What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-11 compared with 2021-02-12 · 520 added, 551 removed, 373 unchanged (74% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of Form 10-K does not address certain items regarding the year ended December 31, 2018.

Our business and operating results continue to be significantly impacted by the COVID-19 pandemic.

However, as described further below, we have seen improvement in our business beginning in March 2021 and progressing through 2021.

Given the drastic and unprecedented impact of the pandemic on our operating results in 2020, we believe that for the financial highlights discussion below, a comparison of our results in 2021 to both 2020 and 2019 allows for a better understanding of the full impact of the COVID-19 pandemic and the progress of our recovery.

This section of Form 10-K, however, does not address certain items regarding the year ended December 31, 2019.

Discussion and analysis of 2019 and year-to-year comparisons between 2020 and 2019 not included in this Form 10-K can be found in "Item 7.

Management's Discussion and Analysis" of our Annual Report on Form 10-K for the year ended December 31, 2020.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

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.

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.

Delta Air Lines, Inc.

2020 Form 10-K 30

MD&A - Financial Highlights

• 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 of the Notes to the Consolidated Financial Statements 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.

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 of the Notes to the Consolidated Financial Statements 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.

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

See Note 8 of the Notes to the Consolidated Financial Statements for additional information on these covenants.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes and other financial information as well as the material risk factors included elsewhere in this Annual Report on Form 10-K.

The table below shows certain key financial measures for the years ended December 31, 2021, 2020 and 2019:

Year Ended December 31, 2021 vs 2020 % Increase (Decrease) (1)

2021 vs 2019 % Increase (Decrease) (1)

(in millions) 2021 2020 2019

Total operating revenue $ 29,899 $ 17,095 $ 47,007 75 % (36) %

Total operating expense 28,013 29,564 40,389 (5) % (31) %

Total non-operating expense, net (1,488) (3,118) (420) (52) % NM

Income/(loss) before income taxes 398 (15,587) 6,198 NM (94) %

(1) Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.

Financial Highlights - 2021 Compared to 2019

Our pre-tax income for 2021 was $398 million, which includes recognition of $4.5 billion in grants from the Payroll Support Program Extension ("PSP2") and Payroll Support Program 3 ("PSP3").

This is a $5.8 billion decrease compared to 2019 primarily due to the impact of the COVID-19 pandemic on our business which resulted in a 36% decrease in revenue, partially offset by a reduction in operating expense, including the government grant recognition.

Pre-tax loss, adjusted (a non-GAAP financial measure) which excludes the government grant recognition and other items was $3.4 billion, a decrease of $9.6 billion compared to 2019.

Compared to 2019, our operating revenue decreased $17.1 billion, or 36% due to reduced demand resulting from the COVID-19 pandemic.

The length and severity of the reduction in travel demand due to the COVID-19 pandemic remains uncertain;

however, with continued distribution of effective vaccines and easing of travel advisories and restrictions, we believe customer confidence will continue to grow, leading to increased demand during 2022.

We expect domestic leisure travel to exceed 2019 levels in 2022, while we expect business travel to continue to return as many companies are expected to expand "return to office" plans throughout 2022.

International demand recovery has been uneven as the COVID-19 variants and related travel restrictions impact various countries within our international network, though we believe demand will begin accelerating in the second half of 2022 as travel restrictions are lifted.

We continue to monitor risks to the pace of recovery from COVID-19 variants, the effectiveness of vaccine programs and travel advisories and restrictions.

We are planning for our system capacity to be approximately 15% lower in the March 2022 quarter than the March 2019 quarter and approximately 10% lower for the full year of 2022 compared to 2019.

Operating Expense.

Total operating expense decreased $12.4 billion, or 31%, compared to 2019, primarily resulting from recognition of the grants from PSP2 and PSP3, lower volume-related expenses (mainly fuel and passenger commissions and other selling expenses), lower salaries and related costs and profit sharing expense, and significant cost reduction measures taken across all aspects of our operation in response to the COVID-19 pandemic.

These decreases were partially offset by an increase in expenses related to refinery sales to third parties, reflected in ancillary business and refinery expense, as well as recovery related and transition costs incurred (e.g., aircraft reactivation, hiring, training, overtime and reservations volume) as we return closer to pre-pandemic levels of demand and capacity.

Total operating expense, adjusted (a non-GAAP financial measure) decreased $10.9 billion, or 27% compared to 2019.

Delta Air Lines, Inc.

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MD&A - Financial Highlights

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 Consolidated Statements of Operations ("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 of the Notes to the Consolidated Financial Statements 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.

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.

Our total operating cost per available seat mile ("CASM") decreased 2% to 14.40 cents compared to 2019, primarily due to the cost reductions discussed above and partially offset by a 29% decrease in capacity.

Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure) increased 11% to 12.12 cents due to the 29% decrease in capacity, despite a decline in adjusted operating expenses.

Minimizing unit cost increases is important to delivering on our overall financial objectives.

During 2022, however, we expect non-fuel unit costs to increase 7%-10% compared to 2019.

This expected unit cost increase is primarily due to 2022 capacity projected to be lower than 2019, costs associated with rebuilding our network, investments to support an elevated customer experience and our premium brand focus, and inflation and labor cost escalation in the underlying business.

We expect non-fuel unit cost increases compared to 2019 to moderate in future years as we return to and exceed pre-pandemic capacity and benefit from cost reduction measures implemented during 2020 that were structural in nature.

We have experienced, and expect to continue experiencing, increased cost inflation as a result of global macroeconomic trends, actions we took in response to the COVID-19 pandemic and labor shortages at our suppliers.

Actions we have taken to mitigate the impact of expected inflation include leveraging scale and efficiency in our underlying business through improved asset utilization and seeking productivity improvements through increased scale efficiencies and technology enhancements.

Non-Operating Results.

Total non-operating expense was $1.5 billion in 2021, $1.1 billion higher than 2019, primarily due to higher interest expense as a result of our increased debt balances due to the financing arrangements entered into during 2020.

Our liquidity at December 31, 2021 was $14.2 billion, an $8.2 billion increase compared to December 31, 2019 as a result of proceeds from loans and debt issuances and other liquidity initiatives.

During 2021, operating activities provided $3.3 billion, including $4.5 billion from the payroll support program grants, which was partially offset by the $1.5 billion in contributions we made to our defined benefit pension plans.

During 2021, we incurred approximately $900 million of net investing cash outflows, primarily for $3.2 billion capital expenditures, partially offset by $2.4 billion of net redemptions of short-term investments.

Capital expenditures primarily related to the purchase of aircraft, fleet modifications, our airport redevelopment projects and technology enhancements.

These results generated $1.3 billion of free cash flow (a non-GAAP financial measure) in 2021 compared to $4.2 billion in 2019.

Also, during 2021 we had cash outflows of approximately $5.8 billion related to repayments of our debt and finance leases, including approximately $3.8 billion for early repayments and the remainder from scheduled maturities.

The non-GAAP financial measures pre-tax loss, adjusted, operating expense, adjusted, CASM-Ex and free cash flow used above are defined and reconciled in "Supplemental Information" below.

Financial Highlights - 2021 Compared to 2020

Our 2021 pre-tax income improved $16.0 billion compared to 2020.

This was primarily due to the restructuring charges, investment impairments and equity method losses recorded during 2020 and a partial recovery in the demand for air travel during 2021, which resulted in a 75% increase in revenue.

Pre-tax loss, adjusted (a non-GAAP financial measure) was $3.4 billion, an increase of $5.6 billion compared to 2020.

Compared to 2020, our 2021 operating revenue increased $12.8 billion, or 75%, primarily due to increased travel demand.

Operating Expense.

Total operating expense decreased $1.6 billion, or 5%, compared to 2020, primarily resulting from the reduction in restructuring charges and recognition of the PSP2 and PSP3 grants.

These decreases were almost fully offset by higher volume-related expenses associated with the increase in capacity and demand, mainly fuel and aircraft maintenance and higher salaries and related costs and an increase in expenses related to refinery sales to third parties, reflected in ancillary business and refinery expense.

Total operating expense, adjusted (a non-GAAP financial measure) increased $5.1 billion, or 21% compared to 2020.

Our CASM decreased 35% to 14.40 cents compared to 2020, primarily due to a 45% increase in capacity and reduction in operating expense from the reduction in restructuring charges and recognition of the PSP2 and PSP3 grants as noted above.

CASM-Ex (a non-GAAP financial measure) decreased 22% to 12.12 cents.

Delta Air Lines, Inc.

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MD&A - Financial Highlights

Financial Highlights - 2020 Compared to 2019

Our pre-tax loss for 2020 was $15.6 billion, representing a $21.8 billion decrease compared to the prior year primarily due to the impact of the COVID-19 pandemic on our business which resulted in a 64% decrease in revenue and $8.2 billion of restructuring charges and $2.4 billion in investment impairments and equity method losses.

Pre-tax loss, adjusted (a non-GAAP financial measure) was $9.0 billion, a decrease of $15.2 billion compared to the prior year.

Adjustments for 2020 were primarily related to restructuring charges from fleet retirement decisions, voluntary early retirement and separation programs charges and investment impairments and equity method losses, which were partially offset by recognition of the CARES Act grant.

Compared to 2020, our operating revenue decreased $29.9 billion, or 64% due to reduced demand resulting from the COVID-19 pandemic.

Operating Expense.

Total operating expense decreased $10.8 billion, or 27%, compared to the prior year, primarily resulting from lower volume and selling-related expenses including fuel, lower profit sharing, recognition of the CARES Act payroll support program grant and significant cost reduction measures taken across all aspects of our operation in response to the COVID-19 pandemic, partially offset by restructuring charges.

Total operating expense, adjusted (a non-GAAP financial measure) decreased $16.0 billion, or 40% compared to the prior year.

Our total operating cost per available seat mile ("CASM") increased 50% to 22.01 cents compared to the prior year, primarily due to the 51% decrease in capacity, which was partially offset by the significant cost reduction measures discussed above.

Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure) increased 43% to 15.61 cents and consolidated CASM, adjusted (a non-GAAP financial measure, which includes aircraft fuel costs) increased 23% to 17.96 cents.

Non-Operating Results.

Total non-operating expense was $3.1 billion in 2020, $2.7 billion higher than the prior year primarily resulting from impairments and our proportionate share of equity method losses related to our investments in LATAM, Grupo Aeroméxico and Virgin Atlantic, and higher interest expense as a result of our increased debt balances due to the financing arrangements entered into during 2020.

Our liquidity at December 31, 2020 was $16.7 billion, a $10.8 billion increase compared to December 31, 2019 as a result of proceeds from loans and debt issuances (including our SkyMiles financing arrangements and aircraft financings), support payments under the CARES Act payroll support program and other liquidity initiatives.

Losses during 2020 resulted in operating activities using $3.8 billion.

During 2020 we incurred $9.2 billion of investing cash outflows, primarily related to the purchase of short-term investments and our tender offer to acquire shares of LATAM in January 2020.

These results generated $4.3 billion of negative free cash flow (a non-GAAP financial measure) in 2020 compared to $4.2 billion of free cash flow in 2019.

The non-GAAP financial measures pre-tax loss, adjusted, operating expense, adjusted, CASM-Ex, consolidated CASM, adjusted, and free cash flow used above are defined and reconciled in "Supplemental Information" below.

Total non-operating expense was $1.5 billion in 2021, $1.6 billion lower than 2020 primarily due to impairments and our proportionate share of equity method losses related to our investments in LATAM and Grupo Aeroméxico in 2020, which were zero in 2021, and mark-to-market gains on certain of our other equity investments.

These decreases were partially offset by higher interest expense as a result of our increased debt balances due to the financing arrangements entered into during 2020 and losses on debt extinguishment.

The $1.3 billion of free cash flow generated in 2021 compared to $4.3 billion of negative free cash flow in 2020.

Environmental Sustainability

During 2021, we built on our previously announced plan to invest $1.0 billion through the end of 2030 toward airline carbon neutrality by committing to, among other things, set medium- and long-term climate goals that are aligned with applicable SBTi frameworks, as described further in Part I, Item 1, "Business - Environmental Sustainability." We expect our path toward achievement of these ambitious climate goals to depend heavily on increased use of SAF, which is not presently available at scale or at prices competitive to jet fuel, and improved fuel efficiency from fleet renewal and operational initiatives.

During 2021, we signed agreements with numerous corporate and agency customers to offset the premium from our SAF purchases.

While we do not expect a material adverse effect on our Consolidated Financial Statements in the near term from the use of SAF, we are unable to predict the financial impact of increased use of SAF on our Consolidated Financial Statements over the longer term, as government policies and incentives for, and sufficient third-party investment in, SAF are necessary to make its use in larger quantities commercially and economically feasible.

In addition, our fleet renewal efforts will require extensive capital investment in future periods.

In the near-term and subject to market dynamics, we also expect to continue the purchase and retirement of verified carbon offsets in support of our $1.0 billion airline carbon neutrality goal.

During 2021, we incurred $95 million of expense related to carbon offsets.

This amount consists of $30 million to address 13 million metric tons of carbon emissions generated by our airline segment from March 1 to December 31, 2020 through carbon offsets, as well as an additional $65 million for the purchase and retirement of carbon offsets related to a portion of our airline segment's 2021 carbon emissions.

The cost of carbon offsets increased significantly during 2021 and will likely continue to do so, which could adversely affect our financial results as we purchase such offsets either in support of our $1.0 billion airline carbon neutrality goal or in satisfaction of future obligations under CORSIA, which are described further in Part I, Item 1, "Business - Environmental Regulation."

Delta Air Lines, Inc.

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Operating Revenue

Year Ended December 31, Increase

(Decrease) % Increase

Year Ended December 31, Increase (Decrease) % Increase

(in millions) (1)

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Third-party refinery sales (2)

(0.86) (0.04) (0.82) NM

Delta Private Jets adjustment (2)

(1.66) (0.86) (0.80) 93 %

TRASM, adjusted (cents) 13.71 ¢ 11.87 ¢ 1.84 ¢ 16 %

(1) This reconciliation may not recalculate due to rounding.

(1) Total amounts in the table above may not calculate exactly due to rounding.

(2) For additional information on adjustments to TRASM, see "Supplemental Information" below.

Operating Revenue

Compared to the year ended December 31, 2019, our operating revenue decreased $29.9 billion, or 64%, due to reduced demand resulting from the COVID-19 pandemic.

The decrease in operating revenue, on a 51% decrease in capacity, generated a 25% decrease in total revenue per available seat mile ("TRASM") and a 30% decrease in TRASM, adjusted compared to 2019.

The increase in third-party refinery sales resulted from the refinery's shift to producing more non-jet fuel products due to the decline in demand for jet fuel.

See "Refinery Segment" below for additional details on the refinery's operations during 2020.

Our operating revenue increased $12.8 billion, or 75%, compared to the year ended December 31, 2020 due primarily to increased demand in 2021 as a result of the continued recovery from the COVID-19 pandemic.

The increase in operating revenue, on a 45% increase in capacity, generated a 21% increase in total revenue per available seat mile ("TRASM") and a 16% increase in TRASM, adjusted (a non-GAAP financial measure) compared to 2020.

See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.

We have historically generated cargo revenues in domestic and international markets through the use of cargo space on regularly scheduled passenger aircraft.

In 2020, following the onset of the COVID-19 pandemic, reduced industry capacity drove a significant increase in our cargo yield, and we also generated cargo revenue through the operation of cargo-only charter flights (i.e., using aircraft in our fleet not then being utilized for passenger travel).

These two factors contributed to the smaller percentage decline in cargo revenue, than in passenger revenue, compared to the prior year.

The length and severity of the reduction in travel demand due to the COVID-19 pandemic are uncertain, as described in Item 1A.

Risk Factors, but we currently expect three phases in 2021.

We anticipate that the early part of the year will be characterized by fluctuating demand.

With continued distribution of effective vaccines and easing of travel advisories and restrictions, we believe customer confidence will grow, leading to increased demand in the spring and summer of 2021.

We expect vaccination to become widespread during the second half of 2021, resulting in sustained demand improvement.

Delta Air Lines, Inc.

2020 Form 10-K 34

MD&A - Results of Operations

In 2020, following the onset of the COVID-19 pandemic, reduced industry cargo capacity drove a significant increase in our cargo yield, and we also generated cargo revenue through the operation of cargo-only charter flights (i.e., using aircraft in our fleet not being utilized for passenger travel to fly cargo internationally).

This trend continued in 2021, and we would expect capacity constraints and elevated market yields to continue through 2022 while the industry rebuilds international networks to pre-pandemic levels.

Compared to 2020, we flew additional cargo volume as international networks returned, coupled with a continued increase in yield driven by a combination of constrained capacity and increased demand.

Passenger Revenue by Geographic Region

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Atlantic 1,777 52 % 56 % 42 % (3) % 7 % 5 pts

Latin America 1,113 (63) % (62) % (49) % (1) % (27) % (23) pts

Latin America 1,873 68 % 82 % 79 % (8) % (6) % 1 pt

Pacific 401 (28) % (55) % (2) % 58 % (26) % (27) pts

Total passenger revenue $ 22,519 75 % 83 % 45 % (5) % 21 % 15 pts

Passenger revenue decreased $29.4 billion, or 70%, compared to the prior year.

PRASM decreased 38% and passenger mile yield decreased 1% on 51% lower capacity.

Load factor decreased 32 pts from the prior year to 55%.

We began waiving changes fees on most tickets during 2020 and subsequently changed our policy with respect to change fees, as described above in "Taking Care of our Customers and Employees." We do not expect these policy changes to materially affect our revenue in future periods.

Prior to the initial effects of the COVID-19 pandemic in March 2020, domestic results were strong with revenue nearly 10% higher than the prior year period.

However, due to the decrease in customer demand beginning in March, passenger unit revenue related to our domestic region decreased 42% with capacity down 43% compared to the prior year.

We are planning for improvement to the demand environment, primarily from leisure customers, to continue in 2021, though still significantly lower than the comparable period in 2019.

We remain optimistic about the ultimate recovery of business travel, but are unable to predict the timing or extent of that recovery.

Delta Air Lines, Inc.

2021 Form 10-K 37

MD&A - Results of Operations

Domestic passenger unit revenue ("PRASM") for the year ended December 31, 2021 increased 27% with capacity up 45% compared to the year ended December 31, 2020 as a result of the low levels of capacity and demand during 2020 due to the COVID-19 pandemic and the ongoing recovery throughout 2021.

Beginning in the latter half of the March 2021 quarter, we began to see bookings, primarily leisure, improve from the low levels of 2020.

Throughout 2021, demand continued to improve, with some variability in periods of rising COVID-19 cases attributable to variants of the virus.

We remain optimistic about the ultimate recovery of business travel which has been recovering at a slower pace than consumer.

We expect this demand to continue to be led by small- and medium-sized businesses and accelerate in the first half of 2022 as more corporate offices reopen;

we are, however, unable to fully predict the pace of that recovery.

International

Passenger revenue related to our international regions decreased 76% compared to the prior year.

The reductions in revenue and capacity presented in the table above were a result of reduced demand and government travel directives and quarantines limiting or suspending air travel due to the global spread of COVID-19.

Additionally, many countries have implemented international testing requirements, which has slowed demand in the short-term but is expected to enhance the long-term recovery of international air travel.

We expect this significantly lower demand environment to continue into 2021, with improvement expected after the recovery in domestic travel.

As an initial step to this recovery, in December 2020 we became the first U.S.

airline to offer flights between the U.S.

and Europe that allow customers to avoid quarantine upon arrival after testing negative for the virus prior to travel and upon arrival in Amsterdam and Rome.

During 2020 we transferred our U.S.-Tokyo services from Narita to Haneda airport, Tokyo's preferred airport for corporate customers, and continued to develop our network connectivity with our joint venture partner Korean Air at Seoul-Incheon airport.

In each of the international regions we continue to monitor government travel directives and customer demand and will adjust flight schedules accordingly.

Prior to the COVID-19 pandemic, we completed two transactions to further strengthen our international partnerships.

In the Atlantic region, 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.

This enhanced joint venture is designed to strengthen collaboration between the three airlines and is expected to provide customers with increased access to destinations across North America, the U.K.

In the Latin America region, in January 2020, we completed the tender offer to acquire 20% of the shares of LATAM as part of our plan to create a strategic alliance.

Additionally, in the March 2020 quarter, we started codesharing for certain flights operated by LATAM.

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.

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

See Note 5 of the Notes to the Consolidated Financial Statements for additional information on our strategic alliance with LATAM and the impact of its bankruptcy filing.

International passenger revenue for the year ended December 31, 2021 increased 43% with capacity up 45% compared to the year ended December 31, 2020 as travel to certain destinations has resumed or increased.

Additionally, while some countries have removed or eased travel restrictions, many countries maintained or reinstituted international testing requirements and travel restrictions, which have restrained demand in the short term but are expected to support the long-term recovery of international air travel.

In November 2021, travel restrictions on most fully vaccinated foreign visitors to the United States were lifted.

This action made travel to the U.S.

by many foreign nationals possible for the first time in 18 months.

Despite this policy change, we expect the significantly lower international demand environment to continue through at least the beginning of 2022, with the recovery pace continuing to trail domestic travel.

The Atlantic and Pacific regions continue to be the most impacted by the restrictions described above.

However, during 2021, we began, resumed or increased our service to certain countries in the Atlantic region based on their lifting or easing of travel restrictions.

Travel in the Pacific region is largely limited to essential travel, and we expect only small demand improvements until government restrictions ease with minimal improvement until at least the second half of 2022.

We will continue to be agile in the restoration of our international network based on changes in government restrictions and consumer demand.

The Latin America region has shown the most recovery of the international regions, with continued demand improvement for leisure destinations in the Caribbean, Mexico and Central America.

We expect this trend to continue through 2022 with the recovery in the Atlantic and Pacific regions lagging behind Latin America.

Ticket Validity Flexibility

In order to provide our customers more flexibility and time to plan or rebook their travel, we made the following changes to our ticket and travel credit expiration dates.

In the March 2021 quarter, we announced the extension of the validity of all passenger tickets and travel credits purchased or expiring in 2021 to December 31, 2022, which allowed for tickets to be rebooked through December 31, 2022 for travel through 2023.

In January 2022, we announced that all existing travel credit holders will have until December 31, 2023 to rebook their ticket for travel throughout 2024.

Additionally, all Delta customers with upcoming 2022 travel or who purchase a ticket in 2022 will also have the flexibility to rebook their ticket through December 31, 2023, and travel throughout 2024.

During 2020, with the exception of Basic Economy, we eliminated change fees for all tickets originating in North America and waived change fees for tickets originating outside of North America.

We also implemented a temporary waiver that allowed Basic Economy tickets with travel for 2021, which are normally non-changeable, to be changed without paying a fee regardless of origin or destination.

Starting January 1, 2022, Basic Economy tickets may be cancelled for a fee to receive a partial ticket credit.

We do not expect the updated change fee policies to materially affect our revenue in future periods;

however, our estimates of revenue that will be recognized for tickets that expire unused ("ticket breakage") may vary in future periods due to the extension of the validity of passenger tickets and travel credits.

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Other Revenue

Year Ended December 31, Increase

(Decrease) % Increase

Year Ended December 31, Increase (Decrease) % Increase

(in millions) 2021 2020

Ancillary businesses and refinery $ 1,798 $ 1,297 $ 501 39 %

Refinery $ 3,229 $ 1,150 $ 2,079 181 %

Loyalty program 1,770 1,458 312 21 %

Ancillary businesses 793 648 145 22 %

Miscellaneous 556 348 208 60 %

Total other revenue $ 6,348 $ 3,604 $ 2,744 76 %

Ancillary Businesses and Refinery.

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

Refinery sales to third parties, which are at or near cost, increased $1.1 billion compared to 2019.

The increase in third-party refinery sales resulted from the refinery's shift to producing more non-jet fuel products due to the decline in demand for jet fuel.

The increase in refinery sales was partially offset by an approximately $270 million, or approximately 30%, decline in revenue from aircraft maintenance services we provide to third parties, which decreased due to the reduction in flights operated worldwide.

In addition, results for 2019 also included approximately $200 million of revenue from Delta Private Jets, which was combined with Wheels Up in January 2020 and is no longer reflected in ancillary businesses and refinery.

This represents refinery sales to third parties.

These sales, which are at or near cost, increased $2.1 billion compared to 2020.

The increase in third-party refinery sales resulted from the refinery's shift to producing and selling more non-jet fuel products due to the lower level of demand for jet fuel compared to historical levels, in addition to higher pricing during 2021.

See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.

Loyalty Program.

Loyalty program revenues relate primarily to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards.

These revenues are mainly driven by customer spend on American Express cards, which declined at a lower rate than air travel, during the year.

Loyalty program revenues relate to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards.

These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions.

As co-brand card spend and card acquisitions continue to be strong, revenues from our relationship with American Express increased in the year ended December 31, 2021 compared to 2020.

Ancillary Businesses.

Ancillary businesses includes aircraft maintenance services we provide to third parties and our vacation wholesale operations.

Miscellaneous.

Miscellaneous revenue is primarily composed of lounge access and codeshare revenues.

The volume of these transactions has fallen compared to 2019, due to the impact of, and our response to, the COVID-19 pandemic.

Miscellaneous revenue is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues.

Compared to 2020, these transactions have increased due to the ongoing recovery of our business that continued to materialize in 2021.

Our network of Delta Sky Club lounges was fully reopened by the end of July 2021 after some lounges temporarily closed at the onset of the pandemic in 2020.

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Operating Expense

Year Ended December 31, Increase

(Decrease) % Increase

Year Ended December 31, Increase (Decrease) % Increase

(in millions) 2021 2020

1 unchanged sentence

Aircraft fuel and related taxes 5,633 3,176 2,457 77 %

Regional carriers expense, excluding fuel 2,479 3,584 (1,105) (31) %

Depreciation and amortization 2,312 2,581 (269) (10) %

Ancillary businesses and refinery 3,957 1,785 2,172 122 %

1 unchanged sentence

Landing fees and other rents 2,019 1,833 186 10 %

Depreciation and amortization 1,998 2,312 (314) (14) %

Regional carrier expense 1,736 1,584 152 10 %

Aircraft maintenance materials and outside repairs 1,401 822 579 70 %

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Aircraft rent 430 399 31 8 %

Restructuring charges 8,219 — 8,219 NM

Government grant recognition (3,946) — (3,946) NM

Profit sharing — 1,643 (1,643) (100) %

Restructuring charges (19) 8,219 (8,238) (100) %

Profit sharing 108 — 108 NM

Government grant recognition (4,512) (3,946) (566) 14 %

Other 1,405 1,232 173 14 %

Total operating expense $ 28,013 $ 29,564 $ (1,551) (5) %

As discussed above under "Expense Management," in response to the reduced demand and related reduction in revenue following the onset of the COVID-19 pandemic in early 2020, we quickly reduced capacity to more closely align with demand and implemented cost saving initiatives related to our fleet and operations and delayed or eliminated nearly all discretionary spending.

As a result, most operating expense line items decreased significantly in 2020 compared to 2019.

Operating expenses decreased primarily due to the voluntary separation programs and work hour reductions described below, the many cost reduction measures and programs implemented in response to the COVID-19 pandemic and the reduction in volume and selling-related costs.

During 2021, as effective vaccines become broadly available, vaccination becomes widespread globally, travel restrictions and advisories begin to ease and customer confidence begins to grow, we expect operating expense to increase as capacity and revenue return.

However, we believe that many of the cost savings achieved during 2020 were structural in nature, which we expect to lead to lower non-fuel unit cost in the future.

The discussion below is focused largely on the year-over-year changes in certain operating expense line items that were not primarily driven by the reduction in capacity or revenue.

These include many of the cost reduction measures and programs we implemented in response to the COVID-19 pandemic.

In response to the reduced demand and related reduction in revenue following the onset of the COVID-19 pandemic in early 2020, we quickly reduced capacity to more closely align with demand, implemented cost saving initiatives related to our fleet and operations, offered employees voluntary separation programs and delayed or eliminated nearly all discretionary spending.

During 2021, distribution of vaccines continued, travel restrictions and advisories eased and customer confidence continued to grow despite the negative impact of COVID-19 virus variants in the second half of 2021.

As a result, we saw revenue and capacity return and related operating expense line items increase.

The continued restoration of our operations was the primary driver for the increases in contracted services, landing fees and other rents, passenger commissions and other selling expenses, passenger service and other expense.

Other year-over-year fluctuations are discussed below.

Salaries and Related Costs.

The decrease in salaries and related costs is primarily due to actions taken in response to the decreased demand for air travel due to the COVID-19 pandemic.

In the second half of 2020, approximately 18,000 employees elected to participate in voluntary separation programs, which initially reduced our workforce by approximately 20%, though some of those positions have subsequently been filled.

Since the beginning of 2021, we have hired approximately 11,000 employees in certain areas, including flight operations, airport customer service and reservations and customer care, in order to support our operations as demand and capacity return.

Beginning in March 2020 and continuing through December 2020, we reduced salaries by 100% for our CEO and 50% for our officers.

In addition, we reduced work hours by 25% for all other management and most front-line employee work groups.

We offered voluntary unpaid leaves of absence for periods ranging from 30 days up to 12 months and approximately 50,000 of our employees elected a leave at various times throughout 2020.

Also, during the September 2020 quarter, approximately 18,000 employees elected to participate in voluntary separation programs, reducing our workforce by approximately 20%.

We expect the lower headcount following these voluntary separation programs to mitigate the impact on salaries and related costs from the restoration of salaries and work hours in 2021, enabling us to maintain lower costs compared to 2019.

On January 1, 2021, employees were restored to full work hours, officer salaries were restored and during 2021 we recalled approximately 1,700 pilots from inactive status back to active service.

Additionally, we offered voluntary unpaid leaves of absence for periods ranging from 30 days up to 12 months and approximately 50,000 and 20,000 of our employees elected to take a leave of absence at various times throughout 2020 and 2021, respectively.

These actions resulted in higher salaries and related costs in 2021 compared to 2020.

Delta Air Lines, Inc.

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Aircraft Fuel and Related Taxes.

Fuel expense decreased $5.3 billion compared to the prior year due to a 51% decrease in capacity and an approximately 25% decrease in the market price per gallon of jet fuel.

The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted (non-GAAP financial measures):

Fuel expense and average price per gallon Average Price Per Gallon

Fuel expense increased $2.5 billion compared to 2020 primarily due to a 44% increase in consumption on a 45% increase in capacity, and a 31% increase in the market price of jet fuel.

Additionally, during 2021, we purchased and retired $95 million of carbon offsets, of which $30 million relates to 13 million metric tons of carbon emissions generated by our airline segment from March 1 to December 31, 2020 as well as $65 million which relates to a portion of 2021 carbon emissions generated by our airline segment.

In the table below, these costs are shown in the carbon offset costs line item.

Fuel expense and average price per gallon

Average Price Per Gallon

Year Ended December 31, Increase

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(in millions, except per gallon data) 2021 2020 2021 2020

2020 2019 2020 2019

Fuel purchase cost (1)

$ 5,527 $ 2,938 $ 2,589 $ 1.99 $ 1.52 $ 0.47

Carbon offset costs 95 — 95 0.03 — 0.03

Fuel hedge impact 9 22 (13) — 0.01 (0.01)

Refinery segment impact 2 216 (214) — 0.11 (0.11)

216 (76) 292 0.11 (0.02) 0.13

Total fuel expense $ 5,633 $ 3,176 $ 2,457 $ 2.02 $ 1.64 $ 0.38

MTM adjustments and settlements on hedges (4)

(10) (14) 4 (0.01) — (0.01)

Delta Private Jets adjustment (5)

— (28) 28 — (0.01) 0.01

Total fuel expense, adjusted $ 3,166 $ 8,477 $ (5,311) $ 1.64 $ 2.01 $ (0.37)

(1) This reconciliation may not calculate exactly due to rounding.

(1) Market price for jet fuel at airport locations, including related taxes and transportation costs.

(3) Refer to "Refinery Segment" below for additional information about our refinery's operations.

(4) MTM adjustments and settlements on hedges include the effects of the derivative transactions disclosed in Note 6 of the Notes to the Consolidated Financial Statements.

For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below.

(5) Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.

Depreciation and Amortization.

The decrease in depreciation and amortization is primarily due to aircraft that have been retired or impaired during 2020, including the MD-88, MD-90, 717, 737-700, 767-300ER and 777 fleet types, as well as certain A320 aircraft.

Impairments and other charges related to the retirement of these fleets are reflected in restructuring charges.

See Note 2 of the Notes to the Consolidated Financial Statements for additional information about these fleet retirements.

Ancillary Businesses and Refinery.

Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations.

Increased expenses were primarily related to refinery sales to third parties, which are at or near cost.

These refinery cost of sales increased $1.1 billion compared to 2019.

Due to the decrease in demand for jet fuel following the onset of the COVID-19 pandemic, the refinery shifted production to more non-jet fuel products, which increased the sales to third parties during 2020 compared to the prior year period.

The increase in refinery costs was partially offset by a decrease of approximately $260 million in the cost of aircraft maintenance services we provide to third parties compared to 2019 due to the reduction in flights operated worldwide.

In addition, approximately $180 million of costs related to services performed by Delta Private Jets in 2019 were recorded in ancillary businesses and refinery prior to the combination of that business with Wheels Up in January 2020.

Increased expenses were primarily related to refinery sales to third parties, which are at or near cost and increased $2.1 billion compared to 2020.

The increase compared to 2020 was driven by higher pricing during 2021, with lower production and demand for both jet and non-jet fuel products during 2020.

The cost of aircraft maintenance services we provide to third parties increased compared to 2020 due to the increase in flights operated worldwide in 2021.

Depreciation and Amortization.

Depreciation and amortization decreased compared to 2020 primarily due to the aircraft that were retired or impaired during 2020.

As we acquire new aircraft to provide an improved customer experience, greater fuel efficiency and thus reduced carbon emissions, better operating economics and more premium products, we expect depreciation expense to increase in future years.

Regional Carrier Expense.

Regional carrier expense increased compared to 2020 due to an increase in utilization as a result of the increased demand discussed above.

Until 2021, we allocated certain costs (such as landing fees and other rents, salaries and related costs and contracted services) to regional carrier expense in our Consolidated Statements of Operations ("income statement") based on relevant statistics (such as passenger counts).

Beginning in 2021 we ceased performing this allocation and have reclassified the costs presented in prior periods to align with this presentation.

This reclassification better reflects the nature of, and how management views, these regional carrier related expenses.

This allocation was approximately $900 million in 2020.

The amounts in regional carrier expense under the current presentation represent the accrual of payments to our regional carriers under capacity purchase agreements, maintenance costs related to our regional fleet and the expenses of our wholly owned regional subsidiary, Endeavor Air, Inc.

Aircraft Maintenance Materials and Outside Repairs.

Maintenance expense increased compared to 2020 as we returned aircraft to service and to support our operational reliability.

The increase compared to 2020 was particularly pronounced due to the significantly reduced capacity during 2020 and the large number of aircraft we had parked during that time.

Aircraft Rent.

Most aircraft operating lease expenses are recorded in aircraft rent and are contractually fixed.

Therefore, aircraft rent did not decline to the same extent as our other operating expense line items compared to 2019.

Therefore, the increase in aircraft rent was more muted than our other operating expense line items when compared to 2020.

Restructuring Charges.

Restructuring charges are composed of various expenses that resulted from our response to the unprecedented impact on our business from the COVID-19 pandemic primarily due to fleet impairment and related charges and voluntary separation program charges.

See Note 2 of the Notes to the Consolidated Financial Statements for additional information about these restructuring charges.

Government Grant Recognition.

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 included a grant of $4.0 billion that was fully recognized as a contra-expense in 2020 over the period that the funds were intended to benefit.

We expect to receive approximately $2.9 billion in the March 2021 quarter as part of the payroll support program extension, of which approximately $2.0 billion is expected to be in the form of grants that we plan to recognize as contra-expense during the first half of 2021.

See Note 2 of the Notes to the Consolidated Financial Statements for additional information about government support programs, including the CARES Act.

During 2020, we recorded restructuring charges of $8.2 billion for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic.

In the year ended December 31, 2021, we recognized $19 million of adjustments to certain of those restructuring charges, representing changes in our estimates.

See Note 15 of the Notes to the Consolidated Financial Statements for additional information about the restructuring charges recorded in 2020.

Delta Air Lines, Inc.

2021 Form 10-K 41

MD&A - Non-Operating Results

MD&A - Results of Operations

Profit Sharing.

To recognize the extraordinary efforts of our employees through the pandemic, we will make a special profit-sharing payment to eligible employees in February 2022, based on the adjusted pre-tax profit earned during the second half of 2021.

Government Grant Recognition.

During the year ended December 31, 2021, we received a total of $6.4 billion under the PSP2 and PSP3 agreements with the U.S.

Department of the Treasury, which we were required to use exclusively for the payment of employee wages, salaries and benefits.

The support payments included grants totaling $4.5 billion that were recognized as contra-expense in 2021 over the period that the funds were used.

The amount recognized in 2021 exceeded the amount recognized during 2020 due to the increase in grants received during the year.

See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information on PSP2 and PSP3.

Non-Operating Results

Year Ended December 31, Favorable (Unfavorable)

(in millions) 2020 2019 2020 vs.

(in millions) 2021 2020

Interest expense, net $ (1,279) $ (929) $ (350)

1 unchanged sentence

Gain/(loss) on investments, net 56 (105) 161

Loss on extinguishment of debt (319) (8) (311)

Pension and related benefit/(expense) 451 219 232

Miscellaneous, net (60) 137 (197)

1 unchanged sentence

Interest expense, net.

Interest expense increased compared to 2019 as a result of the financing arrangements entered into during 2020.

See Note 2 and Note 8 of the Notes to the Consolidated Financial Statements for additional information on recent financings.

As a result of the increase in our outstanding debt since the onset of the pandemic, we expect to incur approximately $350 million in quarterly interest expense at the beginning of 2021.

However, we expect to reduce those expenses during 2021 by paying down our debt in addition to scheduled maturities.

Interest expense, net includes interest expense and interest income.

This increased as a result of the additional interest expense related to financing arrangements entered into during 2020.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information on recent financings and repayments.

We have begun reducing the total amount of interest expense by pre-paying our debt in addition to periodic amortization payments and scheduled maturities.

This began with early repayments made during the December 2020 quarter and continued with multiple early repayments during 2021 including the early repayment of our $1.5 billion secured term loan, approximately $450 million of various Enhanced Equipment Trust Certificates ("EETCs"), approximately $850 million of certain notes through a cash tender offer and $647 million of other secured certificates, unsecured notes and a portion of the SkyMiles Term Loan through repurchases on the open market.

We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2022 and beyond.

Impairments and equity method losses.

Impairments and equity method losses reflects our share of LATAM and Grupo Aeroméxico's equity method results prior to their respective bankruptcy filings, our share of Virgin Atlantic's equity method results and the impairments reducing the carrying value of these investments to zero during the June 2020 quarter.

Impairments and equity method losses in 2021 reflect our share of Virgin Atlantic's equity method losses.

Impairments and equity method losses in 2020 reflected our share of LATAM and Grupo Aeroméxico's equity method results prior to their respective bankruptcy filings, our share of Virgin Atlantic's equity method results and the impairments reducing the basis of these investments to zero during the June 2020 quarter.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments.

Gain/(loss) on investments, net.

Gain/(loss) on investments, net reflects the gains and losses on our equity investments measured at fair value on a recurring basis.

See Note 5 of the Notes to the Consolidated Financial Statements for additional information on our equity investments.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis.

Loss on extinguishment of debt.

Loss on extinguishment of debt reflects the losses incurred in the early repayment of the notes, outstanding term loan and EETCs mentioned above.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information on the early repayment of debt.

Pension and related benefit/(expense).

Pension and related benefit/(expense) reflects the net periodic benefit/(cost) of our pension and other postretirement and postemployment benefit plans.

Based on our current level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio.

The lower risk profile of the portfolio is projected to result in a lower expected long-term rate of return on plan assets in 2022.

We expect pension and related benefits to decline in 2022 compared to 2021.

See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our employee benefit plans.

Miscellaneous, net.

Miscellaneous, net includes pension and related expense, foreign exchange gains/losses, charitable contributions and gains and losses resulting from other transactions.

Foreign exchange gains/losses vary and impact the comparability of miscellaneous, net from period to period.

The increase in 2020 compared to the prior year is primarily due to the $240 million gain recognized as a result of the combination of Delta Private Jets with Wheels Up in January 2020 and favorable movement in pension and related expense in 2020 compared to 2019.

Our effective tax rate for 2020 was 21%.

As of December 31, 2020, we had approximately $5.7 billion of U.S.

federal pre-tax net operating loss carryforwards, of which $2.0 billion was generated prior to 2018 and will not begin to expire until 2027, and under current tax law, the remaining amount has no expiration.

For more information about our income taxes, see Note 13 of the Notes to the Consolidated Financial Statements.

Miscellaneous, net primarily includes foreign exchange gains/(losses) and charitable contributions.

Miscellaneous, net in 2020 included the $240 million gain recognized as a result of the combination of Delta Private Jets with Wheels Up in January 2020.

Delta Air Lines, Inc.

2021 Form 10-K 42

MD&A - Refinery Segment

MD&A - Income Taxes

Our effective tax rate for 2021 was 30%.

As of December 31, 2021 , w e had approximately $4.8 billion of U.S.

federal pre-tax net operating loss carryforwards, of which $1.1 billion was generated prior to 2018 and will not begin to expire until 2029.

Under current tax law, the remaining amount has no expiration.

For more information about our income taxes, see Note 11 of the Notes to the Consolidated Financial Statements.

Refinery Segment

The refinery operated by our subsidiary Monroe Energy, LLC and MIPC, LLC (collectively, "Monroe") primarily produces gasoline, diesel and jet fuel.

The refinery operated by our wholly-owned subsidiary Monroe primarily produces gasoline, diesel and jet fuel.

Monroe has agreements in place to exchange the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations.

Historically, the jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75% of our pre-COVID-19 pandemic consumption, for use in our airline operations.

We believe that the jet fuel supply resulting from the refinery's operation generally contributes to reducing the market price of jet fuel and lowers our cost of jet fuel compared to what it otherwise would be.

The refinery’s production has also been altered by the dramatic change in economic conditions caused by the COVID-19 pandemic.

During 2020, the refinery operated at 60% – 90% of normal production levels, largely due to the significant decrease in the demand for jet fuel.

Additionally, due to the decrease in demand for jet fuel, the refinery has shifted production to produce more non-jet fuel products.

Those non-jet fuel products will continue to be exchanged for jet fuel to the extent that the refinery can balance refinery sales with jet fuel demand.

The refinery recorded operating revenues of $3.1 billion in 2020, compared to $5.6 billion in 2019.

As a result of the refinery's shift to producing more non-jet fuel products, operating revenues in 2020 were composed of $1.5 billion of non-jet fuel products exchanged with third parties to procure jet fuel, $1.1 billion of refinery sales to third parties, $307 million of non-jet fuel product sales and $214 million of sales of jet fuel to the airline segment.

Refinery revenues decreased compared to the prior year periods due to lower refinery run rates during the year, as well as lower pricing for refined products.

The refinery recorded an operating loss of $216 million in 2020, compared to operating income of $76 million in 2019.

The operating loss in 2020 compared to income in 2019 was mainly driven by an increase in RINs compliance costs discussed below and the reduction in revenue, which was partially offset by cost savings resulting from decreased production levels.

During 2021, the refinery progressively increased operations, ending the year at near pre-pandemic levels.

Refinery segment financial information

Year Ended December 31,

(in millions, except per gallon data) 2021 2020 % Increase (Decrease)

Exchange products $ 2,293 $ 1,472 56 %

Sales of refined products 40 307 (87) %

Sales to airline segment 492 214 130 %

Third-party refinery sales 3,229 1,150 181 %

Operating revenue $ 6,054 $ 3,143 93 %

Operating loss $ (2) $ (216) (99) %

Refinery segment impact on average price per fuel gallon $ — $ 0.11 (100) %

Refinery revenues increased from $3.1 billion in 2020 to $6.1 billion in 2021, primarily driven by the increase in third-party refinery sales.

The refinery decreased its operating loss from $216 million in 2020 to $2 million in 2021 mainly due to the increased production and pricing, partially offset by higher Renewable Identification Numbers ("RINs") compliance costs discussed below.

A refinery is subject to annual EPA requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces.

Alternatively, a refinery may purchase renewable energy credits, called RINs, from third parties in the secondary market.

The refinery operated by Monroe purchases the majority of its RINs requirement in the secondary market.

Observable RINs prices increased throughout 2020, with Monroe incurring $172 million in RINs compliance costs during 2020 as compared to $58 million in 2019.

Alternatively, a refinery may purchase RINs from third parties in the secondary market.

The Monroe refinery purchases the majority of its RINs in the secondary market.

Monroe incurred $422 million in RINs compliance costs during 2021, of which $98 million related to accrual rate increases on the prior year obligation, in addition to $172 million accrued in 2020.

Observable RIN prices increased significantly through the first half of 2021, ending 2021 at nearly double the market price at the end of 2020.

At December 31, 2021, we had a net fair value obligation of $497 million.

Our obligation as of December 31, 2021 was calculated using the EPA's proposed Renewable Fuel Standard ("RFS") volume requirements for 2020 and 2021, which were issued in December 2021.

The EPA has not finalized the compliance deadlines to retire our obligations for 2020 and 2021, but we expect those deadlines to be within one year of the effective date of the new RFS volume requirements.

For more information regarding the refinery's results, see Note 14 of the Notes to the Consolidated Financial Statements.

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2021 Form 10-K 43

MD&A - Operating Statistics

Operating Statistics

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Passenger mile yield 16.72 ¢ 17.55 ¢ 17.79 ¢

Passenger revenue per available seat mile 9.59 ¢ 15.35 ¢ 15.09 ¢

Total revenue per available seat mile 12.73 ¢ 17.07 ¢ 16.87 ¢

Total operating cost per available seat mile ("CASM") 22.01 ¢ 14.67 ¢ 14.87 ¢

Load factor 55 % 86 % 86 %

Passenger revenue per available seat mile ("PRASM") 11.58 ¢ 9.59 ¢ 15.35 ¢

Total revenue per available seat mile ("TRASM") 15.37 ¢ 12.73 ¢ 17.07 ¢

TRASM, adjusted (2)

13.71 ¢ 11.87 ¢ 16.97 ¢

Cost per available seat mile ("CASM") 14.40 ¢ 22.01 ¢ 14.67 ¢

12.12 ¢ 15.61 ¢ 10.88 ¢

Passenger load factor 69 % 55 % 86 %

Fuel gallons consumed (in millions) 2,778 1,935 4,214

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$ 2.02 $ 1.64 $ 2.02

Average price per fuel gallon, adjusted (2)(3)

$ 2.02 $ 1.64 $ 2.01

Approximate full-time equivalent employees, end of period 83,000 74,000 91,000

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Full-time equivalent employees exclude employees of regional carriers that we do not own.

(2) Includes the impact of fuel hedge activity and refinery segment results.

(2) Non-GAAP financial measures are defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below.

(3) Includes the impact of fuel hedge activity, refinery segment results and carbon offset costs.

Delta Air Lines, Inc.

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Financial Condition and Liquidity

As a result of the COVID-19 pandemic, we took actions to increase liquidity and strengthen our financial position, which included the following during 2020.

We are continuing to monitor and carefully manage our liquidity.

• Completing financing transactions for an aggregate principal amount of approximately $25.9 billion, which are discussed in "Financing Activities" below.

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

See Note 12 of the Notes to the Consolidated Financial Statements 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.

As of December 31, 2021, we had $14.2 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities.

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.

We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, financing arrangements, government assistance under the payroll support program, restricted cash equivalents and cash flows from operations.

We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, restricted cash equivalents and cash flows from operations.

We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

We have unencumbered assets available for potential financing arrangements, if needed.

During 2020, we used existing cash and cash received from financings to fund capital expenditures of $1.9 billion, of which the largest portion was incurred before the onset of the COVID-19 pandemic, and to return $604 million to shareholders also before the onset of the global pandemic.

Capital expenditures in 2020 following the onset of the COVID-19 pandemic were limited to only those critical to our operation.

The following discussion of liquidity evaluates various material cash requirements from known contractual and other obligations, but does not include amounts that are contingent on events or other factors that are uncertain or unknown at this time, including legal contingencies, uncertain tax positions and amounts payable under collective bargaining arrangements, among others.

The amounts presented are based on various estimates, including estimates regarding the timing of payments, prevailing interest rates, volumes purchased, the occurrence of certain events and other factors.

Accordingly, the actual results may vary materially from the amounts discussed herein.

We are continuing to evaluate the appropriate level of liquidity to maintain following the COVID-19 pandemic though, at least in the near term, we expect this level to be higher than the liquidity maintained prior to the pandemic.

By 2024, we expect liquidity to be between $5 billion and $6 billion as we work to reduce our financial obligations and reinvest in the business.

Sources and Uses of Liquidity

Operating Activities

Operating activities in 2020 used $3.8 billion compared to providing $8.4 billion in 2019.

Including the $2.9 billion in payroll support payments we expect to receive during the March 2021 quarter, if the demand environment evolves as described above we expect to generate positive cash flows from operations during 2021.

As described above, we are planning for demand recovery throughout much of 2021, with sustained demand improvement expected during the second half of 2021.

Delta Air Lines, Inc.

2020 Form 10-K 41

MD&A - Financial Condition and Liquidity

Our operating cash flows are impacted by the following factors:

Operating activities in 2021 provided $3.3 billion, including funds received from the government support programs described in "Financing Activities" below, compared to using $3.8 billion in 2020.

We expect to continue generating positive cash flows from operations during 2022.

Our operating cash flow is impacted by the following factors:

Seasonality of Advance Ticket Sales .

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When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in air traffic liability.

The air traffic liability has historically increased during the winter and spring as advanced ticket sales grow prior to the summer peak travel season and decreased 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.

The length and severity of the reduction in travel demand due to the COVID-19 pandemic are uncertain, as described in Item 1A.

Risk Factors, but we currently expect three phases in 2021.

We anticipate that the early part of the year will be characterized by fluctuating demand.

We expect vaccination to become widespread during the second half of 2021, resulting in sustained demand improvement.

Fuel expense represented approximately 11% of our total operating expense for 2020.

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 reduction in demand for air travel due to the COVID-19 pandemic resulted in a lower level of advance bookings and the associated cash received than we have historically experienced which has impacted the typical seasonal trend of air traffic liability since March 2020.

Domestic demand has improved since the latter half of the March 2021 quarter as consumers have regained confidence to travel and increased ticket purchases for travel further in advance.

We experienced small moderations in demand growth during parts of the second half of 2021 due to a rise in COVID-19 cases attributable to COVID-19 virus variants.

Our air traffic liability remains above historical levels with travel credits representing approximately 45% of the balance as of December 31, 2021.

This compares to approximately 65% as of December 31, 2020 and approximately 20% prior to the onset of the COVID-19 pandemic.

Fuel expense represented approximately 20% of our total operating expense during 2021.

The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations.

We expect fuel consumption to be lower through the March 2021 quarter than the comparable quarter in 2020, as only the final weeks of the March 2020 quarter were significantly impacted by the COVID-19 pandemic.

Through the remainder of 2021, as effective vaccines become broadly available, vaccination becomes widespread globally, travel restrictions and advisories begin to ease and customer confidence begins to grow, we expect capacity to return and fuel consumption to increase compared to the comparable period of 2020, though we still expect it to be lower than the comparable period in 2019.

The average fuel price per gallon increased in 2021.

As capacity and demand increased throughout the year, fuel consumption was higher in 2021 than 2020 as well.

We expect that fuel consumption will continue to increase throughout 2022 as we return closer to pre-pandemic levels of demand for air travel, partially offset by increases in fuel efficiency of our fleet.

We expect our commitment to environmental sustainability to depend on increased use of SAF, which is not presently available at scale or at prices competitive to jet fuel.

While we do not expect a material adverse effect on our Consolidated Financial Statements in the near-term from the use of SAF, we are unable to predict the financial impact of increased use of SAF on our Consolidated Financial Statements over the longer term as government policies and incentives for, and sufficient third-party investment in, SAF are necessary to make its use in larger quantities commercially and economically feasible.

Employee Benefit Obligations.

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These plans are closed to new entrants and are frozen for future benefit accruals.

Our funding obligations for these plans are governed by the Employee Retirement Income Security Act, as modified by the Pension Protection Act of 2006.

We had no minimum funding requirements in 2019 or 2020, we have no such requirements in 2021, and based on our current projections, we do not expect any minimum required contributions until 2025.

However, during 2019, we voluntarily contributed $1 billion to these plans.

As a part of our liquidity initiatives we suspended voluntary pension funding that we were previously planning in 2020.

We plan to contribute at least $500 million to these plans in 2021.

Our funding obligations for these plans are governed by the Employee Retirement Income Security Act ("ERISA") and any applicable legislation.

We had no minimum funding requirements in 2020 or 2021, and have no such requirements in 2022.

However, we voluntarily contributed $1.5 billion to these plans during 2021.

At this level of funding, investment returns are expected to satisfy future benefit payments, which we believe would eliminate further material voluntary or required cash contributions to the plans under the terms of ERISA.

Further, based on this level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio.

Estimates of future funding requirements are based on various assumptions and could vary materially from actual funding requirements.

Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants.

Delta Air Lines, Inc.

2021 Form 10-K 45

MD&A - Financial Condition and Liquidity

In addition, we have employee benefit obligations relating primarily to projected future benefit payments from our unfunded postretirement and postemployment plans.

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In 2020, we recorded a $3.4 billion charge associated with voluntary early retirement and separation programs and other employee benefit charges.

Approximately $720 million of this charge was disbursed in cash payments to participants during 2020.

An additional approximately $250 million of cash payments were disbursed in 2020 related to unused vacation and other benefits, which were accrued prior to the voluntary programs charge.

We anticipate that approximately $600 million in cash payments will be made to participants in the voluntary separation programs in 2021 and the remaining payments in 2022 and beyond.

Approximately $575 million of this charge was disbursed in cash payments to participants during 2021 in addition to $720 million disbursed in 2020.

We anticipate that a total of approximately $500 million in cash payments will be made to participants in the voluntary separation programs in 2022 and the remaining payments in 2023 and beyond.

Profit Sharing.

Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees.

We paid $1.6 billion in profit sharing in February 2020 related to our 2019 pre-tax profit in recognition of our employees' contributions toward meeting our financial goals.

We will not have a profit sharing payment in 2021 based on the pre-tax loss in 2020.

We did not have a profit sharing payment for 2020 based on the pre-tax loss incurred in that year.

We will pay $108 million in profit sharing in February 2022.

Government Support Programs.

See "Financing Activities" below for discussion of the impact to our liquidity from the government support programs in 2020 and 2021.

We included $4.5 billion and $3.9 billion of grants received in our operating cash flow for the years ended December 31, 2021 and 2020, respectively.

Contract Carrier Obligations.

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These minimum amounts are based on the required minimum levels of flying by the regional carriers under the respective agreements and assumptions regarding the costs associated with such minimum levels of flying.

As of December 31, 2020 the total of these minimum amounts was $7.7 billion, which range from approximately $800 million to $1.4 billion on an annual basis over the next five years.

As of December 31, 2021 the total of these minimum amounts was $11.7 billion, which range from approximately $1.5 billion to $1.6 billion on an annual basis over the next five years.

See Note 10 of the Notes to the Consolidated Financial Statements for more information on our contract carrier obligations.

Delta Air Lines, Inc.

2020 Form 10-K 42

MD&A - Financial Condition and Liquidity

Operating Lease Obligations.

As described further in Note 7 of the Notes to the Consolidated Financial Statements, as of December 31, 2021 we had a total of $9.8 billion of minimum operating lease obligations.

These minimum lease payments range from approximately $700 million to $900 million on an annual basis over the next five years.

These minimum lease payments range from approximately $800 million to $1.0 billion on an annual basis over the next five years.

New York-JFK Airport Expansion.

In 2015, we completed two phases of redevelopment at New York-JFK's Terminal 4 to facilitate convenient connections for our passengers and improve coordination with our SkyTeam alliance partners.

Terminal 4 is operated by JFK International Air Terminal LLC ("IAT"), a private party, under its lease with the Port Authority of New York and New Jersey ("Port Authority").

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

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.

During 2021, we signed an amendment to the Sublease for additional gates at JFK, increasing our lease obligation by $1.2 billion.

We continue to plan for further expansion of Terminal 4 and during 2021, the Port Authority approved modified project plans to renovate Terminal 4 and add 10 new gates enabling us to move out of Terminal 2 and consolidate our operations at Terminal 4.

The project is estimated to cost approximately $1.5 billion, and we expect to amend the Sublease in the March 2022 quarter.

Construction started in late 2021 with the project estimated to be complete by the end of 2023.

Other Obligations.

We have certain purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to, aviation-related, maintenance, professional security, insurance, marketing, technology, sponsorships and other third-party services and products.

We have certain purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to, aviation-related, maintenance, insurance, marketing, technology, sponsorships and other third-party services and products.

As of December 31, 2021, we had approximately $8.0 billion of such obligations, which range from approximately $300 million to $800 million on an annual basis over the next five years.

Delta Air Lines, Inc.

2021 Form 10-K 46

MD&A - Financial Condition and Liquidity

Investing Activities

Short-Term Investments.

Using a portion of the proceeds we obtained through our financing transactions discussed below, in 2020 we acquired a net of $5.8 billion in short-term investments.

In 2021 we redeemed a net of $2.4 billion in short-term investments.

See Note 3 of the Notes to the Consolidated Financial Statements for further information on these investments.

Capital Expenditures.

Our capital expenditures are primarily related to the purchase of aircraft, fleet modifications and technology enhancements.

Our capital expenditures were $1.9 billion in 2020, of which the largest portion was incurred before the onset of the COVID-19 pandemic, and $4.9 billion in 2019.

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.

We expect that we will have capital expenditures of approximately $2.5 billion in 2021 primarily for aircraft, including deliveries and advance deposit payments, as well as aircraft modifications, the majority of which relate to cabin improvements and technology enhancements.

We expect that the capital expenditures in 2021 will be funded through either cash flows from operations or financing arrangements.

Our capital expenditures (i.e., property and equipment additions in our Consolidated Statements of Cash Flows ("cash flows statement")) were $3.2 billion and $1.9 billion in 2021 and 2020, respectively.

Our capital expenditures are primarily related to the purchases of aircraft, airport construction projects, fleet modifications and technology enhancements.

We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft.

See Note 12 of the Notes to the Consolidated Financial Statements for more information on our aircraft purchase commitments.

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 15% tariffs 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.

Equity Investments.

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

In addition, to support the establishment of our 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 have also assumed 10 of LATAM's A350 purchase commitments with Airbus for deliveries through 2025.

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

During 2020, we acquired through open market transactions, additional outstanding shares of Hanjin-KAL, the largest shareholder of Korean Air, for $158 million.

As of December 31, 2020 our equity ownership interest in Hanjin-KAL was approximately 13%.

See Note 5 of the Notes to the Consolidated Financial Statements for more information on our equity investments.

Excluding the New York-LaGuardia airport project discussed below, our expected 2022 capital expenditures of approximately $6.0 billion, which may vary depending on financing decisions, will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements.

As described in Part I, Item 1.

"Business - Environmental Sustainability," aircraft fleet renewal is an important component of our environmental sustainability strategy and the path to achievement of our ambitious climate goals, which will continue to require extensive capital investment in future periods.

See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding our aircraft purchase commitments, which totaled approximately $16.2 billion as of December 31, 2021.

New York-LaGuardia Redevelopment.

As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse.

The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and nearly double the amount of concessions space than the existing terminals.

The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas.

The design of the new terminal will integrate sustainable technologies and improvements in energy efficiency.

Construction is underway and is being phased to limit passenger inconvenience.

Due to an acceleration effort that commenced in 2020, completion is expected by 2025.

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, 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 approximately $500 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 primarily provided by existing financing arrangements, we spent approximately $950 million, which is primarily reflected in investing activities in our cash flows statement, during 2021, bringing the total amount spent on the project to date to approximately $2.5 billion.

We expect to spend approximately $750 million during 2022, of which a majority will be paid using cash restricted for airport construction.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information on the debt related to this redevelopment project, the New York Transportation Development Corporation ("NYTDC") Special Facilities Revenue Bonds, Series 2018 and NYTDC Special Facilities Revenue Bonds, Series 2020.

In 2019, we opened Concourse G, the first of four new concourses, housing seven of the 37 new gates.

Not only did the new Concourse G provide 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 the second quarter of 2022.

Los Angeles International Airport ("LAX") Construction.

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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 accelerated the construction schedule for this project in 2020.

Additionally, in 2020, we enhanced the project’s scope to include a more customer-friendly design of Terminal 3, an expanded Delta Sky Club and baggage system upgrades designed to increase the terminals’ operational efficiency going forward.

Construction is expected to be completed in 2023.

Delta Air Lines, Inc.

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MD&A - Financial Condition and Liquidity

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.

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.

The credit facility was executed during 2017 and amended in 2020, and we have guaranteed the obligations of the RAIC under the credit facility.

A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using a revolving credit facility provided by a group of lenders.

The credit facility was executed in 2017 and amended in 2020, and we have guaranteed the obligations of the RAIC under the credit facility.

The revolving credit facility agreement was amended again in January 2022, increasing the revolver capacity from $800 million to $1.1 billion.

Loans made under the credit facility are being repaid with the proceeds from the City’s purchase of completed project assets.

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Approximately $500 million is expected to be spent on the project during 2022, with $325 million to be paid by the credit facility and $175 million to be paid directly by Delta.

New York-LaGuardia Redevelopment.

As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority of New York and New Jersey ("Port Authority") to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across 4 concourses connected to a central headhouse.

The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and 75% more concessions space than the existing terminals.

The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas.

The design of the new terminal will integrate sustainable technologies and improvements in energy efficiency.

Construction will be phased to limit passenger inconvenience and is expected to be completed by 2026.

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, 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 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.

We expect to spend approximately $900 million during 2021, of which a substantial majority will be paid using cash restricted for airport construction.

See Note 8 of the Notes to the Consolidated Financial Statements for additional information on the debt related to this redevelopment project, the New York Transportation Development Corporation ("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.

Delta Air Lines, Inc.

2020 Form 10-K 44

MD&A - Financial Condition and Liquidity

Equity Investments.

To support our international presence, we are investing in Virgin Atlantic, Grupo Aeroméxico and LATAM as each carrier emerges from restructuring or recapitalization processes.

After investing approximately $630 million in these carriers during 2021, we expect to invest another approximately $600 million during 2022 for a total combined investment of new capital in these carriers of approximately $1.2 billion.

Upon completion of their respective processes, we expect to receive an approximately 20% equity stake in Grupo Aeroméxico and an approximately 10% equity stake in LATAM, while maintaining our 49% equity stake in Virgin Atlantic.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments

Financing Activities

Debt and Finance Leases.

During 2020, we took quick and decisive action to mitigate liquidity risk following the onset of the global pandemic by obtaining approximately $25.9 billion from financing transactions.

A summary of these transactions is listed below.

As our liquidity position began to stabilize during 2020, we repaid approximately $5.6 billion of future debt maturities, including $2.6 billion under our revolving credit facilities which had been drawn down in March 2020.

See Note 2, Note 8 and Note 9 of the Notes to the Consolidated Financial Statements for additional information.

• Raising $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.

• Issuing $3.5 billion of senior secured notes and entering into a $1.5 billion term loan, both of which are secured by certain slots, gates and routes.

• Entering into a $3.0 billion 364-day secured term loan facility with an original maturity in March 2021, which was repaid early and terminated in October 2020.

• Entering into $2.8 billion of sale-leaseback transactions.

Approximately $2.3 billion of these transactions were treated as financing activities with the remainder treated as investing activities.

See Note 9 of the Notes to the Consolidated Financial Statements for additional information.

• Entering into a promissory note for the $1.6 billion CARES Act payroll support program loan.

• Entering into loan agreements to borrow $1.5 billion from the NYTDC in connection with NYTDC's issuance of Special Facilities Revenue Bonds, Series 2020, to finance, among other things, a portion of the construction costs for the new terminal facilities at LaGuardia Airport.

• Completing $1.7 billion in transactions secured by aircraft, including EETC issuances and aircraft loans.

• Issuing $1.3 billion of unsecured notes.

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.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information on recent financings and repayments.

In 2021, we had cash outflows of approximately $5.8 billion related to repayments of our debt and finance leases, including approximately $3.8 billion for the early repayment of the term loan secured by certain of our slots, gates and routes, various EETCs, certain notes through a cash tender offer and other various unsecured notes, secured certificates and SkyMiles term loan.

We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2022 and beyond.

The principal amount of our debt and finance leases was $27.1 billion at December 31, 2021.

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Based on applicable interest rates and scheduled debt maturities as of December 31, 2021, these interest obligations total approximately $5.5 billion and range from approximately $500 million to $1.0 billion on an annual basis over the next five years.

In addition to payment of scheduled debt maturities, we expect to pay down our debt in 2021, and therefore reduce our future interest obligations.

In addition to payment of scheduled debt maturities, we expect to continue paying down our debt in 2022, and therefore reduce our future interest obligations.

Our current ratings from the three major credit rating agencies are summarized in the table below:

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Fitch BB+ Negative

Moody's Baa3 Negative

Standard & Poor's BB Negative

Finance Lease Obligations.

As described further in Note 9 of the Notes to the Consolidated Financial Statements as of December 31, 2020 we had a total of $1.3 billion of minimum finance lease obligations.

These minimum lease payments range from approximately $100 million to $300 million on an annual basis over the next five years.

Capital Returns to Shareholders.

In early March 2020, we suspended both our share repurchase program and future dividends due to the impact of the pandemic.

Prior to suspending these activities, in the March 2020 quarter, we repurchased and retired 6 million shares of our common stock at a cost of $344 million and paid a quarterly dividend of $260 million.

The CARES Act payroll support program initially restricted share repurchases and the payment of dividends through September 2021, which have been continued to March 2022 under the terms of the payroll support extension.

Moody's Baa3 Stable

Standard & Poor's BB Stable

Delta Air Lines, Inc.

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MD&A - Financial Condition and Liquidity

Finance Lease Obligations.

As described further in Note 7 of the Notes to the Consolidated Financial Statements as of December 31, 2021 we had a total of $2.0 billion of minimum finance lease obligations.

These minimum lease payments range from approximately $200 million to $400 million on an annual basis over the next five years.

Undrawn Lines of Credit.

As of December 31, 2021 we had approximately $2.9 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.

In addition, we had $300 million outstanding letters of credit as of December 31, 2021 that did not affect the availability under our revolvers.

We were in compliance with the covenants in our debt agreements at December 31, 2021.

See Note 6 of the Notes to the Consolidated Financial Statements for more information on the covenants in our debt agreements.

Delta Air Lines, Inc.

2021 Form 10-K 49

MD&A - Critical Accounting Estimates

Critical Accounting Estimates

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Our SkyMiles loyalty program generates customer loyalty by rewarding customers with incentives to travel on Delta.

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 miles based on the passenger's loyalty program status and ticket price.

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

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

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

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.

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

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

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To value the miles earned, we consider the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as equivalent ticket value ("ETV").

Our estimate of ETV is adjusted for miles that are not likely to be redeemed ("breakage").

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

Our estimate of ETV is adjusted for miles that are not likely to be redeemed ("mileage breakage").

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

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.

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

At December 31, 2021, the aggregate deferred revenue balance associated with the SkyMiles program was $7.6 billion.

A hypothetical 10% change in the number of outstanding miles estimated to be redeemed would result in an impact of approximately $60 million on annual revenue recognized.

A hypothetical 10% change in the number of outstanding miles estimated to be redeemed would result in an impact of approximately $140 million on total operating revenue recognized for the year ended December 31, 2021.

We defer revenue for the miles when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and transportation is provided.

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.

A hypothetical 10% increase in our estimate of the ETV of a mile would decrease annual passenger revenue by approximately $40 million, as a result of an increase in the amount of revenue deferred from the mileage component of passenger ticket sales.

A hypothetical 10% increase in our estimate of the ETV of a mile would have decreased total operating revenue by approximately $60 million for the year ended December 31, 2021, as a result of an increase in the amount of revenue deferred associated with the miles earned.

Sale of Miles to Participating Companies.

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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 and 2019, total cash sales from marketing agreements were $2.8 billion and $4.2 billion, respectively, which are allocated to travel and other performance obligations, as discussed below.

Delta Air Lines, Inc.

2020 Form 10-K 46

MD&A - Critical Accounting Estimates

During the years ended December 31, 2021, 2020 and 2019, total cash sales from marketing agreements related to our loyalty program were $4.1 billion, $2.9 billion and $4.2 billion, respectively, which are allocated to travel and other performance obligations, as discussed below.

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.

Delta Air Lines, Inc.

2021 Form 10-K 50

MD&A - Critical Accounting Estimates

We account for marketing agreements, including those with American Express, by allocating the consideration 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.

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 mileage 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.

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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.

The timing of mile redemptions can vary widely;

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

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.

Compared to pre-pandemic levels, 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, 2021.

We will continue to monitor redemptions as the situation evolves.

For additional information on our significant accounting policies related to the loyalty program, see Note 2 of the Notes to the Consolidated Financial Statements.

Passenger Ticket Sales

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 the ticket expires unused ("ticket breakage").

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 with scheduled departure dates 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 may record 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.

We have experienced significant ticket cancellations, particularly in the early months of the pandemic in 2020.

During 2020, with the exception of Basic Economy, we eliminated change fees for all tickets originating in North America and waived change fees for tickets originating outside of North America.

In January 2022, we announced that all existing travel credit holders will have until December 31, 2023 to rebook their ticket for travel throughout 2024.

We estimate the value of ticket breakage and recognize revenue at the scheduled flight date.

Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior.

Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods.

Travel credits represented approximately 45% of the air traffic liability as of December 31, 2021.

This compares to approximately 65% as of December 31, 2020 and approximately 20% prior to the onset of the COVID-19 pandemic.

For additional information on our significant accounting policies related to passenger ticket sales, see Note 2 of the Notes to the Consolidated Financial Statements.

Delta Air Lines, Inc.

2021 Form 10-K 51

MD&A - Critical Accounting Estimates

Long-Lived Assets

Our long-lived lived assets, including flight equipment, which consists of aircraft and associated engines and parts, operating lease right-of-use ("ROU") assets and other long-lived assets, which have a recorded value of approximately $36.0 billion at December 31, 2021, are recorded in property and equipment, net and operating lease right-of-use assets on our balance sheets.

This value is based on various factors, including the assets' acquisition costs, estimated useful lives, salvage values, discounted lease payments and lease terms.

We review flight equipment, ROU assets and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired.

Factors which could be indicators of impairment include, but are not limited to (1) a decision to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment.

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 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.

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.

As a result of the COVID-19 pandemic and our response, we made decisions to remove certain aircraft from active service and to early retire certain fleets.

We evaluated our fleet during 2020 and determined that only the fleet types discussed in Note 15 of the Notes to the Consolidated Financial Statements were impaired, as the future cash flows from the operation of other fleet types through the respective retirement dates exceeded the carrying value.

This resulted in impairment and other related charges of $4.4 billion, 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.

The effects of the COVID-19 pandemic created additional estimation uncertainty as there was a limited market for aircraft and limited data on how the COVID-19 pandemic affected the fair value of aircraft.

Due to the recovery in demand that we have experienced throughout 2021, we decided not to retire any additional aircraft and returned to service a majority of the aircraft that were temporarily parked in 2020.

We recorded no further impairments during 2021.

As we gained updated information during the year, we updated estimates to the 2020 fleet-related impairment charges and recorded adjustments of $19 million to certain of the restructuring charges during 2021.

Following the impairment charges, the aggregate net book value of these aircraft as of December 31, 2021 and December 31, 2020 was approximately $340 million and $500 million, respectively, with the reduction in 2021 primarily due to aircraft sales.

See Note 15 of the Notes to the Consolidated Financial Statements for additional details regarding these impairments and related charges.

Goodwill and Indefinite-Lived Intangible Assets

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When we perform a quantitative impairment assessment of our indefinite-lived intangible assets, 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).

Delta Air Lines, Inc.

2021 Form 10-K 52

MD&A - Critical Accounting Estimates

Key Assumptions.

The key assumptions in our impairment tests include (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).

The key assumptions in our impairment tests include (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., changes in slot access and/or availability, additional Open Skies agreements or changes to antitrust approvals).

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

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In addition, when performing a qualitative valuation, we consider the amount by which the intangible assets' fair values exceeded their respective carrying values in the most recent fair value measurements calculated using a quantitative approach.

Delta Air Lines, Inc.

2020 Form 10-K 47

MD&A - Critical Accounting 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, 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.

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., changes in slot access and/or availability, 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.

Our goodwill balance, which is related to the airline segment, was $9.8 billion at December 31, 2021.

Based upon our quantitative assessment of all relevant factors, including applicable factors noted in "Key Assumptions" above in addition to the change in our market capitalization during the current year, we determined that the fair value of goodwill significantly exceeded the carrying value and, therefore, there was no indication that goodwill was impaired.

Identifiable Intangible Assets.

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Definite-lived assets consist primarily of marketing and maintenance service agreements.

In 2020, we performed quantitative assessments of our goodwill and indefinite-lived intangible assets, including applicable factors noted in "Key Assumptions" above, and determined that there was no indication that the assets were impaired as the fair value of each asset exceeded its carrying value by at least 10%.

Assumptions are sensitive to uncertainty about future events, the macroeconomic environment and other market-based risk factors.

A change in key assumptions such as the discount rate or projected future revenues, expenses and cash flows could materially affect the determination of fair values.

However, we believe the impact of the pandemic is temporary in nature and does not materially impact the long-range forecasts for our goodwill or indefinite-lived intangibles.

Management evaluated estimates and assumptions used in the valuations, considering market and industry-specific conditions.

In 2021, we performed qualitative assessments of our goodwill and indefinite-lived intangible assets, including applicable factors noted in "Key Assumptions" above, and determined that there was no indication that the assets were impaired.

Our qualitative assessments include analyses and weighting of all relevant factors, which impact the fair value of our indefinite-lived intangible assets.

For additional information on our goodwill and indefinite-lived intangible assets' significant accounting policies and the related fair values and book values, see Note 5 of the Notes to the Consolidated Financial Statements.

Property and Equipment, net

Our flight equipment, which consists of aircraft and associated engines and parts, and other long-lived assets have a recorded value of $26.5 billion at December 31, 2020.

This value is based on various factors, including the assets' estimated useful lives and salvage values.

We review flight equipment and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired.

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 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 of the Notes to the Consolidated Financial Statements 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.

Delta Air Lines, Inc.

2020 Form 10-K 48

MD&A - Critical Accounting Estimates

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.

This resulted in impairment and other related charges of $4.4 billion, recorded in restructuring charges in our income statement.

The effects of the COVID-19 pandemic in 2020 created additional estimation uncertainty as there is currently a limited market for aircraft and limited data on how the COVID-19 pandemic has affected the fair value of aircraft.

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

See Note 2 of the Notes to the Consolidated Financial Statements for additional details regarding these impairments and related charges.

Income Tax 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.

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.

In evaluating the likelihood of utilizing our net deferred income tax assets, the significant factors that we consider include (1) our recent history of profitability, (2) growth in the U.S.

and global economies, (3) forecast of airline revenue trends, (4) estimate of future fuel prices and (5) future impact of taxable temporary differences.

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.

Defined Benefit Pension Plans

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These plans are closed to new entrants and frozen for future benefit accruals.

As of December 31, 2020, the unfunded benefit obligation for these plans recorded on our balance sheet was $6.1 billion.

We had no minimum funding requirements in 2019 or 2020, we have no such requirements in 2021, and based on our current projections, we do not expect any minimum required contributions until 2025.

However, during 2019, we voluntarily contributed $1 billion to these plans.

As a part of our liquidity initiatives we suspended voluntary pension funding that we were previously planning in 2020.

We plan to contribute at least $500 million to these plans in 2021.

The most critical assumptions impacting our defined benefit pension plan obligations and net periodic benefit cost are the discount rate, the expected long-term rate of return on plan assets and life expectancy.

As of December 31, 2021, the unfunded benefit obligation for these plans recorded on our Consolidated Balance Sheets ("balance sheets") was $1.6 billion.

We had no minimum funding requirements in 2020 or 2021, and have no such requirements in 2022.

However, we voluntarily contributed $1.5 billion to these plans during 2021.

Weighted Average Discount Rate.

We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high-quality fixed income investments and yield-to-maturity analysis specific to our estimated future benefit payments.

We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high-quality fixed income investments and yield-to-maturity analyses specific to our estimated future benefit payments.

We used a weighted average discount rate to value the obligations of 2.97% and 2.62% at December 31, 2021 and 2020, respectively.

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Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation.

The investment strategy for our defined benefit pension plan assets is to earn a long-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan.

This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments.

Our weighted average expected long-term rate of return on assets for net periodic benefit cost for the year ended December 31, 2021 was 8.98%.

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MD&A - Critical Accounting Estimates

The impact of a 0.50% change in these assumptions is shown in the table below:

Based on our current level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio.

The lower risk profile of the portfolio is projected to result in a lower expected long-term rate of return on plan assets in 2022.

The impact of a 0.50% change in weighted average discount rate and 1.00% change in expected long-term rate of return on assets are shown in the table below:

Benefit plan effects of change in assumptions used

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Each year we consider updates by the SOA in setting our mortality assumptions for purposes of measuring pension and other postretirement and postemployment benefit obligations.

Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act.

The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen.

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.

While the Pension Protection Act makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on the funding requirements.

Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act and any applicable legislation.

Under the Pension Protection Act of 2006, we elected alternative funding rules so that 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.

Upon expiration, under recent legislation passed in 2021, any required funding would be amortized over a rolling 15-year period and calculated using a discount rate of no less than 4.75% through 2030.

While this recent legislation makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on the funding requirements.

Estimates of future funding requirements are based on various assumptions and can vary materially from actual funding requirements.

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For additional information on our significant accounting policies related to defined benefit pension plans, see Note 9 of the Notes to the Consolidated Financial Statements.

Income Tax 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 more likely than not that we will be unable to realize our deferred income tax assets.

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

In evaluating the likelihood of utilizing our net deferred income tax assets, the significant factors that we consider include (1) our recent history of significant profitability, (2) growth in the U.S.

and global economies, (3) forecast of airline revenue trends, (4) estimate of future fuel prices and (5) future impact of taxable temporary differences.

Delta Air Lines, Inc.

2021 Form 10-K 54

MD&A - Critical Accounting Estimates

At December 31, 2021 our net deferred tax asset balance was $1.3 billion , including an $833 million valuation allowance primarily related to capital loss carryforwards and certain state net operating losses.

Although we have recent cumulative losses, we have a history of significant earnings prior to the onset of the COVID-19 pandemic.

While we expect to return to sustained 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, the generation of future taxable income is dependent on many factors, including those which are out of our control, such as the demand for air travel and overall health of the economy.

As such, there are no guarantees that a valuation allowance will not be required against some or all of our deferred tax assets in future periods.

Our federal net operating loss carryforwards generated before 2018 do not begin to expire until 2029.

Under current tax law, federal net operating losses generated after 2017 do not expire.

Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and certain state net operating losses that have short expiration periods.

For additional information on our significant accounting policies related to income taxes, see Note 11 of the Notes to the Consolidated Financial Statements.

Recent Accounting Standards

Credit Losses.

In 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, "Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments." Under this ASU, an entity is required to utilize an "expected credit loss model" on certain financial instruments, including trade and financing receivables.

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.

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 of the Notes to the Consolidated Financial Statements.

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.

Government Assistance .

In 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.

2021-10, "Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance." This ASU will require certain disclosures about the significant terms and conditions of material government assistance agreements in order to provide more consistent information to users of the financial statements.

This standard is effective for annual reporting periods beginning after December 15, 2021, and early adoption is permitted.

We determined that our material government assistance agreements are the payroll support program agreements under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and the program extensions, and we adopted the new standard in 2021.

See Note 6 of the Notes to the Consolidated Financial Statements where we reflect the requirements of this new standard as it relates to our payroll support program disclosures.

Delta Air Lines, Inc.

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Reconciliations below may not calculate exactly due to rounding.

Pre-Tax (Loss)/Income, adjusted

The following table shows a reconciliation of pre-tax (loss)/income (a GAAP measure) to pre-tax (loss)/income, adjusted (a non-GAAP financial measure).

In 2020, pre-tax (loss)/income, adjusted excludes the following items directly related to the impact of COVID-19 and our response for comparability with the prior period:

Included below are reconciliations of non-GAAP measures used within this Form 10-K to the most directly comparable GAAP financial measures.

These reconciliations include certain adjustments to GAAP measures, which are directly related to the impact of COVID-19 and our response.

These adjustments are made to provide comparability between the reported periods, if applicable, as indicated below:

• Restructuring charges.

We recognized restructuring charges following strategic business decisions in response to the COVID-19 pandemic.

These charges primarily include impairments and related charges from retirement decisions related to approximately 400 aircraft and the voluntary early retirement and separation programs.

In the year ended December 31, 2021, we recognized $19 million of adjustments to certain of those restructuring charges, representing changes in our estimates.

• Government grant recognition.

We recognized the full grant proceeds from the CARES Act payroll support program as a contra-expense in 2020.

We recognized the grant proceeds based on the periods that the funds were intended to benefit.

We recognized $4.5 billion and $3.9 billion of the grant proceeds from the payroll support program extensions as a contra-expense during 2021 and 2020, respectively.

We recognized the grant proceeds as contra-expense based on the periods that the funds were intended to compensate and have fully used all proceeds from the payroll support program extensions.

• Impairments and equity method losses.

During 2020, we recognized charges and the related income tax impacts from write-downs of our investments in LATAM and Grupo Aeroméxico following their financial losses and separate Chapter 11 bankruptcy filings, and the write-down of our investment in Virgin Atlantic based on our share of its losses.

These adjustments relate to recording our share of losses recorded by our equity method investees.

Additionally, during 2020, we recognized charges from write-downs of our investments in LATAM and Grupo Aeroméxico following their financial losses and separate Chapter 11 bankruptcy filings, and the write-down of our investment in Virgin Atlantic based on our share of its losses.

• Pension settlement charges.

These charges were recognized in connection with the voluntary programs.

We also regularly adjust pre-tax (loss)/income for the following items to determine pre-tax (loss)/income, adjusted for the reasons described below:

These charges were recognized in connection with the voluntary early retirement and separation programs that were offered to our employees in 2020.

• Loss on extinguishment of debt.

This adjustment relates to the early termination of a portion of our debt.

• Special profit-sharing payment.

This adjustment is exclusive to 2021.

This adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

We also regularly adjust certain GAAP measures for the following items, if applicable, for the reasons indicated below:

• MTM adjustments and settlements on hedges.

Mark-to-market ( " MTM") adjustments are defined as fair value changes recorded in periods other than the settlement period.

Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period.

Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period, and therefore we remove this impact to allow investors to better understand and analyze our core performance.

Settlements represent cash received or paid on hedge contracts settled during the applicable period.

• Equity investment MTM adjustments.

We previously recorded our proportionate share of losses from our equity investments in Virgin Atlantic, Grupo Aeroméxico and LATAM in non-operating expense.

(As a result of Grupo Aeroméxico's and LATAM’s bankruptcy filings, we no longer have significant influence with Grupo Aeroméxico or LATAM and discontinued accounting for these investments under the equity method in the June 2020 quarter.) We adjust for our equity method investees' hedge portfolio MTM adjustments to allow investors to understand and analyze our core operational performance in the periods shown.

We record our proportionate share of losses from our equity investments in non-operating expense.

As a result of Grupo Aeroméxico's and LATAM’s bankruptcy filings in 2020, we discontinued accounting for these investments under the equity method at that time as we no longer had significant influence with those investees.

We adjust for our equity method investees' hedge portfolio MTM adjustments to allow investors to understand and analyze our core operational performance in the periods shown.

• MTM adjustments on investments.

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Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.

• Delta Private Jets adjustment .

Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.

Delta Air Lines, Inc.

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MD&A - Supplemental Information

• Third-party refinery sales.

Refinery sales to third parties, and related expenses, are not related to our airline segment.

Excluding these sales therefore provides a more meaningful comparison of our airline operations to the rest of the airline industry.

• Aircraft fuel and related taxes.

The volatility in fuel prices impacts the comparability of year-over-year financial performance.

The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.

• Profit sharing.

We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

• Delta Private Jets adjustment .

Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.

Pre-tax (loss)/income, adjusted reconciliation

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(in millions) 2021 2020 2019

Pre-tax (loss)/income $ (15,587) $ 6,198

Pre-tax income/(loss) $ 398 $ (15,587) $ 6,198

Adjusted for:

Restructuring charges (19) 8,219 —

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Pension settlement charges — 36 —

Adjusted for:

Loss on extinguishment of debt 319 — —

Special profit sharing payment 108 — —

MTM adjustments and settlements on hedges 9 10 14

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Pre-tax (loss)/income, adjusted $ (3,415) $ (8,996) $ 6,214

Operating Expense, adjusted

The following table shows a reconciliation of operating expense (a GAAP measure) to operating expense, adjusted (a non-GAAP financial measure).

In 2020, operating expense, adjusted excludes the following items directly related to the impact of COVID-19 and our response:

restructuring charges and government grant recognition, as discussed above under the heading pre-tax (loss)/income, adjusted.

We also adjust operating expense for the following items for the reasons described below.

We adjust for MTM adjustments and settlements on hedges and Delta Private Jets adjustment for the same reasons described above under the heading pre-tax (loss)/income, adjusted.

• Third-party refinery sales.

We adjust operating expense for refinery sales to third parties to determine operating expense, adjusted because these revenues, and related expenses, are not related to our airline segment.

Operating expense, adjusted therefore provides a more meaningful comparison of operating expenses from our airline operations to the rest of the airline industry.

Operating expense, adjusted reconciliation

2 unchanged sentences

Operating expense $ 28,013 $ 29,564 $ 40,389

Adjusted for:

Restructuring charges 19 (8,219) —

Government grant recognition 4,512 3,946 —

Adjusted for:

Special profit sharing payment (108) — —

MTM adjustments and settlements on hedges (9) (10) (14)

5 unchanged sentences

MD&A - Supplemental Information

Free Cash Flow

We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives.

Adjustments include:

• Net purchases of short-term investments.

Net purchases of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses.

We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations.

• Strategic investments and related.

Cash flows related to our investment in and related transactions with other airlines are included in our GAAP investing activities.

We adjust for this activity because it provides a more meaningful comparison to our airline industry peers.

• Net cash flows related to certain airport construction projects and other.

Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures.

We have adjusted for these items, which were primarily funded by cash restricted for airport construction, to provide investors a better understanding of the company's free cash flow and capital expenditures that are core to our operational performance in the periods shown.

Free cash flow reconciliation

Year Ended December 31,

(in millions) 2020 2019

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

Net cash used in investing activities (9,238) (4,563)

Net purchases/(redemptions) of short-term investments 5,792 (206)

Strategic investments and related 2,192 170

Net cash flows related to certain airport construction projects and other 721 338

Free cash flow $ (4,327) $ 4,164

TRASM, adjusted

The following table shows a reconciliation of TRASM (a GAAP measure) to TRASM, adjusted (a non-GAAP financial

We adjust TRASM for refinery sales to third parties for the same reason described above under the heading operating expense, adjusted.

We adjust for Delta Private Jets for the same reason described above under the heading pre-tax (loss)/income, adjusted.

Fuel expense, adjusted and Average fuel price per gallon, adjusted reconciliations

Average Price Per Gallon

Year Ended December 31, Year Ended December 31,

(in millions, except per gallon data) 2021 2020 2019 2021 2020 2019

Total fuel expense $ 5,633 $ 3,176 $ 8,519 $ 2.02 $ 1.64 $ 2.02

Adjusted for:

MTM adjustments and settlements on hedges (9) (10) (14) — (0.01) —

Delta Private Jets adjustment — — (28) — — (0.01)

Total fuel expense, adjusted $ 5,625 $ 3,166 $ 8,477 $ 2.02 $ 1.64 $ 2.01

TRASM, adjusted reconciliation

Year Ended December 31,

TRASM (cents) 12.73 ¢ 17.07 ¢

(in cents) 2021 2020 2019

TRASM 15.37 ¢ 12.73 ¢ 17.07 ¢

Adjusted for:

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TRASM, adjusted 13.71 ¢ 11.87 ¢ 16.97 ¢

Delta Air Lines, Inc.

2020 Form 10-K 53

MD&A - Supplemental Information

The following table shows a reconciliation of CASM (a GAAP measure) to CASM-Ex (a non-GAAP financial measure).

In 2020, CASM-Ex excludes the following items directly related to the impact of COVID-19 and our response:

restructuring charges and government grant recognition, as discussed above under the heading pre-tax (loss)/income, adjusted.

We also adjust CASM for the following items to determine CASM-Ex for the reasons described below.

We adjust for refinery sales to third parties for the same reason described above under the heading operating expense, adjusted.

We adjust for Delta Private Jets for the same reason described above under the heading pre-tax (loss)/income, adjusted.

• Aircraft fuel and related taxes.

The volatility in fuel prices impacts the comparability of year-over-year financial performance.

The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.

• Profit sharing.

CASM-Ex reconciliation

Year Ended December 31,

CASM (cents) 22.01 ¢ 14.67 ¢

(in cents) 2021 2020 2019

CASM 14.40 ¢ 22.01 ¢ 14.67 ¢

Adjusted for:

Restructuring charges 0.01 (6.12) —

Government grant recognition 2.32 2.94 —

Adjusted for:

Aircraft fuel and related taxes (2.90) (2.36) (3.10)

Third-party refinery sales (1.66) (0.86) (0.04)

Special profit sharing payment (0.06) — —

Profit sharing — — (0.60)

1 unchanged sentence

CASM-Ex 12.12 ¢ 15.61 ¢ 10.88 ¢

Consolidated CASM, adjusted

The following table shows a reconciliation of CASM (a GAAP measure) to consolidated CASM, adjusted (a non-GAAP financial measure).

In 2020, consolidated CASM, adjusted excludes the following items directly related to the impact of COVID-19 and our response:

restructuring charges and government grant recognition, as discussed above under the heading pre-tax (loss)/income, adjusted.

We also adjust CASM for MTM adjustments and settlements on hedges and for Delta Private Jets for the same reason described above under the heading pre-tax (loss)/income, adjusted.

We adjust for refinery sales to third parties for the same reason described above under the heading operating expense, adjusted.

Consolidated CASM, adjusted reconciliation

Delta Air Lines, Inc.

2021 Form 10-K 58

MD&A - Supplemental Information

Free Cash Flow

The following table shows a reconciliation of net cash provided by/(used in) operating activities (a GAAP measure) to free cash flow (a non-GAAP financial measure).

Adjustments include:

• Net (redemptions)/purchases of short-term investments.

Net (redemptions)/purchases of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses.

We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations.

• Strategic investments and related.

Cash flows related to our investments in and related transactions with other airlines are included in our GAAP investing activities.

We adjust for this activity because it provides a more meaningful comparison to our airline industry peers.

• Net cash flows related to certain airport construction projects and other.

Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures.

We have adjusted for these items because management believes investors should be informed that a portion of these capital expenditures from airport construction projects are either reimbursed by a third party or funded with restricted cash specific to these projects.

Free cash flow reconciliation

Year Ended December 31,

CASM (cents) 22.01 ¢ 14.67 ¢

Restructuring charges (6.12) —

Government grant recognition 2.94 —

(in millions) 2021 2020 2019

Net cash provided by/(used in) operating activities $ 3,264 $ (3,793) $ 8,425

Net cash used in investing activities (898) (9,238) (4,563)

Adjusted for:

MTM adjustments and settlements on hedges (0.01) (0.01)

Third-party refinery sales (0.86) (0.04)

Delta Private Jets adjustment — (0.07)

Consolidated CASM, adjusted 17.96 ¢ 14.56 ¢

Net (redemptions)/purchases of short-term investments (2,381) 5,792 (206)

Strategic investments and related 181 2,192 170

Net cash flows related to certain airport construction projects and other 1,090 721 338

Free cash flow $ 1,255 $ (4,327) $ 4,164

Delta Air Lines, Inc.

8 unchanged sentences

CASM is also referred to as "unit cost."

CASM-Ex - The amount of operating cost incurred per ASM during a reporting period, adjusted for restructuring charges, government grant recognition, aircraft fuel and related taxes, third-party refinery sales, profit sharing expenses and Delta Private Jets.

Consolidated CASM, adjusted - The amount of operating cost incurred per ASM during a reporting period, adjusted for restructuring charges, government grant recognition, MTM adjustments and settlements on hedges, third-party refinery sales and Delta Private Jets.

CASM-Ex - The amount of operating cost incurred per ASM during a reporting period, adjusted for the items shown above in "Supplemental Information."

Free Cash Flow - Represents the cash available for use for debt service or general corporate initiatives.

10 unchanged sentences

The amount of total revenue earned per ASM during a reporting period.

TRASM, adjusted - The amount of total revenue earned per ASM during a reporting period, adjusted for third-party refinery sales and Delta Private Jets.

TRASM, adjusted - The amount of total revenue earned per ASM during a reporting period, adjusted for the item shown above in "Supplemental Information."

Delta Air Lines, Inc.

1 unchanged sentence

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 7. Management’s Discussion and Analysis