terminals’ operational efficiency going forward.

Construction is expected to be completed by 2023.

Under the lease agreement and subsequent project component approvals by the City's Board of Airport Commissioners, the City has appropriated to date approximately $ 1.6 billion to purchase completed project assets.

The lease allows for a maximum reimbursement by the City of $ 1.8 billion.

Costs we incur in excess of such maximum will not be reimbursed by the City.

The project is expected to cost approximately $ 2.3 billion.

A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using an $ 800 million revolving credit facility provided by a group of lenders.

1 unchanged sentence

Loans made under the credit facility are being repaid with the proceeds from the City’s purchase of completed project assets.

Using funding provided by cash flows from operations and/or the credit facility, we spent approximately $ 176 million on this project during 2019.

Under the lease agreement and subsequent project component approvals by the City's Board of Airport Commissioners, the City has appropriated to date approximately $ 1.8 billion to purchase completed project assets, representing the maximum allowable reimbursement by the City.

Costs incurred in excess of the $ 1.8 billion maximum will not be reimbursed by the City.

We currently expect our net project costs to be approximately $ 500 million, of which approximately $ 200 million has been reflected as investing activities in our cash flows statement since the project started in 2017.

In 2020, $ 315 million was spent on this project, with $ 293 million paid by the credit facility and $ 22 million paid directly by Delta.

Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet.

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Construction will be phased to limit passenger inconvenience and is expected to be completed by 2026.

Delta Air Lines, Inc.

2020 Form 10-K 97

Notes to the Consolidated Financial Statements

In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050.

Pursuant to the lease agreement we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off-premises supporting facilities, (2) receive a Port Authority contribution of $ 600 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers.

Pursuant to the lease agreement, as amended to date, we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off-premises supporting facilities, (2) receive a Port Authority contribution of $ 481 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers.

We currently expect our net project cost to be approximately $ 3.5 billion and we bear the risks of project construction, including any potential cost over-runs.

Using funding provided by cash flows from operations and/or financing arrangements, we spent approximately $ 562 million on this project during 2019.

See Note 7, "Debt," for additional information on the debt related to this redevelopment project, NYTDC Special Facilities Revenue Bonds, Series 2018.

Using funding primarily provided by existing financing arrangements, we spent approximately $ 600 million during 2020, bringing the total amount spent on the project to date to approximately $ 1.5 billion.

See Note 8, "Debt," for additional information on the debt related to this redevelopment project, NYTDC Special Facilities Revenue Bonds, Series 2018 and NYTDC Special Facilities Revenue Bonds, Series 2020.

In 2019, we opened Concourse G, the first of the four new concourses housing seven of the 37 new gates.

Not only did it deliver the first direct impact to the Delta passenger experience, it also represented the first major phasing milestone.

The next major milestone will be the opening of the headhouse and Concourse E, which is scheduled for 2022.

As we are funding the majority of the LaGuardia redevelopment project, we account for the related assets as leasehold improvements.

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We elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17-year period and is calculated using an 8.85 % discount rate until the 17-year period expires for all frozen defined benefit plans by the end of 2024.

We have no minimum funding requirements in 2020, but we plan to voluntarily contribute approximately $ 500 million to these plans.

We have no minimum funding requirements in 2021, but we plan to voluntarily contribute at least $ 500 million to these plans during 2021.

Defined Contribution Pension Plans.

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These plans generally cover different employee groups and employer contributions vary by plan.

The costs associated with our defined contribution pension plans were $ 991 million, $ 926 million and $ 875 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The costs associated with our defined contribution pension plans were approximately $ 805 million, $ 1.0 billion and $ 925 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Postretirement Healthcare Plans.

We sponsor healthcare plans that provide benefits to eligible retirees and their dependents who are under age 65 .

We have generally eliminated company-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents and (2) a group of retirees who retired prior to 1987.

We have generally eliminated company-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents, (2) a group of retirees who retired prior to 1987 and (3) retiree medical accounts which provide a fixed dollar amount to eligible employees who retired in 2012 or in 2020.

Benefits under these plans are funded from current assets and employee contributions.

During 2018, we remeasured our postretirement obligation to reflect a curtailment of our postretirement healthcare plans.

During the September 2020 quarter, we remeasured our postretirement healthcare obligation to account for the retiree medical accounts provided to eligible participants in our voluntary early retirement and separation programs ("voluntary programs").

As a result, we recorded a $ 1.3 billion special termination benefit charge and increased our postretirement healthcare obligation by $ 1.3 billion.

Postemployment Plans.

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Substantially all employees are eligible for benefits under these plans in the event of death and/or disability.

Delta Air Lines, Inc.

2020 Form 10-K 98

Notes to the Consolidated Financial Statements

Benefit Obligations, Fair Value of Plan Assets and Funded Status

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Interest cost 700 833 120 137

Actuarial loss (gain) 1,678 ( 1,560 ) 226 ( 142 )

Actuarial loss 2,051 1,678 247 226

Benefits paid, including lump sums and annuities ( 1,233 ) ( 1,107 ) ( 356 ) ( 315 )

Participant contributions — — 20 23

Curtailment — — — ( 68 )

Special termination benefits — — 1,260 —

Settlements ( 91 ) ( 14 ) — —

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Fair value of plan assets at beginning of period $ 15,845 $ 13,459 $ 607 $ 637

Actual gain (loss) on plan assets 2,485 ( 700 ) 134 ( 72 )

Actual gain on plan assets 1,973 2,485 76 134

Employer contributions 47 1,022 189 159

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(1) At the end of each year presented, our accumulated benefit obligations for our pension plans are equal to the benefit obligations shown above.

During 2019, net actuarial losses increased our benefit obligation due to the decrease in discount rates, while in 2018 our obligations decreased due to the actuarial gains from an increase in discount rates.

During 2020 and 2019, net actuarial losses increased our benefit obligation primarily due to the decrease in discount rates .

These gains and losses are recorded in AOCI and reflected in the table below.

A net actuarial loss of $ 333 million will be amortized from AOCI into net periodic benefit cost in 2020.

Amounts are generally amortized from AOCI over the expected future lifetime of plan participants.

Balance Sheet Position

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Total accumulated other comprehensive loss, pre-tax $ ( 9,878 ) $ ( 8,765 ) $ ( 857 ) $ ( 677 )

Delta Air Lines, Inc.

2020 Form 10-K 99

Notes to the Consolidated Financial Statements

Net Periodic (Benefit) Cost

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Settlements 38 5 4 — — —

Special termination benefits — — — 1,260 — —

Curtailment — — — — — ( 53 )

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$ ( 335 ) $ ( 57 ) $ ( 266 ) $ 1,467 $ 201 $ 103

Service cost is recorded in salaries and related costs in the income statement while other components are recorded within miscellaneous under non-operating expense.

Service cost is recorded in salaries and related costs in the income statement.

Special termination benefits are recorded in restructuring charges, while all other components are recorded within miscellaneous, net under non-operating expense.

We used the following actuarial assumptions to determine our benefit obligations and our net periodic benefit cost for the periods presented:

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Our weighted average expected long-term rate of return on assets for net periodic benefit cost for the year ended December 31, 2020 was 8.97 %.

Healthcare Cost Trend Rate.

Assumed healthcare cost trend rates have an effect on the amounts reported for the other postretirement benefit plans.

A 1 % change in the healthcare cost trend rate used in measuring the plan benefit obligation for these plans would have the following effects:

(in millions) 1% Increase 1% (Decrease)

Increase (decrease) in total service and interest cost $ 1 $ ( 2 )

Increase (decrease) in the accumulated plan benefit obligation 4 ( 14 )

Delta Air Lines, Inc.

2020 Form 10-K 100

Notes to the Consolidated Financial Statements

Life Expectancy .

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Benefits earned under our pension plans and certain postemployment benefit plans are expected to be paid from funded benefit plan trusts, while our other postretirement benefits are funded from current assets.

The following table summarizes the benefit payments that are scheduled to be paid in the years ending December 31:

The following table summarizes the benefit payments that are expected to be paid in the years ending December 31:

Expected future benefit payments

(in millions) Pension Benefits Other Postretirement and Postemployment Benefits

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Risk diversifying assets include hedged mandates implementing long-short, market neutral and relative value strategies that invest primarily in publicly-traded equity, fixed income, foreign currency and commodity securities and are used to improve the impact of active management on the plans.

Delta Air Lines, Inc.

2020 Form 10-K 101

Notes to the Consolidated Financial Statements

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

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These investments are presented net of the related benefit obligation in pension, postretirement and related benefits on the balance sheets.

See Note 3, "Fair Value," for a description of the levels within the fair value hierarchy and associated valuation techniques used to measure fair value.

See Note 4, "Fair Value Measurements," for a description of the levels within the fair value hierarchy and associated valuation techniques used to measure fair value.

The following table shows our benefit plan assets by asset class.

Benefit plan assets measured at fair value on a recurring basis

December 31, 2020 December 31, 2019 Valuation Technique

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Delta Common Stock.

In both 2017 and 2016, we contributed $ 350 million of Delta common stock as a portion of the employer contribution to certain of our defined benefit pension plans.

The Delta common stock investment is managed by an independent fiduciary.

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Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes.

Delta Air Lines, Inc.

2020 Form 10-K 102

Notes to the Consolidated Financial Statements

The following table summarizes investments measured at fair value based on NAV per share as a practical expedient:

Benefit plan investment assets measured at NAV

December 31, 2020 December 31, 2019

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Total investments measured at NAV $ 10,427 $ 9,854

(2) Semi-monthly

(1) Weekly, semi-monthly, monthly

(2) Semi-annually and annually

Includes funds with weekly, monthly, semi-monthly, quarterly and custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment.

(5) Unfunded commitments were $ 393 million for commingled funds, private equity and private equity-related instruments, $ 254 million for fixed income and fixed income-related instruments, $ 203 million for real assets and $ 76 million for hedge funds and hedge fund-related strategies at December 31, 2019.

Includes funds with weekly, semi-monthly, monthly, quarterly and custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment.

(4) Unfunded commitments were $ 916 million for commingled funds, private equity and private equity-related instruments, $ 264 million for fixed income and fixed income-related instruments and $ 181 million for real assets at December 31, 2020.

Hedge Funds and Hedge Fund-Related Strategies.

These investments are primarily made through shares of limited partnerships or similar structures for which a liquid secondary market does not exist.

Investments in these strategies are typically valued monthly by third-party administrators or valuation agents with an annual audit performed by an independent third party.

Commingled Funds, Private Equity and Private Equity-Related Instruments.

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Private equity and private equity-related strategies are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions.

There is an annual audit performed by an independent third party.

Fixed Income and Fixed Income-Related Instruments.

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Private fixed income strategies are typically valued monthly or quarterly by the fund managers or third-party valuation agents using valuation models where one or more of significant inputs into the model cannot be observed and which require the development of assumptions.

There is an annual audit performed by an independent third party.

These investments include real estate, energy, timberland, agriculture and infrastructure.

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Real assets are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions.

There is an annual audit performed by an independent third party.

Primarily includes globally-diversified, risk-managed commingled funds consisting mainly of equity, fixed income and commodity exposures.

Investments in these strategies are typically valued monthly by third-party administrators or valuation agents with an annual audit performed by an independent third party.

On an annual basis we assess the potential for adjustments to the fair value of all investments.

Certain of our investments valued using NAV as a practical expedient have a lag in the availability of data.

These investments valued using NAV as a practical expedient are typically valued on a monthly or quarterly basis by third-party administrators, valuation agents or fund managers with an annual audit performed by an independent third party, but certain of these investments have a lag in the availability of data.

This primarily applies to private equity, private equity-related strategies and real assets.

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These plans did not have a material impact on our Consolidated Financial Statements in any period presented.

Delta Air Lines, Inc.

2020 Form 10-K 103

Notes to the Consolidated Financial Statements

Voluntary Programs

During the June 2020 quarter in response to the COVID-19 pandemic, we announced the voluntary programs, which primarily applied to eligible U.S.

merit, ground and flight attendant and pilot employees.

The employees electing to participate in the voluntary programs were eligible for separation payments, continued healthcare benefits and certain participants will receive retiree medical accounts.

The election and revocation windows for these programs closed during the September 2020 quarter with approximately 18,000 employees electing to participate.

We recorded $ 3.4 billion in restructuring charges in our income statement associated with these programs and other employee benefit charges during 2020, including $ 1.3 billion of special termination benefits (discussed above).

The remainder of the restructuring charge primarily relates to separation payments and healthcare benefits.

Approximately $ 720 million was disbursed in cash payments to participants in the voluntary programs during 2020.

An additional approximately $ 250 million of cash payments were disbursed during 2020 related to unused vacation and other benefits, which were accrued prior to the voluntary programs charge.

Accruals related to the voluntary programs are primarily recorded in pension, postretirement and related benefits, other noncurrent liabilities, other accrued liabilities and accrued salaries and related benefits on our balance sheet.

Profit Sharing Program

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In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items.

For the years ended December 31, 2019, 2018 and 2017, we recorded expenses of $ 1.6 billion, $ 1.3 billion and $ 1.1 billion under the profit sharing program, respectively.

Effective October 1, 2017, we aligned our profit sharing plans under a single formula.

Under this formula, our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual profit and 20% of annual profit above $2.5 billion.

Prior to that time, the profit sharing program for pilots used this formula but in the first nine months of 2017, the profit sharing program for merit, ground and flight attendant employees paid 10% of annual profit and, if we exceeded our prior-year results, the program paid 20% of the year-over-year increase in profit to eligible employees.

For the year ended December 31, 2020 we recorded no expense and for the years ended December 31, 2019 and 2018, we recorded expenses of $ 1.6 billion and $ 1.3 billion under the profit sharing program, respectively.

COMMITMENTS AND CONTINGENCIES

Aircraft Purchase Commitments

In 2020, we restructured our aircraft order books with Airbus and MHI RJ Aviation Group (manufacturer of CRJ aircraft) in an effort to better match the timing of aircraft deliveries with our network and financial needs over the next several years.

The restructuring reduced our aircraft purchase commitments by more than $ 2 billion in 2020 and by more than $ 5 billion through 2022.

The shift in delivery timing is intended to allow us to continue simplifying and modernizing our fleet while maintaining our Airbus order book.

Our future aircraft purchase commitments totaled approximately $ 13.9 billion at December 31, 2020:

Aircraft purchase commitments

(in millions) Total

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Total $ 13,880

Delta Air Lines, Inc.

2020 Form 10-K 104

Notes to the Consolidated Financial Statements

Our future aircraft purchase commitments included the following aircraft at December 31, 2020:

Aircraft Type Purchase Commitments

Aircraft purchase commitments by fleet type

Fleet Type Purchase Commitments

A321-200neo 100

A330-900neo (1)

(1) Includes two A330-900neo lease commitments with one in each of 2020 and 2021.

MD-90 Fleet Retirement

As part of our ongoing fleet transformation, during 2019 we committed to accelerating the retirement of our MD-90 fleet.

This fleet will now be retired by the end of 2022, which is approximately two years earlier than previously planned.

The decision to retire the fleet by 2022, including the permanent retirement of 35 aircraft during 2019, resulted in accelerated depreciation of $ 79 million during 2019, which is recorded in depreciation and amortization in our income statement.

(1) Includes one A330-900neo lease commitment in 2021 incremental to our order book with Airbus.

LATAM A350 Commitments

We have agreed to acquire four A350 aircraft from LATAM, which are included as purchase commitments in the table above.

In addition, we plan to assume ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025.

See Note 4, "Investments," for further information on our investment in LATAM.

We have assumed 10 of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025, which are included as purchase commitments in the above table.

We had agreed to acquire four A350 aircraft from LATAM, but terminated the purchase agreement for a fee of $ 62 million during the June 2020 quarter.

See Note 5, "Investments," for further information on our strategic alliance with LATAM.

Contract Carrier Agreements

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Capacity Purchase Agreements .

Most of our contract carriers operate for us under capacity purchase agreements.

Under these agreements, the contract carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights.

Our regional carriers primarily operate for us under capacity purchase agreements.

Under these agreements, the regional carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights.

We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services.

The following table shows our minimum fixed obligations under our existing capacity purchase agreements with third-party regional carriers.

The obligations set forth in the table contemplate minimum levels of flying by the contract carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees.

The following table shows our minimum obligations under our existing capacity purchase agreements with third-party regional carriers.

The obligations set forth in the table contemplate minimum levels of flying by the regional carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees.

Accordingly, our actual payments under these agreements could differ materially from the minimum fixed obligations set forth in the table below.

Contract carrier minimum obligations

(in millions) Amount (1)

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(1) These amounts exclude contract carrier payments accounted for as operating leases of aircraft, which are described in Note 9, "Leases."

(2) In January 2020, we agreed not to renew our CRJ-900 contract with GoJet Airlines, LLC and to end those operations by the end of 2020.

The table above reflects our commitments under that contract as of December 31, 2019.

Revenue Proration Agreement .

As of December 31, 2019, a portion of our contract carrier agreement with SkyWest Airlines, Inc.

As of December 31, 2020, a portion of our contract carrier arrangement with SkyWest Airlines, Inc.

was structured as a revenue proration agreement.

This revenue proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries.

Delta Air Lines, Inc.

2020 Form 10-K 105

Notes to the Consolidated Financial Statements

Legal Contingencies

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We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.

Delta Air Lines, Inc.

2020 Form 10-K 106

Notes to the Consolidated Financial Statements

Employees Under Collective Bargaining Agreements

As of December 31, 2019, we had approximately 91,000 full-time equivalent employees, approximately 19 % of whom were represented by unions.

As of December 31, 2020, we had approximately 74,000 full-time equivalent employees, 23 % of whom were represented by unions.

The following table shows our domestic airline employee groups that are represented by unions.

Domestic airline employees represented by collective bargaining agreements by group

Employee Group Approximate Number of Active Employees Represented Union Date on which Collective Bargaining Agreement Becomes Amendable

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Endeavor Air Flight Attendants

1,492 AFA December 31, 2018

We are in discussions with representatives of our pilots and Endeavor Air flight attendants regarding terms of amendable collective bargaining agreements.

In addition to the domestic airline employee groups discussed above, 199 refinery employees of Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2022.

1,480 AFA March 31, 2025

We are in mediated discussions with the representative of the Delta pilots regarding terms of their amendable collective bargaining agreement under the auspices of the National Mediation Board ("NMB").

In addition to the domestic airline employee groups discussed above, approximately 190 refinery employees of Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2022.

This agreement is governed by the National Labor Relations Act, which generally allows either party to engage in self-help upon the expiration of the agreement.

Certain of our employees outside the U.S.

are represented by unions, work councils or other local representative groups.

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date.

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Our income tax provision consisted of the following:

Components of income tax benefit (provision)

Year Ended December 31,

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International ( 5 ) ( 13 ) ( 13 )

Deferred tax provision:

Deferred tax benefit (provision):

Federal 2,766 ( 1,343 ) ( 1,226 )

State and local 344 ( 130 ) ( 138 )

Income tax provision $ ( 1,431 ) $ ( 1,216 ) $ ( 2,295 )

Income tax benefit (provision) $ 3,202 $ ( 1,431 ) $ ( 1,216 )

Delta Air Lines, Inc.

2020 Form 10-K 107

Notes to the Consolidated Financial Statements

The following table presents the principal reasons for the difference between the effective tax rate and the U.S.

federal statutory income tax rate:

Reconciliation of statutory federal income tax rate to the effective income tax rate

Year Ended December 31,

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State taxes, net of federal benefit 1.9 2.3 2.5

Foreign tax rate differential — 0.1 ( 2.2 )

Tax Cuts and Jobs Act adjustment — ( 0.5 ) 7.2

Valuation allowance ( 2.6 ) 0.7 —

Other 0.2 ( 0.9 ) 0.1

Effective income tax rate 20.5 % 23.1 % 23.6 %

Following the enactment of the Tax Cuts and Jobs Act of 2017 ("2017 tax reform"), we recorded a provisional tax expense estimate of $ 395 million resulting in a 7.2 % increase in our effective tax rate during 2017.

The provisional estimate included recognition of tax expense related to certain of our undistributed foreign earnings and tax expense to decrease our federal net deferred tax asset to a 21% statutory tax rate.

During 2018 we recognized a $ 26 million benefit resulting in a 0.5 % reduction to our 2018 effective tax rate after finalizing the impact of the 2017 tax reform.

At December 31, 2019, we had a basis difference in our investments in foreign subsidiaries of $ 212 million which is considered to be indefinitely reinvested.

Deferred Taxes

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The following table shows significant components of our deferred tax assets and liabilities:

Significant components of deferred income tax assets and liabilities

(in millions) 2020 2019

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Net operating loss carryforwards $ 1,495 $ 560

Capital loss carryforward 483 —

Pension, postretirement and other benefits 2,956 2,241

Alternative minimum tax credit carryforward 94 189

Deferred revenue 1,797 1,667

Operating lease liabilities 1,446 1,579

Lease liabilities 2,185 1,510

Other 611 380

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Depreciation $ 4,507 $ 5,190

Operating lease right-of-use assets 1,298 1,388

Operating lease assets 1,324 1,298

Intangible assets 1,076 1,049

Total deferred tax liabilities $ 7,079 $ 7,636

Net deferred tax (liabilities) assets (1)

Net deferred tax assets (liabilities) (1)

$ 1,988 $ ( 1,336 )

(1) At December 31, 2019, the net deferred tax liabilities of $ 1.3 billion included $ 120 million of net state deferred tax assets, which are recorded in other noncurrent assets, and $ 1.5 billion of net federal deferred tax liabilities, which are recorded in deferred income taxes, net.

At December 31, 2018, the net deferred tax assets of $ 79 million included $ 242 million of net state deferred tax assets, which are recorded in other noncurrent assets, and $ 163 million of net federal deferred tax liabilities, which are recorded in deferred income taxes, net.

At December 31, 2019, we had $ 94 million of federal alternative minimum tax credit carryforwards.

As a result of the Tax Cuts and Jobs Act of 2017, this credit becomes refundable to us if not used by 2021.

We have $ 1.9 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

(1) At December 31, 2020, the net deferred tax assets of $ 2.0 billion are recorded in deferred income taxes, net within noncurrent assets.

At December 31, 2019, the net deferred tax liabilities of $ 1.3 billion included $ 120 million of net state deferred tax assets, which are recorded in deferred income taxes, net within noncurrent assets, and $ 1.5 billion of net federal deferred tax liabilities, which are recorded in deferred income taxes, net within noncurrent liabilities.

As of December 31, 2020, w e had $ 5.7 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets.

We establish valuation allowances if it is not likely we will realize our deferred income tax assets.

In making this determination, we consider available positive and negative evidence and make certain assumptions.

Delta Air Lines, Inc.

2020 Form 10-K 108

Notes to the Consolidated Financial Statements

At December 31, 2020 our net deferred tax asset balance was $ 2.0 billion, including a $ 460 million valuation allowance primarily related to capital loss carryforwards and state net operating losses.

Although we are in a three year cumulative loss position as of December 31, 2020, we have a recent history of significant earnings prior to the onset of the COVID-19 pandemic.

We expect to return to profitability as the effects of the pandemic subside and to generate sufficient taxable income to utilize our federal net operating loss carryforwards before any expire.

Our federal net operating loss carryforwards generated before 2018 do not begin to expire until 2027.

Under current tax law, federal net operating losses generated in 2020 do not expire.

Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and state net operating losses that have short expiration periods.

Income Tax Allocation

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GAAP requires that the tax expense related to tax law changes be recognized in current earnings, even when a portion of the related deferred tax asset originated through amounts recognized in AOCI.

As a result, $ 672 million of income tax expense remains in AOCI, primarily related to pension obligations, and will not be recognized in net income until the pension obligations are fully extinguished.

As a result, approximately $ 750 million of income tax expense remains in AOCI, primarily related to pension obligations, and will not be recognized in net income until the pension obligations are fully extinguished.

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented.

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The weighted average cost per share held in treasury was $ 28.23 and $ 26.37 as of December 31, 2020 and 2019, respectively.

See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of the warrants issued during 2020 in connection with the payroll support program of the CARES Act to acquire more than 6.7 million of Delta common stock.

Equity Compensation

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Shares of common stock issued under the Plan may be made available from authorized, but unissued, common stock or common stock we acquire.

If any shares of our common stock are covered by an award that expires, is canceled, forfeited or otherwise terminates without delivery of shares (including shares surrendered or withheld for payment of taxes related to an award), such shares will again be available for issuance under the Plan except for (i) any shares tendered in payment of an option, (ii) shares withheld to satisfy any tax withholding obligation with respect to the exercise of an option or stock appreciation right ("SAR") or (iii) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award.

If any shares of our common stock are covered by an award that expires, is canceled, forfeited or otherwise terminates without delivery of shares (including shares surrendered or withheld for payment of taxes related to an award), such shares will again be available for issuance under the Plan except for (1) any shares tendered in payment of an option, (2) shares withheld to satisfy any tax withholding obligation with respect to the exercise of an option or stock appreciation right ("SAR") or (3) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award.

The Plan authorizes the issuance of up to 163 million shares of common stock.

As of December 31, 2020, there were 21 million shares available for future grants.

Delta Air Lines, Inc.

2020 Form 10-K 109

Notes to the Consolidated Financial Statements

We make long-term incentive awards annually to eligible employees under the Plan.

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Performance awards are long-term incentive opportunities, which are payable in common stock or cash, and are generally contingent upon our achieving certain financial goals.

During 2019 and 2018, we recognized $ 1 million and $ 7 million, respectively, of excess tax benefits in our income tax provision.

During each of 2020 and 2019, we recognized an immaterial amount of excess tax benefits in our income tax provision.

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table shows the components of accumulated other comprehensive loss:

Components of accumulated other comprehensive loss

(in millions) Pension and Other Benefits Liabilities (2)

Derivative Contracts and Other Available-for-Sale Investment s (3)

Available-for-Sale Investment s (4)

Balance at January 1, 2018 (net of tax effect of $ 1,400 )

2 unchanged sentences

( 294 ) 7 — ( 287 )

Reclassifications into earnings (net of tax effect of $ 90 ) (1)

Reclassifications into retained earnings (net of tax effect of $ 61 )

— — ( 106 ) ( 106 )

Reclassifications into earnings (net of tax effect of $ 57 ) (1)

Balance at December 31, 2018 (net of tax effect of $ 1,492 )

2 unchanged sentences

( 422 ) 7 — ( 415 )

Reclassifications into retained earnings (net of tax effect of $ 61 )

— — ( 106 ) ( 106 )

Reclassifications into earnings (net of tax effect of $ 76 ) (1)

252 ( 1 ) — 251

Balance at December 31, 2019 (net of tax effect $ 1,549 )

6 unchanged sentences

$ ( 9,078 ) $ 40 $ — $ ( 9,038 )

(1) Amounts reclassified from AOCI for pension and other benefits liabilities and for derivative contracts designated as foreign currency cash flow hedges are recorded in miscellaneous, net in non-operating expense and in passenger revenue, respectively, in the income statement.

(2) Includes $ 672 million of deferred income tax expense primarily related to pension and other benefit obligations that will not be recognized in net income until these obligations are fully extinguished.

We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations.

(3) The 2017 reclassification into earnings for available-for-sale investments relates to our investment in Grupo Aeroméxico and the related conversion to accounting under the equity method.

The reclassification of the unrealized gain was recorded to non-operating expense in our income statement.

The 2018 reclassification into retained earnings relates to our investments in GOL, China Eastern and other previously designated available-for-sale investments, and the related conversion to accounting for changes in fair value of these investments from AOCI to the income statement.

(1) Amounts reclassified from AOCI for pension and other benefits liabilities are recorded in miscellaneous, net in non-operating expense in the income statement.

(2) Includes approximately $ 750 million of deferred income tax expense primarily related to pension and other benefit obligations that will not be recognized in net income until these obligations are fully extinguished.

We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to results from operations.

(3) In the June 2020 quarter, all remaining foreign currency hedges expired, and we recognized an $ 83 million tax benefit which was released from AOCI.

(4) The 2018 reclassification into retained earnings related to our investments in GOL, China Eastern and other previously designated available-for-sale investments, and the related conversion to accounting for changes in fair value of these investments from AOCI to the income statement.

Delta Air Lines, Inc.

2020 Form 10-K 110

Notes to the Consolidated Financial Statements

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments.

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Our flight equipment forms one fleet, which is deployed through a single route scheduling system.

When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis.

When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers fleet type and route economics, but gives no weight to the financial impact of the resource allocation decision on a geographic region or mainline/regional carrier basis.

Our objective in making resource allocation decisions is to optimize our consolidated financial results.

Refinery Segment

In 2012, our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), acquired the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel.

The acquisition included pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK.

Our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), operate the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel.

Monroe's operations include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK.

Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties.

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The gross fair value of the products exchanged under these agreements during the years ended December 31, 2020, 2019 and 2018 was $ 1.5 billion, $ 4.0 billion and $ 3.6 billion, respectively.

The decline in exchange transactions was primarily driven by the decrease in demand for jet fuel from our airline operations as a result of the economic conditions caused by the COVID-19 pandemic.

Delta Air Lines, Inc.

2020 Form 10-K 111

Notes to the Consolidated Financial Statements

Segment Reporting

1 unchanged sentence

Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis.

Financial information by segment

(in millions) Airline Refinery Intersegment Sales/Other Consolidated

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Sales of refined products ( 307 ) (3)

Operating income 6,542 76 6,618

Interest expense (income), net 327 ( 26 ) 301

Operating loss (4)

( 12,253 ) ( 216 ) ( 12,469 )

Interest expense, net 928 1 929

Depreciation and amortization 2,312 99 ( 99 ) (4)

Restructuring charges 8,219 — 8,219

Total assets, end of period 70,548 1,448 71,996

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Operating income (4)

6,542 76 6,618

Interest expense (income), net 327 ( 26 ) 301

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(4) Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement.

EARNINGS PER SHARE

We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding restricted shares.

Delta Air Lines, Inc.

2020 Form 10-K 112

Notes to the Consolidated Financial Statements

(LOSS)/EARNINGS PER SHARE

We calculate basic (loss)/earnings per share and diluted (loss) per share by dividing net (loss)/income by the weighted average number of common shares outstanding, excluding restricted shares.

We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including stock options and restricted stock awards.

Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material.

The following table shows our computation of basic and diluted earnings per share:

Antidilutive common stock equivalents excluded from the diluted (loss)/earnings per share calculation are not material.

The following table shows our computation of basic and diluted (loss)/earnings per share:

Basic and diluted (loss)/earnings per share

Year Ended December 31,

(in millions, except per share data) 2020 2019 2018

Net income $ 4,767 $ 3,935 $ 3,205

Net (loss)/income $ ( 12,385 ) $ 4,767 $ 3,935

Basic weighted average shares outstanding 636 651 691

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Diluted weighted average shares outstanding 636 653 694

Basic earnings per share $ 7.32 $ 5.69 $ 4.45

Diluted earnings per share $ 7.30 $ 5.67 $ 4.43

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes our unaudited results of operations on a quarterly basis.

The quarterly earnings per share amounts for a year will not add to the earnings per share for that year due to the weighting of shares used in calculating per share data.

Three Months Ended,

(in millions, except per share data) March 31 June 30 September 30 December 31

Operating revenue $ 10,472 $ 12,536 $ 12,560 $ 11,439

Operating income 1,020 2,128 2,071 1,399

Net income 730 1,443 1,495 1,099

Basic earnings per share $ 1.10 $ 2.22 $ 2.32 $ 1.71

Diluted earnings per share $ 1.09 $ 2.21 $ 2.31 $ 1.71

Operating revenue $ 9,968 $ 11,775 $ 11,953 $ 10,742

Operating income 844 1,684 1,645 1,090

Net income 557 1,036 1,322 1,019

Basic earnings per share $ 0.79 $ 1.49 $ 1.93 $ 1.50

Diluted earnings per share $ 0.79 $ 1.49 $ 1.92 $ 1.49

Basic (loss)/earnings per share $ ( 19.49 ) $ 7.32 $ 5.69

Diluted (loss)/earnings per share $ ( 19.49 ) $ 7.30 $ 5.67

Delta Air Lines, Inc.

2020 Form 10-K 113

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data