DELTA AIR LINES, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 63 Consolidated Balance Sheets - December 31, 20 2 1 and 20 20 67 Consolidated Statements of Operations for the years ended December 31, 20 2 1 , 20 20 and 201 9 68 Consolidated Statements of Comprehensive Income /(L oss) for the years ended December 31, 20 2 1 , 20 20 and 201 9 69 Consolidated Statements of Cash Flows for the years ended December 31, 20 2 1 , 20 20 and 201 9 70 Consolidated Statements of Stockholders' Equity for the years ended December 31, 20 2 1 , 20 20 and 201 9 71 Notes to the Consolidated Financial Statements 72 Note 1 - Summary of Significant Accounting Policies 72 Note 2 - Revenue Recognition 76 Note 3 - Fair Value Measurements 80 Note 4 - Investments 82 Note 5 - Goodwill and Intangible Assets 83 Note 6 - Debt 85 Note 7 - Leases 88 Note 8 - Airport Redevelopment 91 Note 9 - Employee Benefit Plans 93 Note 1 0 - Commitments and Contingencies 99 Note 1 1 - Income Taxes 102 Note 1 2 - Equity and Equity Compensation 104 Note 1 3 - Accumulated Other Comprehensive Loss 106 Note 1 4 - Segments 107 Note 15 - Restructuring 109 Note 1 6 - Earnings /(Loss) Per Share 110 Delta Air Lines, Inc. 2021 Form 10-K 62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Delta Air Lines, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income/(loss), cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 11, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Delta Air Lines, Inc. 2021 Form 10-K 63 Employee Benefit Plans Description of the Matter At December 31, 2021, the fair value of the Company’s benefit plan assets measured at fair value on a recurring basis totaled $20.0 billion, of which $12.7 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient. Management determines the fair value of NAV assets by applying the methodologies described in Note 9 to the consolidated financial statements. The Company’s expected long-term rate of return on assets for net periodic benefit for the year ended December 31, 2021 was 8.98%. The expected return on plan assets provided net periodic benefit of $1.5 billion for the year ended December 31, 2021. As disclosed in Note 9 to the consolidated financial statements, the expected long-term rate of return on plan assets is reviewed annually and is based primarily on plan-specific investment studies using historical market return and volatility data. Auditing the fair value of the Company’s NAV assets required significant judgment in estimating the fair value of the NAV assets, primarily resulting from the lag in the availability of data provided by the investment fund managers and the use of corroborating data from public markets to estimate fair value. Auditing the expected long-term rate of return on plan assets required significant judgment due to the subjective nature of certain assumptions. In particular, the Company incorporated excess return expectations compared to historical market return and volatility data based on the Company’s investment strategy. Net periodic benefit is sensitive to the expected long-term rate of return on plan assets, which is affected by expectations about future market and economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its employee benefit plans, including controls over management’s assessment of the significant inputs and estimates included in the fair value measurements of NAV assets and management’s review of the significant assumptions and the inputs used in estimating the expected long-term rate of return on plan assets. To test the fair value of plan assets measured at NAV, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and comparing significant inputs and underlying data used in the Company's valuations to information available from third-party sources and market data. Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the fair value measurement, and compared the Company’s asset performance results to applicable third-party benchmarks and assessed management’s historical accuracy of estimating fair value by performing retrospective review procedures comparing the Company’s estimates of fair value as of the prior year end to the final fair value NAV in the investment’s audited financial statements made available during the current year. To test the expected long-term rate of return on plan assets, our audit procedures included, among others, evaluating the methodology used, testing the significant assumptions used in the determination of the expected return and testing the underlying data used by the Company. We involved an actuarial specialist to assist in evaluating the appropriateness of the Company’s estimate, including independently calculating a range of expected long-term rates of return based on the Company’s current investment portfolio and strategy, and assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments. Additionally, we tested the completeness and accuracy of the data used by management and performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long-term rate of return on plan assets. Delta Air Lines, Inc. 2021 Form 10-K 64 Loyalty Program - Mileage Breakage Description of the Matter At December 31, 2021 the Company’s aggregate current and noncurrent loyalty program deferred revenue balance was $7.6 billion. For the year ended December 31, 2021, the Company recognized $1.8 billion of revenue classified as loyalty travel awards within passenger revenue and $1.8 billion of revenue classified as loyalty program revenue within other revenue in the consolidated statement of operations. As disclosed in Note 2 to the consolidated financial statements, the Company defers revenue for mileage credits earned and recognizes loyalty travel awards in passenger revenue as the miles are redeemed and services are provided. In determining the value of mileage credits earned, the Company applies an estimate of mileage credits earned that are not expected to be redeemed (“mileage breakage”). The Company recognizes mileage breakage proportionally during the period in which the remaining mileage credits are actually redeemed. Under the Company’s loyalty program, mileage credits do not expire. Therefore, the Company uses statistical models to estimate mileage breakage based on historical redemption patterns. Auditing the Company’s accounting for its loyalty program required significant estimation in determining the mileage breakage estimate for mileage credits. In particular, there is complexity and subjectivity in estimating mileage breakage based on expectations of future redemption patterns due to the absence of historical expirations as the Company’s mileage credits do not expire. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its loyalty program, including controls over management’s review of the estimation of the mileage breakage and the completeness and accuracy of the data underlying the mileage breakage estimate. To test the estimate of breakage of mileage credits, our audit procedures included, among others, involving an actuarial specialist to assist in assessing the method used to develop the mileage breakage estimate and independently developing a range of mileage breakage estimates and comparing them to the Company's estimates. Additionally, we tested the completeness and accuracy of the underlying mileage data used in the Company’s statistical models and performed sensitivity analyses to evaluate the changes to the Company’s deferred revenue that would result from changes in the mileage breakage estimate. Delta Air Lines, Inc. 2021 Form 10-K 65 Realizability of Deferred Tax Assets Description of the Matter At December 31, 2021, the Company had gross deferred tax assets of $9.4 billion with a related valuation allowance of $0.8 billion, and gross deferred tax liabilities of $7.3 billion. As discussed in Notes 1 and 11 to the consolidated financial statements, the Company records a valuation allowance based on the assessment of the realizability of the Company’s deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Auditing management’s assessment of recoverability of deferred tax assets involved subjective estimation and complex auditor judgment in weighing the positive and negative evidence to determine whether a valuation allowance for deferred tax assets is needed, including the Company’s estimate of future taxable income that may be affected by future market and economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets. This included controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and estimates of future taxable income. To test the realizability of the Company’s deferred tax assets, our audit procedures included, among others, evaluating the assumptions used to develop the scheduling of the future reversal of existing taxable temporary differences, evaluating tax planning strategies and evaluating the assumptions used by the Company to develop projections of future taxable income. We compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also compared the projections of future taxable income with other forecasted financial information prepared by the Company. In addition, we involved our tax specialists to evaluate the application of tax law in the performance of these procedures. /s/ Ernst & Young LLP We have served as the Company's auditor since 2006. Atlanta, Georgia February 11, 2022 Delta Air Lines, Inc. 2021 Form 10-K 66 Financial Statements DELTA AIR LINES, INC. Consolidated Balance Sheets December 31, (in millions, except share data) 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 7,933 $ 8,307 Short-term investments 3,386 5,789 Accounts receivable, net of an allowance for uncollectible accounts of $ 50 and $ 89 2,404 1,396 Fuel inventory 694 377 Expendable parts and supplies inventories, net of an allowance for obsolescence of $ 176 and $ 188 404 355 Prepaid expenses and other 1,119 1,180 Total current assets 15,940 17,404 Noncurrent Assets: Property and equipment, net of accumulated depreciation and amortization of $ 18,671 and $ 17,511 28,749 26,529 Operating lease right-of-use assets 7,237 5,733 Goodwill 9,753 9,753 Identifiable intangibles, net of accumulated amortization of $ 893 and $ 883 6,001 6,011 Cash restricted for airport construction 473 1,556 Equity investments 1,712 1,665 Deferred income taxes, net 1,294 1,988 Other noncurrent assets 1,300 1,357 Total noncurrent assets 56,519 54,592 Total assets $ 72,459 $ 71,996 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of debt and finance leases $ 1,782 $ 1,732 Current maturities of operating leases 703 678 Air traffic liability 6,228 4,044 Accounts payable 4,240 2,840 Accrued salaries and related benefits 2,457 2,086 Loyalty program deferred revenue 2,710 1,777 Fuel card obligation 1,100 1,100 Other accrued liabilities 1,746 1,670 Total current liabilities 20,966 15,927 Noncurrent Liabilities: Debt and finance leases 25,138 27,425 Noncurrent air traffic liability 130 500 Pension, postretirement and related benefits 6,035 10,630 Loyalty program deferred revenue 4,849 5,405 Noncurrent operating leases 7,056 5,713 Other noncurrent liabilities 4,398 4,862 Total noncurrent liabilities 47,606 54,535 Commitments and Contingencies Stockholders' Equity: Common stock at $ 0.0001 par value; 1,500,000,000 shares authorized, 649,720,387 and 647,352,203 shares issued — — Additional paid-in capital 11,447 11,259 Accumulated deficit ( 148 ) ( 428 ) Accumulated other comprehensive loss ( 7,130 ) ( 9,038 ) Treasury stock, at cost, 9,752,872 and 9,169,683 ( 282 ) ( 259 ) Total stockholders' equity 3,887 1,534 Total liabilities and stockholders' equity $ 72,459 $ 71,996 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 67 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Operations Year Ended December 31, (in millions, except per share data) 2021 2020 2019 Operating Revenue: Passenger $ 22,519 $ 12,883 $ 42,277 Cargo 1,032 608 753 Other 6,348 3,604 3,977 Total operating revenue 29,899 17,095 47,007 Operating Expense: Salaries and related costs 9,728 9,001 11,601 Aircraft fuel and related taxes 5,633 3,176 8,519 Ancillary businesses and refinery 3,957 1,785 1,245 Contracted services 2,420 1,953 2,942 Landing fees and other rents 2,019 1,833 2,176 Depreciation and amortization 1,998 2,312 2,581 Regional carrier expense 1,736 1,584 2,158 Aircraft maintenance materials and outside repairs 1,401 822 1,751 Passenger commissions and other selling expenses 953 643 2,211 Passenger service 756 551 1,312 Aircraft rent 430 399 423 Restructuring charges ( 19 ) 8,219 — Profit sharing 108 — 1,643 Government grant recognition ( 4,512 ) ( 3,946 ) — Other 1,405 1,232 1,827 Total operating expense 28,013 29,564 40,389 Operating Income/(Loss) 1,886 ( 12,469 ) 6,618 Non-Operating Expense: Interest expense, net ( 1,279 ) ( 929 ) ( 301 ) Impairments and equity method losses ( 337 ) ( 2,432 ) ( 62 ) Gain/(loss) on investments, net 56 ( 105 ) 119 Loss on extinguishment of debt ( 319 ) ( 8 ) — Pension and related benefit/(expense) 451 219 ( 65 ) Miscellaneous, net ( 60 ) 137 ( 111 ) Total non-operating expense, net ( 1,488 ) ( 3,118 ) ( 420 ) Income/(Loss) Before Income Taxes 398 ( 15,587 ) 6,198 Income Tax (Provision)/Benefit ( 118 ) 3,202 ( 1,431 ) Net Income/(Loss) $ 280 $ ( 12,385 ) $ 4,767 Basic Earnings/(Loss) Per Share $ 0.44 $ ( 19.49 ) $ 7.32 Diluted Earnings/(Loss) Per Share $ 0.44 $ ( 19.49 ) $ 7.30 Cash Dividends Declared Per Share $ — $ 0.40 $ 1.51 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 68 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Comprehensive Income/(Loss) Year Ended December 31, (in millions) 2021 2020 2019 Net Income/(Loss) $ 280 $ ( 12,385 ) $ 4,767 Other comprehensive income/(loss): Net change in derivative contracts and other — ( 66 ) 6 Net change in pension and other benefits 1,908 ( 983 ) ( 170 ) Total Other Comprehensive Income/(Loss) 1,908 ( 1,049 ) ( 164 ) Comprehensive Income/(Loss) $ 2,188 $ ( 13,434 ) $ 4,603 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 69 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Cash Flows Year Ended December 31, (in millions) 2021 2020 2019 Cash Flows From Operating Activities: Net income/(loss) $ 280 $ ( 12,385 ) $ 4,767 Adjustments to reconcile net income to net cash provided by operating activities: Restructuring charges 5 4,111 — Depreciation and amortization 1,998 2,312 2,581 Deferred income taxes 115 ( 3,110 ) 1,473 Pension, postretirement and postemployment payments less/(greater) than expense ( 2,038 ) 898 ( 922 ) Impairments and equity method losses 337 2,432 62 Changes in certain assets and liabilities: Receivables ( 981 ) 1,168 ( 775 ) Fuel inventory ( 318 ) 354 ( 139 ) Noncurrent assets ( 76 ) 210 111 Air traffic liability 1,814 ( 572 ) 454 Loyalty program deferred revenue 376 455 87 Profit sharing 108 ( 1,650 ) 354 Other payables, deferred revenue and accrued liabilities 1,986 240 144 Noncurrent liabilities ( 399 ) 1,185 ( 16 ) Other, net 57 559 244 Net cash provided by/(used in) operating activities 3,264 ( 3,793 ) 8,425 Cash Flows From Investing Activities: Property and equipment additions: Flight equipment, including advance payments ( 1,596 ) ( 896 ) ( 3,344 ) Ground property and equipment, including technology ( 1,651 ) ( 1,003 ) ( 1,592 ) Proceeds from sale-leaseback transactions — 465 — Purchase of equity investments — ( 2,099 ) ( 170 ) Sale of equity investments — — 279 Purchase of short-term investments ( 12,655 ) ( 13,400 ) — Redemption of short-term investments 15,036 7,608 206 Other, net ( 32 ) 87 58 Net cash used in investing activities ( 898 ) ( 9,238 ) ( 4,563 ) Cash Flows From Financing Activities: Proceeds from short-term obligations — 3,261 1,750 Proceeds from long-term obligations 1,902 22,790 2,057 Proceeds from sale-leaseback transactions — 2,306 — Payments on debt and finance lease obligations ( 5,834 ) ( 8,559 ) ( 3,320 ) Repurchase of common stock — ( 344 ) ( 2,027 ) Cash dividends — ( 260 ) ( 980 ) Fuel card obligation — 364 ( 339 ) Other, net 80 ( 202 ) ( 21 ) Net cash (used in)/provided by financing activities ( 3,852 ) 19,356 ( 2,880 ) Net (Decrease)/Increase in Cash, Cash Equivalents and Restricted Cash ( 1,486 ) 6,325 982 Cash, cash equivalents and restricted cash at beginning of period 10,055 3,730 2,748 Cash, cash equivalents and restricted cash at end of period $ 8,569 $ 10,055 $ 3,730 Supplemental Disclosure of Cash Paid for Interest $ 1,506 $ 761 $ 481 Non-Cash Transactions: Right-of-use assets acquired under operating leases $ 2,113 $ 1,077 $ 464 Flight and ground equipment acquired under finance leases 1,049 381 650 Other financings — 280 — Operating leases converted to finance leases 42 — 190 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 70 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Stockholders' Equity Common Stock Additional Paid-In Capital Retained Earnings / (Accumulated Deficit) Accumulated Other Comprehensive Loss Treasury Stock (in millions, except per share data) Shares Amount Shares Amount Total Balance at January 1, 2019 688 $ — $ 11,671 $ 10,039 $ ( 7,825 ) 8 $ ( 198 ) $ 13,687 Net income — — — 4,767 — — — 4,767 Dividends declared — — — ( 981 ) — — — ( 981 ) Other comprehensive loss — — — — ( 164 ) — — ( 164 ) Common stock issued for employee equity awards (1) 2 — 114 — — 1 ( 38 ) 76 Stock purchased and retired ( 38 ) — ( 656 ) ( 1,371 ) — — — ( 2,027 ) Balance at December 31, 2019 652 — 11,129 12,454 ( 7,989 ) 9 ( 236 ) 15,358 Net loss — — — ( 12,385 ) — — — ( 12,385 ) Dividends declared — — — ( 257 ) — — — ( 257 ) Other comprehensive loss — — — — ( 1,049 ) — — ( 1,049 ) Common stock issued for employee equity awards and other (1) 1 — 120 — — — ( 23 ) 97 Stock purchased and retired ( 6 ) — ( 104 ) ( 240 ) — — — ( 344 ) Government grant warrant issuance — — 114 — — — — 114 Balance at December 31, 2020 647 — 11,259 ( 428 ) ( 9,038 ) 9 ( 259 ) 1,534 Net income — — — 280 — — — 280 Other comprehensive income — — — — 1,908 — — 1,908 Common stock issued for employee equity awards (1) 3 — 102 — — 1 ( 23 ) 79 Government grant warrant issuance — — 86 — — — — 86 Balance at December 31, 2021 650 $ — $ 11,447 $ ( 148 ) $ ( 7,130 ) 10 $ ( 282 ) $ 3,887 (1) Treasury shares were withheld for payment of taxes, at a weighted average price per share of $ 38.87 , $ 52.17 and $ 50.20 in 2021, 2020 and 2019, respectively. The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 71 Notes to the Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Delta Air Lines, Inc., a Delaware corporation, provides scheduled air transportation for passengers and cargo throughout the United States ("U.S.") and around the world. Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). We are the primary beneficiary of, and have a controlling financial interest in, certain immaterial entities in which we have voting rights of 50% or less, which we consolidate in our financial results. We have marketing alliances with other airlines to enhance our access to domestic and international markets. These arrangements may include codesharing, reciprocal loyalty program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co-location and other marketing agreements. We have received antitrust immunity for certain marketing arrangements, which enables us to offer a more integrated route network and develop common sales, marketing and discount programs for customers. Some of our marketing arrangements provide for the sharing of revenues and expenses. Revenues and expenses associated with collaborative arrangements are presented on a gross basis in the applicable line items on our Consolidated Statements of Operations ("income statement"). We have reclassified certain prior period amounts to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes. Regional Carrier Expense 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 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 and $ 1.4 billion in 2019. 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. Use of Estimates We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates. Recent Accounting Standards 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, "Debt," where we reflect the requirements of this new standard as it relates to our payroll support program disclosures. Delta Air Lines, Inc. 2021 Form 10-K 72 Notes to the Consolidated Financial Statements Significant Accounting Policies Our significant accounting policies are disclosed below or included within the topic-specific notes included herein. Cash and Cash Equivalents and Short-Term Investments Short-term, highly liquid investments with maturities of three months or less when purchased are classified as cash and cash equivalents. Investments with maturities of greater than three months, but not in excess of one year, when purchased are classified as short-term investments. Investments with maturities beyond one year when purchased may be classified as short-term investments if they are expected to be available to support our short-term liquidity needs. Our short-term investments are classified as fair value investments and gains and losses are recorded in non-operating expense . The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets ("balance sheets") that sum to the total of the same such amounts shown within the Consolidated Statements of Cash Flows ("cash flows statement"). Reconciliation of cash, cash equivalents and restricted cash December 31, (in millions) 2021 2020 2019 Current assets: Cash and cash equivalents $ 7,933 $ 8,307 $ 2,882 Restricted cash included in prepaid expenses and other 163 192 212 Noncurrent assets: Cash restricted for airport construction 473 1,556 636 Total cash, cash equivalents and restricted cash $ 8,569 $ 10,055 $ 3,730 Inventories Fuel. As part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel, our wholly owned subsidiary, Monroe Energy, LLC ("Monroe"), operates the Trainer oil refinery. Refined products (finished goods) and feedstock and blendstock inventories (work-in-process) are both carried at the lower of cost and net realizable value. We use jet fuel in our airline operations that is produced by the refinery and procured through the exchange with third parties of gasoline, diesel and other refined products ("non-jet fuel products") the refinery produces. Cost is determined using the first-in, first-out method. Costs include the raw material consumed plus direct manufacturing costs (such as labor, utilities and supplies) as incurred and an applicable portion of manufacturing overhead. Expendables Parts and Supplies. Inventories of expendable parts related to flight equipment, which cannot be economically repaired, reconditioned or reused after removal from the aircraft, are carried at moving average cost and charged to aircraft maintenance materials and outside repairs as consumed. An allowance for obsolescence is provided over the remaining useful life of the related fleet. We also provide allowances for parts identified as excess or obsolete to reduce the carrying costs to the lower of cost or net realizable value. These parts are estimated to have residual value of 5 % of the original cost. Accounting for Refinery Related Buy/Sell Agreements To the extent that we receive jet fuel for non-jet fuel products exchanged under buy/sell agreements, we account for these transactions as nonmonetary exchanges. We have recorded these nonmonetary exchanges at the carrying amount of the non-jet fuel products transferred within aircraft fuel and related taxes on the income statement. Derivatives Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change. Our derivative contracts are recognized at fair value on our balance sheets and have net balances of $ 17 million and $ 1 million at December 31, 2021 and 2020, respectively. Delta Air Lines, Inc. 2021 Form 10-K 73 Notes to the Consolidated Financial Statements 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, are recorded in property and equipment, net and operating lease right-of-use assets on our balance sheets. See Note 7, "Leases," for further information regarding our leases. The following table summarizes our property and equipment: Property and equipment by classification December 31, (in millions, except for estimated useful life) Estimated Useful Life 2021 2020 Flight equipment 20 - 34 years $ 33,368 $ 31,572 Ground property and equipment 3 - 40 years 7,758 6,387 Information technology-related assets 3 - 15 years 3,389 3,403 Flight and ground equipment under finance leases Shorter of lease term or estimated useful life 2,052 1,795 Advance payments for equipment 853 883 Less: accumulated depreciation and amortization (1) ( 18,671 ) ( 17,511 ) Total property and equipment, net $ 28,749 $ 26,529 (1) Includes accumulated amortization for flight and ground equipment under finance leases in the amount of $ 456 million and $ 793 million at December 31, 2021 and 2020, respectively. We record property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated residual values over their estimated useful lives. The estimated useful life for leasehold improvements is the shorter of lease term or estimated useful life. Depreciation and amortization expense related to our property and equipment was $ 2.0 billion, $ 2.3 billion and $ 2.6 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Residual values for owned aircraft, engines, spare parts and simulators are generally 5 % to 10 % of cost. We capitalize certain internal and external costs incurred to develop and implement software and amortize those costs over an estimated useful life of three to ten years . Included in the depreciation and amortization expense discussed above, we recorded $ 301 million, $ 304 million and $ 239 million for amortization of capitalized software for the years ended December 31, 2021, 2020 and 2019, respectively. The net book value of these assets, which are included in information technology-related assets above, totaled $ 876 million and $ 1.0 billion at December 31, 2021 and 2020, respectively. Our tangible assets consist primarily of flight equipment, which is mobile across geographic markets. Accordingly, assets are not allocated to specific geographic regions. 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. Due to the impacts of the COVID-19 pandemic, we evaluated our fleet during 2020 and determined that only the fleet types discussed in Note 15, "Restructuring," were impaired, as the future cash flows from the operation of other fleet types through the respective retirement dates exceeded the carrying value. 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. Delta Air Lines, Inc. 2021 Form 10-K 74 Notes to the Consolidated Financial Statements Income Taxes We account for deferred income taxes under the liability method. We recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates. Deferred tax assets and liabilities are net by jurisdiction and are recorded as noncurrent on the balance sheet. We have elected to recognize earnings of foreign affiliates that are determined to be global intangible low tax income in the period it arises and do not recognize deferred taxes for basis differences that may reverse in future years. A valuation allowance is recorded to reduce deferred tax assets when necessary. 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. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies. See Note 11, "Income Taxes," for further information on our deferred income taxes. Fuel Card Obligation We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil. The card carried a maximum credit limit of $ 1.1 billion as of December 31, 2021 and must be paid monthly. At both December 31, 2021 and 2020, we had $ 1.1 billion outstanding on this purchasing card and the activity was classified as a financing activity in our cash flows statement. Retirement of Repurchased Shares We immediately retire shares repurchased pursuant to any share repurchase program. We allocate the share purchase price in excess of par value between additional paid-in capital and retained earnings. Manufacturers' Credits We periodically receive credits in connection with the acquisition of aircraft and engines. These credits are deferred until the aircraft and engines are delivered, and then applied as a reduction to the cost of the related equipment. Maintenance Costs We record maintenance costs related to our mainline and regional fleets in aircraft maintenance materials and outside repairs and regional carrier expense, respectively. Maintenance costs are expensed as incurred, except for costs incurred under power-by-the-hour contracts, which are expensed based on actual hours flown. Power-by-the-hour contracts transfer certain risk to third-party service providers and fix the amount we pay per flight hour to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter. Advertising Costs We expense advertising costs in passenger commissions and other selling expenses in the year the advertising first takes place. Advertising expense was $ 198 million, $ 119 million and $ 288 million for the years ended December 31, 2021, 2020 and 2019, respectively. Commissions and Merchant Fees Passenger sales commissions and merchant fees are recognized in passenger commissions and other selling expenses when the related revenue is recognized. Delta Air Lines, Inc. 2021 Form 10-K 75 Notes to the Consolidated Financial Statements Carbon Offset Costs We may purchase and retire carbon offsets and we expense the cost of carbon offsets upon retirement of the credits within aircraft fuel and related taxes on our income statement as these costs are related to our carbon emissions generated by our airline segment. The purchase of carbon offsets is included in operating activities on our cash flows statement. 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. NOTE 2. REVENUE RECOGNITION Passenger Revenue Passenger revenue is composed of passenger ticket sales, loyalty travel awards and travel-related services performed in conjunction with a passenger’s flight. Passenger revenue by category Year Ended December 31, (in millions) 2021 2020 2019 Ticket $ 19,339 $ 10,970 $ 36,908 Loyalty travel awards 1,786 935 2,900 Travel-related services 1,394 978 2,469 Total passenger revenue $ 22,519 $ 12,883 $ 42,277 Ticket Passenger Tickets. 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 recognized approximately $ 2.2 billion, $ 3.1 billion and $ 3.8 billion in passenger revenue during the years ended December 31, 2021, 2020 and 2019, respectively, that had been recorded in our air traffic liability balance at the beginning of those periods. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months. However, the ongoing reduction in demand for air travel due to the COVID-19 pandemic has resulted in a lower 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 the years ended December 31, 2021 and 2020 was approximately $ 1.1 billion and $ 3.1 billion, respectively. Travel credits represented approximately 45 % and 65 % of the air traffic liability as of December 31, 2021 and 2020, respectively. 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. The air traffic liability classified as noncurrent as of December 31, 2021 represents our current estimate of tickets and travel credits to be used or refunded beyond one year, while the balance classified as current represents our current estimate of tickets and travel credits to be used or refunded within one year. We will continue to monitor our customers' travel behavior and may adjust our estimates in the future. In January 2022, we announced changes to expiration dates, as discussed below. Delta Air Lines, Inc. 2021 Form 10-K 76 Notes to the Consolidated Financial Statements Ticket Breakage. 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 as discussed below, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods. Further Extension to Ticket Validity. 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. This change is expected to shift a portion of our air traffic liability to noncurrent. We will also consider this change in estimating the future ticket breakage rate. Regional Carriers. Our regional carriers include both third-party regional carriers with which we have contract carrier agreements ("contract carriers") and Endeavor Air, Inc., our wholly owned subsidiary. Our contract carrier agreements are primarily structured as capacity purchase agreements where we purchase all or a portion of the contract carrier's capacity and are responsible for selling the seat inventory we purchase. We record revenue related to our capacity purchase agreements in passenger revenue and the related expenses in regional carrier expense. Loyalty Travel Awards Loyalty travel awards revenue is related to the redemption of miles for travel. We recognize loyalty travel awards revenue in passenger revenue as miles are redeemed and transportation is provided. See below for discussion of our loyalty program accounting policies. Travel-Related Services Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight, including baggage fees, on-board sales and administrative fees. We recognize revenue for these services when the related transportation service is provided. 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. Loyalty Program 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 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, 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. The loyalty program includes two types of transactions that are considered revenue arrangements with multiple performance obligations (1) passenger ticket sales earning miles and (2) sale of miles to participating companies. Passenger Ticket Sales Earning Miles. Passenger ticket sales earning miles provide customers with (1) miles earned and (2) air transportation, which are each considered performance obligations. We value each performance obligation on a standalone basis. 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 ("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 mileage breakage proportionally during the period in which the remaining miles are actually redeemed. Delta Air Lines, Inc. 2021 Form 10-K 77 Notes to the Consolidated Financial Statements 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. Sale of Miles to Participating Companies. Customers earn miles based on their spending with participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies with which we have marketing agreements to sell miles. Our contracts to sell miles under these marketing agreements have multiple performance obligations. Payments are typically due 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, 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. Our agreements with American Express provide for joint marketing, grant certain benefits to Delta-American Express co-branded credit card holders ("cardholders") and American Express Membership Rewards program participants, and allow American Express to market its services or products using our customer database. Cardholders earn miles for making purchases using co-branded cards, and certain cardholders may also check their first bag for free, are granted discounted access to Delta Sky Club lounges and receive priority boarding and other benefits while traveling on Delta. Additionally, participants in the American Express Membership Rewards program may exchange their points for miles under the loyalty program. 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. 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 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. Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel-related services in passenger revenue when the related service is performed. Revenue allocated to access Delta Sky Club lounges is recognized as miscellaneous in other revenue as access is provided. Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue as miles are delivered. Current Activity of the Loyalty Program. Miles are combined in one homogeneous pool and are not separately identifiable. Therefore, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period. The table below presents the activity of the current and noncurrent loyalty program deferred revenue, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements. Loyalty program activity (in millions) 2021 2020 2019 Balance at January 1 $ 7,182 $ 6,728 $ 6,641 Miles earned 2,238 1,437 3,156 Travel miles redeemed ( 1,786 ) ( 935 ) ( 2,900 ) Non-travel miles redeemed ( 75 ) ( 48 ) ( 169 ) Balance at December 31 $ 7,559 $ 7,182 $ 6,728 Delta Air Lines, Inc. 2021 Form 10-K 78 Notes to the Consolidated Financial Statements 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. Cargo Revenue Cargo revenue is recognized when we provide the transportation. Other Revenue Year Ended December 31, (in millions) 2021 2020 2019 Refinery $ 3,229 $ 1,150 $ 97 Loyalty program 1,770 1,458 1,962 Ancillary businesses 793 648 1,200 Miscellaneous 556 348 718 Total other revenue $ 6,348 $ 3,604 $ 3,977 Refinery. This represents refinery sales to third parties, which are at or near cost; accordingly, the margin on these sales is de minimis . See Note 14, "Segments," for more information on revenue recognition within our refinery segment. Loyalty Program. 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 included within the total cash sales from marketing agreements, discussed above. Ancillary Businesses. Ancillary businesses includes aircraft maintenance services we provide to third parties and our vacation wholesale operations. In January 2020, we combined Delta Private Jets, our former wholly owned subsidiary which provided private jet operations, with Wheels Up. Upon closing, we received an equity stake in Wheels Up, and Delta Private Jets is no longer reflected in ancillary businesses. Miscellaneous. Miscellaneous revenue is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues. Revenue by Geographic Region Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment. A significant portion of the refinery's revenues typically consists of fuel sales to support the airline, which is eliminated in the Consolidated Financial Statements. The remaining operating revenue for the refinery segment is included in the domestic region. Our passenger and operating revenue by geographic region is summarized in the following table: Revenue by geographic region Passenger Revenue Operating Revenue Year Ended December 31, Year Ended December 31, (in millions) 2021 2020 2019 2021 2020 2019 Domestic $ 18,468 $ 10,041 $ 30,465 $ 24,320 $ 13,339 $ 33,382 Atlantic 1,777 1,171 6,326 2,537 1,649 7,308 Latin America 1,873 1,113 2,985 2,284 1,321 3,326 Pacific 401 558 2,501 758 786 2,991 Total $ 22,519 $ 12,883 $ 42,277 $ 29,899 $ 17,095 $ 47,007 Delta Air Lines, Inc. 2021 Form 10-K 79 Notes to the Consolidated Financial Statements Accounts Receivable Accounts receivable primarily consist of amounts due from credit card companies from the sale of passenger tickets, ancillary businesses, refinery sales and other companies for the purchase of miles under the loyalty program. We provide an allowance for uncollectible accounts using an expected credit loss model which represents our estimate of expected credit losses over the lifetime of the asset. In 2020, due to the COVID-19 pandemic, we recorded reserves on certain receivables, which are discussed further in Note 15, "Restructuring". Passenger Taxes and Fees We are required to charge certain taxes and fees on our passenger tickets, including U.S. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are assessments on the customer for which we act as a collection agent. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier (i.e., for codeshare-related fees). NOTE 3. FAIR VALUE MEASUREMENTS Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Each fair value measurement is classified into one of the following levels based on the information used in the valuation: • Level 1. Observable inputs such as quoted prices in active markets. • Level 2 . Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. • Level 3 . Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows: (a) Market Approach . Prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities; and (b) Income Approach. Techniques to convert future amounts to a single present value amount based on market expectations (including present value techniques and option-pricing models). Assets (Liabilities) Measured at Fair Value on a Recurring Basis (1) December 31, 2021 Valuation Technique (in millions) Total Level 1 Level 2 Level 3 Cash equivalents $ 5,450 $ 5,450 $ — $ — (a) Restricted cash equivalents 635 635 — — (a) Short-term investments U.S. Government securities 3,386 1,376 2,010 — (a) Long-term investments 1,459 1,326 36 97 (a)(b) Hedge derivatives, net Fuel hedge contracts ( 18 ) — ( 18 ) — (a)(b) Foreign currency exchange contracts 1 — 1 — (a) Delta Air Lines, Inc. 2021 Form 10-K 80 Notes to the Consolidated Financial Statements December 31, 2020 Valuation Technique (in millions) Total Level 1 Level 2 Level 3 Cash equivalents $ 5,755 $ 5,755 $ — $ — (a) Restricted cash equivalents 1,747 1,747 — — (a) Short-term investments U.S. Government securities 5,789 3,919 1,870 — (a) Long-term investments 1,417 948 38 431 (a)(b) Hedge derivatives, net Fuel hedge contracts ( 9 ) — ( 9 ) — (a)(b) Interest rate contracts 23 — 23 — (a) Foreign currency exchange contracts ( 13 ) — ( 13 ) — (a) (1) See Note 9, "Employee Benefit Plans," for fair value of benefit plan assets. Cash Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents are recorded in prepaid expenses and other and cash restricted for airport construction on our balance sheets and generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance, among other things, a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets. Short-Term Investments. The fair values of our short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security and other observable information. As of December 31, 2021, the estimated fair value of our short-term investments was $ 3.4 billion. Of these investments, $ 2.8 billion are expected to mature in one year or less, with the remainder maturing by the second half of 2023. Long-Term Investments. Our long-term investments measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet. During 2021, both Wheels Up Experience Inc. ("Wheels Up") and Clear Secure, Inc. ("CLEAR") became publicly traded and as of December 31, 2021, our investment in both of these are classified as Level 1 . In addition, our equity investments in private companies are classified as Level 3 in the fair value hierarchy as their equity is not traded on a public exchange and our valuations incorporate certain unobservable inputs, including non-public equity issuances and forecasts provided by our investees. Fair value measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair values. During the year ended December 31, 2021 there were no material gains or losses as a result of fair value adjustments. See Note 4, "Investments," for further information on our long-term investments. Hedge Derivatives. A portion of our derivative contracts may be negotiated over-the-counter with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Such contracts would be classified as Level 2 within the fair value hierarchy. The remainder of our hedge contracts are comprised of futures contracts, which are traded on a public exchange. These contracts are classified within Level 1 of the fair value hierarchy. • Fuel Hedge Contracts. Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s inventory. Our fuel hedge portfolio may consist of a combination of options, swaps or futures. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices. We recognized losses of $ 146 million, gains of $ 85 million and losses of $ 41 million on our fuel hedge contracts for the years ended December 31, 2021, 2020 and 2019, respectively. • Interest Rate Contracts. Our interest rate derivatives were swap contracts, which were valued based on data readily observable in public markets. We unwound our final interest rate contract in January 2021 and have no contracts open as of December 31, 2021. Delta Air Lines, Inc. 2021 Form 10-K 81 Notes to the Consolidated Financial Statements • Foreign Currency Exchange Contracts. Our foreign currency derivatives consist of forward contracts and are valued based on data readily observable in public markets. NOTE 4. INVESTMENTS We have developed strategic relationships with a number of airlines and airline services companies through joint ventures and other forms of cooperation and support, including equity investments. Our equity investments reinforce our commitment to these relationships and generally enhance our ability to offer input to the investee on strategic issues and direction, in some cases through representation on the board of directors. Changes in the valuation of investments accounted for at fair value are recorded in gain/(loss) on investments, net in our income statement within non-operating expense and are driven by changes in stock prices, other valuation techniques for investments in companies without publicly-traded shares and foreign currency fluctuations. Our share of Unifi Aviation's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business by providing services at our airport locations, while our share of other equity method investees' financial results is recorded in impairments and equity method losses in our income statement under non-operating expense. If an investment accounted for under the equity method experiences a loss in value that is determined to be other than temporary, we will reduce our carrying value of the investment to fair value and record the loss in impairments and equity method losses in our income statement. Equity investments ownership interest and carrying value Accounting Treatment Ownership Interest Carrying Value (in millions) December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 Wheels Up Fair Value 21 % 24 % $ 241 $ 210 Hanjin-KAL Fair Value 13 % 13 % 455 512 Air France-KLM Fair Value 6 % 9 % 165 235 China Eastern Fair Value 2 % 3 % 177 201 CLEAR Fair Value 6 % 6 % 260 120 Unifi Aviation Equity Method 49 % 49 % 159 154 Other investments Various 255 233 Equity investments $ 1,712 $ 1,665 Wheels Up. In the September 2021 quarter, Wheels Up became a publicly-traded company through a merger with Aspirational Consumer Lifestyle Corp ("Aspirational"). Aspirational subsequently changed its name to Wheels Up Experience Inc. and its common stock trades on the New York Stock Exchange under the symbol UP. We account for our investment under the fair value option and use the stock price to recognize fair value adjustments. CLEAR. In the June 2021 quarter, Clear Secure, Inc. completed an initial public offering of Class A common stock, which trades on the New York Stock Exchange under the symbol YOU. We own shares of Alclear Holdings, LLC, which are convertible on a one-to-one basis for the Class A common stock of Clear. Our 6 % ownership interest in Clear is determined on a fully exchanged and converted basis. We account for our investment under the fair value method and use the stock price to recognize fair value adjustments. Other Investments. This category includes various investments that are accounted for at fair value or under the equity method, depending on our ownership interest and the level of influence conveyed by our investment. Included therein are our investments in Grupo Aeroméxico, LATAM Airlines Group S.A. ("LATAM") and Virgin Atlantic, all of which are undergoing in-court or out-of-court restructurings, and the carrying values of these investments have been reduced to and remain zero as of December 31, 2021. In order to support our relationships with these carriers, we have provided them with strategic and operational assistance through their restructurings. Delta Air Lines, Inc. 2021 Form 10-K 82 Notes to the Consolidated Financial Statements In the December 2021 quarter, we purchased approximately $ 525 million in obligations from certain lenders under LATAM, Grupo Aeroméxico and Virgin Atlantic’s restructuring processes, which reduced current maturities of debt and finance leases on the balance sheet. These purchases are reflected as financing outflows on the cash flows statement. As a result of these purchases, we have assumed a pro-rata portion of each lender’s rights under the financing arrangements with each respective partner, which are recorded within other noncurrent assets as of December 31, 2021. The receivables from Grupo Aeroméxico and LATAM are subject to certain reserves based on our assessment of collectability, the amounts of which are not material. In addition to the loans we purchased from a third party lender in Virgin Atlantic’s restructuring process, in the December 2021 quarter, we also loaned $ 275 million to Virgin Atlantic which is reflected as an investing outflow on the cash flows statement. After the carrying amount of our investment in Virgin Atlantic was reduced to zero during 2020, we have continued to track our 49 % share of their losses under the equity method of accounting. These previously unrecognized losses are only recorded to the extent we make additional investments in Virgin Atlantic (i.e., additional shareholder support). The loans we have extended to Virgin Atlantic are treated as additional shareholder support and during 2021 resulted in our recognition of $ 340 million of previously unrecognized losses in impairments and equity method losses within non-operating expense in our income statement. As of December 31, 2021, we have an additional $ 130 million of unrecognized equity method losses related to our 49 % interest in Virgin Atlantic. 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. Our total investments to be made in these carriers, inclusive of the transactions described above, will be approximately $ 1.2 billion. We also have an investment in JFK IAT Member LLC which is accounted for under the equity method and is discussed further in Note 8, "Airport Redevelopment." GOL. During 2020, we loaned GOL Linhas Aéreas Inteligentes, the parent company of GOL Linhas Aéreas (operating as GOL), $ 250 million to be used exclusively to repay the term loan we had previously guaranteed. As of December 31, 2020, GOL had repaid approximately $ 160 million of this loan and during 2021 GOL repaid the remaining balance. NOTE 5. GOODWILL AND INTANGIBLE ASSETS Goodwill and Indefinite-Lived Intangible Assets Our goodwill and identifiable intangible assets relate to the airline segment. We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach. Under a qualitative approach, we consider various market factors, including certain of the key assumptions listed below. We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets. If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. Under a quantitative approach, we calculate the fair value of the asset incorporating the key assumptions listed below into our calculation. We value goodwill and indefinite-lived intangible assets primarily using market and income approach valuation techniques. These measurements include the following key assumptions (1) forecasted revenues, expenses and cash flows, 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. Because we are required to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates. We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value. Delta Air Lines, Inc. 2021 Form 10-K 83 Notes to the Consolidated Financial Statements 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., 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. Identifiable Intangible Assets. Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to alliances and collaborative arrangements. Definite-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred. As a result of the significant impact the COVID-19 pandemic had on our market capitalization, profitability and overall travel demand, we performed a quantitative valuation of our goodwill and indefinite-lived intangible assets during the December 2020 quarter. These quantitative impairment tests of goodwill and intangibles concluded that there was no indication of impairment as the fair value exceeded our carrying value. In the December 2021 quarter we performed qualitative assessments of goodwill and indefinite-lived intangible assets, including applicable factors noted above, and determined that there was no indication that the assets were impaired. Our qualitative assessments include analyses and weighting of all relevant factors that impact the fair value of our goodwill and indefinite-lived intangible assets. Goodwill and indefinite-lived intangible assets by category Carrying Value at Excess Fair Value at 2020 Testing Date (in millions) December 31, 2021 December 31, 2020 Goodwill $ 9,753 $ 9,753 > 100 % International routes and slots 2,583 2,583 10 % to 30 % Airline alliances 1,863 1,863 20 % to > 100 % Delta tradename 850 850 > 100 % Domestic slots 622 622 60 % to > 100 % Total $ 15,671 $ 15,671 International Routes and Slots. This primarily relates to Pacific route authorities and slots at capacity-constrained airports in Asia, and slots at London-Heathrow airport. Airline Alliances. This primarily relates to our commercial agreements with LATAM and our SkyTeam partners. Domestic Slots. This primarily relates to our slots at New York-LaGuardia and Washington-Reagan National airports. Definite-Lived Intangible Assets Definite-lived intangible assets by category December 31, 2021 December 31, 2020 (in millions) Gross Carrying Value Accumulated Amortization Gross Carrying Value Accumulated Amortization Marketing agreements $ 730 $ ( 700 ) $ 730 $ ( 696 ) Maintenance contracts 193 ( 140 ) 193 ( 134 ) Other 53 ( 53 ) 53 ( 53 ) Total $ 976 $ ( 893 ) $ 976 $ ( 883 ) Amortization expense was $ 10 million, $ 10 million and $ 11 million for the years ended December 31, 2021, 2020 and 2019, respectively. Based on our definite-lived intangible assets at December 31, 2021, we estimate that we will incur approximately $ 9 million of amortization expense annually from 2022 through 2026. Delta Air Lines, Inc. 2021 Form 10-K 84 Notes to the Consolidated Financial Statements NOTE 6. DEBT The following table summarizes our debt as of the dates indicated below: Summary of outstanding debt by category Maturity Interest Rate(s) Per Annum at December 31, (in millions) Dates December 31, 2021 2021 2020 Unsecured notes 2022 to 2029 2.90 % to 7.38 % $ 4,354 $ 5,350 Unsecured Payroll Support Program Loans 2030 to 2031 1.00 % 3,496 1,648 Financing arrangements secured by SkyMiles assets: SkyMiles Notes (1) 2023 to 2028 4.50 % and 4.75 % 6,000 6,000 SkyMiles Term Loan (1)(2) 2023 to 2027 4.75 % 2,820 3,000 Financing arrangements secured by slots, gates and/or routes: 2020 Senior Secured Notes 2025 7.00 % 2,589 3,500 2020 Term Loan n/a n/a — 1,493 2018 Revolving Credit Facility (2) 2023 to 2024 Undrawn — — Financing arrangements secured by aircraft: Certificates (1) 2022 to 2028 2.00 % to 8.00 % 1,932 2,633 Notes (1)(2) 2022 to 2033 0.79 % to 5.75 % 1,139 1,284 NYTDC Special Facilities Revenue Bonds, Series 2020 (1) 2026 to 2045 4.00 % to 5.00 % 1,511 1,511 NYTDC Special Facilities Revenue Bonds, Series 2018 (1) 2022 to 2036 4.00 % to 5.00 % 1,383 1,383 Other financings (1)(2) 2022 to 2030 2.51 % to 8.00 % 68 412 Other revolving credit facilities (2) 2022 to 2024 Undrawn — — Total secured and unsecured debt 25,292 28,214 Unamortized (discount)/premium and debt issuance cost, net and other ( 208 ) ( 240 ) Total debt 25,084 27,974 Less: current maturities ( 1,502 ) ( 1,443 ) Total long-term debt $ 23,582 $ 26,531 (1) Due in installments. (2) Certain financings are comprised of variable rate debt. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate plus a specified margin. Unsecured Payroll Support Program Extension Loans A summary of the amounts received and warrants issued under the initial payroll support program under the CARES Act and the payroll support program extensions is set forth in the following table: Summary of payroll support program activity (in millions) Total Grant Loan Number of Warrants Percentage of Outstanding Shares at December 31, 2021 Payroll Support Program (PSP1) $ 5,594 $ 3,946 $ 1,648 6.8 1.1 % Payroll Support Program Extension (PSP2) 3,290 2,333 957 2.4 0.4 % Payroll Support Program 3 (PSP3) 3,069 2,178 891 1.9 0.3 % Total $ 11,953 $ 8,457 $ 3,496 11.1 1.8 % Grants received were recognized in government grant recognition in our income statement over the periods that the funds were intended to compensate. The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were fully recognized during 2021. Delta Air Lines, Inc. 2021 Form 10-K 85 Notes to the Consolidated Financial Statements Payroll Support Program Extension (PSP2). The Consolidated Appropriations Act, 2021 was enacted on December 27, 2020, and included an extension of the payroll support program created under the CARES Act providing an additional $15 billion in grants and loans to the airline industry. In January 2021, we entered into a payroll support program extension agreement with the U.S. Department of the Treasury. During the six months ended June 30, 2021, we received a total of $ 3.3 billion in payroll support payments under this extension agreement, which we were required to use exclusively for the payment of employee wages, salaries and benefits and were 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. These support payments consisted of $ 2.3 billion in a grant and $ 957 million in an unsecured 10 -year low interest loan. In return, we entered into a promissory note for the loan and issued warrants to the U.S. Department of the Treasury to acquire approximately 2.4 million shares of Delta common stock. The loan bears interest at an annual rate of 1.00 % for the first five years and the applicable Secured Overnight Financing Rate ("SOFR") plus 2.00 % in the final five years. The warrants have an initial exercise price of $ 39.73 per share, subject to adjustment in certain cases, and a five-year term. We have recorded the value of the promissory note and warrants on a relative fair value basis as $ 905 million of noncurrent debt, net of discount, and $ 52 million in additional paid in capital, respectively. Payroll Support Program 3 (PSP3). The American Rescue Plan Act of 2021 was enacted on March 11, 2021, and included a further extension of the payroll support program providing an additional $14 billion in grants and loans to the airline industry. In April 2021, we entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury. During the June 2021 quarter, we received a total of $ 3.1 billion in payroll support payments under this agreement, which we were required to use exclusively for the payment of employee wages, salaries and benefits and was conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs from the date of the agreement through September 30, 2021 or the date on which we have expended all of the payroll support, whichever is later. We expended all of the payroll support during 2021. Other conditions include prohibitions on share repurchases and dividends through September 30, 2022 and certain limitations on executive compensation until April 1, 2023. These support payments consisted of $ 2.2 billion in a grant and $ 891 million in an unsecured 10 -year low interest loan. In return, we entered into a promissory note for the loan and issued warrants to the U.S. Department of the Treasury to acquire approximately 1.9 million shares of Delta common stock. The loan bears interest at an annual rate of 1.00 % for the first five years and the applicable SOFR plus 2.00 % in the final five years. The warrants have an initial exercise price of $ 47.80 per share, subject to adjustment in certain cases, and a five-year term. We have recorded the value of the promissory note and warrants on a relative fair value basis as $ 857 million of noncurrent debt, net of discount, and $ 34 million in additional paid in capital, respectively. 2020 Term Loan In 2020 we entered into a $ 1.5 billion term loan secured by certain slots, gates and routes. In the March 2021 quarter, we repaid in full the term loan, which was scheduled to mature in April 2023, and incurred a $ 56 million loss on extinguishment of debt, which is recorded in loss on extinguishment of debt in non-operating expense in our income statement. Enhanced Equipment Trust Certificates ("EETCs") Prepayments In the June 2021 quarter, we repaid in full approximately $ 450 million of various EETCs which were scheduled to mature between 2022 and 2023, and incurred a $ 26 million loss on extinguishment of debt, which is recorded in loss on extinguishment of debt in non-operating expense in our income statement. Delta Air Lines, Inc. 2021 Form 10-K 86 Notes to the Consolidated Financial Statements Early Settlement of Outstanding Notes In July 2021, we completed a cash tender offer for an aggregate purchase price of $ 1.0 billion, excluding accrued and unpaid interest, of our outstanding 7.0 % Senior Secured Notes due 2025 (the "2025 Notes"), 7.375 % Notes due 2026 (the "2026 Notes") and 4.5 % Senior Secured Notes due 2025 (the "2025 SkyMiles Notes"). As a result of the tender offer, we purchased 2025 Notes, included as 2020 Senior Secured Notes in the table above, with principal amount of $ 677 million for approximately $ 800 million and 2026 Notes, included in Unsecured Notes in the table above, with principal amount of $ 169 million for approximately $ 200 million. We did not purchase any of the 2025 SkyMiles Notes under the tender offer. In addition to the early settlement of the principal amount of the purchased notes, we recorded a loss of $ 166 million on extinguishment of debt in non-operating expense in our income statement. During the second half of 2021, we also repurchased $ 647 million of various secured certificates, unsecured notes and a portion of the SkyMiles Term Loan on the open market. These payments resulted in a $ 71 million loss on extinguishment of debt. In January 2022, we irrevocably committed to the early redemption of $ 1.0 billion of our 3.625 % unsecured notes that had an original maturity during March 2022. We will repay these notes plus accrued interest during February 2022. Availability Under Revolving Facilities As of December 31, 2021, we had approximately $ 2.9 billion undrawn and available under our revolving credit facilities. In addition, we had $ 300 million outstanding letters of credit as of December 31, 2021 that did not affect the availability under our revolvers. Fair Value of Debt Market risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Debt is primarily classified as Level 2 within the fair value hierarchy. Fair value of outstanding debt (in millions) December 31, 2021 December 31, 2020 Net carrying amount $ 25,084 $ 27,974 Fair value $ 26,900 $ 29,800 Covenants Our debt agreements contain various affirmative, negative and financial covenants. For example, our credit facilities and our SkyMiles financing agreements, contain, among other things, a minimum liquidity covenant. The minimum liquidity covenant requires us to maintain at least $ 2.0 billion of liquidity (defined as cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities). Certain of our debt agreements also include collateral coverage ratios and limit our ability to (1) incur liens under certain circumstances, (2) dispose of collateral, (3) engage in mergers and consolidations or transfer all or substantially all of our assets and (4) pay dividends or repurchase our common stock through September 2022. Our SkyMiles financing agreements include a debt service coverage ratio and also restrict our ability to, among other things, (1) modify the terms of the SkyMiles program, or otherwise change the policies and procedures of the SkyMiles program, in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Debt, (2) sell pre-paid miles in excess of $ 550 million in the aggregate and (3) terminate or materially modify the intercompany arrangements governing the relationship between Delta and SMIP with respect to the SkyMiles program. Each of these restrictions, however, is subject to certain exceptions and qualifications that are set forth in these debt agreements. We were in compliance with the covenants in our debt agreements at December 31, 2021. Delta Air Lines, Inc. 2021 Form 10-K 87 Notes to the Consolidated Financial Statements Future Maturities The following table summarizes scheduled maturities of our debt for the years succeeding December 31, 2021: Future debt maturities (in millions) Total Debt Amortization of Debt (Discount)/Premium and Debt Issuance Cost, net and other 2022 $ 1,483 $ ( 54 ) 2023 2,516 ( 60 ) 2024 3,094 ( 61 ) 2025 4,215 ( 39 ) 2026 3,051 ( 8 ) Thereafter 10,933 14 Total $ 25,292 $ ( 208 ) $ 25,084 NOTE 7. LEASES We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below. When available, we use the rate implicit in the lease to discount lease payments to present value; however, we have an insignificant number of leases representing an immaterial portion of our lease liability that provide readily determinable implicit rates. When the rate implicit in the lease is not available, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date. Some of our aircraft lease agreements include provisions for residual value guarantees. These provisions primarily relate to our regional aircraft and the amounts are not significant. We do not have other forms of variable interests with the lessors of our leased assets, other than at New York-JFK, in which we are not the primary beneficiary as discussed in Note 8, "Airport Redevelopment," and with respect to one lessor, in which we have a variable interest in certain immaterial aircraft leases, that we have consolidated. Aircraft As of December 31, 2021, including aircraft operated by our regional carriers, we leased 290 aircraft, of which 107 were under finance leases and 183 were operating leases. Our aircraft leases had remaining lease terms of one month to 14 years. In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 110 aircraft as of December 31, 2021 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements. Delta Air Lines, Inc. 2021 Form 10-K 88 Notes to the Consolidated Financial Statements Airport Facilities Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability. Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects. Other Ground Property and Equipment We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to eight years . Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant. Sale-Leaseback Transactions In 2020, we entered into $ 2.8 billion of sale-leaseback transactions for 85 aircraft including 25 A321-200s, 25 A220-100s, 23 CRJ-900s, 10 737-900ERs and two A330-900s. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement. The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement. Delta Air Lines, Inc. 2021 Form 10-K 89 Notes to the Consolidated Financial Statements Lease Position The table below presents the lease-related assets and liabilities recorded on the balance sheet. Lease asset and liability balance sheet position by category December 31, (in millions) Classification on the Balance Sheet 2021 2020 Assets Operating lease assets Operating lease right-of-use assets $ 7,237 $ 5,733 Finance lease assets Property and equipment, net 1,596 1,002 Total lease assets $ 8,833 $ 6,735 Liabilities Current Operating Current maturities of operating leases $ 703 $ 678 Finance Current maturities of debt and finance leases 280 289 Noncurrent Operating Noncurrent operating leases 7,056 5,713 Finance Debt and finance leases 1,556 894 Total lease liabilities $ 9,595 $ 7,574 Weighted-average remaining lease term Operating leases 13 years 12 years Finance leases 6 years 5 years Weighted-average discount rate Operating leases 3.81 % 4.88 % Finance leases 3.36 % 3.61 % Lease Costs The table below presents certain information related to the lease costs for finance and operating leases. Lease cost by category Year Ended December 31, (in millions) 2021 2020 2019 Finance lease cost Amortization of leased assets $ 131 $ 131 $ 110 Interest of lease liabilities 55 32 29 Operating lease cost (1) 863 1,019 1,013 Short-term lease cost 245 264 500 Variable lease cost (1) 1,599 1,406 1,456 Total lease cost $ 2,893 $ 2,852 $ 3,108 (1) Expenses are classified within aircraft rent, landing fees and other rents and regional carrier expense on the income statement. For the years ended December 31, 2021, 2020 and 2019, operating lease costs of $ 111 million, $ 187 million and $ 174 million, respectively, are attributed to our regional carriers. For the years ended December 31, 2021, 2020 and 2019, variable lease costs of $ 29 million, $ 50 million and $ 64 million, respectively, are attributable to our regional carriers. Delta Air Lines, Inc. 2021 Form 10-K 90 Notes to the Consolidated Financial Statements Other Information The table below presents supplemental cash flow information related to leases. Supplemental lease-related cash flow information Year Ended December 31, (in millions) 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 999 $ 1,053 $ 1,166 Operating cash flows for finance leases 46 32 27 Financing cash flows for finance leases 336 255 192 Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet. Future lease cash flows and reconciliation to the balance sheet (in millions) Operating Leases Finance Leases 2022 $ 944 $ 324 2023 974 286 2024 894 369 2025 866 232 2026 766 168 Thereafter 5,307 636 Total minimum lease payments 9,751 2,015 Less: amount of lease payments representing interest ( 1,992 ) ( 179 ) Present value of future minimum lease payments 7,759 1,836 Less: current obligations under leases ( 703 ) ( 280 ) Long-term lease obligations $ 7,056 $ 1,556 As of December 31, 2021, we had additional leases that had not yet commenced of $ 403 million. These leases will commence in 2022 to 2024 with lease terms of 7 to 10 years. NOTE 8. AIRPORT REDEVELOPMENT New York-JFK Airport 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 ("Sublease") 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. We have recognized a ROU asset and lease liability representing the fixed component of the lease payments for this facility. During 2021, we signed an amendment to the Sublease for additional gates at JFK, increasing our lease obligation by $ 1.2 billion. We have an equity method investment in JFK IAT Member LLC, which owns IAT, our sublessor at Terminal 4. The Sublease requires us to pay certain fixed management fees. We determined the investment is a variable interest entity and assessed whether we have a controlling financial interest in IAT. Our rights under the Sublease, with respect to management of Terminal 4, are consistent with rights granted to an anchor tenant under a standard airport lease. Accordingly, we do not consolidate this entity in our Consolidated Financial Statements. Delta Air Lines, Inc. 2021 Form 10-K 91 Notes to the Consolidated Financial Statements 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. We have not completed our assessment of the project accounting, but we expect that we will not control the underlying assets being constructed, and therefore, do not expect to have the project asset or related obligation recorded on our balance sheet. Los Angeles International Airport ("LAX") We executed a modified lease agreement during 2016 with the City of Los Angeles (the "City"), which owns and operates LAX, and announced plans to modernize, upgrade and provide post-security connection to Terminals 2 and 3. Construction is underway, which includes a new centralized ticketing and arrival hall, a new security checkpoint, core infrastructure to support the City's planned airport people mover, ramp improvements and a post-security connector to the north side of the Tom Bradley International Terminal. Given reduced passenger volumes resulting from the COVID-19 pandemic, we 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. 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 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. Under the lease agreement and subsequent project component approvals by the City's Board of Airport Commissioners, the City has appropriated to date approximately $ 1.8 billion to purchase completed project assets, representing the maximum allowable reimbursement by the City. Costs incurred in excess of the $ 1.8 billion maximum will not be reimbursed by the City. We currently expect our net project costs to be approximately $ 500 million, of which approximately $ 250 million has been reflected as investing activities in our cash flows statement since the project started in 2017. In 2021, $ 487 million was spent on this project, with $ 450 million paid by the credit facility and $ 37 million paid directly by Delta. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet. New York-LaGuardia Airport 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. Delta Air Lines, Inc. 2021 Form 10-K 92 Notes to the Consolidated Financial Statements In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050. Pursuant to the lease agreement, 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. See Note 6, "Debt," for additional information on the debt related to this redevelopment project, NYTDC Special Facilities Revenue Bonds, Series 2018 and NYTDC Special Facilities Revenue Bonds, Series 2020. In 2019, we opened Concourse G, the first of 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. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed. Costs incurred by Delta are accounted for as leasehold improvements. We entered into loan agreements to fund a portion of the construction, which are recorded on our balance sheet as debt with the proceeds reflected as restricted cash. NOTE 9. EMPLOYEE BENEFIT PLANS We sponsor defined benefit and defined contribution pension plans, healthcare plans and disability and survivorship plans for eligible employees and retirees and their eligible family members. Defined Benefit Pension Plans. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and frozen for future benefit accruals. 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. We have no minimum funding requirements for these plans in 2022 and do no t plan to make voluntary contributions during 2022. Defined Contribution Pension Plans. We sponsor several defined contribution plans. These plans generally cover different employee groups and employer contributions vary by plan. The costs associated with our defined contribution pension plans were approximately $ 875 million, $ 805 million and $ 1.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Postretirement Healthcare Plans. We sponsor healthcare plans that provide benefits to eligible retirees and their dependents who are under age 65 . We have generally eliminated company-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents, (2) a group of retirees who retired prior to 1987 and (3) retiree medical accounts which provide a fixed dollar amount to eligible employees who retired under the 2012 voluntary workforce reduction programs or under the 2020 voluntary early retirement and separation programs ("voluntary programs"). Benefits under these plans are funded from current assets and employee contributions. During 2020, we remeasured our postretirement healthcare obligation to account for the retiree medical accounts provided to eligible participants in our voluntary programs. As a result, we recorded a $ 1.3 billion special termination benefit charge and increased our postretirement healthcare obligation by $ 1.3 billion. Postemployment Plans. We provide certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans. Substantially all employees are eligible for benefits under these plans in the event of death and/or disability. Delta Air Lines, Inc. 2021 Form 10-K 93 Notes to the Consolidated Financial Statements Benefit Obligations, Fair Value of Plan Assets and Funded Status Pension Benefits Other Postretirement and Postemployment Benefits December 31, December 31, (in millions) 2021 2020 2021 2020 Benefit obligation at beginning of period $ 22,626 $ 21,199 $ 4,766 $ 3,379 Service cost — — 86 96 Interest cost 582 700 117 120 Actuarial (gain)/loss ( 851 ) 2,051 23 247 Benefits paid, including lump sums and annuities ( 1,279 ) ( 1,233 ) ( 405 ) ( 356 ) Participant contributions — — 18 20 Special termination benefits — — — 1,260 Settlements ( 5 ) ( 91 ) — — Benefit obligation at end of period (1) $ 21,073 $ 22,626 $ 4,605 $ 4,766 Fair value of plan assets at beginning of period $ 16,541 $ 15,845 $ 496 $ 607 Actual gain on plan assets 2,732 1,973 57 76 Employer contributions 1,513 47 192 189 Participant contributions — — 18 20 Benefits paid, including lump sums and annuities ( 1,279 ) ( 1,233 ) ( 406 ) ( 396 ) Settlements ( 5 ) ( 91 ) — — Fair value of plan assets at end of period $ 19,502 $ 16,541 $ 357 $ 496 Funded status at end of period $ ( 1,571 ) $ ( 6,085 ) $ ( 4,248 ) $ ( 4,270 ) (1) At the end of each year presented, our accumulated benefit obligations for our pension plans are equal to the benefit obligations shown above. During 2021, actuarial gains decreased our benefit obligation due to the increase in discount rate, while in 2020 our obligation increased due to the actuarial losses from a decrease in discount rates. These gains and losses are recorded in AOCI and reflected in the table below. Amounts are generally amortized from AOCI over the expected future lifetime of plan participants. Balance Sheet Position Pension Benefits Other Postretirement and Postemployment Benefits December 31, December 31, (in millions) 2021 2020 2021 2020 Current liabilities $ ( 9 ) $ ( 10 ) $ ( 203 ) $ ( 143 ) Noncurrent liabilities ( 1,562 ) ( 6,075 ) ( 4,045 ) ( 4,127 ) Total liabilities $ ( 1,571 ) $ ( 6,085 ) $ ( 4,248 ) $ ( 4,270 ) Net actuarial loss $ ( 7,462 ) $ ( 9,878 ) $ ( 831 ) $ ( 886 ) Prior service credit — — 23 29 Total accumulated other comprehensive loss, pre-tax $ ( 7,462 ) $ ( 9,878 ) $ ( 808 ) $ ( 857 ) Delta Air Lines, Inc. 2021 Form 10-K 94 Notes to the Consolidated Financial Statements Net Periodic (Benefit) Cost Pension Benefits Other Postretirement and Postemployment Benefits Year Ended December 31, Year Ended December 31, (in millions) 2021 2020 2019 2021 2020 2019 Service cost $ — $ — $ — $ 86 $ 96 $ 83 Interest cost 582 700 833 117 120 137 Expected return on plan assets ( 1,522 ) ( 1,373 ) ( 1,186 ) ( 34 ) ( 44 ) ( 47 ) Amortization of prior service credit — — — ( 6 ) ( 9 ) ( 9 ) Recognized net actuarial loss 354 300 291 55 44 37 Settlements 2 38 5 — — — Special termination benefits — — — — 1,260 — Net periodic (benefit) cost $ ( 584 ) $ ( 335 ) $ ( 57 ) $ 218 $ 1,467 $ 201 Service cost is recorded in salaries and related costs in the income statement. Special termination benefits are recorded in restructuring charges, while all other components are recorded within pension and related benefit/(expense) under non-operating expense. Assumptions We used the following actuarial assumptions to determine our benefit obligations and our net periodic benefit cost for the periods presented: December 31, Benefit Obligations (1) 2021 2020 Weighted average discount rate 2.97 % 2.62 % Year Ended December 31, Net Periodic (Benefit) Cost (1) 2021 2020 2019 Weighted average discount rate - pension benefit 2.65 % 3.40 % 4.33 % Weighted average discount rate - other postretirement benefit 2.43 % 3.47 % 4.32 % Weighted average discount rate - other postemployment benefit 2.55 % 3.34 % 4.32 % Weighted average expected long-term rate of return on plan assets 8.98 % 8.97 % 8.97 % Assumed healthcare cost trend rate for the next year (2) 6.25 % 6.25 % 6.50 % (1) Future employee compensation levels do not impact our frozen defined benefit pension plans or other postretirement plans and impact only a small portion of our other postemployment obligation. (2) Healthcare cost trend rate is assumed to decline gradually to 5.00 % by 2028 and remain unchanged thereafter. Expected Long-Term Rate of Return. Our expected long-term rate of return on plan assets is based primarily on plan-specific investment studies using historical market return and volatility data. Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. We also expect to receive a premium for investing in less liquid private markets. We review our rate of return on plan assets assumptions annually. 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 %. Life Expectancy . Changes in life expectancy may significantly impact our benefit obligations and future net periodic benefit cost. We use the Society of Actuaries ("SOA") published mortality data and other publicly available information to develop our best estimate of life expectancy. The SOA publishes updated mortality tables for U.S. plans and updated improvement scales. 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. Delta Air Lines, Inc. 2021 Form 10-K 95 Notes to the Consolidated Financial Statements Benefit Payments Benefit payments in the table below are based on the same assumptions used to measure the related benefit obligations. Actual benefit payments may vary significantly from these estimates. Benefits earned under our pension plans and certain postemployment benefit plans are expected to be paid from funded benefit plan trusts, while our other postretirement benefits are funded from current assets. The following table summarizes the benefit payments that are expected to be paid in the years ending December 31: Expected future benefit payments (in millions) Pension Benefits Other Postretirement and Postemployment Benefits 2022 $ 1,290 $ 420 2023 1,280 460 2024 1,270 460 2025 1,270 460 2026 1,260 460 2027-2031 6,110 2,160 Plan Assets We have adopted and implemented investment policies for our defined benefit pension plans that incorporate strategic asset allocation mixes intended to best meet the plans' long-term obligations, while maintaining an appropriate level of risk and liquidity. These asset portfolios employ a diversified mix of investments, which are reviewed periodically. Active management strategies are utilized where feasible in an effort to realize investment returns in excess of market indices. Derivatives in the plans are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. As part of these strategies, the plans are required to hold cash collateral associated with certain derivatives. Our investment strategies target a mix of 30 - 50 % growth-seeking assets, 25 - 35 % income-generating assets and 30 - 40 % risk-diversifying assets. Risk diversifying assets include hedged mandates implementing long-short, market neutral and relative value strategies that invest primarily in publicly-traded equity, fixed income, foreign currency and commodity securities and are used to improve the impact of active management on the plans. Benefit Plan Assets Measured at Fair Value on a Recurring Basis Benefit Plan Assets. Benefit plan assets relate to our defined benefit pension plans and certain of our postemployment benefit plans. These investments are presented net of the related benefit obligation in pension, postretirement and related benefits on the balance sheets. See Note 3, "Fair Value Measurements," for a description of the levels within the fair value hierarchy and associated valuation techniques used to measure fair value. The following table shows our benefit plan assets by asset class. Benefit plan assets measured at fair value on a recurring basis December 31, 2021 December 31, 2020 Valuation Technique (in millions) Level 1 Level 2 Total Level 1 Level 2 Total Cash equivalents $ 2,390 $ 2,097 $ 4,487 $ 305 $ 3,359 $ 3,664 (a) Equities and equity-related instruments 1,034 161 1,195 1,061 59 1,120 (a) Fixed income and fixed income-related instruments 69 979 1,048 — 882 882 (a)(b) Delta common stock 407 — 407 507 — 507 (a) Real assets — 256 256 — — — (a) Benefit plan assets $ 3,900 $ 3,493 $ 7,393 $ 1,873 $ 4,300 $ 6,173 Investments measured at net asset value ("NAV") (1) 12,653 10,427 Total benefit plan assets $ 20,046 $ 16,600 (1) Investments that were measured at NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. Delta Air Lines, Inc. 2021 Form 10-K 96 Notes to the Consolidated Financial Statements Cash Equivalents. These investments primarily consist of high-quality, short-term obligations that are a part of institutional money market mutual funds that are valued using current market quotations or an appropriate substitute that reflects current market conditions. Equities and Equity-Related Instruments. These investments include common stock and equity-related instruments. Common stock is valued at the closing price reported on the active market on which the individual securities are traded. Equity-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Fixed Income and Fixed Income-Related Instruments. These investments include corporate bonds, government bonds, collateralized mortgage obligations and other asset-backed securities, and are generally valued at the bid price or the average of the bid and ask price. Prices are based on pricing models, quoted prices of securities with similar characteristics or broker quotes. Fixed income-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year, or if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Delta Common Stock. The Delta common stock investment is managed by an independent fiduciary. Real Assets. These investments include precious metals and precious metals-related instruments, some of which are valued at the closing price reported on the active market on which the individual instruments are traded, while others are priced based on pricing models, quoted prices of securities with similar characteristics or broker quotes. The following table summarizes investments measured at fair value based on NAV per share as a practical expedient: Benefit plan investment assets measured at NAV December 31, 2021 December 31, 2020 (in millions) Fair Value Redemption Frequency Redemption Notice Period Fair Value Redemption Frequency Redemption Notice Period Hedge funds and hedge fund-related strategies (4) $ 7,563 (3) 2 - 180 Days $ 5,474 (3) 2 - 180 Days Commingled funds, private equity and private equity-related instruments (4) 2,228 (3) 3 - 45 Days 2,136 (3) 3 - 30 Days Fixed income and fixed income-related instruments (4) 877 (3) 65 - 90 Days 1,118 (3) 15 - 90 Days Real assets (4) 773 (2) N/A 671 (2) N/A Other 1,212 (1) 2 - 10 Days 1,028 (1) 2 - 90 Days Total investments measured at NAV $ 12,653 $ 10,427 (1) Weekly, semi-monthly, monthly (2) Semi-annually and annually (3) Various. Includes funds with weekly, semi-monthly, monthly, quarterly and custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment. (4) Unfunded commitments were $ 1.0 billion for commingled funds, private equity and private equity-related instruments, $ 259 million for fixed income and fixed income-related instruments and $ 386 million for real assets at December 31, 2021. Hedge Funds and Hedge Fund-Related Strategies. These investments are primarily made through shares of limited partnerships or similar structures for which a liquid secondary market does not exist. Commingled Funds, Private Equity and Private Equity-Related Instruments. These investments include commingled funds invested in common stock, as well as private equity and private equity-related instruments. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private equity and private equity-related strategies are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. Delta Air Lines, Inc. 2021 Form 10-K 97 Notes to the Consolidated Financial Statements Fixed Income and Fixed Income-Related Instruments. These investments include commingled funds invested in debt obligations. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private fixed income strategies are typically valued monthly or quarterly by the fund managers or third-party valuation agents using valuation models where one or more of significant inputs into the model cannot be observed and which require the development of assumptions. Real Assets. These investments include real estate, energy, timberland, agriculture and infrastructure. The valuation of real assets requires significant judgment due to the absence of quoted market prices as well as the inherent lack of liquidity and the long-term nature of these assets. Real assets are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. Other. Primarily includes globally-diversified, risk-managed commingled funds consisting mainly of equity, fixed income and commodity exposures. On an annual basis we assess the potential for adjustments to the fair value of all investments. These investments valued using NAV as a practical expedient are typically valued on a monthly or quarterly basis by third-party administrators, valuation agents or fund managers with an annual audit performed by an independent third party, but certain of these investments have a lag in the availability of data. This primarily applies to private equity, private equity-related strategies and real assets. We solicit valuation updates from the investment fund managers and use their information and corroborating data from public markets to determine any needed fair value adjustments. Other We also sponsor defined benefit pension plans for eligible employees in certain foreign countries. These plans did not have a material impact on our Consolidated Financial Statements in any period presented. Voluntary Programs During 2020, in response to the COVID-19 pandemic, we announced the voluntary programs, which primarily applied to eligible U.S. merit, ground and flight attendant and pilot employees. Those employees who elected to participate in the voluntary programs were eligible for separation payments, continued healthcare benefits and certain participants received retiree medical accounts. The election and revocation windows for these programs closed during 2020 with approximately 18,000 employees electing to participate. We recorded $ 3.4 billion in restructuring charges in our income statement associated with these programs and other employee benefit charges during 2020, including $ 1.3 billion of special termination benefits (discussed above). The remainder of the restructuring charge primarily relates to separation payments and healthcare benefits. Approximately $ 720 million was disbursed in cash payments to participants in the voluntary programs during 2020 and approximately $ 575 million in 2021. An additional approximately $ 250 million of cash payments were disbursed during 2020 related to unused vacation and other benefits, which were accrued prior to the voluntary programs charge. Accruals related to the voluntary programs are primarily recorded in pension, postretirement and related benefits, other noncurrent liabilities, other accrued liabilities and accrued salaries and related benefits on our balance sheet. Profit Sharing Program 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. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items. 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. For the years ended December 31, 2021 and 2019 we recorded profit sharing expense of $ 108 million and $ 1.6 billion, respectively. For the year ended December 31, 2020 we recorded no profit sharing expense. Delta Air Lines, Inc. 2021 Form 10-K 98 Notes to the Consolidated Financial Statements NOTE 10. COMMITMENTS AND CONTINGENCIES Aircraft Purchase Commitments Our future aircraft purchase commitments totaled approximately $ 16.2 billion at December 31, 2021: Aircraft purchase commitments (in millions) Total 2022 $ 3,700 2023 3,040 2024 3,290 2025 2,880 2026 2,340 Thereafter 920 Total $ 16,170 Our future aircraft purchase commitments included the following aircraft at December 31, 2021: Aircraft purchase commitments by fleet type Fleet Type Purchase Commitments A220-100 4 A220-300 40 A321-200neo 155 A330-900neo 26 A350-900 20 B-737-900ER 19 Total 264 Aircraft Orders During 2021, we agreed with Airbus to add incremental aircraft to our order book by converting options for 55 A321neo aircraft into firm orders and replenishing 25 of our options. We expect to take delivery of our first A321neo in the first half of 2022, with deliveries of these aircraft continuing through 2027. Additionally, we agreed to move up two A350-900 deliveries and one A330-900neo delivery to occur in the second half of 2022. During 2021, we agreed to acquire 29 B-737-900 aircraft and enter into leases for nine A350-900 aircraft. We began taking delivery of these preowned aircraft in 2021 and deliveries are expected to continue through the first quarter of 2022. Phased entry into service is expected through the summer of 2023. Contract Carrier Agreements We have contract carrier agreements with regional carriers expiring from 2022 to 2031. These agreements are structured as either capacity purchase or revenue proration agreements. Capacity Purchase Agreements . Our regional carriers primarily operate for us under capacity purchase agreements. Under these agreements, the regional carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. Delta Air Lines, Inc. 2021 Form 10-K 99 Notes to the Consolidated Financial Statements The following table shows our minimum obligations under our existing capacity purchase agreements with third-party regional carriers. The obligations set forth in the table contemplate minimum levels of flying by the regional carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees. Accordingly, our actual payments under these agreements could differ materially from the minimum fixed obligations set forth in the table below. Contract carrier minimum obligations (in millions) Amount (1) 2022 $ 1,513 2023 1,515 2024 1,488 2025 1,521 2026 1,554 Thereafter 4,141 Total $ 11,732 (1) These amounts exclude contract carrier payments accounted for as leases of aircraft, which are described in Note 7, "Leases." Revenue Proration Agreement . As of December 31, 2021, a portion of our contract carrier arrangement with SkyWest Airlines, Inc. was structured as a revenue proration agreement. This revenue proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries. Legal Contingencies We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other matters concerning our business. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, we believe that the resolution of current matters will not have a material adverse effect on our Consolidated Financial Statements. Credit Card Processing Agreements Our VISA/MasterCard and American Express credit card processing agreements provide that no cash reserve ("Reserve") is required, and no withholding of payment related to receivables collected will occur, except in certain circumstances, including when we do not maintain a required level of liquidity as outlined in the merchant processing agreements. In circumstances in which the credit card processor can establish a Reserve or withhold payments, the amount of the Reserve or payments that may be withheld would be equal to the potential liability of the credit card processor for tickets purchased with VISA/MasterCard or American Express credit cards, as applicable, that had not yet been used for travel. We did not have a Reserve or an amount withheld as of December 31, 2021 or 2020. Other Contingencies General Indemnifications We are the lessee under many commercial real estate leases. It is common in these transactions for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. This type of indemnity would typically make us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct. Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment. Delta Air Lines, Inc. 2021 Form 10-K 100 Notes to the Consolidated Financial Statements We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have insurance policies in place as required by applicable environmental laws. Some of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to specified changes in law or regulations. In some of these financing transactions, we also bear the risk of changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes. We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time. Employees Under Collective Bargaining Agreements As of December 31, 2021, we had approximately 83,000 full-time equivalent employees, 20 % of whom were represented by unions. Domestic airline employees represented by collective bargaining agreements by group Employee Group Approximate Number of Employees Represented Union Date on which Collective Bargaining Agreement Becomes Amendable Delta Pilots 13,180 ALPA December 31, 2019 Delta Flight Superintendents (Dispatchers) 380 PAFCA November 1, 2024 Endeavor Air Pilots 1,900 ALPA January 1, 2029 Endeavor Air Flight Attendants 1,480 AFA March 31, 2025 In addition to the domestic airline employee groups discussed above, approximately 180 refinery employees of our wholly owned subsidiary Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2022. This agreement is governed by the National Labor Relations Act, which generally allows either party to engage in self-help upon the expiration of the agreement. Certain of our employees outside the U.S. are represented by unions, work councils or other local representative groups. Other We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs. Delta Air Lines, Inc. 2021 Form 10-K 101 Notes to the Consolidated Financial Statements NOTE 11. INCOME TAXES Income Tax Provision Components of income tax (provision) benefit Year Ended December 31, (in millions) 2021 2020 2019 Current tax (provision) benefit: Federal $ — $ 94 $ 94 State and local ( 1 ) 3 ( 39 ) International ( 3 ) ( 5 ) ( 13 ) Deferred tax (provision) benefit: Federal ( 130 ) 2,766 ( 1,343 ) State and local 16 344 ( 130 ) Income tax (provision) benefit $ ( 118 ) $ 3,202 $ ( 1,431 ) The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate: Reconciliation of statutory federal income tax rate to the effective income tax rate Year Ended December 31, 2021 2020 2019 U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit ( 4.4 ) 1.9 2.3 Permanent differences 4.9 ( 0.6 ) ( 0.3 ) Valuation allowance 9.1 ( 2.6 ) 0.7 Other ( 0.8 ) 0.8 ( 0.6 ) Effective income tax rate 29.8 % 20.5 % 23.1 % Delta Air Lines, Inc. 2021 Form 10-K 102 Notes to the Consolidated Financial Statements Deferred Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of deferred income tax assets and liabilities December 31, (in millions) 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 1,301 $ 1,495 Capital loss carryforward 480 483 Pension, postretirement and other benefits 2,089 2,956 Investments 314 — Deferred revenue 2,288 1,929 Lease liabilities 2,452 2,185 Other 494 479 Valuation allowance ( 833 ) ( 460 ) Total deferred tax assets $ 8,585 $ 9,067 Deferred tax liabilities: Depreciation $ 4,463 $ 4,507 Operating lease assets 1,676 1,324 Intangible assets 1,097 1,076 Other 55 172 Total deferred tax liabilities $ 7,291 $ 7,079 Net deferred tax assets $ 1,294 $ 1,988 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. 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. 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. 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. Delta Air Lines, Inc. 2021 Form 10-K 103 Notes to the Consolidated Financial Statements The following table presents the balance of our valuation allowance on our deferred income tax assets and the associated activity: Valuation allowance activity (in millions) 2021 2020 Balance at January 1 $ 460 $ 58 Tax provision 26 402 Equity investment activity 347 — Balance at December 31 $ 833 $ 460 Other The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2021 and 2020 tax years. NOTE 12. EQUITY AND EQUITY COMPENSATION Equity We are authorized to issue 2.0 billion shares of capital stock, of which up to 1.5 billion may be shares of common stock, par value $ 0.0001 per share, and up to 500 million may be shares of preferred stock. Preferred Stock. We may issue preferred stock in one or more series. The Board of Directors is authorized (1) to fix the descriptions, powers (including voting powers), preferences, rights, qualifications, limitations and restrictions with respect to any series of preferred stock and (2) to specify the number of shares of any series of preferred stock. We have not issued any preferred stock. Treasury Stock. We generally withhold shares of Delta common stock to cover employees' portion of required tax withholdings when employee equity awards are issued or vest. These shares are valued at cost, which equals the market price of the common stock on the date of issuance or vesting. The weighted average cost per share held in treasury was $ 28.87 and $ 28.23 as of December 31, 2021 and 2020, respectively. Warrants. See Note 6, "Debt," for further discussion of the warrants issued during 2020 and 2021 in connection with the CARES Act payroll support program and extensions to acquire more than 11.1 million shares of Delta common stock. Equity Compensation Our broad-based equity and cash compensation plan provides for grants of restricted stock, stock options, performance awards, including cash incentive awards and other equity-based awards (the "Plan"). Shares of common stock issued under the Plan may be made available from authorized, but unissued, common stock or common stock we acquire. If any shares of our common stock are covered by an award that expires, is canceled, forfeited or otherwise terminates without delivery of shares (including shares surrendered or withheld for payment of taxes related to an award), such shares will again be available for issuance under the Plan except for (1) any shares tendered in payment of an option, (2) shares withheld to satisfy any tax withholding obligation with respect to the exercise of an option or stock appreciation right ("SAR") or (3) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award. The Plan authorizes the issuance of up to 163 million shares of common stock. As of December 31, 2021, there were 19 million shares available for future grants. We make long-term incentive awards annually to eligible employees under the Plan. Generally, awards vest over time, subject to the employee's continued employment. Equity compensation expense, including awards payable in common stock or cash, is recognized in salaries and related costs over the employee's requisite service period (generally, the vesting period of the award) and totaled $ 149 million, $ 119 million and $ 161 million for the years ended December 31, 2021, 2020 and 2019, respectively. We record expense on a straight-line basis for awards with installment vesting. As of December 31, 2021, unrecognized costs related to unvested shares and stock options totaled $ 77 million. We expect substantially all unvested awards to vest and recognize forfeitures as they occur. Delta Air Lines, Inc. 2021 Form 10-K 104 Notes to the Consolidated Financial Statements Restricted Stock . Restricted stock is common stock that may not be sold or otherwise transferred for a period of time and is subject to forfeiture in certain circumstances. The fair value of restricted stock awards is based on the closing price of the common stock on the grant date. As of December 31, 2021, there were 2.9 million unvested restricted stock awards. Restricted stock activity under the plan for the years ended December 31, 2021, 2020 and 2019 is as follows: Restricted Stock Award Activity 2021 2020 2019 Restricted Stock Awards Weighted-Average Grant Price Restricted Stock Awards Weighted-Average Grant Price Restricted Stock Awards Weighted-Average Grant Price (in millions, except wtd avg grant price) Outstanding at January 1 2.2 $ 54.06 2.6 $ 51.28 2.4 $ 49.24 Granted 2.3 39.93 1.4 56.84 1.8 51.75 Vested ( 1.4 ) 51.15 ( 1.6 ) 51.95 ( 1.5 ) 48.65 Forfeited ( 0.2 ) 44.01 ( 0.2 ) 56.11 ( 0.1 ) 50.78 Outstanding at December 31 2.9 $ 45.66 2.2 $ 54.06 2.6 $ 51.28 Stock Options. Stock options are granted with an exercise price equal to the closing price of Delta common stock on the grant date and generally have a 10 -year term. We determine the fair value of stock options at the grant date using an option pricing model. As of December 31, 2021, there were 6.2 million outstanding stock option awards with a weighted average exercise price of $ 50.41 of which 3.3 million were exercisable. Stock option activity under the plan for the years ended December 31, 2021, 2020 and 2019 is as follows: Stock Option Activity 2021 2020 2019 Stock Options Weighted-Average Exercise Price Stock Options Weighted-Average Exercise Price Stock Options Weighted-Average Exercise Price (in millions, except wtd avg grant price) Outstanding at January 1 5.4 $ 52.37 3.9 $ 49.57 2.5 $ 48.99 Granted 1.0 39.78 1.6 58.89 1.4 50.52 Exercised — — ( 0.1 ) 44.05 — — Forfeited ( 0.2 ) 49.61 — — — — Outstanding at December 31 6.2 $ 50.41 5.4 $ 52.37 3.9 $ 49.57 Performance Awards. Performance awards are dollar-denominated long-term incentive opportunities which, for grants prior to 2021, are payable in Delta stock to executive officers on the payment date and in cash to all other participants. Beginning with the 2021 grants, performance awards are payable in cash to all participants. Potential performance award payments range from 0 %- 200 % of a target level and are contingent upon our achieving certain financial and operational goals over a three-year performance period. Based on the closing stock price at each respective year end and contingent on achieving the specified performance conditions, the maximum shares that could be issued were 1.5 million, 2.2 million and 1.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. Delta Air Lines, Inc. 2021 Form 10-K 105 Notes to the Consolidated Financial Statements NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS Components of accumulated other comprehensive loss (in millions) Pension and Other Benefits Liabilities (2) Other (3) Total Balance at January 1, 2019 (net of tax effect of $ 1,492 ) $ ( 7,925 ) $ 100 $ ( 7,825 ) Changes in value (net of tax effect of $ 133 ) ( 422 ) 7 ( 415 ) Reclassifications into earnings (net of tax effect of $ 76 ) (1) 252 ( 1 ) 251 Balance at December 31, 2019 (net of tax effect of $ 1,549 ) ( 8,095 ) 106 ( 7,989 ) Changes in value (net of tax effect of $ 384 ) ( 1,269 ) 17 ( 1,252 ) Reclassifications into earnings (net of tax effect of $ 169 ) (1) 286 ( 83 ) 203 Balance at December 31, 2020 (net of tax effect $ 1,764 ) ( 9,078 ) 40 ( 9,038 ) Changes in value (net of tax effect of $ 484 ) 1,593 — 1,593 Reclassifications into earnings (net of tax effect of $ 96 ) (1) 315 — 315 Balance at December 31, 2021 (net of tax effect of $ 1,184 ) $ ( 7,170 ) $ 40 $ ( 7,130 ) (1) Amounts reclassified from AOCI for pension and other benefits liabilities are recorded in pension and related benefit/(expense) in non-operating expense in the income statement. (2) Includes approximately $ 760 million of deferred income tax expense as a result of tax law changes and prior valuation allowance releases through continuing operations, that will not be recognized in net income until pension and other benefit obligations are fully extinguished. (3) In 2020, all remaining foreign currency hedges expired, and we recognized an $ 83 million tax benefit which was released from AOCI. Delta Air Lines, Inc. 2021 Form 10-K 106 Notes to the Consolidated Financial Statements NOTE 14. SEGMENTS Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments. Our chief operating decision maker is considered to be our executive leadership team. Our executive leadership team regularly reviews discrete information for our two operating segments, which are determined by the products and services provided: our airline segment and our refinery segment. Airline Segment Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U.S. and around the world and includes our loyalty program, as well as other ancillary airline services. This allows us to benefit from an integrated revenue pricing and route network. Our flight equipment forms one fleet, which is deployed through a single route scheduling system. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers fleet type and route economics, but gives no weight to the financial impact of the resource allocation decision on a geographic region or mainline/regional carrier basis. Our objective in making resource allocation decisions is to optimize our consolidated financial results. Refinery Segment Our Monroe subsidiary operates the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel. Monroe's operations include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK. Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties. The refinery's production consists of jet fuel, as well as non-jet fuel products. We use several counterparties to exchange the non-jet fuel products produced by the refinery for jet fuel consumed in our airline operations. The gross fair value of the products exchanged under these agreements during the years ended December 31, 2021, 2020 and 2019 was $ 2.3 billion, $ 1.5 billion and $ 4.0 billion, respectively. The decline in exchange transactions compared to the year ended December 31, 2019 is primarily due to the decrease in demand for jet fuel from our airline operations as a result of the economic conditions caused by the COVID-19 pandemic. Segment Reporting Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with GAAP. Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis. Delta Air Lines, Inc. 2021 Form 10-K 107 Notes to the Consolidated Financial Statements Financial information by segment (in millions) Airline Refinery Intersegment Sales/Other Consolidated Year Ended December 31, 2021 Operating revenue: $ 26,670 $ 6,054 $ 29,899 Sales to airline segment $ ( 492 ) (1) Exchanged products ( 2,293 ) (2) Sales of refined products ( 40 ) (3) Operating income (loss) (4) 1,888 ( 2 ) 1,886 Interest expense, net 1,272 7 1,279 Depreciation and amortization 1,998 95 ( 95 ) (4) 1,998 Restructuring charges ( 19 ) — ( 19 ) Total assets, end of period 70,360 2,099 72,459 Net fair value obligations, end of period (5) — ( 497 ) ( 497 ) Capital expenditures 3,188 59 3,247 Year Ended December 31, 2020 Operating revenue: $ 15,945 $ 3,143 $ 17,095 Sales to airline segment $ ( 214 ) (1) Exchanged products ( 1,472 ) (2) Sales of refined products ( 307 ) (3) Operating loss (4) ( 12,253 ) ( 216 ) ( 12,469 ) Interest expense, net 928 1 929 Depreciation and amortization 2,312 99 ( 99 ) (4) 2,312 Restructuring charges 8,219 — 8,219 Total assets, end of period 70,548 1,448 71,996 Net fair value obligations, end of period (5) — ( 156 ) ( 156 ) Capital expenditures 1,879 20 1,899 Year Ended December 31, 2019 Operating revenue: $ 46,910 $ 5,558 $ 47,007 Sales to airline segment $ ( 1,103 ) (1) Exchanged products ( 3,963 ) (2) Sales of refined products ( 395 ) (3) Operating income (4) 6,542 76 6,618 Interest expense (income), net 327 ( 26 ) 301 Depreciation and amortization 2,581 99 ( 99 ) (4) 2,581 Total assets, end of period 62,793 1,739 64,532 Net fair value obligations, end of period (5) — ( 4 ) ( 4 ) Capital expenditures 4,880 56 4,936 (1) Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery. (2) Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis. (3) These sales were at or near cost; accordingly, the margin on these sales is de minimis. (4) Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement. (5) The fair values of these obligations, which are related to renewable fuel compliance costs, are based on quoted market prices and other observable information and are classified as Level 2 in the fair value hierarchy. At December 31, 2021 we had a gross fair value obligation of $ 593 million recorded in current liabilities on the balance sheet and related assets of $ 96 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. At December 31, 2020 we had a gross fair value obligation of $ 172 million and related assets of $ 16 million. At December 31, 2019 we had a gross fair value obligation of $ 58 million and related assets of $ 54 million. We expect to use the assets in settling a portion of our obligations. Delta Air Lines, Inc. 2021 Form 10-K 108 Notes to the Consolidated Financial Statements NOTE 15. RESTRUCTURING As a result of the unprecedented, widespread and persistent impact of the COVID-19 pandemic, demand for travel declined at a rapid pace in the March 2020 quarter and remained depressed throughout 2020, which had an unprecedented and materially adverse impact on our results of operations and financial position. Although demand improved throughout 2021, system-wide demand remained below pre-pandemic levels. During 2020, we 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 through actions including fleet retirements, offering voluntary retirement and separation programs and other decisions. These actions resulted in significant restructuring charges during 2020 which are summarized as follows: Restructuring charges by category Year Ended (in millions) December 31, 2020 Fleet Retirements $ 4,409 Voluntary Programs and Other Employee Benefit Charges 3,409 Receivables and Other 401 Total Restructuring Charges $ 8,219 During 2021, we recorded $ 19 million of net adjustments to decrease certain of these restructuring charges, representing changes in our estimates. Fleet Retirements. 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. The table below summarizes the number of leased and owned aircraft being retired early, though we remain flexible and may decide to fly certain aircraft beyond their planned retirement date, to the extent supported by demand. Fleet retirement by aircraft type Fleet Type Number of Aircraft Planned Retirement During the Quarter Ended Impairment-Related Charge (in millions) 777 18 December 2020 $ 1,440 767-300ER 56 December 2025 1,084 717 91 December 2025 950 MD-90 26 June 2020 335 CRJ-200 (1) 125 December 2023 320 737-700 10 September 2020 223 A320 10 June 2020 57 MD-88 (2) 47 June 2020 — Total 383 $ 4,409 (1) Certain of the CRJ-200 aircraft scheduled to be retired by the December 2023 quarter are operated for us by SkyWest Airlines under a revenue proration agreement. (2) During the March 2020 quarter, we recorded a $ 22 million charge related to accelerating the planned retirement of the MD-88 fleet from December 2020 to June 2020. However, this amount was recorded in depreciation and amortization, rather than in restructuring charges, as it would have been incurred during 2020 prior to the onset of the COVID-19 pandemic. These impairment and other related charges were recorded in restructuring charges in our income statement. These charges were calculated using Level 3 fair value inputs based primarily upon recent market transactions and third-party bids, which were corroborated with published pricing guides and our assessment of existing market conditions based on industry knowledge. Following the impairment charges, the 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. Delta Air Lines, Inc. 2021 Form 10-K 109 Notes to the Consolidated Financial Statements Voluntary Programs and Other Employee Benefit Charges. During 2020, in response to the COVID-19 pandemic, we announced the voluntary programs, which primarily applied to eligible U.S. merit, ground and flight attendant and pilot employees. We recorded $ 3.4 billion in restructuring charges in our income statement associated with these programs and other employee benefit charges during 2020, including $ 1.3 billion of special termination benefits. See Note 9, "Employee Benefit Plans," for more information on these voluntary programs. Receivables and Other. Based on our assessment of collectability, during the year ended December 31, 2020, we recorded approximately $ 100 million of reserves against outstanding receivables from LATAM, Grupo Aeroméxico, GOL, Virgin Atlantic and others. NOTE 16. EARNINGS/ (LOSS) PER SHARE We calculate basic earnings/(loss) per share and diluted (loss) per share by dividing net income/(loss) by the weighted average number of common shares outstanding, excluding restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including stock options, restricted stock awards and warrants. Antidilutive common stock equivalents excluded from the diluted earnings/(loss) per share calculation are not material. The following table shows our computation: Basic and diluted earnings/(loss) per share Year Ended December 31, (in millions, except per share data) 2021 2020 2019 Net income/(loss) $ 280 $ ( 12,385 ) $ 4,767 Basic weighted average shares outstanding 636 636 651 Dilutive effect of share-based awards 5 — 2 Diluted weighted average shares outstanding 641 636 653 Basic earnings/(loss) per share $ 0.44 $ ( 19.49 ) $ 7.32 Diluted earnings/(loss) per share $ 0.44 $ ( 19.49 ) $ 7.30 Delta Air Lines, Inc. 2021 Form 10-K 110 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.