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Merger Mania Will it affect your Airport? SEC/AAAE - 2010 David Hamm Director – Corporate Real Estate Delta Air Lines April 20,2010.

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Presentation on theme: "Merger Mania Will it affect your Airport? SEC/AAAE - 2010 David Hamm Director – Corporate Real Estate Delta Air Lines April 20,2010."— Presentation transcript:

1 Merger Mania Will it affect your Airport? SEC/AAAE David Hamm Director – Corporate Real Estate Delta Air Lines April 20,2010

2 International focus on Asia and #1 U.S. carrier in U.S.-Japan market Domestic focus in Midwest Member of SkyTeam alliance 7th largest carrier in the U.S. with 7.3% of domestic ASMs 9th largest carrier in the world with 2.6% of worldwide ASMs Hubs in Detroit, Memphis, Minneapolis/St. Paul and Tokyo Focus cities in Indianapolis and Seattle Service to 200 domestic and 50 international destinations #1 U.S. carrier to Europe and strong Latin American presence Domestic focus in East and Mountain West Member of SkyTeam alliance 3rd largest carrier in the U.S. with 13.2% of domestic ASMs 4th largest carrier in the world with 4.1% of worldwide ASMs Hubs in Atlanta, Cincinnati, New York City and Salt Lake City Focus cities in Boston, Los Angeles and Orlando Service to 212 domestic and 115 international destinations Created an effective global U.S. carrier with over 390 worldwide destinations Delta and Northwest Source: Market share based on March 2008 OAG (week sample). Destinations served data based upon OAG Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)

3 Domesti c NW #7 Japan NW #1 Latin America NW #10 Africa DL #1 Transatlantic NW #5 Asia NW #2 Japan DL #5 Asia Domesti c DL #3 Latin America DL #2 Transatlantic DL #1 Delta and Northwest Regional strengths, but globally weak Flying independently…..

4 Domesti c #1 Japan#1 Latin America #2 Africa#1 Transatlantic#1 Asia#1 Leading presence across the globe Australia#2 Delta and Northwest Flying together….. Americas Premier Global Airline

5 4 International ASM Breakdown by Region (% of airlines total) Source: March 2008 OAG (week sample) Delta and Northwest International Networks are Highly Complementary

6 Source: APGDat DB1A 3Q07 Domestic passenger share Domestic Passenger Share No airline currently has greater than 20% domestic passenger share Post merger, Southwest continues to have the highest domestic passenger share U.S. airline industry will remain highly competitive post merger Delta and Northwest Domestic Market is Highly Fragmented

7 Midwest #1 #1 Northeast Southeast Southwest #5 #5 RockyMountain #2 #2 West#3 Source: US DOT revenue 4Q ended 1Q08 Delta and Northwest Domestic Strength and International Success

8 Source: OAG, Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008) Customers benefit from increased choice and more efficient connections Northwest airports not served by Delta Delta airports not served by Northwest Delta and Northwest Unique Regional Presence allowed for End-To-End Merger

9 Source:DOT O&D Survey, Twelve months ended 3Q07 Domestic Passenger Breakdown by Region (% of airlines total) Delta and Northwest Domestic Networks are Highly Complementary

10 A333A /300A320/319DC /LR MD-88 Delta and Northwest Diversity Among the Delta/Northwest Fleets Provides Flexibility

11 Source: SEC Filings and Ascend Aircraft Database Number of Aircraft by Average Seat Count (As of 12/31/2007) < >325 Delta has no aircraft with more than 285 seats while Northwest has 37 Delta has no aircraft in the seat range while Northwest has 151 Delta and Northwest Complementary Fleets allows Matching Capacity to Demand

12 Delta operating in over 390 airports worldwide –Roughly 245 domestic and 145 international locations Delta rebranding completed in 76 stations where only Northwest operated –Primarily located in the Midwest and Asia Airport consolidations in 170 locations where both Delta and Northwest operated were completed in January 2010 –First airports were consolidated in March 2009 –PHL was the last airport consolidated in January 2010 –Critical to consolidate prior to February 1, 2010, date of last Northwest flights –Over 160 airport gates and associated space were released during the process Rebranding in 150 Delta only airports with Air France and KLM signage was also completed –Providing system wide signage consistency for SkyTeam Delta and Northwest Positioning Delta for Continued Success

13 Volatile fuel costs – although lower this year, still at historically high levels Industry seeing passenger declines in major airports for first time Shifting dynamics of airline model – repositioning to build on core strengths Worldwide recession and economic challenges unparalleled during our lifetime Airline Ratings continue to be below investment grade Consolidation – more to come? Industry Perspective – the last few years.

14 From 2002 to 2008, Price of Jet Fuel Rose Relentlessly Average U.S. Spot Price Surged 320% During That Six-Year Period Average* U.S. Jet Fuel Price (¢/Gallon) Source: U.S. Energy Information Administration 13 * Simple average of spot prices in New York Harbor, U.S. Gulf Coast and Los Angeles 2000 to 2008: Up 230.7% 2002 to 2008: Up 320.3%

15 Demand for Domestic Air Travel Has Not Recovered Domestic Passenger Revenue as Share of U.S. GDP Continues to Stagnate Sources: Bureau of Economic Analysis and Bureau of Transportation Statistics 14 Impact = $22B The events of 9/11 marked…a permanent decline in domestic airline demand. We estimate that the gap between pre-9/11 demand and the post-9/11 period demand resulted in $26bn in lost revenue in 2008 and $150bn in cumulative lost revenue over the last 7 years. For perspective, the cumulative loss in revenue is the equivalent of the industry having no domestic revenue in 2007 and /11 Revenue Impact in Context, Gary Chase, Barclays Capital (Feb. 10, 2009)

16 With Declining Portion of Economy Being Spent on Domestic Air Travel, Airlines Have Contracted Accordingly 15 Domestic ASMs per 000 Dollars ($2000) of U.S. GDP Sources: ATA analysis of data from the Bureau of Economic Analysis and Bureau of Transportation Statistics

17 Demand for Air Travel and Air Cargo Down Sharply in 2009 * Alaska, American, Continental, Delta, JetBlue, United and US Airways, as well as selected regional affiliates Year-Over-Year Change (%) Through March 16 ** Alaska, American, Continental, Delta, FedEx, Hawaiian, JetBlue, Midwest, Southwest, United, UPS and US Airways

18 Economy Continues Heavy Toll on U.S. Airline Jobs FTEs Down 28% from May 2001 Peak (542K) to February 2009 (392K) Source: U.S. Bureau of Transportation Statistics U.S. Passenger Airline FTEs (000) 17 ~151,000 FTEs

19 One U.S. Passenger Airline Has Investment Grade Credit No Passenger Airline in the World Enjoys an A-Minus or Better Rating Investment Grade Speculative BBB- 18 Source: Standard and Poors as of Apr. 16, 2009 A- S&P Corporate Credit Ratings U.S. airline Non-U.S. airline

20 Immediate Challenges Loom Large A healthy commercial aviation sector enables/fosters a thriving economy In large part, airlines post-2000 survival has come via contraction, with 152K fewer jobs and 8% less domestic seating capacity (through 2Q09) U.S. airlines incurred multibillion-dollar pretax losses in 2008 For 2009, lower fuel prices were offset by plummeting demand o Demand for air travel and air cargo, especially time-sensitive shipments, is down sharply in all regions in which U.S. carriers operate o Spending on air transport also down – permanently – as share of U.S. GDP To invest in people, planes and product, airlines require sustained profitability (pretax margin) – they need to earn their cost of capital Mergers may help facilitate continue contractions and allow carriers to cover their cost of capital 19

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