Delta cuts net debt by $10 billion in five years, eyes investment-grade rating

By Lisa Kerner

Charlotte, N.C., March 3 – Delta Air Lines, Inc. president Ed Bastian said 2014 was “a great year” for the company, across the board.

The company led the industry in profitability and generated $3.7 billion of free cash flow, said Bastian on Tuesday during a presentation at the J.P. Morgan Aviation, Transportation & Industrials Conference in New York City.

“We ended the year at $7.3 billion of adjusted net debt, and I would expect by the end of 2015 that number will probably start with a five,” Bastian said.

Delta has reduced its adjusted net debt level down by $10 billion over the past five years, and the company is eyeing investment-grade status, possibly within the next 24 months, according to Bastian.

According to Bastian, 2014 was “a healthy year” with “a lot of moving pieces, and he likes the way 2015 is shaping up.

Fuel costs will be an “enormous tailwind” for the industry at large. At current market prices, Delta expects about a $3.5 billion improvement on a run-rate basis on the bottom line in terms of fuel savings.

The company wants to make sure that “the lower fuel environment reduces our costs in 2015 but not our revenues,” Bastian said.

“We do have hedges that are out of the money, given that we typically tend to hedge a portion of our fuel costs six to 12 months in advance of the current year,” said Bastian.

As a result, in 2015 Delta expects to see about a $1.8 billion net benefit from lower fuel prices.

The company has minimal hedges in effect for 2016.

Free cash flow

For the first quarter, Delta expects free cash flow of between $800 million and $900 million. The Atlanta-based airline expects to return $500 million of cash to shareholders, primarily through stock repurchases.

Delta expects to generate between $7 billion and $8 billion of operating cash flow in 2015 and free cash flow of “north of $4 billion,” said Bastian.

Priorities for the use of cash in 2015 will be returning cash to shareholders and reinvesting in the business, including using $2 billion to $3 billion for capital expenditures.

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