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Delta seeks to improve margins and reduce debt as travel rebounds

Dan Janki, CFO of Delta Air Lines Inc.,

faced a host of pressures in its first year in the airline industry as travel demand remained below levels seen before the Covid-19 pandemic.

Now, with rising demand, it faces a new set of challenges as airlines grapple with capacity issues, rising costs, high debt levels and worries about a slowdown economic.

The executive, who spent nearly three decades at industrial conglomerate General Electric Co., said his approach was to focus on things within his control, such as debt reduction and improving margins, while allocating funds to increase inventory and reduce lead times.

Mr. Janki had no airline experience before joining Atlanta-based Delta as chief financial officer in July 2021, unlike his peers at American Airlines Group. Inc.

and United Airlines Holdings Inc.

Regardless of their work backgrounds, the CFOs of these carriers face many of the same challenges, including capacity constraints after routes and jobs were cut at the start of the pandemic in 2020.

Delta has kept more spare aircraft parts to ensure crucial parts aren’t missing when needed, as well as to add time before and after flights, Janki said. Combined with self-imposed capacity restrictions, these measures have kept the company’s unit costs higher than they were before the pandemic. Excluding fuel, Delta spent 12.76 cents per available seat mile — a metric used to measure unit costs — during the second quarter, down from 11.42 cents a year ago, but down from 41.96 cents during from the second quarter of 2020, when the pandemic closures were in effect. full power. This compares to 10.47 cents in the second quarter of 2019, before Covid-19.

The buffers helped Delta improve service in July and August after it hit a low in June, and they are expected to continue to do so as the year progresses, Janki said. “It’s still not at the level we want, but it will continue to improve,” he said, sitting in his office near Hartsfield-Jackson Atlanta International Airport from where he can see planes take off and land. Delta in recent months has also reduced the number of flights it operates. September has started well, Janki told a conference last week.

Consumer demand remains strong and business travel — a major revenue generator for Delta before the pandemic — is picking up, Janki said. Slower economic growth could actually help the airline’s corporate segment, as more companies may decide to send their sales and other executives to see customers in person, Janki said.

Besides improving the company’s overall finances, Mr. Janki is focused on debt reduction. Delta had $22.9 billion in net debt at the end of the second quarter, up from $24.5 billion at the end of 2021, according to data provider S&P Global Market Intelligence. “We are very focused on continuing to strengthen the balance sheet and reduce debt,” Janki said.

Delta CFO and Janki


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Delta Air Lines Inc.

The company is targeting adjusted net debt of $15 billion by 2024, which would mean a $5 billion reduction in adjusted net debt by then. Adjusted net debt was $19.6 billion at the end of the second quarter, Delta said. The airline is looking to pay down debt opportunistically and doesn’t see a big impact on its funding costs from rising interest rates because 85% of its debt is fixed rate, Janki said.

Delta relied more on debt to shore up liquidity than competitors with weaker balance sheets that used a combination of debt and equity, said Savanthi Syth, an analyst at financial services firm Raymond James Financial. Inc.

The airline is somewhat limited in terms of what it can do with its capital, as it received emergency funds from the government at the start of the pandemic. Those restrictions will fall next month, but restoring the dividend or buying back shares will have to wait, Janki said.

New labor agreements with Delta pilots, currently being negotiated, will increase the company’s cost base going forward, analysts said. “The US airline industry has a lot to do,” said Ms. Syth. “You have these cost headwinds when the consumer and the economy are slowing down.”

Mr. Janki said he was working to reduce Delta’s unit costs. Part of this effort will include returning nine currently parked aircraft to service and training new employees. “As we get a stable operation and you build that experience, you can start to get the efficiency out of those teams,” Janki said.

Mr. Janki has held various positions at GE,

such as divisional CFO and CEO of business units, including president and CEO of GE’s energy portfolio. “It wasn’t just one company,” Mr. Janki said, adding that moving from company to company at GE helped him understand “a new company that I don’t had no prior experience.”

To familiarize himself with Delta, Janki said he attended morning meetings, inspected the engine shop, toured wing operations and spent time in the reservations department. “Things like that really give you an idea of ​​the operation,” he said.

More than a year into his new role, Janki has made some changes, for example to how the company closes its quarter. The focus has been on bringing insights and analytics earlier in the compensation process to improve efficiency, Delta said. Mr. Janki also attends a weekly business meeting held by Chairman Glen Hauenstein, which was previously not a regular CFO responsibility.

Delta uses a rolling forecast, Janki said, which allows the company to update its spending plans regularly, instead of sticking to a fixed annual budget. “We look in a month, in a quarter, daily, weekly,” Janki said. The company, which reported U.S. generally accepted accounting principles earnings per share of $1.15 in the second quarter and $1.44 in non-GAAP EPS, is guiding investors to operating margin in the middle of the 1920s, more than $4 billion in free cash and non-GAAP EPS above $7 in 2024. This compares to an operating margin of 11% and $1.6 billion in free cash at the end of June.

Colleagues said Mr Janki is sometimes seen at 6 a.m. at the cafe across from his office, reading documents. “One of his strengths is that he’s learning,” said John Krenicki, former GE vice president and CEO of GE Energy, to whom Mr. Janki reported as the division’s chief financial officer.

Mr. Janki was known for his in-depth knowledge of GE. “It wasn’t unusual for me to call him up and ask him what he thought of this or that option,” said Larry Culp, the company’s president and CEO, at large. GE is currently in the process of splitting its business into three parts. “He was comfortable in his own skin telling me what he was thinking, instead of trying to guess what I was thinking,” Mr. Culp said. Delta is a customer of GE’s aircraft engine business.

In his early days, Mr. Janki participated in GE’s corporate audit program, a rigorous multi-year rotation in various divisions that the conglomerate used to prepare future leaders until it decided to dissolve it in 2020. him the big chair,” said Peter Crist, president of executive search firm Crist Kolder Associates.

Janki wants his 600-strong finance team to become more data-driven and improve their systems, including streamlining information in the cloud. Part of that effort will be combining fuel and operating data, as well as information on employees, crew expenses and maintenance expenses, he said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

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