Delta Air Lines Inc. (NYSE:DAL)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed a generally positive performance from 2017 to 2019, with values of 6,446, 6,032, and 6,651 million US dollars, respectively. However, in 2020, there was a significant decline, resulting in a substantial loss of 13,902 million US dollars. In 2021, the company experienced a recovery, recording a positive NOPAT of 1,932 million US dollars, though this figure remained well below the pre-2020 levels.

Cost of Capital

The cost of capital increased slightly from 12.62% in 2017 to a peak of 13.39% in 2019. Following this, there was a notable decrease during 2020 and 2021, with the cost of capital falling to 10.13% and 9.81%, respectively. This trend indicates a lower hurdle rate for investments during the period of financial distress and subsequent recovery.

Invested Capital

Invested capital exhibited moderate fluctuations over the analyzed period. Beginning at 44,409 million US dollars in 2017, it declined slightly to 43,326 million US dollars in 2018 before increasing to 47,580 million US dollars in 2019. The year 2020 saw a reduction to 44,197 million US dollars, followed by another increase to 47,166 million US dollars in 2021. This pattern suggests adjustments in the company’s asset base, likely in response to business conditions and operational changes.

Economic Profit

Economic profit showed a declining trajectory from 843 million US dollars in 2017 to 260 and 281 million US dollars in the two subsequent years. In 2020, economic profit sharply deteriorated, reflecting a loss of 18,379 million US dollars, correlating with the significant operational losses noted earlier. Though there was an improvement in 2021, with economic profit losses narrowing to 2,697 million US dollars, the metric remained negative, indicating that the returns generated were insufficient to cover the cost of capital during this recovery phase.

The financial data reveals significant fluctuations in key profitability metrics over the analyzed periods. Notably, net income exhibited a positive and steadily increasing trend from 2017 through 2019, rising from 3,577 million US dollars to 4,767 million US dollars. However, 2020 marked a sharp reversal, with net income declining drastically to a loss of 12,385 million US dollars. This adverse outcome was partially mitigated in 2021, which showed a rebound to a positive net income of 280 million US dollars, although this level remains substantially below the pre-2020 figures.

Similarly, net operating profit after taxes (NOPAT) followed a comparable trajectory. The company maintained strong operating profitability between 2017 and 2019, with NOPAT values ranging from 6,032 million to 6,651 million US dollars. In 2020, a pronounced downturn occurred, as NOPAT fell to a negative 13,902 million US dollars, indicating severe operational challenges during this period. The partial recovery in 2021 saw NOPAT increase to 1,932 million US dollars, signaling some restoration of operational profitability, albeit still at a reduced scale relative to the pre-2020 period.

Profitability Trends

Up through 2019, both net income and NOPAT demonstrated healthy growth and strong profitability.

The year 2020 experienced a drastic and abnormal downturn in profitability, reflecting an exceptional negative impact.

In 2021, there was a modest recovery, though profitability remained significantly below previous peak levels.

Operational Insights

The parallel movement between net income and NOPAT suggests that the core operations rather than extraordinary items primarily drove the financial volatility.

The deep losses in 2020 indicate substantial operational disruptions or extraordinary challenges during that year.

The recovery in 2021 implies initial success in addressing those challenges, though full recovery to earlier profitability levels was not yet achieved.

Overall, the data suggests a company that encountered a period of severe financial distress in 2020, likely due to external or market-wide factors, followed by an initial phase of recovery with cautious improvement in profitability metrics in the subsequent year.

Income Tax Provision (Benefit)

The income tax provision exhibits a fluctuating trend over the analyzed period. Starting at $2,124 million in 2017, it decreased notably to $1,216 million in 2018, before experiencing a moderate increase to $1,431 million in 2019. In 2020, there is a significant shift to a considerable tax benefit of -$3,202 million, indicating either substantial tax credits or loss carrybacks during this period, potentially related to extraordinary circumstances. In 2021, the tax provision returns to a positive value of $118 million, reflecting a recovery or normalization relative to the previous year.

Cash Operating Taxes

Cash operating taxes show a mixed and irregular pattern. In 2017, the amount was $381 million, followed by a negative value of -$38 million in 2018, suggesting a possible tax refund or adjustment. The figure then increases slightly to $44 million in 2019 and rises more substantially to $191 million in 2020. The upward trend continues in 2021, reaching $323 million. This increase in cash operating taxes over the last two years could indicate improving operational profitability or changes in tax payment timing and policies.

Total reported debt & leases

From 2017 to 2019, the total reported debt and leases showed a declining trend, decreasing from $21,021 million to $17,255 million. However, there was a significant increase in 2020, with the amount rising sharply to $35,548 million. This elevated level was largely maintained in 2021 at $34,679 million, indicating a substantial buildup of debt and lease obligations during the later years.

Stockholders’ equity

Stockholders' equity exhibited relative stability from 2017 through 2019, fluctuating moderately around the $13,600 to $15,300 million range. In 2020, equity experienced a dramatic reduction to $1,534 million, reflecting severe erosion likely due to losses or adjustments during that period. In 2021, there was a partial recovery, with equity increasing to $3,887 million, though it remained substantially below pre-2020 levels.

Invested capital

Invested capital showed an overall upward trend from 2017 to 2019, rising from $44,409 million to $47,580 million. In 2020, it decreased to $44,197 million, likely driven by changes in debt and equity components as noted. The capital base rebounded in 2021, climbing back to $47,166 million, close to the high point observed in 2019, suggesting efforts to stabilize and restore invested capital after the disruptions of 2020.

Economic Profit

The economic profit demonstrated a significant decline over the analyzed years. Initially, economic profit was positive and relatively strong in 2017 with 843 million USD. This figure dropped sharply to 260 million USD in 2018 and remained near that level at 281 million USD in 2019. Starting in 2020, economic profit turned negative, experiencing a substantial loss of approximately 18.4 billion USD. In 2021, the negative trend persisted although the loss decreased to about 2.7 billion USD, indicating some recovery but still a notable deviation from earlier positive performance.

Invested Capital

Invested capital showed moderate fluctuations but overall remained within a similar range throughout the period. It started at around 44.4 billion USD in 2017, decreased slightly in 2018 to about 43.3 billion USD, then increased to 47.6 billion USD by 2019. In 2020, invested capital declined again to approximately 44.2 billion USD, followed by an increase to around 47.2 billion USD in 2021. This pattern suggests fluctuations likely influenced by changes in asset investment or business conditions but without large directional shifts.

Economic Spread Ratio

The economic spread ratio showed a clear and drastic deterioration over time. It began positively at 1.9% in 2017 but sharply declined to 0.6% in 2018, stabilizing at 0.59% in 2019. A massive negative turn occurred in 2020, with the ratio plunging to -41.58%, reflecting significant losses relative to invested capital. In 2021, although still negative, the ratio improved to -5.72%, indicating some mitigation of the loss but remaining far below the initial positive levels observed in prior years.

Overall Analysis

The data reveals a strong positive performance in economic profit and spread ratio up to 2019, with invested capital remaining relatively steady but gradually increasing. Starting in 2020, the company faced severe economic challenges that resulted in substantial losses and a sharply negative spread ratio. Although there was some improvement in 2021, economic profit remained negative, and the economic spread ratio was still significantly below positive territory. The invested capital’s relative stability suggests the challenges were not due to large shifts in capital investment but more likely operational or external factors impacting profitability.

Economic Profit

The economic profit experienced a significant decline over the analyzed periods. Starting from a positive value of 843 million USD at the end of 2017, it decreased sharply to 260 million USD in 2018 and then slightly increased to 281 million USD in 2019. However, in 2020, there was a drastic shift to a large negative economic profit of -18,379 million USD, followed by a smaller negative value of -2,697 million USD in 2021. This trend indicates substantial profitability challenges, especially during 2020, with partial but insufficient recovery in 2021.

Adjusted Operating Revenue

The adjusted operating revenue showed initial growth from 41,436 million USD in 2017 to 47,094 million USD in 2019, indicating steady expansion. In 2020, the revenue plummeted dramatically to 17,549 million USD, showing the impact of unfavorable conditions. By 2021, there was a notable rebound to 30,276 million USD, although this figure remained below the pre-2020 levels, reflecting ongoing recovery efforts.

Economic Profit Margin

The economic profit margin followed a similar downward trajectory as the economic profit itself. It decreased from 2.04% in 2017 to 0.58% in 2018 and remained relatively flat at 0.6% in 2019. There was a severe collapse in margin in 2020 to -104.73%, which partially improved to -8.91% in 2021. The negative margins highlight significant operational and profitability pressures during the pandemic-affected period with some improvement but ongoing negative performance in 2021.