DELTA AIR LINES, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 59 Consolidated Balance Sheets - December 31, 20 2 2 and 20 21 62 Consolidated Statements of Operations for the years ended December 31, 20 2 2 , 20 2 1 and 20 20 63 Consolidated Statements of Comprehensive Income /(Loss) for the years ended December 31, 20 2 2 , 20 2 1 and 20 20 64 Consolidated Statements of Cash Flows for the years ended December 31, 20 2 2 , 20 2 1 and 20 20 65 Consolidated Statements of Stockholders' Equity for the years ended December 31, 20 2 2 , 20 2 1 and 20 20 66 Notes to the Consolidated Financial Statements 67 Note 1 - Summary of Significant Accounting Policies 67 Note 2 - Revenue Recognition 71 Note 3 - Fair Value Measurements 75 Note 4 - Investments 76 Note 5 - Goodwill and Intangible Assets 78 Note 6 - Debt 80 Note 7 - Leases 82 Note 8 - Airport Redevelopment 84 Note 9 - Employee Benefit Plans 86 Note 1 0 - Commitments and Contingencies 91 Note 1 1 - Income Taxes 94 Note 1 2 - Equity and Equity Compensation 96 Note 1 3 - Accumulated Other Comprehensive Loss 98 Note 1 4 - Segments 99 Note 15 - Government Grants and Restructuring 101 Note 1 6 - Earnings /(Loss) Per Share 102 Delta Air Lines, Inc. | 2022 10-K 58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Delta Air Lines, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income/(loss), cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the " consolidated financial statements " ). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 10, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Delta Air Lines, Inc. | 2022 10-K 59 Employee Benefit Plans - NAV Asset Valuation Description of the Matter At December 31, 2022, the fair value of the Company’s benefit plan assets measured at fair value on a recurring basis totaled $15.6 billion, of which $12.3 billion do not have a readily determinable fair value and are measured at net asset value per share ( " NAV assets " ) as a practical expedient. Management determines the fair value of NAV assets by applying the methodologies described in Note 9 to the consolidated financial statements. Auditing the Company’s NAV assets required significant judgment in estimating the fair value of the NAV assets, primarily resulting from the lag in the availability of data provided by the investment fund managers and the use of corroborating data from public markets to estimate fair value. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the fair value measurement of its NAV assets, including controls over management’s assessment of the significant inputs and estimates affecting the fair value measurement. To test the fair value of plan assets measured at NAV, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and comparing significant inputs and underlying data used in the Company's valuations to information available from third-party sources and market data. Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the fair value measurement, and compared the Company’s asset performance results to applicable third-party benchmarks and assessed management’s historical accuracy of estimating fair value by performing retrospective review procedures comparing the Company’s estimates of fair value as of the prior year end to the fair value NAV in the investment’s audited financial statements made available during the current year. Loyalty Program - Mileage Breakage Description of the Matter At December 31, 2022 the Company’s aggregate current and noncurrent loyalty program deferred revenue balance was $7.9 billion. For the year ended December 31, 2022, the Company recognized $2.9 billion of revenue classified as loyalty travel awards within passenger revenue and $2.6 billion of revenue classified as loyalty program revenue within other revenue in the consolidated statement of operations. As disclosed in Note 2 to the consolidated financial statements, the Company defers revenue for mileage credits earned and recognizes loyalty travel awards in passenger revenue as the miles are redeemed and services are provided. In accounting for its loyalty program deferred revenue, the Company estimates the amount of mileage credits outstanding that are not expected to be redeemed ( " mileage breakage " ). The Company recognizes mileage breakage proportionally during the period in which the remaining mileage credits are actually redeemed. Under the Company’s loyalty program, mileage credits do not expire. Therefore, the Company uses statistical models to estimate mileage breakage based on historical redemption patterns. Auditing the Company’s accounting for its loyalty program required significant estimation in determining the mileage breakage estimate for mileage credits. In particular, there is complexity and subjectivity in estimating mileage breakage based on expectations of future redemption patterns due to the absence of historical expirations as the Company’s mileage credits do not expire. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its loyalty program, including controls over management’s review of the estimation of the mileage breakage and the completeness and accuracy of the data underlying the mileage breakage estimate. To test the estimate of breakage of mileage credits, our audit procedures included, among others, involving an actuarial specialist to assist in assessing the method used by the Company to develop the mileage breakage estimate and to independently develop a range of mileage breakage estimates and compare to the Company's estimate. Additionally, we tested the completeness and accuracy of the underlying mileage data used in the Company’s statistical models. Delta Air Lines, Inc. | 2022 10-K 60 Realizability of Deferred Tax Assets Description of the Matter At December 31, 2022, the Company had gross deferred tax assets of $8.2 billion with a related valuation allowance of $1.2 billion, and gross deferred tax liabilities of $7.9 billion. As discussed in Notes 1 and 11 to the consolidated financial statements, the Company records a valuation allowance based on the assessment of the realizability of the Company’s deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Auditing management’s assessment of recoverability of deferred tax assets involved subjective estimation and complex auditor judgment in weighing the positive and negative evidence to determine whether a valuation allowance for deferred tax assets is needed. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets. This included controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and estimates of future taxable income. To test the realizability of the Company’s deferred tax assets, our audit procedures included, among others, evaluating the assumptions used to develop the scheduling of the future reversal of existing taxable temporary differences, evaluating tax planning strategies and evaluating the assumptions used to develop projections of future taxable income. We compared the projections of future taxable income with the actual results of prior periods and evaluated management’s consideration of current industry and economic trends. We also compared the projections of future taxable income with other forecasted financial information prepared by the Company. In addition, we involved our tax specialists to evaluate the application of tax law in the performance of these procedures. /s/ Ernst & Young LLP We have served as the Company's auditor since 2006. Atlanta, Georgia February 10, 2023 Delta Air Lines, Inc. | 2022 10-K 61 Financial Statements DELTA AIR LINES, INC. Consolidated Balance Sheets December 31, (in millions, except share data) 2022 2021 ASSETS Current Assets: Cash and cash equivalents $ 3,266 $ 7,933 Short-term investments 3,268 3,386 Accounts receivable, net of an allowance for uncollectible accounts of $ 23 and $ 50 3,176 2,404 Fuel, expendable parts and supplies inventories, net of an allowance for obsolescence of $ 136 and $ 176 1,424 1,098 Prepaid expenses and other 1,877 1,119 Total current assets 13,011 15,940 Noncurrent Assets: Property and equipment, net of accumulated depreciation and amortization of $ 20,370 and $ 18,671 33,109 28,749 Operating lease right-of-use assets 7,036 7,237 Goodwill 9,753 9,753 Identifiable intangibles, net of accumulated amortization of $ 902 and $ 893 5,992 6,001 Equity investments 2,128 1,712 Deferred income taxes, net 325 1,294 Other noncurrent assets 934 1,773 Total noncurrent assets 59,277 56,519 Total assets $ 72,288 $ 72,459 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of debt and finance leases $ 2,359 $ 1,782 Current maturities of operating leases 714 703 Air traffic liability 8,160 6,228 Accounts payable 5,106 4,240 Accrued salaries and related benefits 3,288 2,457 Loyalty program deferred revenue 3,434 2,710 Fuel card obligation 1,100 1,100 Other accrued liabilities 1,779 1,746 Total current liabilities 25,940 20,966 Noncurrent Liabilities: Debt and finance leases 20,671 25,138 Noncurrent air traffic liability 100 130 Pension, postretirement and related benefits 3,707 6,035 Loyalty program deferred revenue 4,448 4,849 Noncurrent operating leases 6,866 7,056 Other noncurrent liabilities 3,974 4,398 Total noncurrent liabilities 39,766 47,606 Commitments and Contingencies Stockholders' Equity: Common stock at $ 0.0001 par value; 1,500,000,000 shares authorized, 651,800,786 and 649,720,387 shares issued — — Additional paid-in capital 11,526 11,447 Retained earnings/(accumulated deficit) 1,170 ( 148 ) Accumulated other comprehensive loss ( 5,801 ) ( 7,130 ) Treasury stock, at cost, 10,535,033 and 9,752,872 ( 313 ) ( 282 ) Total stockholders' equity 6,582 3,887 Total liabilities and stockholders' equity $ 72,288 $ 72,459 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 62 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Operations Year Ended December 31, (in millions, except per share data) 2022 2021 2020 Operating Revenue: Passenger $ 40,218 $ 22,519 $ 12,883 Cargo 1,050 1,032 608 Other 9,314 6,348 3,604 Total operating revenue 50,582 29,899 17,095 Operating Expense: Salaries and related costs 11,902 9,728 9,001 Aircraft fuel and related taxes 11,482 5,633 3,176 Ancillary businesses and refinery 5,756 3,957 1,785 Contracted services 3,345 2,420 1,953 Landing fees and other rents 2,181 2,019 1,833 Depreciation and amortization 2,107 1,998 2,312 Regional carrier expense 2,051 1,736 1,584 Aircraft maintenance materials and outside repairs 1,982 1,401 822 Passenger commissions and other selling expenses 1,891 953 643 Passenger service 1,453 756 551 Profit sharing 563 108 — Aircraft rent 508 430 399 Restructuring charges ( 124 ) ( 19 ) 8,219 Government grant recognition — ( 4,512 ) ( 3,946 ) Other 1,824 1,405 1,232 Total operating expense 46,921 28,013 29,564 Operating Income/(Loss) 3,661 1,886 ( 12,469 ) Non-Operating Expense: Interest expense, net ( 1,029 ) ( 1,279 ) ( 929 ) Impairments and equity method results ( 20 ) ( 337 ) ( 2,432 ) Gain/(loss) on investments, net ( 783 ) 56 ( 105 ) Loss on extinguishment of debt ( 100 ) ( 319 ) ( 8 ) Pension and related benefit 292 451 219 Miscellaneous, net ( 107 ) ( 60 ) 137 Total non-operating expense, net ( 1,747 ) ( 1,488 ) ( 3,118 ) Income/(Loss) Before Income Taxes 1,914 398 ( 15,587 ) Income Tax (Provision)/Benefit ( 596 ) ( 118 ) 3,202 Net Income/(Loss) $ 1,318 $ 280 $ ( 12,385 ) Basic Earnings/(Loss) Per Share $ 2.07 $ 0.44 $ ( 19.49 ) Diluted Earnings/(Loss) Per Share $ 2.06 $ 0.44 $ ( 19.49 ) Cash Dividends Declared Per Share $ — $ — $ 0.40 The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 63 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Comprehensive Income/(Loss) Year Ended December 31, (in millions) 2022 2021 2020 Net Income/(Loss) $ 1,318 $ 280 $ ( 12,385 ) Other comprehensive income/(loss): Net change in pension and other benefits 1,329 1,908 ( 983 ) Net change in other — — ( 66 ) Total Other Comprehensive Income/(Loss) 1,329 1,908 ( 1,049 ) Comprehensive Income/(Loss) $ 2,647 $ 2,188 $ ( 13,434 ) The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 64 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Cash Flows Year Ended December 31, (in millions) 2022 2021 2020 Cash Flows From Operating Activities: Net income/(loss) $ 1,318 $ 280 $ ( 12,385 ) Adjustments to reconcile net income to net cash provided by operating activities: Restructuring charges ( 46 ) 5 4,111 Depreciation and amortization 2,107 1,998 2,312 Deferred income taxes 591 115 ( 3,110 ) (Gain)/loss on fair value investments 874 ( 38 ) 88 Pension, postretirement and postemployment payments (greater)/less than expense ( 453 ) ( 2,038 ) 898 Impairments and equity method results 20 337 2,432 Changes in certain assets and liabilities: Receivables ( 728 ) ( 981 ) 1,168 Fuel inventory ( 158 ) ( 318 ) 354 Prepaids and other current assets ( 867 ) ( 58 ) — Air traffic liability 1,902 1,814 ( 572 ) Loyalty program deferred revenue 324 376 455 Profit sharing 455 108 ( 1,650 ) Other payables, deferred revenue and accrued liabilities 1,226 1,986 240 Noncurrent liabilities ( 348 ) ( 399 ) 1,185 Other, net 146 77 681 Net cash provided by/(used in) operating activities 6,363 3,264 ( 3,793 ) Cash Flows From Investing Activities: Property and equipment additions: Flight equipment, including advance payments ( 4,495 ) ( 1,596 ) ( 896 ) Ground property and equipment, including technology ( 1,871 ) ( 1,651 ) ( 1,003 ) Proceeds from sale-leaseback transactions — — 465 Purchase of equity investments ( 870 ) — ( 2,099 ) Purchase of short-term investments ( 2,704 ) ( 12,655 ) ( 13,400 ) Redemption of short-term investments 2,804 15,036 7,608 Other, net 212 ( 32 ) 87 Net cash used in investing activities ( 6,924 ) ( 898 ) ( 9,238 ) Cash Flows From Financing Activities: Proceeds from short-term obligations — — 3,261 Proceeds from long-term obligations — 1,902 22,790 Proceeds from sale-leaseback transactions — — 2,306 Payments on debt and finance lease obligations ( 4,475 ) ( 5,834 ) ( 8,559 ) Repurchase of common stock — — ( 344 ) Cash dividends — — ( 260 ) Fuel card obligation — — 364 Other, net ( 60 ) 80 ( 202 ) Net cash (used in)/provided by financing activities ( 4,535 ) ( 3,852 ) 19,356 Net (Decrease)/Increase in Cash, Cash Equivalents and Restricted Cash ( 5,096 ) ( 1,486 ) 6,325 Cash, cash equivalents and restricted cash at beginning of period 8,569 10,055 3,730 Cash, cash equivalents and restricted cash at end of period $ 3,473 $ 8,569 $ 10,055 Supplemental Disclosure of Cash Paid for Interest $ 1,261 $ 1,524 $ 761 Non-Cash Transactions: Right-of-use assets acquired under operating leases $ 531 $ 2,113 $ 1,077 Flight and ground equipment acquired under finance leases 91 1,049 381 Equity investments and other financings 330 — 280 Operating leases converted to finance leases 342 42 — The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 65 Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Stockholders' Equity Common Stock Additional Paid-In Capital Retained Earnings / (Accumulated Deficit) Accumulated Other Comprehensive Loss Treasury Stock (in millions, except per share data) Shares Amount Shares Amount Total Balance at January 1, 2020 652 $ — $ 11,129 $ 12,454 $ ( 7,989 ) 9 $ ( 236 ) $ 15,358 Net loss — — — ( 12,385 ) — — — ( 12,385 ) Dividends declared — — — ( 257 ) — — — ( 257 ) Other comprehensive loss — — — — ( 1,049 ) — — ( 1,049 ) Common stock issued for employee equity awards and other (1) 1 — 120 — — — ( 23 ) 97 Stock purchased and retired ( 6 ) — ( 104 ) ( 240 ) — — — ( 344 ) Government grant warrant issuance — — 114 — — — — 114 Balance at December 31, 2020 647 — 11,259 ( 428 ) ( 9,038 ) 9 ( 259 ) 1,534 Net income — — — 280 — — — 280 Other comprehensive income — — — — 1,908 — — 1,908 Common stock issued for employee equity awards (1) 3 — 102 — — 1 ( 23 ) 79 Government grant warrant issuance — — 86 — — — — 86 Balance at December 31, 2021 650 — 11,447 ( 148 ) ( 7,130 ) 10 ( 282 ) 3,887 Net income — — — 1,318 — — — 1,318 Other comprehensive income — — — — 1,329 — — 1,329 Common stock issued for employee equity awards (1) 2 — 79 — — 1 ( 31 ) 48 Balance at December 31, 2022 652 $ — $ 11,526 $ 1,170 $ ( 5,801 ) 11 $ ( 313 ) $ 6,582 (1) Treasury shares were withheld for payment of taxes, at a weighted average price per share of $ 40.52 , $ 38.87 and $ 52.17 in 2022, 2021 and 2020, respectively. The accompanying notes are an integral part of these Consolidated Financial Statements. Delta Air Lines, Inc. | 2022 10-K 66 Notes to the Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Delta Air Lines, Inc., a Delaware corporation, provides scheduled air transportation for passengers and cargo throughout the United States ("U.S.") and around the world. Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our consolidated subsidiaries and have been prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). We are the primary beneficiary of, and have a controlling financial interest in, certain immaterial entities in which we have voting rights of 50% or less, which we consolidate in our financial results. We have marketing alliances with other airlines to enhance our access to domestic and international markets. These arrangements may include codesharing, reciprocal loyalty program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co-location and other marketing agreements. We have received antitrust immunity for certain marketing arrangements, which enables us to offer a more integrated route network and develop common sales, marketing and discount programs for customers. Some of our marketing arrangements provide for the sharing of revenues and expenses. Revenues and expenses associated with collaborative arrangements are presented on a gross basis in the applicable line items on our Consolidated Statements of Operations ("income statement"). We have reclassified certain prior period amounts to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes. Use of Estimates We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates. Recent Accounting Standards 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 67 Notes to the Consolidated Financial Statements Significant Accounting Policies Our significant accounting policies are disclosed below or included within the topic-specific notes included herein. Cash and Cash Equivalents and Short-Term Investments Short-term, highly liquid investments with maturities of three months or less when purchased are classified as cash and cash equivalents. Investments with maturities of greater than three months, but not in excess of one year, when purchased are classified as short-term investments and are stated at fair value. Investments with maturities beyond one year when purchased may be classified as short-term investments if they are expected to be available to support our short-term liquidity needs. Our short-term investments in debt securities purchased prior to October 1, 2022 are classified as fair value investments under the fair value option and unrealized gains and losses are recorded in non-operating expense. As we return to our pre-pandemic investment strategy for these assets, our short-term investments in debt securities purchased after October 1, 2022 are classified as available-for-sale investments and are stated at fair value with unrealized gains and losses recorded in accumulated other comprehensive income/(loss) ("AOCI"). Realized gains and losses on these investments are recorded in non-operating expense. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets ("balance sheets") that sum to the total of the same such amounts shown within the Consolidated Statements of Cash Flows ("cash flows statement"). Reconciliation of cash, cash equivalents and restricted cash December 31, (in millions) 2022 2021 2020 Current assets: Cash and cash equivalents $ 3,266 $ 7,933 $ 8,307 Restricted cash included in prepaid expenses and other 138 163 192 Noncurrent assets: Restricted cash included in other noncurrent assets 69 473 1,556 Total cash, cash equivalents and restricted cash $ 3,473 $ 8,569 $ 10,055 Inventories Fuel. As part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel, our wholly owned subsidiary, Monroe Energy, LLC ("Monroe"), operates the Trainer oil refinery. Refined products (finished goods) and feedstock and blendstock inventories (work-in-process) are both carried at the lower of cost and net realizable value. We use jet fuel in our airline operations that is produced by the refinery and procured through the exchange with third parties of gasoline, diesel and other refined products ("non-jet fuel products") the refinery produces. Cost is determined using the first-in, first-out method. Costs include the raw material consumed plus direct manufacturing costs (such as labor, utilities and supplies) as incurred and an applicable portion of manufacturing overhead. We expense the cost of carbon offsets upon retirement within aircraft fuel and related taxes on our income statement as these costs are related to our carbon emissions generated by our airline segment. The purchase of carbon offsets is included in operating activities on our cash flows statement. During 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. Expendables Parts and Supplies. Inventories of expendable parts related to flight equipment, which cannot be economically repaired, reconditioned or reused after removal from the aircraft, are carried at moving average cost and charged to aircraft maintenance materials and outside repairs as consumed. An allowance for obsolescence is provided over the remaining useful life of the related fleet. We also provide allowances for parts identified as excess or obsolete to reduce the carrying costs to the lower of cost or net realizable value. These parts are estimated to have residual value of 5 % of the original cost. Accounting for Refinery Related Buy/Sell Agreements To the extent that we receive jet fuel for non-jet fuel products exchanged under buy/sell agreements, we account for these transactions as nonmonetary exchanges. We have recorded these nonmonetary exchanges at the carrying amount of the non-jet fuel products transferred within aircraft fuel and related taxes on the income statement. Delta Air Lines, Inc. | 2022 10-K 68 Notes to the Consolidated Financial Statements Derivatives Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change. Our derivative contracts are recognized at fair value on our balance sheets and had net balances of $ 47 million and $ 17 million at December 31, 2022 and 2021, respectively. Long-Lived Assets Our long-lived lived assets, including flight equipment, which consists of aircraft and associated engines and parts, operating lease right-of-use ("ROU") assets and other long-lived assets, are recorded in property and equipment, net and operating lease right-of-use assets on our balance sheets. See Note 7, "Leases," for further information regarding our leases. The following table summarizes our property and equipment: Property and equipment by classification December 31, (in millions, except for estimated useful life) Estimated Useful Life 2022 2021 Flight equipment 25 - 34 years $ 38,091 $ 33,368 Ground property and equipment 3 - 40 years 8,996 7,758 Information technology-related assets 3 - 15 years 3,375 3,389 Flight and ground equipment under finance leases Shorter of lease term or estimated useful life 1,950 2,052 Advance payments for equipment 1,067 853 Less: accumulated depreciation and amortization (1) ( 20,370 ) ( 18,671 ) Total property and equipment, net $ 33,109 $ 28,749 (1) Includes accumulated amortization for flight and ground equipment under finance leases in the amount of $ 463 million and $ 456 million at December 31, 2022 and 2021, respectively. We record property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated residual values over their estimated useful lives. The estimated useful life for leasehold improvements is the shorter of lease term or estimated useful life. Depreciation and amortization expense related to our property and equipment was $ 2.1 billion, $ 2.0 billion and $ 2.3 billion for the years ended December 31, 2022, 2021 and 2020, respectively. Residual values for owned aircraft, engines, spare parts and simulators are generally 5 % to 10 % of cost. We capitalize certain internal and external costs incurred to develop and implement software and amortize those costs over an estimated useful life of three to fifteen years . Included in the depreciation and amortization expense discussed above, we recorded $ 307 million, $ 301 million and $ 304 million for amortization of capitalized software for the years ended December 31, 2022, 2021 and 2020, respectively. The net book value of these assets, which are included in information technology-related assets above, totaled $ 891 million and $ 876 million at December 31, 2022 and 2021, respectively. Our tangible assets consist primarily of flight equipment, which is mobile across geographic markets. Accordingly, assets are not allocated to specific geographic regions. We review flight equipment, ROU assets and other long-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired. Factors which could be indicators of impairment include, but are not limited to (1) a decision to permanently remove flight equipment or other long-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment. For long-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell. Delta Air Lines, Inc. | 2022 10-K 69 Notes to the Consolidated Financial Statements To determine whether impairments exist for aircraft used in operations, we group assets at the fleet type level or at the contract level for aircraft operated by third-party regional carriers (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel and labor costs and other relevant factors. If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available. Due to the impacts of the COVID-19 pandemic, during 2020 we removed a significant portion of our mainline and regional aircraft from active service and 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. 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. See Note 15, "Government Grants and Restructuring," for additional details regarding these impairments and related charges. Income Taxes We account for deferred income taxes under the liability method. We recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates. Deferred tax assets and liabilities are net by jurisdiction and are recorded as noncurrent on the balance sheet. We have elected to recognize earnings of foreign affiliates that are determined to be global intangible low tax income in the period it arises and do not recognize deferred taxes for basis differences that may reverse in future years. A valuation allowance is recorded to reduce deferred tax assets when necessary. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies. See Note 11, "Income Taxes," for further information on our deferred income taxes. Fuel Card Obligation We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil. The card carried a maximum credit limit of $ 1.1 billion as of December 31, 2022 and must be paid monthly. At both December 31, 2022 and 2021, we had $ 1.1 billion outstanding on this purchasing card and the activity was classified as a financing activity in our cash flows statement. Retirement of Repurchased Shares We immediately retire shares repurchased pursuant to any share repurchase program. We allocate the share purchase price in excess of par value between additional paid-in capital and retained earnings. Manufacturers' Credits We periodically receive credits in connection with the acquisition of aircraft and engines. These credits are deferred until the aircraft and engines are delivered, and then applied as a reduction to the cost of the related equipment. Maintenance Costs We record maintenance costs related to our mainline and regional fleets in aircraft maintenance materials and outside repairs and regional carrier expense, respectively. Maintenance costs are expensed as incurred, except for costs incurred under power-by-the-hour contracts, which are expensed based on actual hours flown. Power-by-the-hour contracts transfer certain risk to third-party service providers and fix the amount we pay per flight hour or per flight cycle to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter. Delta Air Lines, Inc. | 2022 10-K 70 Notes to the Consolidated Financial Statements Advertising Costs We expense advertising costs in passenger commissions and other selling expenses in the year the advertising first takes place. Advertising expense was $ 302 million, $ 198 million and $ 119 million for the years ended December 31, 2022, 2021 and 2020, respectively. Commissions and Merchant Fees Passenger sales commissions and merchant fees are recognized in passenger commissions and other selling expenses when the related revenue is recognized. NOTE 2. REVENUE RECOGNITION Passenger Revenue Passenger revenue is composed of passenger ticket sales, loyalty travel awards and travel-related services performed in conjunction with a passenger’s flight. Passenger revenue by category Year Ended December 31, (in millions) 2022 2021 2020 Ticket $ 35,626 $ 19,339 $ 10,970 Loyalty travel awards 2,898 1,786 935 Travel-related services 1,694 1,394 978 Total passenger revenue $ 40,218 $ 22,519 $ 12,883 Ticket Passenger Tickets. We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in our air traffic liability. Passenger revenue is recognized when we provide transportation or when the ticket expires unused ("ticket breakage"). For tickets that we sell on behalf of other airlines, we reduce the air traffic liability when consideration is remitted to those airlines. The air traffic liability primarily includes sales of passenger tickets with scheduled departure dates in the future and credits which can be applied as payment toward the cost of a ticket ("travel credits"). Travel credits are typically issued as a result of ticket cancellations prior to their expiration dates. We periodically evaluate the estimated air traffic liability and may record adjustments in our income statement. These adjustments relate primarily to 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. We recognized approximately $ 4.2 billion, $ 2.2 billion and $ 3.1 billion in passenger revenue during the years ended December 31, 2022, 2021 and 2020, respectively, that had been recorded in our air traffic liability balance at the beginning of those periods. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months. 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. Ticket Breakage. We estimate the value of ticket breakage and recognize revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets as discussed below, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods. Delta Air Lines, Inc. | 2022 10-K 71 Notes to the Consolidated Financial Statements Extension to Ticket Validity. 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. Regional Carriers. Our regional carriers include both third-party regional carriers with which we have contract carrier agreements ("contract carriers") and Endeavor Air, Inc., our wholly owned subsidiary. Our contract carrier agreements are primarily structured as capacity purchase agreements where we purchase all or a portion of the contract carrier's capacity and are responsible for selling the seat inventory we purchase. We record revenue related to our capacity purchase agreements in passenger revenue and the related expenses in regional carrier expense. Loyalty Travel Awards Loyalty travel awards revenue is related to the redemption of miles for travel. We recognize loyalty travel awards revenue in passenger revenue as miles are redeemed and transportation is provided. See below for discussion of our loyalty program accounting policies. Travel-Related Services Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight, including baggage fees, on-board sales and administrative fees. We recognize revenue for these services when the related transportation service is provided. 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. 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. We defer revenue for the miles when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and transportation is provided. We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize passenger revenue when we provide transportation or if the ticket goes unused. Sale of Miles to Participating Companies. Customers earn miles based on their spending with participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies with which we have marketing agreements to sell miles. Our contracts to sell miles under these marketing agreements have multiple performance obligations. Payments are typically due to us monthly based on the volume of miles sold during the period, and the initial terms of our marketing contracts are from three to eleven years . During the years ended December 31, 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. Delta Air Lines, Inc. | 2022 10-K 72 Notes to the Consolidated Financial Statements Our most significant contract to sell miles relates to our co-brand credit card relationship with American Express. Our agreements with American Express provide for joint marketing, grant certain benefits to Delta-American Express co-branded credit card holders ("cardholders") and American Express Membership Rewards program participants, and allow American Express to market its services or products using our customer database. Cardholders earn miles for making purchases using co-branded cards, and certain cardholders may also check their first bag for free, are granted discounted access to Delta Sky Club lounges and receive priority boarding and other benefits while traveling on Delta. Additionally, participants in the American Express Membership Rewards program may exchange their points for miles under the loyalty program. We sell miles at agreed-upon rates to American Express which are then provided to their customers under the co-brand credit card program and the Membership Rewards program. We account for marketing agreements, including those with American Express, by allocating the consideration to the individual products and services delivered. We allocate the value based on the relative selling prices of those products and services, which generally consist of award travel, priority boarding, baggage fee waivers, lounge access and the use of our brand. We determine our best estimate of the selling prices by using a discounted cash flow analysis using multiple inputs and assumptions, including (1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation adjusted for mileage breakage, (3) published rates on our website for baggage fees, discounted access to Delta Sky Club lounges and other benefits while traveling on Delta, (4) brand value (using estimated royalties generated from the use of our brand) and (5) volume discounts provided to certain partners. We defer the amount allocated to award travel as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the miles are redeemed and transportation is provided. Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel-related services in passenger revenue when the related service is performed. Revenue allocated to access Delta Sky Club lounges is recognized as miscellaneous in other revenue as access is provided. Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue as miles are delivered. Current Activity of the Loyalty Program. Miles are combined in one homogeneous pool and are not separately identifiable. Therefore, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period. The table below presents the activity of the current and noncurrent loyalty program deferred revenue, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements. Loyalty program activity (in millions) 2022 2021 2020 Balance at January 1 $ 7,559 $ 7,182 $ 6,728 Miles earned 3,419 2,238 1,437 Travel miles redeemed ( 2,898 ) ( 1,786 ) ( 935 ) Non-travel miles redeemed ( 198 ) ( 75 ) ( 48 ) Balance at December 31 $ 7,882 $ 7,559 $ 7,182 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. Cargo Revenue Cargo revenue is recognized when we provide the transportation. Delta Air Lines, Inc. | 2022 10-K 73 Notes to the Consolidated Financial Statements Other Revenue Year Ended December 31, (in millions) 2022 2021 2020 Refinery $ 4,977 $ 3,229 $ 1,150 Loyalty program 2,597 1,770 1,458 Ancillary businesses 846 793 648 Miscellaneous 894 556 348 Total other revenue $ 9,314 $ 6,348 $ 3,604 Refinery. This represents refinery sales to third parties. See Note 14, "Segments," for more information on revenue recognition within our refinery segment. 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 included within the total cash sales from marketing agreements, discussed above. 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. Revenue by Geographic Region Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment. A significant portion of the refinery segment's revenues typically consists of fuel sales to support the airline, which is eliminated in the Consolidated Financial Statements. The remaining operating revenue for the refinery segment is included in the domestic region. Our passenger and operating revenue by geographic region is summarized in the following table: Revenue by geographic region Passenger Revenue Operating Revenue Year Ended December 31, Year Ended December 31, (in millions) 2022 2021 2020 2022 2021 2020 Domestic $ 30,197 $ 18,468 $ 10,041 $ 38,478 $ 24,320 $ 13,339 Atlantic 6,093 1,777 1,171 7,429 2,537 1,649 Latin America 2,889 1,873 1,113 3,334 2,284 1,321 Pacific 1,039 401 558 1,341 758 786 Total $ 40,218 $ 22,519 $ 12,883 $ 50,582 $ 29,899 $ 17,095 Accounts Receivable Accounts receivable primarily consist of amounts due from credit card companies from the sale of passenger tickets, ancillary businesses, refinery sales and other companies for the purchase of miles under the loyalty program. We provide an allowance for uncollectible accounts using an expected credit loss model which represents our estimate of expected credit losses over the lifetime of the asset. In 2020, due to the COVID-19 pandemic, we recorded reserves on certain receivables, which are discussed further in Note 15, "Government Grants and Restructuring". Passenger Taxes and Fees We are required to charge certain taxes and fees on our passenger tickets, including U.S. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are assessments on the customer for which we act as a collection agent. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier (i.e., for codeshare-related fees). Delta Air Lines, Inc. | 2022 10-K 74 Notes to the Consolidated Financial Statements NOTE 3. FAIR VALUE MEASUREMENTS Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Each fair value measurement is classified into one of the following levels based on the information used in the valuation: • Level 1. Observable inputs such as quoted prices in active markets. • Level 2 . Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. • Level 3 . Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows: (a) Market Approach . Prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities. (b) Income Approach. Techniques to convert future amounts to a single present value amount based on market expectations (including present value techniques and option-pricing models). Assets (Liabilities) Measured at Fair Value on a Recurring Basis (1) December 31, 2022 Valuation Technique (in millions) Total Level 1 Level 2 Level 3 Cash equivalents $ 2,021 $ 2,021 $ — $ — (a) Restricted cash equivalents 206 206 — — (a) Short-term investments U.S. Government securities 1,587 122 1,465 — (a) Corporate obligations 1,614 — 1,614 — (a) Other fixed income securities 67 — 67 — (a) Long-term investments 1,450 1,305 38 107 (a)(b) Hedge derivatives, net Fuel hedge contracts ( 47 ) — ( 47 ) — (a)(b) December 31, 2021 Valuation Technique (in millions) Total Level 1 Level 2 Level 3 Cash equivalents $ 5,450 $ 5,450 $ — $ — (a) Restricted cash equivalents 635 635 — — (a) Short-term investments U.S. Government securities 3,386 1,376 2,010 — (a) Long-term investments 1,459 1,326 36 97 (a)(b) Hedge derivatives, net Fuel hedge contracts ( 18 ) — ( 18 ) — (a)(b) (1) See Note 9, "Employee Benefit Plans," for fair value of benefit plan assets. Cash Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents are recorded in prepaid expenses and other and other noncurrent assets on our balance sheets and generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to certain self-insurance obligations and airport commitments as well as proceeds from debt issued to finance, among other things, a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets. Delta Air Lines, Inc. | 2022 10-K 75 Notes to the Consolidated Financial Statements Short-Term Investments. The fair values of our short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security and other observable information. As of December 31, 2022, the estimated fair value of our short-term investments was $ 3.3 billion. Of these investments, $ 2.8 billion are expected to mature in one year or less, with the remainder maturing by the first half of 2024. Long-Term Investments. Our long-term investments measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet. Our equity investments in private companies are classified as Level 3 in the fair value hierarchy as their equity is not traded on a public exchange and our valuations incorporate certain unobservable inputs, including non-public equity issuances. Fair value measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair values. During the year ended December 31, 2022 there were no material gains or losses related to investments classified as Level 3 as a result of fair value adjustments. See Note 4, "Investments," for further information on our long-term investments. Hedge Derivatives. A portion of our derivative contracts may be negotiated over-the-counter with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Such contracts would be classified as Level 2 within the fair value hierarchy. The remainder of our hedge contracts may be comprised of futures contracts, which are traded on a public exchange. These contracts would be classified within Level 1 of the fair value hierarchy. • Fuel Hedge Contracts. Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s inventory. Our fuel hedge portfolio may consist of a combination of options, swaps or futures. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices. We recognized losses of $ 394 million, $ 146 million and gains of $ 85 million on our fuel hedge contracts in aircraft fuel and related taxes on our income statement for the years ended December 31, 2022, 2021 and 2020, respectively. The losses recognized during 2022 were composed of $ 365 million of settlements on contracts and $ 29 million of mark-to-market adjustments. Expense from the settlement of closed contracts is offset by higher operating profits at Monroe from higher pricing. See Note 14, "Segments," for further information on our Monroe refinery segment. NOTE 4. INVESTMENTS We have developed strategic relationships with a number of airlines and airline services companies through joint ventures and other forms of cooperation and support, including equity investments. Our equity investments reinforce our commitment to these relationships and generally enhance our ability to offer input to the investee on strategic issues and direction, in some cases through representation on the board of directors. Changes in the valuation of investments accounted for at fair value are recorded in gain/(loss) on investments, net in our income statement within non-operating expense and are driven by changes in stock prices, other valuation techniques for investments in companies without publicly-traded shares and foreign currency fluctuations. Delta Air Lines, Inc. | 2022 10-K 76 Notes to the Consolidated Financial Statements Our share of our equity method investees' financial results is recorded in impairments and equity method results in our income statement under non-operating expense, except as noted below for Unifi Aviation. If an investment accounted for under the equity method experiences a loss in value that is determined to be other than temporary, we will reduce our carrying value of the investment to fair value and record the loss in impairments and equity method results in our income statement. Equity investments ownership interest and carrying value Accounting Treatment Ownership Interest Carrying Value (in millions) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Air France-KLM Fair Value 3 % 6 % $ 97 $ 165 China Eastern Fair Value 2 % 2 % 189 177 CLEAR Fair Value 5 % 6 % 227 260 Grupo Aeroméxico Equity Method 20 % 51 % 412 — Hanjin-KAL Fair Value (1) 15 % 13 % 296 455 LATAM Fair Value 10 % 20 % 403 — Unifi Aviation Equity Method (2) 49 % 49 % 165 159 Wheels Up Fair Value (3) 21 % 21 % 54 241 Other investments Various 285 255 Equity investments $ 2,128 $ 1,712 (1) At December 31, 2022, we held 14.8 % of the outstanding shares (including common and preferred), and 14.9 % of the common shares, of Hanjin KAL. (2) Results are included in contracted services in our income statement as this entity is integral to the operations of our business by providing services at many of our airport locations. (3) We elected to account for our investment under the fair value option. Grupo Aeroméxico. In the March 2022 quarter, Grupo Aeroméxico ("Aeroméxico") emerged from its voluntary proceedings to reorganize under Chapter 11 of the United States bankruptcy code ("bankruptcy process"). At the conclusion of the bankruptcy process, Aeroméxico's previously outstanding capital stock was consolidated and exchanged for less than 0.01 % of new capital stock, which effectively eliminated our historical 51 % ownership stake. Upon emergence, Delta received a 20 % equity stake in the newly restructured Aeroméxico in exchange for (1) our receivables under Aeroméxico's debtor-in-possession financing, (2) $ 100 million (recorded as an investing outflow on our cash flows statement), and (3) our agreement to provide expanded commercial services to Aeroméxico in future periods. LATAM. In the December 2022 quarter, LATAM Airlines Group S.A. ("LATAM") emerged from its voluntary proceedings to reorganize under the bankruptcy process. Upon emergence, Delta received full repayment of our outstanding debtor-in-possession financing. We purchased LATAM's New Convertible Notes for $ 657 million and subsequently converted the Notes to common stock, representing a 10 % equity stake in the newly restructured LATAM. Other Investments This category includes various investments that are accounted for at fair value or under the equity method, depending on our ownership interest and the level of influence conveyed by our investment. Included in this category is our investment in Virgin Atlantic. Virgin Atlantic. The carrying value of our investment in Virgin Atlantic remains zero as of December 31, 2022. We maintain our 49 % equity interest and continue to track our share of Virgin Atlantic's losses under the equity method of accounting. These previously unrecognized losses are only recorded to the extent we make additional investments in Virgin Atlantic (i.e., additional shareholder support). As of December 31, 2022, we have approximately $ 300 million of unrecognized equity method losses related to our 49 % interest in Virgin Atlantic. We also have an investment in JFK IAT Member LLC which is accounted for under the equity method and is discussed further in Note 8, "Airport Redevelopment." Delta Air Lines, Inc. | 2022 10-K 77 Notes to the Consolidated Financial Statements NOTE 5. GOODWILL AND INTANGIBLE ASSETS Goodwill and Indefinite-Lived Intangible Assets Our goodwill and identifiable intangible assets relate to the airline segment. We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach. Under a qualitative approach, we consider various market factors, including certain of the key assumptions listed below. We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets. If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. Under a quantitative approach, we calculate the fair value of the asset incorporating the key assumptions listed below into our calculation. We value goodwill and indefinite-lived intangible assets primarily using market and income approach valuation techniques. These measurements include the following key assumptions (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3) observable market transactions and (4) anticipated changes to the regulatory environment (e.g., changes in slot access and/or availability, additional Open Skies agreements or changes to antitrust approvals). These assumptions are consistent with those that hypothetical market participants would use. Because we are required to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates. We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value. Changes in certain events and circumstances could result in impairment or a change from indefinite-lived to definite-lived. Factors which could cause impairment include, but are not limited to (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U.S. and global economies, global pandemics or other factors, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e.g., changes in slot access and/or availability, additional Open Skies agreements or changes to antitrust approvals), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets. Identifiable Intangible Assets. Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to alliances and collaborative arrangements. Definite-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred. As a result of the significant impact the COVID-19 pandemic had on our market capitalization, profitability and overall travel demand, we performed a quantitative valuation of our goodwill and indefinite-lived intangible assets during the December 2020 quarter. These quantitative impairment tests of goodwill and intangibles concluded that there was no indication of impairment as the fair value exceeded our carrying value. In the December 2022 quarter we performed qualitative assessments of goodwill and indefinite-lived intangible assets, including applicable factors noted above, and determined that there was no indication that the assets were impaired. Our qualitative assessments include analyses and weighting of all relevant factors that impact the fair value of our goodwill and indefinite-lived intangible assets. Goodwill and indefinite-lived intangible assets by category Carrying Value at Excess Fair Value at 2020 Testing Date (in millions) December 31, 2022 December 31, 2021 Goodwill $ 9,753 $ 9,753 > 100 % International routes and slots 2,583 2,583 10 % to 30 % Airline alliances 1,863 1,863 20 % to > 100 % Delta tradename 850 850 > 100 % Domestic slots 622 622 60 % to > 100 % Total $ 15,671 $ 15,671 Delta Air Lines, Inc. | 2022 10-K 78 Notes to the Consolidated Financial Statements International Routes and Slots. This primarily relates to Pacific route authorities and slots at capacity-constrained airports in Asia, and slots at London-Heathrow airport. Airline Alliances. This primarily relates to our commercial agreements with LATAM and our SkyTeam partners. 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. Domestic Slots. This primarily relates to our slots at New York-LaGuardia and Washington-Reagan National airports. Definite-Lived Intangible Assets Definite-lived intangible assets by category December 31, 2022 December 31, 2021 (in millions) Gross Carrying Value Accumulated Amortization Gross Carrying Value Accumulated Amortization Marketing agreements $ 730 $ ( 704 ) $ 730 $ ( 700 ) Maintenance contracts 192 ( 145 ) 193 ( 140 ) Other 54 ( 53 ) 53 ( 53 ) Total $ 976 $ ( 902 ) $ 976 $ ( 893 ) Amortization expense was $ 9 million, $ 10 million and $ 10 million for the years ended December 31, 2022, 2021 and 2020, respectively. Based on our definite-lived intangible assets at December 31, 2022, we estimate that we will incur approximately $ 8 million of amortization expense annually from 2023 through 2027. Delta Air Lines, Inc. | 2022 10-K 79 Notes to the Consolidated Financial Statements NOTE 6. DEBT The following table summarizes our debt as of the dates indicated below: Summary of outstanding debt by category Maturity Interest Rate(s) Per Annum at December 31, (in millions) Dates December 31, 2022 2022 2021 Unsecured Payroll Support Program Loans 2030 to 2031 1.00 % $ 3,496 $ 3,496 Unsecured notes 2023 to 2029 2.90 % to 7.38 % 2,997 4,354 Financing arrangements secured by SkyMiles assets: SkyMiles Notes (1) 2023 to 2028 4.50 % and 4.75 % 5,144 6,000 SkyMiles Term Loan (1)(2) 2023 to 2027 7.99 % 2,820 2,820 Financing arrangements secured by aircraft: Certificates (1) 2023 to 2028 2.00 % to 8.00 % 1,802 1,932 Notes (1)(2) 2023 to 2033 2.08 % to 6.85 % 813 1,139 NYTDC Special Facilities Revenue Bonds (1) 2023 to 2045 4.00 % to 5.00 % 2,838 2,894 Financing arrangements secured by slots, gates and/or routes: 2020 Senior Secured Notes 2025 7.00 % 1,542 2,589 2018 Revolving Credit Facility (2) 2024 to 2025 Undrawn — — Other financings (1)(2) 2023 to 2030 2.51 % to 5.00 % 67 68 Other revolving credit facilities (2) 2023 to 2025 Undrawn — — Total secured and unsecured debt 21,519 25,292 Unamortized (discount)/premium and debt issuance cost, net and other ( 138 ) ( 208 ) Total debt 21,381 25,084 Less: current maturities ( 2,055 ) ( 1,502 ) Total long-term debt $ 19,326 $ 23,582 (1) Due in installments. (2) Certain financings are comprised of variable rate debt. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate plus a specified margin. Early Settlement of Outstanding Notes In 2022, we completed a cash tender offer for an aggregate purchase price of $ 1.5 billion, excluding accrued and unpaid interest, of certain of our outstanding debt securities. As a result of the tender offer, we repurchased the following notes: Notes Repurchased in Tender Offer (in millions) Location in debt table Principal Repurchased Amount Paid 4.500 % Senior Secured Notes due 2025 SkyMiles Notes $ 856 $ 850 7.000 % Senior Secured Notes due 2025 2020 Senior Secured Notes 478 498 7.375 % Notes due 2026 Unsecured Notes 84 87 3.800 % Notes due 2023 Unsecured Notes 65 65 Total Notes Repurchased $ 1,483 $ 1,500 During 2022, in addition to the cash tender offer, we also repurchased $ 778 million of various secured and unsecured notes on the open market. Collectively, these payments resulted in a $ 100 million loss on extinguishment of debt, which is recorded in non-operating expense in our income statement. Delta Air Lines, Inc. | 2022 10-K 80 Notes to the Consolidated Financial Statements Availability Under Revolving Facilities 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. Fair Value of Debt Market risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Debt is primarily classified as Level 2 within the fair value hierarchy. Fair value of outstanding debt (in millions) December 31, 2022 December 31, 2021 Net carrying amount $ 21,381 $ 25,084 Fair value $ 20,700 $ 26,900 Covenants Our debt agreements contain various affirmative, negative and financial covenants. For example, our credit facilities and our SkyMiles financing agreements, contain, among other things, a minimum liquidity covenant. The minimum liquidity covenant requires us to maintain at least $ 2.0 billion of liquidity (defined as cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities). Certain of our debt agreements also include collateral coverage ratios and limit our ability to (1) incur liens under certain circumstances, (2) dispose of collateral and (3) engage in mergers and consolidations or transfer all or substantially all of our assets. Our SkyMiles financing agreements include a debt service coverage ratio and also restrict our ability to, among other things, (1) modify the terms of the SkyMiles program, or otherwise change the policies and procedures of the SkyMiles program, in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Debt, (2) sell pre-paid miles in excess of $ 550 million in the aggregate and (3) terminate or materially modify the intercompany arrangements governing the relationship between Delta and SkyMiles IP Ltd. with respect to the SkyMiles program. Each of these restrictions, however, is subject to certain exceptions and qualifications that are set forth in these debt agreements. We were in compliance with the covenants in our debt agreements at December 31, 2022. Future Maturities The following table summarizes scheduled maturities of our debt for the years succeeding December 31, 2022: Future debt maturities (in millions) Total Debt Amortization of Debt (Discount)/Premium and Debt Issuance Cost, net and other 2023 $ 2,058 $ ( 54 ) 2024 2,809 ( 54 ) 2025 2,882 ( 36 ) 2026 2,838 ( 8 ) 2027 2,493 ( 1 ) Thereafter 8,439 15 Total $ 21,519 $ ( 138 ) $ 21,381 Delta Air Lines, Inc. | 2022 10-K 81 Notes to the Consolidated Financial Statements NOTE 7. LEASES We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below. We use the rate implicit in the lease to discount lease payments to present value, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date. Some of our aircraft lease agreements include provisions for residual value guarantees. These guarantees represent an immaterial portion of our lease liability. Aircraft As of December 31, 2022, including aircraft operated by our regional carriers, we leased 221 aircraft, of which 105 were under finance leases and 116 were operating leases. Our aircraft leases had remaining lease terms of one month to 13 years. In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 115 aircraft as of December 31, 2022 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements. Airport Facilities Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability. Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects. Other Ground Property and Equipment We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to seven years . Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant. Sale-Leaseback Transactions In 2020, we entered into $ 2.8 billion of sale-leaseback transactions for 85 aircraft. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement. Delta Air Lines, Inc. | 2022 10-K 82 Notes to the Consolidated Financial Statements The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement. Lease Position The table below presents the lease-related assets and liabilities recorded on the balance sheet. Lease asset and liability balance sheet position by category December 31, (in millions) Classification on the Balance Sheet 2022 2021 Assets Operating lease assets Operating lease right-of-use assets $ 7,036 $ 7,237 Finance lease assets Property and equipment, net 1,487 1,596 Total lease assets $ 8,523 $ 8,833 Liabilities Current Operating Current maturities of operating leases $ 714 $ 703 Finance Current maturities of debt and finance leases 304 280 Noncurrent Operating Noncurrent operating leases 6,866 7,056 Finance Debt and finance leases 1,345 1,556 Total lease liabilities $ 9,229 $ 9,595 Weighted-average remaining lease term Operating leases 13 years 13 years Finance leases 5 years 6 years Weighted-average discount rate Operating leases 4.30 % 3.81 % Finance leases 3.05 % 3.36 % Lease Costs The table below presents certain information related to the lease costs for finance and operating leases. Lease cost by category Year Ended December 31, (in millions) 2022 2021 2020 Finance lease cost Amortization of leased assets $ 120 $ 131 $ 131 Interest of lease liabilities 45 55 32 Operating lease cost (1) 949 863 1,019 Short-term lease cost (1) 281 245 264 Variable lease cost (1) 1,859 1,599 1,406 Total lease cost $ 3,254 $ 2,893 $ 2,852 (1) Expenses are primarily classified within aircraft rent, landing fees and other rents and regional carrier expense on our income statement. Delta Air Lines, Inc. | 2022 10-K 83 Notes to the Consolidated Financial Statements Other Information The table below presents supplemental cash flow information related to leases. Supplemental lease-related cash flow information Year Ended December 31, (in millions) 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 809 $ 999 $ 1,053 Operating cash flows for finance leases 49 46 32 Financing cash flows for finance leases 363 336 255 Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet. Future lease cash flows and reconciliation to the balance sheet (in millions) Operating Leases Finance Leases 2023 $ 976 $ 343 2024 946 375 2025 923 237 2026 836 174 2027 805 192 Thereafter 5,323 470 Total minimum lease payments 9,809 1,791 Less: amount of lease payments representing interest ( 2,229 ) ( 142 ) Present value of future minimum lease payments 7,580 1,649 Less: current obligations under leases ( 714 ) ( 304 ) Long-term lease obligations $ 6,866 $ 1,345 As of December 31, 2022, we had additional leases that had not yet commenced of $ 242 million. These leases will commence in 2023 to 2024 with lease terms of 7 to 10 years. NOTE 8. AIRPORT REDEVELOPMENT New York-JFK Airport 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. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet. Delta Air Lines, Inc. | 2022 10-K 84 Notes to the Consolidated Financial Statements 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 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, " Leases " for more information on our ROU assets and lease liabilities. Equity Investment. We have an equity method investment in JFK IAT Member LLC, which owns IAT. The Sublease requires us to pay certain fixed management fees. We determined the investment is a variable interest entity and assessed whether we have a controlling financial interest in IAT. Our rights under the Sublease, with respect to management of Terminal 4, are consistent with rights granted to an anchor tenant under a standard airport lease. Accordingly, we do not consolidate this entity in our Consolidated Financial Statements. See Note 4, " Investments " for additional information on our equity investments. Los Angeles International Airport ("LAX") 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. 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. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet. 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. Due to the variable nature of lease payments in our agreement with the City, we have not recognized a ROU asset and lease liability on our balance sheet. See Note 7, " Leases " for more information on our ROU assets and lease liabilities. New York-LaGuardia Airport As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and nearly double the amount of concessions space than the existing terminals. The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas. 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. Delta Air Lines, Inc. | 2022 10-K 85 Notes to the Consolidated Financial Statements In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050. Pursuant to the lease agreement, as amended to date, we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off-premises supporting facilities, (2) receive a Port Authority contribution of approximately $ 500 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers. 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 balance sheet 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. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed. Costs incurred by Delta are accounted for as leasehold improvements recorded in property and equipment, net on our balance sheets. See Note 6, "Debt," for additional information on the debt (NYTDC Special Facilities Revenue Bonds) related to this redevelopment project. NOTE 9. EMPLOYEE BENEFIT PLANS We sponsor defined benefit and defined contribution pension plans, healthcare plans and disability and survivorship plans for eligible employees and retirees and their eligible family members. Defined Benefit Pension Plans. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and frozen for future benefit accruals. Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act and any applicable legislation. Under the Pension Protection Act of 2006, we elected alternative funding rules so that the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17-year period and is calculated using an 8.85 % discount rate until the 17-year period expires for all frozen defined benefit plans by the end of 2024. Upon expiration, under legislation passed in 2021, any required funding would be amortized over a rolling 15-year period and calculated using a discount rate of no less than 4.75% through 2030. We have no minimum funding requirements for these plans in 2023 and do no t plan to make voluntary contributions during 2023. Defined Contribution Pension Plans. We sponsor several defined contribution plans. These plans generally cover different employee groups and employer contributions vary by plan. The costs associated with our defined contribution pension plans were approximately $ 1.0 billion, $ 875 million and $ 805 million for the years ended December 31, 2022, 2021 and 2020, respectively. Postretirement Healthcare Plans. We sponsor healthcare plans that provide benefits to eligible retirees and their dependents who are under age 65 . We have generally eliminated company-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents, (2) a group of retirees who retired prior to 1987 and (3) retiree medical accounts which provide a fixed dollar amount to eligible employees who retired under the 2012 voluntary workforce reduction programs or under the 2020 voluntary early retirement and separation programs ("voluntary programs"). Benefits under these plans are funded from current assets and employee contributions. During 2020, we remeasured our postretirement healthcare obligation to account for the retiree medical accounts provided to eligible participants in our voluntary programs. As a result, we recorded a $ 1.3 billion special termination benefit charge and increased our postretirement healthcare obligation by $ 1.3 billion. See Note 15, "Government Grants and Restructuring," for more information on these voluntary programs Postemployment Plans. We provide certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans. Substantially all employees are eligible for benefits under these plans in the event of death and/or disability. Delta Air Lines, Inc. | 2022 10-K 86 Notes to the Consolidated Financial Statements Benefit Obligations, Fair Value of Plan Assets and Funded Status Pension Benefits Other Postretirement and Postemployment Benefits December 31, December 31, (in millions) 2022 2021 2022 2021 Benefit obligation at beginning of period $ 21,073 $ 22,626 $ 4,605 $ 4,766 Service cost — — 70 86 Interest cost 611 582 128 117 Actuarial (gain)/loss ( 4,599 ) ( 851 ) ( 710 ) 23 Benefits paid, including lump sums and annuities ( 1,274 ) ( 1,284 ) ( 447 ) ( 405 ) Participant contributions — — 18 18 Benefit obligation at end of period (1) $ 15,811 $ 21,073 $ 3,664 $ 4,605 Fair value of plan assets at beginning of period $ 19,502 $ 16,541 $ 357 $ 496 Actual gain/(loss) on plan assets ( 2,517 ) 2,732 ( 73 ) 57 Employer contributions 10 1,513 216 192 Participant contributions — — 18 18 Benefits paid, including lump sums and annuities ( 1,274 ) ( 1,284 ) ( 447 ) ( 406 ) Fair value of plan assets at end of period $ 15,721 $ 19,502 $ 71 $ 357 Funded status at end of period $ ( 90 ) $ ( 1,571 ) $ ( 3,593 ) $ ( 4,248 ) (1) At the end of each year presented, our accumulated benefit obligations for our pension plans are equal to the benefit obligations shown above. During 2022, net actuarial gains decreased our benefit obligation primarily due to the increase in discount rates. These gains and losses are recorded in AOCI and reflected in the table below. Amounts are generally amortized from AOCI over the expected future lifetime of plan participants. Balance Sheet Position Pension Benefits Other Postretirement and Postemployment Benefits December 31, December 31, (in millions) 2022 2021 2022 2021 Prepaid pension assets $ 27 $ — $ — $ — Current liabilities ( 9 ) ( 9 ) ( 369 ) ( 203 ) Noncurrent liabilities ( 108 ) ( 1,562 ) ( 3,224 ) ( 4,045 ) Funded status at end of period $ ( 90 ) $ ( 1,571 ) $ ( 3,593 ) $ ( 4,248 ) Net actuarial loss $ ( 6,444 ) $ ( 7,462 ) $ ( 155 ) $ ( 831 ) Prior service credit — — 18 23 Total accumulated other comprehensive loss, pre-tax $ ( 6,444 ) $ ( 7,462 ) $ ( 137 ) $ ( 808 ) Certain pension plans have benefit obligations in excess of plan assets. These plans have aggregate projected benefit obligations of $ 4.0 billion and aggregate fair value of plan assets of $ 3.9 billion at December 31, 2022. Delta Air Lines, Inc. | 2022 10-K 87 Notes to the Consolidated Financial Statements Net Periodic (Benefit) Cost Pension Benefits Other Postretirement and Postemployment Benefits Year Ended December 31, Year Ended December 31, (in millions) 2022 2021 2020 2022 2021 2020 Service cost $ — $ — $ — $ 70 $ 86 $ 96 Interest cost 611 582 700 128 117 120 Expected return on plan assets ( 1,319 ) ( 1,522 ) ( 1,373 ) ( 17 ) ( 34 ) ( 44 ) Amortization of prior service credit — — — ( 5 ) ( 6 ) ( 9 ) Recognized net actuarial loss 255 354 300 56 55 44 Settlements — 2 38 — — — Special termination benefits — — — — — 1,260 Net periodic (benefit) cost $ ( 453 ) $ ( 584 ) $ ( 335 ) $ 232 $ 218 $ 1,467 Service cost is recorded in salaries and related costs in the income statement. Special termination benefits are recorded in restructuring charges, while all other components are recorded within pension and related benefit under non-operating expense. Assumptions We used the following actuarial assumptions to determine our benefit obligations and our net periodic benefit cost for the periods presented: December 31, Benefit Obligations (1) 2022 2021 Weighted average discount rate 5.62 % 2.97 % Year Ended December 31, Net Periodic (Benefit) Cost (1) 2022 2021 2020 Weighted average discount rate 2.96 % 2.61 % 3.39 % Weighted average expected long-term rate of return on plan assets 7.00 % 8.98 % 8.97 % Assumed healthcare cost trend rate for the next year (2) 6.50 % 6.25 % 6.25 % (1) Future employee compensation levels do not impact our frozen defined benefit pension plans or other postretirement plans and impact only a small portion of our other postemployment obligation. (2) Healthcare cost trend rate is assumed to decline gradually to 5.00 % by 2031 and remain unchanged thereafter. Expected Long-Term Rate of Return. Our expected long-term rate of return on plan assets is based primarily on plan-specific investment studies using historical market return and volatility data. Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. We also expect to receive a premium for investing in less liquid private markets. We review our rate of return on plan assets assumptions annually. Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation. The investment strategy for our defined benefit pension plan assets is to earn a long-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan. This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments. Our weighted average expected long-term rate of return on assets for net periodic benefit cost for the year ended December 31, 2022 was 7.00 %. Life Expectancy . Changes in life expectancy may significantly impact our benefit obligations and future net periodic benefit cost. We use the Society of Actuaries ("SOA") published mortality data and other publicly available information to develop our best estimate of life expectancy. The SOA publishes updated mortality tables for U.S. plans and updated improvement scales. Each year we consider updates by the SOA in setting our mortality assumptions for purposes of measuring pension and other postretirement and postemployment benefit obligations. Delta Air Lines, Inc. | 2022 10-K 88 Notes to the Consolidated Financial Statements Benefit Payments Benefit payments in the table below are based on the same assumptions used to measure the related benefit obligations. Actual benefit payments may vary significantly from these estimates. Benefits earned under our pension plans are expected to be paid from funded benefit plan trusts, while our other postretirement and postemployment benefits are funded from current assets. The following table summarizes the benefit payments that are expected to be paid in the years ending December 31: Expected future benefit payments (in millions) Pension Benefits Other Postretirement and Postemployment Benefits 2023 $ 1,280 $ 450 2024 1,270 440 2025 1,270 430 2026 1,260 430 2027 1,250 430 2028-2032 6,030 1,930 Plan Assets We have adopted and implemented investment policies for our defined benefit pension plans that incorporate strategic asset allocation mixes intended to best meet the plans' long-term obligations, while maintaining an appropriate level of risk and liquidity. These asset portfolios employ a diversified mix of investments, which are reviewed periodically. Active management strategies are utilized where feasible in an effort to realize investment returns in excess of market indices. Derivatives in the plans are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. As part of these strategies, the plans are required to hold cash collateral associated with certain derivatives. Our investment strategies target a mix of 20 - 40 % growth-seeking assets, 25 - 35 % income-generating assets and 35 - 45 % risk-diversifying assets. Risk diversifying assets include hedged mandates implementing long-short, market neutral and relative value strategies that invest primarily in publicly-traded equity, fixed income, foreign currency and commodity securities and are used to improve the impact of active management on the plans. Benefit Plan Assets Measured at Fair Value on a Recurring Basis Benefit plan assets relate to our defined benefit pension plans and certain of our postemployment benefit plans. These investments are presented net of the related benefit obligation in either other noncurrent assets or pension, postretirement and related benefits on the balance sheets depending on the funded status of each plan. See Note 3, "Fair Value Measurements," for a description of the levels within the fair value hierarchy and associated valuation techniques used to measure fair value. The following table shows our benefit plan assets by asset class. Benefit plan assets measured at fair value on a recurring basis December 31, 2022 December 31, 2021 Valuation Technique (in millions) Level 1 Level 2 Total Level 1 Level 2 Total Fixed income and fixed income-related instruments $ 77 $ 1,366 $ 1,443 $ 69 $ 979 $ 1,048 (a)(b) Cash equivalents 629 265 894 2,390 2,097 4,487 (a) Equities and equity-related instruments 420 25 445 1,034 161 1,195 (a) Delta common stock 343 — 343 407 — 407 (a) Real assets 17 170 187 — 256 256 (a) Benefit plan assets $ 1,486 $ 1,826 $ 3,312 $ 3,900 $ 3,493 $ 7,393 Investments measured at net asset value ("NAV") (1) 12,329 12,653 Total benefit plan assets $ 15,641 $ 20,046 (1) Investments that were measured at NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. Delta Air Lines, Inc. | 2022 10-K 89 Notes to the Consolidated Financial Statements Fixed Income and Fixed Income-Related Instruments. These investments include corporate bonds, government bonds, collateralized mortgage obligations and other asset-backed securities, and are generally valued at the bid price or the average of the bid and ask price. Prices are based on pricing models, quoted prices of securities with similar characteristics or broker quotes. Fixed income-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year, or if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Cash Equivalents. These investments primarily consist of high-quality, short-term obligations that are a part of institutional money market mutual funds that are valued using current market quotations or an appropriate substitute that reflects current market conditions. Equities and Equity-Related Instruments. These investments include common stock and equity-related instruments. Common stock is valued at the closing price reported on the active market on which the individual securities are traded. Equity-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Over-the-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Delta Common Stock. The Delta common stock investment is managed by an independent fiduciary. Real Assets. These investments include commodities such as precious metals and precious metals-related instruments, some of which are valued at the closing price reported on the active market on which the individual instruments are traded, while others are priced based on pricing models, quoted prices of securities with similar characteristics or broker quotes. The following table summarizes investments measured at fair value based on NAV per share as a practical expedient: Benefit plan investment assets measured at NAV December 31, 2022 December 31, 2021 (in millions) Fair Value Redemption Frequency Redemption Notice Period Fair Value Redemption Frequency Redemption Notice Period Hedge funds and hedge fund-related strategies $ 6,730 (1) 2 - 180 Days $ 7,563 (1) 2 - 180 Days Commingled funds, private equity and private equity-related instruments (4) 2,266 (1) (2) 2 - 45 Days 2,228 (1) (2) 3 - 45 Days Fixed income and fixed income-related instruments (4) 1,003 (1) 1 - 180 Days 877 (1) 65 - 90 Days Real assets (4) 819 (2) N/A 773 (2) N/A Other 1,511 (3) 2 - 10 Days 1,212 (3) 2 - 10 Days Total investments measured at NAV $ 12,329 $ 12,653 (1) Various. Includes funds with monthly or more frequent, quarterly and/or custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment. (2) Includes private funds that are closed-ended structures in which the plans' investments are generally not eligible for redemption. (3) Includes funds with monthly or more frequent redemptions (4) Unfunded commitments were $ 1.2 billion for commingled funds, private equity and private equity-related instruments, $ 364 million for fixed income and fixed income-related instruments and $ 507 million for real assets at December 31, 2022. On an annual basis we assess the potential for adjustments to the fair value of all investments. This primarily applies to private equity, private equity-related strategies and real assets. Due to a lag in the availability of data for certain of these investments, 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. Hedge Funds and Hedge Fund-Related Strategies. These investments are primarily made through shares of limited partnerships or similar structures for which a liquid secondary market does not exist. Commingled Funds, Private Equity and Private Equity-Related Instruments. These investments include commingled funds invested in common stock, as well as private equity and private equity-related instruments. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private equity and private equity-related instruments are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. Delta Air Lines, Inc. | 2022 10-K 90 Notes to the Consolidated Financial Statements Fixed Income and Fixed Income-Related Instruments. These investments include commingled funds invested in debt obligations. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund. Private fixed income instruments are typically valued monthly or quarterly by the fund managers or third-party valuation agents using valuation models where one or more of significant inputs into the model cannot be observed and which require the development of assumptions. Real Assets. These investments include real estate, energy transition, timberland, agriculture and infrastructure. The valuation of real assets requires significant judgment due to the absence of quoted market prices as well as the inherent lack of liquidity and the long-term nature of these assets. Real assets are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions. Other. Primarily includes globally-diversified, risk-managed commingled funds consisting mainly of equity, fixed income and commodity exposures. Other We also sponsor defined benefit pension plans for eligible employees in certain foreign countries. These plans did not have a material impact on our Consolidated Financial Statements in any period presented. Profit Sharing Program Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items. For the year ended December 31, 2022, we recorded profit sharing expense of $ 563 million. 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. We recorded no profit sharing expense for the year ended December 31, 2020. NOTE 10. COMMITMENTS AND CONTINGENCIES Aircraft Purchase Commitments Our future aircraft purchase commitments totaled approximately $ 19.0 billion at December 31, 2022: Aircraft purchase commitments (1) (in millions) Total 2023 $ 2,610 2024 4,440 2025 4,330 2026 3,800 2027 2,570 Thereafter 1,210 Total $ 18,960 (1) The timing of these commitments is based on our contractual agreements with the aircraft manufacturers and may be subject to change based on modifications to those agreements or changes in delivery schedules. Delta Air Lines, Inc. | 2022 10-K 91 Notes to the Consolidated Financial Statements Our future aircraft purchase commitments included the following aircraft at December 31, 2022: Aircraft purchase commitments by fleet type Fleet Type Purchase Commitments A220-300 60 A321-200neo 134 A330-900neo 18 A350-900 16 B-737-10 100 Total 328 Aircraft Orders During 2022, we entered into a purchase agreement with Boeing for 100 Boeing 737-10s, the largest model in the 737 MAX family, to start delivery in 2025 with the option to purchase an additional thirty 737-10s. Additionally during 2022, we agreed to acquire four B-737-900ERs, one A330-900 and exercised purchase rights for 24 A220-300s. Deliveries of the pre-owned B-737-900ERs occurred during 2022, delivery of the new A330-900 is expected to occur in 2024, and deliveries of the new A220-300s are expected to start in 2026. Contract Carrier Agreements We have contract carrier agreements with regional carriers expiring through 2034. These agreements are structured as either capacity purchase or revenue proration agreements. Capacity Purchase Agreements . Our regional carriers primarily operate for us under capacity purchase agreements. Under these agreements, the regional carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. The following table shows our minimum obligations under our existing capacity purchase agreements with third-party regional carriers, excluding contract carrier payments accounted for as leases of aircraft, which are described in Note 7, "Leases." The obligations set forth in the table contemplate minimum levels of flying by the regional carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees. Accordingly, our actual payments under these agreements could differ materially from the minimum fixed obligations set forth in the table below. Contract carrier minimum obligations (in millions) Amount 2023 $ 1,590 2024 1,560 2025 1,610 2026 1,590 2027 1,560 Thereafter 2,690 Total $ 10,600 Revenue Proration Agreement . As of December 31, 2022, a portion of our contract carrier arrangement with SkyWest Airlines, Inc. was structured as a revenue proration agreement. This revenue proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries. Delta Air Lines, Inc. | 2022 10-K 92 Notes to the Consolidated Financial Statements Legal Contingencies We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other matters concerning our business. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, we believe that the resolution of current matters will not have a material adverse effect on our Consolidated Financial Statements. Credit Card Processing Agreements Our VISA/MasterCard and American Express credit card processing agreements provide that no cash reserve ("Reserve") is required, and no withholding of payment related to receivables collected will occur, except in certain circumstances, including when we do not maintain a required level of liquidity as outlined in the merchant processing agreements. In circumstances in which the credit card processor can establish a Reserve or withhold payments, the amount of the Reserve or payments that may be withheld would be equal to the potential liability of the credit card processor for tickets purchased with VISA/MasterCard or American Express credit cards, as applicable, that had not yet been used for travel. We did not have a Reserve or an amount withheld as of December 31, 2022 or 2021. Other Contingencies General Indemnifications We are the lessee under many commercial real estate leases. It is common in these transactions for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. This type of indemnity would typically make us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct. Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment. We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have insurance policies in place as required by applicable environmental laws. Some of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to specified changes in law or regulations. In some of these financing transactions, we also bear the risk of changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes. We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time. Delta Air Lines, Inc. | 2022 10-K 93 Notes to the Consolidated Financial Statements Employees Under Collective Bargaining Agreements As of December 31, 2022, we had approximately 95,000 full-time equivalent employees, approximately 20 % of whom were represented by unions. Domestic airline employees represented by collective bargaining agreements by group Employee Group Approximate Number of Employees Represented Union Date on which Collective Bargaining Agreement Becomes Amendable Delta Pilots 15,040 ALPA December 31, 2019 Delta Flight Superintendents (Dispatchers) 450 PAFCA November 1, 2024 Endeavor Pilots 1,750 ALPA January 1, 2029 Endeavor Flight Attendants 1,800 AFA March 31, 2027 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. In addition to the domestic airline employee groups discussed above, approximately 200 refinery employees of our wholly owned subsidiary Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2026. This agreement is governed by the National Labor Relations Act, which generally allows either party to engage in self-help upon the expiration of the agreement. Certain of our employees outside the U.S. are represented by unions, work councils or other local representative groups. Other We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs. NOTE 11. INCOME TAXES Income Tax Provision Components of income tax (provision) benefit Year Ended December 31, (in millions) 2022 2021 2020 Current tax (provision) benefit: Federal $ — $ — $ 94 State and local ( 1 ) ( 1 ) 3 International ( 4 ) ( 3 ) ( 5 ) Deferred tax (provision) benefit: Federal ( 525 ) ( 130 ) 2,766 State and local ( 66 ) 16 344 Income tax (provision) benefit $ ( 596 ) $ ( 118 ) $ 3,202 Delta Air Lines, Inc. | 2022 10-K 94 Notes to the Consolidated Financial Statements The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate: Reconciliation of statutory federal income tax rate to the effective income tax rate Year Ended December 31, 2022 2021 2020 U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 3.0 ( 4.4 ) 1.9 Permanent differences 1.0 4.9 ( 0.6 ) Valuation allowance 7.3 9.1 ( 2.6 ) Other ( 1.1 ) ( 0.8 ) 0.8 Effective income tax rate 31.2 % 29.8 % 20.5 % Deferred Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of deferred income tax assets and liabilities December 31, (in millions) 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 1,395 $ 1,301 Capital loss carryforward 50 480 Pension, postretirement and other benefits 1,467 2,089 Investments 1,106 314 Deferred revenue 2,334 2,288 Lease liabilities 2,376 2,452 Other 682 494 Valuation allowance ( 1,176 ) ( 833 ) Total deferred tax assets $ 8,234 $ 8,585 Deferred tax liabilities: Depreciation $ 5,110 $ 4,463 Operating lease assets 1,624 1,676 Intangible assets 1,121 1,097 Other 78 55 Total deferred tax liabilities $ 7,933 $ 7,291 Net deferred tax assets (1) $ 301 $ 1,294 (1) At December 31, 2022, the net deferred tax assets of $ 301 million included $ 325 million of net state deferred tax assets, which are recorded in deferred income taxes, net, and $ 24 million of net federal deferred tax liabilities, which are recorded in other noncurrent liabilities. At December 31, 2021, the net deferred tax assets of $ 1.3 billion were recorded in deferred income taxes, net. 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. Delta Air Lines, Inc. | 2022 10-K 95 Notes to the Consolidated Financial Statements 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. 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. 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. The following table presents the balance of our valuation allowance on our deferred income tax assets and the associated activity: Valuation allowance activity (in millions) 2022 2021 Balance at January 1 $ 833 $ 460 Tax provision 155 26 Equity investment activity 188 347 Balance at December 31 $ 1,176 $ 833 Other The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2022, 2021 and 2020 tax years. NOTE 12. EQUITY AND EQUITY COMPENSATION Equity We are authorized to issue 2.0 billion shares of capital stock, of which up to 1.5 billion may be shares of common stock, par value $ 0.0001 per share, and up to 500 million may be shares of preferred stock. Preferred Stock. We may issue preferred stock in one or more series. The Board of Directors is authorized (1) to fix the descriptions, powers (including voting powers), preferences, rights, qualifications, limitations and restrictions with respect to any series of preferred stock and (2) to specify the number of shares of any series of preferred stock. We have not issued any preferred stock. Treasury Stock. We generally withhold shares of Delta common stock to cover employees' portion of required tax withholdings when employee equity awards are issued or vest. These shares are valued at cost, which equals the market price of the common stock on the date of issuance or vesting. The weighted average cost per share held in treasury was $ 29.73 and $ 28.87 as of December 31, 2022 and 2021, respectively. Delta Air Lines, Inc. | 2022 10-K 96 Notes to the Consolidated Financial Statements Warrants. During 2020 and 2021, in connection with the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") payroll support program and extensions, we issued warrants to the U.S Department of the Treasury to acquire more than 11.1 million shares of Delta common stock. The conditions and number of warrants outstanding have remained unchanged since December 31, 2021 and key terms under each program are as follows: Summary of payroll support program warrants (in millions) Number of Warrants Exercise Price Expiration Year Payroll Support Program (PSP1) 6.8 $ 24.37 2025 Payroll Support Program Extension (PSP2) 2.4 39.73 2026 Payroll Support Program 3 (PSP3) 1.9 47.80 2026 Total 11.1 Equity Compensation Our broad-based equity and cash compensation plan provides for grants of restricted stock, restricted stock units, stock options, performance awards, including cash incentive awards and other equity-based awards (the "Plan"). Shares of common stock issued under the Plan may be made available from authorized, but unissued, common stock or common stock we acquire. If any shares of our common stock are covered by an award that expires, is canceled, forfeited or otherwise terminates without delivery of shares (including shares surrendered or withheld for payment of taxes related to an award), such shares will again be available for issuance under the Plan except for (1) any shares tendered in payment of an option, (2) shares withheld to satisfy any tax withholding obligation with respect to the exercise of an option or stock appreciation right ("SAR") or (3) shares covered by a stock-settled SAR or other awards that were not issued upon the settlement of the award. The Plan authorizes the issuance of up to 163 million shares of common stock. As of December 31, 2022, there were 17 million shares available for future grants. We make long-term incentive awards annually to eligible employees under the Plan. Generally, awards vest over time, subject to the employee's continued employment. Equity compensation expense, including awards payable in common stock or cash, is recognized in salaries and related costs over the employee's requisite service period (generally, the vesting period of the award) and totaled $ 150 million, $ 149 million and $ 119 million for the years ended December 31, 2022, 2021 and 2020, respectively. We record expense on a straight-line basis for awards with installment vesting. As of December 31, 2022, unrecognized costs related to unvested shares and stock options totaled $ 83 million. We expect substantially all unvested awards to vest and recognize forfeitures as they occur. Restricted Stock . Restricted stock is common stock that may not be sold or otherwise transferred for a period of time and is subject to forfeiture in certain circumstances. The fair value of restricted stock awards is based on the closing price of the common stock on the grant date. As of December 31, 2022, there were 3.1 million unvested restricted stock awards. Restricted stock activity under the Plan for the years ended December 31, 2022, 2021 and 2020 is as follows: Restricted Stock Award Activity 2022 2021 2020 Restricted Stock Awards Weighted-Average Grant Price Restricted Stock Awards Weighted-Average Grant Price Restricted Stock Awards Weighted-Average Grant Price (in millions, except weighted avg grant price) Outstanding at January 1 2.9 $ 45.66 2.2 $ 54.06 2.6 $ 51.28 Granted 1.9 42.45 2.3 39.93 1.4 56.84 Vested ( 1.6 ) 46.31 ( 1.4 ) 51.15 ( 1.6 ) 51.95 Forfeited ( 0.1 ) 45.51 ( 0.2 ) 44.01 ( 0.2 ) 56.11 Outstanding at December 31 3.1 $ 43.43 2.9 $ 45.66 2.2 $ 54.06 Delta Air Lines, Inc. | 2022 10-K 97 Notes to the Consolidated Financial Statements Stock Options. Stock options are granted with an exercise price equal to the closing price of Delta common stock on the grant date and generally have a 10-year term. We determine the fair value of stock options at the grant date using an option pricing model. As of December 31, 2022, there were 6.2 million outstanding stock option awards with a weighted average exercise price of $ 50.40 of which 5.1 million were exercisable. Stock option activity under the Plan for the years ended December 31, 2022, 2021 and 2020 is as follows: Stock Option Activity 2022 2021 2020 Stock Options Weighted-Average Exercise Price Stock Options Weighted-Average Exercise Price Stock Options Weighted-Average Exercise Price (in millions, except weighted avg grant price) Outstanding at January 1 6.2 $ 50.41 5.4 $ 52.37 3.9 $ 49.57 Granted — — 1.0 39.78 1.6 58.89 Exercised — — — — ( 0.1 ) 44.05 Forfeited — 52.87 ( 0.2 ) 49.61 — — Outstanding at December 31 6.2 $ 50.40 6.2 $ 50.41 5.4 $ 52.37 Performance Awards. Performance awards are dollar-denominated long-term incentive opportunities which, for grants prior to 2021, are payable in Delta stock to executive officers on the payment date and in cash to all other participants. Beginning with the 2021 grants, performance awards are payable in cash to all participants. Potential performance award payments range from 0 %- 200 % of a target level and are contingent upon our achieving certain financial and operational goals over a three-year performance period. Based on the closing stock price at each respective year end and contingent on achieving the specified performance conditions, the maximum shares that could be issued were 0.7 million, 1.5 million and 2.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Performance-Based Restricted Stock Units. Performance-based restricted stock units are long-term incentive opportunities that were granted in 2022 and provide executive officers with the right to receive shares of Delta stock based on our achievement of certain performance conditions at the end of a three-year period. Potential payouts range from 0 %- 300 % of a target level. Based on the closing stock price at year end and contingent on achieving the specified performance conditions, the maximum shares that could be issued were 1.3 million for the year ended December 31, 2022. NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS Components of accumulated other comprehensive loss (in millions) Pension and Other Benefits Liabilities (2) Other Tax Effect Total Balance at January 1, 2020 $ ( 9,563 ) $ 25 $ 1,549 $ ( 7,989 ) Changes in value ( 1,652 ) 16 384 ( 1,252 ) Reclassifications into earnings (1) 372 — ( 169 ) 203 Balance at December 31, 2020 ( 10,843 ) 41 1,764 ( 9,038 ) Changes in value 2,077 — ( 484 ) 1,593 Reclassifications into earnings (1) 411 — ( 96 ) 315 Balance at December 31, 2021 ( 8,355 ) 41 1,184 ( 7,130 ) Changes in value 1,419 — ( 330 ) 1,089 Reclassifications into earnings (1) 312 — ( 72 ) 240 Balance at December 31, 2022 $ ( 6,624 ) $ 41 $ 782 $ ( 5,801 ) (1) Amounts reclassified from AOCI for pension and other benefits liabilities are recorded in pension and related benefit in non-operating expense in the income statement. (2) Includes approximately $ 755 million of deferred income tax expense as a result of tax law changes and prior valuation allowance releases through continuing operations, that will not be recognized in net income until pension and other benefit obligations are fully extinguished. Delta Air Lines, Inc. | 2022 10-K 98 Notes to the Consolidated Financial Statements NOTE 14. SEGMENTS Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments. Our chief operating decision maker is considered to be our executive leadership team. Our executive leadership team regularly reviews discrete information for our two operating segments, which are determined by the products and services provided: our airline segment and our refinery segment. Airline Segment Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U.S. and around the world and includes our loyalty program, as well as other ancillary airline services. This allows us to benefit from an integrated revenue pricing and route network. Our flight equipment forms one fleet, which is deployed through a single route scheduling system. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers fleet type and route economics, but gives no weight to the financial impact of the resource allocation decision on a geographic region or mainline/regional carrier basis. Our objective in making resource allocation decisions is to optimize our consolidated financial results. Refinery Segment Our Monroe subsidiary operates the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel. Monroe's operations include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK. Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties. The refinery's production consists of jet fuel, as well as non-jet fuel products. We use several counterparties to exchange the non-jet fuel products produced by the refinery for jet fuel consumed in our airline operations. The gross fair value of the products exchanged under these agreements during the years ended December 31, 2022, 2021 and 2020 was $ 3.5 billion, $ 2.3 billion and $ 1.5 billion, respectively. Delta Air Lines, Inc. | 2022 10-K 99 Notes to the Consolidated Financial Statements Segment Reporting Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with GAAP. Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis. Financial information by segment (in millions) Airline Refinery Intersegment Sales/Other Consolidated Year Ended December 31, 2022 Operating revenue: $ 45,605 $ 10,706 $ 50,582 Sales to airline segment $ ( 1,976 ) (1) Exchanged products ( 3,475 ) (2) Sales of refined products ( 278 ) Operating income (3) 2,884 777 3,661 Interest expense, net 1,029 12 ( 12 ) 1,029 Depreciation and amortization 2,107 93 ( 93 ) (3) 2,107 Restructuring charges ( 124 ) — ( 124 ) Total assets, end of period 69,355 3,039 ( 106 ) 72,288 Net fair value obligations, end of period — ( 226 ) ( 226 ) Capital expenditures 6,217 149 6,366 Year Ended December 31, 2021 Operating revenue: $ 26,670 $ 6,054 $ 29,899 Sales to airline segment $ ( 492 ) (1) Exchanged products ( 2,293 ) (2) Sales of refined products ( 40 ) Operating income (loss) (3) 1,888 ( 2 ) 1,886 Interest expense, net 1,279 7 ( 7 ) 1,279 Depreciation and amortization 1,998 95 ( 95 ) (3) 1,998 Restructuring charges ( 19 ) — ( 19 ) Total assets, end of period 70,417 2,099 ( 57 ) 72,459 Net fair value obligations, end of period — ( 497 ) ( 497 ) Capital expenditures 3,188 59 3,247 Year Ended December 31, 2020 Operating revenue: $ 15,945 $ 3,143 $ 17,095 Sales to airline segment $ ( 214 ) (1) Exchanged products ( 1,472 ) (2) Sales of refined products ( 307 ) Operating loss (3) ( 12,253 ) ( 216 ) ( 12,469 ) Interest expense, net 929 1 ( 1 ) 929 Depreciation and amortization 2,312 99 ( 99 ) (3) 2,312 Restructuring charges 8,219 — 8,219 Total assets, end of period 70,548 1,448 — 71,996 Net fair value obligations, end of period — ( 156 ) ( 156 ) Capital expenditures 1,879 20 1,899 (1) Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery. (2) Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis. (3) Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement. Delta Air Lines, Inc. | 2022 10-K 100 Notes to the Consolidated Financial Statements Renewable Fuel Compliance Costs 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 Renewable Identification Numbers ("RINs") from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Renewable fuel compliance costs are accrued each period as the RINs obligation is generated. Purchased RINs are carried at the lower of cost and net realizable value and are recorded in prepaid expenses and other. The RINs obligation is recorded in accounts payable at cost for those purchased or under fixed price purchase agreements, with any remaining net obligation recorded at fair value. The RINs asset and obligation are retired when used to satisfy EPA requirements. The net fair value obligations presented in the financial information by segment table above are based on quoted market prices and other observable information and are therefore classified as Level 2 in the fair value hierarchy. 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. NOTE 15. GOVERNMENT GRANTS AND RESTRUCTURING Government Grant Recognition. Under the initial payroll support program under the CARES Act and the payroll support program ("PSP") extensions we received support payments which included $ 4.5 billion and $ 3.9 billion of grants during the years ended December 31, 2021 and 2020, respectively. These grants were recognized in government grant recognition in our income statement over the periods that the funds were intended to compensate. PSP1 grants were recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021. See Note 6, "Debt," and Note 12, "Equity and Equity Compensation," for additional information on other aspects of the payroll support program. Restructuring Charges. As a result of the unprecedented, widespread impact of the COVID-19 pandemic, demand for travel declined at a rapid pace in the March 2020 quarter and remained depressed throughout 2020, which had a materially adverse impact on our results of operations and financial position. During 2020, we implemented enhanced measures focusing on the safety of our customers and employees, while at the same time seeking to mitigate the impact on our financial position and operations and to position our business for recovery through actions including fleet retirements, offering voluntary retirement and separation programs and other decisions. These actions resulted in significant restructuring charges during the year ended December 31, 2020. Subsequent to these charges, we recorded adjustments to certain of these restructuring charges during the years ended December 31, 2022 and 2021, representing changes in our estimates or the outcome of contract negotiations. These charges and adjustments are summarized as follows: Restructuring charges by category Year Ended December 31, (in millions) 2022 2021 2020 Fleet retirements $ ( 48 ) $ 40 $ 4,409 Voluntary programs and other employee benefit charges ( 79 ) ( 17 ) 3,409 Receivables and other 3 ( 42 ) 401 Total restructuring charges $ ( 124 ) $ ( 19 ) $ 8,219 Fleet Retirements. As a result of the COVID-19 pandemic and our response, we made decisions to remove certain aircraft from active service and to early retire certain fleet types. These actions resulted in $ 4.4 billion of impairment and other related charges that were recorded in restructuring charges in our income statement for the year ended December 31, 2020. These charges were calculated using Level 3 fair value inputs based primarily upon recent market transactions and third-party bids, which were corroborated with published pricing guides and our assessment of existing market conditions based on industry knowledge. Following the impairment charges, the aggregate net book value of these aircraft as of December 31, 2022 and December 31, 2021 was approximately $ 220 million and $ 340 million, respectively, with the reduction in 2022 primarily due to aircraft sales. Delta Air Lines, Inc. | 2022 10-K 101 Notes to the Consolidated Financial Statements Voluntary Programs and Other Employee Benefit Charges. In response to the COVID-19 pandemic, we announced the voluntary programs, which primarily applied to eligible U.S. merit, ground and flight attendant and pilot employees. During 2020, 18,000 employees elected to participate and were eligible for separation payments, continued healthcare benefits and certain participants received retiree medical accounts. We recorded $ 3.4 billion in restructuring charges in our income statement associated with these programs and other employee benefit charges during 2020, including $ 1.3 billion of special termination benefits (see Note 9, "Employee Benefit Plans"). The remainder of the restructuring charge primarily relates to separation payments and healthcare benefits. 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. An additional $ 250 million of cash payments were disbursed during 2020 related to unused vacation and other benefits, which were accrued prior to the voluntary programs charge. Other than the special termination benefits that are recorded in pension, postretirement and related benefits, the remaining accruals as of December 31, 2022 related to separation payments under the voluntary programs are recorded in other accrued liabilities on our balance sheet. Receivables and Other. Based on our assessment of collectability, during the year ended December 31, 2020, we recorded approximately $ 100 million of reserves against outstanding receivables from LATAM, Grupo Aeroméxico, GOL, Virgin Atlantic and others. Following LATAM's and Grupo Aeroméxico's emergence from their respective bankruptcy processes and general improvement overall in the airline industry, these reserves were $ 7 million as of December 31, 2022. NOTE 16. EARNINGS/(LOSS) PER SHARE We calculate basic earnings/(loss) per share and diluted (loss) per share by dividing net income/(loss) by the weighted average number of common shares outstanding, excluding restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based instruments, including stock options, restricted stock awards and warrants. Antidilutive common stock equivalents excluded from the diluted earnings/(loss) per share calculation are not material. The following table shows our computation: Basic and diluted earnings/(loss) per share Year Ended December 31, (in millions, except per share data) 2022 2021 2020 Net income/(loss) $ 1,318 $ 280 $ ( 12,385 ) Basic weighted average shares outstanding 638 636 636 Dilutive effect of share-based instruments 3 5 — Diluted weighted average shares outstanding 641 641 636 Basic earnings/(loss) per share $ 2.07 $ 0.44 $ ( 19.49 ) Diluted earnings/(loss) per share $ 2.06 $ 0.44 $ ( 19.49 ) Delta Air Lines, Inc. | 2022 10-K 102 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.