Delta Airlines 2004 Annual Report Download - page 88

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our obligations under the Amex Facilities are secured by (1) a first priority lien on our right to payment from Amex for purchased SkyMiles and our
interest in the SkyMiles Agreements and related assets and in the Card Services Agreement pursuant to which Amex processes travel and other purchases
made from us using Amex credit cards ("Card Services Agreement") and (2) a junior lien on the collateral securing the GE Commercial Finance Facility. Our
obligations under the Card Services Agreement are also secured by the collateral securing the Amex Facilities. Furthermore, our claim against any of our
subsidiaries with respect to intercompany loans that we have made to that subsidiary is expressly subordinated to that subsidiary's obligations, if any, as
guarantor of the GE Commercial Finance Facility and the Amex Facilities.
The Amex Facilities contain affirmative, negative and financial covenants substantially the same as those found in the GE Commercial Finance Facility.
The Amex Facilities contain customary events of default, including cross defaults to our obligations under the GE Commercial Finance Facility and our
other debt and certain change of control events. Upon the occurrence of an event of default, the outstanding advances under the Amex Facilities may be
accelerated and become due and payable immediately.
The GE Commercial Finance Facility and the Amex Facilities are subject to an intercreditor agreement that generally regulates the respective rights and
priorities of the lenders under each Facility with respect to collateral and certain other matters.
Other Financing Arrangements
During 2004, we entered into an agreement to purchase 32 CRJ-200 aircraft to be delivered in 2005. In connection with this agreement, we received a
commitment from a third party to finance, on a secured basis at the time of acquisition, the future deliveries of these regional jet aircraft. Borrowings under
this commitment (1) will be due in installments for 15 years after the date of borrowing and (2) bear interest at LIBOR plus a margin. See Note 8 for
additional information about these commitments.
Other Covenants
As discussed above, the GE Commercial Finance Facility, the Amex Facilities and the Reimbursement Agreement include certain covenants. In addition,
as is customary in the airline industry, our aircraft lease and financing agreements require that we maintain certain levels of insurance coverage, including
war-risk insurance. Failure to maintain these coverages may result in an interruption to our operations. See Note 8 for additional information about our war-
risk insurance currently provided by the U.S. government.
We were in compliance with all covenant requirements at December 31, 2004 and 2003.
Note 7. Lease Obligations
We lease aircraft, airport terminal and maintenance facilities, ticket offices and other property and equipment from third parties. Rental expense for
operating leases, which is recorded on a straight-line basis over the life of the lease, totaled $1.3 billion for each year ended December 31, 2004, 2003 and
2002. Amounts due under capital leases are recorded as liabilities on our Consolidated Balance Sheets. Our interest in assets acquired under capital leases is
recorded as property and equipment on our Consolidated Balance Sheets. Amortization of assets recorded under capital leases is included in depreciation and
amortization expense on our Consolidated Statements of Operations. Our leases do not include residual value guarantees.
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