Delta targets increased cash flow, $15 billion net debt by year-end

By Lisa Kerner

Charlotte, N.C., June 15 - Delta Air Lines, Inc. expects to generate $7 billion free cash flow between now and 2012, Ed Bastian, president of Delta, said during a Tuesday presentation at the Bank of America Merrill Lynch Global Transportation Conference.

"This year we expect to produce $2 billion of free cash flow," said Bastian.

The company is projecting $700 million in free cash flow in the second quarter to bring the total free cash flow for the first six months of the year to $1.3 billion.

Delta's goal, said Bastian, is to de-risk the business model and take its leverage down "considerably."

The company is targeting net debt of $10 billion by the end of 2012 and ended 2009 with an adjusted net debt level of $17 billion.

Delta is on track to end 2010 with $15 billion of net debt, said Bastian.

According to Bastian, Delta expects to end the June 2010 quarter with $6 billion of unrestricted liquidity.

When considering if this is the right cash level, Bastian said during the quarter Delta paid down a $1 billion revolver it took out in 2007 as part of the exit process from bankruptcy.

Bastian said the Atlanta-based airline has the financial strength of a $1.5 billion set of revolvers to carry a much higher level of liquidity protection.

In reviewing Delta's success, Bastian cited three key ingredients: improved revenue generation, controlled costs and merger synergies.

Unit revenues were up 23% for the month of June, said Bastian, with momentum continuing to build.

"Now that the merger [with Northwest Airlines Corp.] is complete, we are fully able to get after the $2 billion of merger synergies that we expect to have in our run rates by the end of 2011," said Bastian.

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