<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED FEBRUARY 27, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 17, 1993)
$
[DELTA AIRLINES LOGO APPEARS HERE]
1996 PASS THROUGH TRUSTS
1996 PASS THROUGH CERTIFICATES, SERIES A1
1996 PASS THROUGH CERTIFICATES, SERIES A2
-------------
The Pass Through Certificates offered hereby consist of Delta Air Lines 1996
Pass Through Certificates, Series A1 in the aggregate amount of $ ,
and Delta Air Lines 1996 Pass Through Certificates, Series A2 in the aggregate
amount of $ , which will represent fractional undivided interests in
the Delta Air Lines Pass Through Trust, 1996-A1 and the Delta Air Lines Pass
Through Trust, 1996-A2, respectively. Each Pass Through Trust will be formed
pursuant to the Pass Through Agreement between Delta Air Lines, Inc. and The
Bank of New York, not in its individual capacity but solely as the Pass Through
Trustee under such Pass Through Trust and a related Series Supplement. The
property of each Pass Through Trust will consist of one Equipment Trust
Certificate from two separate series of Equipment Trust Certificates being
issued to refund the outstanding loan certificate issued by an Owner Trust in
connection with a prior refinancing of the purchase by the Owner Trust of one
McDonnell Douglas MD-11 aircraft (the "Aircraft"). The Aircraft was leased to
Delta by the Owner Trustee at the time of such purchase. Two Equipment Trust
Certificates, each of which will have a different principal amount, interest
rate, maturity date and schedule of principal payments, will be issued under
the Indenture as nonrecourse obligations of Wilmington Trust Company, acting
not in its individual capacity but solely as Owner Trustee of the Owner Trust.
(continued on following page)
-----------------------------
NO EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR INDIVIDUAL RETIREMENT ACCOUNT OR
EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"; SUCH PLANS ARE HEREINAFTER COLLECTIVELY REFERRED
TO AS AN "ERISA PLAN"), MAY ACQUIRE OR HOLD THE PASS THROUGH CERTIFICATES.
CERTAIN GOVERNMENTAL AND NON-ELECTING CHURCH PLANS, HOWEVER, ARE NOT SUBJECT TO
TITLE I OF ERISA OR SECTION 4975 OF THE CODE AND, THEREFORE, MAY INVEST IN THE
PASS THROUGH CERTIFICATES. THE PURCHASE BY ANY PERSON OF ANY PASS THROUGH
CERTIFICATE CONSTITUTES A REPRESENTATION BY SUCH PERSON TO DELTA, THE OWNER
PARTICIPANT, THE OWNER TRUSTEE, THE INDENTURE TRUSTEE AND THE PASS THROUGH
TRUSTEE THAT SUCH PERSON IS NOT AN ERISA PLAN AND SUCH PERSON IS NOT ACQUIRING,
AND HAS NOT ACQUIRED, SUCH PASS THROUGH CERTIFICATE WITH ASSETS OF AN ERISA
PLAN. SEE "PROSPECTUS SUMMARY -- THE OFFERING -- ERISA CONSIDERATIONS."
Prior to their issuance there has been no market for the Pass Through
Certificates and there can be no assurance that one will develop. See
"Underwriting" in this Prospectus Supplement.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
FINAL APPLICABLE THE
DISTRIBUTION AGGREGATE INTEREST PRICE TO DISCOUNTS AND PASS THROUGH
PASS THROUGH CERTIFICATES DATE AMOUNT RATE PUBLIC(1) COMMISSION(2) TRUSTEE(1)(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series A1 $ % 100% % 100%
Series A2 100 100
- ---------------------------------------------------------------------------------------------------
Total.............. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----
(1) Plus accrued interest, if any, at the applicable rate from the date of
issuance of such Pass Through Certificate.
(2) A portion of the underwriting commissions and certain other expenses
relating to the offering estimated at $ will be paid by the Owner
Participant, while the remainder of the underwriting commissions and
certain other expenses relating to the offering estimated at $ will be
paid by Delta. All of the proceeds from the sale of the Pass Through
Certificates will be used to purchase the Equipment Trust Certificates from
the Owner Trustee on behalf of the Owner Trust. Delta has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
-------------
The Pass Through Certificates are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to approval of certain legal matters by counsel for
the Underwriters and to certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify the offer and to reject orders in whole or
in part. It is expected that delivery of the Pass Through Certificates will be
made in New York, New York against payment therefor in immediately available
funds on or about March , 1996.
-------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
-------------
The date of this Prospectus Supplement is February , 1996.
<PAGE>
(continued from previous page)
For each Pass Through Trust, the Equipment Trust Certificate purchased by
the Pass Through Trustee will have an interest rate equal to the rate
applicable to the Pass Through Certificates of such Pass Through Trust as set
forth on the cover of this Prospectus Supplement, and will have a maturity
date on or before the final distribution date for such Pass Through Trust.
Interest paid on the Equipment Trust Certificate held in each Pass Through
Trust will be passed through to the related Certificateholders on each April
11 and October 11, commencing on April 11, 1996, at the rate per annum set
forth on the cover of this Prospectus Supplement for the related Pass Through
Certificates, until the final distribution date for such Pass Through Trust.
Principal paid on the Equipment Trust Certificate held in each Pass Through
Trust through mandatory sinking fund redemptions will be passed through to the
related Certificateholders in scheduled amounts on April 11 or October 11, or
both, of each year, commencing on , for the Series A1 Pass Through
Certificates, and commencing on , for the Series A2 Pass Through
Certificates, until the final distribution date for such Pass Through Trust.
Prior to the maturity thereof, the Equipment Trust Certificates may be
purchased at the direction of the Owner Participant, and the Equipment Trust
Certificates may be redeemed by the Owner Trustee, under the circumstances and
at the prices described in this Prospectus Supplement under "Description of
the Equipment Trust Certificates -- Redemption or Purchase of Equipment Trust
Certificates." Any such purchase or redemption would result in an early
distribution of principal paid in respect of the Pass Through Certificates.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PASS THROUGH
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN ANY OVER-THE-COUNTER MARKET OR
OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of more detailed information contained elsewhere
---------------------------------------------------------------------------
in this Prospectus Supplement and the accompanying Prospectus (the
- ------------------------------------------------------------------
"Prospectus") and should be read only in conjunction with this Prospectus
- -------------------------------------------------------------------------
Supplement and the Prospectus.
- ------------------------------
THE COMPANY
Delta Air Lines, Inc. ("Delta" or the "Company") is a major air carrier
engaged in domestic, overseas and foreign air transportation. As of February 1,
1996, Delta provided regularly scheduled service to 152 cities in the United
States, Puerto Rico and the U.S. Virgin Islands, and to 44 cities abroad. For a
discussion of recent operating results and developments affecting Delta, see
"Recent Results and Developments" in the Prospectus and in this Prospectus
Supplement.
THE OFFERING
GLOSSARY............ A Glossary of certain of the significant defined terms
used in this Prospectus Supplement is included as an Ap-
pendix at the end of this Prospectus Supplement.
DIAGRAM OF A Diagram of Payments illustrating certain of the payment
PAYMENTS........... flows in the Pass Through Trust structure is included
following this Summary.
THE OFFERING........ The Pass Through Certificates offered hereby consist of
Delta Air Lines 1996 Pass Through Certificates, Series A1
(the "Series A1 Pass Through Certificates") in the aggre-
gate amount of $ , and Delta Air Lines 1996 Pass
Through Certificates, Series A2 (the "Series A2 Pass
Through Certificates") in the aggregate amount of $
(each such series of Pass Through Certificates is a "Se-
ries" and the Pass Through Certificates of each Series
and of all such Series, collectively, are the "Pass
Through Certificates"), to be issued by Delta Air Lines
Pass Through Trust, 1996-A1, and Delta Air Lines Pass
Through Trust, 1996-A2, respectively (each a "Pass
Through Trust"), which will be formed pursuant to the
Pass Through Trust Agreement dated as of August 1, 1992
(the "Pass Through Agreement") and Series Supplement
1996-A1 or Series Supplement 1996-A2 (each a "Series Sup-
plement"), as the case may be, in each case between Delta
and The Bank of New York, not in its individual capacity
but solely as successor pass through trustee under each
such Pass Through Trust (the "Pass Through Trustee") for
the benefit of the registered holders (the
"Certificateholders") of the related Series of Pass
Through Certificates. Each Pass Through Certificate will
represent a fractional undivided interest in the related
Pass Through Trust.
TRUST PROPERTY...... The property held in each Pass Through Trust (the "Trust
Property") will consist of one equipment trust certifi-
cate (each, an "Equipment Trust Certificate") from two
separate series of Equipment Trust Certificates being is-
sued as nonrecourse obligations by the Owner Trustee to
refinance the debt portion of the purchase price paid by
the Owner Trustee on behalf of an Owner Trust for one Mc-
Donnell Douglas MD-11 aircraft that was leased to Delta
in a leveraged lease transaction. Each Pass Through Trust
will hold one Equipment Trust Certificate with an inter-
est rate equal to the rate applicable to the Pass Through
Certificates of such Pass Through Trust as set forth on
the cover of this Pros-
S-3
<PAGE>
pectus Supplement, and with a maturity date on or before
the final distribution date for such Pass Through Trust.
For each Pass Through Trust, the principal amount of the
Equipment Trust Certificate held in such Pass Through
Trust will equal the aggregate amount of the related se-
ries of Pass Through Certificates.
DENOMINATIONS....... The Pass Through Certificates of each Pass Through Trust
will be issued in fully registered form without coupons
in minimum original denominations of $1,000 or any inte-
gral multiple of $1,000 in excess thereof.
REGULAR
DISTRIBUTION
DATES.............. April 11 and October 11, commencing on April 11, 1996.
SPECIAL
DISTRIBUTION
DATES.............. The 11th day of any month.
RECORD DATES........ March 27 and September 26 for the respective Regular Dis-
tribution Dates and, for any Special Distribution Date,
the fifteenth day preceding such Special Distribution
Date.
DISTRIBUTIONS OF
SCHEDULED
PAYMENTS........... Payments of interest on the Equipment Trust Certificate
held in each Pass Through Trust are scheduled to be re-
ceived by the Pass Through Trustee on each April 11 and
October 11, commencing on April 11, 1996, and are to be
distributed to the related Certificateholders on the cor-
responding Regular Distribution Dates. Interest on the
Equipment Trust Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day
months.
Payments of principal on the Equipment Trust Certificates
through mandatory sinking fund redemptions are scheduled
to be received in specified amounts on April 11 or Octo-
ber 11, or both, of each year, commencing on , in
the case of the Pass Through Trust relating to the Series
A1 Pass Through Certificates, and commencing on , in
the case of the Pass Through Trust relating to the Series
A2 Pass Through Certificates, and are to be distributed
to the related Certificateholders on the corresponding
Regular Distribution Dates. Such scheduled payments of
principal of, and interest on, the Equipment Trust Cer-
tificates are referred to herein as "Scheduled Payments."
DISTRIBUTIONS OF
SPECIAL PAYMENTS... For any Pass Through Trust, any payments other than
Scheduled Payments received by the Pass Through Trustee
on the Equipment Trust Certificate held in such Pass
Through Trust, and any other amounts described in the
definition of "Special Payments" in the Glossary, will be
distributed on a Special Distribution Date after notice
from the Pass Through Trustee to the related
Certificateholders.
METHOD OF
DISTRIBUTION....... Distributions by the Pass Through Trustee to the related
Certificateholders, other than the final distribution,
will be made by check mailed to each such
Certificateholder of record on the applicable record date
at its address appearing on the related register. The fi-
nal distribution with respect to the Pass Through Certif-
icates of any Pass Through Trust will be made only upon
surrender and presentation thereof at the office or
agency of the Pass Through Trustee. See "Description of
the Pass Through Certificates -- Payments and Distribu-
tions" in the Prospectus.
S-4
<PAGE>
EQUIPMENT TRUST
CERTIFICATES:
REDEMPTION OR
PURCHASE WITH
PREMIUM............ Without the consent of the holders of the Equipment Trust
Certificates, the Equipment Trust Certificates (i) may,
upon a request from Delta to the Owner Trustee and sub-
ject to the rights of the Owner Participant pursuant to
Section 20 of the Participation Agreement, be redeemed in
whole, but not in part, at any time, (ii) shall be re-
deemed in whole, but not in part, on the 11th day of any
month that occurs after the end of the Recapture Period,
in connection with a voluntary termination of such Lease
because the Aircraft has become obsolete or surplus to
Delta's requirements, (iii) shall be redeemed in whole,
but not in part, at the request of the Owner Trustee if
the Owner Participant has declared an Event of Loss pur-
suant to the last paragraph of Section 6(b) of the Par-
ticipation Agreement, upon its incurring any value added
tax on the Aircraft or the Rent not indemnified under
such Section 6(b) and which the Owner Participant judges
to be burdensome to the Owner Participant and (iv) shall
be redeemed in whole, but not in part, at Delta's request
pursuant to Section 16(b) of the Participation Agreement
upon a merger or consolidation of the Owner Participant
in which the resulting corporation is an airline (of the
type described therein), at a redemption price equal to
the outstanding principal amount of such Equipment Trust
Certificates plus accrued interest and a premium, if any.
Such premium, if any, with respect to each Equipment
Trust Certificate will be in an amount sufficient, when
added to the principal repaid, to provide an amount upon
redemption that, if invested in U.S. Treasury securities
with maturities comparable to the Remaining Weighted Av-
erage Life of such Equipment Trust Certificate, would
preserve the pretax coupon yield of such Equipment Trust
Certificate.
In addition, the Equipment Trust Certificates will be
redeemable or subject to purchase at the direction of the
Owner Participant in whole, but not in part, at any time
at a price equal to the outstanding principal amount of
such Equipment Trust Certificates plus accrued interest
and a premium, if any (calculated as described above), if
a Lease Event of Default under the Lease has occurred and
has continued for not more than 180 days and the
Equipment Trust Certificates have not been accelerated.
See "Description of the Equipment Trust Certificates --
The Lease --Purchase Options" and " -- The Participation
Agreement" herein for discussions of redemptions with a
premium in connection with Delta's exercise of certain
options or elections relating to the purchase of the Air-
craft under certain circumstances.
EQUIPMENT TRUST
CERTIFICATES:
REDEMPTION OR
PURCHASE WITHOUT
PREMIUM............ The Equipment Trust Certificates will be redeemable in
whole, but not in part, at any time at a price equal to
the outstanding principal amount of such Equipment Trust
Certificates plus accrued interest, but without premium,
upon the occurrence of an Event of Loss with respect to
the Aircraft if the Aircraft is not replaced by Delta un-
der the Lease.
In addition, the Equipment Trust Certificates will be re-
deemable or subject to purchase at the direction of the
Owner Participant in whole, but not in part, at any time
at a price equal to the outstanding principal amount of
such
S-5
<PAGE>
Equipment Trust Certificates plus accrued interest, but
without premium, if (i) a Lease Event of Default under
the Lease has occurred and has continued for at least 180
days and the Equipment Trust Certificates have not been
accelerated or (ii) such Equipment Trust Certificates
have been accelerated.
EQUIPMENT TRUST
CERTIFICATES:
SECURITY........... The principal amount of the Equipment Trust Certificates,
premium, if any, and interest thereon will be secured by
a security interest in the Aircraft and an assignment to
the Indenture Trustee of certain of the Owner Trustee's
rights under the Lease, including the right to receive
rental payments, subject to certain exceptions, payable
by Delta in respect of the Aircraft. See "Description of
the Equipment Trust Certificates -- Security" in the Pro-
spectus.
Although the Equipment Trust Certificates will not be ob-
ligations of, or guaranteed by, Delta, the amounts uncon-
ditionally payable by Delta under the Lease will be suf-
ficient to pay in full when due all principal of, premi-
um, if any, and interest on the Equipment Trust Certifi-
cates.
THE PASS THROUGH
TRUSTEE; THE
INDENTURE TRUSTEE.. The Bank of New York will be the Pass Through Trustee for
each Pass Through Trust and will be the Paying Agent, Au-
thenticating Agent and Registrar for the Pass Through
Certificates. In addition, The Bank of New York will be
the Indenture Trustee under the Indenture pursuant to
which the Equipment Trust Certificates will be issued.
See "Description of the Pass Through Certificates -- The
Pass Through Trustee; the Indenture Trustee" in this Pro-
spectus Supplement.
FEDERAL INCOME TAX
CONSEQUENCES....... The Pass Through Trusts will not be classified as associ-
ations taxable as corporations, but, rather, will be
classified as grantor trusts under subpart E, Part I of
Subchapter J of the Internal Revenue Code of 1986, as
amended (the "Code"), and each person acquiring an inter-
est in any Pass Through Certificate ("Certificate Owner")
will be treated as the owner of a pro rata undivided in-
terest in the Equipment Trust Certificate and any other
property held in the related Pass Through Trust. Each
Certificate Owner should report on its federal income tax
return its pro rata share of the entire income from the
Equipment Trust Certificate and other property held in
the related Pass Through Trust, in accordance with such
Certificate Owner's method of accounting. See "Federal
Income Tax Consequences" herein and in the Prospectus.
ERISA
CONSIDERATIONS..... No employee benefit plan subject to Title I of ERISA, or
individual retirement account or employee benefit plan
subject to Section 4975 of the Code (hereinafter collec-
tively referred to as an "ERISA Plan"), may acquire or
hold the Pass Through Certificates. The purchase by any
person of any Pass Through Certificate constitutes a rep-
resentation by such person to Delta, the Owner Partici-
pant, the Owner Trustee, the Indenture Trustee and the
Pass Through Trustee that such person is not an ERISA
Plan and that such person is not acquiring, and has not
acquired, such Pass Through Certificate with assets of an
ERISA Plan.
S-6
<PAGE>
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment flows among
Delta, the Owner Trustee, the Owner Participant, the Indenture Trustee, the
Pass Through Trustee and the Certificateholders in the Pass Through Trust
structure.
The Aircraft will be leased by Delta from the Owner Trustee under a Lease
under which Delta will make scheduled rental payments. As a result of the
assignment under the Indenture of certain rights of the Owner Trustee under
the Lease, Delta will make these payments directly to the Indenture Trustee.
From these rental payments the Indenture Trustee will pay to the Pass Through
Trustee for each Pass Through Trust the principal, interest and premium, if
any, due from the Owner Trustee on the Equipment Trust Certificate issued
under the Indenture and held in such Pass Through Trust. After such payments
have been made, the Indenture Trustee will pay the remaining balance to the
Owner Trustee for the benefit of the Owner Participant. The Pass Through
Trustee for each Pass Through Trust will distribute to the related
Certificateholders payments received on the Equipment Trust Certificate held
in such Pass Through Trust.
-----------------------
Delta Air Lines, Inc.
Lessee of the Aircraft
-----------------------
|
| Lease
| Rental
| Payments
| Assigned
| by the
| Owner
| Trustee
|
Excess |
Payments |
-----------------
-------------------------- Indenture Trustee
| -----------------
| |
------------- |
Owner Trustee |
------------- ---------------------------
| | Equipment |
| | Trust |
| | Certificate |
| | Payments |
| ------------ -----------
| Pass Pass
| Through Through
| Trustee for Trustee for
| Pass Pass
Excess | Through Through
Payments | Trust, Trust,
| 1996-A1 1996-A2
| ------------- ------------
--------------------- | Pass |
Owner Participant | Through |
--------------------- | Certificate |
| Distributions |
------------- ------------
Holders Holders
of Series A1 of Series A2
Pass Pass
Through Through
Certificates Certificates
------------- ------------
S-7
<PAGE>
THE COMPANY
Delta has been engaged in the air transportation business since 1929, and is
one of the largest airlines in the world as measured by operating revenues,
revenue passenger miles, passengers enplaned, and available seat miles flown.
Delta provides scheduled air transportation over an extensive network of
domestic and international routes.
USE OF PROCEEDS
The Pass Through Certificates are being issued in order to refinance the
debt portion of the purchase price of one Aircraft originally paid pursuant to
a leveraged lease transaction entered into by Delta, as lessee, with respect
to the Aircraft. The Aircraft was manufactured in 1993 and was purchased new
by Delta in 1994, and the Aircraft was sold by Delta to Wilmington Trust
Company, not in its individual capacity but solely as the owner trustee (the
"Owner Trustee") of an owner trust (the "Owner Trust" created pursuant to the
"Trust Agreement") for the benefit of the owner participant named therein (the
"Owner Participant"). Simultaneously with the acquisition of the Aircraft by
the Owner Trustee, the Owner Trustee leased the Aircraft to Delta pursuant to
a lease (the "Lease") between the Owner Trustee, as lessor, and Delta, as
lessee.
The proceeds from the sale of the Pass Through Certificates will be used by
the Pass Through Trustee on behalf of the Pass Through Trusts to purchase at
par two series of Equipment Trust Certificates issued by the Owner Trustee
under an amended and restated trust indenture and security agreement (the
"Indenture"), between The Bank of New York, as indenture trustee (the
"Indenture Trustee"), and the Owner Trustee. The proceeds from the sale of
each series of Equipment Trust Certificates will be used by the Owner Trustee
to refinance the outstanding principal amount of the loan certificate of the
Owner Trust issued under a previous refinancing of the Indenture as originally
executed in connection with a leveraged lease transaction. The loan
certificate being refinanced hereby bears interest at a floating rate
determined from time to time by reference to London interbank offered rates,
secondary market certificate of deposit rates or the prime rate. The loan
certificate has a maturity date of , and the principal amount of the
loan certificate for the Aircraft immediately prior to the refinancing thereof
will be $ .
The principal amount of the Equipment Trust Certificates will not exceed 80%
of the purchase price paid for the Aircraft by the Owner Trust. The Owner
Participant has provided, from sources other than the Equipment Trust
Certificates, at least 20% of the purchase price for the Aircraft.
On the date of issuance of the Pass Through Certificates, all of the
proceeds from the sale of the Pass Through Certificates will be used to
purchase the Equipment Trust Certificates to be held in the Pass Through
Trusts. As a result, the procedures relating to a delayed purchase of the
Equipment Trust Certificates discussed under the caption "Description of Pass
Through Certificates--Delayed Purchase" in the Prospectus are not applicable
to this offering.
S-8
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
Delta at December 31, 1995. The table does not give effect to the sale of the
Pass Through Certificates offered hereby or reflect the Equipment Trust
Certificates or Lease relating to the Aircraft because neither the Pass
Through Certificates nor the Equipment Trust Certificates are direct
obligations of Delta and the Lease is classified as an operating, rather than
capital, lease. The data contained in this table should be read in conjunction
with the consolidated financial statements and notes thereto, and other
information contained or incorporated by reference in the documents
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference" in the Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(IN MILLIONS
EXCEPT SHARE
AMOUNTS)
<S> <C>
Short-term debt:
Current portion of long-term debt.......................... $ 150
Current portion of capital leases.......................... 58
------
Total short-term debt.................................... 208
------
Long-term debt:
Long-term debt............................................. 2,577
Capital leases............................................. 404
------
Total long-term debt..................................... 2,981
------
Employee Stock Ownership Plan Preferred Stock:
Series B ESOP Convertible Preferred Stock, $1.00 par value,
$72.00 stated and liquidation value; 6,767,325 shares
issued and outstanding.................................... 487
Less:
Unearned compensation under employee stock ownership plan. 344
------
143
------
Stockholders' equity:
Series C Convertible Preferred Stock, $1.00 par value,
$50,000 liquidation preference; 22,998 shares issued and
outstanding............................................... --
Common Stock, $3.00 par value; 54,846,625 shares issued.... 164
Additional paid-in capital................................. 2,034
Retained earnings ......................................... 38
Net unrealized gain on marketable equity securities........ 92
Less:
Treasury stock at cost (3,675,086 shares)................. 249
------
Total stockholders' equity............................... 2,079
------
Total capitalization..................................... $5,411
======
</TABLE>
S-9
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table summarizes selected consolidated financial and operating
information of Delta. The selected financial data for the six months ended
December 31, 1995 and December 31, 1994 have been derived from Delta's
consolidated financial statements which have not been audited but which, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring items) necessary to present fairly the information contained
therein. This summary and the information set forth below under "Recent
Results and Developments" should be read in conjunction with the consolidated
financial statements and notes thereto and other information contained or
incorporated by reference in the documents incorporated by reference herein.
See "Incorporation of Certain Documents by Reference" in the Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
(in millions)
STATEMENT OF OPERATIONS:
Operating revenues......................................... $ 6,132 $ 6,076
Operating income .......................................... 555 172
Interest expense, net(1)................................... 134 135
Income before income taxes and cumulative effect of ac-
counting change........................................... 459 99
Net income before cumulative effect of accounting change... 270 54
Cumulative effect of accounting change(2).................. -- 114
Net income ................................................ 270 168
BALANCE SHEET:
Total debt and capital leases ............................. 3,189 3,108
Stockholders' equity ...................................... 2,079 1,611
Total assets .............................................. 11,998 11,384
OTHER:
Ratio of earnings to fixed charges(3)...................... 2.41 1.25
OPERATING DATA:
Available seat miles (000,000)............................... 65,618 66,088
Revenue passenger miles (000,000)............................ 43,516 44,765
Cost per available seat mile (cents)......................... 8.50 8.93
Yield per passenger mile (cents)............................. 13.11 12.56
Passenger load factor (%).................................... 66.32 67.74
Breakeven passenger load factor (%).......................... 59.87 65.67
- --------
(1)Interest expense has been reduced by interest capitalized
(in millions)............................................... 14 15
</TABLE>
(2) The cumulative effect of accounting change (see "Recent Results and
Developments--Fiscal Year Ended June 30, 1995) represents a cumulative
one-time after-tax benefit of $114 million related to Delta's adoption of
SFAS 112 effective July 1, 1994.
(3) The ratio of earnings to fixed charges represents the number of times that
fixed charges were covered by earnings. For purposes of computing the
ratio of earnings to fixed charges, "earnings" represents net income plus
the provision for income taxes (prior to any amortization of investment
tax credit) and fixed charges, excluding capitalized interest and interest
offset on the Guaranteed Serial ESOP Notes. "Fixed charges" represents
gross interest (which includes gross interest on the Guaranteed Serial
ESOP Notes and capitalized interest) plus one-third of rentals, which is
considered representative of the interest factor.
S-10
<PAGE>
RECENT RESULTS AND DEVELOPMENTS
FISCAL YEAR ENDED JUNE 30, 1995
For the fiscal year ended June 30, 1995, Delta recorded net income of $408
million ($6.32 primary and $5.43 fully diluted earnings per common share after
preferred stock dividend requirements) and operating income of $661 million.
In fiscal 1994, Delta recorded a net loss of $409 million ($10.32 primary and
fully diluted loss per common share after preferred stock dividend
requirements), and an operating loss of $447 million.
Fiscal 1995 results include a one-time $114 million after-tax benefit ($2.25
primary and $1.42 fully diluted benefit per common share) related to the
adoption, effective July 1, 1994, of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112").
Fiscal 1994 results include pretax restructuring charges totaling $526
million ($331 million after tax, or $6.59 per common share) related to the
Company's Leadership 7.5 cost reduction program, and an early retirement
program completed during the December 1993 quarter. Excluding the cumulative
effect of the adoption of SFAS 112 and restructuring charges, net income for
fiscal 1995 totaled $294 million ($4.07 primary and $4.01 fully diluted
earnings per common share after preferred stock dividend requirements) and
operating income was $661 million, compared to a net loss of $77 million
($3.73 primary and fully diluted loss per common share after preferred stock
dividend requirements) and operating income of $79 million in fiscal 1994.
The improvement in financial results for fiscal 1995 versus fiscal 1994 was
primarily due to cost reductions under the Company's Leadership 7.5 program.
Leadership 7.5 initiatives contributed to cost reductions in most expense
categories, resulting in a $465 million, or 4%, decline in operating expenses
for fiscal 1995 compared to fiscal 1994, excluding restructuring charges in
fiscal 1994. During fiscal 1995, low-cost, low-fare carriers increased their
presence in domestic markets served by Delta, which contributed to a 1%
decline in the system passenger mile yield. Traffic stimulated by the
influence of low-cost, low-fare carriers, discount fare promotions and general
improvements in economies worldwide offset the yield decline, resulting in a
less than 1% increase in passenger revenue from the previous year.
Transatlantic and intra-European operations improved in fiscal 1995 from
fiscal 1994, but negatively impacted financial results in both years. In
fiscal 1995 and 1994, these operations accounted for 18% and 20%,
respectively, of the Company's system available seat miles, and 75% and 78%,
respectively, of the Company's international available seat miles.
Operating revenues for fiscal 1995 were $12.2 billion, up 1% from $12.1
billion in fiscal 1994. Passenger revenue increased less than 1%, the result
of 1% growth in revenue passenger miles, partly offset by a 1% decline in the
passenger mile yield to 13.09 cents. Domestic load factor increased slightly,
as domestic revenue passenger miles grew 2%, while domestic capacity rose 1%.
Domestic traffic growth is primarily due to traffic stimulated through the
increased presence of low-cost, low-fare carriers in markets served by Delta
and discount fare promotions, both of which contributed to a 1% decrease in
the domestic passenger mile yield. International load factor rose five points,
as international revenue passenger miles grew 1% and international operating
capacity fell 6%. International traffic growth is mainly the result of
generally improved economies, discount fare promotions and other marketing
programs. The international passenger mile yield was unchanged, primarily due
to an increase in full-fare passengers, which offset the impact of discount
fare promotions.
Cargo revenues in fiscal 1995 increased 3% to $565 million. Cargo ton miles
increased 8%, primarily due to international cargo traffic growth, and the ton
mile yield declined 5%, mainly the result of increases in long-haul cargo
traffic, which has lower ton mile yields than short-haul cargo traffic, and
lower domestic mail contract rates. All other revenues were up 19% to $326
million, mainly due to increased revenues from joint marketing programs.
Operating expenses in fiscal 1995 totaled $11.5 billion, down 8% from $12.5
billion in fiscal 1994. Operating capacity decreased 1% to 130.5 billion
available seat miles, and cost per available seat mile declined 7% to 8.84
cents. Excluding restructuring charges in fiscal 1994, operating expenses were
down 4%, and cost per available seat mile decreased 3%.
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Salaries and related expenses decreased 5%, due to a 14% reduction in full-
time equivalent employees and lower employee travel and benefit expenses,
partly offset by increased costs associated with employee profit sharing and
other incentive compensation plans. The decrease in the number of employees is
primarily the result of workforce reductions under the Company's Leadership
7.5 program.
Aircraft fuel expense decreased 3%, as fuel gallons consumed declined 1% and
the average price per fuel gallon dropped 2% to 54.09 cents, Delta's lowest
average price per fuel gallon for any fiscal year since 1989. Passenger
commissions expense declined 5%, mainly due to the implementation of a maximum
commission payment on domestic tickets and reductions in commission rates for
certain international fares. Aircraft rent expense decreased 8% due to the
return of nine aircraft to lessors and the extension of leases on 40 B-737-200
aircraft in the June 1995 quarter which, for accounting purposes, resulted in
those leases being reclassified from operating leases to capital leases.
Depreciation and amortization expense decreased 8%, primarily related to the
early termination of certain routes at the end of fiscal 1994 and other routes
becoming fully amortized during fiscal 1995, and reduced amortization of spare
parts due to lower inventory levels. Other selling expenses increased 1%,
primarily the result of higher credit card service charges and increased
booking fee payments to computer reservation system providers, partly offset
by lower advertising and promotion expenses. Contracted services expenses rose
22%, the result of increased outsourcing of information technologies services
and certain airport functions. Passenger service expense declined 15%,
reflecting continued benefits from catering changes and other cost reduction
programs, partially offset by increased passenger traffic.
Facilities and other rent expenses increased 15%, the result of new
passenger facilities and increased rental rates at certain locations. Aircraft
maintenance materials and outside repairs expense rose 3%, reflecting an
increase in scheduled engine repair activity and higher airframe maintenance
costs. Landing fees expense increased 2%, mainly reflecting rate increases at
some domestic and international locations. All other operating expenses
decreased 16%, largely due to reductions in certain navigation charges and
other miscellaneous expenses, and favorable foreign exchange rates in fiscal
1995; and higher litigation costs and a $14 million one-time charge related to
frequent flyer program changes in fiscal 1994.
Nonoperating expense for fiscal 1995 totaled $167 million, compared to $213
million in fiscal 1994. Interest expense decreased 4%, primarily due to a
lower average level of outstanding debt, partly offset by an increase in
interest expense related to the extension of 40 B-737-200 aircraft leases, as
previously discussed. Interest capitalized on funds advanced for the purchase
of flight equipment and construction of facilities declined 9%, primarily
resulting from a lower average balance in construction work in progress.
Interest income increased 67%, or $38 million, primarily due to a higher
average level of short-term investments and higher interest rates during the
year.
SIX MONTHS ENDED DECEMBER 31, 1995
For the six months ended December 31, 1995, Delta recorded unaudited net
income of $270 million ($4.40 primary and $3.52 fully diluted income per
common share after preferred stock dividend requirements) and operating income
of $555 million. For the six months ended December 31, 1994, the Company
recorded net income of $168 million ($2.46 primary and $2.28 fully diluted
income per common share after preferred stock dividend requirements) and
operating income of $172 million. Net income for the six months ended
December 31, 1994 included a one-time $114 million after-tax benefit ($2.25
primary and $1.43 fully diluted benefit per common share) related to the
adoption, effective July 1, 1994, of SFAS 112.
The improvement in operating results for the six months ended December 31,
1995, compared to the six months ended December 31, 1994, reflects an increase
of less than 1% in operating revenues and a 6% decrease in operating expenses
primarily due to initiatives under the Company's Leadership 7.5 cost reduction
program.
Operating revenues for the six months ended December 31, 1995 increased less
than 1% to $6.13 billion. Passenger revenue increased 1% to $5.70 billion,
reflecting a 4% passenger mile yield improvement that was partially offset by
a 3% decline in revenue passenger miles. The increase in the passenger mile
yield and
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reduction in passenger traffic are primarily due to higher average fare levels
in domestic and certain international markets, an increase in full-fare
traffic in certain international markets, and a reduction in transatlantic
operating capacity. Passenger revenue for the six months ended December 31,
1995 and 1994, was negatively impacted by the presence of low-cost, low-fare
carriers in domestic markets served by Delta. Cargo revenue decreased 10% to
$264 million, as cargo ton miles declined 11% and the ton mile yield increased
2%. The decrease in cargo ton miles and increase in the ton mile yield are
primarily due to the cancellation of service on certain international routes
and the resulting decrease in the average cargo trip length. All other revenue
increased less than 1% to $164 million.
Operating expenses for the six months ended December 31, 1995 totaled $5.58
billion, down 6% from 1994. Operating capacity decreased less than 1% to 65.62
billion available seat miles, and operating cost per available seat mile
declined 5% to 8.50 cents. Salaries and related costs decreased 6%, due to an
8% reduction in full-time equivalent employees, partially offset by accruals
under the Company's profit sharing programs. The decrease in full-time
equivalent employees was primarily due to workforce reductions under the
Company's Leadership 7.5 cost reduction program. Aircraft fuel expense
declined 2%, as fuel gallons consumed decreased 3% and the average price per
fuel gallon increased less than 1% to 55.82 cents. Passenger commissions
declined 15%, mainly due to the implementation of a maximum commission payment
on domestic tickets and reductions in certain international commission rates,
partially offset by growth in other program costs. Contracted services expense
rose 38%, the result of increased outsourcing of information technologies
services and certain airport functions. Depreciation and amortization expense
increased less than 1%, the result of increased aircraft depreciation and
amortization due to the extension of the 40 B-737-200 aircraft leases
previously discussed, partially offset by the transfer of certain ground
equipment to associated companies and certain international routes becoming
fully amortized. Aircraft rent expense decreased 19% due to the return of
certain aircraft to lessors and the extension of leases on the B-737-200
aircraft previously discussed. Other selling expenses decreased 6%, primarily
due to lower advertising and promotion expense, partially offset by increased
credit card service charges and booking fee payments to computer reservations
system providers. Facilities and other rent increased 5%, primarily due to
expanded passenger terminal facilities in certain locations. Aircraft
maintenance materials and outside repairs expense declined 5%, mainly due to
decreased engine maintenance and overhaul activity. Passenger service expense
decreased 23%, the result of ongoing cost control programs. Landing fees
decreased 6%, mainly reflecting favorable rate adjustments and credits
received at certain airports. All other operating expenses decreased 11%,
primarily reflecting increased services provided to outside parties, partially
offset by the October 1, 1995 expiration of the exemption from the 4.3 cents
per gallon federal tax on commercial aviation jet fuel used in domestic
operations.
Nonoperating expense for the six months ended December 31, 1995, totaled $96
million, compared to $73 million in the six months ended December 31, 1994.
Interest expense decreased 1% to $148 million, due to a lower average level of
long-term debt, partially offset by an increase in interest expense related to
the extension and reclassification of the 40 B-737-200 aircraft leases
previously discussed. Interest income decreased 6% to $47 million, primarily
due to a lower level of short-term investments. Miscellaneous expense was $9
million for the six months ended December 31, 1995, primarily due to foreign
exchange losses and costs associated with the voluntary repurchase and
retirement of long-term debt, partially offset by equity income from
associated companies, as compared to miscellaneous income of $12 million in
1994.
Pretax income of $459 million for the six months ended December 31, 1995,
was reduced by an income tax provision of $189 million. After a $44 million
provision for preferred stock dividends, net income available to common
stockholders was $226 million.
During the six months ended December 31, 1995, Delta invested $402 million
in flight equipment and $114 million in ground property and equipment; made
payments of $155 million on long-term debt and capital lease obligations,
which included Delta's voluntary repurchase and retirement of $118 million
principal amount of long-term debt; and paid $60 million in cash dividends.
The principal sources of these funds were $313 million of cash from
operations, net of $229 million used to reduce to $0 the Senior Certificate
related to the sale of receivables; $380 million from cash reserves; $15
million from the issuance of common stock; and $23 million from the sale of
flight equipment. Cash and cash equivalents and short-term investments totaled
$1.4 billion at December 31, 1995, compared to $1.8 billion at June 30, 1995.
The Company may repurchase additional long-term debt from time to time.
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As of December 31, 1995, the Company had negative working capital of $586
million, compared to negative working capital of $427 million at June 30,
1995. A negative working capital position is normal for Delta and does not
indicate a lack of liquidity. The Company expects to meet its current
obligations as they become due through available cash, short-term investments
and internally generated funds, supplemented as necessary by debt financings
and proceeds from sale and leaseback transactions.
At December 31, 1995, the Company had $780 million of credit available under
its 1995 Bank Credit Agreement, subject to compliance with certain conditions.
The Company's 1995 Bank Credit Agreement provides for unsecured borrowings of
up to $1.25 billion on a revolving basis until September 26, 2000. At December
31, 1995, no borrowings were outstanding under the 1995 Bank Credit Agreement,
but there is currently outstanding a letter of credit in the amount of $470
million to credit enhance the Delta Family-Care Savings Plan's 1990 Series C
Guaranteed Serial ESOP Notes, which are guaranteed by Delta, and which Delta
is required to purchase in certain circumstances. The letter of credit, which
is utilizing $470 million of the available commitment under the 1995 Bank
Credit Agreement, covers the $290 million outstanding principal amount of the
1990 Series C Guaranteed Serial ESOP Notes, up to $148 million of Make Whole
Premium Amount and approximately one year of interest on the 1990 Series C
Guaranteed Serial ESOP Notes.
At December 31, 1995, long-term debt and capital lease obligations,
including current maturities, totaled $3.2 billion, compared to $3.3 billion
at June 30, 1995. Stockholders' equity was $2.1 billion at December 31, 1995,
compared to $1.8 billion at June 30, 1995. The Company's debt-to-equity
position, including current maturities was 61% debt and 39% equity at December
31, 1995, compared to 65% debt and 35% equity at June 30, 1995.
On January 29, 1996, Delta and The Boeing Company ("Boeing") amended certain
contracts under which Delta purchases aircraft from Boeing. Under the
amendments, Delta (1) ordered 12 additional B-767-300ER aircraft for delivery
in calendar years 1997 and 1998; (2) converted orders for two B-767-300ER
aircraft to two B-767-300 aircraft; (3) rescheduled the delivery of certain
other aircraft on order; (4) obtained additional options to purchase B-767-
300ER aircraft; (5) relinquished certain options to purchase B-757-200
aircraft; and (6) terminated its 52 orders (22 of which had been subject to
reconfirmation by Delta) and 56 options to purchase B-737-300 aircraft.
Delta intends to use the newly ordered B-767-300ER aircraft, together with
other international range aircraft on order, to replace the Lockheed L-1011
aircraft now being used in transatlantic service. The Company plans to
reconfigure and reallocate the international range L-1011 aircraft to domestic
routes, where they will replace certain older, less efficient versions of L-
1011 aircraft. Delta is currently evaluating the type and number of aircraft
which it may order in the future to replace its L-1011 fleet.
Under the Company's Leadership 7.5 cost reduction program, the Company
continues to identify and implement additional initiatives with the goal of
reducing Delta's annual operating expenses by approximately $2 billion by the
end of the June 1997 quarter. In addition, the Company continues to evaluate
its current aircraft fleet plan, as discussed above. These actions could
result in pre-tax charges against earnings of as much as $650 million during
the March 1996 quarter. Management believes that these charges are not likely
to have a material adverse effect on Delta's consolidated financial condition
or liquidity.
LEADERSHIP 7.5
On April 28, 1994, Delta announced "Leadership 7.5," a three-year plan with
the goal of reducing the Company's annual operating expenses by approximately
$2 billion by the end of the June 1997 quarter. Delta also established
operating cost per available seat mile ("unit cost") goals of 8.6 cents by the
June 1995 quarter, 8.0 cents by the June 1996 quarter and 7.5 cents by the
June 1997 quarter. These unit cost goals reflect the phase-in of the
approximately $2 billion in targeted cost savings, exclude restructuring and
other nonrecurring charges, and assume other costs and operating capacity
remain at calendar 1993 levels. To the extent that other costs increase, Delta
will seek additional cost reductions to achieve its goals.
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Industry events during fiscal 1995 validated Delta's determination that cost
reductions are essential to compete in today's highly competitive airline
industry. Low-cost, low-fare carriers increased their presence in domestic
markets, resulting in continued reductions in Delta's domestic passenger mile
yield and flat or declining domestic unit revenue. At the end of fiscal 1995,
approximately 60% of Delta's domestic origin and destination revenue passenger
miles were in markets also served by low-cost, low-fare carriers, up from 57%
at the end of fiscal 1994 and 32% at the end of fiscal 1993. The airline
industry has experienced a permanent shift in the preferences of its
customers, with more business and leisure passengers citing ticket prices as
the most important factor in their purchase decisions.
Leadership 7.5 initiatives made a significant contribution to Delta's
operating profit in fiscal 1995. The Company achieved its first Leadership 7.5
unit cost target, recording a unit cost of 8.39 cents for the June 1995
quarter. By the end of fiscal 1995, the implementation of initiatives expected
to generate approximately $1.6 billion in annual cost reductions was in
process or completed.
Delta's cost reduction and unit cost goals under Leadership 7.5 are
aggressive, and no assurance can be given that Delta will achieve these goals.
TENTATIVE ALPA AGREEMENT
On February 20, 1996, Delta and the negotiating committee of the Air Line
Pilots Association ("ALPA") reached a tentative agreement on a new, four-year
collective bargaining agreement for Delta's approximately 8,000 pilots. The
agreement provides for, among other things, (1) a 2% reduction in base
salaries for four years, at which time the current base salaries will be
reinstated; (2) reductions in certain other pay-related areas; (3) certain
productivity improvements, including changes in staffing requirements; (4)
reductions in the Company's cockpit costs on B-737-200 aircraft; (5) job
security protections for currently active pilots and the recall of the
approximately 470 pilots on furlough by July 1, 1997; (6) a prohibition on the
Company's engaging in code sharing with respect to aircraft with over 70 seats
that are operated by another U.S. airline, subject to certain exceptions; (7)
restrictions in certain circumstances on the Company's entering into new code
sharing arrangements involving aircraft operated by foreign airlines; (8) an
early retirement program for up to 500 pilots; (9) pilot participation in a
profit sharing program; (10) a stock option plan for pilots providing for
grants of stock options covering a total of ten million shares of Delta common
stock in three installments; and (11) ALPA's right to appoint an associate
non-voting member of Delta's Board of Directors.
The tentative agreement is subject to ratification by ALPA's master
executive council and Delta pilots, a process which is currently expected to
be completed in April 1996. The outcome of the ratification process cannot be
predicted. Delta believes the tentative agreement, if ratified, will improve
the Company's competitive position and make an important contribution to the
Company's efforts to achieve its Leadership 7.5 goals.
In connection with the early retirement program described above, Delta
expects to record a one-time charge, the possible range and timing of which
have not been determined.
OTHER PERSONNEL MATTERS
Substantially all of Delta's U.S.-based non-contract personnel participate
in the Company's profit sharing programs. Under these programs, participants
may receive, subject to certain conditions, payments that are based on the
Company's profitability during the fiscal year. During the year, the Company
accrues amounts estimated to be payable under these programs.
Effective February 1, 1996, Delta restored to the base salaries of personnel
who participate in the Company's profit sharing programs the 5% reduction in
base salaries that had been implemented on February 1, 1993. Also on February
1, 1996, the Company announced that, on February 23, 1996, personnel who
participate
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in the profit sharing programs will receive a lump sum advance profit sharing
payment for fiscal 1996 equal to 5% of their base salaries from July 1, 1995
through January 31, 1996. The value of the 5% base salary restoration and the
early profit sharing payment will be offset against any profit sharing awards
earned for fiscal 1996. Therefore, these changes are not expected to result in
an increase in operating expenses for fiscal 1996.
LITIGATION RELATING TO DELTA'S PARTICIPATION IN PAN AM'S PLAN OF
REORGANIZATION.
As described in the Prospectus, on March 6, 1992, Pan Am, the Creditors
Committee and the Ad Hoc Committee of Administrative and Priority Creditors of
Pan Am filed a consolidated amended complaint (the "Complaint") against Delta
relating to Delta's participation in Pan Am's proposed plan of reorganization.
The Complaint alleged, among other things, that Delta breached its contractual
obligations and promises to participate in the plan of reorganization;
violated its duty of good faith and fair dealing; breached its fiduciary
duties to Pan Am and its creditors; and acted in bad faith. The United States
District Court for the Southern District of New York conducted a trial between
May 4, 1994 and June 10, 1994 on liability issues. In an opinion and order
dated December 22, 1994, the District Court (1) ruled that Delta had no
liability in this lawsuit; (2) ordered Pan Am to repay to Delta the DIP Loan;
and (3) held that the Creditors Committee had no liability to Delta under
Delta's counterclaims. No party appealed the District Court's decision, and
the time period for filing an appeal expired on February 6, 1995.
Following conclusion of the lawsuit described in the previous paragraph, the
other legal actions relating to Delta's participation in Pan Am's proposed
plan of reorganization that are described in the Prospectus were settled or
dismissed.
OTHER MATTERS
On May 16, 1994 a purported class action complaint was filed in the United
States District Court for the Northern District of Georgia against Delta and
certain Delta officers in their capacity as members of the Administrative
Committee responsible for administering certain Company employee benefit
plans. The plaintiffs, who have requested a jury trial, are 21 former Delta
employees who seek to represent the class consisting of the approximately
1,800 former non-pilot employees of Delta who retired from active service
between July 23, 1992 and January 1, 1993. The complaint alleges that Delta
violated the Employee Retirement Income Security Act by (1) modifying health
benefits for this group of retirees in spite of alleged oral and written
representations that it would not make any such modifications; (2) breaching
its fiduciary duties and interfering with plaintiffs' benefits by making such
modifications and by allegedly giving false assurances that no enhanced
retirement benefit incentives were being considered or would be offered in the
future; and (3) discriminating against certain benefit plan participants. The
complaint also alleges, among other things, that Delta breached a contract
with plaintiffs by amending Delta's pass policy to suspend the flight
privileges of a retiree during any period such retiree is employed by certain
other airlines. Plaintiffs are seeking injunctive relief, unspecified
compensatory and punitive damages, costs and attorneys' fees, and such other
relief as the District Court deems appropriate. On July 18, 1994, Delta filed
its answer denying liability under the complaint and asserting various
affirmative defenses. On November 4, 1994, the District Court (1) denied the
plaintiffs' motion for class action certification; and (2) granted Delta's
motion to dismiss plaintiffs' claims concerning Delta's pass policy for lack
of subject matter jurisdiction. On January 11, 1995, the District Court denied
plaintiffs' motion requesting the District Court to reconsider its November 4,
1994 decision, but granted plaintiffs' motion to permit an immediate appeal of
that order. The plaintiffs then filed a petition to appeal with the United
States Court of Appeals for the Eleventh Circuit which, on March 8, 1995,
agreed to hear plaintiffs' appeal of the District Court's November 4, 1994
decision. Delta intends to defend this matter vigorously.
On February 10, 1995, Delta changed its domestic travel agency commission
program by introducing a maximum commission payment of $50 for any round trip
domestic airline ticket with a base fare in excess of $500, and $25 for any
one-way domestic airline ticket with a base fare in excess of $250. The
maximum commission applies to all tickets issued by United States and Canada-
based travel agencies for travel on Delta
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flights within and between the continental United States, Alaska, Hawaii,
Puerto Rico and the United States Virgin Islands. Most of the major United
States airlines subsequently adopted similar commission cap programs.
Travel agents and a travel agency trade association have filed more than 30
class action antitrust lawsuits in various federal district courts against
airlines, including Delta, that implemented new travel agent commission cap
programs. The plaintiffs, who are seeking unspecified treble damages under the
antitrust laws and an injunction to prevent the airlines from maintaining the
new commission cap programs, allege that the defendants conspired to reduce
the commissions paid to travel agents in violation of the Sherman Act. On June
1, 1995, the Judicial Panel on Multidistrict Litigation consolidated these
cases for pretrial proceedings before the United States District Court in
Minneapolis, which has certified a plaintiff class consisting of all travel
agents in the United States who sold airline tickets subject to the commission
cap on American, Continental, Delta, Northwest, Trans World Airlines, Inc.
("TWA"), United or USAir. On August 18, 1995, the District Court approved a
settlement agreement between TWA and the plaintiffs under which TWA
represented it had terminated its commission cap program and agreed, among
other things, to pay the commissions it would have paid between specified
dates had its commission cap program not been in place. On August 23, 1995,
the District Court denied the plaintiffs' motion for a preliminary injunction,
as well as the motions for summary judgment filed by the airline defendants
(except TWA). On September 27, 1995, the District Court denied a motion by the
airlines (except TWA) to permit an immediate appeal of the District Court's
ruling denying the airlines' motions for summary judgment. The jury trial of
these actions has not yet been scheduled. Delta believes the allegations
against it are without merit, and it intends to defend these matters
vigorously.
On November 2, 1995, Delta reached an agreement with TWA, to lease ten
takeoff/landing slots (the "Slots") at New York's LaGuardia Airport
("LaGuardia"). On November 9, 1995, ValuJet Airlines, Inc. ("ValuJet"), filed
suit against Delta and TWA in the United States District Court for the
Northern District of Georgia. ValuJet alleges, among other things, that (1)
TWA breached an alleged agreement to lease the Slots to ValuJet; (2) Delta
tortiously interfered with the alleged contract between ValuJet and TWA; (3)
Delta and TWA conspired to restrain trade in violation of Section 1 of the
Sherman Act; and (4) Delta engaged in acts of monopolization and attempted
monopolization in violation of Section 2 of the Sherman Act. ValuJet, which
has requested a jury trial, is seeking injunctive relief, unspecified
compensatory damages, treble damages under the antitrust laws, punitive
damages, costs and attorney's fees, and such other relief as the Court deems
appropriate. On November 17, 1995, the District Court denied ValuJet's motion
for a preliminary injunction. On December 7, 1995, Delta filed its answer
denying liability and asserting various affirmative defenses. On February 15,
1996, Delta filed a motion for summary judgment in this lawsuit.
On January 10, 1996, a purported class action complaint was filed against
Delta and TWA in the United States District Court for the Eastern District of
New York, on behalf of persons who purchased tickets on Delta for travel
between LaGuardia and Atlanta beginning November 1, 1995. The named plaintiff,
who has requested a jury trial, makes antitrust allegations and claims similar
to those asserted by ValuJet in the lawsuit described in the preceding
paragraph. The named plaintiff seeks, on behalf of the purported class,
unspecified compensatory damages, treble damages under the antitrust laws,
injunctive relief, costs and attorney's fees, and such other relief as the
Court deems appropriate. On February 15, 1996, Delta filed a motion to
transfer this lawsuit to the United States District Court for the Northern
District of Georgia.
Delta believes the allegations against it in the two lawsuits described
above are without merit, and it intends to defend these matters vigorously.
Delta also received a Civil Investigative Demand from the United States
Department of Justice ("DOJ") requesting information and documents concerning
Delta's lease of the Slots. Delta is cooperating with the DOJ investigation.
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DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following description of the particular terms of the Pass Through
Certificates offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Pass Through Certificates set forth in the Prospectus, reference to which is
hereby made.
The Pass Through Certificates offered hereby will be issued by Delta Air
Lines Pass Through Trust, 1996-A1, and Delta Air Lines Pass Through Trust,
1996-A2, to be formed pursuant to the Pass Through Agreement and Series
Supplement 1996-A1 or Series Supplement 1996-A2, as the case may be, to be
entered into between Delta and the Pass Through Trustee on the date of
issuance of the related Pass Through Certificates. Each Series Supplement will
contain substantially the same terms and conditions, except that the interest
rate, scheduled repayments of principal, maturity date applicable to the
Equipment Trust Certificate held in each Pass Through Trust, the principal
amount of the Equipment Trust Certificate held in each Pass Through Trust, and
the final distribution date applicable to each Pass Through Trust will differ.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to, the provisions of the Pass Through Agreement,
the form of which has been filed as an exhibit to Delta's Current Report on
Form 8-K dated July 31, 1992 (File No. 1-5424) and to the provisions of the
Series Supplements which, together with the forms of the Indenture, Lease,
Participation Agreement, Trust Agreement and other related documents to be
used in connection with the transactions described herein, will be filed as
exhibits to a Current Report on Form 8-K to be filed by Delta with the
Commission in connection with this offering.
The Pass Through Agreement does not, and the Series Supplements and the
Indenture will not, include covenants that would afford Certificateholders
protection in the event of a highly leveraged or other transaction affecting
Delta that might adversely affect such Certificateholders.
PAYMENTS AND DISTRIBUTIONS
The Regular Distribution Dates for each Pass Through Trust are April 11 and
October 11. Payments of interest on the Equipment Trust Certificate held in
each Pass Through Trust are scheduled to be received by the Pass Through
Trustee on each April 11 and October 11, commencing on April 11, 1996, and are
to be distributed to the related Certificateholders on the corresponding
Regular Distribution Dates. For each Pass Through Trust, the Equipment Trust
Certificate held in such Pass Through Trust will accrue interest on the unpaid
principal amount thereof at the rate per annum set forth on the cover of this
Prospectus Supplement applicable to the related Pass Through Certificates.
Payments of principal on the Equipment Trust Certificates are scheduled to
be received in specified amounts on April 11 or October 11, or both, of each
year, commencing on , , in the case of the Pass Through Trust relating
to the Series A1 Pass Through Certificates, and commencing on , , in
the case of the Pass Through Trust relating to the Series A2 Pass Through
Certificates, and are to be distributed to the related Certificateholders on
the corresponding Regular Distribution Dates. The record dates for the
respective Regular Distribution Dates are March 27 and September 26. For each
Pass Through Trust, the Equipment Trust Certificate that will be held in such
Pass Through Trust and the dates for, and the corresponding amounts of, the
Scheduled Payments of principal on such Equipment Trust Certificate are set
forth under "Description of the Equipment Trust Certificates -- General" in
this Prospectus Supplement.
For each Pass Through Trust, the Special Distribution Dates will be the 11th
day of any month, and the record date for any Special Distribution Date will
be the fifteenth day preceding such Special Distribution Date.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day without additional interest.
For each Pass Through Trust, any Scheduled Payment or Special Payment to be
distributed by such Pass Through Trust will be payable at the corporate trust
office of the Pass Through Trustee in New York, New York, or at such other
office or agency in the United States maintained for the payment of the
related Pass Through
S-18
<PAGE>
Certificates. All amounts payable on the Pass Through Certificates may,
however, at the option of the Pass Through Trustee or its paying agent, be
paid by check mailed to the person entitled thereto at the address shown in
the Register for the applicable Series of Pass Through Certificates. (Pass
Through Agreement, Section 5.02(d))
POOL FACTORS
As of the date of issuance by the Pass Through Trustee of the Pass Through
Certificates, and assuming that no early redemption, purchase or default in
respect of the Equipment Trust Certificates shall occur, the aggregate
scheduled repayments of principal on the Equipment Trust Certificate for each
Pass Through Trust and the resulting Pool Factors for each such Pass Through
Trust after taking into account each such repayment are set forth below:
<TABLE>
<CAPTION>
PASS THROUGH TRUST, 1996-A1 PASS THROUGH TRUST, 1996-A2
--------------------------------- ---------------------------------
SCHEDULED SCHEDULED
PRINCIPAL PRINCIPAL
REGULAR PAYMENTS ON PAYMENTS ON
DISTRIBUTION EQUIPMENT TRUST EQUIPMENT TRUST
DATE CERTIFICATE POOL FACTOR CERTIFICATE POOL FACTOR
- ------------ --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
</TABLE>
THE PASS THROUGH TRUSTEE, THE INDENTURE TRUSTEE
The Bank of New York will be the successor Pass Through Trustee for each of
the Pass Through Trusts and will be the Paying Agent, Authenticating Agent and
Registrar for such Pass Through Trust. The Pass Through Trustee and any of its
affiliates may hold Pass Through Certificates in their own names. (Pass
Through Agreement, Section 8.05). The Bank of New York also will be the
Indenture Trustee under the Indenture under which the Equipment Trust
Certificates will be issued. The Bank of New York also serves as indenture
trustee in other aircraft leveraged lease transactions in which Delta is
lessee and as indenture trustee under other indentures relating to debt
securities issued by Delta. The Bank of New York maintains a commercial
banking relationship with the Company and The Bank of New York or an affiliate
thereof is the beneficial owner of certain aircraft leased to Delta.
S-19
<PAGE>
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The following description of the particular terms of the Equipment Trust
Certificates supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Equipment Trust
Certificates set forth in the Prospectus, reference to which is hereby made.
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to, the provisions of the Indenture, the Equipment
Trust Certificates, the Lease, the Participation Agreement, the Trust
Agreement and other related documents to be used in connection with the
transactions described herein, the forms of which will be filed as exhibits to
a Current Report on Form 8-K to be filed by Delta with the Commission in
connection with this offering.
GENERAL
Two Equipment Trust Certificates, each of which will have a different
principal amount, interest rate, maturity date and schedule of principal
payments, will be issued under the Indenture. The principal amount of the
Equipment Trust Certificate held in each Pass Through Trust is as follows:
<TABLE>
<CAPTION>
PASS THROUGH PASS THROUGH
TRUST, 1996-A1 TRUST, 1996-A2
% EQUIPMENT % EQUIPMENT
AIRCRAFT-LEASE(1) TRUST CERTIFICATE TRUST CERTIFICATE TOTAL
- -------------------------------------- ----------------- ----------------- -----
<S> <C> <C> <C>
(Delta 1994-1)........................ $ $ $
</TABLE>
- --------
(1) The Aircraft is a McDonnell Douglas MD-11 aircraft equipped with three
Pratt & Whitney PW4460 engines.
The Equipment Trust Certificate held in each Pass Through Trust will accrue
interest on the unpaid principal amount thereof at the rate per annum set
forth on the cover of this Prospectus Supplement applicable to the related
Pass Through Certificates, which will be payable to the Pass Through Trustee
on each April 11 and October 11, commencing on April 11, 1996, until the final
distribution date for such Pass Through Trust. Interest on the Equipment Trust
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. (Indenture, Section 2.04)
Each Pass Through Trust will hold an Equipment Trust Certificate whose
principal is payable through mandatory sinking fund redemptions on April 11 or
October 11, or both, of each year, commencing on , in the case of the
Equipment Trust Certificate held in the Pass Through Trust relating to the
Series A1 Pass Through Certificates, and commencing on , in the case of
the Equipment Trust Certificate held in the Pass Through Trust relating to the
Series A2 Pass Through Certificates, in each case according to the schedule of
the principal amounts to be redeemed on each sinking fund redemption date set
forth below.
S-20
<PAGE>
Pass Through Trust, 1996-A1
% Equipment Trust Certificate
<TABLE>
<CAPTION>
REGULAR
DISTRIBUTION PRINCIPAL
DATES PAYMENT
------------ ---------
<S> <C>
Total............................................
=====
Pass Through Trust, 1996-A2
% Equipment Trust Certificate
<CAPTION>
REGULAR
DISTRIBUTION PRINCIPAL
DATES PAYMENT
------------ ---------
<S> <C>
Total............................................. $
=====
</TABLE>
For each Equipment Trust Certificate, the mandatory sinking fund redemptions
will retire the full principal amount of such Equipment Trust Certificate.
(Indenture, Section 6.06)
If any amount payable under any Equipment Trust Certificate or the Indenture
falls due on a day that is not a Business Day, then such amount shall be
payable on the next succeeding Business Day without additional interest.
(Indenture, Section 3.01)
S-21
<PAGE>
REDEMPTION OR PURCHASE OF EQUIPMENT TRUST CERTIFICATES
The Equipment Trust Certificates will be subject to mandatory sinking fund
redemptions as described above under "General."
Redemption or Purchase with Premium. Without the consent of any holder of
-----------------------------------
the Equipment Trust Certificates, the Equipment Trust Certificates (i) may,
upon a request from Delta to the Owner Trustee and subject to the rights of
the Owner Participant pursuant to Section 20 of the Participation Agreement,
be redeemed in whole, but not in part, at any time, (ii) shall be redeemed in
whole, but not in part, after the end of the Recapture Period, in connection
with a voluntary termination by Delta of the Lease because the Aircraft has
become obsolete or surplus with respect to Delta's requirements, (iii) shall
be redeemed in whole, but not in part, at the request of the Owner Trustee if
the Owner Participant has declared an Event of Loss pursuant to the last
paragraph of Section 6(b) of the Participation Agreement, upon its incurring
any value added tax on the Aircraft or the Rent not indemnified under such
Section 6(b) and which the Owner Participant judges to be burdensome to the
Owner Participant and (iv) shall be redeemed in whole, but not in part, at
Delta's request pursuant to Section 16(b) of the Participation Agreement upon
a merger or consolidation of the Owner Participant in which the resulting
corporation is an airline (of the type described therein) (Indenture, Article
VI; Lease, Section 9(a); Participation Agreement, Sections 6(b) and 16(b))
(See "The Lease -- Termination," "The Lease -- Events of Loss" and "The
Participation Agreement" below.) Such redemption shall be on prompt notice by
first-class mail, which notice may be revoked by the Owner Trustee at any time
on or before the proposed redemption date, except in the cases specified in
Section 6.03 of the Indenture. Such redemption shall be at a redemption price
for each Equipment Trust Certificate equal to the outstanding principal amount
of such Equipment Trust Certificate, together with accrued but unpaid interest
thereon to (but excluding) the redemption date, plus an additional amount, if
any, which, when added to such principal and interest would, if invested at
such time in U.S. Treasury securities with maturities comparable to the
Remaining Weighted Average Life (as defined below) of such Equipment Trust
Certificate, yield the holder thereof a pretax yield equivalent to the yield
the holder would have realized had he held such Equipment Trust Certificate to
its maturity date (the "Redemption Premium"). The Redemption Premium for any
Equipment Trust Certificate to be redeemed will be calculated by an
independent investment banking institution of national standing appointed by
Delta on behalf of the Owner Trustee or, if Delta fails to make such
appointment or if a Lease Event of Default (as defined below under "The
Lease -- Lease Events of Default") or certain defaults relating to payment
failures or bankruptcy under the Lease shall have occurred and be continuing,
appointed by the Indenture Trustee (an "Independent Investment Banker"). In
calculating the Redemption Premium with respect to any Equipment Trust
Certificate, the Independent Investment Banker will first determine the
Treasury Yield (as defined below) applicable to such Equipment Trust
Certificate. The Independent Investment Banker then will determine the present
values of (i) the remaining payments of interest on such Equipment Trust
Certificate (other than accrued interest payable in connection with the
relevant redemption or purchase) and (ii) the remaining mandatory sinking fund
redemption payments of principal on such Equipment Trust Certificate by
discounting each of such payments in accordance with generally accepted
accounting principles on a semiannual basis at a discount rate equal to the
Treasury Yield. If the sum of these present values exceeds the unpaid
principal amount of the Equipment Trust Certificate to be redeemed, the
difference will be the Redemption Premium payable upon redemption. If the sum
is equal to or less than such principal amount, there will be no Redemption
Premium payable upon redemption of such Equipment Trust Certificate.
For purposes of determining the Redemption Premium, "Treasury Yield" means
(x) in the case of an Equipment Trust Certificate having a maturity date
within one year after the applicable redemption date, the average yield to
maturity on a government bond equivalent basis of the applicable United States
Treasury Bill due the week of the maturity date of such Equipment Trust
Certificate and (y) in the case of an Equipment Trust Certificate having a
maturity date one year or more after the applicable redemption date, the
average yield of the most actively traded United States Treasury Note (as
reported by Cantor Fitzgerald Securities Corp. on page 5 of Telerate Systems,
Inc., a financial news service, or if such report is not available, a source
deemed comparable by the Independent Investment Banker selected to determine
the applicable Redemption Premium and reasonably acceptable to Delta)
corresponding in maturity to the Remaining Weighted Average Life of such
Equipment Trust Certificate (or if there is no corresponding maturity, an
interpolation of maturities determined by the Independent Investment Banker),
in each case under (x) and (y) above determined by the Independent Investment
S-22
<PAGE>
Banker selected to determine the applicable Redemption Premium based on the
average of the bid prices as of 10 a.m. and 2 p.m., New York time, on the
second Business Day preceding the redemption date. "Remaining Weighted Average
Life" means, for either Equipment Trust Certificate, as of any determination
date, the number of years obtained by dividing (a) the sum of the products
obtained by multiplying (i) the amount of each then remaining mandatory
sinking fund redemption payment of principal on such Equipment Trust
Certificate, including the payment due on the maturity date of such Equipment
Trust Certificate, by (ii) the number of years (calculated to the nearest one-
twelfth) which will elapse between such determination date, and the date on
which such mandatory sinking fund redemption payment is scheduled to be made,
by (b) the then outstanding principal amount of such Equipment Trust
Certificate. (Indenture, Articles I and VI)
The Equipment Trust Certificates will be subject to redemption or purchase
in whole, but not in part, at any time, at the direction of the Owner
Participant if a Lease Event of Default under the Lease has occurred and has
continued for not more than 180 days and no Indenture Event of Default (that
does not arise out of a Lease Event of Default) has occurred and is continuing
and the Equipment Trust Certificates have not become due and payable pursuant
to the remedies provisions of the Indenture. Such redemption or purchase shall
be at a price equal to the aggregate outstanding principal amount of the
Equipment Trust Certificates to be redeemed or purchased, together with
accrued but unpaid interest thereon to (but excluding) the date designated for
such redemption or purchase, plus the Redemption Premium, if any, calculated
for each Equipment Trust Certificate as set forth above. (Indenture, Articles
I and VI, Section 8.02)
See "Description of the Equipment Trust Certificates -- The Lease --
Purchase Options" and "-- The Participation Agreement" below for discussions
of redemptions with a premium in connection with Delta's exercise of an option
to purchase the Aircraft under certain circumstances.
Redemption or Purchase without Premium. The Equipment Trust Certificates
--------------------------------------
will be subject to redemption in whole, but not in part, at any time, if an
Event of Loss (other than an Event of Loss deemed to have occurred pursuant to
the last paragraph of Section 6(b) of the Participation Agreement, as
described above) occurs with respect to the Aircraft (unless a replacement
airframe (together, if applicable, with a replacement engine or engines) is
substituted therefor). (See "The Lease -- Events of Loss" below.) Such
redemption shall be at a redemption price equal to the aggregate unpaid
principal amount of the Equipment Trust Certificates to be redeemed, together
with interest accrued and unpaid, to (but excluding) the redemption date, but
without premium. Such redemption shall be made with moneys deposited by Delta
with the Indenture Trustee for the account of the Owner Trustee. (Indenture,
Articles I and VI)
At any time (i) after a Lease Event of Default has occurred and has
continued for a period of at least 180 days and no Indenture Event of Default
(that does not arise out of a Lease Event of Default) has occurred and is
continuing and (ii) the Equipment Trust Certificates have not become due and
payable pursuant to the remedies provisions of the Indenture, the Owner
Trustee, at the direction of the Owner Participant, may redeem or purchase all
but not less than all of the Equipment Trust Certificates. Any redemption or
purchase by the Owner Trustee as contemplated by this paragraph shall be
effected by depositing with the Indenture Trustee on the date designated for
such redemption or purchase an amount equal to the aggregate unpaid principal
amount of the Equipment Trust Certificates, together with accrued and unpaid
interest and any other sum then due and payable on the Equipment Trust
Certificates. The Indenture Trustee shall thereupon effect the redemption or
purchase of all the Equipment Trust Certificates at the principal amount
thereof plus accrued but unpaid interest thereon to (but excluding) the date
designated for such redemption or purchase and any other amounts then due and
payable on the Equipment Trust Certificates, but without premium. (Indenture,
Sections 6.02 and 8.02)
See "Remedies" below for a discussion of the redemption or purchase without
a premium of the Equipment Trust Certificates after the Equipment Trust
Certificates have been accelerated.
INVESTMENT OF FUNDS
Funds, if any, held from time to time by the Indenture Trustee with respect
to the Aircraft (i) as a result of the occurrence of a Lease Event of Default,
an Indenture Event of Default or an Indenture Default based on a payment
failure or bankruptcy of Delta, the Owner Trustee or the Trust Estate or the
Owner Participant, which may cause the Indenture Trustee to hold funds
otherwise distributable to the Owner Participant, (ii) as a result of an Event
of Loss with respect to the Aircraft, or (iii) as otherwise provided under the
Indenture, will be invested
S-23
<PAGE>
as permitted by the Lease in obligations of, or obligations fully guaranteed
by, the United States of America; certificates of deposit, bankers'
acceptances or time deposits made with or by certain banks, trust companies or
national banking associations; commercial paper issued by a U.S. corporation
whose commercial paper is rated the highest rating by a nationally recognized
rating organization; any of the foregoing investments as part of a repurchase
obligation with certain financial institutions; or overnight Federal funds.
Any interest or other profit resulting from such investments, net of the
Indenture Trustee's fees and expenses incurred in making such investment, will
be held and applied in the same manner as the principal amount of such
investment is to be applied and any losses, after taking into account such
earnings and such reasonable fees and expenses, will be charged against the
principal amount invested and Delta will be obligated to promptly pay such
losses. (Indenture, Section 5.08; Lease, Section 24)
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Delta will be prohibited from consolidating with or merging into any other
corporation under circumstances in which Delta is not the surviving
corporation, or from conveying, transferring or leasing substantially all of
its assets as an entirety to any other entity, unless (i) the successor or
transferee entity is a U.S. Citizen, an "air carrier" within the meaning of
and operating under the Aviation Act and a corporation organized and existing
under the laws of the United States of America or any State or the District of
Columbia and (ii) the successor or transferee entity expressly assumes all the
obligations of Delta contained in the Participation Agreement, the Lease, the
Purchase Agreement, the Purchase Agreement Assignment and certain other
agreements. (Participation Agreement, Section 12)
The Equipment Trust Certificates will not have the benefit of any covenants
in the Indenture that would afford the holders thereof protection in the event
of a highly leveraged or other transaction involving Delta that may adversely
affect such holders.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under the Indenture (each, an "Indenture Event of
Default") include: (a) any Lease Event of Default (other than a Lease Event of
Default arising by failure to make an Excepted Payment unless the Owner
Participant shall acquiesce in the treatment of such failure as an Indenture
Event of Default) that has occurred and is continuing (see "The Lease -- Lease
Events of Default" below); (b) failure of the Owner Trustee to pay (other than
by reason of certain specified occurrences) any interest, principal or
premium, if any, when due, continued for 10 Business Days, or any other amount
when due under the Indenture or the Equipment Trust Certificates, continued
unremedied for 10 days after receipt by the Owner Trustee of written demand
therefor; (c) failure by the Owner Trustee, Wilmington Trust Company or the
Owner Participant to perform the covenants contained in the Indenture or the
Participation Agreement with respect to the discharge of certain liens,
continued for 30 days after a Responsible Officer of Wilmington Trust Company,
the Owner Trustee or the Owner Participant, as the case may be, shall have
actual knowledge of such lien; (d) any representation or warranty made by the
Owner Participant, Wilmington Trust Company or the Owner Trustee in the
Indenture or in the Participation Agreement shall prove to have been false or
incorrect at the time made in any respect material to the holders of the
Equipment Trust Certificates and continues to be material to such holders at
the time of receipt of the notice referred to below, and, if capable of
remedy, is not remedied for 30 days after notice of such inaccuracy and a
request for the remedy thereof by the Indenture Trustee or by holders of at
least 25% in aggregate principal amount of Outstanding Equipment Trust
Certificates; (e) other than as provided in clause (c) above, any failure by
the Owner Trustee to observe or perform any of its covenants or obligations
contained in the Indenture or in the Participation Agreement, or any failure
by the Owner Participant to observe or perform any of its other covenants or
obligations contained in the Participation Agreement which, in any case, is
not remedied within 30 days (or if such covenant is capable of cure and such
person is diligently proceeding to effect such a cure, 60 days) after notice
thereof has been given to the Owner Trustee and the Owner Participant by the
Indenture Trustee or by the holders of at least 25% in aggregate principal
amount of Outstanding Equipment Trust Certificates; (f) (i) any failure of the
Owner Trustee to observe certain of its covenants in the Indenture or in the
Participation Agreement, (ii) any failure of the Owner Participant to observe
or perform certain of its respective covenants in the Participation Agreement
or (iii) at any time while the Aircraft is registered in the United States,
the Owner Trustee, Wilmington Trust Company or the Owner Participant shall do
or fail to do
S-24
<PAGE>
any act expressly required by the Operative Documents or shall meet or fail to
meet any condition expressly required by the Operative Documents (other than,
in any such case, such act or condition that is the responsibility of Delta
under the Indenture Documents), and as a result thereof the Lien of the
Indenture shall cease to be a valid first priority perfected Lien on the
Indenture Estate, or (g) the occurrence of certain specified events of
bankruptcy, insolvency or reorganization of the Trust Estate, the Owner
Trustee, the Owner Participant or its guarantor, if any. (Indenture, Section
7.01)
If Delta fails to make any Basic Rent payment under the Lease within 10
Business Days after such payment is due, the Owner Trustee or the Owner
Participant may furnish such Basic Rent payment, together with any interest
due on account of such late payment, to the Indenture Trustee at any time
during the 15 days after the expiration of 10 Business Days after notice from
the Indenture Trustee to the Owner Trustee of such failure (the "15-Day
Period"); provided that the Owner Trustee or the Owner Participant may not
furnish such Basic Rent payment if Delta shall have failed to make a Basic
Rent payment under the Lease when due either (i) on three consecutive Basic
Rent payment dates immediately preceding the default in question or (ii) on a
total of six or more previous Basic Rent payment dates. During any 15-Day
Period, the Indenture Trustee may not declare the Lease in default or exercise
any remedies otherwise available under the Indenture or the Lease based solely
on such failure to make a Basic Rent payment until such 15-Day Period has
expired without such payment. (Indenture, Section 8.03)
The Owner Trustee or the Owner Participant may, in the case of a Lease Event
of Default arising from any other failure by Delta in the performance of its
covenants, conditions or obligations under the Lease which can be cured by the
payment of money, within 15 days, or within five Business Days in the case of
certain recently cured defaults (the "Nonpayment Cure Period"), after notice
of the occurrence of such Lease Event of Default, or after the expiration of
the applicable grace period, cure such default by payment as appropriate and
such payment will be deemed to cure any Indenture Event of Default arising
from such failure; provided that during any Nonpayment Cure Period the
Indenture Trustee may not exercise any remedies otherwise available under the
Indenture or the Lease to the extent such exercise is based solely on the
Lease Event of Default being cured pursuant thereto.
Nothing contained in the Indenture shall preclude the Owner Participant, the
Owner Trustee or any other person from lending Delta the funds required for
any Basic Rent payment or any other payments due under the Lease or from
conducting any banking or financial transactions with Delta, including without
limitation the making of loans or other extensions of credit to Delta for any
purpose whatsoever, whether related to any of the transactions relating to the
Indenture or otherwise. (Indenture, Section 15.12; Lease, Section 16)
The Indenture provides that the Indenture Trustee must, within 90 days after
the occurrence of any event actually known to a Responsible Officer of the
Indenture Trustee that is an Indenture Default thereunder, give notice thereof
to the holders of the Equipment Trust Certificates, to the Owner Trustee and
the Owner Participant promptly (within one Business Day after a failure to pay
Basic Rent), unless such Indenture Default shall have been cured before the
giving of such notice, provided that the Indenture Trustee must not give such
notice to such holders until the earlier of the time at which such Indenture
Default becomes an Indenture Event of Default thereunder or the expiration of
a period of 60 days from the occurrence of such Indenture Default, and
provided further that the Indenture Trustee will not be liable to the holders
of Equipment Trust Certificates for withholding such notice, except in the
case of a default in the payment of the principal of or interest on or other
amount due under any Equipment Trust Certificate, if it in good faith
determines that the withholding of such notice is in the interest of the
holders of the Equipment Trust Certificates. (Indenture, Section 7.12)
The holders of not less than a majority in aggregate principal amount of
Outstanding Equipment Trust Certificates may on behalf of all holders thereof
waive any past Indenture Default and its consequences, except that consent
from each holder is required with respect to a waiver of such a Default or
Event of Default in the payment of the principal of, premium, if any, or
interest on any Equipment Trust Certificate then Outstanding under the
Indenture or in respect of any covenant or provision of the Indenture or any
other Operative Document that, pursuant to the provisions of the Indenture,
cannot be modified or amended without the consent of each holder affected
thereby. (Indenture, Section 7.11)
S-25
<PAGE>
Delta is required under the Participation Agreement to furnish annually to
the Owner Trustee and the Indenture Trustee a certificate to the effect that a
review has been made of Delta's transactions and condition during the
preceding calendar year and that such review has not disclosed nor does the
signer of the certificate know of any Lease Event of Default under the Lease,
or if any such Lease Event of Default existed or exists, stating its nature
and period of existence and what action Delta has taken, is taking or proposes
to take with respect to it. (Participation Agreement, Section 12)
REMEDIES
The Indenture provides that, subject to the Owner Trustee's right to cure
certain defaults and to purchase the Equipment Trust Certificates, if an
Indenture Event of Default has occurred and is continuing, the Indenture
Trustee may, after the expiration of 10 days from the time the Indenture
Trustee notifies the Owner Trustee and the Owner Participant that it intends
to exercise its remedies (including acceleration of the Equipment Trust
Certificates) under the Indenture or under the Lease, exercise certain rights
or remedies available to it pursuant to the Indenture and any and all of the
remedies afforded to the Owner Trustee by the Lease for Lease Events of
Default. (See "The Lease -- Lease Events of Default" below.) Such remedies may
be exercised by the Indenture Trustee to the exclusion of the Owner Trustee,
the Owner Participant and Delta. If the Aircraft is sold in the exercise of
such remedies, it will be free and clear of any rights of those parties (other
than, in certain cases, rights of redemption provided by law), including the
rights of Delta under the Lease. (Indenture, Sections 7.02, 7.03 and 8.02)
Notwithstanding the rights and powers of the Indenture Trustee described
above, the Indenture Trustee may not exercise any remedy under the Indenture
as a result of an Indenture Event of Default occurring solely by virtue of one
or more Lease Events of Default unless the Indenture Trustee, as assignee of
the Owner Trustee's rights under the Lease, has declared the Lease to be in
default in accordance with Section 15 thereof and is attempting to exercise
one or more of the remedies thereunder in the manner and to the extent set
forth in the Indenture; provided, however, that such requirement to exercise
one or more of such remedies under the Lease shall not apply in circumstances
where the Indenture Trustee is, and has been for a continuous period in excess
of 60 days or such other period as may be specified in Section 1110(a)(1) of
the Bankruptcy Code (such 60-day or other period being the "Section 1110
Period"), involuntarily stayed or prohibited by applicable law or court order
from exercising such remedies under the Lease (a "Continuous Stay Period");
provided, further, however, that the requirement to attempt in good faith to
exercise one or more of such remedies under the Lease shall nonetheless be
applicable during a Continuous Stay Period subsequent to the expiration of the
Section 1110 Period to the extent that the continuation of such Continuous
Stay Period subsequent to the expiration of the Section 1110 Period (A)
results from an agreement by Delta during the Section 1110 Period with the
approval of the relevant court to perform the Lease in accordance with Section
1110(a) of the Bankruptcy Code or (B) is an extension of the Section 1110
Period with the consent of the Indenture Trustee pursuant to Section 1110(b)
of the Bankruptcy Code or (C) results from Delta's assumption during the
Section 1110 Period with the approval of the relevant court of the Lease
pursuant to Section 365 of the Bankruptcy Code or (D) is the consequence of
the Indenture Trustee's own failure to give any requisite notice to any person
or (E) is pursuant to a judicial stay pending the resolution of litigation
with respect to the applicability of Section 1110 of the Bankruptcy Code and
there is either no Lease Event of Default other than one arising solely from
Delta's bankruptcy or any such other Lease Event of Default has been cured;
provided, further, however, that such requirement to exercise one or more of
such remedies under the Lease during a Continuous Stay Period subsequent to
the expiration of the Section 1110 Period based upon a judicial stay as
provided for in this clause (E) shall in any event cease to be applicable
subsequent to the 120th day of such Continuous Stay Period. During such period
the Indenture Trustee may take such action and commence such processes as it
may determine are necessary or advisable to foreclose on the Lien of the
Indenture but all such actions and processes shall, during such period, not be
completed to effect a foreclosure. If the Indenture Trustee shall acquire the
Aircraft pursuant to a foreclosure under the Indenture while such stay is
still in effect and consummate a resale of the Aircraft within six months of
such acquisition, the net proceeds from such resale in excess of the amounts
owed to the holders of the Equipment Trust Certificates will be paid to the
Owner Trustee. (Indenture, Section 7.02(a); Lease, Section 15)
If an Indenture Event of Default occurs as a result of certain specified
events of bankruptcy, insolvency or reorganization of the Trust Estate, the
Owner Trustee, the Owner Participant, or its guarantor (if any), then the
unpaid principal of all Outstanding Equipment Trust Certificates, together
with interest accrued but unpaid
S-26
<PAGE>
thereon and all other amounts due thereunder and under the Indenture,
immediately and without further act shall become due and payable. If any other
Indenture Event of Default occurs and is continuing, the Indenture Trustee,
acting on its own, or at the direction of holders of not less than 25% in
aggregate principal amount of Outstanding Equipment Trust Certificates, may
declare the principal of all the Equipment Trust Certificates immediately due
and payable, together with all accrued but unpaid interest thereon and all
other amounts due thereunder and under the Indenture, by written notice or
notices to the Owner Trustee and Delta. The holders of a majority in aggregate
principal amount of all the Outstanding Equipment Trust Certificates may annul
any such declaration by the Indenture Trustee at any time prior to the sale or
disposition of the Indenture Estate, if (i) there has been paid to or
deposited with the Indenture Trustee an amount sufficient to pay all overdue
installments of interest on the Equipment Trust Certificates, the principal on
the Equipment Trust Certificates that has become due otherwise than by such
declaration of acceleration, and all other amounts then payable under the
Indenture or Equipment Trust Certificates and (ii) all Indenture Events of
Default (other than the nonpayment of principal that has become due solely
because of such acceleration) have been cured or waived. (Indenture, Sections
7.02(b) and (c))
In the event of the bankruptcy of the Owner Participant, it is possible
that, notwithstanding the fact that the Aircraft is owned by the Owner Trustee
in trust, the Aircraft, the Lease and Equipment Trust Certificates might
become part of the bankruptcy proceeding. In such event, payments under the
Lease or Equipment Trust Certificates might be interrupted and the ability of
the Indenture Trustee to exercise its remedies under the Indenture might be
restricted, although the Indenture Trustee would retain its status as a
secured creditor in respect of the Lease and Aircraft.
At any time while the Equipment Trust Certificates have become due and
payable pursuant to the remedies provisions in the Indenture, the Owner
Participant may direct the Owner Trustee to pay to the Indenture Trustee for
distribution to the holders of the Equipment Trust Certificates an amount
equal to the aggregate unpaid principal amount of all Outstanding Equipment
Trust Certificates plus all accrued and unpaid interest thereon to the date of
payment and all other amounts due under the Indenture, but without premium,
including the expenses of the Indenture Trustee. In the event of a redemption,
the Equipment Trust Certificates will cease to accrue interest after the later
of (i) such payment by the Owner Trustee to the Indenture Trustee and (ii) the
redemption date. After distribution of such payment to the holders of the
Equipment Trust Certificates, the Indenture Trustee shall release the
Indenture Estate from the Lien of the Indenture. (Indenture, Sections 8.02(b)
and 14.01)
The right of any holder of an Equipment Trust Certificate to institute an
action for any remedy under the Indenture (including the right to enforce
payment of the principal of, premium, if any, and interest on such Equipment
Trust Certificate when due) is subject to certain conditions precedent,
including a request to the Indenture Trustee by the holders of not less than
25% in aggregate principal amount of Outstanding Equipment Trust Certificates
to take action, and an offer to the Indenture Trustee of reasonable
indemnification against liabilities incurred by it in doing so. (Indenture,
Sections 7.08 and 7.09)
The holders of not less than a majority in aggregate principal amount of
Outstanding Equipment Trust Certificates may direct the time, method and place
of conducting any proceeding for any remedy available to the Indenture Trustee
or of exercising any trust or power conferred on the Indenture Trustee but, in
such event, the Indenture Trustee is entitled to be indemnified by the holders
of the Equipment Trust Certificates before proceeding so to act and the
Indenture Trustee may not be held liable for any such action taken in good
faith. (Indenture, Section 7.10 and Article XI)
If an Indenture Event of Default occurs and is continuing, any sums held or
received by the Indenture Trustee under the Indenture will be applied to
reimburse the Indenture Trustee for any tax, expense or other loss incurred by
it and to pay any other amounts due the Indenture Trustee prior to any
payments to the holders of the Equipment Trust Certificates. (Indenture,
Section 5.03)
Section 1110 of the Bankruptcy Code. Section 1110 of the Bankruptcy Code
-----------------------------------
provides that the right of lessors, conditional vendors and holders of
purchase money equipment security interests with respect to aircraft used by
air carriers operating under certificates issued under Section 41101 or 41103
of the Aviation Act to take possession of such aircraft in compliance with the
provisions of the lease, conditional sale contract or purchase
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money equipment security agreement, as the case may be, is not affected by (a)
the automatic stay provision of the Bankruptcy Code, which provision enjoins
the taking of virtually all actions against a debtor and property of its
bankruptcy estate by a creditor, (b) the provision of the Bankruptcy Code
allowing the trustee or debtor in possession to use, sell or lease property of
the debtor and (c) any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor, conditional vendor
or holder of a purchase money equipment security interest to take possession
of an aircraft in the event of a default may not be exercised for 60 days
following the date of commencement of the reorganization case (unless
specifically permitted by the bankruptcy court) and may not be exercised at
all if, within such 60-day period, the trustee or debtor in possession agrees
to perform the debtor's obligations that become due on or after such date and
cures all existing defaults (other than a default that is a breach of a
provision relating to the financial condition, insolvency or bankruptcy of the
debtor). Delta has been advised by its counsel that the Owner Trustee, as
Lessor under the Lease, and the Indenture Trustee, as assignee of the Owner
Trustee's rights under the Lease pursuant to the Indenture, should be entitled
to the benefits of Section 1110 of the Bankruptcy Code with respect to the
Aircraft.
Marketability of Aircraft. The market for aircraft, whether new or used, is
-------------------------
and will be affected by many factors including, among other things, the supply
of similarly equipped aircraft of the same make and model, the demand for such
aircraft by airlines and the cost and availability of financing to potential
purchasers of such aircraft. Each of these factors, in turn, will be affected
by various circumstances including, among other things, current and
anticipated demand for passenger and cargo air services, the relative capacity
of airlines to provide such services, the current and projected profitability
of providing such services, the economic condition of the domestic and
international airline industries and global economic and financial
developments generally. In addition, the marketability of a particular
aircraft will be affected by factors such as the reputation and actual
performance record of the airline with respect to maintenance, the compliance
of the aircraft with federal noise and other environmental standards and the
manufacturer's support. Since the market for aircraft will fluctuate over time
to reflect changes in these circumstances, and because of the unique factors
that would affect market value in a forced disposition of an aircraft, it is
impossible to predict the resale value for the Aircraft to be sold upon the
exercise of the Indenture Trustee's remedies under the Indenture. Accordingly,
there can be no assurance that the net proceeds realized from the sale or
other disposition of the Aircraft in the exercise of such remedies will be
sufficient to satisfy in full amounts due and payable on the Equipment Trust
Certificates.
MODIFICATION OF AGREEMENTS
Without the consent of the holders of 50% in aggregate principal amount of
Outstanding Equipment Trust Certificates, the provisions of the Indenture, the
Lease, the Participation Agreement and the Trust Agreement may not be amended
or modified, except to the extent indicated below. Certain provisions of the
Lease, the Participation Agreement and the Trust Agreement may be amended or
modified without the consent of the holders of the Outstanding Equipment Trust
Certificates; provided that, without the consent of the holder of each
Outstanding Equipment Trust Certificate directly or indirectly affected
thereby, no such amendment or modification with respect to the Lease may
reduce the amount of or change the timing of payment of, any payment of Basic
Rent, any other rental payments, Stipulated Loss Value or Termination Value,
or certain other amounts, as the case may be, below the amount required to pay
as and when due (i) all principal, premium, if any, and interest payable on
the Equipment Trust Certificates and (ii) any other amounts required to be
paid pursuant thereto or under the Indenture. (Indenture, Sections 13.01,
13.02 and 13.07)
Certain provisions of the Indenture may be amended or modified without the
consent of the holders of the Outstanding Equipment Trust Certificates if such
amendments or modifications are not adverse to the interests of such holders.
Without the consent of each holder of an Equipment Trust Certificate, no
amendment or modification of the Indenture may (a) reduce the principal amount
of, or premium, if any, or interest due on or rate of interest payable on any
Equipment Trust Certificate or change the date on which any such principal,
premium, if any, or interest payment is due and payable, (b) create or permit
the creation of any Lien with respect to the Indenture Estate ranking prior to
or on a parity with the Lien created by the Indenture or deprive the holder of
any Equipment Trust Certificate of the Lien of the Indenture on the Indenture
Estate, or (c) reduce the percentage of the aggregate principal amount of
Equipment Trust Certificates necessary to modify or amend any provision of the
Indenture or to waive compliance therewith. (Indenture, Article XIII)
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THE INDENTURE TRUSTEE
The Indenture provides that in the case of any Indenture Event of Default
thereunder, the Indenture Trustee shall exercise such of the rights and powers
vested in it by the Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. Generally, the
Indenture Trustee will not be liable for any error of judgment made in good
faith, unless the Indenture Trustee was negligent in ascertaining the
pertinent facts, or for any action taken or not taken by it in good faith in
accordance with the direction of the holders of not less than a majority in
aggregate principal amount of the Outstanding Equipment Trust Certificates.
Subject to such provisions, the Indenture Trustee is under no obligation to
exercise any of the trusts or powers vested in it under the Indenture at the
request of any holders of Equipment Trust Certificates unless they shall have
offered to the Indenture Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred. The Indenture
provides that the Indenture Trustee and the Owner Trustee may become the owner
or pledgee of Equipment Trust Certificates and, subject to certain conditions,
the Indenture Trustee may otherwise deal with the Owner Trustee with the same
rights it would have if it were not the Indenture Trustee. (Indenture,
Sections 9.02, 9.03 and 9.05)
THE LEASE
Term and Rentals. The Aircraft has been leased by the Owner Trustee to Delta
----------------
for a term that commenced on the date of the delivery of the Aircraft to the
Owner Trustee and expires on a date not earlier than the latest maturity date
of the Equipment Trust Certificates, unless previously terminated or extended,
as permitted by the Lease. The Basic Rent payments by Delta under the Lease
are payable on each April 11 and October 11 (or, in each case, if such day is
not a Business Day, on the next succeeding Business Day), and have been
assigned under the Indenture by the Owner Trustee to the Indenture Trustee to
provide the funds necessary to make payments of principal and interest due
from the Owner Trustee on the Equipment Trust Certificates. (Lease, Section 3;
Indenture, Granting Clause and Section 3.01)
Rent payments that Delta is obligated to make under the Lease will not be
less than the payments of principal, premium, if any, and interest then due
and owing on the Equipment Trust Certificates. Under no circumstances will the
Basic Rent payments which Delta is obligated to make under the Lease on the
related payment dates be less than the aggregate amount of principal and
interest payable on such dates on the Equipment Trust Certificates. Delta's
obligations to make rental payments and to cause other payments to be made
under the Lease are general obligations of Delta. (Lease, Section 3)
Net Lease. Delta's obligations in respect of the Aircraft are those of a
---------
lessee under a "net lease." Accordingly, Delta is obligated to pay all costs
of operating the Aircraft and, at its expense, to modify, inspect, test,
operate, maintain, service and repair the Aircraft so as to keep the Aircraft
in good operating condition and, except if the Aircraft is being maintained,
serviced, repaired, tested or modified as permitted or required by the Lease,
in such condition as may be necessary to enable the airworthiness
certification thereof to be maintained in good standing at all times under the
Aviation Act, or, under certain circumstances, under the applicable
requirements of the aeronautical authority of another country of registry (see
"Description of the Equipment Trust Certificates--Registration of the
Aircraft" in the Prospectus). (Lease, Section 7(a))
Except as set forth below, Delta is obligated to replace or cause to be
replaced all parts that may from time to time be incorporated or installed in
or attached to the Aircraft or any Engine and that may become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use. Any such replacement part becomes subject to the Lease
and the Lien of the Indenture in lieu of the part replaced. (Lease, Sections
8(a) and 10(b); Indenture, Granting Clause) Delta must make all alterations,
modifications and additions to the Aircraft necessary to meet the applicable
requirements of the FAA and any other governmental authority with jurisdiction
(domestic or foreign) over the Aircraft. Delta or any permitted sublessee or
transferee with respect to the Aircraft (a "Permitted Sublessee") may in good
faith contest the validity or application of any such requirements in any
reasonable manner which does not adversely affect the Owner Trustee, the Owner
Trustee's title to or interest in the Aircraft, the Lien of the Indenture or
the interest of the Indenture Trustee or incur a risk of the assertion of
criminal charges against the Owner Participant or the Owner Trustee. Delta or,
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<PAGE>
with Delta's approval, any Permitted Sublessee may make other alterations,
modifications and additions to the Aircraft so long as such alterations,
modifications or additions do not materially decrease the value, utility,
performance or remaining useful life of the Aircraft or cause the Aircraft to
become "limited use property." Title to parts incorporated in the Aircraft as
a result of such other alterations, modifications or additions will, subject
to certain conditions, remain in Delta or any Permitted Sublessee unless and
until returned with the Aircraft to the Owner Trustee. Also, in certain
circumstances, Delta or any Permitted Sublessee is permitted to remove parts
(without replacement) from the Aircraft (and therefore from the Lien of the
Indenture) if Delta or such Permitted Sublessee deems them to be obsolete or
no longer appropriate or suitable for use in the Aircraft so long as such
removals do not materially decrease the value, utility or remaining useful
life of the Aircraft or cause the Aircraft to become "limited use property".
(Leases, Section 8(c))
Subleasing and Possession. On terms and conditions specified in the Lease,
-------------------------
Delta is permitted to sublease the Aircraft or an Engine to the United States
government or any instrumentality or agency thereof, to any United States
certificated air carriers or to certain foreign air carriers (such
certificated air carriers and foreign air carriers being collectively called
"Permitted Air Carriers"). The term of any such sublease may not, in any
event, extend beyond the term of the Lease, and in the case of foreign air
carriers, may not commence until at least September 30, 2001. A Permitted Air
Carrier may not further sublease the Aircraft. Moreover, any sublease
notwithstanding, Delta remains primarily liable for rental payments and for
the performance of the other obligations of the Lessee set forth in the Lease
and the Participation Agreement as if no sublease had occurred. Furthermore,
any sublease to a Permitted Air Carrier entered into for a term longer than 18
months must be assigned to the Indenture Trustee as security for the benefit
of the holders of the Equipment Trust Certificates, provided that generally
the rental payments under any such sublease will not be required to be made to
or vest in the Indenture Trustee (as assignee of the Owner Trustee) unless or
until a Lease Event of Default has occurred and is continuing. (Lease,
Sections 7(b) and 7(g))
In addition, subject to certain limitations, Delta is permitted to transfer
possession of the Aircraft or Engine other than by sublease, including
transfers of possession by Delta or any Permitted Sublessee in connection with
normal interchange and pooling arrangements with certain air carriers and
certain vendors, transfers of possession in connection with maintenance or
modifications and transfers of possession in connection with the Civil Reserve
Air Fleet Program (the "CRAF Program"). If the Aircraft is subleased or the
possession thereof is otherwise transferred, the Aircraft will nonetheless
remain subject to the Lease and to the Lien of the Indenture. The Aircraft
currently is subject to the CRAF Program. (Lease, Section 7(b))
Generally, Delta may install an Engine on another aircraft. Such Engine,
however, will remain subject to the Lease and to the Lien of the Indenture.
(Lease, Section 7(b))
Liens. The Aircraft is required to be maintained free of any Liens, other
-----
than the respective rights of the Owner Participant, the Owner Trustee, the
Indenture Trustee, the holders of the Equipment Trust Certificates and Delta
arising under the Lease, the Indenture, the Participation Agreement and the
Trust Agreement, and other than certain limited Liens permitted under the
Lease and the Indenture, including: Liens for taxes either not yet due or
being contested in good faith by appropriate proceedings, so long as such
Liens and proceedings do not involve any material risk of the sale, forfeiture
or loss (or loss of use) of the Aircraft or any Engine or any risk of the
assertion of criminal charges against the Owner Trustee, the Owner Participant
or the Indenture Trustee; materialmen's, mechanics', employees' and other
similar liens arising in the ordinary course of business and either not yet
delinquent or being contested in good faith by appropriate proceedings, so
long as there is not, and such Liens and proceedings do not involve, any
material risk of the sale, forfeiture or loss (or loss of use) of the
Aircraft; and judgment Liens that are discharged or being appealed in good
faith and such appeal is initiated within 60 days after the entry of the
judgment, in any case so long as there is not, and such Liens do not involve,
a material risk of the sale, forfeiture or loss (or loss of use) of the
Aircraft. (Lease, Section 6)
Operation. Delta may not fly or locate the Airframe or any Engine in any
---------
area excluded from coverage by any insurance policy in effect with respect to
such equipment required by the Lease unless Delta has obtained indemnification
from the United States government, or other insurance in lieu of
indemnification, against the risks and in the amounts required by the Lease
covering such area (except in the case of a requisition for use by the United
States government, to the extent that Delta certifies that such insurance is
unobtainable or is obtainable
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<PAGE>
only at unreasonably high rates or on unduly burdensome terms and conditions)
or unless the equipment is only temporarily located in such area as a result
of an emergency or other similar unforeseen circumstance and Delta is using
good faith efforts to remove the equipment from such area. (Lease, Sections
7(a) and 11)
Termination. So long as no Lease Event of Default shall have occurred and be
-----------
continuing, Delta may on the eleventh day of any month that occurs after the
end of the Recapture Period terminate the Lease if a specified executive
officer of Delta certifies that the Aircraft has become obsolete or surplus
with respect to Delta's requirements. Delta is required to give notice to the
Owner Trustee, the Owner Participant and the Indenture Trustee of its
intention to exercise its right of termination prior to the proposed date of
termination as specified in the Lease. Delta, as non-exclusive broker for the
Owner Trustee, is then required to use reasonable efforts to obtain bids for
the cash purchase of the Aircraft on the termination date. The Owner
Participant may submit a bid for the Aircraft. Delta itself, however, is not
permitted to bid or to accept a bid from any person acting for or affiliated
with Delta. On the termination date specified in Delta's notice of
termination, the Owner Trustee is required to sell the Aircraft for cash to
the party submitting the highest bid, subject, however, to Delta's right to
reject any bid that is less than the applicable Termination Value (which is an
amount no less than the aggregate unpaid principal amount of the Outstanding
Equipment Trust Certificates plus accrued and unpaid interest thereon) plus
certain expenses if such purchaser's intended use of the Aircraft does not
afford the Owner Participant its intended tax benefit. The proceeds of such
sale, net of all expenses of the sale and certain amounts, if any, payable to
other persons as set forth in the Lease, will be paid to the Owner Trustee. If
the net proceeds received from such sale are less than the outstanding
principal of, accrued interest and premium, if any, on the Equipment Trust
Certificates, Delta is required to pay to the Indenture Trustee an amount
equal to that difference, together with certain other amounts, which under any
circumstance will be sufficient to satisfy all amounts due to the holders of
the Equipment Trust Certificates. At such time the Equipment Trust
Certificates will be redeemed in full. (See "Redemption or Purchase of
Equipment Trust Certificates" above.) The Lien of the Indenture will terminate
after the Equipment Trust Certificates have been paid in full and, if all
amounts due to the Owner Participant in respect of the Aircraft have also been
paid, the Lease shall terminate and the obligation of Delta thereafter to make
rental payments with respect thereto shall cease. If the Aircraft is not sold
on the proposed termination date, the Lease, including all of Delta's
obligations thereunder, will continue in effect and the Equipment Trust
Certificates will remain outstanding. If, after receiving a termination notice
from Delta, the Owner Participant pays to the Indenture Trustee funds in an
amount equal to the principal of, premium, if any, interest and all other
amounts outstanding on the Equipment Trust Certificates together with any
other amounts due and payable to the Indenture Trustee or the holders of such
Equipment Trust Certificates under the Lease, the Indenture or the
Participation Agreement, the Owner Participant may retain the Aircraft.
(Lease, Section 9(a); Indenture, Sections 6.02 and 14.01)
Engine Substitutions. So long as no Lease Event of Default has occurred and
--------------------
is continuing, at any time upon at least 30 days prior notice, Delta is
permitted to substitute for any Engine not then installed or held for use on
the Aircraft another engine of the same make and model (or, under certain
circumstances, engines of another manufacturer) in at least as good condition
or repair as required by the Lease, and of at least the same value and utility
as such Engine, provided that after any replacement, all Engines on the
Aircraft are of identical make and model. In such case, the substituted engine
shall be subject to the Lease and the Lien of the Indenture in lieu of the
replaced Engine. (Lease, Sections 9(b) and 10(b))
Purchase Options. Delta may, by irrevocable written notice delivered to the
----------------
Owner Trustee not more than 180 days or less than 90 days prior to ,
elect to purchase the Aircraft on such specified date. In connection with any
such purchase, Delta is required either (x) to pay any principal of, premium,
if any, and interest on the Equipment Trust Certificates or (y) to cause the
indebtedness represented by the Equipment Trust Certificates to be a direct
and full recourse obligation of Delta secured by a first priority security
interest in the Aircraft and certain related collateral. If Delta elects to
purchase the Aircraft and to pay the amount equal to the principal of,
premium, if any, and interest on the Equipment Trust Certificates, then upon
payment to the Owner Trustee of the full purchase price for the Aircraft
determined in accordance with the Lease and all other amounts owing to the
parties to the Participation Agreement, the Lease and the Lien of the
Indenture will terminate. If Delta elects to purchase the Aircraft and to
cause the Equipment Trust Certificates to become direct and full recourse
obligations of Delta as described in clause (y) of the second sentence of this
paragraph, then the
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Operative Documents will be amended to provide for such assumption by Delta
and the release of the Owner Trustee and the Owner Participant from any
obligations under the Equipment Trust Certificates, the Indenture and any
other Operative Documents, and upon payment to the Owner Trustee of the full
purchase price for the Aircraft determined in accordance with the Lease and
all other amounts owing to the parties to the Participation Agreement, the
Owner Trustee will transfer all of its right, title and interest in and to the
Aircraft to Delta. For a discussion of the tax consequences of Delta's
assumption of the Owner Trustee's obligations under the Equipment Trust
Certificates, see "Federal Income Tax Consequences" in the Prospectus. (Lease,
Section 5(b); Participation Agreement, Section 16(b))
Prior to the termination of the Lease, after the final maturity of the
Equipment Trust Certificates, Delta has certain options to renew the Lease or
purchase the Aircraft. (Lease, Section 5)
Events of Loss. If an Event of Loss (as defined below) occurs with respect
--------------
to the Aircraft (unless Delta has elected to replace the Aircraft in
accordance with the provisions described in the following paragraph), Delta is
obligated to pay to the Indenture Trustee the Stipulated Loss Value, plus any
other amounts, whether rent, interest, premium or otherwise, owing by Delta to
the Owner Trustee, the Owner Participant, the holders of the Equipment Trust
Certificates or the Indenture Trustee under the Lease or the Participation
Agreement upon the earlier of 120 days following the occurrence of the Event
of Loss and 15 days following the date of receipt of insurance proceeds with
respect to such Event of Loss. The Indenture Trustee will apply such amounts
held by it to redeem the Outstanding Equipment Trust Certificates, whereupon
the Lien of the Indenture and the Lease will terminate with respect to the
Aircraft, title thereto will be transferred to Delta and the obligation of
Delta thereafter to make rental payments with respect thereto will cease.
(Lease, Section 10(a); Indenture, Section 5.02)
Provided that no Event of Default or certain defaults relating to payment
failures or bankruptcy events, shall have occurred and be continuing and Delta
has reimbursed the reasonable expenses of all parties entitled thereto, Delta
may elect to replace the Aircraft after an Event of Loss with respect thereto
(other than an Event of Loss declared pursuant to Section 6(b) of the
Participation Agreement). If Delta elects to replace the Aircraft, it must do
so within 120 days from the date of the Event of Loss with a McDonnell Douglas
MD-11 airframe delivered initially by the manufacturer no earlier than 1993,
in passenger configuration, having at least the same value, utility and
remaining useful life as the airframe being replaced, duly certified as an
airworthy aircraft by the FAA, and in at least as good operating condition as
required by the Lease, together with engines meeting the requirements for
replacement Engines described below. If Delta elects to replace the Aircraft
but fails to effect such replacement within 120 days from the date of the
Event of Loss, Delta is required to provide security to the Indenture Trustee
in an amount equal to any deficiency between the Stipulated Loss Value
applicable upon the occurrence of such Event of Loss and any amount held by
the Indenture Trustee with respect to such Event of Loss, provided that if
Delta fails to effect such replacement within 180 days following the
occurrence of such Event of Loss, Delta will be deemed to have elected not to
replace the Aircraft and must immediately pay to the Indenture Trustee the
balance of the amount described in the first sentence of the preceding
paragraph. (Lease, Section 10(a))
If an Event of Loss occurs with respect to an Engine alone, Delta is
required to replace such Engine within 60 days from the date of the Event of
Loss with another engine of the same make and model (or, under certain
circumstances, engines of another manufacturer) and having at least the same
value and utility as the Engine being replaced had immediately prior to the
occurrence of such Event of Loss, and in at least as good operating condition
and repair as required by the Lease, provided that after any replacement all
Engines are of identical make and model. (Lease, Section 10(b))
An "Event of Loss" with respect to the Aircraft or an Engine for the
Aircraft includes any of the following events: (a) loss of such property or
the use thereof due to theft or disappearance of such property for a period of
120 days, or, such longer period not to exceed one year from the time such
loss initially occurred (or 180 days if Delta's senior unsecured long-term
debt is not rated "investment grade"), but only so long as Delta is diligently
pursuing the recovery of such property and the location of such property is
known or, in any event, if such loss is continuing on the last day of the
applicable term; (b) loss of such property due to destruction, damage beyond
repair or rendition of such property permanently unfit for normal use by Delta
for any reason whatsoever; (c) any damage to such property or other event
which results in an insurance settlement with respect to such property on the
basis of a total loss or constructive or compromised total loss; (d) any
seizure, condemnation, confiscation or taking of,
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<PAGE>
or requisition of title to or use of, such property by any governmental
authority or purported governmental authority, but, in any case involving loss
of use thereof but not of title thereto, only if such loss of use continues
for a period of twelve months or until the last day of the Lease term,
whichever first occurs, provided that if such loss of use results from action
by the United States or any agency thereof, the obligations of which have the
full faith and credit of the United States, only if such loss of use continues
beyond the Lease term; (e) as a result of any law, rule, regulation, order, or
other action by the FAA, the United States Department of Transportation or any
other governmental body (including any court) having jurisdiction, the use of
such property in the normal course of business shall have been prohibited for
a period of six consecutive months unless Delta, prior to the expiration of
such six-month period, shall have undertaken and shall be diligently carrying
forward all steps which are necessary or desirable to permit the normal use of
such property but, in any event, if such prohibition is continuing on of the
last day of the term; or (f) Delta ceases to be a "certificated air carrier"
within the meaning of Section 1110 of the Bankruptcy Code and, as a result
thereof, the benefits of Section 1110 of the Bankruptcy Code have, in the
reasonable opinion of counsel chosen by the Owner Participant or the Indenture
Trustee, ceased to be available to the Owner Trustee and the Indenture
Trustee. An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe. (Lease,
Section 1) In addition to the foregoing, if the Owner Participant incurs (or
would incur pursuant to legislation scheduled to go into effect) any value
added tax on the Aircraft or the Rent for which it is not indemnified by
Delta, which tax the Owner Participant judges to be burdensome, then the Owner
Participant may declare an Event of Loss to have occurred. If an Event of Loss
is so declared, then, unless Delta shall have assumed liability for such tax,
Delta shall have the obligations described in the first paragraph under the
caption "Event of Loss" in the Prospectus. (Participation Agreement, Section
-------------
6(b))
Lease Events of Default. Events of default under the Lease (each, a "Lease
-----------------------
Event of Default") include, among other things: (a) failure by Delta to pay
any Basic Rent, Stipulated Loss Value or Termination Value within 10 Business
Days after the same shall have become due; (b) failure by Delta to pay any
other amount under the Lease or the Participation Agreement or any other
Operative Document within 10 Business Days after Delta has received written
demand therefor from the person entitled to receive such payment, provided,
that a failure to make an Excepted Payment shall not constitute a Lease Event
of Default until the Owner Participant shall so declare it by notice in
writing to Delta; (c) any representation, warranty, certification or statement
made by Delta under the Lease or under the Participation Agreement or any
other Operative Document or made pursuant thereto shall prove to have been
inaccurate in any material respect when made, remains material to the Owner
Trustee at the time discovered and remains uncured for a period of 30 days
after receipt by Delta of a notice from the Owner Trustee of such inaccuracy;
(d) failure by Delta to carry and maintain insurance on or in respect of the
Aircraft in accordance with the provisions of the Lease (which include
insurance provisions for periods when the Aircraft is not operated); (e)
failure by Delta to perform or observe in any material respect any other
covenant, condition or agreement to be performed or observed by it under the
Lease or under the Participation Agreement or any other Operative Document and
such failure shall continue unremedied for a period of 30 days after Delta
shall have received notice of such failure, provided that generally no such
--------
failure shall constitute a Lease Event of Default so long as such failure is
curable, such failure does not result in a material risk of loss, sale or
forfeiture of the Aircraft or incur the risk of criminal charges and such
failure does not continue unremedied for an additional period of 180 days or
the end of the Lease term, whichever is the first to occur; (f) the occurrence
of certain events of bankruptcy, reorganization or insolvency of Delta or
similar events; or (g) except under certain circumstances, if the Aircraft has
been registered in any jurisdiction other than the United States and the Lien
of the Indenture ceases in such jurisdiction to be a valid first priority
perfected lien on the Indenture Estate. (Lease, Section 14)
If a Lease Event of Default has occurred and is continuing, the Indenture
Trustee, as assignee of the Owner Trustee's rights under the Lease, may,
subject to certain rights of the Owner Trustee and the Owner Participant under
the Indenture, exercise one or more of the remedies provided in the Lease,
provided that such exercise may not limit the control of the Aircraft by Delta
under the Lease unless at least 30 days' (or such longer period required
pursuant to Delta's then existing CRAF Program contracts) written notice has
been given to Delta and the appropriate CRAF Program official as specified in
the Lease. Those remedies include the right to repossess the Aircraft, to sell
the Aircraft free and clear of Delta's rights and to require Delta to pay as
liquidated damages any unpaid rent plus
S-33
<PAGE>
an amount equal to the excess of the Stipulated Loss Value of the Aircraft
specified in the Lease (an amount which will be sufficient to pay in full the
principal of and accrued interest on the Equipment Trust Certificates) over
either (i) the fair market value of the Aircraft or (ii) if the Aircraft has
been sold, the net sale proceeds. (Lease, Section 15; Indenture, Section 7.02)
THE PARTICIPATION AGREEMENT
Except as set forth below, the Owner Participant may convey all, but not
less than all, of its right, title and interest in the Trust Agreement, the
Trust Estate and the Participation Agreement, subject to certain restrictions,
including that such conveyance does not violate any provision of the Aviation
Act or other law or regulation and that the transferee (i) is a U.S. Citizen
and has the power and authority to carry out the contemplated transactions,
or, if not a U.S. Citizen, makes certain arrangements such that the Aircraft
may be registered in the United States without restrictions on its location,
use or operation, (ii) confirms that it will be deemed a party to, and agrees
to be bound by the terms applicable to the Owner Participant in, the
Participation Agreement and the Trust Agreement, and (iii) is a corporation
having a net worth of at least $75,000,000 (a "Permitted Institution"), or is
a corporation which is an affiliate of such original Owner Participant, the
obligations of which are guaranteed by such original Owner Participant, or is
a subsidiary of a Permitted Institution, the obligations of which are
guaranteed by such Permitted Institution. In addition to the conditions
specified in the preceding sentence, the transferee shall not be an airline or
other commercial air carrier (or an affiliate of either thereof) that is in
direct competition with Delta. (Participation Agreement, Section 16(a), Trust
Agreement, Sections 9.01 and 9.02)
If there is a merger or consolidation of the Owner Participant and the
resulting corporation is an airline or other commercial air carrier (or an
affiliate of either thereof) that is in direct competition with Delta and
Delta does not approve of the resulting corporation as the transferee of the
Owner Participant, Delta may require the Owner Participant or the resulting
corporation, as the case may be, to transfer its right, title and interest in
the Trust Agreement, the Trust Estate and the Participation Agreement relating
to the Aircraft in accordance with the transfer provisions of the Operative
Documents. If the Owner Participant or the resulting corporation, as the case
may be, does not comply with the transfer requirement within 180 days
following notice by Delta, Delta may elect to purchase the Aircraft
(Participation Agreement, Section 16(b); Trust Agreement, Section 9.01)
In connection with any such purchase, Delta is required either (x) to pay
any principal of, premium, if any, and interest on the Equipment Trust
Certificates or (y) to cause the indebtedness represented by the Equipment
Trust Certificates to be a direct and full recourse obligation of Delta
secured by a first priority security interest in the Aircraft and certain
related collateral. If Delta elects to purchase the Aircraft and to pay the
amount equal to the principal of, premium, if any, and interest on the
Equipment Trust Certificates, then upon payment to the Owner Trustee of the
full purchase price for the Aircraft determined in accordance with the Lease
and all other amounts owing to the parties to the Participation Agreement, the
Lease and the Lien of the Indenture will terminate. If Delta elects to
purchase the Aircraft and to cause the Equipment Trust Certificates to become
direct and full recourse obligations of Delta as described in clause (y) of
the first sentence of this paragraph, then the Operative Documents will be
amended to provide for such assumption by Delta and the release of the Owner
Trustee and the Owner Participant from any obligations under such Equipment
Trust Certificates, the Indenture and any other Operative Documents, and upon
payment to the Owner Trustee of the full purchase price for the Aircraft
determined in accordance with the Lease and all other amounts owing to the
parties to the Participation Agreement, the Owner Trustee will transfer all of
its right, title and interest in and to the Aircraft to Delta. See "Federal
Income Tax Consequences" herein and in the Prospectus. (Participation
Agreement, Section 16(b))
REGISTRATION OF THE AIRCRAFT
The Aircraft has been registered under the Aviation Act in the name of the
Owner Trustee. Each of the Owner Trustee (in its individual capacity), the
Indenture Trustee (in its individual capacity) and Delta has represented and
warranted that it is a U.S. Citizen. (Participation Agreement, Sections 7(d)
and 16) The Owner Trustee has agreed that if it at any time it is not a U.S.
Citizen, it will immediately resign as Owner Trustee, and the Owner
Participant then must promptly appoint a U.S. Citizen as successor Owner
Trustee. The Owner Participant has represented and warranted that it is a U.S.
Citizen. If the Owner Participant ceases to be a U.S. Citizen at a time when
such citizenship is necessary for registration of the Aircraft in the United
States, it is obligated to either (i) take such action as may be
S-34
<PAGE>
required to maintain the United States registration of the Aircraft and the
recordation of the Indenture and the Lease with the FAA, (ii) transfer, in
accordance with the Operative Documents, all of its interest in the Aircraft
to a U.S. Citizen or (iii) take such other action as may be necessary to
prevent Delta or the Indenture Trustee from being adversely affected as a
result of such cessation of citizenship. (Participation Agreement, Section
15(g))
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of King & Spalding, tax counsel to Delta, the following
discussion accurately modifies and supplements the description of the
principal United States federal income tax consequences of ownership and
disposition of the Pass Through Certificates set forth in the Prospectus, and
should be read in conjunction with the discussion of federal income tax
consequences set forth in the Prospectus. This opinion is based on laws,
regulations, rulings and decisions in effect as of the date hereof, as well as
certain proposed regulations which are not currently effective. Changes to
existing law, which could have retroactive effect, may alter the consequences
described below. This opinion does not purport to address federal income tax
consequences applicable to particular categories of investors, some of which
(for example, insurance companies and foreign investors) may be subject to
special rules. Persons considering purchasing interests in Pass Through
Certificates should consult their own tax advisors with regard to the
application of the United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any
state, local or foreign jurisdiction. The Pass Through Trusts are not
indemnified for any federal income taxes that may be imposed upon them, and
the imposition of any such taxes on a Pass Through Trust could result in a
reduction in the amounts available for distribution to the Certificate Owners
of such Pass Through Trust.
ORIGINAL ISSUE DISCOUNT
The Equipment Trust Certificates will not be issued with original issue
discount.
CERTAIN NEW YORK TAXES
The Pass Through Trustee is a New York state banking corporation with its
corporate trust office in New York. Powell, Goldstein, Frazer & Murphy,
special New York tax counsel for the Pass Through Trustee, has advised Delta
that, in its opinion, while it is not free from doubt under currently
applicable law, and assuming certain facts with respect to the operations of
the Pass Through Trusts that each Pass Through Trust will not be taxable as a
corporation for federal income tax purposes, but rather, will be classified as
a grantor trust under subpart E, Part I of Subchapter J of the Code, and
assuming that each Pass Through Trust does not otherwise engage in business in
New York, (i) the Pass Through Trusts should not be subject to any tax
(including, without limitation, net or gross income, unincorporated business,
tangible or intangible property, net worth, capital, franchise or doing
business tax), fee or other governmental charge under the laws of the State of
New York or any political subdivision thereof and (ii) Certificate Owners that
are not residents of or otherwise subject to tax in New York should not be
subject to any tax (including, without limitation, net or gross income,
unincorporated business, tangible or intangible property, net worth, capital,
franchise or doing business tax), fee or other governmental charge under the
laws of the State of New York or any political subdivision thereof as a result
of purchasing, owning (including receiving payments with respect to) or
selling a Pass Through Certificate.
Neither the Pass Through Trusts nor the Certificate Owners will be
indemnified for any state or local taxes imposed on them, and the imposition
of any such taxes on a Pass Through Trust could result in a reduction in the
amounts available for distribution to the Certificate Owners of such Pass
Through Trust. However, a majority in interest of the Certificate Owners of
each Series may remove the Pass Through Trustee from the relevant Pass Through
Trust and appoint a successor Pass Through Trustee in another jurisdiction.
The description under the caption "Certain South Carolina Taxes" in the
accompanying Prospectus is inapplicable to the 1996 Pass Through Certificates
Series A1 and Series A2.
S-35
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Pass Through Certificates, Delta has agreed to cause each Pass
Through Trust to sell to each of the Underwriters named below, and each such
Underwriter has severally agreed to purchase, the approximate percentage of
the aggregate amount of Pass Through Certificates of each Series, and the
aggregate amounts of Pass Through Certificates, set forth below.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL AGGREGATE
OF AGGREGATE AMOUNT OF PASS
AMOUNT OF THROUGH
UNDERWRITER EACH SERIES CERTIFICATES
----------- ------------ ---------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................ % $
Goldman, Sachs & Co. ........................
---- -----------
Total................................... 100% $
==== ===========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Pass
Through Certificates offered thereby to the Underwriters if any Pass Through
Certificates are purchased thereunder. In the event of a default by an
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated. Delta has been
advised by the Underwriters that the Underwriters propose initially to offer
the Pass Through Certificates of each Series to the public at the public
offering price for such Series set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price less a concession not in
excess of the amounts for the respective Series set forth below. The
Underwriters may allow, and such dealers may reallow, a discount to certain
other dealers not in excess of the amounts for the respective Series set forth
below. After the initial public offering, the public offering prices,
concessions and discounts may be changed.
<TABLE>
<CAPTION>
SERIES OF PASS CONCESSION
THROUGH CERTIFICATES TO DEALERS REALLOWANCE
-------------------- ---------- -----------
<S> <C> <C>
Series A1........................................ % %
Series A2........................................ % %
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the Pass Through Certificates is subject to,
among other things, the approval of certain legal matters by counsel and the
conditions that no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for such purpose shall have
been instituted or threatened by the Securities and Exchange Commission.
Delta does not intend to apply for the listing of the Pass Through
Certificates on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Pass Through
Certificates, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Pass Through
Certificates, and any such market-making may be discontinued at any time at
the sole discretion of each Underwriter. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Pass Through
Certificates.
The Underwriting Agreement provides that each of Delta and the Underwriters
will be responsible for certain expenses related to the offering and Delta
will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act.
The Underwriters perform investment banking services for Delta in the
ordinary course of business.
S-36
<PAGE>
VALIDITY OF PASS THROUGH CERTIFICATES
The validity of the Pass Through Certificates offered hereby is being passed
upon for Delta by King & Spalding, 191 Peachtree Street, Atlanta, Georgia
30303, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street, New
York, New York 10004. George D. Busbee, of counsel to King & Spalding, is a
member of the Board of Directors of Delta. Both King & Spalding and Sullivan &
Cromwell may rely on the opinion of Robert S. Harkey, Senior Vice President--
General Counsel & Secretary of Delta, as to Delta's authorization, execution
and delivery of the Pass Through Agreement and each Series Supplement, and on
the opinion of Powell, Goldstein, Frazer & Murphy, counsel for The Bank of New
York, individually and as Pass Through Trustee, as to the authorization,
execution and delivery of the Pass Through Agreement, each Series Supplement
and the Pass Through Certificates by The Bank of New York.
EXPERTS
The consolidated financial statements and schedules of Delta included or
incorporated by reference in Delta's Annual Report on Form 10-K for the year
ended June 30, 1995 and incorporated by reference herein, have been audited by
Arthur Andersen LLP. (formerly Arthur Andersen & Co.), independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
With respect to the unaudited interim financial information included in
Delta's Quarterly Reports on Form 10-Q for the quarters ended September 30,
1995, and December 31, 1995, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of that
information. However, their reports thereon state that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on that information
should be restricted in light of the limited nature of the review procedures
applied. In addition, the accountants are not subject to the liability
provisions of Section 11 of the Securities Act for their reports on the
unaudited interim financial information because those reports are not a
"report" or a "part" of the registration statement prepared or certified by
the accountants within the meaning of Section 7 and 11 of the Securities Act.
S-37
<PAGE>
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus
Supplement. The definitions of terms used in this glossary that are also used
in the Pass Through Agreement, Series Supplements, Indenture, Lease, Trust
Agreement or Participation Agreement are qualified in their entirety by
reference to the definitions of such terms contained therein.
"Aircraft" means the McDonnell Douglas MD-11 aircraft including the Engines
relating thereto, leased by the Owner Trustee to Delta pursuant to the Lease.
"Aviation Act" means Subtitle VII of Title 49 of the United States Code.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended from
time to time, or any successor statute or provision.
"Basic Rent" means, for the Aircraft, the amount payable by Delta under the
Lease on any scheduled payment date under the Lease, which amount will always
be at least sufficient to pay in full, as of each such payment date, the
aggregate principal amount of due and unpaid installments on the Equipment
Trust Certificates outstanding as of such payment date, together with the
accrued and unpaid interest thereon.
"Business Day" means any day other than a Saturday, a Sunday, or other day
on which banking institutions in the States of New York, Delaware or Georgia
are authorized or required by law to close.
"Certificate Owner" means, for any Pass Through Trust, any person acquiring
an interest in any Pass Through Certificate issued by such Pass Through Trust.
"Certificateholder" means, for any Pass Through Trust, the registered holder
of any Pass Through Certificate issued by such Pass Through Trust.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Engine" means each of three Pratt & Whitney PW4460 engines.
"Equipment Trust Certificates" means the equipment trust certificates issued
on a nonrecourse basis by the Owner Trustee and authenticated by the Indenture
Trustee under the Indenture and any certificate issued in exchange therefor or
replacement thereof pursuant to the Indenture.
"Event of Default" means the occurrence and continuance of an Indenture
Event of Default.
"Event of Loss" means each of the events designated as such in the Lease.
For a description of certain events constituting an Event of Loss, see
"Description of the Equipment Trust Certificates -- The Lease --Events of
Loss."
"Indenture" means the trust indenture and security agreement between the
Owner Trustee and the Indenture Trustee, under which the Owner Trustee will
issue Equipment Trust Certificates relating to the Aircraft, as such trust
indenture and security agreement may from time to time be amended or
supplemented.
"Indenture Default" means an Indenture Event of Default or an event or
condition that, with the giving of notice or the lapse of time or both, would
become an Indenture Event of Default.
"Indenture Event of Default" means each of the events designated as an event
of default in the Indenture. For a description of certain events constituting
Indenture Events of Default, see "Description of the Equipment Trust
Certificates -- Events of Default, Notice and Waiver."
A-1
<PAGE>
"Indenture Trustee" means The Bank of New York, a New York State banking
corporation, in its capacity as indenture trustee under the Indenture, and any
successor thereunder.
"Lease" means the lease agreement between the Owner Trustee and Delta,
pursuant to which Delta leased the Aircraft from the Owner Trustee, as such
lease agreement may from time to time be amended or supplemented.
"Lease Event of Default" means each of the events designated as an event of
default in the Lease. For a description of certain events constituting Lease
Events of Default, see "Description of the Equipment Trust Certificates -- The
Lease -- Lease Events of Default."
"Lien" means any mortgage, pledge, lien, charge, claim, encumbrance, lease
or security interest.
"Operative Documents" means the Pass Through Agreement, Lease, Indenture,
Participation Agreement, Trust Agreement and other related documents defined
as such in the Lease.
"Outstanding" means any Equipment Trust Certificates defined as
"Outstanding" under the Indenture.
"Owner Participant" means the owner participant for whose benefit the Owner
Trustee owns the Aircraft and its successors and permitted assigns.
"Owner Trust" means the owner trust created pursuant to the Trust Agreement
for the benefit of the Owner Participant named therein.
"Owner Trustee" means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as trustee of the Owner
Trust, and its successors and assigns.
"Participation Agreement" means the agreement among Delta, the Indenture
Trustee, the Owner Trustee, the Pass Through Trustee and the Owner Participant
that is defined as the "Participation Agreement" in the Indenture and pursuant
to which the Pass Through Trustee agrees to purchase from the Owner Trustee
the Equipment Trust Certificates.
"Pass Through Agreement" means the Pass Through Trust Agreement dated as of
August 1, 1992 between Delta and the Pass Through Trustee, in accordance with
which the Pass Through Trusts will be formed pursuant to the Series
Supplements.
"Pass Through Certificates" means the Delta Air Lines 1996 Pass Through
Certificates, Series A1, and the Delta Air Lines 1996 Pass Through
Certificates, Series A2, to be issued by the Pass Through Trustee pursuant to
the Pass Through Agreement and the related Series Supplements and which
represent the fractional undivided interests in the related Pass Through
Trusts.
"Pass Through Trust" means Delta Air Lines Pass Through Trust, 1996-A1, and
Delta Air Lines Pass Through Trust, 1996-A2, each to be formed pursuant to the
related Series Supplement in accordance with the Pass Through Agreement.
"Pass Through Trustee" means The Bank of New York, in its capacity as
successor Pass Through Trustee under each Pass Through Trust, and its
successors and assigns as Pass Through Trustee thereunder.
"Pool Balance" means, for any Pass Through Trust, as of any date of
determination the aggregate unpaid principal amount of the Equipment Trust
Certificate that constitutes Trust Property of such Pass Through Trust on such
date plus the amount of the principal payments on such Equipment Trust
Certificate held by the Pass Through Trustee and not yet distributed plus the
amount of any moneys transferred to Delta and deposited in the related Cash
Collateral Account (other than earnings thereon and without giving effect to
any losses on
A-2
<PAGE>
investments thereof). The Pool Balance as of any Regular Distribution Date or
Special Distribution Date shall be computed after giving effect to the payment
of principal, if any, on such Equipment Trust Certificate and the distribution
thereof being made on that date.
"Pool Factor" means, for any Pass Through Trust, as of any date of
determination the quotient (rounded to the seventh decimal place) computed by
dividing (i) the Pool Balance by (ii) the aggregate original amount of the
Pass Through Certificates of the related Series. The Pool Factor as of any
Regular Distribution Date or Special Distribution Date shall be computed after
giving effect to the payment of principal, if any, on such Equipment Trust
Certificate and the distribution thereof being made on that date.
"Recapture Period" means the period beginning on April 12, 1994 and ending
on September 30, 2001 or such longer period over which the Owner Participant
may be required to claim depreciation deductions for federal income tax
purposes under certain circumstances.
"Regular Distribution Date" means, for each Pass Through Trust, April 11 and
October 11 of each year, commencing April 11, 1996.
"Scheduled Payment" means any payment of interest on or principal of and
interest on any Equipment Trust Certificate that constitutes Trust Property
thereof, scheduled to be received by the Pass Through Trustee on a Regular
Distribution Date.
"Series" means Delta Air Lines 1996 Pass Through Certificates, Series A1,
and Delta Air Lines 1996 Pass Through Certificates, Series A2.
"Series Supplement" means each of Series Supplement 1996-A1 and Series
Supplement 1996-A2 between Delta and the Pass Through Trustee, in each case
pursuant to which the related Pass Through Trust will be formed in accordance
with the Pass Through Agreement and the related Series of Pass Through
Certificates will be issued.
"Special Distribution Date" means the date on which a Special Payment is
scheduled to be distributed, which date will be the 11th day of a month.
"Special Payments" means, for any Pass Through Trust, any (a) payments other
than Scheduled Payments, received by the Pass Through Trustee on the Equipment
Trust Certificate held in such Pass Through Trust, including payments received
for the redemption thereof in connection with the events specified herein (and
payments upon the unavailability of Trust Property), (b) following a default
in respect to such Equipment Trust Certificate, any proceeds received upon the
sale of such Equipment Trust Certificate by the Pass Through Trustee or (c)
any payment by Delta representing interest that would have accrued on such
Equipment Trust Certificate that was to have been purchased on a delayed basis
(as described in the Prospectus under "Description of the Pass Through
Certificates--Delayed Purchase").
"Stipulated Loss Value" means, for the Aircraft, the amount required to be
received by the Owner Trustee under the Lease following the occurrence of
certain Events of Loss under the Lease, which amount shall in all
circumstances be at least sufficient to pay in full, as of the date of payment
thereof, the aggregate unpaid principal amount of the Equipment Trust
Certificates outstanding on such date of payment and the accrued and unpaid
interest thereon to the date of payment.
"Termination Value" means the amount required to be received by the Owner
Trustee under the Lease following certain early terminations of the Lease,
which amount shall in all circumstances be at least sufficient to pay in full,
as of the date of payment thereof, the aggregate unpaid principal amount of
the Equipment Trust Certificates outstanding on such date of payment and the
accrued and unpaid interest thereon to the date of payment.
A-3
<PAGE>
"Trust Agreement" means the trust agreement between the Owner Trustee and
the Owner Participant, pursuant to which a trust is created for the benefit of
the Owner Participant, as the trust agreement may from time to time be amended
or supplemented.
"Trust Property" means, for any Pass Through Trust, all money, instruments,
including the related Equipment Trust Certificate, and other property held as
the property of such Pass Through Trust, including all distributions thereon
and proceeds thereof.
A-4
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DELTA
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE PASS
THROUGH CERTIFICATES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
OR IN THE AFFAIRS OF DELTA SINCE THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Summary......................................................... S-3
Diagram of Payments........................................................ S-7
The Company................................................................ S-8
Use of Proceeds............................................................ S-8
Capitalization............................................................. S-9
Selected Financial and Operating Information............................... S-10
Recent Results and Developments............................................ S-11
Description of the Pass Through Certificates............................... S-18
Description of the Equipment Trust Certificates............................ S-20
Federal Income Tax Consequences............................................ S-35
Certain New York Taxes..................................................... S-35
Underwriting............................................................... S-36
Validity of Pass Through Certificates...................................... S-37
Experts.................................................................... S-37
Glossary of Certain Terms.................................................. A-1
PROSPECTUS
Available Information...................................................... 2
Reports to Pass Through Certificateholders................................. 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Capitalization............................................................. 3
Selected Financial and Operating Information............................... 4
Recent Results and Developments............................................ 5
Outline of Pass Through Trust Structure.................................... 16
Use of Proceeds............................................................ 16
Description of the Pass Through Certificates............................... 17
Description of the Equipment Trust Certificates............................ 29
Federal Income Tax Consequences............................................ 33
Certain South Carolina Taxes............................................... 35
ERISA Considerations....................................................... 36
Plan of Distribution....................................................... 36
Validity of Pass Through Certificates...................................... 37
Experts.................................................................... 37
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$
[DELTA AIRLINES LOGO APPEARS HERE]
$ 1996 PASS THROUGH CERTIFICATES, SERIES A1 $ 1996 PASS
THROUGH CERTIFICATES, SERIES A2
------------------
PROSPECTUS SUPPLEMENT
------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
FEBRUARY , 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
