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Delta Air Lines’ Debt: What You Should Know

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Reducing debt

In the fourth quarter of 2016, Delta Air Lines (DAL) generated $640 billion of free cash flow—slightly higher than the $497 billion free cash flow generated in 4Q15. For 2016, the airline generated a free cash flow of 3.8 billion.

At the end of 4Q16, cash on the balance sheet was $2.8 billion. The airline continues to re-invest in its business to sustain long-term growth.

Delta has also been using cash to repay its debt. The airline has already paid off more than $10 billion debt in the last decade. It repaid ~$997 million of debt during 2016.

The continuous debt reductions have helped the airline reduce interest expenses. Net debt/EBITDA declined from 2.5x at the end of 1Q15 to 1.9x at the end of 4Q16.

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Continuous debt reduction has helped Delta earn an investment-grade rating from Moody’s in February 2016, joining the ranks of Alaska (ALK) and Southwest Airlines (LUV), the only players to enjoy such a rating. On the other peers, American Airlines (AAL) and United Continental (UAL) continue to struggle with managing their high debt.

Goals

Delta Air Lines aims to reduce adjusted net debt to $4 billion by 2020. Low debt helps reduce volatility and should also reduce the risk associated with investing in Delta Air Lines. Delta Air Lines forms 1.9% of the PowerShares BuyBack Achievers Portfolio (PKW).

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