Delta Airlines CFO Project

Delta is an established leader in the aviation industry due to its strong brand image that is complemented by numerous prestigious awards. The airlines commitment to innovation has played a critical role in its success since emerging from bankruptcy in 2007 (Anderson, 2014). Over the past few decades, Delta has adopted an innovative business model and corporate culture that include an employee profit-sharing program and global expansion. In 2019, Delta Air Lines served nearly 200 million customers and was ranked the largest airline across the globe by total revenues. Additionally, the airline was the most profitable with five consecutive years of $5 billion or more in pre-tax income (Delta Air Lines, 2020). This report provides forensic financial analysis and corporate governance assessment of Delta Air Lines, Inc. at a time when the airline is experiencing tremendous growth and profitability.

Business Background and Operations

Delta Air Lines is currently the most profitable airline given its pre-tax profits of at least $5 billion for the last five years. As an exceptional and trusted customer brand, Delta has an expansive global network through which it connects more than 200 million customers to over 300 destinations in over 50 countries (Delta Air Lines, 2020). The growth and profitability of the airline in recent years is attributable to its global standard in customer experience, service, and reliability. The airline was named one of Fortunes most admired companies in 2020 due to its consistent delivery of industry-leading results with unrivaled empathy and commitment to innovation. Delta has capitalized on its strong brand image to maintain strong financial performance and position over the last five years.

As evident in the companys 2020 10-K Financial Statement, Delta has two major business/operating segments named Airlines and Refinery. The airline segment focuses on passenger and cargo services offered by the airline domestically and internationally. Additionally, this business/operational segment covers the maintenance and repair of third-party aircraft by the company (Bush, 2016). On the other hand, the Refinery segment covers refining and production of jet fuel. It is operated by Deltas subsidiary, Monroe Energy LLC and MIPC, LLC and basically produces jet fuel, diesel, and gasoline. This operational segment also covers the provision of jet fuel to Deltas aircraft for a cheaper amount in comparison to outsourcing the service. The main objective of the Refinery segment is to resource for the Airline segment as a means of increasing the airlines overall profitability and success. The table below shows the financial information by segment for the airline for the year ending 2020.

Table 1: Segmented Data for Delta Air Lines for year ended December 31, 2020

(in millions)

Airline

Refinery

Intersegment Sales/Other

Consolidated

Operating revenue:

Sales to airline segment

Exchanged products

Sales of refined products

$15,945

$3,143

($214) (1)

($1,472) (2)

($307) (3)

$17,095

Operating loss (4)

($12,253)

($216)

($12,469)

Interest expense, net

$928

$1

$929

Depreciation and amortization

$2,312

$99

($99) (4)

$2,312

Restructuring charges

$8,219

$8,219

Total assets, end of period

$70,548

$1,448

$71,996

Capital expenditures

$,1879

$20

$1,899

Source: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_DAL_2020.pdf

Delta Air Lines has transformed its business strategy and approach over the last decade. During this period, the company has established a customer-focused operation with industry-leading products, service, reliability, and a strong financial position. However, there are factors in the firms financial statements and risk management policies that show vulnerability to SEC action (fraud or otherwise). Similarly, there are factors in corporate governance that are potential weaknesses requiring mitigation through stronger governance policy.

Forensic Financial Analysis

As shown in the 2020 10-K Financial Statement, Delta Air Lines has a strong financial position in the market. The airlines strong financial position is evident in its consistent pre-tax income of $5 billion or more over the past five years. However, the advent of the COVID-19 pandemic has had significant impacts on the aviation industry. Following the onset of the pandemic, the airline made significant adjustments...

…accountability. Such a program should provide details of measures undertaken to protect the identity and safety of whistleblowers. By establishing such a program, Delta will enhance its whistleblower policy and strengthen its overall corporate governance framework. A whistleblower protection program would help achieve this by encouraging employees to report any malpractices without fear of their safety (Patrick, 2011).

Strengthen the Audit Process

Finally, Delta would strengthen its corporate governance policy by fostering the audit process. This would involve changes in the corporate governance structure to allow the audit committee to carry out comprehensive audits. The audit committee should be required to work with the Board of Directors to review financial reports and records in a detailed manner. As part of the comprehensive review, the committee would not only rely on directors information but also obtain evidence. Consequently, reports by the audit committee should remain unchanged and provide accurate audits of the firms financial records.

In conclusion, Delta Air Lines is the most profitable airline with revenues of at least $5 billion in the past five years. The companys profitability and rise from the 2007 bankruptcy is attributable to sound business strategies and practices. Through its financial statements and other reports, Delta has shown measures it undertakes to continue promoting the success and profitability of its business. However, forensic financial analysis shows that the company could be vulnerable to SEC action due to a higher debt-to-equity ratio, likelihood of asset fraud, and poor valuations of PPE. These issues can be addressed through a review of internal controls for financial reporting and the use of audit trails. With regards to corporate governance, Delta has weaknesses in areas of whistleblowing policy, risk management, and the quality of audits. These weaknesses can be addressed through the creation of a whistleblower protection program, establishing a risk management committee, and…