Delta Airlines 2015 Annual Report Download - page 31

TableofContents
Europe.Alongsideour49%equityinvestmentinVirginAtlantic,weimplementedanantitrustimmunizedjointventurewiththeU.K.-basedcarrier.Thisjoint
venturehassignificantlyimprovedourpresenceinLondon,oneofthelargestrevenuemarketsfromtheU.S.,whilealsoenhancingourtransatlanticnetwork
includingourexistingjointventurerelationshipwithAirFrance-KLMandAlitalia.Wehavealsomovedseniordecision-makingfunctionstoAmsterdamforcloser
coordinationwithourjointventureairlines.Weanticipatetheco-locationofthesemanagementfunctionswilloptimizethebenefitsofourjointventures.
Asia.AspartofthestrategytoimproveourPacificoperations,weareincreasingourpresenceinChina,thelargesttranspacificmarketfromtheU.S.Tothis
end,during2015,weacquiredsharesofChinaEasternfor$450million,whichprovidesuswitha3.5%stakeintheairline.Inconjunctionwiththistransaction,we
andChinaEasternenteredintoanewcommercialagreementtoexpandourrelationshipandbetterconnectthenetworksofthetwoairlines.ChinaEasternisoneof
thelargestairlinesinChinawitharoutenetworkcoveringmorethan200destinationsinover25countries.Inaddition,wearerestructuringourPacificfleetby
removinglessefficientB-747-400aircraftandreplacingthemwithsmaller-gauge,widebodyaircrafttobettermatchcapacitywithdemandinanefforttoimprove
ourmargins.
LatinAmerica.Wearefocusedonmaximizingthevalueofourrelationshipswhilederivingvaluefromtherecentinvestmentsinournetwork,productand
service.OurcapacitygrowthhasbeenfocusedonhigherperformingmarketssuchasMexicoandtheCaribbean,whilewehavereducedcapacityinmarkets
challengedbyweakeningcurrenciesandslowingeconomiessuchasBrazil.
DuringtheDecember2015quarter,weannouncedaplantoacquireadditionalcapitalstockofGrupoAeroméxicothroughacashtenderoffer.Followingthe
completionofthetenderoffer,whencombinedwithourexistingshareownership,weexpecttoownupto49%ofGrupoAeroméxico'soutstandingshares.We
havesubmittedanapplicationforanantitrustimmunizedjointventurewithAeroméxico,whichweexpectwillbeapprovedin2016,andisintendedtoallowusto
benefitfromanimprovedlevelofcoordination.
Also,during2015,weacquiredadditionalpreferredsharesofGOL'sparentcompanyfor$50million,increasingourownershipto9.5%ofitsoutstanding
capitalstock,aspartofourlong-termstrategytostrengthentheopportunityweseeinBrazil.Inconjunctionwithourinvestment,weandGOLagreedtoextendour
existingcommercialagreements.
Cost Productivity
Wecontinuetofocusonmaintainingtherateofnon-fuelunitcostgrowthatlessthan2%annually.Animportantcomponentofthiseffortrelatestomaximizing
thebenefitsofscalethroughoutthenetwork.Domesticfleetupgaugingallowsustoincreasecapacityonfewerdepartures,therebyimprovingourunitcost
performance.Inaddition,weareleveragingourexpertiseinsupplychainandaircraftmaintenancetoimproveourproductivity.Finally,weareinvestingin
technologyprojectstoimprovethecustomerexperienceinacost-efficientmanner.
TheDeltapilotscollectivebargainingagreementbecameamendableasofDecember31,2015.WeareindiscussionswithrepresentativesoftheDeltapilotsto
amendthecollectivebargainingagreement.Ouremployees,includingpilots,areanimportantpartofDelta’ssuccessandtheunderpinningofthequalityand
operationalreliabilitythathasbecomepartofDelta’sbrand.Weexpecttocontinuetopayouremployeesindustryleadingtotalcompensationthatwillenable
Delta’scontinuedsuccess.
Prudent Deployment of Cash Flows
Aspartofourlong-termplan,wetarget$7-8billioninannualoperatingcashflowand$4-5billioninannualfreecashflow.Weuseapproximately50%ofour
operatingcashflowtoreinvestinthebusinessforlong-termgrowthopportunities.Theremainingfreecashflowisusedtofurtherstrengthenthebalancesheetby
reducingdebtlevels,makeincrementalpensioncontributionsandreturncapitaltoshareholdersthroughdividendsandsharerepurchases.
StrengthenedBalanceSheet
Akeytenetofourstrategyistooperatethecompanywithinvestmentgradefinancialmetrics.Sincebeginningourbalancesheetimprovementstrategyin2009,
wehavereducedouradjustednetdebtbyover$10billion,whichhassignificantlyreducedourannualinterestexpense.Inaddition,wehaveasignificantnet
underfundedpensionliability.Wehavebeenmakingpensioncontributionsabovetheminimumamountrequired,withagoalofachieving80%fundedstatusfor
thepensionplanby2020.Becauseofstatutorypensionfundingreliefthatappliestous,wehaveuntil2031tofullyfundourpensionplans.
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