What changed in this filing

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Item 1A. Risk Factors

2022-02-11 compared with 2021-02-12 · 67 added, 50 removed, 52 unchanged (69% of the section changed)

Risk Factors Relating to the Airline Industry

Terrorist attacks, geopolitical conflict or security events may adversely affect our business, financial condition and results of operations.

Terrorist attacks, geopolitical conflict or security events, or the fear or threat of any of these events, could have a significant adverse effect on our business.

Despite significant security measures at airports and airlines, the airline industry remains a high profile target for terrorist groups.

We rely on government provided threat intelligence and utilize private sources to constantly monitor for threats from terrorist groups and individuals, including from violent extremists both internationally and domestically, with respect to direct threats against our operations and in ways not directly related to the airline industry.

In addition, the impact on our operations of avoiding areas of the world, including airspace, in which there are geopolitical conflicts and the targeting of commercial aircraft by parties to those conflicts can be significant.

Security events, primarily from external sources but also from potential insider threats, also pose a significant risk to our passenger and cargo operations.

These events could include random acts of violence and could occur in public areas that we cannot control.

Terrorist attacks, geopolitical conflict or security events, or the fear or threat of any of these events, even if not made directly on or involving the airline industry, could have significant negative impact on us by discouraging passengers from flying, leading to decreased ticket sales and increased refunds.

In addition, potential costs from these types of events include increased security costs, impacts from avoiding flight paths over areas in which conflict is occurring or could occur, such as flight redirections or cancellations, reputational harm and other costs.

If any or all of these types of events occur, they could have a material adverse effect on our business, financial condition and results of operations.

The global airline industry is highly competitive and, if we cannot successfully compete in the marketplace, our business, financial condition and results from operations will be materially adversely affected.

The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), operational reliability, services, products, customer service and loyalty programs.

Consolidation in the airline industry, changes in international alliances, the creation of immunized joint ventures and the rise of subsidized government sponsored international carriers have altered and will continue to alter the competitive landscape in the industry, resulting in the formation of airlines and alliances with increased financial resources, more extensive global networks and competitive cost structures.

The COVID-19 pandemic could enhance the competitive dynamics within the industry, although we are unable to predict the duration or extent of this potentially increased pressure.

Our domestic operations are subject to competition from traditional network carriers, including American Airlines and United Airlines, national point-to-point carriers, including Alaska Airlines, JetBlue Airways and Southwest Airlines, and other discount or ultra low-cost carriers, including Spirit Airlines, Frontier Airlines and Allegiant Air, some of which may have lower costs than we do and provide service at low fares to destinations served by Delta.

Point-to-point, discount and ultra low-cost carriers place significant competitive pressure on network carriers in the domestic market.

In particular, we face significant competition at our domestic hubs and key airports either directly at those airports or at the hubs of other airlines that are located in close proximity to our hubs and key airports.

We also face competition in smaller to medium-sized markets from regional jet operations of other carriers.

Our ability to compete in the domestic market effectively depends, in part, on our ability to maintain a competitive cost structure.

If we cannot maintain our costs at a competitive level, then our business, financial condition and results of operations could be materially adversely affected.

Our international operations are subject to competition from both foreign and domestic carriers, including from point-to-point carriers on certain international routes.

Through alliance and other marketing and codesharing agreements with foreign carriers, U.S.

carriers have increased their ability to sell international transportation, such as services to and beyond traditional European and Asian gateway cities.

Similarly, foreign carriers have obtained increased access to interior U.S.

passenger traffic beyond traditional U.S.

gateway cities through these relationships.

In addition, several joint ventures among U.S.

and foreign carriers have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory.

Competition from government-owned and subsidized carriers in the Gulf region, including Emirates, Etihad Airways and Qatar Airways, has also been significant.

Subsidies allowed these carriers to grow quickly prior to the pandemic, reinvest in their product and expand their global presence at the expense of U.S.

The airline industry also faces competition from surface transportation and technological alternatives such as “virtual” meetings or “teleconferencing,” and the intensity of this competition has likely increased, at least in the near term, as a result of the COVID-19 pandemic.

Increased competition in both the domestic and international markets may have a material adverse effect on our business, financial condition and results of operations.

Delta Air Lines, Inc.

2020 Form 10-K 22

Extended interruptions or disruptions in service at major airports in which we operate or significant problems associated with a type of aircraft or engine we operate could have a material adverse effect on our operations.

The airline industry is heavily dependent on business models that concentrate operations in major airports in the United States and throughout the world.

An extended interruption or disruption at an airport where we have significant operations could have a material adverse effect on our business, financial condition and results of operations.

An extended interruption or disruption at an airport where we have significant operations, whether resulting from a discrete event, such as a hurricane, or the manifestation of a chronic physical risk, such as rising sea levels, could have a material adverse effect on our business, financial condition and results of operations.

Similarly, the airline industry is heavily dependent on a limited number of aircraft and engine manufacturers whose products are subject to extensive regulatory requirements.

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Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs and may have material adverse effects on our business.

For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that necessitate significant expenditures.

For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that necessitate significant expenditures and could carry operational implications.

We expect to continue incurring significant expenses to comply with the FAA’s regulations.

In addition, a directive or other regulation that has a significant operational impact on us could have a material adverse impact on our financial results.

Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations, reduce revenues or otherwise impact our business.

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and foreign laws that affect trade, including tariff and trade policies, export and import requirements, taxes, monetary policies and other restrictions and charges.

In connection with a dispute brought at the World Trade Organization against the EU and certain member states to address state subsidies in the large civil aircraft sector, the U.S.

Trade Representative has imposed tariffs on certain products imported from the EU, including on certain new aircraft and certain airplane parts originating in France and Germany.

We are pursuing strategies to minimize the impact, if any, of these tariffs on our business, but they, or the imposition of future tariffs, have the potential to substantially increase the cost to Delta of the affected aircraft, which in turn could have a material adverse effect on our financial results.

In particular, the imposition of significant tariffs with respect to aircraft that we are not able to mitigate could substantially increase our costs, which in turn could have a material adverse effect on our financial results.

In addition, some of our operations are in high-risk legal compliance environments.

Failure to comply with trade sanctions, the Foreign Corrupt Practices Act (the "FCPA") and other applicable laws or regulations could result in litigation, assessment of damages, imposition of penalties or other consequences, any or all of which could harm our reputation and have an adverse effect on our financial results.

Failure to comply with trade sanctions and restrictions, the Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in non-U.S.

jurisdictions, as well as other applicable laws or regulations could result in litigation, assessment of damages, imposition of penalties or other consequences, any or all of which could harm our reputation and have an adverse effect on our financial results.

In certain circumstances, we also may be subject to consequences of the failure of our airline partners to comply with laws and regulations, including U.S.

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carriers are subject to U.S.

and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate.

In addition to the heightened level of concern regarding privacy of passenger data in the U.S., certain European government agencies have updated privacy regulations applicable to private industry, including airlines.

Ongoing compliance with these evolving regulatory regimes is expected to result in additional operating costs and could have a material adverse effect on our future operations.

and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate and which are continuously evolving, requiring ongoing monitoring and updates to our privacy and information security programs.

Although we dedicate significant resources to manage compliance with global privacy and information security obligations, this challenging regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement, and legal claims or proceedings.

Delta Air Lines, Inc.

2021 Form 10-K 26

The airline industry is subject to many forms of environmental regulation, including increased regulation to reduce emissions and other risks associated with climate change.

Failure to comply with existing or future environmental regulations or to otherwise manage the risks of climate change effectively could have a material adverse effect on our business.

The airline industry is subject to many forms of environmental regulation, including but not limited to increased regulation to reduce emissions and other risks associated with climate change.

The cost of compliance with more stringent environmental regulations, failure to comply with existing or future regulations or failure to otherwise manage the risks of climate change effectively could have a material adverse effect on our business.

Many aspects of our operations are subject to evolving and increasingly stringent federal, state, local and international laws governing the protection of the environment.

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In order to address aircraft carbon dioxide emissions, the International Civil Aviation Organization, a United Nations specialized agency, formally adopted a global, market-based emission offset program known as CORSIA.

This program establishes a medium-term goal for the aviation industry of achieving carbon-neutral growth in international aviation beginning in 2021, based on a 2019 baseline.

Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted at this time.

This program establishes a goal for the aviation industry to achieve carbon-neutral growth in international aviation beginning in 2021 through the use of carbon offsets and/or lower carbon aviation fuel.

The baseline for establishing airlines’ offset obligations under CORSIA was originally set as an average of 2019 and 2020 emissions.

However, given the COVID-19 pandemic and resulting unprecedented reduction in international travel, ICAO removed 2020 from the baseline calculation for the first phases of CORSIA, from 2021 to 2027.

ICAO has yet to decide how to apply the baseline beyond 2027.

Some countries and other stakeholders, however, have advocated for reestablishing 2020 in the baseline and for using 2020 for the future baseline calculation, which, if adopted, would significantly increase the airline industry’s projected obligations under the program and the cost of compliance.

However, CORSIA is expected to increase operating costs for airlines that operate internationally.

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and abroad and could become subject to further taxes, charges or additional requirements to obtain permits or purchase allowances or emission credits for greenhouse gas emissions in various jurisdictions.

For example, in 2021 the European Commission proposed legislation that would expand the reach of the EU ETS to include flights into and out of the European Economic Area beginning in 2027 under certain circumstances, increase the stringency of the program, and establish a sustainable aviation fuel blending mandate for aviation fuel suppliers, among other requirements.

Individual EU member states have been developing their own requirements, including for example, a SAF mandate in France that will be phased in at the beginning of 2022.

In the United States various exploratory discussions continue around approaches to address climate change, such as carbon pricing, without a clear legislative path forward.

Additional regulation could result in taxation, regulatory or permitting requirements from multiple jurisdictions for the same operations and significant costs for the airline industry, including Delta.

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Certain airports have also adopted, and others could in the future adopt, greenhouse gas emission or climate-related goals and requirements that could impact our operations or require us to make changes or investments in our infrastructure.

Finally, there is uncertainty with respect to the future supply, demand and price of sustainable or lower carbon aircraft fuel, carbon offset credits and technologies that could allow us to reduce our emissions of carbon dioxide.

Because of the global nature of our business, unfavorable economic or political conditions in the markets in which we operate or volatility in currency exchange rates could have a material adverse effect on our business, financial condition and results of operation.

In addition to risks from potential changes to environmental regulation and policy, the transition to lower-carbon technologies, such as SAF, or changes in consumer preferences resulting from a negative perception of the environmental impact of air travel could materially adversely affect our business and financial results.

For example, lower-carbon technologies such as SAF and direct air capture technologies are currently not available at scale and may take decades to develop, and the cost to transition to them could be prohibitively expensive without appropriate government policies and incentives in place.

As more businesses have publicly announced environmental sustainability goals, the cost of carbon offsets has also increased significantly and will likely continue to do so.

Delta Air Lines, Inc.

2021 Form 10-K 27

As a result of the discretionary nature of air travel, the airline industry has been cyclical and particularly sensitive to changes in economic conditions.

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2021 Form 10-K 28

Flight Equipment

Our operating aircraft fleet, purchase commitments and options at December 31, 2021 are summarized in the following table.

We have been experiencing a recovery in demand from the COVID-19 pandemic, which has led to an increase in our capacity and utilization of our aircraft compared to the year ended December 31, 2020.

Accordingly, as of December 31, 2021, all aircraft in our operating fleet are reflected in the table below compared to approximately 10% that were temporarily parked as of December 31, 2020.

See Note 15 of the Notes to the Consolidated Financial Statements for additional information on the restructuring charges recorded in 2020 related to our fleet retirement plans.

Operating aircraft information by fleet type

Current Fleet (1)

Fleet Type Owned Finance Lease Operating Lease Total Average Age (Years) Purchase Options

A220-100 37 4 — 41 2.3 4 —

A220-300 10 — — 10 1.0 40 50

A319-100 55 2 — 57 19.9 — —

A320-200 52 4 — 56 26.0 — —

A321-200 69 22 36 127 3.1 — —

A321-200neo — — — — — 155 70

A330-200 11 — — 11 16.8 — —

A330-300 28 — 3 31 13.0 — —

A330-900neo 3 3 5 11 1.6 26 —

A350-900 13 — 11 24 3.7 20 —

B-717-200 9 42 3 54 20.6 — —

B-737-800 73 4 — 77 20.3 — —

B-737-900ER 91 — 49 140 5.6 19 —

B-757-200 99 1 — 100 24.4 — —

B-757-300 16 — — 16 18.9 — —

B-767-300ER 40 — — 40 25.4 — —

B-767-400ER 21 — — 21 21.1 — —

Total 627 82 107 816 14.0 264 120

(1) Excludes certain aircraft we own or lease that are operated by regional carriers on our behalf shown in the table below.

Includes used aircraft purchases from 2021 that are undergoing modifications and will enter service in the second half of 2022.

The following table summarizes the aircraft operated by regional carriers on our behalf at December 31, 2021.

Regional aircraft information by carrier

Carrier CRJ-200 CRJ-700 CRJ-900 Embraer 170 Embraer 175 Total

Endeavor Air, Inc.

46 13 115 — — 174

SkyWest Airlines, Inc.

— 6 44 — 71 121

Republic Airline, Inc.

— — — 8 46 54

Total 46 19 159 8 117 349

(1) Endeavor Air, Inc.

is a wholly owned subsidiary of Delta.

Delta Air Lines, Inc.

2021 Form 10-K 29

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 1A. Risk Factors