Delta sets US$6b of buybacks, dividends on fuel savings

[ATLANTA] Delta Air Lines Inc approved a US$5 billion stock-repurchase plan, more than double last year's program, and boosted its dividend by 50 per cent, as a windfall of savings on fuel enables it to steer more cash back to investors.

The buyback will run through Dec 2017, the company said in a statement on Wednesday. The dividend will rise to 13.5 cents a share from 9 cents currently, the company said. The shares rose 2.7 per cent to US$47.35 in early trading.

After a US$58 billion run of losses last decade, airlines in the past three years have once again started returning money to shareholders. The major US carriers reported record profits in 2014, as they benefited from jet fuel prices that have fallen 37 per cent since their peak in September. Delta has projected it will save US$2.2 billion on fuel this year.

"We're not just handing it back to shareholders," Delta President Ed Bastian said on Bloomberg TV Wednesday. "This year we expect to generate almost US$8 billion of operating cash flow. We continue to pay down debt and reduce the leverage on the balance sheet, and we're also investing actively in our product and our services and our employees." Delta said it plans to cut adjusted net debt to US$4 billion by the end of 2017 from US$7.4 billion at the end of March. The reduced debt level will result in an annual net interest expense of about US$200 million, US$1.1 billion less than in 2009.

Delta has led the way in handing back cash and its announcement may spur other airlines to follow suit. Southwest Airlines Co and American Airlines Group Inc are also projected to raise their dividends, according to data compiled by Bloomberg.

Delta said the dividend increase would take effect in the third quarter, without specifying a date. The boost outstripped the 12-cent average estimate based on data compiled by Bloomberg.

The carrier resumed its shareholder return program in May 2013 with a US$1-billion buyback and dividend plan, after about a 10-year stretch during which it went through bankruptcy after it bought Northwest Airlines. Last year, Atlanta-based Delta boosted its program by announcing a US$2.75-billion mix of share repurchases and dividends through 2016.

Delta's announcement sweetens returns to shareholders in a year when the stock has slumped 6.3 per cent, after having risen more than 300 per cent from 2012-2014.

United Continental Holdings Inc announced in July a US$1- billion buyback plan to be completed over three years, while American currently has a US$2 billion share repurchase program and Southwest is finishing up US$1 billion in stock repurchases.

Delta said it's on track to complete the remaining US$725 million of its prior US$2 billion share repurchase authorization by June 30.

BLOOMBERG