Item 1A. Risk Factors
Item 1A. Risk Factors
Extended interruptions or disruptions in service at major airports in which we operate or significant problems associated with a type of aircraft or engine we operate could have a material adverse effect on our operations.
The airline industry is heavily dependent on business models that concentrate operations in major airports in the United States and throughout the world. An extended interruption or disruption at an airport where we have significant operations, whether resulting from a discrete event, such as a hurricane, or the manifestation of a chronic physical risk, such as rising sea levels, could have a material adverse effect on our business, financial condition and results of operations.
Similarly, the airline industry is heavily dependent on a limited number of aircraft and engine manufacturers whose products are subject to extensive regulatory requirements. Any significant problems associated with an aircraft or engine type that we operate, such as design defects, mechanical problems, contractual performance by the manufacturers or adverse perception by the public leading to customer avoidance or adverse actions by the FAA resulting in grounding could have a negative impact on our operations if we are not able to substitute or replace the affected aircraft or engine type and could, in any event, have a material adverse effect on our financial condition and results of operations.
The airline industry is subject to extensive government regulation, which is costly and could materially adversely affect our business.
Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs and may have material adverse effects on our business. For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that necessitate significant expenditures and could carry operational implications. We expect to continue incurring significant expenses to comply with the FAA’s regulations. In addition, a directive or other regulation that has a significant operational impact on us could have a material adverse impact on our financial results.
Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations, reduce revenues or otherwise impact our business. The industry is heavily taxed. Additional taxes and fees, if implemented, could negatively impact our results of operations.
Airport slot access is subject to government regulation and changes in slot regulations or allocations could impose a significant cost on the airlines operating in airports subject to such regulations or allocations or otherwise adversely affect an airline’s business. Certain of our hubs are among the most congested airports in the United States and have been, and could in the future be, the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day. Air traffic control inefficiencies can also enhance these pressures.
In addition, the failure of the federal government to upgrade the U.S. air traffic control system, which is regulated by the FAA, has resulted in delays and disruptions of air traffic during peak travel periods in certain congested markets. The failure to improve the air traffic control system could lead to increased delays and inefficiencies in flight operations as demand for U.S. air travel increases, having a material adverse effect on our operations. Failure to update the air traffic control system in a timely manner, and the substantial funding requirements of an updated system that may be imposed on air carriers, may have an adverse impact on our financial condition and results of operations.
As an international carrier, we are subject to a wide variety of U.S. and foreign laws that affect trade, including tariff and trade policies, export and import requirements, taxes, monetary policies and other restrictions and charges. In particular, the imposition of significant tariffs with respect to aircraft that we are not able to mitigate could substantially increase our costs, which in turn could have a material adverse effect on our financial results.
In addition, some of our operations are in high-risk legal compliance environments. Failure to comply with trade sanctions and restrictions, the Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in non-U.S. jurisdictions, as well as other applicable laws or regulations could result in litigation, assessment of damages, imposition of penalties or other consequences, any or all of which could harm our reputation and have an adverse effect on our financial results. In certain circumstances, we also may be subject to consequences of the failure of our airline partners to comply with laws and regulations, including U.S. laws to which they may be subject such as the FCPA.
We and other U.S. carriers are subject to U.S. and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate and which are continuously evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate significant resources to manage compliance with global privacy and information security obligations, this challenging regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement, and legal claims or proceedings.
Delta Air Lines, Inc. 2021 Form 10-K 26
Item 1A. Risk Factors
The airline industry is subject to many forms of environmental regulation, including but not limited to increased regulation to reduce emissions and other risks associated with climate change. The cost of compliance with more stringent environmental regulations, failure to comply with existing or future regulations or failure to otherwise manage the risks of climate change effectively could have a material adverse effect on our business.
Many aspects of our operations are subject to evolving and increasingly stringent federal, state, local and international laws governing the protection of the environment. Compliance with existing and future environmental laws and regulations could require capital investment and increase operational costs, and violations can lead to significant fines and penalties and reputational harm.
Future regulatory action concerning climate change, aircraft emissions and noise emissions could have a significant effect on the airline industry. In order to address aircraft carbon dioxide emissions, the International Civil Aviation Organization, a United Nations specialized agency, formally adopted a global, market-based emission offset program known as CORSIA. This program establishes a goal for the aviation industry to achieve carbon-neutral growth in international aviation beginning in 2021 through the use of carbon offsets and/or lower carbon aviation fuel. The baseline for establishing airlines’ offset obligations under CORSIA was originally set as an average of 2019 and 2020 emissions. However, given the COVID-19 pandemic and resulting unprecedented reduction in international travel, ICAO removed 2020 from the baseline calculation for the first phases of CORSIA, from 2021 to 2027. ICAO has yet to decide how to apply the baseline beyond 2027. Some countries and other stakeholders, however, have advocated for reestablishing 2020 in the baseline and for using 2020 for the future baseline calculation, which, if adopted, would significantly increase the airline industry’s projected obligations under the program and the cost of compliance. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be predicted at this time. However, CORSIA is expected to increase operating costs for airlines that operate internationally.
In addition to CORSIA, we may face a patchwork of regulation of aircraft emissions in the U.S. and abroad and could become subject to further taxes, charges or additional requirements to obtain permits or purchase allowances or emission credits for greenhouse gas emissions in various jurisdictions. For example, in 2021 the European Commission proposed legislation that would expand the reach of the EU ETS to include flights into and out of the European Economic Area beginning in 2027 under certain circumstances, increase the stringency of the program, and establish a sustainable aviation fuel blending mandate for aviation fuel suppliers, among other requirements. Individual EU member states have been developing their own requirements, including for example, a SAF mandate in France that will be phased in at the beginning of 2022. In the United States various exploratory discussions continue around approaches to address climate change, such as carbon pricing, without a clear legislative path forward. Additional regulation could result in taxation, regulatory or permitting requirements from multiple jurisdictions for the same operations and significant costs for the airline industry, including Delta. In addition to direct costs, such regulation could result in increased fuel costs passed through from fuel suppliers affected by any such regulations. While the specific nature of future actions is hard to predict, new laws or regulations related to environmental matters adopted in the U.S. or other countries could impose significant additional costs on or otherwise adversely affect our operations. Certain airports have also adopted, and others could in the future adopt, greenhouse gas emission or climate-related goals and requirements that could impact our operations or require us to make changes or investments in our infrastructure.
In addition to risks from potential changes to environmental regulation and policy, the transition to lower-carbon technologies, such as SAF, or changes in consumer preferences resulting from a negative perception of the environmental impact of air travel could materially adversely affect our business and financial results. For example, lower-carbon technologies such as SAF and direct air capture technologies are currently not available at scale and may take decades to develop, and the cost to transition to them could be prohibitively expensive without appropriate government policies and incentives in place. As more businesses have publicly announced environmental sustainability goals, the cost of carbon offsets has also increased significantly and will likely continue to do so.
Delta Air Lines, Inc. 2021 Form 10-K 27
Item 1A. Risk Factors
Because of the global nature of our business, unfavorable economic or political conditions in the markets in which we operate or volatility in currency exchange rates could have a material adverse effect on our business, financial condition and results of operations.
As a result of the discretionary nature of air travel, the airline industry has been cyclical and particularly sensitive to changes in economic conditions. Because we operate globally, our business is subject to economic and political conditions throughout the world. During periods of unfavorable or volatile economic conditions in the economy in the U.S. or abroad, including as a result of the COVID-19 pandemic and the worldwide response to it, demand for air travel can be significantly impacted as business and leisure travelers choose not to travel, seek alternative forms of transportation for short trips or conduct business using technological alternatives. If unfavorable economic conditions occur, particularly for an extended period, our business, financial condition and results of operations may be adversely affected. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies, and the imposition of exchange controls or other currency restrictions, may have a material adverse effect on our liquidity, financial conditions and results of operations.
Our international operations are an important part of our route network. Political disruptions and instability around the world can negatively impact the demand and network availability for air travel. Additionally, any deterioration in global trade relations, such as increased tariffs or other trade barriers, could result in a decrease in the demand for international air travel.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Delta Air Lines, Inc. 2021 Form 10-K 28
Item 2. Properties
ITEM 2. PROPERTIES
Flight Equipment
Our operating aircraft fleet, purchase commitments and options at December 31, 2021 are summarized in the following table. We have been experiencing a recovery in demand from the COVID-19 pandemic, which has led to an increase in our capacity and utilization of our aircraft compared to the year ended December 31, 2020. Accordingly, as of December 31, 2021, all aircraft in our operating fleet are reflected in the table below compared to approximately 10% that were temporarily parked as of December 31, 2020. See Note 15 of the Notes to the Consolidated Financial Statements for additional information on the restructuring charges recorded in 2020 related to our fleet retirement plans.
Operating aircraft information by fleet type
Current Fleet (1)
Commitments
Fleet Type Owned Finance Lease Operating Lease Total Average Age (Years) Purchase Options
A220-100 37 4 — 41 2.3 4 —
A220-300 10 — — 10 1.0 40 50
A319-100 55 2 — 57 19.9 — —
A320-200 52 4 — 56 26.0 — —
A321-200 69 22 36 127 3.1 — —
A321-200neo — — — — — 155 70
A330-200 11 — — 11 16.8 — —
A330-300 28 — 3 31 13.0 — —
A330-900neo 3 3 5 11 1.6 26 —
A350-900 13 — 11 24 3.7 20 —
B-717-200 9 42 3 54 20.6 — —
B-737-800 73 4 — 77 20.3 — —
B-737-900ER 91 — 49 140 5.6 19 —
B-757-200 99 1 — 100 24.4 — —
B-757-300 16 — — 16 18.9 — —
B-767-300ER 40 — — 40 25.4 — —
B-767-400ER 21 — — 21 21.1 — —
Total 627 82 107 816 14.0 264 120
(1) Excludes certain aircraft we own or lease that are operated by regional carriers on our behalf shown in the table below. Includes used aircraft purchases from 2021 that are undergoing modifications and will enter service in the second half of 2022.
The following table summarizes the aircraft operated by regional carriers on our behalf at December 31, 2021.
Regional aircraft information by carrier
Fleet Type
Carrier CRJ-200 CRJ-700 CRJ-900 Embraer 170 Embraer 175 Total
Endeavor Air, Inc. (1)
46 13 115 — — 174
SkyWest Airlines, Inc. — 6 44 — 71 121
Republic Airline, Inc. — — — 8 46 54
Total 46 19 159 8 117 349
(1) Endeavor Air, Inc. is a wholly owned subsidiary of Delta.
Delta Air Lines, Inc. 2021 Form 10-K 29