Delta Air Lines cuts net debt by $500 million; aims at $4 billion

By Paul Deckelman

New York, Jan. 12 – Delta Air Lines Inc. cut its net debt by $500 million in 2016, company executives said Thursday, as it continues to work toward its goal of further big cuts in its debt load in the coming years.

“While we continue to make investments in our business for the future, we’re also strengthening our balance sheet as we work toward our $4 billion net adjusted debt goal for 2020,” Paul A. Jacobsen, Delta’s executive vice president and chief financial officer, told analysts and journalists on the Atlanta-based airline operator’s conference call following the release of its results for the 2016 fourth quarter and full fiscal year ended Dec. 31.

Jacobson said that Delta ended that December quarter with net debt of $6.1 billion, which he called “down roughly $500 million” from year-end 2015.

He said that during the quarter, the company generated $640 million in free cash flow and returned about $450 million of that to its shareholders. Delta paid its shareholders $149 million of dividends and made $300 million of share repurchases.

For the full year, Jacobson said, the company generated nearly $4 billion in free cash flow, “more than $3 billion of which went back to our owners after investment in the airline.

“That is roughly an 80% return rate – and our goal continues to be to return at least 70% of our free cash flow to our owners annually.”

While noting the company’s success in returning substantial cash to its shareholders, Delta’s chief executive officer, Edward H. Bastien, also noted that in bringing its adjusted net debt down to just over $6 billion – the company’s previously announced net-debt target level for the year-end, the company had achieved an investment-grade credit rating.

In February, Moody’s Investors Service lifted its senior unsecured ratings to Baa3 from Ba3 previously, and upped its senior secured rating to Baa2 from Baa3, with a stable outlook.

In May, Fitch Ratings upgraded Delta’s issuer default rating to BBB- from BB+ previously, while in September, Standard & Poor’s affirmed the company’s BB+ credit rating up raised its outlook to positive from stable previously.

Delta – which in 2015 (the last year for which full industry statistics are available) was considered to be the world’s second-biggest airline in terms of revenues and passenger-miles flown, trailing only American Airlines, and third-largest in total passengers carried behind American and Southwest Airlines – has been on a flight path toward lower debt levels for some time.

Since peaking at $26.5 billion at the end of 2004 – the year before Delta landed in Chapter 11 bankruptcy – its debt levels have come pretty much steadily down.

Delta emerged from Chapter 11 in April 2007 and ended that year with $13.2 billion of net debt, roughly half of its pre-bankruptcy levels.

Debt ballooned back up to $17 billion in 2009, the year Delta acquired former rival Northwest Airlines, which was merged into Delta. The debt load has continued to come down steadily since then.

At the end of 2013, adjusted net debt stood at some $9.4 billion.

That dropped to $7.3 billion at the end of 2014, and fell further to $6.7 billion at year-end 2015.

The debt level went back up to $7 billion at the end of the 2016 first quarter ended March 31, but then came down to $6.8 billion at the end of the second quarter ended June 30, to $6.4 billion at the end of the third quarter ended Sept. 30, and down to $6.1 billion at the end of the latest quarter.

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