Delta Air Lines Inc. (NYSE:DAL)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) initially decreased from 2017 to 2018, then recovered and increased through 2019 before experiencing a substantial decline in 2020. NOPAT showed a partial recovery in 2021, but remained significantly below levels observed in 2017-2019.

The cost of capital exhibited an increasing trend from 2017 to 2019, followed by a decrease in both 2020 and 2021. Invested capital showed a moderate increase from 2017 to 2019, a slight decrease in 2020, and then increased again in 2021, reaching a level comparable to that of 2019.

Economic Profit Trend

Economic profit was negative throughout the entire period. The magnitude of the negative economic profit increased substantially in 2020, reaching its lowest point, before decreasing in absolute terms in 2021. The negative economic profit in 2021, however, remained considerably larger than those observed in 2017, 2018, and 2019.

Relationship between NOPAT and Economic Profit

The substantial decline in NOPAT in 2020 directly contributed to the largest negative economic profit during that year. While NOPAT improved in 2021, it was insufficient to offset the cost of capital and generate a positive economic profit.

Cost of Capital Impact

The cost of capital remained relatively stable between 2017 and 2019, then decreased in 2020 and 2021. The decrease in the cost of capital in 2020 and 2021 partially mitigated the negative impact of the decline in NOPAT on economic profit, but did not fully compensate for it.

Invested Capital and Economic Profit

Fluctuations in invested capital appear to have a less pronounced effect on economic profit compared to changes in NOPAT and the cost of capital. While invested capital increased in 2019 and 2021, the corresponding economic profit remained negative, indicating that the returns generated on the invested capital were insufficient to cover the cost of that capital.

Overall, the period was characterized by a consistent failure to generate returns exceeding the cost of capital. The significant downturn in 2020 highlights a period of particularly poor economic performance, and while some improvement was observed in 2021, the company continued to destroy economic value.

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.

The period under review demonstrates significant fluctuations in economic performance. Economic profit consistently registers as negative across all observed years, indicating the company’s returns are insufficient to cover the cost of capital. However, the magnitude of the loss varies considerably, with a dramatic increase in 2020 followed by a substantial, though incomplete, recovery in 2021.

Economic Profit

Economic profit begins with relatively modest losses of US$39 million and US$651 million in 2017 and 2018, respectively. Losses escalate significantly in 2019 to US$729 million. The year 2020 exhibits a particularly large loss of US$18,962 million, representing a substantial deterioration in economic performance. A considerable improvement is then observed in 2021, with economic profit decreasing to a loss of US$3,321 million, though remaining negative.

Invested Capital

Invested capital shows a moderate degree of variability. It declines from US$44,409 million in 2017 to US$43,326 million in 2018, then increases to US$47,580 million in 2019. A slight decrease is noted in 2020, falling to US$44,197 million, before rising again to US$47,166 million in 2021. These fluctuations suggest adjustments in the company’s asset base and funding structure.

Economic Spread Ratio

The economic spread ratio mirrors the trend in economic profit. It begins at -0.09% in 2017 and declines to -1.50% in 2018, then to -1.53% in 2019. The ratio experiences a dramatic decline in 2020, reaching -42.90%, reflecting the substantial economic loss. A significant, but incomplete, recovery is seen in 2021, with the ratio improving to -7.04%. This indicates that while the company’s performance improved relative to 2020, returns still fall considerably short of the cost of capital.

The pronounced deterioration in the economic spread ratio and economic profit in 2020 warrants further investigation. The subsequent partial recovery in 2021 suggests a positive response to changing conditions, but continued negative economic profit indicates ongoing challenges in generating returns sufficient to cover the cost of invested capital.

The period under review demonstrates a volatile performance in economic profit and, consequently, the economic profit margin. Initial values indicate negative economic profit, which deteriorates significantly before showing some improvement. Adjusted operating revenue fluctuates, impacting the economic profit margin calculation.

Economic Profit

Economic profit begins at -39 US$ million in 2017 and experiences a substantial decline to -651 US$ million in 2018. This negative trend continues into 2019, reaching -729 US$ million. A dramatic decrease is observed in 2020, with economic profit falling to -18,962 US$ million, before partially recovering to -3,321 US$ million in 2021. The magnitude of the loss in 2020 is considerably larger than in previous years.

Adjusted Operating Revenue

Adjusted operating revenue increases from 41,436 US$ million in 2017 to 44,758 US$ million in 2018 and further to 47,094 US$ million in 2019. A significant reduction occurs in 2020, with revenue dropping to 17,549 US$ million. A partial recovery is then seen in 2021, with revenue rising to 30,276 US$ million, though remaining below pre-2020 levels.

Economic Profit Margin

The economic profit margin mirrors the trend in economic profit. Starting at -0.09% in 2017, it declines to -1.45% in 2018 and -1.55% in 2019. The margin experiences a drastic deterioration in 2020, reaching -108.05%. While improving in 2021, the economic profit margin remains substantially negative at -10.97%. The 2020 value indicates a significant loss relative to revenue.

The substantial decline in both economic profit and the economic profit margin in 2020 appears to be linked to the decrease in adjusted operating revenue. The partial recovery in 2021 suggests a correlation between revenue generation and economic profitability, although the margin remains considerably negative, indicating continued challenges in generating economic profit.