Delta reports huge Q1 loss of $6.39 billion, as it accounts for fall in market capitalization

Delta Air Lines (DL) reported a net loss of $6.39 billion for Q1, mainly on a non-cash goodwill impairment charge that reflects a decline in the airline's market capitalization. The decline is a consequence of the sharp increase in fuel prices and also the pending merger with Northwest Airlines.

Excluding special items, net loss for the first quarter was $274 million, which was higher than losses of $130 million reported in the year-ago period.

The carrier downplayed the seemingly heavy loss, explaining that it was mainly the result of an accounting difference caused by a drop in the company's perceived value. The carrier had recorded a $12 billion goodwill balance under fresh start accounting when it emerged from bankruptcy last year. This goodwill valuation, however, was predicated on per-barrel crude oil prices of $70 and the airline remaining independent.

With oil prices maintaining their level well over $110 for an extended period of time now, airline executives said that the financial picture stood significantly altered. According to president and CFO Edward Bastian, "This change in economic conditions combined with the recent [Northwest Airlines] merger announcement created a triggering event for accounting purposes" and led to the massive reduction in DL's goodwill balance based on "current assumptions."

Q1 revenue rose 12% to $4.77 billion while expenses net of the impairment charge jumped 170% to $11.03 billion, producing an operating loss of $6.23 billion. Consolidated traffic increased 3.6% to 28.21 billion RPMs on a 2.3% lift in capacity to 35.28 billion ASMs, producing a load factor of 78.1%, up 1 point.

In its outlook for Q2, Bastian said DL expects "to be modestly profitable for the [second] quarter" owing to disciplined capacity management. "We will continue to be aggressive in terms of pulling down capacity to combat fuel prices," CEO Richard Anderson said.