Delta Airlines 2002 Annual Report Download - page 154

Notes to the Consolidated Financial Statements
The program fees related to this agreement are paid to the third party based on
the amounts invested by the third party. These fees were $4 million, $14 million
and $22 million for the years ended December 31, 2002, 2001 and 2000,
respectively, and are recorded in miscellaneous income (expense), net included
in other income (expense) on our Consolidated Statements of Operations.
This agreement, as amended during the June 2002 quarter, expires on March 31,
2003. However, the third party may terminate this agreement prior to its
scheduled termination date if our senior unsecured long-term debt is rated
either below Ba3 by Moody's or below BB- by Standard & Poor's. If this agreement
is terminated under these circumstances or upon expiration, we would be required
to repurchase the funded receivables, which totaled $250 million at December 31,
2002. At December 31, 2002, our senior unsecured long-term debt was rated Ba3 by
Moody's and BB- by Standard & Poor's. Both Moody's and Standard & Poor's ratings
outlook for our long-term debt is negative.
Note 9. Purchase Commitments and Contingencies
AIRCRAFT & ENGINE ORDER COMMITMENTS
Future expenditures for aircraft and engines on firm order as of December 31,
2002 are estimated to be $5.0 billion. The following table shows the timing of
these commitments:
Year Ending December 31,
(in billions) Amount
------
2003 $1.0
2004 0.7
2005 1.2
2006 1.3
2007 0.8
After 2007 --
----
Total $5.0
====
CONTRACT CARRIER AGREEMENT COMMITMENTS
We have contract carrier agreements with two regional air carriers, Atlantic
Coast Airlines (ACA) and SkyWest Airlines, Inc. (SkyWest), which expire in 2010.
During the June 2002 quarter, we entered into a contract carrier agreement with
a third regional air carrier, Chautauqua Airlines, which expires in 2012.
Chautauqua began operations under our Delta Connection program in November 2002.
Under these contract carrier agreements, we schedule certain aircraft that are
operated by those airlines using our flight code, sell the seats on those
flights and retain the related revenues. We pay those airlines an amount that is
based on their cost of operating those flights plus a specified margin. The
following table shows the number of aircraft and available seat miles (ASMs)
operated for us by the regional air carriers, and our expenses related to the
contract carrier agreements for the years ended December 31, 2002, 2001 and
2000:
(in millions, except aircraft) 2002 2001 2000
------ ------ ----
Number of aircraft operated(1) 100 72 23
ASMs(1,2) 3,513 1,562 328
Expenses $ 561 $ 240 $ 89
------ ------ ----
(1) These amounts are unaudited.
(2) These ASMs are not included in our ASMs on pages 11 and 68.
We expect to incur approximately $780 million in expenses related to these
contract carrier agreements in 2003. We anticipate that the number of aircraft
operated for us by these regional air carriers will increase to 136 by December
31, 2003, including the 12 additional Chautauqua aircraft discussed in Note 22.
See Note 1 for information about our accounting policy for revenues and expenses
related to our contract carrier agreements.
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