Delta Air Lines repays $345 million of debt in second quarter; continued debt reduction planned

By Jennifer Lanning Drey

Portland, Ore., July 19 - Delta Air Lines, Inc. used free cash flow to repay $345 million of debt during the second quarter and plans to continue to reduce its debt going forward in 2010, Delta's chief financial officer Hank Halter said Monday during its second-quarter earnings conference call.

"We have generated over $1.3 billion in free cash flow over the last two quarters, and we will continue to use our cash to pay down debt, as we have reduced it by $1.4 billion this year," Richard Anderson, Delta's chief executive officer, said during the call.

About $70 million of the second-quarter debt reduction was paid before scheduled maturity.

Delta had adjusted net debt of $15.6 billion at June 30 and is targeting net debt of $10 billion by 2012, Halter said.

The company had $6.0 billion in unrestricted liquidity at June 30. The figure included $4.4 billion in cash and $1.6 billion in undrawn revolving credit facilities.

Delta has about $150 million of scheduled net debt maturities in the third quarter and is targeting unrestricted liquidity of $6.3 billion at the end of September, Halter said.

"We'll continue our prudent use of capital and make significant progress in improving our balance sheet," he later said.

Looking forward, Delta also plans to keep capital spending "in check," with net capital expenditures of about $250 million in the third quarter, Halter said.

"We're making the right changes across our business to build a sustainable cost structure, and we're generating a lot of cash that we're using to pay down debt and improve our balance sheet," Anderson said.

The Atlanta-based airline generated $778 million in free cash flow during the second quarter.

Improving revenue environment

Delta also announced on Monday that its operating revenues increased by 17% in the second quarter, as compared to the same quarter of 2009.

Additionally, the company reported net income of $467 million for the second quarter, which Anderson said represented its largest quarterly profit in a decade.

The company maintains a cautious but optimistic outlook, management said during the call.

"The revenue environment is improving. I would characterize it as 'good', but not 'great' yet," Anderson said.

During the second quarter, Delta's passenger revenue increased by 19% over the prior-year period, while cargo revenue increased 22% and other and net revenue increased by 3% versus the comparable 2009 quarter.

"We anticipate continuing revenue improvement as the economy stabilizes, and we expect to be solidly profitable for the full year," Anderson said.

The CEO also said the integration of Northwest Airlines Corp. is now essentially complete. Delta achieved $200 million in incremental merger synergies in the second quarter and expects to end the year at a run rate of about $1.5 billion in synergies, he said.

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