Moody's Assigns 'Baa3' Issuer Rating to Delta Air Lines (DAL); Outlook Stable

Moody's Investors Service (Moody's) assigned a Baa3 issuer rating to Delta Air Lines, Inc. (NYSE: DAL). No other ratings of Delta, including its Enhanced Equipment Trust Certificates are affected. The rating outlook is stable.

RATINGS RATIONALE

The Baa3 long term rating reflects Moody's expectation of continued debt reduction, as well as ongoing stability in Delta's operations which we believe will enable Delta to continue to handle the industry's volatility. Delta has achieved significant financial deleveraging since 2009, and Moody's expects the airline to continue to benefit from comparatively low fuel cost and high load factor to produce meaningful cash flow. Moody's also expects that Delta will continue to effectively manage its network and operations, to sustain a competitive operating margin of around 20% with free cash flow that leads the industry. This should produce financial metrics that compare favorably to other companies also at the Baa3 rating level.

Moody's expects that credit metrics will further improve in 2016 though at a slower pace as fuel prices are somewhat higher than previously expected.

Issuer ratings reflect Moody's opinion of the ability of an entity to honor senior unsecured debt and debt like obligations, and incorporate any external support that is expected to apply to all current and future issuance of senior unsecured financial obligations and contracts, such as explicit support stemming from a guarantee of all senior unsecured financial obligations and contracts. Issuer Ratings do not incorporate support arrangements, such as guarantees, that apply only to specific (but not to all) senior unsecured financial obligations and contracts. Moody's expects to withdraw the Issuer Rating when Delta issues senior unsecured debt.

Upward movement of the ratings is unlikely for some time. However, the ratings could be raised with expectations of sustained Debt to EBITDA of about 2.5 times, Funds from Operations + Interest to Interest of about 7.0 times, an EBITDA margin near 20% and steady free cash flow of at least $1.5 billion per year in a higher fuel price environment. The ratings could be downgraded if Delta was to de-emphasize the current return on invested capital strategy, if it sustained unrestricted cash below $2.5 billion or free liquidity (cash plus revolver availability with no required representation of no material adverse changes upon drawings) below $4.5 billion or used debt to repurchase shares. Sustained metrics such as an EBITDA margin of about 15%, Debt to EBITDA of more than 3.3 times or FFO + Interest to Interest of below 5.0 times could also lead to a downgrade.

The principal methodology used in this rating was Global Passenger Airlines published in May 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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