1
Cost Management Initiatives
Peter Turner, Vice President MRO Services & Business Development
September 2013
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• Historical Merger / Integration
• 2012 Achievements
• Strategy for the Future
• Fuel Cost
• Fleet Strategy driving Cost
• Cost Management Philosophy
• Insource/Outsource
• Strategic Partnerships
• Inventory Management Strategies
• Leverage Latest Technologies
• Operational Excellence
Delta Air Lines
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• Completed successful merger with NWA in 2009
− Primary focus was “pick-and-go”, select the best from each
world
− Speed wins
− Seamless transition for our customers
• Continued to achieve cost savings by leveraging synergies
of the combined airline
• Focused on optimization of integrated operations
• Pursued technology enhancements and solutions
Merger - Final Integration
Delta Air Lines
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The integrated airline is extremely complex, requiring continual efficiency improvements within Delta
1200+ planes
300+ destinations
15+ fleet types*
Millions of parts!
Thousands of checks!
Millions of transactions!
Delta Air Lines
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• Full year profit of $1.6B, excluding special items
• Operating margin – 7.1%
• Unrestricted liquidity - $5.2B
• Unit revenue gains have outperformed the industry for 21 consecutive
months
• 2012 On-time arrival rate of 86.5%
• 25% YoY reduction in lost bags & 40% reduction in customer complaints
compared to 2011
• Continuous investment in IT capital to further generate revenue
enhancements, cost effectiveness, operational performance, and
improving customer service
Delta continues to gain momentum in achieving core objectives of revenue growth, reduced CASM,
product preference, and a safe and reliable operation
2012 Achievements
Delta Air Lines
Delta Air Lines – Confidential and Proprietary
Delta Is Taking a Different Approach
Employees
• Best employee relations in the
industry
Customers
• Continued benefits from
investments in product, service,
technology and operations
Shareholders
• 4th consecutive year of profitability,
with nearly 10 points of margin
expansion over that time
• Solid free cash flow generation and
achievement of $10 billion debt
target
What to expect in 2013
Make Delta a great place to work for
EMPLOYEES - Job stability with solid wages and benefits - Engaged employees motivated to generate results
Make Delta an airline
CUSTOMERS want to fly
- Reliable, customer-focused operation - High quality products and service
Make Delta a great investment for
SHAREHOLDERS - Solid returns on invested capital - Balanced capital deployment
Delta Air Lines
Strategy for the Future
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• Invest in Network, Product and Facilities
• Onboard
• Terminals/Skyclubs
• Network – AMX, GOL, VAA, SkyTeam
• Cost Control is key to margin expansion
• Managing Fuel Cost
• Fleet Strategy
• Maintenance Cost Strategies
• Continuous improvement in Operational Reliability
Strategy for the Future
Delta Air Lines
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• Trainer Refinery Facility purchased in 2012
as an opportunity to manage fuel cost creep
associated with the refinement costs
associated with processing crude oil.
• Delta acquired refinery $150M with
anticipated savings in excess of $300M
annually
• At steady state (4Q13) able to produce 80%
of Delta’s fuel requirements for east coast
operations
• Off products create additional value
streams which enhance our ability to further
reduce total fuel costs
BOLD AND INNOVATIVE
CONCEPTS
Managing Fuel Costs
Delta Air Lines
Domestic Fleet Restructuring
Fleet Strategy
Domestic Fleet Count
• Reducing 50-seat fleet by more than 200 aircraft
by 2015
• Two-class RJs have both higher RASM and
lower CASM compared to 50-seat jets
• Average gauge increases by 20%
• Similar capacity levels can be produced with
fewer departures, improving unit cost
efficiency
• Maintenance savings begin in advance of aircraft
retirements
• Delivery of 12 737-900ER, 16 717, and 12
CRJ-900 in 2H13 allows for retirement of 80
mainline and regional aircraft
• Fleet retirements will save $200M in
maintenance expense in 2013
• Deploying capital wisely with a mix of new and
used aircraft
594 675
219
295
474 125
2009 2015
1,287
Mainline
50-seat
RJ
Two-class RJ
9
1,095
Average gauge 102 122
Delta Air Lines
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• Balance between in-source and out-source
– Industry-leading maintenance, repair and overhaul provider
– Barometer for cost effectiveness
• Develop strategic partners
– Provide lateral and vertical integration platforms
– Integrated metrics using scorecards and periodic business reviews
• Implement inventory management strategies
– Consignment of expendable parts
– Supplier-owned inventory and reduced TAT for line allocations
– Surplus material program
• Leverage latest technology
– Apply Aeroxchange tools to improve efficiency, reporting and transparency of
performance
Maintenance Cost Strategies
Delta Air Lines
Delta Air Lines – Confidential and Proprietary
Balance between in-source and out-source
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2012 F
ast
Facts
Engine & Component Overhaul
• 700+ Engine & APU Overhaul Events Per Year
• 125,000+ Component Repairs
• Over 50% of engine repairs are for MRO customers
Line Maintenance & Operational Support
• 44 Maintenance Stations
• 22 Domestic
• 22 International
• Over 140,000 Overnight Checks Per Year
Aircraft Maintenance
• Major Visits (PSV) – 233
• Hangar Overnight Visits & Letter Checks - 260
• Modification & Paint Visits – 206
Delivering World-Class Services 365/24/7
Delta Air Lines
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• All partners and supplier are measured on a scorecard and have
identical metrics to enable fair comparisons
• Scorecards are treated as living documents and are continuously
monitored and reviewed
• Delta Corporate Leadership Team reviews scorecard performance
quarterly
• Ensure visibility of scorecards at appropriate levels in supplier
organization
• Scorecard performance is tied to Delta goals
• Poor scorecard performance impacts awarding of future business
opportunities
• Joint efforts to identify opportunities for improvement and build
action plans
Metrics and scorecards provide a mechanism for clear communication of expectations and results
Develop Strategic Partners / Suppliers
Delta Air Lines
• Delta has aggressive goals for reducing the inventory balance while increasing the
inventory service level
− 2013 goal of 13% reduction in total inventory year over year
− The 2013 target for asset bin compliance (at least one serviceable unit) is 92%
− The 2013 target for expendable bin compliance is 95%
• A key opportunity for expendables is for suppliers to own and manage consignment
inventory in-house or in local warehouses to reduce delivery time and safety stock
• Line allocations can be reduced by reduction of vendor TAT and supplier-owned inventory
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$1,250
$1,300
$1,350
$1,400
$1,450
Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12
Inventory Balance ($M)
Total Active Inventory YE2012 Target
94%
97%96%
97%98% 98%
86%
79%
77% 77%
85%
87%
82%
84%
70%
75%
80%
85%
90%
95%
100%
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Expendables and Assets Bin Compliance
Expendables Assets OSR Bin Status Expendable Target Asset Target
Efficiencies can be gained by eliminating Delta as the “middle man” for inventory management
Implement Inventory Strategies
Delta Air Lines
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• Delta utilizes surplus component and engine parts supplied by over a dozen
suppliers
• Thousands of aircraft are now economically obsolete due to a unique blend
of high fuel prices, low interest rates, high production rates, and new
technology aircraft
• The parting-out of many of these aircraft has fueled an increase in surplus
parts supply
• Surplus spend has doubled since 2010 with a combined spend of over $120M
forecasted for 2013
Surplus components and engine parts will continue to be a significant part of Delta’s material strategy
Implement Inventory Strategies
Delta Air Lines
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• Delta is using Aeroxchange (AEX) tools thus implementing the industry’s leading
supply chain platform with:
− State of the art technology infrastructure
− Complete suite of productivity enhancing tools
− 100% Supplier adoption
− Secure and confidential transactions
AeroBuy Technical and AeroRepair
AeroBuy Commercial
USER
PORT A L
Orders
Checks
Reporting
Suppliers
Suppliers
Contract Lifecycle Mgmt.
Spend Analytics
VMS/TMS
Warranty
Supplier Performance
TOOLS
Delta Air Lines
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98.5
99.0
99.5
100.0
Jan Feb Mar Apr May Jun Jul Aug Sep
Delta Air Lines B737-700/800
Industry Average B737-700/800
1.131.20 1.20
1.31
1.431.51
Delta B737NG Operational Performance
• Delta’s maintenance expertise helps drive operational excellence and key performance metrics such
as D0, Average AOS, Mx Cancellations, etc.
Industry Avg. 1.34
2 Last 12 months ended September Quarter 2012 – Source: Form 41 data, including both internal and outsourced costs
3 Average fleet age as of 12/31/11 – Source: 2011 10-K SEC filings
6.
1
15.
6 10.
9
12.
4
12.
4
15.
0
Avg. Aircraft Age3
• In addition to industry-leading operational performance, Delta also leads its peers on a Maintenance
Cost per ASM (Mx CASM) basis, trailing only JetBlue which benefits from a younger fleet
Delta Maintenance CASM (¢)2
Mechanical Scheduled Performance
1 Operational Difficulty Index (ODI) are a count of
FAA reportable events
YTD YTD
Actual Goal
Mtc D0 97.72 97.29
Mtc CF 99.92 99.87
ODI1 0.49 0.62
AOS 0.96 1.18
Delta B737NG Metrics
Operational Excellence at World-Class Cost