Delta Airlines (DAL) April 21, 2015 Industrials - Airlines Stock Rating Buy Investment Thesis Target Price $60-$66

The Henry Fund Henry B. Tippie School of Management Alec Davis [alec-davis@uiowa.edu] Delta Airlines (DAL) April 21, 2015 Industrials - Airlines Stock Rating Buy Investment Thesis Target Price $60-$66 Delta Airlines Inc. is a market leader in on-time performance, customer satisfaction, and revenue per available seat mile (PRASM), and is well positioned to take advantage of the new positive economic outlook for the airlines industry. We believe Delta has a strong upside with improving margins over the next few years before oil prices stabilize. Delta remains better positioned than its peers to weather any sudden increase in the price of oil due to an improving balance sheet and strong operational metrics, and thus deserving of a buy rating. Drivers of Thesis The dramatic fall in oil prices will improve operating margins excluding hedge losses from 11.9% to 15% in 2016 before stabilizing at 12.75% as oil returns above $70/barrel. Industry consolidation has reduced competition and allowed airlines to increase both load factors and yields (revenue per seat available): strong load factors will continue to increase to 86% by 2016 as Delta remains disciplined about capacity management. Strong cash flows from operations will allow Delta to achieve its $5B net debt target by 2016. Risks to Thesis Low fuel prices will allow discount competitors to expand aggressively and attempt to take market share. A strong US dollar and weak international economies has caused Delta to initiate 15% capacity reductions in the Pacific for 2014. A shortage of pilots could impact labor costs especially for regional partners, and threatens management s goal of maintaining non-fuel cost growth at 2%. Important disclosures appear on the last page of this report. Henry Fund DCF $65.26 Henry Fund DDM $54.57 Relative Multiple EPS $54.04 Price Data Current Price $45.35 52 Week Range $30.12-$51.06 Consensus 1 yr Target $64.85 Key Statistics Market Cap (B) $36.1 Shares Outstanding (M) Institutional Ownership Five Year Beta 824.3 86.1% 1.26 Dividend Yield.8% Price/Earnings (ttm) 23.41 Price/Earnings (FY1) 8.94 Price/Sales (ttm) 1.03 Price/Book (mrq) 4.61 Profitability Operating Margin 11.85% Profit Margin 1.64% Return on Assets (ttm) 1.16% Return on Equity (ttm) 6.4% Source: Factset Earnings Estimates Year 2013 2014 2015E 2016E 2017E 2018E EPS $2.98* $3.43* $4.17 $4.75 $4.31 $4.49 growth 62.0% 15.1% 21.6% 13.9% -9.3% 4.2% 12 Month Performance Industry Description 50% 40% 30% 20% 10% 0% DAL S&P 500-10% M A M J J A S O N D J F Source: Yahoo Finance 25 20 15 10 5 0 8.9 DAL Industry Sector 16.1 14.6 14.0 6.4 20.7 Delta Airlines is a domestic based air carrier providing passenger and cargo service throughout the US and international destinations. It has hubs in Atlanta, Minneapolis, Detroit, JFK, Amsterdam, Tokyo-Narita and others as well as partnerships with regional airlines. It is a member of the SkyTeam Alliance global network of airline carriers and owns a 49% stake in Virgin Atlantic Airways LTD. *adjusted EPS for tax-loss carryforward 9.7 8.7 P/E ROE EV/EBITDA 11.2 Source: Factset

EXECUTIVE SUMMARY Delta airlines has focused on improving company metrics and financials in the midst of a period of recent profitability in the airline industry driven by mergers and the declining price of oil. The company has committed towards repairing its balance sheet through driving net debt down from $15B in 2010 to a target of $5B by 2016 and the updating and upgrading of its fleet and facilities. Delta is an industry leader in customer performance metrics such as on-time delivery and baggage delivery 5, as well as industry metrics such as passenger revenue per available seat mile (PRASM) and % utilization of seats on each plane (load factor). The recent sudden drop in the price of oil has hurt Delta relative to some of its peers due to its active hedging strategies; however should oil prices remain low, Delta will be positioned to fully take advantage of lower fuel costs by the second half of 2015. We feel that Delta continues to trade at a discount relative to its industry leading position in PRASM, operational performance and ability to generate strong year-over-year operating cash flows. The US airline industry is well positioned to benefit from the fall in oil prices, and Delta represents a strong opportunity to capitalize on this upside potential as a top industry performer that is better shielded than its peers against any rise in the price of oil due to its proactive fuel strategies and improved balance sheet. Company Description Delta Airlines Inc. operates a network of scheduled air transportation services for passengers and cargo. It operates service from hubs in Atlanta, Boston, Cincinnati, Detroit, LA, Minneapolis, NYC, Salt Lake and Seattle, as well as Amsterdam and Tokyo Narita. The company serves 326 destinations in 59 countries with its fleet of over 750 aircraft and its regional partnerships as part of the Delta Connections program. 3 The company operates mainline flights domestically within the United States as well as service to Atlantic, Pacific, and Latin American destinations. Through its partnerships with regional carriers it serves domestic secondary and tertiary markets in the United States. Source: Delta.com Delta is a founding member of the SkyTeam Alliance, an international partnership of 20 airlines across the globe that allows customers to share benefits such as access to lounges and frequent flyer programs among member airlines. 9 2014 REVENUE BY SEGMENT ($M) Other Revenue, $4,474 Cargo, $934 Regional Carriers, $6,266 Mainline Passenger, $28,688 Source: Delta 2014 10K Passenger revenues account for 88% of all Delta revenues and are the primary driver for business operations. Point of sale for ticketed passengers are primarily driven through online purchases, both through the company s own sales channel at Delta.com and third party travel sites. 3 Delta operates a customer loyalty program Skymiles that allows customers to earn mileage credit when flying on Delta, its regional carriers, and other participating airlines. Reward miles from this program constituted 7.4% of all revenue miles in 2014. The other sources of income are generated through ancillary revenue charges such as baggage fees and onboard purchases, as well as minor business units such as airport maintenance, repair and overhaul, aviation staffing solutions, wholesale vacation packages, and private jet Page 2

operations. Additional revenue by these segments accounts for approximately 10% of Delta s revenue. Revenue in cargo generated by selling cargo space available on regularly scheduled passenger aircraft both domestically and internationally. Through its membership in the SkyTeam cargo alliance, Delta is able to offer cargo delivery solutions on 6 different continents. 3 Company Analysis In 2008 Delta Airlines announced its merger with Northwest Airlines, forming at the time the largest airline in the world. The merger, a catalyst for subsequent consolidation within the industry, has been a starting point for the drastic changes in operations and profitability that have taken place over the past several years at Delta. PASSENGER SEGMENTS Regional Carriers, $6,266 18% Latin America, $2,424 7% Pacific, $3,421 10% Atlantic, $5,826 16% Domestic, $17,017 49% 2014 Total Passenger Revenue (MM) - $34,954 Source: Delta 2014 10K Domestic and regional revenues account for 67% of all passenger revenues, compared to 67% for AAL, 57% for UAL, and 99% for LUV respectively. International revenue is expected to increase for LUV as Southwest continues its expansion, however we do not forecast Southwest becoming a major international carrier any time in the foreseeable future. The fastest growing segments for Delta are domestic mainline and Latin America. Growth in Latin America, which has averaged 11% over the past 3 years has been driven by increased service to Mexico and Brazil and commercial partnerships with Aeroméxico and GOL. 4 Growth in Asia is expected to be minimal due to restructuring of the pacific fleet to smaller more cost effective planes and the devaluation of the Japanese yen. Over the past 6 years the company has focused heavily on increasing operational efficiency, upgrading facilities, and generating additional sources of revenue. At the merger close, Delta had over 1,300 aircraft (including aircraft owned and operated by regional partners) with an average gauge of 103 seats, including nearly 500 regional 50-seat jets. Of the 772 aircraft operated by Delta, 587 (76%) are owned and 185 (24%) are leased. Current commitments are for additional purchases of 192 aircraft and lease commitments for 72 aircraft. Given the state of financial stability in the industry, we expect Delta and competitor airlines to increase the number of aircraft purchases versus leases as part of their capital deployment plans. Through new purchases and retirements, the projected 2015 fleet will have under 1,100 aircraft with an average gauge of 122 seats, and fewer than 150 50-seat regional jets remaining. 10 Many of these upgrades and fleet reductions will occur at the regional carrier level, including wholly owned subsidiary Endeavor Air. Regional restructuring will not be reflected on Delta s balance sheet, but will contribute towards reducing regional carrier expense. These restructurings has allowed Delta to increase available seat miles while reducing departures, a significant achievement in operational efficiency. Delta Airlines is one of the 3 remaining major US carriers offering a global network of destinations. Internationally, Delta and its SkyTeam Alliance compete against United Airlines and the Star Alliance, and American Airlines and the Oneworld Alliance, all of which are roughly similar in size. Because of this alliance and its large domestic network, Delta competes primarily with both United and American for the majority of business travel in the United States. Delta s superior service in operations and customer satisfaction make it a best in class airline compared to its primary domestic competition. In addition, Delta has proven best capable of maximizing revenue through its capacity, leading its major US competitors in passenger revenue per available seat mile (PRASM). This figure was 14.58 cents for Delta in 2014, higher than all major Page 3

domestic competition. We forecast moderate growth in PRASM at 1-2% over the 5 year forecast period, rising to 15.63 cents by 2019. Current pricing pressures from lower cost carriers and the strength of the US dollar will likely make any growth above this difficult to achieve. Source: Bloomberg The cost structure for most major US airlines is relatively similar, with the primary points of variability coming in the top two costs: fuel and labor. Delta, along with Southwest and United, has been proactive in attempting to mitigate the high cost of oil in recent years with a fuel hedging program. 2014 Operating Expense Breakdown ($MM) Aircraft fuel and related taxes 11,668 30.6% Salaries and related costs 8,120 21.3% Regional carrier expense 5,237 13.7% Aircraft maintenance 1,828 4.8% Depreciation and 1,771 4.6% amortization Contracted Services 1,749 4.6% Passenger Commissions & 1,700 4.5% Other Selling Expenses Landing fees and other rents 1,442 3.8% Profit sharing 1,085 2.8% Passenger service 810 2.1% Aircraft rent 233 0.6% Restructing and other items 716 1.9% Other 1,797 4.7% Total Operating Expense 38,156 100.0% Source: Delta 2014 10K Organized labor is a major part of operations for the domestic airlines industry. Delta has the lowest union membership of the major US airlines, with approximately 18% of its 80,000 employees represented by unions, over 11,000 of which are members of the Delta Pilots union. 3 The union membership numbers for Delta are significantly lower than the other 3 major carriers, which have memberships in the 80% and above range. Delta is the only one of the four that does not have unionized flight attendants, a major driver in the percentage difference. Source: DAL, LUV, AAL, UAL 2014 10K Filings Fuel has overtaken labor as the number one expense for Delta and its competitors over the recent years, and remains a significant driver for profitability in the industry. If the price of fuel remains low into 2015 and 2016 this trend could reverse itself. There is a current attempt to organize a unionization vote for later in 2015 for the Delta flight attendants. Although this does represent a risk towards higher organized labor going forward, given the past history of failed votes and without any information to indicate a different outcome at this point we have not included a successful vote in our model. Labor relations with unions, especially the pilots, is critically important for the airline, as a pilot strike has the ability to cripple the company s cash flow generating. The company last experienced a pilot strike in 2006. Negotiations with the Delta pilots union will begin later this year for the contract which becomes amendable December 31 st, 2015. Little information has been released indicating any potential issues with negotiations thus far, and given Delta s current profit sharing program, we do Page 4

not forecast potential work stoppages. Likely, the most serious issue will be the recent acquisition of Delta s stake in Virgin Atlantic and the fear amongst the pilots union that this could allow Delta to staff international expansion with Virgin pilots and flight crews. We project labor costs to rise slightly from 4.21% to 4.47% of sales for 2015 and remain at this level over the forecast period reflecting increased profit-sharing expenses and higher expenses for pilots under the new collective bargaining agreement. The cost structure for the 4 major domestic carriers differs from the rest of the market in the cost of labor. Regional partners provide low cost flight crews for smaller markets by selling their entire inventory to their major partners such as Delta but owning the aircraft and labor. 7 Low cost carriers such as Spirit Air, Allegiant Air, and JetBlue airways also attempt to compete on price by employing cheaper labor. different ways, depending on each individual airlines fuel hedging strategy. Delta employs an active fuel hedging strategy to guard against spikes in the price of fuel, and thus has not been able to fully participate in the decline in oil prices. While this program has been successful over the span of several years, the recent drop in the price of oil has caused Delta to incur a significant expense related to losses on its fuel hedging contracts. The fuel expense for Delta was up 24% in 2014 relative to 2013 due to these losses. Through Q1 of 2015 has incurred $1.1 billion in hedging losses included early settlements of contracts for the second half of the year as the company works to restructure its hedge books. The current Q1 2015 fuel price for Delta is $2.93/gallon including losses from settled hedge contracts, compared to Q4 fuel prices of $2.52 for American, $2.63 for Southwest, and $2.88 for United, the latest publicly available information. Delta s unfunded pension plan remains a significant liability for the company, one that it is actively working to address through additional contributions beyond minimum requirements over the past several years. The company maintains a stated goal of 80% funded by 2020 4, however significant headwinds such as the declining interest rate environment and actuarial losses have made this a difficult goal. The pension and other post retirement obligations currently stands as a $15B liability ($18 per share) on the Delta balance sheet. 3 Despite this obligation, Delta remains one of the best positioned domestic airlines regarding debt to assets, and has reduced its net debt level from $17B in 2009 to $7B in 2014. 6 The current low interest rate environment has hurt Delta more relative to its peers due to higher pension obligations, but our consensus estimate for rising yield of the 10 year bond rising from 1.89% to 3.27% will have multi-billion dollar positive effect on this liability as each.5% increase in discount rates for pension accounting will decrease Delta s liability by $1.4 billion. 3 Recent Developments Higher Fuel Expense for Delta The most impactful recent development has been the precipitous drop in the price of oil and therefore jet fuel over the past 6 months. This has impacted the airlines in Source: Delta 2015 JP Morgan Industrials Conference Presentation In Q1 2015 Delta restructured its hedge book to reflect the revised outlook on the price of oil, and will now be approximately 20% hedged through the second half of 2015, down from nearly 60% prior to the beginning of the year. This will result in approximately $500-$600 million loss for the year if oil remains in the $45-75$/bbl range. 6 We expect fuel expense for Delta to bottom out in the back half of 2015 as the remaining hedge contracts are settled and the company is able to fully participate in downside Page 5

prices. We project all in fuel prices for 2015 estimated at $2.40/gallon and $2.20/gallon for 2016 with moderate increases of 10/15 cents per gallon in the following years as oil returns above $70/barrel once again. Overall this will have a significant drop in cost of operations with operating margin peaking in 2016 at 15.41% before returning to 12.4% by 2019. A second part of Delta s fuel expense management strategy was the 2012 purchase of the Trainer, Pennsylvania refinery facility from Phillips 66. Delta runs the refinery through its subsidiary Monroe Energy in order to help supply its northeast operations with jet fuel. While the recent drop in oil prices has caused Delta to recognize fuel hedging loses, these have been partially off-set by a profit from the refinery business, the first time the segment has been in the black. This profit was driven primarily by the falling price of oil and rising crack spread between crude oil and the cost of jet fuel. The refinery has continued to post a profit as of Q1 2015. We do not foresee the profitability trend at the previously shuttered refinery to continue, however the operation has helped the airline, and the industry overall, maintain a supply of jet fuel in the United States. This tactic has arguably helped its competitors more than it has helped itself, but the refinery does provide a hedge against disruptions in oil supply and volatility in crack spread of jet fuel for Delta. Customer Segmentation Increasing In order to drive revenue growth outside of capacity expansion, Delta has initiated a customer segmentation strategy that offers more services to customers selecting tickets above the base economy fare. Going into 2015 the company will employ 4 tier options, Delta One/First Class, Delta Comfort +, Main Cabin, and Basic Economy. Delta Passenger Class Layout 2015 Source: Delta 2014 Investor Day Presentation Delta does not publish a breakdown of margins by passenger class, but management has stated a commitment to driving growth in the premium seat category, in line with the strategy of being a best-in-class service provider and key partner for business travel. The company is targeting over $1B in revenue from premium seats in 2015, an increase of $250M from the prior year. 5 The execution of this strategy will be key to driving revenue growth and margins for Delta, which risks losing economy customers to lower cost competitions as it focuses on premium and business travelers. Delta has increased corporate profits by 7% over 2013 5 however as competition increases for the more profitable business class travelers, we expect that growth will slow in this area. Changes in International Strategy Revenues from international flights account for approximately 33% of Delta s total passenger revenues. Several initiatives are underway to better optimize the international services going forward. The main focus for international expansion is in the Latin American market, with revenues up 14% from 2013. This has been driven by increased capacity and commercial partnerships in Mexico and Brazil. Some of the growth in Latin America however has been offset by reductions in capacity to Venezuela and the Venezuelan currency devaluation. Due to ongoing economic concerns in the country, Delta has reduced its daily flight to Caracas to a one-a-week schedule. 4 In 2013 Delta purchased a 49% stake in Virgin Atlantic Airways, allowing it to establish a strategic partnership with the British airline. Growth on the popular US-UK routes through Virgin s Heathrow slots is expected to be 10% for 2015 as Virgin reallocates flights from its Pacific and Africa networks. 6 Delta continues to restructure Seattle into a west coast hub as well as operational arrangements in Tokyo s Narita airport and optimizing of the pacific fleet by replacing 747 s with smaller more cost efficient A330s and A350s, continuing with management s directives of valuing cost savings and operational efficiency over revenue increases. The replacement of each Boeing 747 will yield at 15-20% operating cost improvement for the routes. 5 Weakness in the Japanese market and the yen caused Delta to announce a 15% reduction in capacity to the Pacific in April 2015. Weak demand and currency headwinds are not positive news, but we view the capacity Page 6

reductions as a good sign that the airline is maintaining discipline in trying to accurately pair supply with demand and keep PRASM up in the weak Pacific network. We expect international revenues to remain flat or slightly increase over the next 5 years due to several of the factors mentioned earlier. Given the current strength of the US economy and dollar relative to its international markets, we project international revenue to decrease from 33% to 30% of total revenues, with gains in Latin America being offset by capacity reductions in the Pacific and stagnant performance in the Atlantic. Putting Cash to Work Free cash flow for 2014 topped $3 billion, which represents one of its best years in recent times. 4 Management s objectives are to apply 50% of operating free cash flow reinvested in the business with a targeted $2-3 billion in capital expenditures each of the next 5 years. We forecast capital expenditures to be on the high end or slightly above this range over the 5 year forecast period, given that we expect increased pressure for upgrades and modifications to fleets/facilities with lower fuel expenses across the industry. Delta has reduced its net debt levels from nearly $17B in 2009 to $7.3B in 2014, and has contributed $500 million in excess of required to its pension liability to date and has pledged to achieve a goal of 80% funded by 2020. 4 Significant headwinds have occurred in this area due to actuarial changes and a falling interest rate environment. Over the past 18 months the company has returned $1.7B to shareholders in the form of dividends and stock buybacks, and intends to complete a $2B share repurchase authorization by the end of 2015, one year ahead of schedule. 4 Falling Fuel Costs INDUSTRY TRENDS The reduction in fuel prices has many potential impacts for the airline industry, especially given the downward pressure on continuing lower prices with the excess supply in the market and little indication of any significant reductions in production. Source: Delta Investor Day Presentation 2014 The targeted aircraft deliveries are in line with objectives of growing capacity 3-5% per year and retiring aging planes from the fleet. Most new deliveries will be to replace aging planes and a small increase in the number of planes to feed capacity increases. We expect the Delta mainline fleet to grow by 10-15 aircraft per year over the forecast horizon to approximately 825. Due to the strong performance and skill base of its tech ops, Delta has been able to operate with an older than average fleet relative to its peers 16, helping to boost ROIC. Source: Nasdaq.com Delta has been unable to fully capture these downside benefits at this point due to its hedging strategies, however other competitors such as American Airlines have not hedged at all and are thus able to fully participate in the low fuel costs immediately. Beyond the major airlines, the low cost of fuel will likely feed growth among the smaller discount carriers, who can take advantage of low operating costs to undercut prices. Spirit Airlines and Frontier Airlines have announced Page 7

planned capacity increases of approximately 30% and 20% respectively for 2015. 12 Historically the threat from discount carriers has been small for the major airlines, as they operate on a much smaller footprint and primarily siphon away the least valuable customers. However, the current low cost environment and aggressive expansion plans could lead to a big enough impact that the major airlines will be forced to respond. We view Delta s recent capacity adjustments in the US and Pacific as a positive sign that management is committed towards maintaining higher load factors and PRASM to drive profitability over total revenue increases. Source: Airlines 4 America Industry Review and Outlook 2014 In the near term the low cost of fuel has helped return airlines to profitability and allowed many to begin repairing their balance sheets and paying down obligations. efforts from low cost carriers. Ultimately we believe Delta is best positioned with oil in the $70-75/barrel range that will allow for lower expenses but will temper industry capacity expansion. Reduced Competition and Capacity The string of mergers that has occurred since the Delta/Northwest merger of 2008 has left the industry with fewer major players and tempered capacity increases due to restructuring and fleet optimization. These changes occurred not only because of, but during the slow economic growth period of 2008-2013 which also reduced demand for air travel. The forward outlook however has seen demand increasing over the past several years due to a stronger US economy and healthier corporate profits. The result has been higher load factors, passenger yields, and therefore profits across the industry. This new competition landscape has been a positive change for an industry that had adopted a market share at any cost for decades 7 and seemed incapable for restricting capacity increases enough to remain profitable. The 2010 change in flight training requirements for new pilots to 1500 hours in fact could be a potential benefit for the major US carriers as it is likely to exacerbate the shortage of new pilots entering the workforce 13, therefore making significant increases in capacity more difficult and costly for both the major and discount US carriers. Operating Income ($ millions) 6,000 Operating Income (adjusted) 5,000 4,000 3,000 American 2,000 Delta 1,000 United 0 Southwest -1,000 Source: FAA Forecast Aerospace 2014-2034 Source: Bloomberg Should fuel prices remain low, this will provide an advantage to more highly levered companies such as American and discount carriers JetBlue and Allegiant, and continue to put pressure on pricing due to expansion The forecast for system wide growth in the US Commercial airline industry is expected to remain strong over the next 5 and even 20 years. Total system enplanements are expected to top 800 million per year by 2017. 14 The number of enplanements is expected to grow at 2-3% Page 8

annually over the 5 year forecast period, driven by GDP and population increases and capping off a strong decade of growth following the financial crisis. The current capacity structure and strong demand in the market will allow carriers to easily maintain load factors above the traditional 80% threshold for profitability. Beyond the 5 year outlook, this lower competition environment could be threatened if smaller discount and regional carriers are able to continue aggressive double digit year over year growth. Changing Fee Structure Starting in 2008 with American Airlines announcement of a $15 fee for checked luggage, the industry has embarked on a trend of an increasing pay-for-service model for additional items once included in ticket purchases. All of the major carriers except for Southwest have now adopted a fee for checked luggage, and charges for additional items such as priority boarding, WIFI, and food/beverages is now becoming the norm. Increases in the types of fees is now being driven by discount carriers such as Spirit, that have added charges such as carry-on luggage and fees for booking through other websites. Ancillary revenue now makes up a noticeable portion of revenue for all major airlines. Delta currently ranks #2 in ancillary revenue for US carriers with approximately $2.5B in 2014, second only to United s $5.7B. 11 In the most recent quarter Q4 2014, this ancillary revenue was up 16% for Delta. 4 This new fee structure comes as airlines must increasingly compete on base fare prices as online travel search aggregators have allowed customers to easily compare competitive prices across all airlines. The industry continues to move to a more segmented pricing model, allowing airlines to squeeze extra margin out of customers that it can while still maintaining low base fares in order to fill planes. Markets and Competition The four major US Airlines (American, Delta, Southwest, and United) account for approximately 70% of the domestic air travel market, currently estimated at $143B. Although Southwest has gained significant market share and has recently made incursions into the international market, it is not a member of one of the major international alliances detailed earlier and therefore remains a competitor primarily only in the domestic market. 2014 MAJOR AIRLINES MARKET SHARE (U.S.) Others, 30.7% American, 21.0% Delta, 16.6% Southwest 16.3% United, 15.4% Source: S&P Capital IQ Included in the Others category of the domestic market are regional airlines such as Alaska Air, JetBlue, and Hawaiian Airlines, as well as discount carriers Spirit, Allegiant, and Frontier (privately held). The discount carriers operate along select routes and attempt to steal passengers from the major carriers by offering a no frills transportation alternative with extremely low costs. While the likelihood of one of these discount carriers growing large enough to significantly threaten the current breakdown of market share amongst the major players is low, they do pose a threat to margins on certain routes within the US. The competitive landscape for the international air travel market is one dominated by the 3 major alliances. These alliances incorporate a significant number of the major airlines across the globe. Competition between the 3 alliances is strong, with little differentiation between each except for the geographic breakdowns of the member airlines. The SkyTeam (Delta) controls approximately 8.6% of the international market, while Star Alliance (United) and OneWorld (American) control approximately 8% and 6.6% respectively. There are a select number of significant airlines that remain unaffiliated, most notably the gulf based carriers Etihad Airways and Emirates Airways. Given the lack of global major unaffiliated carriers, especially in the United States, we do not expect the formation of any future new alliances. Page 9

Recently, the major US carriers including Delta have begun pressuring US legislators to respond to violations of Open Skies acts from gulf based carriers that offer low fares on routes to/from the United States that are alleged to be the result of illegal subsidies under the agreement. 15 While we have not forecasted any changes to international routes due to action by US legislators, any agreement reached with the gulf states could provide a potential benefit to international revenues and margins for Delta. Peer Comparison Delta competes against many different airlines within its scope of operations, however its major competitors are American Airlines, United Airlines, and to a lesser extent Southwest Airlines. Over the past decade Southwest has performed strongest amongst the 4 major carriers, maintaining profitability and avoiding the bankruptcies that have plagued several of the other major carriers. With its low cost structure and lower debt levels, Southwest has proven to be an industry leader financially throughout the turbulent past decade. Delta airlines has recently been able to pare its debt to a level more on par with that of Southwest, and given its international network and premium pricing capabilities, it can also be considered a market leader and deserving of a higher multiple. Legacy pension obligations still continue to weigh on the balance sheet however and could prove a drag on earnings and valuation as Delta works to reduce this major liability. 2014 Delta Southwest American United Mk Cap ($B) 35.8 29.0 32.6 24.9 Revenue ($B) 40.4 18.6 42.7 38.9 P/E (ttm) 23.41 21.19 9.08 17.7 P/E (FY1) 8.93 12.24 4.48 5.8 Debt/Assets 18.1 13.3 41.7 32.4 Pension Liability ($B) 15.1.2 7.6 4.2 EBIT Margin (%) 11.85 12.57 11.84 7.11 Load Factor 84.7 82.5 82.0 83.6 PRASM (cents) 14.58 13.48 13.97 13.72 Source: Bloomberg & Factset United and American, both with weaker financials and operational results are riskier stocks, but have strong upside potential should the price of oil remain low. American, most notably, does not maintain a fuel hedging program, and therefore is poised to quickly reap the benefits of the lower cost of fuel. 2014 Spirit Allegiant Alaska JetBlue Mk Cap (B) 5.4 3.3 8.5 5.3 Revenue (B) 1.9 1.1 5.4 5.8 P/E (ttm) 24.3 9.10 4.2.8 P/E (FY1) 14.3 16.7 10.49 10.2 Debt/Assets 9.3 47.9 13.0 28.5 Pension Liability 0 0.2 0 ($B) EBIT Margin (%) 18.4 17.6 18.1 9.3 Load Factor 86.7 87.5 85.1 84.0 PRASM 7.0 8.4 12.7 11.9 Source: Bloomberg & Factset Outside of the major carriers, the discount airlines operate much smaller networks that do not offer the same services, destinations or operational complexity of the major carriers, but can steal market share and have the ability to drive down pricing on select routes. These airlines tend to operate with lower cost structures and compete on price alone. ECONOMIC OUTLOOK Our overall outlook for the airline industry is positive, with low fuel prices, a strong US economy and limited supply helping to drive all US airlines into the black. Higher discretionary income and corporate profits relative to the past several years should also contribute towards higher revenues and sales of premium seats. Our consensus outlook for the US GDP growth is 3.1%. Industry revenue growth will be tied primarily to this number, and we expect total growth to be 3-4% annually based on GDP growth and inflation over the next 5 years. While demand is forecasted to remain strong over the next 2 years and beyond, overall industry revenues could be hurt by increasing supply, which could lead to a fall in prices. A stronger US dollar and weaker international economies will also have a negative effect on the industry. The price of oil is the number one driver for profitability in the airline industry. Our consensus 6 month and 2 year outlook for the price of oil are $51 and $71 a barrel respectively, numbers that would represent significant savings over the past 2 year average. We forecast these savings to help maximize operating margins for Delta in 2015 and 2016 before oil returns above $70/barrel, but given the current status of global supply and demand we Page 10

do not forecast oil returning to $100+/barrel prices in the 2-5 year window. A projected rise in the US interest rate, still forecasted for the latter half of the year 2015 could impact the airlines ability to obtain cheap capital, something that would be more significant for the more highly levered companies in the industry. Delta has paid down a significant portion of its debt since 2009 and will approach targeted debt levels in 2016 given current maturity schedules. Forecasting future capital deployment is difficult; however, should the market and fuel prices remain favorable, we expect Delta to move to use free cash or debt issuances to increase share repurchases and dividend payments. A rising interest rate environment would have the benefit for companies with large unfunded pension obligations such as Delta in helping to reduce the present value of those future obligations. Across the board the economic outlook for all US airlines is favorable given strong demand and a lowering cost structure. We believe Delta will be able to capture this upside of this growth cycle in the industry, while remaining better positioned against secondary economic factors such as the uncertainty in the price of oil and a rising interest rate environment in the United States. CATALYSTS FOR GROWTH Low fuel costs, consolidated competition, and a strong US economy are all driving revenues and margins in the industry. Load factors have increased, allowing airlines to achieve better utilization of their assets, and fleets are being updated and optimized with more cost effective planes for each route. Within the industry, Delta remains a market leader in generating passenger revenue and premium pricing, and operates a lower cost and better run network than its two most direct competitors United and American. This efficiency will allow it to best maximize revenue generation without over expanding capacity and to generate strong operating cash flows. The continued low price of oil will allow Delta to generate strong free cash flow to pay down debt, upgrade fleets and facilities, and return value to shareholders. The company is well positioned with its premiere service and domestic and international network to capture growth in this space and meet targeted minimum ROIC of 18%. 5 INVESTMENT POSITIVES A strong US economy will drive demand and consolidation has reduced capacity, allowing Delta to operate at or above 85% load factors. Delta has generated $3B in free cash flow for 2014 and will improve upon this as oil continues to fall. Management has diligently worked to reduce debt levels and moved company to within 2 ratings of investment grade. Delta operates the best run and best reviewed network among the major carriers and has the strongest pricing power amongst its competitors. INVESTMENT NEGATIVES Low oil prices could fuel expansive growth by smaller discount carriers, threatening margins and profitability across the industry. A strong US dollar and competition from subsidized carriers (primarily from the Gulf S tates) hurts international routes. The price of oil is the number one driver for profitability and is an unpredictable and volatile commodity. Valuation Total passenger revenue was forecasted to grow by 5.5% for the next 2 years, and 4.5% for the 3 years following before settling at a terminal growth value of 3%. This growth is driven by a forecasted 3.5% annual growth rate in capacity and a projected rise of load factors up to 86%. Cost of Goods Sold, which is primarily driven by changes in fuel prices, is expected to drop significantly from 80.7% down to 72% and 71% over the next two years due to lower costs of oil. The long term outlook for oil is expected to move slightly up from today s levels, and operating margins are expected to compress slightly to a continuing value of 12.3% from a high of 15.4% in 2016. We believe management should be reasonably successful in its targeted goal of keeping non-fuel related expense growth below 2%. Capital Expenditures were maintained in line with management guidance for the 5 year forecast period, as were dividends and stock buybacks, including the completion of the remaining portion of a $2B share buyback program by the end of 2015. Page 11

Although management has stated its intention of achieving 80% funding on its pension liability by 2020, we have forecasted the liability decreasing by 5% a year over the period, yielding a 56% funded status by 2019, short of the goal. Our DCF valuation price is $63 based on a WACC of 6.8% and a beta of 1.3 computed using the weekly beta for DAL and averaging the 1-5 year values. DDM target price is $54 based on management maintain a 30% payout ratio and an ROE of 16%. Our relative P/E multiple valuation is $44, lower than both DCF and DDM target price, however when excluding low forward multiples for AAL and UAL the target price of $54.04 is more in line with our target price range. While we are positive on the industry overall, we believe analyst estimates for earnings regarding these two companies are over inflated and not reflective of the companies operating environments. We have set our target price range at $60-$66, which represents the higher end of the valuation range between the DCF and DDM models based on dividend payments having only restarted at Delta in 2013. This current range represents a 33-46% upside over the current trading price, and therefore DAL is deserving of a BUY recommendation. KEYS TO MONITOR In the mature and consolidated US airlines industry, the key economic driver for demand is a strong US economy and GDP growth. Forecasted demand growth is based on a positive outlook for US GDP growth, thus any slowing in the US growth or a strong pullback in the global economy has the potential to impact revenue increases for Delta and the industry. The price of oil is the major driver on the costs side of the income statement in the industry. Our model is based on oil eventually returning closer to the $70-$80/bbl range, given that low prices will likely squeeze out some of the global production over the next 12-18 months. While low oil prices are good for the industry overall, we believe Delta is best positioned against its peers with oil trading slightly higher than its current 5 year lows. Finally, PRASM will remain a key operational statistic to monitor. As low oil prices allow carriers, especially discount and smaller carriers to fuel rapid expansion, Delta s ability to grow its passenger revenue through fare and fee increases will be important to maintaining its margins and its place as the number one airline for PRASM. Through Q1 of 2015 Delta has experienced 1.7% decline in PRASM, of which 1.5% has been driven by negative foreign exchange impact. In light of these developments, Delta has begun announced reductions in international capacity to select markets. The strength of the dollar relative to the Euro and the Yen will be important towards recovery of growth in international markets, and Delta s ability to limit capacity and costs internationally as well as boost revenue in the US will be key to maintaining PRASM growth. REFERENCES 1. Bloomberg Terminal 2. Factset.com 3. Delta 2014 10K Report retrieved from Delta.com 4. Transcript of Delta Q4 2014 earnings call retrieved from Delta.com 5. Delta Airlines 2014 Investor Day Combined Presentation 12/11/2014 retried from Delta.com 6. J.P. Morgan Aviation, Transportion and Industrials Conference presentation 3/3/15 retrieved from Delta.com 7. S&P Capital IQ Industry Survey: Airlines December 2014 8. IBISWORLD Industry Report 48111b: Domestic Airlines in the United States December 2014 9. Skyteam Alliance Website - www.skyteam.com 10. Goldman Sachs Industrials Conference Presentation 11/13/14 retrieved from Delta.com 11. Ideaworkscompany.com press release October 2013 Airline Ancillary Revenue Projected to Reach $42.6 billion Worldwide in 2013 http://www.ideaworkscompany.com/wp- content/uploads/2014/07/press-release-89- Ancillary-Revenue-Top-10.pdf 12. Airlines for America, Industry Review and Outlook 2014 presentation - http://airlines.org/data/a4apresentation-industry-review-and-outlook/ 13. http://www.bloomberg.com/bw/articles/2014-02-11/yes-theres-a-pilot-shortage-salaries-startat-21-000us Stocks Fall after Delta reports decline in key January revenue figure 14. http://www.foxbusiness.com/markets/2015/02/ 03/us-airline-stocks-fall-after-delta-reportsdecline-in-key-january-revenue/ Page 12

15. http://www.bloomberg.com/news/articles/2015-03-04/u-s-airlines-said-to-lobby-congress-inpush-against-gulf-rivals 16. http://www.wsj.com/articles/delta-flightattendants-request-union-vote-1421177667 IMPORTANT DISCLAIMER Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report. Page 13

Delta Airlines Revenue Decomposition Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Geographic Breakdown Passenger Domestic 14,050 15,204 17,017 18,390 19,925 21,156 22,450 23,811 7.0% 8.2% 11.9% 8.1% 8.3% 6.2% 6.1% 6.1% Atlantic 5,645 5,657 5,826 5,972 6,091 6,213 6,337 6,464 1.0% 0.2% 3.0% 2.5% 2.0% 2.0% 2.0% 2.0% Pacific 3,645 3,561 3,421 3,250 3,315 3,381 3,449 3,518 8.2% -2.3% -3.9% -5.0% 2.0% 2.0% 2.0% 2.0% Latin America 1,897 2,112 2,424 2,647 2,779 2,918 3,064 3,217 6.8% 11.3% 14.8% 9.2% 5.0% 5.0% 5.0% 5.0% Total Mainline 25,237 26,534 28,688 30,259 32,110 33,668 35,300 37,010 5.8% 5.1% 8.1% 5.5% 6.1% 4.9% 4.8% 4.8% Regional Carriers 6,570 6,408 6,266 6,454 6,648 6,847 7,052 7,264 2.8% -2.5% -2.2% 3.0% 3.0% 3.0% 3.0% 3.0% Total Passenger Revenue 31,807 32,942 34,954 36,713 38,758 40,516 42,353 44,274 5.1% 3.6% 6.1% 5.0% 5.6% 4.5% 4.5% 4.5% Available Seat Miles (millions) 230,415 232,740 239,676 246,866 255,507 264,449 273,705 283,285-1.8% 1.0% 3.0% 3.0% 3.5% 3.5% 3.5% 3.5% Revenue Passenger Miles (millions) 192,974 194,988 202,925 210,141 218,584 227,365 235,934 244,191 0.1% 1.0% 4.1% 3.6% 4.0% 4.0% 3.8% 3.5% Passenger Revenue per available seat mile (cents) 13.80 14.15 14.58 14.87 15.17 15.32 15.47 15.63 7.1% 2.5% 3.0% 2.0% 2.0% 1.0% 1.0% 1.0% Passenger Load Factor 83.8% 83.8% 84.7% 85.1% 85.5% 86.0% 86.2% 86.2% 2.1% 0.0% 1.1% 0.5% 0.5% 0.5% 0.3% 0.0% Cargo 990 937 934 962 991 1,021 1,051 1,083-3.6% -5.4% -0.3% 3.0% 3.0% 3.0% 3.0% 3.0% Other 3,873 3,894 4,474 4,608 4,746 4,889 5,036 5,187 1.1% 0.5% 14.9% 3.0% 3.0% 3.0% 3.0% 3.0% Total Operating Revenue 36,670 37,773 40,362 42,283 44,495 46,425 48,440 50,543 4.4% 3.0% 6.9% 4.8% 5.2% 4.3% 4.3% 4.3%

Delta Airlines Income Statement 1 2 3 4 5 Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Total passenger revenue 31,807 32,942 34,954 36,713 38,758 40,516 42,353 44,274 Cargo revenue 990 937 934 962 991 1,021 1,051 1,083 Other operating revenue 3,873 3,894 4,474 4,608 4,746 4,889 5,036 5,187 Total operating revenue 36,670 37,773 40,362 42,283 44,495 46,425 48,440 50,543 4.43% 3.01% 6.85% 4.76% 5.23% 4.34% 4.34% 4.34% COGS 29,904 29,592 32,991 30,444 31,592 33,890 35,361 37,402 Depreciation & amortization 1,565 1,658 1,771 1,797 1,878 1,963 2,051 2,143 SG&A 1,590 1,603 1,700 1,889 1,987 2,074 2,164 2,258 Other operating expense 1,592 1,520 1,797 1,914 2,015 2,102 2,193 2,288 Total operating expense 34,495 34,373 38,156 36,044 37,472 40,028 41,769 44,091 Operating income (loss) 2,175 3,400 2,206 6,239 7,024 6,397 6,671 6,452 Interest expense, net 812 698 650 511 491 457 468 455 Amortization of debt discount, net 193 154 0 0 0 0 0 0 Interest income - - - 0 0 0 0 0 Gain (loss) on extinguishment of debt (118) 0 (268) 0 0 0 0 0 Miscellaneous, net (27) (21) (216) (76) (80) (83) (87) (90) Total other income (expense), net (1,150) (873) (1,134) (587) (570) (540) (555) (545) Income (loss) before income taxes 1,025 2,527 1,072 5,652 6,453 5,856 6,116 5,907 Income tax provision (benefit) 16 (8,013) 413 2,312 2,639 2,395 2,502 2,416 Net income (loss) (GAAP) 1,009 10,540 659 3,340 3,814 3,461 3,615 3,491 Year end shares outstanding (millions) 851.402 851.443 825.258 801 803 804 805 807 Net earnings (loss) per share - basic (GAAP) 1.20 12.41 0.79 4.17 4.75 4.31 4.49 4.33 Dividends per share - 0.12 0.3 0.45 1.13 1.24 1.42 1.57 Payout Ratio 0.01 0.46 0.45 0.24 0.29 0.32 0.36

Delta Airlines Balance Sheet ($ millions) Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Current Assets Cash & cash equivalents 2,416 2,844 2,088 1,798 3,989 7,265 9,743 11,670 Short-term investments 958 959 1,217 1,278 1,342 1,409 1,479 1,553 Accounts receivable, net 1,693 1,609 2,297 1,996 2,101 2,192 2,287 2,386 Hedge margin receivable 0 0 925 0 0 0 0 0 Fuel inventory 619 706 534 688 724 755 788 822 Expendable parts & supplies inventories, net 404 357 318 398 413 430 447 465 Deferred income taxes, net 463 1,736 3,275 3,723 4,251 3,858 4,029 3,891 Hedge derivatives asset - - 1,078 0 0 0 0 0 Prepaid expenses & other current assets 1,344 1,318 733 768 808 843 880 918 Total current assets 8,272 9,651 12,465 10,648 13,627 16,751 19,653 21,705 Gross Property, Plant & Equipment 27,369 29,646 31,269 32,676 34,147 35,683 37,289 38,967 Less: accumulated depreciation & amortization 6,656 7,792 9,340 11,137 13,015 14,978 17,029 19,172 Property & equipment, net 20,713 21,854 21,929 21,539 21,131 20,705 20,260 19,795 Goodwill 9,794 9,794 9,794 9,794 9,794 9,794 9,794 9,794 Indentifiable intangibles, gross 5,349 5,396 5,396 5,396 5,396 5,396 5,396 5,396 Less: accumulated amortization - indentifiable intangibles 670 738 793 848 903 958 1,013 1,068 Indentifiable intangibles, net 4,679 4,658 4,603 4,548 4,493 4,438 4,383 4,328 Deferred income taxes, net 0 4,992 4,320 4,656 4,488 4,572 4,530 4,551 Other noncurrent assets 1,092 1,303 1,010 1,271 1,338 1,396 1,456 1,519 Total other assets 15,565 20,747 19,727 20,269 20,113 20,200 20,163 20,192 Total assets 44,550 52,252 54,121 52,456 54,871 57,656 60,076 61,693 Current maturities of long-term debt & capital leases 1,627 1,547 1,216 1,111 1,326 2,137 2,028 1,158 Air traffic liability 3,696 4,122 4,296 4,394 4,624 4,824 5,034 5,252 Accounts payable 2,293 2,300 2,622 2,435 2,562 2,673 2,789 2,910 Accrued salaries & related benefits 1,680 1,926 2,266 1,987 2,091 2,182 2,277 2,376 Frequent flyer deferred revenue 1,806 1,861 1,580 2,060 2,167 2,261 2,359 2,462 Hedge derivatives liability - - 2,772 0 0 0 0 0 Taxes payable 585 673 0 0 0 0 0 0 Other accrued liabilities 1,128 1,121 2,127 1,595 1,678 1,751 1,827 1,906 Total current liabilities 13,270 14,152 16,879 13,581 14,448 15,828 16,314 16,064 Total long-term debt 10,599 9,396 8,270 7,805 7,092 6,615 6,551 6,543 Capital leases 483 399 291 464 323 202 116 72 Long-term debt & capital leases 11,082 9,795 8,561 8,269 7,415 6,817 6,667 6,615 Pension, postretirement & related benefits 16,005 12,392 15,138 14,381 12,943 11,649 10,484 9,435 Frequent flyer deferred revenue 2,628 2,559 2,602 2,874 3,024 3,155 3,292 3,435 Other noncurrent liabilities 1,649 1,711 2,128 1,959 2,062 2,151 2,244 2,342 Total noncurrent liabilities 33,411 26,457 28,429 27,483 25,444 23,772 22,687 21,827 Additional paid-in capital 14,069 13,982 12,981 12,999 13,017 13,035 13,053 13,071 Retained earnings (accumulated deficit) (7,389) 3,049 3,456 6,436 9,347 11,813 14,282 16,510 Accumulated other comprehensive income (loss) (8,577) (5,130) (7,311) (6,580) (5,922) (5,330) (4,797) (4,317) Treasury stock, at cost 234 258 313 1,463 1,463 1,463 1,463 1,463 Total stockholders' equity (deficit) (2,131) 11,643 8,813 11,392 14,979 18,056 21,076 23,801 Total Liabilities and Stockholders Equity 44,550 52,252 54,121 52,456 54,871 57,656 60,076 61,693

Delta Airlines Cash Flow Statement Fiscal Years Ending Dec. 31 2010 2011 2012 2013 2014 Cash Flows from Operating Activities: Net income (loss) 593 854 1,009 10,540 659 Adjustments to reconcile net income to net cash from operating activities: Depreciation & amortization 1,511 1,523 1,565 1,658 1,771 Amortization of debt discount (premium), net 216 193 193 154 59 Loss (gain) on extinguishment of debt 391 68 56-268 Fuel hedge derivative instruments (136) 135 (209) (114) - Deferred income taxes 9 (2) 17 (7,991) 414 Pension, postretirement & postemployment expense in excess of (301) (less than) payments (308) (208) (624) (723) Equity-based compensation expense 89 72 54 - - Restructuring & other items 182 142 184 285 758 SkyMiles used pursuant to advance purchase under American Express - Agreements - (333) (333) - Changes to certain assets and liabilities: Receivables (141) (76) (116) 90 - Hedge margin receivables - (24) - - - Restricted cash & cash equivalents 16 153 (51) 231 62 Fuel inventory - - (451) (87) 172 Prepaid expenses & other current assets (105) (16) (134) 28 58 Air traffic liability 232 174 216 426 174 Frequent flyer deferred revenue (345) 82 (115) (121) (238) Accounts payable & accrued liabilities 516 303 899 213 228 Other assets & liabilities - (373) (66) (36) - Other operating activities, net 105 (66) (34) 185 217 Net cash flows from operating activities 2,832 2,834 2,476 4,504 4,947 Cash flows from investing activities: Property & equipment additions - flight equipment, including advance (1,055) payments (907) (1,196) (2,117) (1,662) Property & equipment additions - ground property & equipment, (287) including technology (347) (772) (451) (587) Decrease (increase) in restricted cash & cash equivalents (2) - - - - Decrease (increase) in short-term investments - - - - - Purchase of Virgin Atlantic shares - - - (360) - Purchase of investments (730) (1,078) (958) (959) (1,795) Redemption of investments - 844 1,019 1,117 1,533 Proceeds from sales of flight equipment 36 - - - - Proceeds from sales of investments - - - - - Other investing activities, net 12 (10) (55) 14 48 Net cash flows from investing activities (2,026) (1,498) (1,962) (2,756) (2,463) Cash flows from financing activities: Payments on long-term debt & capital lease obligations (3,722) (4,172) (2,864) (1,461) (2,928) Cash dividends - - - (102) (251) Proceeds from long-term obligations 1,130 2,395 1,965 268 1,020 Repurchase of common stock - - - (250) (1,100) Fuel card obligation - 318 137 147 - Debt issuance costs - (63) (41) - - Restricted cash & cash equivalents - (51) - - - Other financing activities, net 71 2 48 78 19 Net cash flows from financing activities (2,521) (1,571) (755) (1,320) (3,240) Net increase (decrease) in cash & cash equivalents (1,715) (235) (241) 428 (756) Cash & cash equivalents at beginning of year 4,607 2,892 2,657 2,416 2,844 Cash & cash equivalents at end of year 2,892 2,657 2,416 2,844 2,088

Delta Airlines Forecasted Cash Flow Statement Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E Cash Flows from Operating Activities: Net income (loss) 3,340 3,814 3,461 3,615 3,491 Adjustments to reconcile net income to net cash from operating activities: Depreciation & Amortization (PPE) 1,797 1,878 1,963 2,051 2,143 Amortization of Identifiable Intangibles 55 55 55 55 55 Depreciation & Amortization 1,852 1,933 2,018 2,106 2,198 Changes in Asset Accounts Accounts receivable, net 301 (104) (91) (95) (99) Hedge margin receivable 925 0 0 0 0 Fuel inventory (154) (36) (31) (33) (34) Expendable parts & supplies inventories, net (80) (16) (17) (17) (18) Hedge derivatives asset 1,078 0 0 0 0 Current Deffered Tax Asset (448) (528) 393 (171) 138 Prepaid expenses & other current assets (35) (40) (35) (37) (38) Deferred income taxes, net (336) 168 (84) 42 (21) Other noncurrent assets (261) (66) (58) (61) (63) Changes in Liability Accounts Air traffic liability 98 230 201 209 219 Accounts payable (187) 127 111 116 121 Accrued salaries & related benefits (279) 104 91 95 99 Frequent flyer deferred revenue (current) 480 108 94 98 102 Hedge derivatives liability (2,772) 0 0 0 0 Other accrued liabilities (532) 83 73 76 79 Frequent flyer deferred revenue (non-current) 272 150 131 137 143 Other noncurrent liabilities (169) 102 89 93 97 Net cash flows from operating activities 3,093 6,029 6,346 6,174 6,414 Cash flows from investing activities: Gross PP&E Additions (1,407) (1,470) (1,537) (1,606) (1,678) Short-term investments (61) (64) (67) (70) (74) Net cash flows from investing activities (1,468) (1,534) (1,604) (1,676) (1,752) Cash flows from financing activities: Current maturities of long-term debt & capital leases (105) 215 811 (109) (870) Long-term debt & capital leases (292) (854) (598) (150) (52) Pension, postretirement & related benefits (757) (1,438) (1,294) (1,165) (1,048) Proceeds from Common Stock 18 18 18 18 18 Repurchase of Common Stock (1,150) 0 0 0 0 Payment of Dividends (360) (903) (995) (1,146) (1,263) Accumulated other comprehensive income (loss) 731 658 592 533 480 Net cash flows from financing activities (1,915) (2,304) (1,466) (2,019) (2,735) Net increase (decrease) in cash & cash equivalents (290) 2,191 3,276 2,479 1,927 Cash & cash equivalents at beginning of year 2,088 1,798 3,989 7,265 9,743 Cash & cash equivalents at end of year 1,798 3,989 7,265 9,743 11,670

Delta Airlines Common Size Income Statement 1 2 3 4 5 Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Total operating revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% COGS 81.55% 78.34% 81.74% 72.00% 71.00% 73.00% 73.00% 74.00% Depreciation & amortization 4.27% 4.39% 4.39% 4.25% 4.22% 4.23% 4.23% 4.24% Gross Margin 14.18% 17.27% 13.87% 23.75% 24.78% 22.77% 22.77% 21.76% SG&A 4.34% 4.24% 4.21% 4.47% 4.47% 4.47% 4.47% 4.47% Other operating expense 4.34% 4.02% 4.45% 4.53% 4.53% 4.53% 4.53% 4.53% Total operating expense 94.07% 91.00% 94.53% 85.24% 84.21% 86.22% 86.23% 87.23% Operating Margin (EBIT) 5.51% 9.00% 5.21% 14.76% 15.79% 13.78% 13.77% 12.77% Operating income (loss) 5.93% 9.00% 5.47% 14.76% 15.79% 13.78% 13.77% 12.77% Interest expense, net 2.21% 1.85% 1.61% 1.21% 1.10% 0.98% 0.97% 0.90% Amortization of debt discount, net 0.53% 0.41% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Interest income - - - Gain (loss) on extinguishment of debt -0.32% 0.00% -0.66% 0.00% 0.00% 0.00% 0.00% 0.00% Miscellaneous, net -0.07% -0.06% -0.54% -0.18% -0.18% -0.18% -0.18% -0.18% Total other income (expense), net -3.14% -2.31% -2.81% -1.39% -1.28% -1.16% -1.15% -1.08% Income (loss) before reorganization items, net - - - Income (loss) before income taxes 2.80% 6.69% 2.66% 13.37% 14.50% 12.61% 12.63% 11.69% Income tax provision (benefit) 0.04% -21.21% 1.02% 5.47% 5.93% 5.16% 5.16% 4.78% Net income (loss) 2.75% 27.90% 1.63% 7.90% 8.57% 7.46% 7.46% 6.91%

Delta Airlines Common Size Balance Sheet ($ millions) Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Current Assets Cash & cash equivalents 6.59% 7.53% 5.17% 4.25% 8.97% 15.65% 20.11% 23.09% Short-term investments 2.61% 2.54% 3.02% 3.02% 3.02% 3.03% 3.05% 3.07% Accounts receivable, gross 4.72% 4.32% 5.74% 4.84% 4.84% 4.84% 4.84% 4.84% Less: allowance for uncollectible accounts 0.10% 0.06% 0.05% 0.10% 0.10% 0.10% 0.10% 0.10% Accounts receivable, net 4.62% 4.26% 5.69% 4.74% 4.74% 4.74% 4.74% 4.74% Fuel inventory 1.69% 1.87% 1.32% 1.63% 1.59% 1.55% 1.51% 1.47% Expendable parts & supplies inventories, net 1.10% 0.95% 0.79% 0.94% 0.93% 0.93% 0.92% 0.92% Deferred income taxes, net 1.26% 4.60% 8.11% 8.80% 9.55% 8.31% 8.32% 7.70% Prepaid expenses & other current assets 3.67% 3.49% 1.82% 3.28% 3.28% 3.28% 3.28% 3.28% Total current assets 22.56% 25.55% 30.88% 25.18% 30.63% 36.08% 40.57% 42.94% Gross Property Plant and Equipment 70.07% 72.46% 73.45% 73.95% 73.44% 73.55% 73.67% 73.78% Less: accumulated depreciation & amortization 18.15% 20.63% 23.14% 26.34% 29.25% 32.26% 35.15% 37.93% Property & equipment, net 56.48% 57.86% 54.33% 50.94% 47.49% 44.60% 41.83% 39.16% Goodwill 26.71% 25.93% 24.27% 24.27% 23.16% 22.01% 21.10% 20.22% Indentifiable intangibles, net 12.76% 12.33% 11.40% 10.48% 9.55% 8.62% 7.70% 6.77% Deferred income taxes, net - 13.22% 10.70% 11.01% 10.09% 9.85% 9.35% 9.00% Other noncurrent assets 2.98% 3.45% 2.50% 3.01% 3.01% 3.01% 3.01% 3.01% Total other assets 42.45% 54.93% 48.88% 47.94% 45.20% 43.51% 41.63% 39.95% Total assets 121.49% 138.33% 134.09% 124.06% 123.32% 124.19% 124.02% 122.06% Current maturities of long-term debt & capital leases 4.44% 4.10% 3.01% 3.85% 3.65% 3.50% 3.67% 3.61% Air traffic liability 10.08% 10.91% 10.64% 10.39% 10.39% 10.39% 10.39% 10.39% Accounts payable 6.25% 6.09% 6.50% 5.76% 5.76% 5.76% 5.76% 5.76% Accrued salaries & related benefits 4.58% 5.10% 5.61% 4.70% 4.70% 4.70% 4.70% 4.70% Frequent flyer deferred revenue 4.93% 4.93% 3.91% 4.87% 4.87% 4.87% 4.87% 4.87% Taxes payable 1.60% 1.78% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Fuel card obligation 1.24% 1.59% 0.00% 0.94% 0.94% 0.94% 0.94% 0.94% Other accrued liabilities 3.08% 2.97% 5.27% 3.77% 3.77% 3.77% 3.77% 3.77% Total current liabilities 36.19% 37.47% 41.82% 34.28% 34.09% 33.94% 34.10% 34.04% Total long-term debt 28.90% 24.87% 20.49% 18.46% 15.94% 14.25% 13.52% 12.95% Capital leases 1.32% 1.06% 0.72% 1.10% 0.73% 0.44% 0.24% 0.14% Long-term debt & capital leases 30.22% 25.93% 21.21% 19.56% 16.67% 14.68% 13.76% 13.09% Pension, postretirement & related benefits 43.65% 32.81% 37.51% 34.01% 29.09% 25.09% 21.64% 18.67% Frequent flyer deferred revenue 7.17% 6.77% 6.45% 6.80% 6.80% 6.80% 6.80% 6.80% Deferred income taxes, net 5.58% - - 5.81% 5.81% 5.81% 5.81% 5.81% Other noncurrent liabilities 4.50% 4.53% 5.27% 4.63% 4.63% 4.63% 4.63% 4.63% Total noncurrent liabilities 91.11% 70.04% 70.44% 90.36% 79.65% 71.69% 66.40% 62.08% Additional paid-in capital 38.37% 37.02% 32.16% 30.74% 29.25% 28.08% 26.95% 25.86% Retained earnings (accumulated deficit) -20.15% 8.07% 8.56% 15.22% 21.01% 25.45% 29.48% 32.67% Accumulated other comprehensive income (loss) -23.39% -13.58% -18.11% -15.56% -13.31% -11.48% -9.90% -8.54% Treasury stock, at cost 0.64% 0.68% 0.78% 3.46% 3.29% 3.15% 3.02% 2.89% Total stockholders' equity (deficit) -5.81% 30.82% 21.83% 26.94% 33.66% 38.89% 43.51% 47.09%