DELTA AIR LINES, INC. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During 2022, our recovery from the impact of the COVID-19 pandemic continued and is continuing into 2023. Given the drastic and unprecedented impact of the pandemic on our operating results in 2020 and 2021, we believe that a comparison of our results in 2022 to both 2021 and 2019 in this overview section allows for a better understanding of the full impact of the COVID-19 pandemic and the progress of our recovery. This section of Form 10-K, however, does not address certain items regarding the year ended December 31, 2020. Discussion and analysis of 2020 and year-to-year comparisons between 2021 and 2020 not included in this Form 10-K can be found in "Item 7. Management's Discussion and Analysis" of our Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes and other financial information as well as the material risk factors included elsewhere in this Annual Report on Form 10-K. The table below shows certain key financial measures for the years ended December 31, 2022, 2021 and 2019: Year Ended December 31, 2022 vs 2021 % Increase (Decrease) 2022 vs 2019 % Increase (Decrease) (in millions) 2022 2021 2019 Total operating revenue $ 50,582 $ 29,899 $ 47,007 69 % 8 % Total operating expense 46,921 28,013 40,389 67 % 16 % Operating income 3,661 1,886 6,618 94 % (45) % Available seat miles ("ASM" or "capacity") 233,226 194,474 275,379 20 % (15) % 2022 Financial Overview Our 2022 operating income was $3.7 billion, an improvement of $1.8 billion compared to 2021, while operating income, adjusted (a non-GAAP financial measure) which excludes restructuring charges and other items was $3.6 billion, an increase of $6.1 billion compared to 2021. The increases in operating income and operating income, adjusted were primarily due to the continued recovery in the demand for air travel during 2022, which resulted in a 69% increase in operating revenue on a 20% increase in system capacity. Operating income in 2021 included a benefit of $4.5 billion from the recognition of payroll support program ("PSP") grants, driving the smaller year-over-year increase than operating income, adjusted, which excluded the grants benefit in 2021. Our 2022 operating income decreased $3.0 billion compared to 2019 primarily due to an increase in operating costs, including a 35% increase in fuel cost, and lower passenger revenue due to system capacity that was 15% lower as we continued to restore our operations from the effects of the COVID-19 pandemic. Operating income, adjusted (a non-GAAP financial measure) decreased $3.1 billion compared to 2019. Revenue. Compared to 2021, our 2022 operating revenue increased $20.7 billion, or 69%, primarily due to continued recovery in travel demand from the COVID-19 pandemic and higher refinery sales to third parties. Improvement in premium products revenue resulted from both a shift in the mix of seats on our aircraft following the retirement of certain fleets in 2020 and delivery of new aircraft since that time, as well as incremental increase in demand, particularly from leisure customers. Compared to 2019, our operating revenue increased $3.6 billion, or 8%, due primarily to higher refinery sales to third parties, partially offset by the revenue impact from 15% lower capacity. We are planning for our 2023 system capacity to fully recover to or exceed 2019 capacity levels. Operating Expense. Total operating expense increased $18.9 billion, or 67%, compared to 2021, primarily resulting from higher fuel costs, due to both an increase in fuel price and increased consumption as capacity was restored, as well as higher salaries and related costs, higher volume-related expenses associated with the increase in capacity and demand and an increase in expenses related to refinery sales to third parties, reflected in ancillary business and refinery expense. The increase also resulted from $4.5 billion of PSP grants recognized during 2021, which reduced expenses in that year. Total operating expense, adjusted (a non-GAAP financial measure) which excludes expenses related to refinery sales to third parties, contra-expense from the recognition of PSP grants in 2021 and other items, increased $12.8 billion, or 44%, compared to 2021. Delta Air Lines, Inc. | 2022 10-K 33 Item 7. MD&A - Financial Highlights Our total operating cost per available seat mile ("CASM") increased 40% to 20.12 cents compared to 2021, primarily due to the higher costs discussed above. Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure), which excludes fuel, expenses related to refinery sales to third parties, contra-expense from the recognition of PSP grants in 2021 and other items, increased 6% to 12.87 cents. Total operating expense increased $6.5 billion, or 16%, compared to 2019, primarily resulting from higher fuel costs and an increase in expenses related to refinery sales to third parties. Total operating expense, adjusted (a non-GAAP financial measure) increased $2.0 billion, or 5% compared to 2019. Our CASM increased 37% compared to 2019, primarily due to the higher costs discussed above and a 15% decrease in capacity. CASM-Ex (a non-GAAP financial measure) increased 18% compared to 2019. During 2023, we expect non-fuel unit costs to decrease compared to 2022 as we restore our network to pre-pandemic levels, better utilizing our assets. We expect to reduce our investments in rebuilding the network as we progress through the year while improving our operational efficiency and managing inflationary pressures including labor cost increases. Non-Operating Results. Total non-operating expense was $1.7 billion in 2022, $259 million higher than 2021 primarily due to higher mark-to-market losses on certain of our equity investments, partially offset by reduced losses on our equity method investments, lower interest expense as a result of our debt reduction initiatives and lower losses on extinguishment of debt. Total non-operating expense was $1.3 billion higher than 2019, primarily due to higher mark-to-market losses on certain of our equity investments and higher interest expense as a result of our increased debt balances due to the financing arrangements entered into during 2020. Cash Flow. During 2022, operating activities provided cash flows of $6.4 billion, primarily on improving ticket sales, and incurred approximately $6.9 billion of net investing cash outflows, primarily for $6.4 billion of capital expenditures. After adjusting for strategic investments and certain other activities, these results generated $244 million of free cash flow (a non-GAAP financial measure) in 2022. Also, during 2022 we had cash outflows of approximately $4.5 billion related to repayments of our debt and finance leases, including approximately $2.3 billion for early repayments and the remainder from scheduled maturities. Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity") at December 31, 2022 was $9.4 billion. The non-GAAP financial measures operating income, adjusted, operating expense, adjusted, CASM-Ex and free cash flow used above are defined and reconciled in "Supplemental Information" below. Delta Air Lines, Inc. | 2022 10-K 34 Item 7. MD&A - Results of Operations Results of Operations Operating Revenue Year Ended December 31, Increase (Decrease) % Increase (Decrease) (in millions) (1) 2022 2021 Ticket - Main cabin $ 20,396 $ 11,393 $ 9,003 79 % Ticket - Premium products 15,230 7,946 7,284 92 % Loyalty travel awards 2,898 1,786 1,112 62 % Travel-related services 1,694 1,394 300 22 % Total passenger revenue $ 40,218 $ 22,519 $ 17,699 79 % Cargo 1,050 1,032 18 2 % Other 9,314 6,348 2,966 47 % Total operating revenue $ 50,582 $ 29,899 $ 20,683 69 % TRASM (cents) 21.69 ¢ 15.37 ¢ 6.32 ¢ 41 % Third-party refinery sales (2) (2.13) (1.66) (0.47) 28 % TRASM, adjusted (cents) 19.55 ¢ 13.71 ¢ 5.84 ¢ 43 % (1) Total amounts in the table above may not calculate exactly due to rounding. (2) For additional information on adjustments to TRASM, see "Supplemental Information" below. Operating Revenue Our operating revenue increased $20.7 billion, or 69%, compared to the year ended December 31, 2021 due primarily to increased demand in 2022 as a result of the continued recovery from the COVID-19 pandemic and higher third-party refinery sales. The increase in operating revenue, on a 20% increase in system capacity, generated a 41% increase in total revenue per available seat mile ("TRASM") and a 43% increase in TRASM, adjusted (a non-GAAP financial measure) compared to 2021. See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period. Passenger Revenue by Geographic Region Increase (Decrease) vs. Year Ended December 31, 2021 (in millions) Year Ended December 31, 2022 Passenger Revenue RPMs (Traffic) ASMs (Capacity) Passenger Mile Yield PRASM Load Factor Domestic $ 30,197 64 % 27 % 10 % 29 % 48 % 11 pts Atlantic 6,093 243 % 194 % 110 % 17 % 63 % 23 pts Latin America 2,889 54 % 24 % (5) % 25 % 62 % 19 pts Pacific 1,039 159 % 211 % 8 % (17) % 139 % 44 pts Total passenger revenue $ 40,218 79 % 45 % 20 % 23 % 49 % 15 pts Domestic Domestic passenger unit revenue ("PRASM") for the year ended December 31, 2022 increased 48% compared to the year ended December 31, 2021 as a result of stronger demand and higher levels of traffic due to the ongoing recovery from the COVID-19 pandemic throughout 2022. Domestic revenue in 2022 was above 2021 levels and near pre-pandemic levels, even though capacity was not fully restored, as consumers continue to return to travel. We believe spending patterns for services are returning to historical levels compared to spending on goods. We also experienced higher growth in premium product revenue (including Delta One, First Class, Delta Premium Select and Delta Comfort+) compared to main cabin with the delivery of new aircraft that include more premium seat capacity and an increase in premium product yield compared to main cabin, as we see more consumers choosing these premium offerings. In 2023, we expect domestic capacity to be restored to pre-pandemic levels through growth in our core hubs in Atlanta, Minneapolis-St. Paul, Detroit and Salt Lake City. Delta Air Lines, Inc. | 2022 10-K 35 Item 7. MD&A - Results of Operations International International passenger revenue for the year ended December 31, 2022 increased 147% with capacity up 47% compared to the year ended December 31, 2021, with the Atlantic region experiencing the most significant improvement, as travel to many European destinations resumed or increased. In November 2021, travel restrictions on most fully vaccinated foreign visitors to the United States were lifted. This action made travel to the U.S. by many foreign nationals possible for the first time in 18 months. Further, in June 2022, the United States lifted its testing requirement for international travel. Both of these changes have had a positive impact on international demand. Most countries in our network have removed or eased travel restrictions, resulting in revenue improvement across all international regions. The Atlantic region showed strong demand improvement during 2022 as western European countries removed or eased travel restrictions in the first half of 2022. Revenue in this region was near pre-pandemic levels as travelers continue to show increased desire for transatlantic travel. This has been led by demand for leisure destinations such as Italy, Spain and Greece and improving business demand. Latin America region revenue was also near pre-pandemic levels during 2022, due to continued strong demand for leisure destinations in Mexico, the Caribbean and Central America. Also, in 2022, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement combines our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. Beginning in the December 2022 quarter, we and LATAM began adding capacity on certain Latin America routes and introduced one new route between Los Angeles and São Paulo, Brazil. The Pacific region continues to be the most impacted by travel restrictions, although we experienced demand improvement during 2022 following South Korea and Australia reopening to international travelers and the recent easing of travel restrictions to Japan. Throughout 2022, China still maintained international testing requirements and travel restrictions, which continued to restrain demand in the Pacific region. We expect the increasing revenue trends in all international regions to continue into 2023 as demand for international locations continues to be strong and countries continue to reopen and remove or ease remaining travel restrictions. For example, in January 2023 China ended most of its pandemic-related travel restrictions and we expect to increase capacity based on demand during 2023. Ticket Validity Flexibility In order to provide our customers more flexibility and time to plan their travel, travel credit holders as of January 2022 and customers who purchased a ticket in 2022 are able to rebook their ticket through December 31, 2023 for travel throughout 2024. Delta has eliminated change fees for tickets originating in the United States, Canada, Europe and Africa (excluding Basic Economy tickets). A change fee waiver continues to apply for travel originating in Asia and the Pacific. Starting in 2022, Basic Economy tickets may be cancelled for a charge to receive a partial ticket credit. We estimate the value of ticket breakage and recognize revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods. See Note 2 of the Notes to the Consolidated Financial Statements for additional information about passenger ticket sales. Delta Air Lines, Inc. | 2022 10-K 36 Item 7. MD&A - Results of Operations Other Revenue Year Ended December 31, Increase (Decrease) % Increase (Decrease) (in millions) 2022 2021 Refinery $ 4,977 $ 3,229 $ 1,748 54 % Loyalty program 2,597 1,770 827 47 % Ancillary businesses 846 793 53 7 % Miscellaneous 894 556 338 61 % Total other revenue $ 9,314 $ 6,348 $ 2,966 47 % Refinery. This represents refinery sales to third parties. These sales increased $1.7 billion compared to 2021. The increase in third-party refinery sales resulted from higher pricing and production during 2022 compared to 2021. See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period. Loyalty Program. This relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards. These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions. On continued strength in co-brand card spend and card acquisitions, revenues from our relationship with American Express increased in 2022 compared to 2021. Ancillary Businesses. This includes aircraft maintenance services we provide to third parties and our vacation wholesale operations. Miscellaneous. This is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues. Compared to 2021, these transactions have increased due to the ongoing recovery of our business that continued to materialize in 2022. Our network of Delta Sky Club lounges was fully reopened by the end of July 2021 after some lounges temporarily closed at the onset of the pandemic in 2020. Delta Air Lines, Inc. | 2022 10-K 37 Item 7. MD&A - Results of Operations Operating Expense Year Ended December 31, Increase (Decrease) % Increase (Decrease) (in millions) 2022 2021 Salaries and related costs $ 11,902 $ 9,728 $ 2,174 22 % Aircraft fuel and related taxes 11,482 5,633 5,849 104 % Ancillary businesses and refinery 5,756 3,957 1,799 45 % Contracted services 3,345 2,420 925 38 % Landing fees and other rents 2,181 2,019 162 8 % Depreciation and amortization 2,107 1,998 109 5 % Regional carrier expense 2,051 1,736 315 18 % Aircraft maintenance materials and outside repairs 1,982 1,401 581 41 % Passenger commissions and other selling expenses 1,891 953 938 98 % Passenger service 1,453 756 697 92 % Profit sharing 563 108 455 421 % Aircraft rent 508 430 78 18 % Restructuring charges (124) (19) (105) 553 % Government grant recognition — (4,512) 4,512 (100) % Other 1,824 1,405 419 30 % Total operating expense $ 46,921 $ 28,013 $ 18,908 67 % During 2021, travel demand began to recover from the low levels experienced during the height of the COVID-19 pandemic. This recovery in demand continued to accelerate during 2022. As a result, operating expenses increased in conjunction with the increases in demand and capacity discussed above. The continued restoration of our operations was the primary driver for the increases in most operating expense line items, particularly contracted services, aircraft maintenance materials and outside repairs, passenger commissions and other selling expenses and passenger service. Other year-over-year fluctuations are discussed below. Salaries and Related Costs. We hired approximately 25,000 employees during 2022 principally in flight operations, in-flight service, reservations and customer care, TechOps and airport customer service, in order to support our operations as demand and capacity returned. These hiring actions and a 4% base pay increase effective May 1, 2022 for eligible employees resulted in the increase in salaries and related costs in 2022 compared to 2021. The increase also results from the ending of the voluntary unpaid leave of absence program we offered in response to the COVID-19 pandemic during 2021. During 2022, we no longer offered these leaves of absence as the program terminated in September 2021. In early 2023, we announced a 5% base pay increase for eligible employees effective April 1, 2023. Delta and ALPA reached an Agreement in Principle on a new collective bargaining agreement in December 2022. In January 2023, a tentative agreement was ratified by ALPA’s Delta Master Executive Council ( " MEC " ) and is subject to ratification by Delta’s pilots through a vote that is scheduled to close on March 1, 2023. In addition to various work rule changes and an 18% pay rate increase in 2023, the tentative agreement includes a provision for a one-time payment of approximately $700 million upon pilot ratification. As voting on the tentative agreement has not closed and there is significant uncertainty about the outcome of this process, we have not accrued for this one-time payment as of December 31, 2022. Delta Air Lines, Inc. | 2022 10-K 38 Item 7. MD&A - Results of Operations Aircraft Fuel and Related Taxes. Fuel expense increased $5.8 billion compared to 2021 primarily due to a 78% increase in the market price of jet fuel and a 23% increase in consumption as capacity was restored. Additionally, during 2022, we purchased and retired $116 million of carbon offsets which relate to a portion of our airline segment's 2021 and March 2022 quarter carbon emissions. During 2021, we purchased and retired $95 million of carbon offsets, which related to a portion of our airline segment's 2020 and 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item. As we continue to work on accelerating our long-term, net-zero greenhouse gas emissions goal, our vision of the path forward will require multiple initiatives, centered on a long-term strategy of decarbonization; we therefore expect substantially all of our investment going forward will be focused on solutions other than carbon offsets. Fuel expense and average price per gallon Average Price Per Gallon Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) (in millions, except per gallon data) 2022 2021 2022 2021 Fuel purchase cost (1) $ 12,114 $ 5,527 $ 6,587 $ 3.55 $ 1.99 $ 1.56 Carbon offset costs 116 95 21 0.03 0.03 — Fuel hedge impact 29 9 20 0.01 — 0.01 Refinery segment impact (777) 2 (779) (0.23) — (0.23) Total fuel expense $ 11,482 $ 5,633 $ 5,849 $ 3.36 $ 2.02 $ 1.34 (1) Market price for jet fuel at airport locations, including related taxes and transportation costs. Ancillary Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Increased expenses were primarily related to refinery sales to third parties, which increased $1.7 billion compared to 2021. The increase compared to 2021 was driven by higher pricing and production during 2022. The cost of aircraft maintenance services we provide to third parties increased compared to 2021 due to the increase in flights and aircraft operated during 2022. Regional Carrier Expense. Regional carrier expense increased compared to 2021 due to an increase in contract carrier rates and wages, while capacity was constrained due to a shortage of regional jet pilots. Restructuring Charges. During 2020, we recorded restructuring charges of $8.2 billion for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the years ended December 31, 2022 and 2021, we recognized $124 million and $19 million, respectively, of adjustments to certain of those restructuring charges, representing changes in our estimates or the outcome of contract negotiations. See Note 15 of the Notes to the Consolidated Financial Statements for additional information about the restructuring charges recorded in 2020. Profit Sharing. Profit sharing increased by $455 million during 2022 due to higher profit during the year. Our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual profit, as defined by the terms of the program, and 20% of annual profit above $2.5 billion. For the year ended December 31, 2021, we recorded a special profit sharing expense of $108 million, based on the adjusted pre-tax profit earned during the second half of the year, to recognize the extraordinary efforts of our employees through the pandemic. Government Grant Recognition. During the year ended December 31, 2021, we received a total of $6.4 billion under PSP agreements with the U.S. Department of the Treasury, which we were required to use exclusively for the payment of employee wages, salaries and benefits. The support payments included grants totaling $4.5 billion that were recognized as contra-expense in 2021 over the period that the funds were used. Delta Air Lines, Inc. | 2022 10-K 39 Item 7. MD&A - Non-Operating Results Non-Operating Results Year Ended December 31, Favorable (Unfavorable) (in millions) 2022 2021 Interest expense, net $ (1,029) $ (1,279) $ 250 Impairments and equity method results (20) (337) 317 Gain/(loss) on investments, net (783) 56 (839) Loss on extinguishment of debt (100) (319) 219 Pension and related benefit 292 451 (159) Miscellaneous, net (107) (60) (47) Total non-operating expense, net $ (1,747) $ (1,488) $ (259) Interest expense, net. Interest expense, net includes interest expense and interest income. This decreased as compared to 2021 as a result of our debt reduction initiatives during 2021 and 2022. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on our debt reduction initiatives. We are reducing the total amount of interest expense by pre-paying our debt in addition to periodic amortization payments and scheduled maturities. During 2021, we made payments of approximately $5.8 billion related to our debt and finance leases, which included approximately $3.8 billion for early repayments. We have continued to pay down our debt during 2022 with $4.5 billion of payments on debt and finance lease obligations, including early repayment activities of $1.5 billion of certain notes through a cash tender offer in the September 2022 quarter and $778 million in principal for the early repurchase of various secured and unsecured notes through repurchases on the open market. We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2023 and beyond. Impairments and equity method results. Equity method results in 2022 consist of our share of Aeroméxico's net results and in 2021 reflected our share of Virgin Atlantic's net results. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments. Gain/(loss) on investments, net. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis. Loss on extinguishment of debt. Loss on extinguishment of debt reflects the losses incurred in the early repayment of debt referenced above. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on the early repayment of debt. Pension and related benefit. Pension and related benefit reflects the net periodic benefit/(cost) of our pension and other postretirement and postemployment benefit plans. Based on our funded status as of December 31, 2021, we modified the strategic asset allocation mix in 2022 to reduce the investment risk of the portfolio. Based on the portfolio's risk profile, we lowered the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost to 7.00%. See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our employee benefit plans. Miscellaneous, net. Miscellaneous, net primarily includes charitable contributions and foreign exchange gains/(losses). Delta Air Lines, Inc. | 2022 10-K 40 Item 7. MD&A - Income Taxes Income Taxes Our effective tax rate for 2022 was 31%. We expect our annual effective tax rate to be between 23% and 26% for 2023. Our effective tax rate in 2022 was impacted by mark-to-market adjustments on our equity investments which are considered capital assets for tax purposes. As of December 31, 2022 , w e had approximately $5.4 billion of U.S. federal pre-tax net operating loss carryforwards, of which $1.5 billion was generated prior to 2018 and will not begin to expire until 2029. Under current tax law, the remaining net operating loss carryforwards do not expire. The Inflation Reduction Act ("IRA") was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion. This provision is effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows or financial position. For more information about our income taxes, see Note 11 of the Notes to the Consolidated Financial Statements. Refinery Segment The refinery operated by our wholly owned subsidiary Monroe primarily produces gasoline, diesel and jet fuel. Monroe has agreements in place to exchange the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. The jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75% of our pre-COVID-19 pandemic consumption, for use in our airline operations. Refinery segment financial information Year Ended December 31, (in millions, except per gallon data) 2022 2021 % Increase (Decrease) (1) Exchange products $ 3,475 $ 2,293 52 % Sales of refined products 278 40 595 % Sales to airline segment 1,976 492 302 % Third-party refinery sales 4,977 3,229 54 % Operating revenue $ 10,706 $ 6,054 77 % Operating income (loss) $ 777 $ (2) NM Refinery segment impact on average price per fuel gallon $ (0.23) $ — NM (1) Certain variances are labeled as not meaningful ("NM"). Refinery revenues increased from $6.1 billion in 2021 to $10.7 billion in 2022, primarily driven by the increase in third-party refinery sales and sales to the airline segment. The increase in third-party refinery sales resulted from higher pricing and production during 2022 compared to 2021. The refinery recorded an operating loss of $2 million in 2021 compared to operating income of $777 million in 2022 mainly due to the increased production and pricing, partially offset by higher Renewable Identification Numbers ("RINs") compliance costs discussed below. A refinery is subject to annual Environmental Protection Agency ("EPA") requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces. Alternatively, a refinery may purchase RINs from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Monroe incurred $576 million in RINs compliance costs during 2022, compared to $422 million incurred in 2021. Observable RINs prices increased through the first half of 2022 and remained at these higher rates through the second half of the year. At December 31, 2022, we had a net fair value obligation related to RINs of $226 million. Our obligation as of December 31, 2022 was calculated using the U.S. EPA Renewable Fuel Standard ("RFS") volume requirements, which were finalized in the June 2022 quarter. During the December 2022 quarter, we retired our 2020 RINs assets to settle our 2020 obligations prior to the compliance deadline. We expect to settle our 2021 and 2022 obligations in the first half of 2023. For more information regarding the refinery's results, see Note 14 of the Notes to the Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 41 Item 7. MD&A - Operating Statistics Operating Statistics Year Ended December 31, Consolidated (1) 2022 2021 2019 Revenue passenger miles (in millions) 195,480 134,692 237,680 Available seat miles (in millions) 233,226 194,474 275,379 Passenger mile yield 20.57 ¢ 16.72 ¢ 17.79 ¢ Passenger revenue per available seat mile ("PRASM") 17.24 ¢ 11.58 ¢ 15.35 ¢ Total revenue per available seat mile ("TRASM") 21.69 ¢ 15.37 ¢ 17.07 ¢ TRASM, adjusted (2) 19.55 ¢ 13.71 ¢ 16.97 ¢ Cost per available seat mile ("CASM") 20.12 ¢ 14.40 ¢ 14.67 ¢ CASM-Ex (2) 12.87 ¢ 12.12 ¢ 10.88 ¢ Passenger load factor 84 % 69 % 86 % Fuel gallons consumed (in millions) 3,412 2,778 4,214 Average price per fuel gallon (3) $ 3.36 $ 2.02 $ 2.02 Average price per fuel gallon, adjusted (2)(3) $ 3.36 $ 2.02 $ 2.01 Approximate full-time equivalent employees, end of period 95,000 83,000 91,000 (1) Includes the operations of our regional carriers under capacity purchase agreements. Full-time equivalent employees exclude employees of regional carriers that we do not own. (2) Non-GAAP financial measures are defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below. (3) Includes the impact of refinery segment results, carbon offset costs and fuel hedge activity. Delta Air Lines, Inc. | 2022 10-K 42 Item 7. MD&A - Financial Condition and Liquidity Financial Condition and Liquidity As of December 31, 2022, we had $9.4 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity"). We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, restricted cash equivalents and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. Sources and Uses of Liquidity Operating Activities Operating activities in 2022 provided $6.4 billion of cash flow compared to $3.3 billion in 2021. Operating activities in 2021 included $4.5 billion in funds received from payroll support program grants. We expect to continue generating positive cash flows from operations during 2023. Our operating cash flow is impacted by the following factors: Seasonality of Advance Ticket Sales . We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in air traffic liability. The air traffic liability 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. Beginning with the COVID-19 pandemic in the March 2020 quarter through 2021, reduced demand for air travel resulted in a lower level of advance bookings and the associated cash received than we had historically experienced, which had been impacting the typical seasonal trend of air traffic liability. However, demand improved during 2022 as consumers regained confidence to travel and increased ticket purchases for travel further in advance. As a result, air traffic liability began returning to the usual seasonal trend in 2022. Fuel . Fuel expense represented approximately 24% of our total operating expense during 2022. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. The average fuel price per gallon increased substantially in 2022. While prices have recently moderated, we expect elevated jet fuel prices in comparison to historical levels to continue during the beginning of 2023 due to current market conditions, further exacerbated by geopolitical events. As capacity and demand increased throughout the year, fuel consumption was higher in 2022 than 2021 as well. We expect that fuel consumption will continue to increase throughout 2023 as we return to pre-pandemic levels of capacity, partially offset by increases in the fuel efficiency of our fleet. We expect our commitment to environmental sustainability to depend on increased use of SAF, which is not presently available at scale or at prices competitive to jet fuel. While we do not expect a material adverse effect on our Consolidated Financial Statements in the near-term from the use of SAF, we are unable to predict the financial impact of increased use of SAF on our Consolidated Financial Statements over the longer term as government policies and incentives for, and sufficient third-party investment in, SAF are necessary to make its use in larger quantities commercially and economically feasible. Employee Benefit Obligations. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and are frozen for future benefit accruals. Our funding obligations for these plans are governed by the Employee Retirement Income Security Act ("ERISA") and any applicable legislation. We had no minimum funding requirements in 2021 or 2022, and have no such requirements in 2023. However, we voluntarily contributed $1.5 billion to these plans during 2021. At this level of funding, investment returns are expected to satisfy future benefit payments, which we believe would eliminate further material voluntary or required cash contributions to the plans under the terms of ERISA. Further, based on this level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio. Estimates of future funding requirements are based on various assumptions and could vary materially from actual funding requirements. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants. In addition, we have employee benefit obligations relating primarily to projected future benefit payments from our unfunded postretirement and postemployment plans. See Note 9 of the Notes to the Consolidated Financial Statements for more information on our employee benefit obligations. Delta Air Lines, Inc. | 2022 10-K 43 Item 7. MD&A - Financial Condition and Liquidity Voluntary Separation Programs. In 2020, we recorded a $3.4 billion charge associated with voluntary early retirement and separation programs and other employee benefit charges. Approximately $440 million, $575 million and $720 million was disbursed in cash payments to participants in the voluntary programs during 2022, 2021 and 2020 respectively. We anticipate that a total of approximately $300 million in cash payments will be made to participants in the voluntary separation programs in 2023 and the remaining payments in 2024 and beyond. Profit Sharing. Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items. We pay profit sharing annually in February. To recognize the extraordinary efforts of our employees through the pandemic, we made a special profit-sharing payment of $108 million to eligible employees in February 2022, based on the adjusted pre-tax profit earned during the second half of 2021. During the year ended December 31, 2022, we recorded $563 million in profit sharing expense based on 2022 pre-tax profit, which we will pay to employees in February 2023. Contract Carrier Obligations. We have certain estimated minimum fixed obligations under capacity purchase agreements with third-party regional carriers. These minimum amounts are based on the required minimum levels of flying by the regional carriers under the respective agreements and assumptions regarding the costs associated with such minimum levels of flying. As of December 31, 2022 the total of these minimum amounts was $10.6 billion and are approximately $1.6 billion on an annual basis over the next five years. See Note 10 of the Notes to the Consolidated Financial Statements for more information on our contract carrier obligations. Operating Lease Obligations. As described further in Note 7 of the Notes to the Consolidated Financial Statements, as of December 31, 2022 we had a total of $9.8 billion of minimum operating lease obligations. These minimum lease payments range from approximately $800 million to $1.0 billion on an annual basis over the next five years. New York-JFK Airport Expansion. We are enhancing and expanding our facilities at Terminal 4 of JFK to strengthen our competitive position and offer a premium travel experience for customers in New York City. 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"). We have a long-term agreement with IAT to sublease space in Terminal 4 through 2043 ("Sublease"). In 2021, the Port Authority approved plans to renovate and expand Terminal 4 in order to facilitate Delta's relocation from Terminal 2 and consolidation of its operations into Terminal 4. The project will add 10 new gates and other complementary facilities, including an additional Delta Sky Club and a new Delta One lounge. The project is estimated to cost approximately $1.6 billion and will be funded primarily with bonds issued in 2022 by the New York Transportation Development Corporation ("NYTDC") for which our landlord, IAT, is the obligor. The majority of project costs are being used to expand or modify Delta's leased premises. Construction started in late 2021 and Delta's portion of the project is estimated to be complete by early 2024. In 2022, we amended our Sublease to provide for the expansion project, including the adjustment of our subleased space and rentals. We have recognized a right-of-use ("ROU") asset and lease liability representing the fixed component of the lease payments for this facility and as the majority of the project either expands or modifies Delta’s leased premises, our lease liability will increase upon completion. As of December 31, 2022, our lease liability related to this Sublease was $2.3 billion. See Note 7 of the Notes to the Consolidated Financial Statements for more information on our ROU assets and lease liabilities. Other Obligations. We have certain purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to, aviation-related, maintenance, insurance, marketing, technology, sponsorships and other third-party services and products. As of December 31, 2022, we had approximately $8.6 billion of such obligations, which range from approximately $350 million to $900 million on an annual basis over the next five years. Delta Air Lines, Inc. | 2022 10-K 44 Item 7. MD&A - Financial Condition and Liquidity Investing Activities Short-Term Investments. In 2022 we redeemed a net of $100 million in short-term investments. See Note 1 and Note 3 of the Notes to the Consolidated Financial Statements for further information on these investments. Capital Expenditures. Our capital expenditures (i.e., property and equipment additions in our Consolidated Statements of Cash Flows ("cash flows statement")) were $6.4 billion and $3.2 billion in 2022 and 2021, respectively. Our capital expenditures are primarily related to the purchases of aircraft, airport construction projects, fleet modifications and technology enhancements. We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft. Excluding the New York-LaGuardia airport project discussed below, our expected 2023 capital spend of approximately $5.5 billion, which may vary depending on financing decisions, will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements. As described in Part I, Item 1. "Business - Environmental Sustainability," aircraft fleet renewal is an important component of our environmental sustainability strategy and the path to achievement of our ambitious climate goals, which will continue to require extensive capital investment in future periods. See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding our aircraft purchase commitments, which totaled approximately $19.0 billion as of December 31, 2022. New York-LaGuardia Redevelopment. As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and nearly double the amount of concessions space than the existing terminals. The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas. Construction is underway and is being phased to limit passenger inconvenience. Due to an acceleration effort that commenced in 2020, completion is expected by 2025. In 2019, we opened Concourse G, the first of four new concourses, housing seven of the 37 new gates. In 2022, we achieved a significant milestone by opening the headhouse (including the Delta Sky Club), the terminal roadways and Concourse E - the second of four new concourses to be built. Additionally, we opened four of 12 planned new gates on Concourse F. 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. The project is expected to cost $4.3 billion. We currently expect our net project cost to be approximately $3.8 billion and we bear the risks of project construction, including any potential cost over-runs. We entered into loan agreements to fund a portion of the construction, which are recorded on our Consolidated Balance Sheets ("balance sheets") as debt with the proceeds reflected as restricted cash. Using funding primarily provided by these arrangements, we spent approximately $650 million, $950 million and $600 million during 2022, 2021 and 2020, respectively, bringing the total amount spent on the project to date to approximately $3.2 billion. We expect to spend approximately $500 million during 2023. Los Angeles International Airport ("LAX") Construction. As part of the terminal redevelopment project at LAX, we are modernizing, upgrading, and providing post-security connection to Terminals 2 and 3. We announced this project and executed a modified lease agreement during 2016 with the City of Los Angeles (the "City"), which owns and operates LAX. This project 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. Delta Air Lines, Inc. | 2022 10-K 45 Item 7. MD&A - Financial Condition and Liquidity The project is expected to cost approximately $2.4 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 we have guaranteed the obligations of the RAIC under the credit facility. The revolving credit facility agreement was most recently amended in January 2023, decreasing the revolver capacity from $800 million to $700 million. 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 $600 million, of which approximately $350 million has been reflected as investing activities in our cash flows statement since the project started in 2017. Given reduced passenger volumes resulting from the COVID-19 pandemic, we accelerated the construction schedule for this project in 2020. Additionally, 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. In 2022, we opened a new consolidated headhouse for both terminals, which includes ticketing, security, baggage claim and a new Delta Sky Club lounge and have a total of 11 of 14 planned new gates now open in Terminal 3. Construction is expected to be completed in 2023. Equity Investments. To support our international presence, during 2022 we invested an aggregate amount of $757 million in Grupo Aeroméxico and LATAM as each carrier emerged from restructuring processes. Upon completion of their respective processes, we received a 20% equity stake in Grupo Aeroméxico and a 10% equity stake in LATAM. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments Financing Activities Debt and Finance Leases. In 2022, we had cash outflows of approximately $4.5 billion related to repayments of our debt and finance leases, including approximately $2.3 billion for the early repayment of certain notes through a cash tender offer and other various secured and unsecured notes. We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2023 and beyond. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on recent repayment activity. The principal amount of our debt and finance leases was $23.2 billion at December 31, 2022. Future Debt Obligations. As described further in Note 6 of the Notes to the Consolidated Financial Statements, as of December 31, 2022, scheduled maturities of our debt in 2023 and 2024 were $2.1 billion and $2.8 billion, respectively, with maturities from 2025 through 2027 ranging between $2.5 billion and $2.9 billion annually. As of December 31, 2022, scheduled maturities after 2027 aggregate to $8.4 billion. In addition, we are obligated to make periodic interest payments at fixed and variable rates, depending on the terms of the applicable debt agreements. Based on applicable interest rates and scheduled debt maturities as of December 31, 2022, these interest obligations total approximately $4.6 billion and range from approximately $350 million to $1.0 billion on an annual basis over the next five years. In addition to payment of scheduled debt maturities, we expect to continue paying down our debt in 2023, and therefore reduce our future interest obligations. Finance Lease Obligations. As described further in Note 7 of the Notes to the Consolidated Financial Statements, as of December 31, 2022 we had a total of $1.8 billion of minimum finance lease obligations. These minimum lease payments range from approximately $200 million to $400 million on an annual basis over the next five years. Undrawn Lines of Credit. As of December 31, 2022 we had approximately $2.9 billion undrawn and available under our revolving credit facilities. In addition, we had $400 million of outstanding letters of credit as of December 31, 2022 that did not affect the availability under our revolvers. Covenants. We were in compliance with the covenants in our debt agreements at December 31, 2022. See Note 6 of the Notes to the Consolidated Financial Statements for more information on the covenants in our debt agreements. Delta Air Lines, Inc. | 2022 10-K 46 Item 7. MD&A - Critical Accounting Estimates Critical Accounting Estimates Our critical accounting estimates are those estimates made in accordance with generally accepted accounting principles in the U.S. ("GAAP") that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated results of operations or financial condition. Accordingly, the actual results may differ materially from these estimates. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements, unless otherwise noted below. 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 regarding 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. At December 31, 2022, the aggregate deferred revenue balance associated with the SkyMiles program was $7.9 billion. A hypothetical 10% change in the number of outstanding miles estimated to be redeemed would result in an impact of less than 1% of total operating revenue recognized for the year ended December 31, 2022. We defer revenue for the miles when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and transportation is provided. We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize passenger revenue when we provide transportation or if the ticket goes unused. A hypothetical 10% increase in our estimate of the ETV of a mile would have decreased total operating revenue by less than 1% for the year ended December 31, 2022, as a result of an increase in the amount of revenue deferred associated with the miles earned. 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, 2022, 2021 and 2020, total cash sales from marketing agreements related to our loyalty program were $5.7 billion, $4.1 billion and $2.9 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. Delta Air Lines, Inc. | 2022 10-K 47 Item 7. MD&A - Critical Accounting Estimates We account for marketing agreements, including those with American Express, by allocating the consideration to the individual products and services delivered. We allocate the value based on the relative selling prices of those products and services, which generally consist of award travel, priority boarding, baggage fee waivers, lounge access and the use of our brand. We determine our best estimate of the selling prices by using a discounted cash flow analysis using multiple inputs and assumptions, including (1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation adjusted for 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. 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 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 estimate of revenue expected to be recognized beyond twelve months. For additional information on our significant accounting policies related to the loyalty program, see Note 2 of the Notes to the Consolidated Financial Statements. Passenger Ticket Sales We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in our air traffic liability. Passenger revenue is recognized when we provide transportation or when the ticket expires unused ("ticket breakage"). For tickets that we sell on behalf of other airlines, we reduce the air traffic liability when consideration is remitted to those airlines. The air traffic liability primarily includes sales of passenger tickets with scheduled departure dates in the future and credits which can be applied as payment toward the cost of a ticket ("travel credits"). Travel credits are typically issued as a result of ticket cancellations prior to their expiration dates. We periodically evaluate the estimated air traffic liability and may record adjustments in our Consolidated Statement of Operations ("income statement"). These adjustments relate primarily to ticket breakage, refunds, exchanges, 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. During the COVID-19 pandemic, we experienced significant ticket cancellations, particularly in the early months of 2020. Delta has eliminated change fees for tickets originating in the United States, Canada, Europe and Africa (excluding Basic Economy tickets). In order to provide our customers more flexibility and time to plan their travel, travel credit holders as of January 2022 and customers who purchased a ticket in 2022 are able to rebook their ticket through December 31, 2023 for travel throughout 2024. We estimate the value of ticket breakage and recognize revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods. At December 31, 2022, the aggregate air traffic liability balance was $8.3 billion. A hypothetical 10% change in the amount of travel credits estimated to expire unused would result in an impact of less than 1% of total operating revenue for the year ended December 31, 2022. For additional information on our significant accounting policies related to passenger ticket sales, see Note 2 of the Notes to the Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 48 Item 7. MD&A - Critical Accounting Estimates Long-Lived Assets Our long-lived lived assets, including flight equipment, which consists of aircraft and associated engines and parts, operating ROU assets and other long-lived assets, which have a recorded value of approximately $40.1 billion at December 31, 2022, are recorded in property and equipment, net and operating lease right-of-use assets on our balance sheets. This value is based on various factors, including the assets' acquisition costs, estimated useful lives, salvage values, discounted lease payments and lease terms. We review flight equipment, ROU assets and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired. Factors which could be indicators of impairment include, but are not limited to (1) a decision to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment. For long-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell. To determine whether impairments exist for aircraft used in operations, we group assets at the fleet type level or at the contract level for aircraft operated by third-party regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel and labor costs and other relevant factors. If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available. As a result of the COVID-19 pandemic and our response, we made decisions to remove certain aircraft from active service and to early retire certain fleet types. We evaluated our fleet for impairment, determining that only certain fleet types were impaired, as the future cash flows from the operation of these fleet types through the respective retirement dates were lower than the carrying value. This resulted in impairment and other related charges of $4.4 billion during 2020, recorded in restructuring charges in our income statement. These charges were calculated using Level 3 fair value inputs based primarily upon recent market transactions and third-party bids, which were corroborated with published pricing guides and our assessment of existing market conditions based on industry knowledge. The effects of the COVID-19 pandemic created additional estimation uncertainty as there was a limited market for aircraft and limited data on how the COVID-19 pandemic affected the fair value of aircraft. Due to the recovery in demand that we experienced throughout 2021 and 2022, 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 or 2022. Following the impairment charges, the aggregate net book value of these aircraft as of December 31, 2022 and December 31, 2021 was approximately $220 million and $340 million, respectively, with the reduction in 2022 primarily due to aircraft sales. See Note 15 of the Notes to the Consolidated Financial Statements for additional details regarding these impairments and related charges. Goodwill and Indefinite-Lived Intangible Assets 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. When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering both comparable public company multiples (a market approach) and projected discounted future cash flows (an income approach). When we perform a quantitative impairment assessment of our indefinite-lived intangible assets, fair value is estimated based on (1) recent market transactions, where available, (2) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using our tradename) or (3) projected discounted future cash flows (an income approach). Delta Air Lines, Inc. | 2022 10-K 49 Item 7. MD&A - Critical Accounting Estimates Key Assumptions. The key assumptions in our impairment tests include (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3) observable market transactions and (4) anticipated changes to the regulatory environment (e.g., 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. In addition, when performing a qualitative valuation, we consider the amount by which the intangible assets' fair values exceeded their respective carrying values in the most recent fair value measurements calculated using a quantitative approach. 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. Goodwill . Our goodwill balance, which is related to the airline segment, was $9.8 billion at December 31, 2022. Identifiable Intangible Assets. Our identifiable intangible assets, which are related to the airline segment, had a net carrying amount of $6.0 billion at December 31, 2022, of which $5.9 billion related to indefinite-lived 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 assets consist primarily of marketing and maintenance service agreements. In the September 2022 quarter, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement combines our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. Approval was granted for a 10-year period with a subsequent reassessment and extension process. This agreement supports our strategic partnership with LATAM and the value of our $1.2 billion alliance-related indefinite-lived intangible asset. We believe the LATAM joint venture agreement will generate growth opportunities, building upon Delta's and LATAM's global footprint. We have classified our LATAM alliance intangible asset as indefinite-lived as we expect to indefinitely receive the economic benefits from the relationship, similar to other joint venture arrangements between U.S. and foreign carriers that have been cleared by competition authorities in relevant foreign jurisdictions and granted antitrust immunity from the U.S. Department of Transportation ("DOT"). Antitrust immunity grants are generally subject to reporting requirements and periodic reassessment processes administered by the DOT. We have determined that there are currently no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our LATAM alliance-related intangible asset. In 2022, we performed qualitative assessments of our goodwill and indefinite-lived intangible assets, including applicable factors noted in "Key Assumptions" above, and determined that there was no indication that the assets were impaired. Our qualitative assessments include analyses and weighting of all relevant factors which impact the fair value of our indefinite-lived intangible assets. For additional information on our goodwill and indefinite-lived intangible assets' significant accounting policies and the related fair values and book values, see Note 5 of the Notes to the Consolidated Financial Statements. 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. As of December 31, 2022, the unfunded benefit obligation for these plans recorded on our balance sheets was $90 million. We had no minimum funding requirements in 2021 or 2022, and have no such requirements in 2023. However, we voluntarily contributed $1.5 billion to these plans during 2021. The most critical assumptions impacting our defined benefit pension plan obligations, plan assets and net periodic benefit cost are the discount rate, the expected long-term rate of return on plan assets and life expectancy of plan participants. Delta Air Lines, Inc. | 2022 10-K 50 Item 7. MD&A - Critical Accounting Estimates Weighted Average Discount Rate. We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high-quality fixed income investments and yield-to-maturity analyses specific to our estimated future benefit payments. We used a weighted average discount rate to value the obligations of 5.62% and 2.97% at December 31, 2022 and 2021, respectively. 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. 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. Based on our funded status as of December 31, 2021, we modified the strategic asset allocation mix in 2022 to reduce the investment risk of the portfolio. Based on the portfolio's risk profile, we lowered the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost to 7.00%. The impact of a 0.50% change in weighted average discount rate and 1.00% change in expected long-term rate of return on assets are shown in the table below: Benefit plan effects of change in assumptions used Change in Assumption Effect on 2023 Pension Benefit Cost Effect on Accrued Pension Liability at December 31, 2022 0.50% decrease in weighted average discount rate $ (5) million $ 743 million 0.50% increase in weighted average discount rate $ — million $ (685) million 1.00% decrease in expected long-term rate of return on assets $ 152 million $ — 1.00% increase in expected long-term rate of return on assets $ (152) million $ — 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. Funding. 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 legislation passed in 2021, any required funding would be amortized over a rolling 15-year period and calculated using a discount rate of no less than 4.75% through 2030. While this recent legislation makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on the funding requirements. Estimates of future funding requirements are based on various assumptions and can vary materially from actual funding requirements. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants. Investments Valued at Net Asset Value ("NAV") Per Share. 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. 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. For additional information on our significant accounting policies related to defined benefit pension plans, see Note 9 of the Notes to the Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 51 Item 7. MD&A - Critical Accounting Estimates Income Tax Valuation Allowance We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies. In evaluating the likelihood of utilizing our net deferred income tax assets, the significant factors that we consider include (1) our recent history of significant profitability, (2) growth in the U.S. and global economies, (3) forecast of airline revenue trends, (4) estimate of future fuel prices and (5) future impact of taxable temporary differences. At December 31, 2022 our net deferred tax asset balance was $301 million , including a $1.2 billion valuation allowance primarily related to certain net realized and unrealized capital losses and certain state net operating losses. Although we have cumulative losses since the onset of the pandemic, we have a history of significant earnings prior to the onset of the COVID-19 pandemic. During 2022, we returned to profitability, as our business continued to recover from the impact of the pandemic. We are expecting to generate sufficient taxable income to utilize our federal net operating loss carryforwards before any expire. However, 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 certain net realized and unrealized capital losses and certain state net operating losses that have short expiration periods. For additional information on our significant accounting policies related to income taxes, see Note 11 of the Notes to the Consolidated Financial Statements. Recent Accounting Standards Standards Effective in Future Years Fair Value of Equity Investments. In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." Under this standard, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU becomes effective January 1, 2024. Upon adoption, we do not believe it will have a material impact on the valuation of our equity investments; however, we may be required to include additional disclosures to the extent we have material equity investments subject to contractual sale restrictions. Supplier Finance Program Obligations. In September 2022, the FASB issued ASU No. 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50)." This standard requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. Upon adoption, we may be required to include additional disclosures to the extent we have material supplier finance program obligations. Delta Air Lines, Inc. | 2022 10-K 52 Item 7. MD&A - Supplemental Information Supplemental Information We sometimes use information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with GAAP. Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Included below are reconciliations of non-GAAP measures used within this Form 10-K to the most directly comparable GAAP financial measures. These reconciliations include certain adjustments to GAAP measures, which are directly related to the impact of COVID-19 and our response. Reconciliations below may not calculate exactly due to rounding. These adjustments are made to provide comparability between the reported periods, if applicable, as indicated below: • Restructuring charges. During 2020, we recorded restructuring charges of $8.2 billion for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the years ended December 31, 2022 and 2021, we recognized $124 million and $19 million, respectively, of adjustments to certain of those restructuring charges, representing changes in our estimates or the outcome of contract negotiations. • Government grant recognition. We recognized $4.5 billion of the grant proceeds from the payroll support program extensions as a contra-expense during 2021. We recognized the grant proceeds as contra-expense based on the periods that the funds were intended to compensate and fully used all proceeds from the payroll support program extensions during that year. • Special profit-sharing payment. This adjustment is exclusive to 2021. To recognize the extraordinary efforts of our employees through the pandemic, we made 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. This adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. We also regularly adjust certain GAAP measures for the following items, if applicable, for the reasons indicated below: • MTM adjustments and settlements on hedges. Mark-to-market ( " MTM") adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period, and therefore we remove this impact to allow investors to better understand and analyze our core performance. Settlements represent cash received or paid on hedge contracts settled during the applicable period. • Delta Private Jets adjustment . Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability. • Third-party refinery sales. Refinery sales to third parties, and related expenses, are not related to our airline segment. Excluding these sales therefore provides a more meaningful comparison of our airline operations to the rest of the airline industry. • Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance. • Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. Delta Air Lines, Inc. | 2022 10-K 53 Item 7. MD&A - Supplemental Information Operating income, adjusted reconciliation Year Ended December 31, (in millions) 2022 2021 2019 Operating income $ 3,661 $ 1,886 $ 6,618 Adjusted for: Restructuring charges (124) (19) — Government grant recognition — (4,512) — MTM adjustments and settlements on hedges 29 9 14 Special profit sharing payment — 108 — Delta Private Jets adjustment — — 3 Operating income/(loss), adjusted $ 3,566 $ (2,527) $ 6,636 Operating expense, adjusted reconciliation Year Ended December 31, (in millions) 2022 2021 2019 Operating expense $ 46,921 $ 28,013 $ 40,389 Adjusted for: Restructuring charges 124 19 — Government grant recognition — 4,512 — MTM adjustments and settlements on hedges (29) (9) (14) Special profit sharing payment — (108) — Third-party refinery sales (4,977) (3,229) (97) Delta Private Jets adjustment — — (196) Operating expense, adjusted $ 42,039 $ 29,197 $ 40,082 Fuel expense, adjusted and Average fuel price per gallon, adjusted reconciliations Average Price Per Gallon Year Ended December 31, Year Ended December 31, (in millions, except per gallon data) 2022 2021 2019 2022 2021 2019 Total fuel expense $ 11,482 $ 5,633 $ 8,519 $ 3.36 $ 2.02 $ 2.02 Adjusted for: MTM adjustments and settlements on hedges (29) (9) (14) (0.01) — — Delta Private Jets adjustment — — (28) — — (0.01) Total fuel expense, adjusted $ 11,453 $ 5,625 $ 8,477 $ 3.36 $ 2.02 $ 2.01 TRASM, adjusted reconciliation Year Ended December 31, (in cents) 2022 2021 2019 TRASM 21.69 ¢ 15.37 ¢ 17.07 ¢ Adjusted for: Third-party refinery sales (2.13) (1.66) (0.04) Delta Private Jets adjustment — — (0.07) TRASM, adjusted 19.55 ¢ 13.71 ¢ 16.97 ¢ Delta Air Lines, Inc. | 2022 10-K 54 Item 7. MD&A - Supplemental Information CASM-Ex reconciliation Year Ended December 31, (in cents) 2022 2021 2019 CASM 20.12 ¢ 14.40 ¢ 14.67 ¢ Adjusted for: Restructuring charges 0.05 0.01 — Government grant recognition — 2.32 — Aircraft fuel and related taxes (4.92) (2.90) (3.10) Third-party refinery sales (2.13) (1.66) (0.04) Special profit sharing payment — (0.06) — Profit sharing (0.24) — (0.60) Delta Private Jets adjustment — — (0.06) CASM-Ex 12.87 ¢ 12.12 ¢ 10.88 ¢ Free Cash Flow The following table shows a reconciliation of net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP financial measure). We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include: • Net redemptions of short-term investments. Net redemptions of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations. • Strategic investments and related. Cash flows related to our investments in and related transactions with other airlines are included in our GAAP investing activities. We adjust for this activity because it provides a more meaningful comparison to our airline industry peers. • Net cash flows related to certain airport construction projects and other. Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures. We have adjusted for these items because management believes investors should be informed that a portion of these capital expenditures from airport construction projects are either reimbursed by a third-party or funded with restricted cash specific to these projects. • Financed aircraft acquisitions. This adjustment reflects aircraft deliveries that are leased as capital expenditures. The adjustment is based on their original contractual purchase price or an estimate of the aircraft's fair value and provides a more meaningful view of our investing activities. Free cash flow reconciliation Year Ended December 31, (in millions) 2022 Net cash provided by operating activities $ 6,363 Net cash used in investing activities (6,924) Adjusted for: Net redemptions of short-term investments (100) Strategic investments and related 701 Net cash flows related to certain airport construction projects and other 409 Financed aircraft acquisitions (206) Free cash flow $ 244 Delta Air Lines, Inc. | 2022 10-K 55 Item 7. MD&A - Glossary of Defined Terms Glossary of Defined Terms ASM - Available Seat Mile. A measure of capacity. ASMs equal the total number of seats available for transporting passengers during a reporting period multiplied by the total number of miles flown during that period. CASM - (Total Operating) Cost per Available Seat Mile. The amount of operating cost incurred per ASM during a reporting period. CASM is also referred to as "unit cost." CASM-Ex - The amount of operating cost incurred per ASM during a reporting period, adjusted for the items shown above in "Supplemental Information." Free Cash Flow - A measure of net cash from operating and investing activities, adjusted for items shown above in "Supplemental Information." Represents the cash available for use for debt service or general corporate initiatives. Liquidity - Includes our cash and cash-like assets, including cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities. Load Factor - A measure of utilized available seating capacity calculated by dividing RPMs by ASMs for a reporting period. Passenger Mile Yield or Yield - The amount of passenger revenue earned per RPM during a reporting period. PRASM - Passenger Revenue per ASM. The amount of passenger revenue earned per ASM during a reporting period. PRASM is also referred to as "passenger unit revenue." RPM - Revenue Passenger Mile. One revenue-paying passenger transported one mile is one RPM. RPMs equal the number of revenue passengers during a reporting period multiplied by the number of miles flown by those passengers during that period. RPMs are also referred to as "traffic." TRASM - Total Revenue per ASM. The amount of total revenue earned per ASM during a reporting period. TRASM, adjusted - The amount of total revenue earned per ASM during a reporting period, adjusted for the item shown above in "Supplemental Information." Delta Air Lines, Inc. | 2022 10-K 56 Item 7A. Market Risk