Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and identifiable intangible assets relate to the airline segment. We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. We assess the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach. Under a qualitative approach, we consider various market factors, including certain of the key assumptions listed below. We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets. If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. Under a quantitative approach, we calculate the fair value of the asset incorporating the key assumptions listed below into our calculation.

We value goodwill and indefinite-lived intangible assets primarily using market and income approach valuation techniques. These measurements include the following key assumptions (1) forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3) observable market transactions and (4) anticipated changes to the regulatory environment (e.g., diminished slot access, additional Open Skies agreements or changes to antitrust approvals). These assumptions are consistent with those that hypothetical market participants would use. Because we are required to make estimates and assumptions when evaluating goodwill and indefinite-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates. We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value.

Changes in certain events and circumstances could result in impairment or a change from indefinite-lived to definite-lived. Factors which could cause impairment include, but are not limited to (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U.S. and global economies, global pandemics or other factors, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e.g., diminished slot access, additional Open Skies agreements or changes to antitrust approvals), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets.

Identifiable Intangible Assets. Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to alliances and collaborative arrangements. Definite-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred.

As a result of the significant impact the COVID-19 pandemic has had on our market capitalization, profitability and overall travel demand, we performed a quantitative valuation of our goodwill and indefinite-lived intangible assets during 2020. Our December 2020 quarter quantitative impairment tests of goodwill and intangibles concluded that there was no indication of impairment as the fair value exceeded our carrying value:


Goodwill and indefinite-lived intangible assets by category
	Carrying Value at				Excess Fair Value at 2020 Testing Date
(in millions)	December 31, 2020		December 31, 2019
Goodwill (1)	$	9,753	$	9,781	>100%
International routes and slots	2,583		2,583		10% to 30%
Airline alliances (2)	1,863		1,005		20% to >100%
Delta tradename	850		850		>100%
Domestic slots	622		622		60% to >100%
Total	$	15,671	$	14,841

(1) The reduction in goodwill relates to the combination of Delta Private Jets with Wheels Up in the March 2020 quarter. See Note 5, "Investments," for more information on this transaction.

(2) As part of our strategic alliance with and investment in LATAM, we have recorded an alliance-related indefinite-lived intangible asset of $1.2 billion, which was not reflected in the December 31, 2019 balance.

International Routes and Slots. Our international routes and slots primarily relate to Pacific route authorities and slots at capacity-constrained airports in Asia, and slots at London-Heathrow airport.

Airline Alliances. Our airline alliances intangible assets primarily relate to our commercial agreements with LATAM and our SkyTeam partners.

Domestic Slots. Our domestic slots primarily relate to our slots at New York-LaGuardia and Washington-Reagan National airports.

Based on our impairment assessment as of our annual testing date of October 1, we determined that our goodwill and indefinite-lived intangible assets were not impaired. However, there are a number of uncertainties including how long conditions related to the pandemic will persist, when effective vaccines will be broadly available, when vaccination will be widespread globally, when travel advisories and restrictions will be lifted, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel and our business. Any measure that requires or encourages potential travelers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the air travel industry in general, and consequently our business, as these measures could delay the widespread return of demand for air travel.

Definite-Lived Intangible Assets


Definite-lived intangible assets by category
	December 31, 2020				December 31, 2019
(in millions)	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Marketing agreements	$	730	$	(696)	$	730	$	(692)
Contracts	193		(134)		193		(128)
Other	53		(53)		53		(53)
Total	$	976	$	(883)	$	976	$	(873)

Amortization expense was $10 million, $11 million and $17 million for the years ended December 31, 2020, 2019 and 2018, respectively. Based on our definite-lived intangible assets at December 31, 2020, we estimate that we will incur approximately $9 million of amortization expense annually from 2021 through 2025.