-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DTWkHBmq37/yq1foy9FvfgDBMjby0hyhuL5i356EXciszjtTjIC+/6E4+MY704L8 HG/L8TtTszqCP9Sk7+34cA== 0000950109-94-001782.txt : 19941004 0000950109-94-001782.hdr.sgml : 19941004 ACCESSION NUMBER: 0000950109-94-001782 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19941003 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA AIR LINES INC /DE/ CENTRAL INDEX KEY: 0000027904 STANDARD INDUSTRIAL CLASSIFICATION: 4512 IRS NUMBER: 580218548 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 033-50175 FILM NUMBER: 94551400 BUSINESS ADDRESS: STREET 1: HARTSFIELD ATLANTA INTL AIRPORT STREET 2: 1030 DELTA BLVD CITY: ATLANTA STATE: GA ZIP: 30320-6001 BUSINESS PHONE: 4047152600 MAIL ADDRESS: STREET 1: 1030 DELTA BLVD STREET 2: DEPT 971 CITY: ATLANTA STATE: GA ZIP: 30320-6001 FORMER COMPANY: FORMER CONFORMED NAME: DELTA AIR CORP DATE OF NAME CHANGE: 19660908 424B5 1 PROSPECTUS & SUPPLEMENT RULE NO. 424(b)(5) REGISTRATION NO. 33-50175 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 SEPTEMBER 29, 1994 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED NOVEMBER 17, 1993) $ [LOGO OF DELTA AIR LINES APPEARS HERE] 1994 PASS THROUGH TRUSTS 1994 PASS THROUGH CERTIFICATES, SERIES A1 1994 PASS THROUGH CERTIFICATES, SERIES A2 ------------- The Pass Through Certificates offered hereby consist of Delta Air Lines 1994 Pass Through Certificates, Series A1 in the aggregate amount of $ , and Delta Air Lines 1994 Pass Through Certificates, Series A2 in the aggregate amount of $ , which will represent fractional undivided interests in the Delta Air Lines Pass Through Trust, 1994-A1 and the Delta Air Lines Pass Through Trust, 1994-A2, respectively. Each Pass Through Trust will be formed pursuant to the Pass Through Agreement and a related Series Supplement, in each case between Delta Air Lines, Inc. and NationsBank of South Carolina, National Association, not in its individual capacity but solely as the Pass Through Trustee under such Pass Through Trust. The property of each Pass Through Trust will consist of an 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 the purchase by the Owner Trust of one McDonnell Douglas MD-11 aircraft (the "Aircraft"), and to refund some of the equity portion of the purchase price paid by the Owner Trustee for 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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) - --------------------------------------------------------------------------------------------------- Series A1 $ % 100% % 100% Series A2 100 100 - --------------------------------------------------------------------------------------------------- Total.............. $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ----- (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 and, to refund some of the equity portion of the purchase price paid by the Owner Trustee for the Aircraft. 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 October , 1994. ------------- MERRILL LYNCH & CO. GOLDMAN, SACHS & CO. ------------- The date of this Prospectus Supplement is October , 1994. (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, 1995, 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 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 September 12, 1994, Delta provided regularly scheduled service to 153 cities in the United States, Puerto Rico and the U.S. Virgin Islands, and to 57 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. With respect to litigation relating to Pan Am, the liability portion of which has been tried and is awaiting decision, see "Recent Results and Developments--Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization." 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 PAYMENTS........... A Diagram of Payments illustrating certain of the payment 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 1994 Pass Through Certificates, Series A1 (the "Series A1 Pass Through Certificates") in the aggre- gate amount of $ , and Delta Air Lines 1994 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, 1994-A1, and Delta Air Lines Pass Through Trust, 1994-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 1994-A1 or Series Supplement 1994-A2 (each a "Series Sup- plement"), as the case may be, in each case between Delta and NationsBank of South Carolina, National Association, not in its individual capacity but solely as pass through trustee under each such Pass Through Trust (the "Pass Through Trustee") for the benefit of the registered hold- ers (the "Certificateholders") of the related Series of Pass Through Certificates. Each Pass Through Certificate will represent a fractional undivided interest in the re- lated 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 and to refund some of the eq- uity portion of the purchase price paid by the Owner Trustee on behalf of an Owner Trust for one McDonnell 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 interest rate equal to the rate applicable to the Pass Through Certificates of such Pass S-3 Through Trust as set forth on the cover of this Prospec- tus 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, 1995. 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, 1995, 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 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 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 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.. NationsBank of South Carolina, National Association ("NationsBank of South Carolina") will be the Pass Through Trustee for each Pass Through Trust. NationsBank of Georgia, National Association ("NationsBank of Geor- gia"), an affiliate of NationsBank of South Carolina, will be the Paying Agent, Authenticating Agent and Regis- trar for the Pass Through Certificates. In addition, NationsBank of Georgia will be the Indenture Trustee un- der the Indenture pursuant to which the Equipment Trust Certificates will be issued. See "Description of the Pass Through Certificates -- The Pass Through Trustee; the In- denture Trustee" in the Prospectus. 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 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, 1994-A1 1994-A2 Pass Through Owner Participant Certificate Distributions Holders Holders of Series A1 of Series A2 Pass Pass Through Through Certificates Certificates S-7 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, and to refund some of the equity portion, of the purchase price of one Aircraft 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 NationsBank of Georgia, National Association, 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 the Indenture as originally executed in connection with a leveraged lease transaction and to refund some of the equity portion of the purchase price of the Aircraft. The loan certificate 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 Owner Trustee will apply $ from the proceeds of the sale of the Equipment Trust Certificates to the Pass Through Trustee to reduce the original equity portion of the purchase price for the Aircraft provided by the Owner Participant. 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 Trust. 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 CAPITALIZATION The following table sets forth the audited consolidated capitalization of Delta at June 30, 1994. 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.
JUNE 30, 1994 ------------- (IN MILLIONS EXCEPT SHARE AMOUNTS) Short-term debt: Current portion of long-term debt.............................. $ 227 Current portion of capital leases.............................. 11 Short-term borrowings.......................................... 0 ------ Total short-term debt........................................ 238 ------ Long-term debt: Long-term debt................................................. 3,142 Capital leases................................................. 86 ------ Total long-term debt......................................... 3,228 ------ Employee Stock Ownership Plan Preferred Stock: Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and liquidation value; 6,878,292 shares issued and outstanding............................................... 495 Less: Unearned compensation under employee stock ownership plan..... 393 ------ 102 ------ Stockholders' equity: Series C Convertible Preferred Stock, $1.00 par value, $50,000 liquidation preference; 23,000 shares issued and outstanding.. -- Common Stock, $3.00 par value; 54,469,491 shares issued........ 163 Additional paid-in capital..................................... 2,013 Retained earnings (deficit).................................... (490) Net unrealized gain on marketable equity securities............ 53 Less: Treasury stock at cost (4,016,219 shares)..................... 272 ------ Total stockholders' equity................................... 1,467 ------ Total capitalization......................................... $5,035 ======
S-9 SELECTED FINANCIAL AND OPERATING INFORMATION The following table summarizes selected consolidated financial and operating information of Delta. Financial statements for the fiscal year ended June 30, 1994 have been audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent public accountants. 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.
FISCAL YEAR ENDED JUNE 30, 1994 ----------------- FINANCIAL DATA: ($000,000's) STATEMENT OF OPERATIONS Operating revenues.......................................... $12,359 Operating income (loss)(1).................................. (447) Interest expense, net(2).................................... 271 Gain on disposition of flight equipment..................... 2 Income (loss) before income taxes........................... (660) Net income (loss)........................................... (409) BALANCE SHEET Total debt at end of period................................. 3,466 Stockholders' equity at end of period....................... 1,467 Total assets at end of period............................... 11,896 OTHER Ratio of earnings to fixed charges(3)(4).................... -- OPERATING DATA: Available seat miles (000,000)................................ 131,780 Revenue passenger miles (000,000)............................. 85,206 Cost per available seat mile (cents).......................... 9.72 Yield per passenger mile (cents).............................. 13.28 Passenger load factor (%)..................................... 64.66 Breakeven load factor (%)..................................... 67.21
- -------- (1) Includes $526 million in restructuring charges related to Delta's Leadership 7.5 initiative and an early retirement program under which approximately 1,500 employees elected to retire. See "Recent Results and Developments." (2) Interest expense has been reduced by $33 million of capitalized interest. (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. (4) Earnings for the fiscal year ended June 30, 1994 were inadequate to cover fixed charges. Additional earnings of $706 million would have been necessary to bring the ratio to 1.0. S-10 RECENT RESULTS AND DEVELOPMENTS FISCAL YEAR ENDED JUNE 30, 1994 Overview For 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. In fiscal 1993, Delta recorded a net loss of $1.0 billion ($22.32 primary and fully diluted loss per common share after preferred stock dividend requirements) and an operating loss of $575 million. The results for fiscal 1994 and 1993 were affected by, among other factors, certain nonrecurring charges, increased price competition, weak economies in a number of international regions and certain changes in accounting estimates. Fiscal 1994 results include pretax restructuring charges totaling $526 million ($331 million after tax, or $6.59 per common share) related to an early retirement program under which approximately 1,500 employees elected to retire, effective November 1, 1993, and the Company's Leadership 7.5 program. Fiscal 1993 results include an $82 million pretax fleet restructuring charge ($52 million after tax, or $1.05 per common share), reflecting nonrecurring costs associated with the retirement of 21 Airbus A310 aircraft. Fiscal 1993 results were also affected by Delta's adoption effective July 1, 1992, of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106) and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which resulted in an aggregate $587 million after-tax charge ($11.78 per common share). Excluding restructuring charges and the cumulative effect of accounting changes, the net loss for fiscal 1994 was $77 million ($3.73 primary and fully diluted loss per common share after preferred stock dividend requirements), and operating income was $79 million, compared to a net loss of $363 million ($9.49 primary and fully diluted loss per common share after preferred stock dividend requirements) and an operating loss of $493 million in fiscal 1993. Fiscal 1994 results were negatively impacted by discount fare promotions in domestic and international markets, and the increasing presence of low-cost, low-fare carriers in many of the domestic markets served by Delta, which resulted in a 1% decrease in the passenger mile yield from fiscal 1993. Fiscal 1993 results were negatively affected by a change in the airline industry's domestic fare structure for most of the year, which reduced the number of fare levels and generally lowered fares, a half-off sale promotion during the September 1992 quarter, and discount fare promotions in domestic and international markets. These fare initiatives contributed to a 3% decline in the passenger mile yield from fiscal 1992. Delta expects that price competition is likely to continue in domestic and international markets. If fare reductions are not offset by increases in traffic or changes in the mix of traffic that improve the passenger mile yield, Delta's operating results will be negatively affected. In fiscal 1994 and 1993, transatlantic and intra-European operations accounted for 20% and 19%, respectively, of the Company's system available seat miles and 78% and 77%, respectively, of international available seat miles. Generally weak economies in much of Europe, and particularly in Germany where Delta operates a hub in Frankfurt, negatively affected international revenues for fiscal 1994 and 1993. Effective April 1, 1993, Delta revised its depreciation policy by increasing the estimated useful lives of substantially all of its flight equipment from 15 to 20 years and reducing residual values from 10% to 5% of cost. Also effective April 1, 1993, Delta increased from 9% to 10% its assumption regarding the expected annual return on plan assets associated with defined benefit pension plans. Results for fiscal 1994 include a full-year benefit from these changes, versus a three-month benefit for fiscal 1993. S-11 Results of Operations Operating revenues for fiscal 1994 were $12.4 billion, up 3% from $12.0 billion in fiscal 1993. Passenger revenue increased 2% to $11.3 billion, the result of 3% growth in revenue passenger miles partly offset by a 1% decline in the passenger mile yield to 13.28c. Domestic revenue passenger miles increased 1% and the domestic passenger mile yield declined less than 1%, primarily due to discount fare promotions and the growing presence of low-cost, low-fare carriers in many markets served by Delta. International revenue passenger miles grew 10% and the international passenger mile yield declined 3%, largely the result of discount fares and other promotional programs. During fiscal 1994, domestic operating capacity declined 2% and international operating capacity rose 4%, compared to fiscal 1993. Cargo revenues increased 10% to $769 million in fiscal 1994. Cargo ton miles increased 10%, primarily due to Delta's international expansion, and the ton mile yield rose less than 1%. All other revenues were up 22% to $274 million, mainly due to increased revenue from joint marketing programs and fees collected for passenger ticket changes. Operating expenses in fiscal 1994 totaled $12.8 billion, up 2% from $12.6 billion in fiscal 1993. Operating capacity decreased less than 1% to 131.8 billion available seat miles. The cost per available seat mile increased 2% to 9.72c. Excluding restructuring charges in both periods, operating expenses totaled $12.3 billion in fiscal 1994, down 2% from $12.5 billion in fiscal 1993, and the cost per available seat mile decreased 1% to 9.32c. Salaries and related expenses decreased 4% to $4.6 billion, the result of lower employee benefits expenses, a 3% reduction in the number of employees, primarily due to an early retirement program accepted by approximately 1,500 employees effective November 1, 1993, and a 5% pay cut for domestic non- contract personnel effective February 1, 1993. Aircraft fuel expense decreased 11% to $1.4 billion, as fuel gallons consumed increased 1% and the average price per fuel gallon decreased 12% to 55.34c, Delta's lowest average price per fuel gallon for any fiscal year since 1989. Passenger commissions rose 5%, mainly the result of growth in international passenger revenue and higher commission rates. Aircraft rent expense increased less than 1%. Depreciation and amortization expense decreased 8% in fiscal 1994, primarily due to a change in the Company's depreciation policy previously discussed. Passenger service expense decreased 3%, reflecting continued cost reduction programs, partially offset by 3% growth in passenger traffic. Aircraft maintenance materials and outside repairs expense decreased 10%, primarily attributable to lower outside repairs expense for both airframes and engines and lower airframe material usage. Facilities and other rent expenses increased 7%, the result of new passenger and maintenance facilities and increased rental rates in certain domestic hub locations. Landing fees decreased less than 1%, as certain rate adjustments offset systemwide rate increases. Fiscal 1994 operating expenses included a $112 million restructuring charge for costs associated with an early retirement program under which approximately 1,500 employees elected to retire effective November 1, 1993, and a $414 million restructuring charge related to the Leadership 7.5 program (discussed below), which includes costs associated with workforce reductions, reductions in inventory levels, facility closings and route terminations. Fiscal 1993 operating expenses included an $82 million fleet restructuring charge, which included $28 million for costs of maintenance required prior to returning 18 leased Airbus A310 aircraft to lessors; a $20 million write-off of aircraft leasehold improvements on nine of the aircraft; a $30 million write- down of three owned A310-200 aircraft and certain A310 spare parts to reflect current market value; and $4 million related to pilot furloughs. Cash payments for the fiscal 1994 restructuring charges will approximate $473 million, of which $392 million is associated with workforce reductions and represents future funding of pension and postretirement benefits that will occur over many periods. The remaining $81 million represents costs for severance payments and lease termination fees for aircraft and facilities, which are expected to be substantially complete by fiscal 1996. Cash payments associated with the fiscal 1993 restructuring charge were completed in fiscal 1994 and totaled $28 million. S-12 All other operating expenses for fiscal 1994 increased 12%, largely due to growth in traffic and international operations. Cargo commissions increased 25%, reflecting traffic growth and higher commission rates in international markets. Booking fee payments to computer reservations systems increased 22%, primarily due to increased passenger traffic. Insurance expense grew 42%, a result of industry-wide premium increases. The Company also recorded a $14 million one-time charge in fiscal 1994 related to Frequent Flyer program changes. Nonoperating expense for fiscal 1994 totaled $213 million, compared to $76 million in fiscal 1993. Interest expense rose 27% to $304 million, principally due to a full year's interest incurred on debt issued in fiscal 1993. Interest capitalized on funds advanced for the purchase of flight equipment and construction of facilities totaled $33 million, down 46% from fiscal 1993, resulting from a decline in the average balance of advance payments for aircraft. The average monthly balance of such advance payments was $301 million in fiscal 1994, compared to $587 million in fiscal 1993. Interest income for fiscal 1994 totaled $57 million, up from $22 million in fiscal 1993, primarily due to a higher average level of short-term investments. Gains from the disposition of flight equipment totaled $2 million in fiscal 1994, compared to $65 million in fiscal 1993, which included the sale of 18 DC-9-32 aircraft. Miscellaneous expense was $1 million in fiscal 1994, compared to miscellaneous income of $14 million in fiscal 1993, primarily due to costs associated with the sale of certain accounts receivables and the letter of credit used to credit enhance the Guaranteed Serial ESOP Notes. The $660 million pretax loss for fiscal 1994 was reduced by an income tax benefit of $250 million and by the amortization of $1 million of investment tax credits. Financial Condition Cash and cash equivalents and short-term investments totaled $1.7 billion at June 30, 1994, compared to $1.2 billion at June 30, 1993. The principal sources of funds during fiscal 1994 were $1.3 billion of cash from operations, which includes $300 million from the sale of certain receivables; $748 million proceeds from aircraft sale and leaseback transactions; $226 million of long- term borrowings; and $103 million from the sale of flight equipment. At June 30, 1994, there was outstanding and reflected as an asset in the Company's Consolidated Balance Sheets $115 million principal amount of certain debtor-in-possession financing Delta provided to Pan Am plus accrued interest of $30 million (the "DIP Loan"). See "Recent Results and Developments-- Acquisition of Certain Pan Am Assets--Participation in Plan of Reorganization" in the Prospectus. During fiscal 1994, Delta invested $1.0 billion in flight equipment, net of advance payment refunds of $94 million, and $173 million in ground property and equipment. The Company also made payments of $547 million on long-term debt and capital lease obligations, and paid cash dividends of $80 million on its Series C Convertible Preferred Stock, $30 million on its Series B ESOP Convertible Preferred Stock, and $10 million on its Common Stock. Subsequent to June 30, 1994, the Company repurchased $202 million of its long-term debt. As of June 30, 1994, the Company had negative working capital of $313 million, compared to negative working capital of $197 million at June 30, 1993. 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 and internally generated funds, supplemented as necessary by debt financings and proceeds from sale and leaseback transactions. At August 12, 1994, the Company also had a total of $866 million of credit available under its bank credit agreements, subject to compliance with certain conditions. Long-term debt and capital lease obligations, including current maturities, totaled $3.5 billion at June 30, 1994, compared to $3.8 billion at June 30, 1993. Stockholders' equity was $1.5 billion at June 30, 1994, compared to $1.9 billion at June 30, 1993. The Company's debt-to-equity position, including current maturities, was 70% debt and 30% equity at June 30, 1994, compared to 66% debt and 34% equity at June 30, 1993. At August 12, 1994, there was outstanding $421 million principal amount of Guaranteed Serial ESOP Notes ("ESOP Notes") guaranteed by Delta. The terms of the ESOP Notes require Delta to purchase the ESOP Notes at the option of the holders thereof if the credit rating of Delta's long-term senior unsecured debt falls below certain levels ("Purchase Event"), unless Delta obtains within a specified period of a Purchase Event certain credit enhancements ("Approved Credit Enhancement") that result in the ESOP Notes being rated A3 or higher by Moody's Investors Service ("Moody's") and A- or higher by Standard & Poor's S-13 ("Required Ratings"). As a result of Moody's rating action on May 11, 1993, a Purchase Event occurred, and Delta became obligated to purchase on September 15, 1993, any ESOP Notes properly tendered to it. Prior to September 15, 1993, Delta obtained an Approved Credit Enhancement in the form of a letter of credit under its 1992 Bank Credit Agreement which, as of August 12, 1994, was in the face amount of $634 million. Due to the issuance of the letter of credit, the ESOP Notes received the Required Ratings. Accordingly, Delta no longer has an obligation to purchase ESOP Notes as a result of the Purchase Event that occurred on May 11, 1993. There can be no assurance that Delta will not be required to purchase the ESOP Notes at a later date. See "Recent Results and Developments--ESOP Notes" in the Prospectus. Future expenditures for aircraft and engines on firm order as of July 31, 1994, are estimated to be $3.2 billion, excluding aircraft orders subject to reconfirmation. The Company expects to finance these commitments using available cash, internally generated funds, debt financings, and proceeds from sale and leaseback transactions. LEADERSHIP 7.5 The emergence of low-cost, low-fare carriers is causing many traditional airlines, including Delta, to reexamine their domestic operations. The industry is faced with a growing number of deeply discounted fares and is experiencing a shift in customers' perceptions of value, largely brought on by the prevalence of lower fares in the market. As low-cost, low-fare carriers enter new domestic markets, passenger mile yields quickly decline, most often at a faster pace than traffic is stimulated. By the end of fiscal 1994, approximately 57% of Delta's domestic origin and destination revenue passenger miles were in markets also served by low-cost, low-fare carriers. Consequently, as fiscal 1994 progressed, the Company's domestic passenger mile yield weakened from the previous year. 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 has established operating cost per available seat mile ("unit cost") goals of 8.6c by the June 1995 quarter, 8.0c by the June 1996 quarter and 7.5c 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, the Company will seek additional cost reductions to achieve its goals. Delta considered, but rejected, creating a separate low-fare airline to compete on high-density routes in favor of a more comprehensive effort to substantially reduce costs and improve productivity throughout its system. However, in the event Delta is not able to reach its cost reduction goal, the Company is exploring an alternate business plan to provide service in certain markets through a joint venture with one or more third parties. The Leadership 7.5 program includes planned workforce reductions of 12,000 to 15,000 jobs. The Company is offering voluntary early retirement incentives, leaves of absence and severance programs, but furloughs of personnel will also be necessary to achieve these reductions. Actions expected to result in over $500 million in annual cost savings have been implemented or are scheduled for implementation, including: . Outsourcing of certain non-passenger contact functions and changes in staffing formulas in Airport Customer Service, resulting in the reduction of 4,500 full-time jobs. . Reengineering of processes in Technical Operations, resulting in the elimination of 2,500 jobs as well as reductions in inventory levels. . Adjusting service levels on certain flights and improving flight attendant productivity through staffing changes. . Beginning a point-of-service employee medical plan. . Implementing the planned phase-out of the Airbus A310 fleet. S-14 The support and participation of the Air Line Pilots Association ("ALPA"), which represents Delta pilots, is critical to the success of Leadership 7.5. The Company is seeking $320-$340 million in annual productivity improvements and wage and benefit reductions from ALPA in connection with contract negotiations expected to commence in November 1994. The contract becomes amendable in January 1995. Delta's cost reduction and unit cost goals are aggressive, and no assurance can be given that Delta will achieve these goals. LITIGATION RELATING TO DELTA'S PARTICIPATION IN PAN AM'S PLAN OF REORGANIZATION Delta's purchase from Pan Am of certain assets relating to Pan Am's Shuttle and route authorities to Europe, Asia and Africa, and Delta's agreement, subject to certain terms and conditions, to participate in a plan of reorganization for Pan Am and to provide the DIP Loan to Pan Am prior to the effective date of the proposed plan of reorganization are described in the Prospectus. Pan Am ceased operations on December 4, 1991, and its proposed plan of reorganization was not confirmed. Pan Am, the Official Committee of Unsecured Creditors of Pan Am (the "Creditors Committee") and others have filed legal actions against Delta relating to Delta's participation in the proposed plan or reorganization. See "Recent Results and Developments--Acquisition of Certain Pan Am Assets" in the Prospectus. The following discussion of recent developments with respect to such litigation supplements, and to the extent inconsistent therewith replaces, the discussion set forth in the Prospectus. As described in the Prospectus, 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") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") against Delta. In the Complaint, the plaintiffs seek to disallow, or to subordinate to the claims of Pan Am's general unsecured creditors, all claims Delta may have against Pan Am, including the repayment of the DIP Loan; to impose a constructive trust for the benefit of Pan Am's creditors on the profits Delta receives or should have received from the Shuttle Assets and the North Atlantic Assets; to recover at least $2.5 billion in compensatory damages plus punitive damages, costs and attorneys' fees; and to obtain such other relief as the Court deems appropriate. In addition, in the Complaint, the Creditors Committee seeks, independently and in its own right, unspecified compensatory and punitive damages for, among other things, loss of its potential equity interest in, and loss of employment by Pan Am employees with, a reorganized Pan Am. On December 23, 1993, the United States District Court for the Southern District of New York granted Delta's motion requesting that Court (before which are pending the two lawsuits filed against Delta by former Pan Am employees which are described below), rather than the Bankruptcy Court, to conduct the trial of this action. On May 2, 1994, the District Court (1) denied the plaintiffs' motion requesting a jury trial or, alternatively, trial by an advisory jury; and (2) ruled that this lawsuit would be tried separately from the two lawsuits filed against Delta by former Pan Am employees which are described below. On May 3, 1994, the District Court denied Delta's motion for partial summary judgment, as well as the Creditors Committee's motion for summary judgment on Delta's counterclaims. The trial of liability issues (but not possible damages) in this lawsuit occurred between May 4, 1994, and June 10, 1994. The District Court has not yet issued its decision or indicated when such a decision may be forthcoming. As described in the Prospectus, Pan Am, which has been sued by the United States Air Force (the "Air Force") for, among other things, $382.4 million for Pan Am's alleged breach of its obligations under the CRAF Program, has filed a third party complaint in the Bankruptcy Court against Delta alleging that, to the extent the Air Force has a valid claim against Pan Am, Pan Am is entitled to recover from Delta such amounts as are required to satisfy any such claim. On September 16, 1994, Pan Am objected to the assertions of the Air Force that certain of its alleged claims against Pan Am are secured or are otherwise entitled to priority treatment, and moved for partial summary judgment with respect to such assertions. As described in the Prospectus, on March 12, 1992, a purported class action complaint was filed against Delta in the United States District Court for the Southern District of New York by former Pan Am employees who alleged, among other things, that they were intended third-party beneficiaries of Delta's agreement with Pan Am to participate in Pan Am's proposed plan of reorganization. In their complaint, the former employees, who have requested and are entitled to a jury trial, seek damages of at least $1.1 billion for loss of employment, loss of continued wages and benefits with a reorganized Pan Am and out-of-pocket losses; costs and attorneys' fees; and other unspecified relief. On December 14, 1993, the District Court denied plaintiffs' motion requesting the District Court to reconsider its order denying plaintiffs' motion for class action S-15 certification or, alternatively, to permit an immediate appeal of that order. On February 28, 1994, Delta filed a motion for summary judgment on all of plaintiffs' claims in this lawsuit; the plaintiffs are opposing this motion. Also on February 28, 1994, the Creditors Committee and its members filed motions for summary judgment on Delta's third party claims for indemnification and contribution in this lawsuit; Delta is opposing these motions. The District Court has not yet ruled on these motions or scheduled the trial of this lawsuit. As described in the Prospectus, on September 10, 1992, a lawsuit was filed against Delta in the United States District Court for the Southern District of New York by approximately 120 former Pan Am pilots who make allegations and claims similar to those asserted in the purported class action complaint by former Pan Am employees described in the preceding paragraph. In their complaint, the plaintiffs, who have requested and are entitled to a jury trial, seek unspecified damages for lost wages and benefits and out-of-pocket losses; costs and attorneys' fees; and other unspecified relief. On February 28, 1994, Delta filed a motion for summary judgment on all of plaintiffs' claims in this lawsuit; the plaintiffs are opposing this motion. Also on February 28, 1994, the Creditors Committee and its members filed motions for summary judgment on Delta's third party claims for indemnification and contribution in this lawsuit; Delta is opposing these motions. The District Court has not yet ruled on these motions or scheduled the trial of this lawsuit. OTHER MATTERS As described in the Prospectus, on December 21, 1992, the U.S. Department of Justice filed a civil complaint in the United States District Court for the District of Columbia against Delta, seven other major domestic airlines and the Airline Tariff Publishing Company (the "ATP"). The following discussion of recent results and developments with respect to such litigation supplements and, to the extent inconsistent therewith replaces, the discussion set forth in the Prospectus. The complaint alleges that the defendants and unnamed co- conspirators violated Section 1 of the Sherman Act by engaging in price fixing and by operating the ATP computerized fare exchange system in a manner that unreasonably restrains competition in the domestic air passenger transportation system. In March 1994, Delta, the ATP and five other airline defendants agreed to settle this lawsuit without admitting liability by entering into a stipulated final judgment that (1) prohibits the announcement of fare increases before their effective date; (2) restricts the use of fares which require that tickets be purchased by a specified date; and (3) bars or limits certain other pricing activities. On August 10, 1994, the District Court approved the final judgment, which is similar to a final judgment entered into by the two other airline defendants that was approved by the District Court in November 1993. The Attorneys General of several States are investigating whether several major airlines, including Delta, have engaged in price fixing and other unlawful restraints of trade. The States have issued a subpoena to the Company and other major airlines requiring them to provide certain information and documents. Delta and other airlines have met with the States to discuss a possible settlement of the States' potential claims, but there can be no assurance that a settlement will be reached. Delta believes that its pricing activities are legal and that it has not violated the antitrust laws. 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. Delta intends to defend this matter vigorously. S-16 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, 1994-A1, and Delta Air Lines Pass Through Trust, 1994-A2, to be formed pursuant to the Pass Through Agreement and Series Supplement 1994-A1 or Series Supplement 1994-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 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, 1995, 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. S-17 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 Paying Agent in Atlanta, Georgia, or at such other office or agency in the United States maintained for the payment of the related Pass Through Certificates. All amounts payable by the Paying Agent on behalf of the Pass Through Trustee may, however, at the option of the Paying Agent or the Pass Through Trustee, 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:
PASS THROUGH TRUST, 1994-A1 PASS THROUGH TRUST, 1994-A2 --------------------------------- --------------------------------- SCHEDULED SCHEDULED PRINCIPAL PRINCIPAL REGULAR PAYMENTS ON PAYMENTS ON DISTRIBUTION EQUIPMENT TRUST EQUIPMENT TRUST DATE CERTIFICATE POOL FACTOR CERTIFICATE POOL FACTOR - ------------ --------------- ----------- --------------- -----------
THE PAYING AGENT, AUTHENTICATING AGENT AND REGISTRAR NationsBank of Georgia, an affiliate of the Pass Through Trustee, will be the Paying Agent, Authenticating Agent and Registrar for each Pass Through Trust. NationsBank of Georgia will also be the Indenture Trustee under the Indenture pursuant to which the Equipment Trust Certificates will be issued. S-18 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:
PASS THROUGH PASS THROUGH TRUST, 1994-A1 TRUST, 1994-A2 % EQUIPMENT % EQUIPMENT AIRCRAFT-LEASE(1) TRUST CERTIFICATE TRUST CERTIFICATE TOTAL - -------------------------------------- ----------------- ----------------- ----- (Delta 1994-1)........................ $ $ $
- -------- (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, 1995, 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-19 Pass Through Trust, 1994-A1 % Equipment Trust Certificate
REGULAR DISTRIBUTION PRINCIPAL DATES PAYMENT ------------ --------- Total............................................ =====
Pass Through Trust, 1994-A2 % Equipment Trust Certificate
REGULAR DISTRIBUTION PRINCIPAL DATES PAYMENT ------------ --------- Total............................................. $ =====
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-20 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, 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 scheduled principal payments 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 S-21 (y) above determined by the Independent Investment 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., Eastern 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 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 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 (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 as a result of (i) 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) an Event of Loss with respect to the Aircraft, or (iii) as otherwise provided under the Indenture, will be S-22 invested 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, (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, and (iii) immediately after giving effect to such consolidation, merger or transfer, no Lease Event of Default shall have occurred and be continuing. (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) (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 such 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, S-23 Wilmington Trust Company or the Owner Participant shall do or fail to do 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, Sections 8.03 and 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 and 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-24 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 and the Owner Participant. 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. 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). S-25 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 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 not less than 50% 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), (c) and (d)) 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. 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 date designated for redemption of such Equipment Trust Certificates. 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) S-26 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 401 or 418 of the Aviation Act to take possession of such aircraft in compliance with the provisions of the lease, conditional sale contract or purchase 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 S-27 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, except in the case of interest payments, for which the consent of the holder of any Equipment Trust Certificate affected thereby is required, (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) 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 Trust to Delta for a term that commenced on the date of the delivery of the Aircraft to the Owner Trust 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)) S-28 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, 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 with 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 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 certain 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, Section 7(b)) 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.. 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 S-29 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 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, Section 7(a)) 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 but unpaid interest thereon) plus certain expenses or 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, S-30 engines of another manufacturer) in at least as good operating condition 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 less than 90 days prior to April 11, 2011, 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 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)) At the end of the term 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, 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)) S-31 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 end of such 120-day period (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, 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 the earlier 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." (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 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 S-32 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 the risk of criminal charges and Delta is diligently proceeding to remedy such failure for an additional period of 180 days; (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 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 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 S-33 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(a) and 8) 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 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, the Indenture Trustee or any Holder from being adversely affected as a result of such cessation of citizenship. (Participation Agreement, Section 15) 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 Under recently issued Treasury regulations on original issue discount, the Equipment Trust Certificates will not be issued with original issue discount. S-34 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.
PERCENTAGE TOTAL AGGREGATE OF AGGREGATE AMOUNT OF PASS AMOUNT OF THROUGH UNDERWRITER EACH SERIES CERTIFICATES ----------- ------------ --------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................. % $ Goldman, Sachs & Co.......................... ---- ----------- Total................................... 100% $ ==== ===========
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.
SERIES OF PASS CONCESSION THROUGH CERTIFICATES TO DEALERS REALLOWANCE -------------------- ---------- ----------- Series A1............................................ % % Series A2............................................ % %
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-35 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 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 NationsBank of South Carolina, 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 NationsBank of South Carolina. 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, 1994 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. S-36 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. "Authenticating Agent" means, for each Pass Through Trust, NationsBank of Georgia, National Association. "Aviation Act" means the Federal Aviation Act of 1958, as amended and recodified. "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, South Carolina, 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." A-1 "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." "Indenture Trustee" means NationsBank of Georgia, National Association, a national banking association, 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 1994 Pass Through Certificates, Series A1, and the Delta Air Lines 1994 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. A-2 "Pass Through Trust" means Delta Air Lines Pass Through Trust, 1994-A1, and Delta Air Lines Pass Through Trust, 1994-A2, each to be formed pursuant to the related Series Supplement in accordance with the Pass Through Agreement. "Pass Through Trustee" means NationsBank of South Carolina, National Association, in its capacity as Pass Through Trustee under each Pass Through Trust, and its successors and assigns as Pass Through Trustee thereunder. "Paying Agent" means, for each Pass Through Trust, NationsBank of Georgia, National Association. "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 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. "Registrar" means, for each Pass Through Trust, NationsBank of Georgia, National Association. "Regular Distribution Date" means, for each Pass Through Trust, April 11 and October 11 of each year, commencing April 11, 1995. "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 1994 Pass Through Certificates, Series A1, and Delta Air Lines 1994 Pass Through Certificates, Series A2. "Series Supplement" means each of Series Supplement 1994- A1 and Series Supplement 1994-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 second 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 A-3 Equipment Trust Certificate that were 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. "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 PROSPECTUS - ---------- DELTA AIR LINES, INC. PASS THROUGH TRUSTS PASS THROUGH CERTIFICATES ------------------- Up to $289,684,000 aggregate principal amount of Pass Through Certificates may be offered for sale from time to time pursuant to this Prospectus and one or more Prospectus Supplements. The Pass Through Certificates may be offered in one or more series in amounts, at prices and on terms to be determined at the time of sale. For each Series of Pass Through Certificates offered pursuant to this Prospectus and a Prospectus Supplement, a separate Pass Through Trust will be formed pursuant to the Pass Through Trust Agreement (the "Pass Through Agreement") and a supplement thereto (a "Series Supplement") between Delta Air Lines, Inc. ("Delta") and NationsBank of South Carolina, National Association, not in its individual capacity but solely as the Pass Through Trustee under such Pass Through Trust. Each Pass Through Certificate in a Series will evidence a fractional undivided interest in the related Pass Through Trust and will have no rights, benefits or interest in respect of any other Pass Through Trust or the Trust Property held in any other such Pass Through Trust. The Trust Property of each Pass Through Trust will consist of equipment trust certificates (the "Equipment Trust Certificates") issued as nonrecourse obligations by certain Owner Trustees, each acting not in its individual capacity but solely as the Owner Trustee of a separate Owner Trust, in connection with separate leveraged lease transactions, in each case to finance or refinance a portion of the payment by each such Owner Trust of the purchase price for a specified aircraft (each, an "Aircraft" and collectively, the "Aircraft"), which has been or will be leased to Delta. The Prospectus Supplement relating to each offering will describe certain terms of the Pass Through Certificates offered thereby, the respective Pass Through Trusts, the Equipment Trust Certificates to be purchased by such Pass Through Trusts and the leveraged lease transactions and Aircraft relating to such Equipment Trust Certificates. For each Aircraft, the related Owner Trustee may issue one or more Equipment Trust Certificates, each of which may have a different interest rate and final maturity date. For each Series of Pass Through Certificates, the Pass Through Trustee will purchase one or more Equipment Trust Certificates issued with respect to each of one or more Aircraft such that all of the Equipment Trust Certificates held in the related Pass Through Trust will have identical interest rates, in each case equal to the rate applicable to the Pass Through Certificates issued by such Pass Through Trust, and such that the latest maturity date for such Equipment Trust Certificates will occur on or before the final distribution date for such Pass Through Certificates. The Equipment Trust Certificates issued with respect to each Aircraft will be secured by a security interest in such Aircraft and by the Lease relating thereto, including the right to receive rent payable by Delta under such Lease. Although neither the Pass Through Certificates nor any Equipment Trust Certificates held in the respective Pass Through Trusts will be obligations of, or guaranteed by, Delta, the amounts payable by Delta under the Lease of each Aircraft will be sufficient to pay in full when due all principal of and interest on the Equipment Trust Certificates related to such Aircraft. Interest paid on the Equipment Trust Certificates held in each Pass Through Trust will be passed through to the registered holders of the Pass Through Certificates for such Pass Through Trust (for each Pass Through Trust, the "Certificateholders") on the dates and at the rate per annum set forth in the Prospectus Supplement relating to such Pass Through Certificates until the final distribution date for such Pass Through Trust. Principal paid on the Equipment Trust Certificates held in each Pass Through Trust will be passed through to the Certificateholders in scheduled amounts on the dates set forth in the Prospectus Supplement relating to such Pass Through Certificates until the final distribution date for such Pass Through Trust. The Pass Through Certificates represent interests in the related Pass Through Trust only and all payments and distributions shall be made only from the property of such Pass Through Trust. The Pass Through Certificates do not represent an interest in or obligation of Delta. The Pass Through Certificates may be sold to or through underwriters or directly to other purchasers or through agents. The Prospectus Supplement relating to each offering will set forth the names of any underwriters, dealers or agents involved in the sale of the Pass Through Certificates in connection with which this Prospectus is being delivered, the amounts, if any, to be purchased by underwriters and the compensation, if any, of such underwriters or agents. For the Pass Through Certificates of any Series, prior to their issuance there will have been no market for such Pass Through Certificates and there can be no assurance that one will develop. Unless otherwise indicated in the applicable Prospectus Supplement, Delta does not intend to apply for the listing of any Series of Pass Through Certificates on a national securities exchange. See "Plan of Distribution." This Prospectus may not be used to consummate sales of any Pass Through Certificates unless accompanied by the Prospectus Supplement applicable to the Pass Through Certificates being sold. ------------------- 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. ------------------- The date of this Prospectus is November 17, 1993 AVAILABLE INFORMATION Delta Air Lines, Inc. ("Delta" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information concerning the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of the Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 13th Floor, New York, N.Y. 10048. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material can also be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, N.Y. 10005. This Prospectus constitutes a part of a registration statement on Form S-3 (together with all amendments and exhibits, herein referred to as the "Registration Statement") filed by Delta under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information included in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to Delta and the securities offered hereby. REPORTS TO PASS THROUGH CERTIFICATEHOLDERS NationsBank of South Carolina, National Association, in its capacity as Pass Through Trustee under each Pass Through Trust, will provide the Certificateholders of each Pass Through Trust certain periodic statements concerning the distributions made from such Pass Through Trust. See "Description of the Pass Through Certificates--Statements to Certificateholders." --------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed with the Commission pursuant to the Exchange Act and are incorporated by reference into this Prospectus and made a part hereof: 1. Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 1993; and 2. Delta's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. All documents filed by Delta pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and before the termination of the offering made by this Prospectus shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Prospectus, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Delta will furnish without charge to each person to whom this Prospectus is delivered, on written or oral request of such person, a copy of any or all documents incorporated by reference in this Prospectus, without exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed to: Corporate Secretary, Department 982, Delta Air Lines, Inc., Hartsfield Atlanta International Airport, Atlanta, Georgia 30320, telephone (404) 715-2600. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PASS THROUGH CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 THE COMPANY Delta is a major air carrier engaged in domestic, overseas and foreign air transportation and is one of the largest certificated air carriers of passengers, property and mail in the United States. Delta provides scheduled air transportation over a network of routes throughout the United States, and between the United States and other countries in North America, Europe, the Middle East and Asia. Delta operates hubs at Atlanta, Cincinnati, Dallas/Fort Worth, Los Angeles, Orlando and Salt Lake City. Delta also operates international hubs at New York/John F. Kennedy International Airport and Portland, Oregon, and a European hub in Frankfurt, Germany. Delta is incorporated under the laws of the State of Delaware. Delta's principal executive offices are located at Hartsfield Atlanta International Airport, Atlanta, Georgia 30320, and its telephone number is (404) 715-2600. CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of Delta at September 30, 1993. The table does not give effect to the sale of the Pass Through Certificates offered hereby or reflect the respective Equipment Trust Certificates or Leases relating to the Aircraft because neither the Pass Through Certificates nor the Equipment Trust Certificates are direct obligations of Delta and the Leases are classified as operating, rather than capital, leases. 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."
SEPTEMBER 30, 1993 ------------------ (IN THOUSANDS) (UNAUDITED) Short-term debt: Current portion of long-term debt......................... $ 36,339 Current portion of capital leases......................... 12,108 Short-term borrowings(1).................................. 21,325 ---------- Total short-term debt................................... 69,772 ---------- Long-term debt: Long-term debt............................................ 3,369,570 Capital leases............................................ 95,419 ---------- Total long-term debt.................................... 3,464,989 ---------- Employee Stock Ownership Plan Preferred Stock: Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and liquidation value; 6,908,725 shares issued and outstanding............................ 497,420 Less: Unearned compensation under employee stock ownership plan.................................................... 401,319 ---------- 96,101 ---------- Stockholders' equity: Series C Convertible Preferred Stock, $1.00 par value, $50,000 liquidation preference; 23,000 shares issued and outstanding.............................................. 23 Common Stock, $3.00 par value; 54,455,096 shares issued... 163,365 Additional paid-in capital................................ 2,012,106 Reinvested earnings....................................... 66,272 Less: Net unrealized loss on noncurrent marketable equity secu- rities.................................................. -- Treasury stock at cost (4,251,416 shares)................ 288,051 ---------- Total stockholders' equity.............................. 1,953,715 ---------- Total capitalization.................................... $5,584,577 ==========
- -------- (1) As of October 31, 1993, there were no short-term borrowings outstanding. 3 SELECTED FINANCIAL AND OPERATING INFORMATION The following table summarizes selected consolidated financial and operating information of Delta. The selected financial data for the three months ended September 30, 1993 and September 30, 1992 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. Financial statements for each of the fiscal years ended June 30, 1989 through 1993 have been audited by Arthur Andersen & Co., independent public accountants. Results for the three months ended September 30, 1993 are not necessarily indicative of the results for the full year. 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."
THREE MONTHS ENDED SEPTEMBER 30, YEAR ENDED JUNE 30, --------------------- ----------------------------------------------------------- 1993 1992 1993 1992 1991 1990 1989 ---------- ---------- ----------- ----------- ---------- ---------- ---------- (UNAUDITED) FINANCIAL DATA: ($000's) STATEMENT OF OPERATIONS Operating revenues..... $3,219,843 $3,063,995 $11,996,650 $10,836,785 $9,170,613 $8,582,231 $8,089,484 Operating income (loss)................ 121,540 (194,740) (575,439) (674,906) (449,982) 419,512 678,325 Interest expense, net(1)................ 68,155 38,334 176,881 151,430 97,541 26,711 38,869 Gain on disposition of flight equipment...... 1,014 19,352 64,843 34,563 16,843 17,906 16,562 Income (loss) before income taxes and cumulative effect of accounting changes.... 78,807 (196,569) (651,284) (786,373) (500,184) 467,912 711,218 Net income (loss) before cumulative effect of accounting changes............... 60,350 (125,195) (414,748) (506,318) (324,380) 302,783 460,918 Cumulative effect of accounting changes (3)........... -- (587,144) (587,144) -- -- -- -- Net income (loss)...... 60,350 (712,339) (1,001,892) (506,318) (324,380) 302,783 460,918 BALANCE SHEET Total debt at end of period(2)............. 3,534,761 2,695,491 3,763,822 3,655,151 2,137,644 1,420,638 719,873 Stockholders' equity at end of period......... 1,953,715 2,242,705 1,913,105 1,894,068 2,456,985 2,595,569 2,619,707 Total assets at end of period................ 11,729,369 10,653,830 11,871,023 10,161,574 8,410,679 7,227,002 6,483,986 OTHER Ratio of earnings to fixed charges(4)(5)......... 1.37 -- -- -- -- 2.57 3.84 OPERATING DATA: Available seat miles (000,000).............. 34,826 34,116 132,282 123,102 104,328 96,463 90,742 Revenue passenger miles (000,000).............. 23,000 23,793 82,406 72,693 62,086 58,987 55,904 Cost per available seat mile (cents)........... 8.90 9.55 9.50 9.35 9.22 8.46 8.17 Yield per passenger mile (cents)................ 12.95 11.91 13.44 13.91 13.80 13.63 13.56 Passenger load factor (%).................... 66.04 69.74 62.30 59.05 59.51 61.15 61.61 Breakeven load factor (%).................... 63.35 74.53 65.53 62.99 62.64 57.96 56.09 - ------- (1) Interest expense has been reduced by interest capitalized in the following amounts ($000's).... 9,607 19,175 61,948 69,445 65,287 57,226 31,778 (2) Figures shown re- flect short-term notes payable and commercial paper in the following amounts ($000's).... 21,325 342,879 -- 800,692 56,020 65,351 --
(3) The cumulative effect of accounting changes (see "Recent Results and Developments--Fiscal Year Ended June 30, 1993--Accounting Changes") includes a cumulative one-time after-tax charge of $817.9 million related to Delta's adoption of SFAS 106 and a cumulative one-time benefit of $230.8 million related to Delta's adoption of SFAS 109. (4) 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. 4 (5) Earnings for the fiscal years ended June 30, 1991, June 30, 1992 and June 30, 1993, and for the quarter ended September 30, 1992 were inadequate to cover fixed charges. Additional earnings of $568.7 million for the fiscal year ended June 30, 1991, $862.1 million for the fiscal year ended June 30, 1992, $725.0 million for the fiscal year ended June 30, 1993 and $218.0 million for the quarter ended September 30, 1992 would have been necessary to bring the ratio to 1.0 in the respective periods. RECENT RESULTS AND DEVELOPMENTS FISCAL YEAR ENDED JUNE 30, 1993 Overview For the fiscal year ended June 30, 1993, Delta recorded a net loss of $1.002 billion ($22.32 primary and fully diluted loss per common share after preferred stock dividend requirements) and an operating loss of $575.4 million. Excluding the cumulative effect of the adoption of accounting standards related to accounting for postretirement benefits other than pensions and accounting for income taxes discussed below, the net loss was $414.7 million ($10.54 primary and fully diluted loss per common share after preferred stock dividend requirements). In fiscal 1992, Delta recorded a net loss of $506.3 million ($10.60 primary and fully diluted loss per common share after preferred stock dividend requirements), and an operating loss of $674.9 million. The Company's operating results for fiscal 1993 reflect an improvement over fiscal 1992, but were unfavorably affected by an uneconomic fare structure implemented by another airline in 1992 and matched by Delta and other airlines, discount fare promotions in domestic and international markets, weak economies in a number of regions worldwide, cost increases associated with growth in operations, and an $82.5 million fleet restructuring charge reflecting nonrecurring costs associated with the retirement of all 21 Airbus A310 aircraft acquired in 1991 in connection with Delta's purchase of certain assets from Pan Am Corporation and certain of its subsidiaries ("Pan Am"). During the June 1992 quarter, the airline industry's domestic fare structure significantly changed. The changes, which were introduced by one airline and subsequently matched by Delta and other airlines, reduced the number of fare levels and generally lowered fares. Shortly thereafter, certain domestic fares were further reduced by 50% for travel through mid-September 1992. These fare initiatives, along with other discount fare promotions in domestic and international markets, had a significant negative effect on Delta's financial results for fiscal 1993 because the fare reductions were not offset by the increase in traffic. In fiscal 1993, transatlantic and intra-European operations accounted for 19% of the Company's system available seat miles and 77% of international available seat miles. Generally weak economies in much of Europe, and particularly in Germany where Delta operates a hub in Frankfurt, negatively affected international revenues for fiscal 1993. Accounting Changes The fiscal 1993 results were affected by Delta's adoption, effective July 1, 1992, of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 requires that the expected cost of postretirement benefits other than pensions be charged to expense during the years that employees render service. This is a significant change from the Company's prior accounting policy of recognizing expenses for these postretirement benefits as claims were incurred. The adoption of SFAS 106 resulted in a cumulative one-time after-tax charge of $817.9 million and an increase in fiscal 1993 operating expenses of $129.0 million, and is expected to increase operating expenses by an estimated $65.0 million in fiscal 1994. The Company also adopted effective July 1, 1992, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which changed the method of accounting for income 5 taxes from the deferred method to the liability method. The adoption of SFAS 109 resulted in a cumulative one-time benefit of $230.8 million in fiscal 1993. Fiscal 1993 results were positively impacted by changes in two accounting estimates. Effective April 1, 1993, Delta revised its depreciation policy by increasing the estimated useful lives of substantially all of its flight equipment from 15 to 20 years and reducing residual values from 10% to 5% of cost. This change reduced depreciation expense by $34.3 million in fiscal 1993, and is expected to reduce depreciation expense by an estimated $126 million in fiscal 1994. Also effective April 1, 1993, Delta increased from 9% to 10% its assumption regarding the expected annual return on plan assets associated with defined benefit pension plans. This change in accounting estimate resulted in a decrease in pension expense of $12.7 million in fiscal 1993, and is expected to reduce pension expense by an estimated $56 million in fiscal 1994. Results of Operations Operating revenues for fiscal 1993 increased 11% to $12.00 billion. Passenger revenue increased 9% to $11.08 billion, the result of 13% growth in revenue passenger miles offset by a 3% decline in the passenger mile yield to 13.44 cents. Delta's traffic growth in fiscal 1993 primarily resulted from route expansion and discount fare promotions in domestic and international markets, as domestic revenue passenger miles increased 8% and international revenue passenger miles grew 35%. International traffic growth also reflects Delta's operation of the international routes acquired from Pan Am on November 1, 1991, for the entire 1993 fiscal year compared to eight months of operation during fiscal 1992. The domestic passenger mile yield for fiscal 1993 decreased 2%, and the international passenger mile yield fell 3%. Declines in passenger mile yield were primarily due to widespread domestic and international discount fares. Cargo revenues increased 19% to $697.4 million in fiscal 1993, primarily due to an increase in cargo ton miles. All other revenues were up 67% to $224.0 million, mainly due to fees collected for passenger ticket changes and additional revenue related to certain marketing programs. Operating expenses in fiscal 1993 increased 9% to $12.57 billion. Operating capacity grew 7% to 132.28 billion available seat miles, and revenue plane miles increased 5%. The cost per available seat mile increased 2% to 9.50 cents. Excluding the $82.5 million fleet restructuring charge, the cost per available seat mile increased 1% to 9.44 cents. Salaries and related expenses grew 8% to $4.80 billion, the result of higher payroll overhead costs, a 1% increase in the average level of employment, and a $129.0 million increase in operating expenses related to the Company's adoption of SFAS 106, partly offset by a 5% wage reduction for domestic noncontract personnel effective February 1, 1993, which reduced salaries expense by approximately $51.0 million, and a $12.7 million benefit from the change in accounting estimate related to pension expense. While the average level of employment increased 1% in fiscal 1993, the Company's efforts to reduce headcount resulted in a 6% decrease in active employees at June 30, 1993, compared to June 30, 1992. Aircraft fuel expense increased 7% to $1.59 billion, as fuel gallons consumed increased 6% and the average fuel cost per gallon increased 1% to 62.95 cents. Passenger commissions rose 8%, principally due to 25% of total passenger traffic travelling in international markets in fiscal 1993, compared to 21% in fiscal 1992. International commission rates are generally significantly higher than domestic rates. Depreciation and amortization expense in fiscal 1993 rose 16%, primarily from the addition of owned flight and ground equipment, as well as the November 1, 1991, acquisition of international route authorities from Pan Am, partly offset by a $34.3 million reduction related to the change in depreciation policy discussed above. Aircraft rent expense increased 13% during fiscal 1993, reflecting additional leased aircraft in the 6 fleet. Passenger service expense increased 5%, the result of traffic growth and increased catering costs related to a larger international operation, partly offset by lower food costs associated with new menus and other cost control efforts. Aircraft maintenance materials and outside repairs expense increased 4%, primarily due to the addition of new and used aircraft to the fleet, increased engine repairs expense, and a higher level of aircraft maintenance contracted outside the Company. Facilities and other rent expenses remained unchanged due to lower rental rates from the renegotiation of certain leases, the consolidation of certain city ticket offices and other cost reduction programs, offset by increases related to growth in operations and various rate increases. Landing fees rose 17%, primarily the result of rate increases and growth in international operations, where rates are generally substantially higher than domestic operations. All other operating expenses for fiscal 1993 increased 9%, primarily the result of growth in traffic and capacity, particularly in international markets. Cargo commissions increased 60%, reflecting 19% growth in cargo revenues and an increase in commission rates in international markets. Outside services expense grew 13%, primarily due to increased contracting out of certain ground services and a higher level of international departures. Bad debt expense decreased 28%, largely reflecting higher expenses in fiscal 1992 related to Delta's participation in Pan Am's failed reorganization and weaker financial positions of several competitors. Credit card service charges increased 9%, due to growth in passenger revenue and an increase in the number of tickets purchased with credit cards. Advertising and promotion expenses decreased 17%, primarily the result of cost control programs implemented during fiscal 1993 and higher levels of promotion expense during fiscal 1992 to support Delta's inauguration of service on domestic routes and the international routes purchased from Pan Am. Nonoperating expense for fiscal 1993 totaled $75.8 million, compared to $111.5 million in fiscal 1992. Interest expense rose 8% to $238.8 million, principally due to an increased level of outstanding debt. Gains from the disposition of flight equipment totaled $64.8 million in fiscal 1993, compared to $34.6 million in fiscal 1992. Miscellaneous income, net, decreased to $36.2 million in fiscal 1993 from $48.4 million in fiscal 1992, primarily due to lower interest income and a $6.2 million expense related to the settlement of certain litigation. Fiscal 1992 results included $43.0 million of nonoperating expenses included in a $50.0 million write-off in fiscal 1992 related to Delta's participation in Pan Am's failed reorganization. The $651.3 million pretax loss for fiscal 1993 was reduced by an income tax benefit of $233.6 million and by the amortization of $2.9 million of investment tax credits. The fiscal 1993 tax benefit reflects the adoption of SFAS 109, excluding the one-time cumulative benefit of $230.8 million. Financial Condition During fiscal 1993, Delta invested $1.22 billion in flight equipment, net of $104.2 million of advance payment refunds received, and $192.5 million in ground property and equipment; made net payments of $800.7 million on short- term borrowings and $518.7 million on long-term debt and capital lease obligations; and paid cash dividends of $73.8 million on its Series C Convertible Preferred Stock, $34.8 million on its Common Stock and $29.9 million on its Series B ESOP Convertible Preferred Stock. The principal sources of funds during fiscal 1993 were $1.13 billion net proceeds from the issuance of Series C Convertible Preferred Stock; $1.43 billion of long-term borrowings, including $566.1 million from the issuance of 3.23% Convertible Subordinated Notes due 2003; $683.8 million proceeds from aircraft sale and leaseback transactions; $676.9 million of cash from operations; and $87.0 million from the sale of flight equipment. Cash and cash equivalents totaled $1.18 billion at June 30, 1993, compared to $50.4 million at June 30, 1992. Long-term debt and capital lease obligations, including current maturities, totaled $3.76 billion at June 30, 1993, compared to $2.85 billion at June 30, 1992. Stockholders' equity was $1.91 billion at June 30, 1993, compared to $1.89 billion at June 30, 1992. The Company's debt-to-equity position, excluding short-term borrowings, was 66% debt and 34% equity at June 30, 1993, compared to 60% debt and 40% equity at June 30, 1992. 7 As of June 30, 1993, the Company had negative working capital of $196.9 million, compared to negative working capital of $1.84 billion at June 30, 1992. This change primarily reflects a $1.1 billion increase in cash and cash equivalents and no commercial paper or short-term notes payable at June 30, 1993, versus $800.7 million in commercial paper and short-term notes payable at June 30, 1992. 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 cash reserves, internally generated funds, debt financings, and proceeds from sale and leaseback transactions. Future expenditures for aircraft and engines on firm order as of June 30, 1993, are estimated to be approximately $3.84 billion, excluding aircraft orders subject to reconfirmation by Delta. The Company expects to finance these commitments using internally generated funds, leasing arrangements and other outside financing arrangements. THREE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 Results of Operations For the quarter ended September 30, 1993, Delta recorded unaudited net income of $60,350,000 ($0.65 primary and fully diluted earnings per common share after preferred stock dividend requirements) and income from operations of $121,540,000. In the quarter ended September 30, 1992, the Company recorded a net loss of $125,195,000 ($3.07 primary and fully diluted loss per common share after preferred stock dividend requirements) before a $587,144,000 ($11.81 primary and fully diluted per share) charge for the cumulative effect of the Company's adoption, effective July 1, 1992, of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS 109, "Accounting for Income Taxes." The loss from operations for the September 1992 quarter totaled $194,740,000. During the September 1993 quarter, the Company's results continued to be negatively impacted by uneconomic fare activity and generally weak economic conditions in the United States and much of Europe, particularly in Germany where Delta operates a hub in Frankfurt. Operating revenues in the September 1993 quarter totaled $3.22 billion, an increase of 5% from $3.06 billion recorded in the September 1992 quarter. Passenger revenue increased 5% to $2.98 billion, the result of a 9% increase in the passenger mile yield, partially offset by a 3% decrease in revenue passenger miles. During the September 1992 quarter, the passenger mile yield was depressed and revenue passenger miles were inflated by substantial fare reductions initiated by another airline and matched by Delta and other carriers. Cargo revenues increased 2% to $175.2 million during the September 1993 quarter, as cargo ton miles grew 4% and the ton mile yield decreased 2%. All other revenue increased 12% to $67.0 million, primarily due to additional revenue related to certain marketing programs. Operating expenses were $3.10 billion in the September 1993 quarter, down 5% from the September 1992 quarter. Operating capacity grew 2% to 34.83 billion available seat miles, while revenue plane miles increased 1%. Salaries and related costs decreased 5%, primarily due to a 5% reduction in the average level of employment, a 5% wage reduction for domestic non-contract personnel, and lower employee benefit expenses. Aircraft fuel expense decreased 13%, mainly due to a 14% decline in the average price per fuel gallon. Passenger commissions rose 3%, largely due to passenger revenue growth. Aircraft rent expense rose 7%, reflecting additional leased aircraft in the fleet. Depreciation and amortization expense decreased 13%, primarily the result of a change in the Company's depreciation policy, effective April 1, 1993, increasing the depreciable lives of substantially all of Delta's flight equipment from 15 to 20 years, partially offset by additional owned flight and ground equipment. Passenger service expense decreased 12%, the result of cost control programs implemented during fiscal 1993 and a decrease in passenger traffic. Aircraft maintenance materials and repairs expense decreased 18%, primarily due to lower airframe and outside repairs expense. Facilities and other rent expense decreased 2%, the result of a decrease in passenger facility rentals, partially offset by increases in certain hangar and maintenance facility rentals. Landing fees decreased 3%, primarily due to certain rate adjustments. All other operating expenses remained substantially unchanged. Nonoperating expense in the September 1993 quarter was $42.7 million, compared to $1.8 million in the September 1992 quarter. Net interest expense increased $29.8 million, due to an increased level of 8 outstanding debt, higher average interest rates and lower capitalized interest resulting from a decline in the balance of advance payments for aircraft. Miscellaneous income rose $7.2 million. Gains from the sale of flight equipment declined $18.3 million. Pretax income of $78.8 million for the September 1993 quarter resulted in an income tax provision of $18.9 million, which reflects a net income tax credit of $12.8 million due to an increase in the federal tax rate from 34% to 35%. This tax credit resulted from the Company's cumulative deferred tax assets exceeding its cumulative deferred tax liabilities. Dividends on Series C Convertible Preferred Stock and Series B ESOP Convertible Preferred Stock totaled $27.6 million. Financial Condition During the three months ended September 30, 1993, Delta invested $330.9 million in flight equipment, and $43.8 million in ground property and equipment; made net payments of $261.7 million on long-term debt and capital lease obligations; and paid $22.6 million in cash dividends. The principal sources of these funds were $321.0 million in cash from operations, $284.1 million proceeds from aircraft sale and leaseback transactions, and $21.3 million from net short-term borrowings. Cash and cash equivalents totaled $1.156 billion at September 30, 1993, compared to $1.180 billion at June 30, 1993. At September 30, 1993 and June 30, 1993, long-term debt and capital lease obligations, including current maturities, totaled $3.51 billion and $3.76 billion, respectively. Stockholders' equity was $1.95 billion at September 30, 1993, compared to $1.91 billion at June 30, 1993. The Company's debt-to-equity position, excluding short-term borrowings, was 64% debt and 36% equity at September 30, 1993, compared to 66% debt and 34% equity at June 30, 1993. During the September 1993 quarter, the Company repaid $275.0 million of the outstanding borrowings under the 1992 Bank Credit Agreement and borrowed $25.0 million under the 1991 Bank Credit Agreement. At September 30, 1993, the Company had negative working capital of $300.9 million, compared with negative working capital of $196.9 million at June 30, 1993. 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 cash reserves, internally generated funds, debt financings and proceeds from sale and leaseback transactions. At September 30, 1993, the Company had a total of $550 million of credit available under its bank credit agreements, subject to compliance with certain conditions. OTHER MATTERS Capital Expenditure Reductions During fiscal 1993, the Company implemented changes to its aircraft fleet plan that, combined with changes announced late in fiscal 1992, reduce planned capital expenditures by approximately $5.4 billion through fiscal 1996. Approximately $700.0 million of the reduction occurred in fiscal 1993, and reductions of approximately $1.4 billion, $1.7 billion, and $1.6 billion are estimated for fiscal years 1994, 1995, and 1996, respectively. The planned capital expenditure reductions were accomplished through the deferral of certain planned future aircraft orders, the deferral of deliveries and certain payments for various aircraft on firm order, and the non-exercise or deferral of certain aircraft options. On November 4, 1993, Delta announced that it had reached understandings with The Boeing Company and McDonnell Douglas Corporation to defer delivery of 32 aircraft on firm order that were previously scheduled for delivery in fiscal years 1995 and 1996, to fiscal years after fiscal 1996. These deferrals, which are subject to the completion of definitive agreements with the aircraft manufacturers and related suppliers, would result in a reduction in previously planned aircraft capital expenditures of approximately $1 billion through fiscal year 1996. This reduction is in addition to the capital expenditure reductions described in the preceding paragraph. Profit Improvement Activities During fiscal 1993, Delta took various actions to improve its operating results and to reduce expenditures. These include the implementation of a long- term program to improve operating results, primarily through cost reductions. Under this initiative, Delta improved its operating results by $425 million in fiscal 1993, and expects to increase improvements to approximately $541 million in fiscal 1994 and to 9 approximately $700 million annually in and after fiscal 1995. The Company achieved or expects to achieve these improvements by, among other things, consolidating certain facilities, streamlining certain hub city flight complexes, improving personnel productivity, making greater use of independent contractor personnel and increasing its focus on seasonal flight scheduling. Also in fiscal 1993, the Company reduced staffing by six percent from the previous year, implemented a five percent salary reduction for domestic noncontract personnel effective February 1, 1993, and made changes to Delta's medical and dental plans and vacation policy to reduce costs. Early Retirement Program During the September 1993 quarter, Delta announced an early retirement program for up to approximately 3,100 eligible personnel in selected departments of the Company, for retirements effective on November 1, 1993. While the actuarial evaluations have not been finalized, the Company expects to record a one-time operating charge during the December 1993 quarter in the range of $100 million, relating to the early retirement of approximately 1,500 personnel. Credit Ratings During fiscal 1993, Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P") lowered the Company's credit ratings citing, among other reasons, an adverse industry environment, weak operating performance, industry overcapacity, foreign investment in several U.S. airlines, and weak demand due to a slow U.S. economic recovery and recession in Europe. Delta's lowered credit ratings have increased the Company's borrowing costs and limited its access to the commercial paper market. Due to this limited access, Delta substituted certain borrowings under its 1991 and 1992 Bank Credit Agreements and, on an interim basis, short-term bank notes for commercial paper. In the event Delta's credit ratings are lowered further, Delta may experience additional increases in its borrowing costs and further limitation of its access to the capital markets. ESOP NOTES At September 30, 1993, there were outstanding $432.0 million principal amount of Guaranteed Serial ESOP Notes ("ESOP Notes") guaranteed by Delta. The ESOP Notes, which were issued in three series pursuant to certain note purchase agreements ("Note Purchase Agreements"), have final maturity dates between July 1, 1999 and January 1, 2009. The Note Purchase Agreements require Delta to purchase the ESOP Notes at the option of the holders thereof ("Noteholders") if the credit rating of Delta's long-term senior unsecured debt falls below Baa3 by Moody's and BBB- by S&P ("Purchase Event"); provided that Delta has no obligation to purchase the ESOP Notes under the Note Purchase Agreements so long as it obtains, within 127 days of a Purchase Event, certain credit enhancements ("Approved Credit Enhancement") that result in the ESOP Notes being rated A3 or higher by Moody's and A- or higher by S&P (the "Required Ratings"). If Delta is required to purchase the ESOP Notes because of the occurrence of a Purchase Event, such purchase would be made at a price ("Purchase Price") equal to the outstanding principal amount of the ESOP Notes being purchased, together with accrued interest and a Make Whole Premium Amount. The Make Whole Premium Amount for each series of ESOP Notes is based on, among other factors, the yield to maturity of U.S. Treasury Notes having maturities equal to the remaining average life to maturity of such series as of the date Delta purchases the ESOP Notes ("Purchase Date"). As a result of Moody's rating action on May 11, 1993, a Purchase Event occurred and Delta became obligated to purchase on September 15, 1993, any ESOP Notes properly tendered to it. Assuming the yields to maturity of U.S. Treasury Notes on August 12, 1993 were in effect as of a September 15, 1993 Purchase Date, the aggregate estimated Make Whole Premium Amount for all ESOP Notes would have been approximately $114.1 million. Any Make Whole Premium Amount paid by Delta would be recorded as a non-operating charge in Delta's statements of operations. 10 On August 12, 1993, Delta obtained an Approved Credit Enhancement in the form of a letter of credit in the amount of $699.1 million ("Letter of Credit") to credit enhance the ESOP Notes. The Letter of Credit was issued by NationsBank of Georgia, National Association ("NationsBank") in favor of Wilmington Trust Company, as trustee ("Trustee"), under Delta's 1992 Bank Credit Agreement. The Letter of Credit, which is scheduled to expire on December 4, 1996, covers the $432.0 million outstanding principal amount of the ESOP Notes, up to $220.0 million of Make Whole Premium Amount and approximately one year of interest on the ESOP Notes. Due to the issuance of the Letter of Credit, the ESOP Notes received the Required Ratings. Accordingly, Delta no longer has an obligation to purchase the ESOP Notes as a result of the Purchase Event that occurred on May 11, 1993. Delta, the Trustee, and Fidelity Management Trust Company, as ESOP trustee, entered into an Indenture of Trust, dated as of August 1, 1993 (the "ESOP Indenture"), that contains certain terms and conditions relating to the Letter of Credit. The ESOP Indenture requires the Trustee to draw under the Letter of Credit to make regularly scheduled payments of principal and interest on the ESOP Notes. The ESOP Indenture also requires the Trustee to draw under the Letter of Credit to purchase the ESOP Notes in certain circumstances in which Delta would not be required to purchase the ESOP Notes under the Note Purchase Agreements. Subject to certain conditions, the ESOP Indenture requires the Trustee to purchase the ESOP Notes at the Purchase Price at the option of the Noteholders in the event that (1) the Required Ratings on the ESOP Notes are not maintained; (2) the Letter of Credit is not extended 20 days before its scheduled expiration date; (3) Delta elects to terminate the Letter of Credit; or (4) the Trustee receives notice there has occurred an Event of Default (as defined) under the 1992 Bank Credit Agreement; unless, generally within 10 days of any such event, the ESOP Notes receive the Required Ratings due to Delta's obtaining a substitute credit enhancement or otherwise. The Required Ratings on the ESOP Notes are subject to reconsideration at any time, and to annual confirmation, by Moody's and S&P. Circumstances that might cause either rating agency to lower or fail to confirm its rating include, without limitation, a downgrading of the deposits of NationsBank below A3 by Moody's or A- by S&P, or a determination that the Make Whole Premium Amount covered by the Letter of Credit is insufficient. Subject to certain conditions, the ESOP Indenture does not permit the Trustee to purchase the ESOP Notes at the option of the Noteholders if the ESOP Notes receive the Required Ratings without the benefit of a credit enhancement. The ESOP Notes are not likely to receive the Required Ratings absent a credit enhancement unless Delta's long-term senior unsecured debt is rated at least A3 by Moody's and A- by S&P. On September 30, 1993, Delta's long-term senior unsecured debt was rated Ba1 by Moody's and BB by S&P. If the Trustee draws under the Letter of Credit to purchase the ESOP Notes, Delta is required to reimburse NationsBank under the 1992 Bank Credit Agreement by, at Delta's election, (1) immediately repaying the amount drawn; or (2) converting its reimbursement obligation to an outstanding borrowing under that Agreement. The 1992 Bank Credit Agreement is scheduled to expire on December 4, 1996. There can be no assurance that Delta will not be required to purchase the ESOP Notes at a later date. FUEL TAX The Omnibus Budget Reconciliation Act signed into law on August 10, 1993, imposes a 4.3 cents per gallon tax on commercial aviation jet fuel purchased for use in domestic operations. This new tax will become effective October 1, 1995. Based on Delta's fiscal 1993 domestic fuel requirement of 1.82 billion gallons, the new fuel tax, when effective, is expected to increase Delta's operating expenses by approximately $78.3 million annually. 11 ACQUISITION OF CERTAIN PAN AM ASSETS Asset Purchase Agreement Pursuant to an asset purchase agreement dated July 27, 1991, as amended (the "Asset Purchase Agreement"), with Pan Am, debtors-in-possession under Chapter 11 of the Bankruptcy Code, Delta purchased certain assets relating to Pan Am's Shuttle (the "Shuttle Assets") and route authorities to Europe, Asia and Africa (the "North Atlantic Assets"). The purchased assets include (1) substantially all of Pan Am's then-existing transatlantic route authorities and related beyond rights; (2) certain take-off and landing authorizations and slots; (3) equity interests in three used A310-200 aircraft as well as certain aircraft spare engines and spare parts; and (4) leasehold interests in certain airport facilities. On September 1, 1991, Delta acquired the Shuttle Assets and began operating a Boston-New York-Washington, D.C. Shuttle. On November 1, 1991, Delta purchased the North Atlantic Assets and started service between New York's John F. Kennedy International Airport and 15 nonstop transatlantic destinations; between Miami and London; between Washington, D.C. and Frankfurt; and between Frankfurt and nine nonstop destinations in Europe, the Middle East and India. Delta's purchase price under the Asset Purchase Agreement was $416 million, subject to certain adjustments. Under the Asset Purchase Agreement, Delta also assumed certain liabilities, including $65.6 million in mortgages on acquired assets and up to $100 million of Pan Am's passenger tickets under certain circumstances. In connection with these asset acquisitions, Delta hired approximately 7,800 former Pan Am personnel and entered into operating leases for 42 used aircraft. Participation in Plan of Reorganization Pursuant to a letter dated August 11, 1991, as amended on October 22, 1991 (the "Letter Agreement"), among Delta, Pan Am and the Official Committee of Unsecured Creditors of Pan Am (the "Creditors Committee"), Delta agreed, subject to certain terms and conditions, to participate in a plan of reorganization for Pan Am, to provide certain debtor-in-possession financing (the "DIP Loan") to Pan Am prior to the effective date of Pan Am's proposed plan of reorganization and to amend the Asset Purchase Agreement in certain respects (including increasing the purchase price thereunder to the purchase price indicated above). On December 1, 1991, Delta advised Pan Am that it could not agree to Pan Am's request to provide additional financing to Pan Am prior to the effective date of Pan Am's proposed plan of reorganization. Pan Am ceased operations on December 4, 1991, and its proposed plan of reorganization before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") was not confirmed. Pan Am is liquidating its assets. The $115 million principal amount of the DIP Loan, plus accrued interest of $18.9 million, is outstanding and reflected as an asset in Delta's consolidated balance sheet as of September 30, 1993. These amounts are secured by a lien on substantially all of Pan Am's remaining assets, but are subject to prior liens of approximately $60 million in favor of the Pan Am Shuttle bankruptcy estate and certain other liens on specific assets. As a result of the sale of Pan Am's assets, Delta expects Pan Am will have sufficient funds to repay in full these amounts due Delta under the DIP Loan, although there can be no assurance this will be the case. Delta believes the book value of the DIP Loan as recorded in the Company's consolidated balance sheet approximates its fair value. On February 24, 1993, Delta filed a motion requesting the Bankruptcy Court to order Pan Am to repay immediately to Delta the outstanding principal amount of the DIP Loan plus certain accrued interest. Pan Am and the Creditors Committee opposed Delta's motion, and filed a cross-motion requesting the Bankruptcy Court to provide for the repayment of the DIP Loan, if at all, at the conclusion of the lawsuit discussed below filed against Delta by Pan Am, the Creditors Committee and the Ad Hoc Committee of Administrative and Priority Creditors of Pan Am. On May 20, 1993, the Bankruptcy Court consolidated these motions with the lawsuit described in the first paragraph under "Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization" below. Delta has appealed this ruling to the United States District Court for the Southern District of New York. 12 CRAF To resolve certain claims against Pan Am by the United States Air Force (the "Air Force") related to Pan Am's participation in the Civil Reserve Air Fleet Enhancement Program ("CRAF Program"), Delta entered into an agreement in principle dated October 17, 1991, with the Air Force. Under the agreement in principle, Delta committed to the CRAF Program, for five years, aircraft having a certain point value under the CRAF Program. This commitment is currently being met by Delta's agreeing to make available 43 of its international-range aircraft for use by the military under certain stages of readiness related to national emergencies. Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization On March 6, 1992, Pan Am and the Creditors Committee, together with the Ad Hoc Committee of Administrative and Priority Creditors of Pan Am (the "Ad Hoc Committee"), filed a consolidated amended complaint (the "Complaint") in the Bankruptcy Court against Delta relating to Delta's participation in Pan Am's proposed plan of reorganization. The Complaint alleges, 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 Complaint also asserts, among other things, that Delta induced Pan Am and the Creditors Committee to approve the sale to Delta of the Shuttle Assets and the North Atlantic Assets in exchange for Delta's commitment to participate in the proposed plan of reorganization; that once it acquired the Shuttle Assets and the North Atlantic Assets, Delta, in bad faith, refused to participate in the plan of reorganization; that Delta erected substantial obstacles to the successful completion of the plan of reorganization; that Delta failed to provide all the financing it committed to provide and delayed making known its decision not to participate in the plan of reorganization until the last possible moment, thereby knowingly precipitating Pan Am's shutdown; that, following the Bankruptcy Court's approval of the sale of the Shuttle Assets and North Atlantic Assets, Delta controlled Pan Am and was an active participant in every material decision concerning Pan Am's operations, including the development of a business plan for reorganized Pan Am; and that, to the degree there was any deterioration of the business plan for reorganized Pan Am, Delta either caused or materially contributed to such deterioration. The plaintiffs are seeking to disallow, or to subordinate to the claims of Pan Am's general unsecured creditors, all claims Delta may have against Pan Am, including the repayment of the $115 million principal amount of the DIP Loan and approximately $25 million for goods and services provided by Delta to Pan Am; to impose a constructive trust for the benefit of Pan Am's creditors on the profits Delta receives or should have received from the Shuttle Assets and the North Atlantic Assets; to recover at least $2.5 billion in compensatory damages plus punitive damages, costs and attorneys' fees; and to obtain such other relief as the Bankruptcy Court deems appropriate. In addition, the Creditors Committee is seeking, independently and in its own right, unspecified compensatory and punitive damages for, among other things, loss of its potential equity interest in, and loss of employment by Pan Am employees with, a reorganized Pan Am. On April 6, 1992, Delta filed its answer denying liability under the Complaint and asserting various affirmative defenses. Additionally, Delta filed counterclaims against the Creditors Committee, its individual members and Pan Am. Delta's counterclaims allege, among other things, that the Creditors Committee and its members (1) violated their duty of good faith and fair dealing to Delta by engaging in destructive and manipulative acts which undermined Pan Am's proposed reorganization; and (2) interfered improperly with Delta's agreements with Pan Am. In its counterclaims against the Creditors Committee and its members, Delta is seeking compensatory and punitive damages in an amount to be determined at trial. In its counterclaims against Pan Am, Delta is seeking actual damages for Pan Am's failure to pay Delta amounts owed, including the DIP Loan. Pan Am filed an answer denying liability to Delta; the Creditors Committee and its members filed a motion to dismiss Delta's counterclaims. On November 5, 1992, the Bankruptcy Court denied the motion to dismiss Delta's counterclaims against the Creditors Committee, but dismissed Delta's counterclaims against the individual members of the Creditors Committee. Delta appealed this dismissal to the United States District Court for the Southern District of New York which, on August 20, 1993, dismissed Delta's appeal as not then appealable. On October 1, 1993, Delta filed a motion with the District Court requesting that Court, rather than the Bankruptcy Court, to conduct the trial of this action; Pan Am, the 13 Creditors Committee and the Ad Hoc Committee are opposing this motion. It is expected that the trial of this action will occur during the first six months of 1994. Several other legal actions relating to Delta's participation in Pan Am's proposed plan of reorganization are also pending including, among others, the following actions. Pan Am, which has been sued by the Air Force for, among other things, $382.4 million for Pan Am's alleged breach of its obligations under the CRAF Program, has filed a third party complaint in the Bankruptcy Court against Delta alleging that, to the extent the Air Force has a valid claim against Pan Am, Pan Am is entitled to recover from Delta such amounts as are required to satisfy any such claim. On April 6, 1992, Delta filed its answer denying liability under Pan Am's third party complaint and asserting various affirmative defenses. Additionally, Delta filed a counterclaim against Pan Am and a third party complaint against the Creditors Committee and its individual members. Delta's counterclaim and third party complaint in this case are similar to Delta's counterclaims against Pan Am, and the Creditors Committee and its members, respectively, described in the preceding paragraph. Pan Am filed an answer denying liability to Delta; the Creditors Committee and its members filed a motion to dismiss Delta's third party complaint. On November 5, 1992, the Bankruptcy Court denied the motion to dismiss Delta's third party complaint against the Creditors Committee, but dismissed Delta's third party complaint against the individual members of the Creditors Committee. Delta appealed this dismissal to the United States District Court for the Southern District of New York which, on August 20, 1993, dismissed Delta's appeal as not then appealable. On March 12, 1992, a purported class action complaint was filed against Delta in the United States District Court for the Southern District of New York by former Pan Am employees who allege, among other things, that they were intended third-party beneficiaries of Delta's agreement with Pan Am to participate in Pan Am's proposed plan of reorganization. The former employees, who are seeking a jury trial, make allegations and claims similar to those asserted in the Complaint described above. The former employees are seeking damages of at least $1.1 billion for loss of employment, loss of continued wages and benefits with a reorganized Pan Am and out-of-pocket losses; costs and attorneys' fees; and other unspecified relief. On July 8, 1992, Delta filed its answer denying liability in this lawsuit and asserting various affirmative defenses. Additionally, Delta filed a third party complaint against the Creditors Committee, its individual members and Pan Am alleging that these parties are liable to Delta for any amounts that plaintiffs in this lawsuit may recover from Delta. Pan Am filed an answer denying liability to Delta; the Creditors Committee and its members filed a motion to dismiss Delta's third party complaint. On December 4, 1992, the District Court dismissed Delta's third party complaint against the Creditors Committee and its members, but granted Delta permission to replead its claims. On January 25, 1993, Delta filed an amended third party complaint against the Creditors Committee and its members, who filed a motion to dismiss Delta's amended claims. The District Court (1) denied plaintiffs' motion for class action certification on March 10, 1993; (2) reaffirmed its order denying class action certification on August 6, 1993; and (3) denied the motion by the Creditors Committee and its members to dismiss Delta's amended third party complaint on August 18, 1993. On September 24, 1993, the Creditors Committee and its members answered Delta's amended third party complaint, denying liability to Delta and asserting various affirmative defenses. On October 1, 1993, the plaintiffs requested the District Court to reconsider its order denying plaintiffs' motion for class action certification or, alternatively, to permit an immediate appeal of that order. On September 10, 1992, a lawsuit was filed against Delta in the United States District Court for the Southern District of New York by approximately 120 former Pan Am pilots who make allegations and claims similar to those asserted in the purported class action complaint by former Pan Am employees described in the preceding paragraph. The plaintiffs, who have requested a jury trial, are seeking unspecified damages for lost wages and benefits and out-of-pocket losses; costs and attorneys fees; and other unspecified relief. On January 8, 1993, Delta filed its answer denying liability in this lawsuit and asserting various affirmative defenses. Additionally, Delta filed a third party complaint against the Creditors Committee and its individual members alleging that these parties are liable to Delta for any amounts that plaintiffs in this lawsuit may recover from Delta. The Creditors Committee and its members filed a motion to dismiss Delta's third party complaint. On August 18, 1993, the District Court denied this motion. On September 24, 1993, the Creditors 14 Committee and its members answered Delta's third party complaint, denying liability to Delta and asserting various affirmative defenses. A purported class action complaint was commenced against Delta in the Supreme Court of the State of New York, County of New York, on behalf of participants in Pan Am's WorldPass Frequent Flyer Program ("WorldPass") who elected to obtain Pan Am WorldPass travel certificates rather than to transfer their accumulated miles into Delta's Frequent Flyer Program. The WorldPass participants are seeking unspecified damages, costs and attorneys' fees and other unspecified relief. Delta has removed this action to the Bankruptcy Court. On April 6, 1992, Delta filed its answer denying liability in this lawsuit and asserting various affirmative defenses. Delta believes that it complied with all of its obligations to Pan Am and the Creditors Committee and that the actions filed against it are without merit, and it intends to defend these matters vigorously. Although the ultimate outcome of these matters cannot be predicted with certainty and could have a material adverse effect on Delta's consolidated financial condition, results of operations or liquidity, management presently believes that the resolution of these actions is not likely to have a material adverse effect on Delta's consolidated financial condition, results of operations or liquidity. It is possible that other actions and claims will be filed against Delta relating to its participation in Pan Am's proposed plan of reorganization. OTHER LITIGATION MATTERS On June 22, 1992, Delta, American Airlines, Inc., United Airlines, Inc., USAir, Inc. and the Airline Tariff Publishing Company, an industry-owned computerized fare publishing service ("ATP"), agreed to settle class action claims asserted against them and other U.S. air carriers in the Domestic Air Transportation Antitrust Litigation pending in the United States District Court in Atlanta, Georgia. The class action suit, which was filed in July 1990, alleges that the airlines use ATP to signal and communicate carrier pricing intentions and otherwise limit price competition for travel to and from numerous hub airports. Under the terms of the settlement, the four air carriers agreed to pay an aggregate of $44 million in cash (of which Delta's share was approximately $12 million) and to issue $368.5 million in certificates valid for purchase of domestic air travel on any of the four airlines. An additional $28 million in interchangeable certificates will be issued, in the aggregate, by two other airlines. The certificates would provide a dollar-for-dollar discount against the cost of a ticket of up to 20% on round-trip tickets priced under $100, and of up to 10% on the cost of other airline tickets. The certificates would be usable for a period of up to five years, subject to certain restrictions. On March 22, 1993, the District Court approved the settlement. Delta recorded its $12 million share of the cash settlement as a nonoperating expense during the quarter ended June 30, 1992. Delta will account for the certificates that are redeemed for travel on Delta as a reduction to revenue equal to the value of the redeemed certificates when transportation is provided. Delta anticipates that its share of certificate redemption will approximate, but will not necessarily be limited to, its relative domestic market share among the six settling carriers, which was approximately 22% in calendar year 1992. Assuming that 22% of the $396.5 million in certificates are redeemed for travel on Delta, the Company would provide approximately $87 million in revenue discounts related to the certificates. Because, among other reasons, the certificates can be redeemed on any of the six settling carriers, Delta's actual share of certificate redemptions could differ from these estimates. On December 21, 1992, the U.S. Department of Justice (the "DOJ") filed a civil complaint in the United States District Court for the District of Columbia against Delta, seven other major domestic airlines and the ATP. The complaint alleges that the defendants and unnamed co-conspirators violated Section 1 of the Sherman Act by engaging in price fixing and by operating the ATP computerized fare exchange system in a manner that unreasonably restrains competition in the domestic air passenger transportation system. The DOJ is seeking, among other things (1) an injunction prohibiting each defendant for a period of 10 years from agreeing with any other airline to fix prices, and from disseminating certain information concerning planned or contemplated fares or fare changes; (2) the costs of this suit; and (3) such other relief as the Court may deem proper. Two of the airline defendants, United Airlines, Inc. and USAir, Inc., have entered into a stipulation with the DOJ under which those airlines consented to a final judgment which, among other 15 things, restricts them from disseminating certain information regarding airline fares. The final judgment states that it shall not be evidence against or an admission by any party with respect to any issue of fact or law. On January 25, 1993, Delta filed its answer denying liability in this lawsuit and asserting various affirmative defenses. The trial of this action is scheduled to begin on October 4, 1994. The Attorney General of the State of New York and the Attorneys General of several other states are investigating whether several major airlines, including Delta, have engaged in price fixing and other unlawful restraints of trade. The State of New York has issued a subpoena to the Company and several other major airlines requiring them to provide certain information and documents. On September 27, 1993, the Company received a civil investigative demand from the DOJ seeking information concerning Delta's Salt Lake City operations and marketing programs, including commissions paid to travel agents. Delta is cooperating with the investigation, which seeks to determine whether Delta has monopolized or attempted to monopolize air transportation markets to and from Salt Lake City. OUTLINE OF PASS THROUGH TRUST STRUCTURE For each Series of Pass Through Certificates (as such terms are defined below) offered pursuant to this Prospectus and a related Prospectus Supplement, a separate pass through trust (a "Pass Through Trust") will be formed pursuant to a supplemental agreement (a "Series Supplement") between Delta and NationsBank of South Carolina, National Association, not in its individual capacity but solely as pass through trustee (the "Pass Through Trustee"), in accordance with a pass through trust agreement (the "Pass Through Agreement") between Delta and the Pass Through Trustee, for the benefit of the registered holders (the "Certificateholders") of the series (a "Series") of certificates (the "Pass Through Certificates") evidencing fractional undivided interests in such Pass Through Trust. The property held in each Pass Through Trust (the "Trust Property") will consist of equipment trust certificates (the "Equipment Trust Certificates") issued in connection with one or more leveraged lease transactions. As more fully described below under "Use of Proceeds," in connection with each leveraged lease transaction, one or more Equipment Trust Certificates may be issued, each of which may have a different interest rate and final maturity date. Concurrently with the execution and delivery of each Series Supplement, the Pass Through Trustee, on behalf of the related Pass Through Trust, will enter into one or more participation agreements (each, a "Participation Agreement") pursuant to which it will, among other things, purchase one or more Equipment Trust Certificates issued in connection with one or more leveraged lease transactions, such that the Equipment Trust Certificates that constitute the property of such Pass Through Trust will have identical interest rates, in each case equal to the rate applicable to the Pass Through Certificates issued by such Pass Through Trust, and such that the latest maturity date for such Equipment Trust Certificates will occur on or before the final distribution date applicable to such Pass Through Certificates. For each Pass Through Trust, the aggregate amount of the related Series of Pass Through Certificates will equal the aggregate principal amount of the Equipment Trust Certificates constituting the Trust Property of such Pass Through Trust. The Pass Through Trustee will distribute the amount of payments of principal, premium, if any, and interest, received by it as holder of the Equipment Trust Certificates to the Certificateholders of the Pass Through Trust in which such Equipment Trust Certificates are held. See "Description of the Pass Through Certificates" and "Description of the Equipment Trust Certificates." USE OF PROCEEDS Each Series of Pass Through Certificates offered pursuant to this Prospectus and a related Prospectus Supplement will be issued to facilitate the financing or refinancing of the debt portion and, in certain cases, to refund all or part of the equity portion of one or more separate leveraged lease transactions entered into by Delta, as lessee, with respect to each of the aircraft (each, an "Aircraft") specified in such Prospectus Supplement. Each Prospectus Supplement will specify the type and model of Aircraft relating to the Pass Through Certificates offered thereby, the Engines with which each such Aircraft is equipped and when such 16 Aircraft was delivered new by the manufacturer to Delta or the Owner Trustee, as the case may be. The proceeds from the sale of such Pass Through Certificates will be used by the Pass Through Trustee on behalf of the related Pass Through Trust to purchase Equipment Trust Certificates to be issued as non-recourse obligations by certain owner trustees (each an "Owner Trustee"), each acting not in its individual capacity but solely as the Owner Trustee of a separate owner trust (in each case, an "Owner Trust" created pursuant to a separate "Trust Agreement") for the benefit of the owner participant named therein (in each case, an "Owner Participant"), in connection with one or more leveraged lease transactions, in each case to finance or refinance not more than, unless otherwise specified in such Prospectus Supplement, 80% of the payment by each such Owner Trust of the purchase price for an Aircraft which has been or will be leased by the related Owner Trustee to Delta. To the extent that any proceeds from the sale of the Pass Through Certificates for any Pass Through Trust have not been applied by the Pass Through Trustee by the date specified in the applicable Prospectus Supplement to the purchase of the Equipment Trust Certificates that were contemplated to be held in such Pass Through Trust, such proceeds will be distributed on the date specified in such Prospectus Supplement to the related Certificateholders on a pro rata basis, together with interest accrued thereon. See "Description of the Pass Through Certificates--Special Distribution Upon Unavailability of Trust Property." For each Aircraft, the related Equipment Trust Certificates have been or will be issued by the Owner Trustee and authenticated by a bank or trust company as indenture trustee (in each case, an "Indenture Trustee") under a separate trust indenture and security agreement (each, an "Indenture") between the Owner Trustee and the Indenture Trustee. Each Owner Participant will have provided or will provide, from sources other than the related Equipment Trust Certificates, at least, unless otherwise specified in the applicable Prospectus Supplement, 20% of the purchase price for the related Aircraft. No Owner Participant, however, will be personally liable for any amount payable under the related Indenture or the Equipment Trust Certificates issued thereunder. DESCRIPTION OF THE PASS THROUGH CERTIFICATES In connection with each offering of Pass Through Certificates, one or more separate Pass Through Trusts will be formed, and one or more corresponding Series of Pass Through Certificates will be issued, pursuant to the Pass Through Agreement and one or more separate Series Supplements to be entered into between Delta and the Pass Through Trustee. The following summary relates to the Pass Through Agreement and each of the Series Supplements, the Pass Through Trusts to be formed thereby and the Pass Through Certificates to be issued by each Pass Through Trust, except as otherwise described in the applicable Prospectus Supplement. The discussion that follows is a summary and does not purport to be complete. The summary includes descriptions of the material terms 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). The Series Supplement relating to each Series of Pass Through Certificates and the forms of the Leases, Participation Agreements and Indentures relating thereto will be filed as exhibits to a post-effective amendment to this Registration Statement, a Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K, as applicable, to be filed with the Commission in connection with the issuance of each such Series of Pass Through Certificates. This summary makes use of terms defined in and is qualified in its entirety by reference to the Pass Through Agreement. Each Prospectus Supplement will include a glossary of certain defined terms used in connection with the Pass Through Certificates offered thereby and the related Equipment Trust Certificates. GENERAL Unless otherwise provided in the applicable Series Supplement, the Pass Through Certificates will be issued in fully registered, certificated form. Each Pass Through Certificate will represent a fractional undivided interest in the separate Pass Through Trust formed by the Pass Through Agreement and the related Series Supplement pursuant to which such Pass Through Certificate is issued. The property of each Pass Through 17 Trust will include the Equipment Trust Certificates held in such Pass Through Trust, all monies at any time paid thereon, all monies due and to become due thereunder and funds from time to time deposited with the Pass Through Trustee in accounts relating to such Pass Through Trust. Each Pass Through Certificate will represent a pro rata share of the outstanding principal amount of the Equipment Trust Certificates and other property held in the related Pass Through Trust and will be issued, unless otherwise specified in the applicable Prospectus Supplement, in minimum denominations of $1,000 or any integral multiple of $1,000. Certificated Pass Through Certificates will be freely transferable and exchangeable at the office of the Pass Through Trustee upon compliance with the requirements set forth in the Pass Through Agreement and the applicable Series Supplement. No service charge will be imposed for any registration of transfer or exchange, but payment of a sum sufficient to cover any tax or other governmental charge may be required. (Pass Through Agreement, Article II) If the applicable Series Supplement so provides, Pass Through Certificates will be registered in the name of Cede & Co. ("Cede") as the nominee of The Depository Trust Company ("DTC") and no person acquiring an interest in Pass Through Certificates (a "Certificate Owner") will be entitled to receive a certificated Pass Through Certificate representing such person's interest in the related Pass Through Trust unless such certificates are issued as described below. Unless certificated Pass Through Certificates are issued, all references to actions by Certificateholders shall refer to actions taken by DTC upon instructions from DTC Participants (as defined below), and all references herein to distributions, notices, reports and statements to Certificateholders shall refer, as the case may be, to distributions, notices, reports and statements to DTC or Cede, as the registered holder of the Pass Through Certificates, or to DTC Participants for distribution to Certificate Owners in accordance with DTC procedures. See "Description of the Pass Through Certificates--Book-Entry Procedures." Interest will be passed through to Certificateholders of each Pass Through Trust at the rate per annum payable on the Equipment Trust Certificates held in such Pass Through Trust, as set forth for such Pass Through Trust on the cover page of the applicable Prospectus Supplement. The Pass Through Certificates represent interests in the related Pass Through Trust only and all payments and distributions shall be made only from the Trust Property of such Pass Through Trust. (Pass Through Agreement, Section 3.06) The Pass Through Certificates do not represent an interest in or obligation of Delta, the Pass Through Trustee, any Owner Participant, any Owner Trustee in its individual capacity, or any affiliate of any thereof. Each Certificateholder by its acceptance of a Pass Through Certificate agrees to look solely to the income and proceeds from the property held in the related Pass Through Trust as provided in the Pass Through Agreement and the applicable Series Supplement. The Pass Through Agreement does not and, except as otherwise described in the applicable Prospectus Supplement, the Indentures will not, include covenants that would afford Certificateholders protection in the event of a highly leveraged or other transaction involving Delta that might adversely affect such Certificateholders. BOOK-ENTRY PROCEDURES If the applicable Prospectus Supplement so provides, Pass Through Certificates will be subject to the provisions described below. Upon issuance, each Series of Pass Through Certificates will be represented by one fully registered global certificate. Each global certificate will be deposited with, or on behalf of, DTC, and registered in its name or in the name of Cede, its nominee. No Certificate Owner will be entitled to receive a certificated Pass Through Certificate, except as set forth below. DTC has advised Delta that DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants ("DTC Participants") and to facilitate the clearance and settlement of securities transactions among DTC Participants through electronic book-entries, thereby eliminating the need for physical movement of certificates. DTC Participants include 18 securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. Certificate Owners that are not DTC Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests, in Pass Through Certificates may do so only through DTC Participants. In addition, Certificate Owners will receive all distributions of principal and interest from the Pass Through Trustee through the DTC Participants. Under the rules, regulations and procedures creating and affecting DTC and its operation, DTC is required to make book-entry transfers of Pass Through Certificates among DTC Participants on whose behalf it acts and to receive and transmit distributions of principal of, and interest on, the Pass Through Certificates. Under the book-entry system, Certificate Owners may experience some delay in their receipt of payments, since such payments will be forwarded by the Pass Through Trustee to Cede, as nominee for DTC, and DTC in turn will forward the payments to the appropriate DTC Participants. Distributions by DTC Participants to Certificate Owners will be the responsibility of such DTC Participants and will be made in accordance with customary industry practices. Accordingly, although Certificate Owners will not have possession of the Pass Through Certificates, the rules of DTC provide a mechanism by which participants will receive payments and will be able to transfer their interests. Although the DTC Participants are expected to convey the rights represented by their interests in any global security to the related Certificate Owners, because DTC can only act on behalf of DTC Participants, the ability of Certificate Owners to pledge Pass Through Certificates to persons or entities that are not DTC Participants, or to otherwise act with respect to such Pass Through Certificates, may be limited due to the lack of physical certificates for such Pass Through Certificates. None of Delta, the Pass Through Trustee or any other agent of Delta or the Pass Through Trustee will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Pass Through Certificates or for supervising or reviewing any records relating to such beneficial ownership interests. Since the only "Certificateholder" will be Cede, as nominee of DTC, Certificate Owners will not be recognized by the Pass Through Trustee as Certificateholders, as such term is used in the Pass Through Agreement, and Certificate Owners will be permitted to exercise the rights of Certificateholders only indirectly through DTC and DTC Participants. For any Series of Pass Through Certificates represented by a global certificate deposited with DTC, if DTC advises the Pass Through Trustee that it is unwilling or unable to continue as the depository for such Pass Through Certificates or DTC is no longer a clearing agency under the Exchange Act, and Delta does not appoint a successor depository under the Pass Through Agreement and the applicable Series Supplement, or if Delta, at its option, elects to terminate the book-entry system for such Pass Through Certificates, then the Pass Through Trustee will notify the related Certificate Owners through the DTC Participants that such Pass Through Certificates will be issued in fully registered, certificated form. Upon surrender by DTC of the definitive global certificate representing the series of Pass Through Certificates and receipt of instructions for reregistration, the Pass Through Trustee will reissue the Pass Through Certificates in certificated form to Certificate Owners or their nominees. (Pass Through Agreement, Section 2.12) Same-Day Settlement and Payment. All payments made by Delta to the related Indenture Trustee under each Lease will be in immediately available funds and will be passed through to DTC in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearinghouse or next-day funds. In contrast, the Pass Through Certificates will trade in DTC's Same Day Funds Settlement System until maturity, and secondary market trading activity in the Pass Through Certificates will therefore be required by DTC to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Pass Through Certificates. 19 PAYMENTS AND DISTRIBUTIONS Delta will make scheduled rental payments for each Aircraft under the related Lease. These scheduled rental payments will be assigned under the applicable Indenture by the related Owner Trustee to the related Indenture Trustee to provide the funds necessary to make the corresponding payments of principal and interest due from such Owner Trustee on the Equipment Trust Certificates issued under such Indenture which will be held in one or more Pass Through Trusts. After the related Indenture Trustee has made such principal and interest payments to the Pass Through Trustee for each of the Pass Through Trusts on the Equipment Trust Certificates held in such Pass Through Trust, the Indenture Trustee will, except under certain circumstances, pay the remaining balance to the related Owner Trustee for the benefit of the related Owner Participant. The Pass Through Trustee for each such Pass Through Trust will distribute to the Certificateholders of such Pass Through Trust payments received on the Equipment Trust Certificates held in such Pass Through Trust as described below. Payments of principal of and interest on the Equipment Trust Certificates held in each Pass Through Trust received by the Pass Through Trustee will be distributed by the Pass Through Trustee to the Certificateholders of such Pass Through Trust on the date such receipt is confirmed, except in certain cases when some or all of such Equipment Trust Certificates are in default. See "Description of the Pass Through Certificates--Events of Default and Certain Rights Upon an Event of Default." Payments of principal of, and interest on the unpaid amount of, the Equipment Trust Certificates held in each Pass Through Trust will be scheduled to be received by the Pass Through Trustee on the dates specified in the applicable Prospectus Supplement (such scheduled payments of principal of, and interest on, the Equipment Trust Certificates are referred to herein as "Scheduled Payments," and the dates specified for distributions of Scheduled Payments to the Pass Through Trustee in the applicable Prospectus Supplement are referred to herein as "Regular Distribution Dates"). For each Pass Through Trust, the Pass Through Trustee will distribute on each Regular Distribution Date to the related Certificateholders any Scheduled Payment the receipt of which is confirmed by the Pass Through Trustee on such Regular Distribution Date. Each such distribution of a Scheduled Payment will be made by the Pass Through Trustee to the Certificateholders of record of such Pass Through Trust on the fifteenth day prior to such Regular Distribution Date, subject to certain exceptions. Each such Certificateholder will be entitled to receive a pro rata share of any such distribution. (Pass Through Agreement, Sections 5.01 and 5.02) If a Scheduled Payment is not received by the Pass Through Trustee on or before a Regular Distribution Date but is received within five Business Days thereafter, it will be distributed on the date received to such Certificateholders of record. If it is received after such five Business Day period, it is an Overdue Scheduled Payment. Such an Overdue Scheduled Payment will be treated as a Special Payment and will be distributed as described below. After any prepayment of principal, any redemption or any default in respect of some or all of the Equipment Trust Certificates held in any Pass Through Trust, any Certificateholder of such Pass Through Trust should refer to the Pool Balance and the Pool Factor (as such terms are defined below) for such Pass Through Trust reported periodically by the Pass Through Trustee. See "Description of the Pass Through Certificates--Pool Factors" and "Description of the Pass Through Certificates--Statements to Certificateholders." For any Pass Through Trust, any (a) payments other than Scheduled Payments, received by the Pass Through Trustee on any of the Equipment Trust Certificates held in such Pass Through Trust, including payments received for the redemption thereof in connection with certain events specified in the applicable Prospectus Supplement (including payments upon the unavailability of Trust Property described below), (b) following a default in respect of such Equipment Trust Certificates, any proceeds received upon the sale of such Equipment Trust Certificates by the Pass Through Trustee or (c) any payment by Delta representing interest that would have accrued on Equipment Trust Certificates that were to have been purchased on a delayed basis (as described below under "Delayed Purchases") (such payments are referred to herein as "Special Payments"), will be distributed on the dates determined as set forth in the applicable Prospectus Supplement (each, a "Special Distribution Date"). Prior to any Special Payment for any Pass Through Trust, the Pass Through Trustee will notify the Certificateholders of record of such Pass Through Trust of such 20 Special Payment and the related anticipated Special Distribution Date in accordance with the Pass Through Agreement. Each distribution of a Special Payment, other than the final distribution, for any Pass Through Trust will be made by the Pass Through Trustee to the Certificateholders of record of such Pass Through Trust on the fifteenth day prior to such Special Distribution Date, unless otherwise specified in the applicable Prospectus Supplement. Each such Certificateholder will be entitled to receive a pro rata share of any such distribution. (Pass Through Agreement, Section 5.02) See "Description of the Equipment Trust Certificates-- Redemption" and "Description of the Pass Through Certificates--Events of Default and Certain Rights Upon an Event of Default." The Pass Through Agreement requires that the Pass Through Trustee establish and maintain, for each Pass Through Trust and for the benefit of the related Certificateholders, one or more non-interest bearing accounts (the "Certificate Account") for the deposit of Scheduled Payments on the Equipment Trust Certificates held in such Pass Through Trust and one or more accounts which will, except in connection with Permitted Investments discussed below, be non- interest bearing (the "Special Payments Account") for the deposit of Special Payments on such Equipment Trust Certificates. The Pass Through Trustee is required to deposit any Scheduled Payments relating to a Pass Through Trust received by it in the related Certificate Account and to deposit any Special Payments so received by it in the related Special Payments Account pending distribution thereof. (Pass Through Agreement, Section 5.01) Special Payments that are not promptly distributed by the related Pass Through Trustee will, to the extent practicable, be invested by the Pass Through Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date, and the income and earnings on such investment will be distributed with such Special Payment. "Permitted Investments" are non-callable obligations of the United States of America maturing on or prior to the day required for the distribution of any such funds on a Special Distribution Date. (Pass Through Agreement, Article I and Section 5.04) When the Pass Through Certificates of any Pass Through Trust are issued in the form of certificated Pass Through Certificates and not to Cede, as nominee for DTC, distributions by the Pass Through Trustee from the Certificate Account or the Special Payments Account of such Pass Through Trust on a Regular Distribution Date or a Special Distribution Date will be paid to each Certificateholder of record of such Pass Through Trust on the applicable record date at its address appearing on the register maintained for such Pass Through Trust. (Pass Through Agreement, Section 5.02) The final distribution for each Pass Through Trust, however, will be made only upon presentation and surrender of the Pass Through Certificates for such Pass Through Trust at the office or agency of the Pass Through Trustee specified in the notice given by the Pass Through Trustee of such final distribution. The Pass Through Trustee will mail such notice of the final distribution to the Certificateholders of such Pass Through Trust, specifying the date set for such final distribution and the amount of such distribution. (Pass Through Agreement, Section 12.01) See "Description of the Pass Through Certificates--Termination of Pass Through Trusts." 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. (Pass Through Agreement, Section 13.15) POOL FACTORS Unless, for one or more Equipment Trust Certificates held in a Pass Through Trust, there has been a redemption or purchase prior to the maturity date therefor, or certain occurrences following a default thereon, as discussed in the applicable Prospectus Supplement or below in "Description of the Pass Through Certificates--Events of Default and Certain Rights Upon an Event of Default," the Pool Factor (as defined below) for such Pass Through Trust will decline in proportion to the scheduled repayments of principal on the Equipment Trust Certificates held in such Pass Through Trust as described in the applicable Prospectus Supplement. In the event of such redemption, purchase or occurrence following default, the Pool Factor and the Pool Balance (as defined below) of such Pass Through Trust will be recomputed after giving effect thereto and notice thereof will be mailed to the Certificateholders of such Pass Through Trust. Each Pass Through Trust will have a separate Pool Factor. 21 Unless otherwise described in the applicable Prospectus Supplement, the "Pool Balance" for each Pass Through Trust indicates, as of any date, the aggregate unpaid principal amount of the Equipment Trust Certificates held in such Pass Through Trust on such date plus any amounts in respect of principal on such Equipment Trust Certificates held by the Pass Through Trustee and not yet distributed plus any amounts transferred to Delta and deposited in a deposit trust account in connection with a delayed purchase of the Equipment Trust Certificates as discussed below. The Pool Balance for each Pass Through Trust as of any Regular Distribution Date or Special Distribution Date will be computed after giving effect to the payment of principal, if any, on the Equipment Trust Certificates held in such Pass Through Trust and the distribution thereof being made on that date. (Pass Through Agreement, Article I) Unless otherwise described in the applicable Prospectus Supplement, the "Pool Factor" for each Pass Through Trust as of any Regular Distribution Date or Special Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance, by (ii) the aggregate original principal amount of the Equipment Trust Certificates held in such Pass Through Trust. The Pool Factor for each Pass Through Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Trust Certificates held in such Pass Through Trust and the distribution thereof being made on that date. The Pool Factor for each Pass Through Trust will initially be 1.0; thereafter, the Pool Factor for each Pass Through Trust will decline as described above to reflect reductions in the Pool Balance of such Pass Through Trust. For any Pass Through Trust, the amount of any Certificateholder's pro rata share of the Pool Balance of such Pass Through Trust can be determined by multiplying the original denomination of such Certificateholder's Pass Through Certificate by the Pool Factor for such Pass Through Trust as of the applicable Regular Distribution Date or Special Distribution Date. (Pass Through Agreement, Article I) STATEMENTS TO CERTIFICATEHOLDERS On each Regular Distribution Date and Special Distribution Date, the Pass Through Trustee will include with each distribution of a Scheduled Payment or Special Payment to Certificateholders of record of the related Pass Through Trust a statement, giving effect to such distribution being made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 in face amount of Pass Through Certificates for such Trust, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and allocable to premium, if any, on the related Equipment Trust Certificates; (ii) the amount of such distribution allocable to interest thereon; and (iii) the Pool Balance and the Pool Factor for such Pass Through Trust. In addition, after the end of each calendar year, the Pass Through Trustee will prepare for each Certificateholder of each Pass Through Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i) and (ii) above with respect to each such Pass Through Trust for such calendar year or, in the event such person was a Certificateholder during a portion of such calendar year, for the applicable portion of such calendar year. (Pass Through Agreement, Section 5.03) When the Pass Through Certificates of any Pass Through Trust are represented by a global certificate deposited with DTC, such report and such other items will be prepared on the basis of information supplied to the Pass Through Trustee by the DTC Participants, and shall be delivered by the Pass Through Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. At such time, if any, as the Pass Through Certificates of a Pass Through Trust are issued in the form of certificated Pass Through Certificates, the Pass Through Trustee will prepare and deliver the information described above to each Certificateholder of record of such Pass Through Trust as the name and period of record ownership of such Certificateholder appears on the Register for such Pass Through Trust. 22 VOTING OF EQUIPMENT TRUST CERTIFICATES The Pass Through Trustee, as holder of the Equipment Trust Certificates held in each Pass Through Trust, has the right to vote and give consents and waivers in respect of such Equipment Trust Certificates under the related Indentures. The Pass Through Agreement sets forth the circumstances in which the Pass Through Trustee shall direct any action or cast any vote as the holder of the Equipment Trust Certificates held in the applicable Pass Through Trust at its own discretion and the circumstances in which the Pass Through Trustee shall seek instructions from the Certificateholders of such Pass Through Trust. Prior to an Event of Default (as defined below) with respect to any Pass Through Trust, the Pass Through Trustee shall, as the holder of the Equipment Trust Certificates held by such Pass Through Trust, consent or vote with respect thereto in the same proportion as so instructed by the respective Certificateholders of the related Pass Through Certificates. (Pass Through Agreement, Sections 7.01, 11.01, 11.02 and 11.08) EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT The Pass Through Agreement defines an event of default for any Pass Through Trust (an "Event of Default") as the occurrence and continuance of an event of default under one or more of the related Indentures (an "Indenture Event of Default"). The Indenture Events of Default under the Indentures related to the Equipment Trust Certificates held by a Pass Through Trust will be described in the applicable Prospectus Supplement and will include events of default under the related Leases ("Lease Events of Default"). Since the Equipment Trust Certificates outstanding under an Indenture may be held in more than one Pass Through Trust, a continuing Indenture Event of Default under such Indenture would result in an Event of Default with respect to each such Pass Through Trust. All of the Equipment Trust Certificates issued under the same Indenture, however, will relate to a specific Aircraft and there will be no cross- collateralization or cross-default provisions in the Indentures. Consequently, events resulting in an Indenture Event of Default under any particular Indenture will not necessarily result in an Indenture Event of Default occurring under any other Indenture. If an Indenture Event of Default occurs in fewer than all of the Indentures related to a Pass Through Trust, the Equipment Trust Certificates issued pursuant to the related Indentures with respect to which an Indenture Event of Default has not occurred will continue to be held in such Pass Through Trust and payments of principal, and interest on such Equipment Trust Certificates will continue to be distributed to the Certificateholders of such Pass Through Trust as originally scheduled. Under each Indenture the Owner Trustee will have the right under certain circumstances to cure an Indenture Event of Default that results from the occurrence of a Lease Event of Default under the related Lease. If the Owner Trustee chooses to exercise such cure right, the Indenture Event of Default and consequently the Event of Default under any Pass Through Trust holding the related Equipment Trust Certificates will be deemed to be cured. The applicable Prospectus Supplement will describe the cure rights available to the Owner Trustee with respect to such Equipment Trust Certificates. The Pass Through Agreement provides that if an Indenture Event of Default under an Indenture relating to Equipment Trust Certificates held in a Pass Through Trust shall have occurred and be continuing, the Pass Through Trustee may vote all of the Equipment Trust Certificates issued under such Indenture that are held in such Pass Through Trust, and upon the direction of the Certificateholders evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust shall vote a corresponding majority of such Equipment Trust Certificates in favor of directing the related Indenture Trustee to declare the unpaid principal amount of all Equipment Trust Certificates issued under such Indenture and any accrued and unpaid interest thereon to be due and payable. The Pass Through Agreement also provides that if such an Indenture Event of Default shall have occurred and be continuing, the Pass Through Trustee may, and upon the direction of the Certificateholders evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust shall, vote all of the Equipment Trust Certificates issued under such Indenture that are held in such Pass Through Trust to direct the related Indenture Trustee regarding the exercise of remedies provided under such Indenture. For any Pass Through Trust, Certificateholders evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust shall have the right to direct the Pass Through Trustee as to the time, 23 method and place of conducting any proceeding for any remedy available to the Pass Through Trustee, or exercising any trust or power conferred on the Pass Through Trustee by such Pass Through Trust. (Pass Through Agreement, Sections 7.01 and 7.09) The ability of the Certificateholders of any one Pass Through Trust to cause the Indenture Trustee for any Equipment Trust Certificates held in such Pass Through Trust to accelerate the payment on such Equipment Trust Certificates under the related Indenture or to direct the exercise of remedies by such Indenture Trustee under the related Indenture will depend, in part, upon the proportion between the aggregate principal amount of the Equipment Trust Certificates outstanding under such Indenture and held in such Pass Through Trust and the aggregate principal amount of all Equipment Trust Certificates outstanding under such Indenture. Each Pass Through Trust will hold Equipment Trust Certificates with different terms from those of the Equipment Trust Certificates held in the other Pass Through Trusts and therefore the Certificateholders of a Pass Through Trust may have divergent or conflicting interests from those of the Certificateholders of the other Pass Through Trusts holding Equipment Trust Certificates relating to the same Indenture. In addition, so long as the same institution or an affiliate of such institution acts as Pass Through Trustee of each Pass Through Trust, in the absence of instructions from the Certificateholders of any such Pass Through Trust, the Pass Through Trustee for such Pass Through Trust could for the same reason be faced with a potential conflict of interest upon an Indenture Event of Default. In such event, NationsBank of South Carolina, National Association, the initial pass through trustee, has indicated that it would resign as pass through trustee of one or all of such Pass Through Trusts, and a successor pass through trustee would be appointed in accordance with the terms of the Pass Through Agreement and the applicable Series Supplement. See "The Pass Through Trustee; the Indenture Trustee" below for a discussion of resignation procedures. As an additional remedy, if an Indenture Event of Default under an Indenture has occurred and is continuing, the Pass Through Agreement provides that the Pass Through Trustee of a Pass Through Trust holding Equipment Trust Certificates issued under such Indenture may, and upon the direction of the Certificateholders evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust will, sell all or part of such Equipment Trust Certificates for cash to any person at a price or prices that it may reasonably deem advisable. Any proceeds received by the Pass Through Trustee upon any such sale will be deposited in the Special Payments Account for such Pass Through Trust and will be distributed to the Certificateholders of such Pass Through Trust on a Special Distribution Date. (Pass Through Agreement, Sections 7.01 and 7.02) The market for Equipment Trust Certificates in default may be very limited and there can be no assurance that they could be sold for a reasonable price. Furthermore, so long as the same institution or an affiliate of such institution acts as Pass Through Trustee of each Pass Through Trust, it may be faced with a conflict in deciding from which Pass Through Trust to sell Equipment Trust Certificates to available buyers. If the Pass Through Trustee sells any such Equipment Trust Certificates with respect to which an Indenture Event of Default exists for less than the outstanding principal amount thereof, the Certificateholders of such Pass Through Trust will receive a smaller amount of principal distributions than anticipated and will not have any claim for the shortfall against Delta, the related Owner Trustee or Owner Participant, or the Pass Through Trustee. Furthermore, neither the Pass Through Trustee nor the Certificateholders of such Pass Through Trust could take any action with respect to any remaining Equipment Trust Certificates held in such Pass Through Trust so long as no Indenture Event of Default existed with respect thereto. (Pass Through Agreement, Sections 5.01 and 7.02) For any Pass Through Trust, any amount distributed to the Pass Through Trustee by the Indenture Trustee under any Indenture on account of the Equipment Trust Certificates held in such Pass Through Trust following an Indenture Event of Default under such Indenture will be deposited in the Special Payments Account for such Pass Through Trust and will be distributed to the Certificateholders of such Pass Through Trust on a Special Distribution Date. In addition, if, following an Indenture Event of Default under any Indenture, the related Owner Trustee exercises its option, if any, to redeem or purchase the outstanding Equipment Trust Certificates issued under such Indenture as described in the related Prospectus Supplement, the price paid by such Owner Trustee to the Pass Through Trustee for such Equipment Trust Certificates held in such Pass Through Trust will be deposited in the related Special Payments Account and 24 will be distributed to the Certificateholders of such Pass Through Trust on a Special Distribution Date. (Pass Through Agreement, Sections 5.01 and 5.02) Any funds representing payments received with respect to any Equipment Trust Certificates held in a Pass Through Trust in default, or the proceeds from the sale by the Pass Through Trustee of any such Equipment Trust Certificates, held by the Pass Through Trustee in the Special Payments Account for such Pass Through Trust will, to the extent practicable, be invested by the Pass Through Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date. (Pass Through Agreement, Article I and Section 5.04) The Pass Through Agreement provides that the Pass Through Trustee will, within 90 days after the occurrence of a default (as defined below) under any Pass Through Trust, notify the Certificateholders of such Pass Through Trust by mail of all uncured or unwaived defaults with respect to such Pass Through Trust known to it; provided that except in the case of default in the payment of principal of or interest on or any amount due under any of the Equipment Trust Certificates held in such Pass Through Trust and the consequent failure to distribute any related Scheduled Payment or Special Payment on or after the due date, the Pass Through Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of such Certificateholders. The term "default," for the purpose of the provision described in this paragraph only, means the occurrence of any Event of Default with respect to a Pass Through Trust as specified above, except that in determining whether any such Event of Default has occurred any grace period or notice in connection therewith shall be disregarded. (Pass Through Agreement, Section 7.11) The Pass Through Agreement provides that for each Pass Through Trust, subject to the duty of the Pass Through Trustee during default to act with the required standard of care, the Pass Through Trustee is entitled to be indemnified by the Certificateholders of such Pass Through Trust before proceeding to exercise any right or power under such Pass Through Trust at the request of such Certificateholders. (Pass Through Agreement, Section 8.03) In certain cases, the Certificateholders of a Pass Through Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust may on behalf of all the Certificateholders of such Pass Through Trust waive any past default or Event of Default with respect to such Pass Through Trust and thereby annul any direction given by such Certificateholders to the Pass Through Trustee or the related Indenture Trustee with respect thereto, except (i) a default in payment of the principal of, premium, if any, or interest on, or other amounts due under, any of the Equipment Trust Certificates held in such Pass Through Trust and the consequent failure to distribute any related Scheduled Payment or Special Payment on or after the due date and (ii) a default in respect of any covenant or provision of the Pass Through Agreement or the related Series Supplement that cannot be modified or amended without the consent of each Certificateholder of such Pass Through Trust affected thereby; and provided that any such waiver will be effective to waive any such past default or Event of Default if, but only if, the correlative Indenture Event of Default has been waived under the related Indenture by the requisite holders of the Equipment Trust Certificates outstanding thereunder. (Pass Through Agreement, Section 7.10) Each Indenture will provide that, with certain exceptions, the holders of a majority in aggregate unpaid principal amount of the Equipment Trust Certificates issued thereunder may on behalf of all such holders waive any past default or Indenture Event of Default thereunder. In the event of a waiver with respect to a Pass Through Trust as described above, the principal amount of the Equipment Trust Certificates issued under the related Indenture held in such Pass Through Trust will be counted as waived in the determination of the majority in aggregate unpaid principal amount of Equipment Trust Certificates required to waive a default or an Indenture Event of Default under such Indenture. If, for example, the Equipment Trust Certificates issued under any Indenture held in a Pass Through Trust constitute only 45% in aggregate unpaid principal amount of the Equipment Trust Certificates issued and unpaid under such Indenture, even if all the Certificateholders of such Pass Through Trust were to instruct the Pass Through Trustee not to waive a past default or Event of Default with respect to such Pass Through Trust and, consequently, to vote such Equipment Trust Certificates against the waiver of the corresponding past default or Indenture Event of Default under such Indenture, the Equipment Trust Certificates so voted by the Pass Through Trustee on behalf of such Pass 25 Through Trust would not alone be sufficient under the terms of such Indenture to compel the Indenture Trustee to refrain from giving such waiver. Moreover, there would be no assurance that the Certificateholders of any other Pass Through Trust holding Equipment Trust Certificates issued under such Indenture would at such time vote such Equipment Trust Certificates against such waiver. Therefore, if the Certificateholders of a Pass Through Trust or Trusts waive a past default or Event of Default such that the principal amount of the Equipment Trust Certificates held either individually in such Pass Through Trust or in the aggregate in such Pass Through Trusts constitutes the required majority in aggregate unpaid principal amount under the applicable Indenture, such past default or Indenture Event of Default under such Indenture will be waived whether or not the Certificateholders of any other Pass Through Trust holding Equipment Trust Certificates issued under such Indenture waive such past default or Event of Default with respect to such other Pass Through Trust. For a discussion of waivers of Indenture Defaults under the Indentures, see "Description of the Equipment Trust Certificates--Indenture Events of Default and Remedies." MODIFICATIONS OF THE AGREEMENTS The Pass Through Agreement contains provisions permitting Delta and the Pass Through Trustee to enter into an agreement supplemental to the Pass Through Trust Agreement, without the consent of the Certificateholders of the related Pass Through Trust, among other purposes, (i) to evidence the succession of another corporation to Delta and the assumption by such corporation of Delta's obligation under the Pass Through Agreement and the applicable Series Supplement, (ii) to add to the covenants of Delta for the protection of the related Certificateholders, (iii) to cure any ambiguity or to correct or supplement any defective or inconsistent provision of such Pass Through Agreement, the applicable Series Supplement or any supplemental agreement, or to make any other provisions with respect to matters or questions arising thereunder, provided such action shall not adversely affect the interest of the related Certificateholders, (iv) to evidence and provide for a successor Pass Through Trustee for some or all of the Pass Through Trusts, (v) to make any other amendments or modifications which shall only apply to any Pass Through Trust established thereafter, (vi) to make any modification to the provisions of the Pass Through Agreement or any Series Supplement to the extent necessary to continue the qualification of such Pass Through Agreement or such Series Supplement under the Trust Indenture Act (except Section 316(a)(2) thereof), or any similar Federal statute enacted after the date of the Pass Through Agreement, or (vii) to make other changes so long as any such action does not adversely affect the interests of the Certificateholders of any Series; provided that in each case such modification does not cause the Pass Through Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-4. (Pass Through Agreement, Section 11.01) The Pass Through Agreement also provides that Delta and the Pass Through Trustee, with the consent of the Certificateholders evidencing fractional undivided interests aggregating not less than a majority in interest of the affected Pass Through Trust may execute supplemental agreements adding any provisions to or changing or eliminating any of the provisions of the Pass Through Agreement, to the extent relating to such Pass Through Trust, and the applicable Series Supplement, or modifying the rights of such Certificateholders; provided that no such supplemental agreement may cause the Pass Through Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-4; and provided further that without the consent of each Certificateholder so affected, no such Supplemental Agreement shall; (i) reduce in any manner the amount of, or delay the timing of, any receipt by the Pass Through Trustee of payments on the Equipment Trust Certificates held in such Pass Through Trust, or distributions in respect of any Pass Through Certificate or such Pass Through Trust, or make distributions payable in coin or currency other than that provided for in such Pass Through Certificates, or impair the right of any such Certificateholder to institute suit for the enforcement of any such payment when due, (ii) modify any indemnities in favor of any such Certificateholder, (iii) create or permit the creation of any Lien on any Trust Property of such Pass Through Trust or deprive any such Certificateholder of the benefit of the related Pass Through Trust with respect to such Trust Property by disposition or otherwise except as permitted in the Pass Through Agreement, or (iv) modify the provisions of the Pass Through Agreement relating to (A) waivers of Events of Default and (B) supplemental agreements with the consent of the Certificateholders. (Pass Through Agreement, Section 11.02) 26 MODIFICATION AND CONSENTS AND WAIVERS UNDER THE INDENTURE AND RELATED AGREEMENTS If the Pass Through Trustee, as the holder of any Equipment Trust Certificates held in a Pass Through Trust, receives a request for its consent to any amendment, modification or waiver under the Indenture, Lease or other document relating to such Equipment Trust Certificates, the Pass Through Trustee will mail a notice of such proposed amendment, modification or waiver to each Certificateholder of such Pass Through Trust as of the date of such notice. The Pass Through Trustee will request instructions from such Certificateholders as to whether or not to consent to such amendment, modification or waiver. The Pass Through Trustee will vote or consent with respect to such Equipment Trust Certificates in the same proportion as the Pass Through Certificates of such Pass Through Trust are actually voted by such Certificateholders by a certain date. If an Event of Default related to such Indenture has occurred and is continuing under such Pass Through Trust, the Pass Through Trustee may, in the absence of instructions from Certificateholders holding a majority in interest of such Pass Through Trust, in its own discretion consent to such amendment, modification or waiver, and may so notify the related Indenture Trustee. (Pass Through Agreement, Section 11.08) TERMINATION OF PASS THROUGH TRUSTS The obligations of Delta and the Pass Through Trustee with respect to a Pass Through Trust will terminate upon the distribution to the Certificateholders of such Pass Through Trust of all amounts required to be distributed to them pursuant to the Pass Through Agreement and the applicable Series Supplement and the disposition of all property held in such Pass Through Trust. In no event will the Pass Through Trust continue beyond the final expiration date determined as provided in the related Series Supplement. The Pass Through Trustee will mail to each Certificateholder of record of such Pass Through Trust notice of the termination of such Pass Through Trust, the amount of the proposed final payment and the proposed date for the distribution of such final payment for such Pass Through Trust. The final distribution for each Certificateholder of such Pass Through Trust will be made only upon surrender of such Certificateholder's Pass Through Certificates at the office or agency of the Pass Through Trustee specified in such notice of termination. (Pass Through Agreement, Section 12.01) DELAYED PURCHASE If, on the date of issuance of any Pass Through Certificates, all of the proceeds from the sale of such Pass Through Certificates are not used to purchase the Equipment Trust Certificates contemplated to be held in the related Pass Through Trust, such Equipment Trust Certificates may be purchased by the Pass Through Trustee at any time on or prior to the date specified in the applicable Prospectus Supplement. In such event, the Pass Through Trustee will transfer the proceeds from the sale of such Pass Through Certificates not used to purchase Equipment Trust Certificates on such date of issuance to Delta which will deposit such amount into a deposit trust account pending the purchase of the Equipment Trust Certificates not so purchased. Such proceeds will be invested in Specified Investments at the direction and risk of, and for the account of, Delta until applied to such purchase. Earnings on Specified Investments in such deposit trust account will be paid to Delta periodically, and Delta will be responsible for any losses. Subject to a Special Distribution upon unavailability of the Trust Property as described below, in return for its interest in the funds transferred to the deposit trust account, if the Equipment Trust Certificates that were not so purchased become available for purchase on or prior to the date specified in the applicable Prospectus Supplement, then Delta will cause an amount equal to the purchase price of such Equipment Trust Certificates to be transferred from the deposit trust account to the Pass Through Trustee on the date for such delayed purchase and, on the Regular Distribution Date specified in the applicable Prospectus Supplement, Delta will pay to the Pass Through Trustee an amount equal to the interest that would have accrued on any Equipment Trust Certificates purchased after the date of the issuance of such Pass Through Certificates from the date of the issuance of such Pass Through Certificates to, but excluding, the date of the purchase of such Equipment Trust Certificates by the Pass Through Trustee. (Pass Through Agreement, Section 2.02) 27 SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF TRUST PROPERTY For any Pass Through Trust, to the extent that any of the proceeds from the sale of the related Pass Through Certificates are not applied on or prior to the date specified in the applicable Prospectus Supplement to purchase the Equipment Trust Certificates that were contemplated to be held in such Pass Through Trust, Delta will cause an amount equal to such unapplied proceeds to be paid from the deposit trust account to the Pass Through Trustee, which in turn will distribute such proceeds to the Certificateholders of such Pass Through Trust on a pro rata basis as a Special Distribution on the date specified in the applicable Prospectus Supplement, together with interest thereon at a rate equal to the rate applicable to such Pass Through Certificates, but without premium, and Delta will pay to the Pass Through Trustee on such date an amount equal to such interest. Delta will be responsible for any losses in the deposit trust account. (Pass Through Agreement, Section 2.02) 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 all or substantially all of its assets as an entirety to any other corporation, unless the successor or transferee corporation shall be a corporation organized and existing under the laws of the United States or any State or the District of Columbia, and shall expressly assume all the obligations of Delta contained in the Pass Through Agreement and each Series Supplement. (Pass Through Agreement, Section 3.01) The Equipment Trust Certificates in any Pass Through Trust, and therefore the related Pass Through Certificates, will not have the benefit of any covenants in the Indentures related to such Equipment Trust Certificates or the Pass Through Agreement 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. THE PASS THROUGH TRUSTEE; THE INDENTURE TRUSTEE NationsBank of South Carolina, National Association ("NationsBank of South Carolina") will be the Pass Through Trustee for each of the Pass Through Trusts. The Pass Through Trustee and any of its affiliates may hold Pass Through Certificates in their own names. (Pass Through Agreement, Section 8.05) NationsBank of South Carolina is also the Pass Through Trustee for other Delta Pass Through Trusts. Unless otherwise specified in the related Prospectus Supplement, NationsBank of Georgia, National Association ("NationsBank of Georgia"), an affiliate of NationsBank of South Carolina, will be the Indenture Trustee under the Indentures under which the Equipment Trust Certificates have been or will be issued and will be the Paying Agent, Authenticating Agent and Registrar for such Pass Through Trust. NationsBank of Georgia also serves as indenture trustee in other aircraft leveraged lease transactions in which Delta is the lessee. Certain affiliates of NationsBank of Georgia serve as indenture trustee under other indentures relating to debt securities issued by Delta. NationsBank of Georgia maintains a commercial banking relationship with the Company. The Pass Through Trustee may resign as trustee under any or all of the Pass Through Trusts at any time, in which case a successor trustee may be appointed for any affected Pass Through Trust by the Certificateholders of such Pass Through Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust. If the Pass Through Trustee ceases to be eligible to continue as Pass Through Trustee with respect to a Pass Through Trust or becomes incapable of acting as Pass Through Trustee or becomes insolvent, Delta may remove such Pass Through Trustee and appoint a successor, or any Certificateholder of such Pass Through Trust for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Pass Through Trustee and the appointment of a successor trustee. The resignation or removal of the Pass Through Trustee for any Pass Through Trust and the appointment of the successor trustee for such Pass Through Trust does not become effective until acceptance of the appointment by the successor trustee. (Pass Through Agreement, Article X) Pursuant to such resignation and successor trustee provisions, it is possible that a different trustee could be appointed to act as the successor trustee with respect to each Pass 28 Through Trust. All references in this Prospectus to the Pass Through Trustee are to the trustee acting in such capacity under each of the Pass Through Trusts and should be read to take into account the possibility that each of the Pass Through Trusts could have a different successor trustee in the event of such a resignation or removal. The Pass Through Agreement provides that Delta will pay the Pass Through Trustee's fees and expenses and that the Pass Through Trustee shall have a priority claim on the Trust Property to the extent such fees and expenses are not paid. The Pass Through Agreement further provides that the Pass Through Trustee will be entitled to indemnification by Delta for, and will be held harmless against, any loss, liability or expenses incurred by the Pass Through Trustee (other than, in certain circumstances, through its own willful misconduct, bad faith or negligence or by reason of a breach of any of its representations or warranties set forth in the Pass Through Agreement or the applicable Series Supplement or any related documents), except to the extent that such loss, liability or expense is for or with respect to taxes (other than income or similar taxes), in which case the Pass Through Trustee may be entitled to be reimbursed by the applicable Pass Through Trust. (Pass Through Agreement, Section 8.08 and Article IX) DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES The discussion that follows is a summary that does not purport to be complete and is qualified in its entirety by the detailed information appearing in the applicable Prospectus Supplement. Except as otherwise indicated below or as described in the applicable Prospectus Supplement, the following summary includes descriptions of the material terms of and will apply to the Equipment Trust Certificates, the Indenture, the Lease and the Participation Agreement relating to each Aircraft. Additional provisions with respect to the Equipment Trust Certificates, the Indentures, the Leases and the Participation Agreements relating to any particular offering of Pass Through Certificates will be described in the applicable Prospectus Supplement. To the extent that any provision in any Prospectus Supplement is inconsistent with any provision of this summary, the provision of such Prospectus Supplement will control. GENERAL The Equipment Trust Certificates will be issued as nonrecourse obligations by certain Owner Trustees, each acting for a separate Owner Trust for the benefit of an Owner Participant, and will be authenticated under an Indenture by the related Indenture Trustee. All of the Equipment Trust Certificates issued under the same Indenture will relate to a specific Aircraft and will not be secured by any other Aircraft. In each case, the Owner Trustee will lease the related Aircraft to Delta pursuant to a separate Lease between such Owner Trustee and Delta. The Aircraft subject to each Lease and the Equipment Trust Certificates issued under the related Indenture will be specified in the applicable Prospectus Supplement. Delta is obligated to make rental payments under each Lease that will be sufficient to pay the principal of and accrued interest on the related Equipment Trust Certificates when and as due and payable. The Equipment Trust Certificates will not be obligations of, or guaranteed by, Delta. Delta's obligations to pay rent and to cause other payments to be made under each Lease will be general obligations of Delta. PRINCIPAL AND INTEREST PAYMENTS Interest received by the Pass Through Trustee on the Equipment Trust Certificates constituting Trust Property of each Pass Through Trust will be passed through to the Certificateholders of such Pass Through Trust on a pro rata basis on the dates and at the rate per annum set forth in the applicable Prospectus Supplement. Interest on the Equipment Trust Certificates will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Each Pass Through Trust will hold Equipment Trust Certificates on which principal is payable in scheduled amounts and on specified dates as set forth in the applicable Prospectus Supplement. Principal received by the Pass Through Trustee on such Equipment Trust Certificates will be passed through to the Certificateholders of such Pass Through Trust on a pro rata basis as set forth in the Prospectus Supplement. 29 REDEMPTION The applicable Prospectus Supplement will describe the circumstances, whether voluntary or involuntary, under which the related Equipment Trust Certificates may be redeemed or purchased prior to the stated maturity date thereof, in whole or in part, the premium, if any, applicable upon certain redemptions or purchases and other terms applying to redemptions or purchases of such Equipment Trust Certificates. SECURITY The Equipment Trust Certificates issued under each Indenture will be secured by (i) an assignment by the related Owner Trustee to the related Indenture Trustee of such Owner Trustee's rights (except for certain limited rights described below) under the applicable Lease, including the right to receive rent and other payments thereunder, (ii) a security interest in the related Aircraft, subject to the rights of Delta under such Lease and to certain other liens and encumbrances, and (iii) an assignment to such Indenture Trustee of such Owner Trustee's rights relating to such Aircraft under the agreement between Delta and the manufacturer of such Aircraft relating to the purchase thereof. See "Registration of the Aircraft" below. The right of the related Indenture Trustee, however, to exercise any of the rights of the related Owner Trustee under the related Lease, except the right to receive payments of rent due thereunder, will be subject to certain limitations. There will be no cross- collateralization provisions in the Indentures and consequently the Equipment Trust Certificates issued in respect of one of the Aircraft will not be secured by any other Aircraft or the Leases related thereto. There will be no cross- default provisions in the Indentures and consequently events resulting in an Indenture Event of Default under any particular Indenture may not result in an Indenture Event of Default occurring under any other Indenture. The assignment by each Owner Trustee to the related Indenture Trustee of its rights under each Lease will exclude rights of such Owner Trustee and the related Owner Participant relating to (i) indemnification by Delta for certain matters, (ii) insurance proceeds payable to such Owner Trustee and the Indenture Trustee in their respective individual capacities and to such Owner Participant under insurance maintained by Delta under such Lease and (iii) proceeds of any insurance policies separately maintained by such Owner Trustee in its individual capacity or by such Owner Participant. Section 1110 of the United States Bankruptcy Code (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 401 or 418 of the Aviation Act to take possession of such aircraft in compliance with the provisions of the lease, conditional sale contract or purchase 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 or its property by a creditor, (b) the provision of the Bankruptcy Code allowing the debtor in possession or trustee 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 proceedings (unless specifically permitted by the bankruptcy court) and may not be exercised thereafter if, within such 60-day period, the debtor in possession or trustee agrees to perform the debtor's obligations that become due on or after such date and cures all existing defaults (other than defaults resulting solely from the financial condition, bankruptcy, insolvency or reorganization of the debtor) and for so long as the debtor in possession or trustee continues to so perform. The Prospectus Supplement for each offering will discuss the availability of Section 1110 of the Bankruptcy Code with respect to the related Aircraft. REGISTRATION OF THE AIRCRAFT Delta will be required, except under certain circumstances, to register and keep each Aircraft registered under the Federal Aviation Act of 1958, as amended (the "Aviation Act"), in the name of the Owner Trustee, and to record and maintain the recordation of the Indenture and the Lease related to each such Aircraft under the Aviation Act. Such recordation will give the Indenture Trustee a perfected security interest in each such Aircraft whenever it is located in the United States or any of its territories and possessions and, with certain limited exceptions, in those jurisdictions that have ratified or adhered to the Convention on the International 30 Recognition of Rights in Aircraft (the "Convention"). Delta will be able, in certain circumstances, to re-register any Aircraft in certain countries other than the United States. Prior to any such change in the jurisdiction of registry, the related Indenture Trustee and the related Owner Participant must not have determined that such other country would not provide substantially equivalent protection for the exercise of rights and remedies of owner participants, lessors and lenders in similar transactions as is provided under United States law, except that, for the purpose of such determination, rights and remedies similar to those available under Section 1110 of the Bankruptcy Code will not be required in the absence of restrictions of rights and remedies of lessors and secured parties that are similar to those imposed by Sections 362 and 363 of the Bankruptcy Code. Each Aircraft may also be operated by Delta or under sublease or interchange arrangements in countries that are not parties to the Convention. The extent to which the Indenture Trustee's security interest would be recognized in an Aircraft located in a country that is not a party to the Convention, and the extent to which such security interest would be recognized in a jurisdiction adhering to the Convention if the Aircraft is registered in a jurisdiction that is not a party to the Convention, is uncertain. Moreover, in the case of an Indenture Event of Default, the ability of the Indenture Trustee to realize upon its security interest in the related Aircraft could be adversely affected as a legal or practical matter if such Aircraft were registered or located outside the United States. PAYMENTS AND LIMITATION OF LIABILITY All payments of principal of, premium, if any, and interest on the Equipment Trust Certificates of each series will be made only from the assets subject to the Lien of the applicable Indenture or the income and proceeds received by the related Indenture Trustee therefrom, including rent payable by Delta under the related Lease. The Equipment Trust Certificates will not be direct obligations of, or guaranteed by, Delta. Delta's obligations to pay rent and to cause other payments to be made under each Lease are general obligations of Delta. None of the Owner Trustees or the Indenture Trustees (in their individual capacities) or the Owner Participants will be liable to any Certificateholder or, in the case of each Owner Participant and each Owner Trustee, in its individual capacity, to the related Indenture Trustee for any amounts payable under the Equipment Trust Certificates or for any liability under the Indentures. Each Owner Trustee will not be liable in its individual capacity under any Indenture or under the related Equipment Trust Certificates under any circumstances except for its own gross negligence or willful misconduct, except as otherwise provided in such Indentures. None of the Owner Participants will have any duty or responsibility under any Indenture or the related Equipment Trust Certificates to the Indenture Trustee or to any holder of the related Equipment Trust Certificates. INDENTURE EVENTS OF DEFAULT AND REMEDIES For any Pass Through Trust, the applicable Prospectus Supplement will describe the Indenture Events of Default under the Indentures related to the Equipment Trust Certificates to be held by such Pass Through Trust, the remedies that the related Indenture Trustees may exercise with respect to the related Aircraft, either at their own initiative or upon instruction from holders of the related Equipment Trust Certificates, and other provisions relating to the occurrence of an Indenture Event of Default and the exercise of remedies. There will be no cross-default provisions in the Indentures and events resulting in an Indenture Event of Default under any particular Indenture will not necessarily result in an Indenture Event of Default under any other Indenture. THE LEASES Terms and Rentals. Each Aircraft will be leased separately by the related Owner Trustee to Delta for a term commencing on the date of the delivery of the related Aircraft to such Owner Trustee and expiring on a date not earlier than the latest maturity date of the Equipment Trust Certificates issued with respect to such Aircraft, unless previously terminated or extended, as permitted by the related Lease. The scheduled rental payments by Delta under each Lease will be payable on the dates specified in the applicable Prospectus 31 Supplement. The respective payments will be assigned under the related Indenture by the Owner Trustee to the Indenture Trustee to provide the funds necessary to make payments of principal and interest due from such Owner Trustee on the Equipment Trust Certificates issued under such Indenture. Although in certain cases the scheduled rental payments under the Leases may be adjusted, under no circumstances will such payments that Delta will be unconditionally obligated to make or cause to be made under any Lease be less than the scheduled payments of principal and interest on the Equipment Trust Certificates issued under the Indenture relating to such Lease. See "Payments and Limitations of Liability" above. Scheduled payments of principal and interest on the Equipment Trust Certificates will be made on the dates specified in the applicable Prospectus Supplement. Net Lease. Delta's obligations in respect of each of the Aircraft will be those of a lessee under a "net lease." Accordingly, Delta will be obligated to pay all costs of operating the Aircraft and, at its expense, to 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 related 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, in certain cases, if an Aircraft is registered under laws of certain other jurisdictions, the laws of the applicable jurisdiction. Generally, Delta will be obligated to replace or cause to be replaced all parts that may from time to time be incorporated or installed in or attached to any Aircraft (including any engine) and that may become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use. Delta will have the right to make other alterations, modifications and additions to an Aircraft so long as such alterations, modifications or additions do not materially decrease the value, utility or remaining useful life of such Aircraft. Also, in certain circumstances, Delta will be permitted to remove parts (without replacement) from an Aircraft (and therefore from the Lien of the applicable Indenture) if Delta deems them to be obsolete or no longer appropriate or suitable for such Aircraft so long as such removals do not materially decrease the value, utility or remaining useful life of such Aircraft. Insurance. Unless otherwise indicated in the applicable Prospectus Supplement, Delta will be obligated to carry insurance with insurers of recognized responsibility with respect to each Aircraft, at its own cost and expense, against such risks, in such amounts, with such deductibles or self- insurance amounts and in such form as Delta customarily maintains with respect to other aircraft owned or operated by Delta, in each case similar to the respective Aircraft, and operating on similar routes in similar geographic locations. Delta may be permitted to maintain coverage below certain stipulated values and, with respect to certain Aircraft, may be permitted to self-insure, in certain circumstances. Therefore, no assurance will be given that any insurance will be carried in the future, or, if it is carried, as to the amount of such insurance. Delta and any permitted sublessee of an Aircraft will be named as insured parties under all insurance policies required by the related Lease. The related Indenture Trustee, Pass Through Trustee, Owner Trustee and Owner Participant will be named additional insureds, which will afford each of them the rights but not the obligations of a coinsured or an additional insured. Unless otherwise agreed, insurance proceeds will be distributed to the respective parties as their interests may appear. Lease Events of Default; Remedies. The applicable Prospectus Supplement will describe the Lease Events of Default under the related Leases, the remedies that the Owner Trustee may exercise with respect to the related Aircraft, and other provisions relating to the occurrence of a Lease Event of Default and the exercise of remedies. THE PARTICIPATION AGREEMENTS Delta will be required to indemnify each Owner Participant, each Owner Trustee, each Indenture Trustee and certain parties related to the foregoing (but not including holders of the Equipment Trust Certificates or Certificateholders) for certain liabilities, losses, fees and expenses and for certain other matters arising out of the transactions described herein or relating to the applicable Aircraft or the use thereof. In addition, under certain circumstances Delta will be required to indemnify such persons against certain taxes, levies, duties, withholdings and for certain other matters relating to such transactions or the applicable Aircraft. Each Owner Participant will be required to indemnify the holders of the Equipment Trust Certificates issued with respect 32 to the Aircraft in which such Owner Participant has an interest under an Owner Trust for certain losses that may be suffered as a result of the failure of such Owner Participant to discharge certain liens or claims on or against the assets subject to the Lien of the applicable Indenture. Subject to certain restrictions, each Owner Participant may convey all of its right, title and interest relating to any Aircraft. Moreover, if so provided in the applicable Prospectus Supplement, in certain limited instances Delta may assume an Owner Trust's obligations under the related Equipment Trust Certificates on a full recourse basis. FEDERAL INCOME TAX CONSEQUENCES In the opinion of King & Spalding, tax counsel to Delta, the following discussion accurately describes the principal United States federal income tax consequences of ownership and disposition of the Pass Through Certificates to Certificate Owners who hold Pass Through Certificates as capital assets, and should be read in conjunction with any additional discussion of federal income tax consequences included in the applicable Prospectus Supplement. This opinion is based on laws, regulations, rulings and decisions in effect as of the date hereof. 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. GENERAL The Pass Through Trusts will not be classified as associations 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 Certificate Owner will be treated as the owner of a pro rata undivided interest in each of the Equipment Trust Certificates and any other property held in the related Pass Through Trust. Each Certificate Owner will be required to report on its federal income tax return its pro rata share of the entire income from each of the Equipment Trust Certificates and any other property held in the related Pass Through Trust, in accordance with such Certificate Owner's method of accounting. A Certificate Owner using the cash method of accounting must take into account its pro rata share of income as and when such income is considered to have been received by the Pass Through Trustee. A Certificate Owner using an accrual method of accounting must take into account its pro rata share of income as it accrues or is considered to have been received by the Pass Through Trustee, whichever is earlier. A purchaser of an interest in a Pass Through Certificate will be treated as purchasing an interest in each Equipment Trust Certificate and any other property in the related Pass Through Trust at a price determined by allocating the purchase price paid for the Pass Through Certificate among such Equipment Trust Certificates and other property in proportion to their fair market values at the time of purchase of the Pass Through Certificate. Unless otherwise indicated in a Prospectus Supplement, it is assumed that when all the Equipment Trust Certificates have been acquired by the related Pass Through Trust the purchase price paid for a Pass Through Certificate of such Pass Through Trust by an original purchaser of such Pass Through Certificate should be allocated among the Equipment Trust Certificates held in such Pass Through Trust in proportion to their respective principal amounts. If an Equipment Trust Certificate held by a Pass Through Trust is redeemed, a Certificate Owner will be considered to have sold his pro rata share of that Equipment Trust Certificate, and will recognize gain or loss equal to the difference between its aggregate adjusted basis in the Equipment Trust Certificate and the amount realized on the sale (except to the extent attributable to accrued interest, which would be taxable as 33 interest income if not previously included in income). Subject to the market discount provisions of the Code (described below), any such gain or loss will be long-term capital gain or loss if the Equipment Trust Certificate is considered to have been held for more than one year. Net capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. Although the matter is not entirely free from doubt, it is likely that an Owner Participant's conveyance of its interest in an Owner Trust will not constitute a taxable event to the holders of interests in the related Equipment Trust Certificates. However, if Delta were to assume an Owner Trust's obligations under the related Equipment Trust Certificates, there is a significant likelihood that such assumption would be treated for federal income tax purposes as a taxable exchange of the related Equipment Trust Certificates resulting in the recognition of taxable gain or loss under the rules discussed above. SALES OR EXCHANGES OF PASS THROUGH CERTIFICATES A Certificate Owner that sells or exchanges a Pass Through Certificate will be considered to have sold his pro rata portion of the property held by the Pass Through Trust, and will recognize gain or loss on the basis discussed in the preceding paragraph. MARKET DISCOUNT A purchaser of a Pass Through Certificate generally will be considered to have acquired an interest in an Equipment Trust Certificate at a "market discount" to the extent the remaining principal amount of such Equipment Trust Certificate allocable to the Pass Through Certificate exceeds the Certificate Owner's tax basis allocable to such Equipment Trust Certificate, unless the excess does not exceed a prescribed de minimis amount. In the event such excess exceeds the de minimis amount, the Certificate Owner will be subject to the market discount rules of sections 1276 to 1278 of the Code with regard to its interest in such Equipment Trust Certificate. In the case of a sale or certain other dispositions of indebtedness subject to the market discount rules, section 1276 of the Code requires that gain, if any, from such sale or disposition be treated as ordinary income to the extent such gain represents market discount that has accrued during the period such indebtedness was held. If such indebtedness is disposed of in a transaction (other than a nonrecognition transaction described in Code Section 1276(d)) that generally would be nontaxable, accrued market discount will be includable as ordinary income as if the Certificate Owner had sold the Equipment Trust Certificate at its then market value. In the case of a partial principal payment on indebtedness subject to the market discount rules, section 1276 of the Code requires that such payment be included in gross income as ordinary income to the extent such payment does not exceed the market discount that has accrued during the period such indebtedness was held. The amount of any accrued market discount later required to be included in income upon a disposition or subsequent partial principal payment will be reduced by the amount of accrued market discount previously included in income. Generally, market discount accrues under a straight line method or, at the election of the taxpayer, a constant interest method. However, in the case of installment obligations (such as the Equipment Trust Certificates) the manner in which market discount is to be accrued has been left to Treasury regulations not yet issued. Until such Treasury regulations are issued, the explanatory Conference Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that holders of installment obligations with market discount (which do not have original issue discount) may elect to accrue market discount either on the basis of a constant interest rate or as follows: the amount of market discount that is deemed to accrue is the amount of market discount that bears the same ratio to the total amount of remaining market discount that the amount of stated interest paid in the accrual period bears to the total amount of stated interest remaining to be paid on the installment obligation as of the beginning of such period. Under section 1277 of the Code, if in any taxable year interest paid or accrued on indebtedness incurred or continued to purchase or carry indebtedness subject to the market discount rules exceeds the interest 34 currently includable in income with respect to such indebtedness, deduction of the excess interest must be deferred to the extent of the market discount allocable to the taxable year. The deferred portion of any interest expense will generally be deductible when such market discount is included in income upon the sale or other disposition (including repayment) of the indebtedness. Section 1278 of the Code allows a taxpayer to make an election to include market discount in his gross income currently. If such election is made, the rules of sections 1276 and 1277 (described above) will not apply to the taxpayer. PREMIUM A Certificate Owner will be considered to have acquired an interest in an Equipment Trust Certificate at a premium to the extent such Certificate Owner's tax basis allocable to such Equipment Trust Certificate exceeds the remaining principal amount of such Equipment Trust Certificate allocable to such Certificate Owner's Pass Through Certificate. In that event, a Certificate Owner that holds such Pass Through Certificate as a capital asset may elect (in accordance with applicable Code provisions) to amortize such premium as an offset to interest income under section 171 of the Code with corresponding reductions in the Certificate Owner's tax basis in such Equipment Trust Certificate. Generally, such amortization is on a constant yield basis. However, in the case of installment obligations (such as the Equipment Trust Certificates), the Conference Report indicates a Congressional intent that amortization will be in accordance with the same rules that will apply to the accrual of market discount on installment obligations. See "Market Discount" above. Since the Equipment Trust Certificates may be called at a premium prior to maturity, amortizable premium may be determined by reference to an early call date. Due to the complexities of the amortizable premium rules, particularly where there is more than one possible call date and the amount of any premium is uncertain, Certificate Owners are urged to consult their tax advisors as to the amount of any such amortizable premium. If a Certificate Owner acquires an interest in an Equipment Trust Certificate at a premium and elects to amortize such premium, and the Internal Revenue Service successfully challenges the amount of amortization claimed for a particular period, then such Certificate Owner would be precluded from offsetting interest income on the Equipment Trust Certificate for such period with the amount of the disallowed amortization, and the basis of such Equipment Trust Certificates would be increased accordingly. ORIGINAL ISSUE DISCOUNT For purposes of this discussion, it is assumed that the Equipment Trust Certificates will not be issued with original issue discount. BACKUP WITHHOLDING Payments made on the Pass Through Certificates, and proceeds from the sale or exchange of the Pass Through Certificates to or through certain brokers, may be subject to a "backup" withholding tax of 31% unless the Certificate Owner complies with certain reporting procedures or is an exempt recipient under the Code. Any such withheld amounts will be allowed as a credit against the Certificate Owner's federal income tax and may entitle such Certificate Owner to a refund, provided that the required information is furnished to the Internal Revenue Service. CERTAIN SOUTH CAROLINA TAXES The Pass Through Trustee is a national banking association with its corporate trust office in South Carolina. Powell, Goldstein, Frazer & Murphy, special South Carolina tax counsel for the Pass Through Trustee, has advised Delta that, in its opinion, under currently applicable law, assuming that each Pass 35 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 South Carolina, (i) the Pass Through Trusts will not be subject to any tax (including, without limitation, net or gross income, tangible or intangible property, net worth, capital, franchise or doing business tax), fee or other governmental charge under the laws of the State of South Carolina or any political subdivision thereof and (ii) Certificate Owners that are not residents of or otherwise subject to tax in South Carolina will not be subject to any tax (including, without limitation, net or gross income, tangible or intangible property, net worth, capital, franchise or doing business tax), fee or other governmental charge under the laws of the State of South Carolina 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. ERISA CONSIDERATIONS Unless otherwise indicated in the applicable Prospectus Supplement, Pass Through Certificates may not be purchased by any 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 Code. Certain governmental plans and non-electing church plans, however, are not subject to Title I of ERISA or Section 4975 of the Code and, therefore, may purchase the Pass Through Certificates. PLAN OF DISTRIBUTION The Pass Through Certificates may be sold to or through underwriters, directly to other purchasers or through agents. The distribution of the Pass Through Certificates may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of Pass Through Certificates, underwriters or agents may receive compensation from Delta or from purchasers of Pass Through Certificates for whom they may act as agents in the form of discounts, concessions or commissions. Underwriters may sell Pass Through Certificates to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of Pass Through Certificates may be deemed to be underwriters, and any discounts or commissions received by them from Delta and any profit on the resale of Pass Through Certificates by them may be deemed to be underwriting discounts and commissions, under the Securities Act. Any such underwriter or agent will be identified, and any such compensation received from Delta will be described, in the applicable Prospectus Supplement. Under agreements which may be entered into by Delta, underwriters and agents who participate in the distribution of Pass Through Certificates may be entitled to indemnification by Delta against certain liabilities, including liabilities under the Securities Act. If so indicated in the applicable Prospectus Supplement, Delta will authorize underwriters or other persons acting as Delta's agents to solicit offers by certain institutions to purchase Pass Through Certificates from Delta pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions 36 must be approved by Delta. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the Pass Through Certificates is not at the time of delivery prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Unless otherwise indicated in the applicable Prospectus Supplement, Delta does not intend to apply for the listing of any Series of Pass Through Certificates on a national securities exchange. If the Pass Through Certificates of any Series are sold to or through underwriters, the underwriters may make a market in such Pass Through Certificates, as permitted by applicable laws and regulations. No underwriter would be obligated, however, to make a market in such Pass Through Certificates, and any such market-making could be discontinued at any time at the sole discretion of the underwriters. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Pass Through Certificates of any Series. Certain of the underwriters or agents and their associates may be customers of, engage in transactions with, and perform services for, Delta in the ordinary course of business. VALIDITY OF PASS THROUGH CERTIFICATES Unless otherwise indicated in the applicable Prospectus Supplement, the validity of the Pass Through Certificates offered hereby will be passed upon for Delta by King & Spalding, Atlanta, Georgia, and by counsel for any agents, dealers or underwriters ("Underwriters' Counsel"). Unless otherwise indicated in the applicable Prospectus Supplement, both King & Spalding and Underwriters' Counsel may rely on the opinion of Powell, Goldstein, Frazer & Murphy, counsel for NationsBank of South Carolina, National Association individually and as Pass Through Trustee, as to matters relating to the authorization, execution and delivery of the Pass Through Agreement and of each Series of Pass Through Certificates by the Pass Through Trustee, and on corporate counsel of Delta, as to Delta's authorization, execution and delivery of the Pass Through Agreement. George D. Busbee, a partner of King & Spalding, is a member of the Board of Directors of Delta. EXPERTS The consolidated financial statements and schedules of the Company included or incorporated by reference in its Annual Report on Form 10-K for the year ended June 30, 1993 and incorporated by reference herein have been audited by Arthur Andersen & Co., independent public accountants, as indicated in their reports with respect thereto, and are incorporated herein by reference in reliance upon their authority as experts in accounting and auditing in giving said reports. Reference is made to the report dated August 13, 1993 included in the Form 10-K, which includes an explanatory paragraph with respect to the Company's changes of its methods of accounting for income taxes and postretirement benefits other than pensions as discussed in notes 8 and 10 in the Notes to Consolidated Financial Statements included in the Form 10-K. With respect to the unaudited interim financial information for the quarter ended September 30, 1993, Arthur Andersen & Co. has applied limited procedures in accordance with professional standards for a review of that information. However, their separate report thereon states that they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their report 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 report on the unaudited interim financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Securities Act. 37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 CONSTI- TUTE 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 UNLAW- FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR- CUMSTANCES, 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 AF- FAIRS OF DELTA SINCE THE DATE HEREOF. -------------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT 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-17 Description of the Equipment Trust Certificates............................ S-19 Federal Income Tax Consequences............................................ S-34 Underwriting............................................................... S-35 Validity of Pass Through Certificates...................................... S-36 Experts.................................................................... S-36 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
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $ [LOGO OF DELTA AIRLINES APPEARS HERE] $ 1994 Pass Through Certificates, Series A1 $ 1994 Pass Through Certificates, Series A2 ------------------ PROSPECTUS SUPPLEMENT ------------------ Merrill Lynch & Co. Goldman, Sachs & Co. October , 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----