AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 2003
REGISTRATION NO. 333-106952
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DELTA AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4512 58-0218548
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
HARTSFIELD ATLANTA INTERNATIONAL AIRPORT
ATLANTA, GEORGIA 30320
(404) 715-2600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
COPIES OF ALL COMMUNICATIONS TO:
GREGORY L. RIGGS, ESQ. RICHARD A. ABORN, ESQ.
SENIOR VICE PRESIDENT-GENERAL COUNSEL CADWALADER, WICKERSHAM & TAFT LLP
DELTA AIR LINES, INC. 100 MAIDEN LANE
P.O. BOX 20706 NEW YORK, NEW YORK 10038
ATLANTA, GEORGIA 30320-6001 (212) 504-6000
(404) 715-2611
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practical after this Registration Statement becomes effective.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE(1)
------------------------------------------------------------------------------------------------------------------
Pass Through Certificates,
Series 2003-1G.................. $391,583,000 100% $391,583,000 $31,679.06(2)
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(2) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$391,583,000
(Delta Air Lines Logo)
Offer to Exchange
CLASS G PASS THROUGH CERTIFICATES, SERIES 2003-1,
Which have been registered under the Securities Act of 1933,
For any and all outstanding Class G Pass Through Certificates, Series 2003-1
------------------------
The New Class G Certificates
- The terms of the new Class G pass through certificates we are issuing will be
substantially identical to the terms of the outstanding Class G pass through
certificates, except that the new Class G pass through certificates are being
registered under the Securities Act of 1933, as amended, and will not contain
restrictions on transfer or other provisions relating to interest rate
increases, and the pass through certificates will be available only in
book-entry form.
- No public market currently exists for the Class G pass through certificates.
The Exchange Offer
- the exchange offer expires at 5:00 p.m., New York City time, on October 10,
2003, unless we extend it.
(AMBAC LOGO)
The New Class G Certificates will not be listed on any national securities
exchange.
THE CERTIFICATES AND THE EXCHANGE OFFER INVOLVE RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 22.
------------------------
FINAL EXPECTED
CERTIFICATES FACE AMOUNT INTEREST RATE DISTRIBUTION DATE
------------ -------------- --------------------------- --------------------
Class G.............. $ 391,583,000 USD 3-month LIBOR + 0.75% January 25, 2008
---------------
(1) Plus accrued interest, if any, from the date of issuance.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September 5, 2003.
TABLE OF CONTENTS
PROSPECTUS
PAGE
----
PRESENTATION OF INFORMATION............ iii
WHERE YOU CAN FIND MORE INFORMATION.... iv
SUMMARY................................ 1
The Exchange Offer................... 1
Summary of Terms of Certificates..... 5
Equipment Notes and the Aircraft..... 6
Loan to Aircraft Value Ratios........ 7
Cash Flow Structure.................. 8
The Offering......................... 9
Selected Financial and Operating
Data.............................. 19
RISK FACTORS........................... 22
Risk Factors Relating to Business
Environment....................... 22
Risk Factors Relating to Delta....... 23
Risk Factors Relating to the Airline
Industry.......................... 25
Risk Factors Relating to the
Certificates and the Exchange
Offer............................. 27
Risk Factors Relating to the Policy
Provider.......................... 30
Other Risk Factor.................... 31
THE EXCHANGE OFFER..................... 32
THE COMPANY............................ 40
RECENT DEVELOPMENTS.................... 40
USE OF PROCEEDS........................ 41
DESCRIPTION OF THE POLICY PROVIDER..... 41
General.............................. 41
Ambac Financial Information.......... 42
DESCRIPTION OF THE CERTIFICATES........ 44
General.............................. 44
Distribution of Payments on Equipment
Notes............................. 45
Subordination........................ 47
Pool Factors......................... 47
Reports to Certificateholders........ 49
Indenture Events of Default and
Certain Rights Upon an Indenture
Event of Default.................. 49
Purchase Rights of
Certificateholders................ 51
PTC Event of Default................. 52
PAGE
----
Merger, Consolidation and Transfer of
Assets............................ 52
Modification of the Pass Through
Trust Agreements and Certain Other
Agreements........................ 53
Termination of the Trusts............ 56
The Trustees......................... 56
Book-Entry Registration; Delivery and
Form.............................. 56
DESCRIPTION OF LIQUIDITY FACILITIES.... 59
Primary Liquidity Facility........... 59
Above-Cap Liquidity Facility......... 65
DESCRIPTION OF THE POLICY AND THE
POLICY PROVIDER AGREEMENT............ 68
The Policy........................... 68
Interest Drawings.................... 68
Proceeds Deficiency Drawing.......... 68
No Proceeds Drawing.................. 68
Final Policy Drawing................. 69
Avoidance Drawing.................... 70
General.............................. 70
Definitions.......................... 71
The Policy Provider Agreement........ 71
DESCRIPTION OF THE INTERCREDITOR
AGREEMENT............................ 71
Intercreditor Rights................. 72
Priority of Distributions............ 74
Voting of Equipment Notes............ 79
The Subordination Agent.............. 79
DESCRIPTION OF THE AIRCRAFT AND THE
APPRAISALS........................... 80
The Aircraft......................... 80
The Appraisals....................... 80
DESCRIPTION OF THE EQUIPMENT NOTES..... 81
General.............................. 81
Subordination........................ 81
Principal and Interest Payments...... 82
Determination of LIBOR............... 82
Redemption........................... 83
Security............................. 85
PAGE
----
Loan to Value Ratios of Equipment
Notes............................. 86
Limitation of Liability.............. 86
Indenture Events of Default, Notice
and Waiver........................ 86
Remedies............................. 87
Modification of Indentures........... 89
Indemnification...................... 89
Certain Provisions of the
Indentures........................ 90
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES......................... 94
CERTAIN ERISA CONSIDERATIONS........... 95
General.............................. 95
Plan Assets Issues................... 95
PAGE
----
Prohibited Transaction Exemptions.... 95
Special Considerations Applicable to
Insurance Company General
Accounts.......................... 96
PLAN OF DISTRIBUTION................... 96
LEGAL OPINIONS......................... 97
EXPERTS................................ 97
APPRAISERS............................. 98
INDEX OF DEFINED TERMS.............Appendix I
APPRAISAL LETTERS.................Appendix II
EQUIPMENT NOTE PRINCIPAL PAYMENTS....Appendix
III
LOAN TO VALUE RATIOS OF
EQUIPMENT NOTES.................Appendix IV
---------------------
ii
PRESENTATION OF INFORMATION
We have given certain capitalized terms specific meanings for purposes of
this Prospectus (the "Prospectus"). The Index of Defined Terms attached as
Appendix I to this Prospectus lists the page in this Prospectus on which we have
defined each such term.
At varying places in this Prospectus, we refer you to other sections for
additional information by indicating the caption heading of such other sections.
The page on which each principal caption included in this Prospectus can be
found is listed in the foregoing Table of Contents.
This Prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") which represent Delta's expectations or beliefs concerning
future events. When used in this Prospectus, and in documents incorporated by
reference, the words "expects," "plans," "anticipates" and similar expressions
are intended to identify forward-looking statements. All forward-looking
statements in this Prospectus are based upon information available to us on the
date of this Prospectus. We undertake no obligation to update publicly or revise
any forward-looking statement, whether as a result of new information, future
events or otherwise. Forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from historical experience
or our expectations. Additional information concerning these and other factors
is contained in our SEC filings, including but not limited to Delta's Forms
10-K, 10-Q and 8-K.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR TO WHICH WE HAVE
REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO
SELL THESE SECURITIES. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY
THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS
PROSPECTUS. ALSO, YOU SHOULD NOT ASSUME THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF DELTA SINCE THE DATE OF THIS PROSPECTUS.
iii
WHERE YOU CAN FIND MORE INFORMATION
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments, exhibits and appendices, the "Registration
Statement") filed by Delta Air Lines, Inc. ("Delta") with the Securities and
Exchange Commission (the "Commission") under the Securities Act. This Prospectus
does not contain all of the information included in the Registration Statement,
the exhibits and certain other parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and you should review the full texts of those contracts and other
documents.
Delta files annual, quarterly and special reports, proxy statements and
other information with the U.S. Securities and Exchange Commission (the "SEC").
You may read and copy any document filed by Delta at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Delta's SEC filings are also available to the public over the internet at
http://www.sec.gov.
We incorporate by reference the documents listed below and any filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
the termination of the Exchange Offer:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
- Quarterly Reports on Form 10-Q for the quarter ended March 31, 2003 and
June 30, 2003.
- Current Reports on Form 8-K filed January 16, 2003, March 10, 2003, March
25, 2003*, April 17, 2003*, April 23, 2003, May 27, 2003, May 29, 2003,
June 2, 2003, July 1, 2003, July 17, 2003*, July 25, 2003, August 13,
2003 and August 28, 2003.
---------------
* Reports submitted to the SEC under Item 9, Regulation FD Disclosure and Item
12, Results of Operations and Financial Condition. Pursuant to General
Instruction B(2) and (6) of Form 8-K, the reports submitted under Items 9 and
12 are not deemed to be "filed" for the purpose of Section 18 of the Exchange
Act, and Delta is not subject to the liabilities of that section. Delta is not
incorporating and will not incorporate by reference future filings of these
reports into a filing under the Securities Act or the Exchange Act or into
this Prospectus.
The information incorporated by reference is considered to be a part of
this Prospectus, and information that we file later with the SEC will
automatically update and supersede this information.
Any party to whom this Prospectus is delivered may request a copy of these
filings (other than any exhibits unless specifically incorporated by reference
into this Prospectus), at no cost, by writing or telephoning Delta at Delta Air
Lines, Inc., Investor Relations, Dept. No. 829, P.O. Box 20706, Atlanta, GA
30320, telephone no. (404) 715-2600.
iv
SUMMARY
The following is a summary and does not contain all of the information that
may be important to you. You should read the more detailed information and
consolidated financial statements incorporated by reference in this Prospectus,
as well as the materials filed by Delta with the SEC that are considered to be
part of this Prospectus. See "Where You Can Find More Information" in this
Prospectus. Unless otherwise indicated, "we," "us," "our" and similar terms, as
well as references to "Delta," refer to Delta Air Lines, Inc.
THE EXCHANGE OFFER
The Certificates.............. On January 30, 2003 we issued and privately
placed $391,583,000 aggregate principal amount
of Class G, Pass Through Certificates, Series
2003-1 pursuant to exemptions from the
registration requirements of the Securities
Act. Principal payments made on April 25, 2003
and July 25, 2003 on the Series G Equipment
Notes reduced the amounts of such Certificates
outstanding to $381,789,096. The "Initial
Purchasers" of the Class G Certificates were
Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated,
Credit Lyonnais Securities (USA) Inc., Deutsche
Bank Securities Inc., ING Financial Markets
LLC, J.P. Morgan Securities Inc., Salomon Smith
Barney Inc. and U.S. Bancorp Piper Jaffray Inc.
The Class C and D
Certificates.................. In addition, on January 30, 2003, we issued
$135,423,000 aggregate principal amount of
Class C Pass Through Certificates, Series
2003-1 and $65,392,000 aggregate principal
amount of Class D Pass Through Certificates,
Series 2003-1. The Class C and Class D
Certificates were privately placed with
affiliates of Delta concurrently with the
issuance of the Class G Certificates. The
Exchange Offer does not apply to the Class C
and Class D Certificates.
When we use the term "Old Class G Certificates"
in this Prospectus, we mean the Class G
Certificates, Series 2003-1, which were
privately placed with the Initial Purchasers on
January 30, 2003 and were not registered with
the Commission.
When we use the term "New Class G Certificates"
in this Prospectus, we mean the Class G
Certificates registered with the Commission and
offered hereby in exchange for the Old Class G
Certificates.
When we use the term "Class G Certificates" in
this Prospectus, the related discussion applies
to both the Old Class G Certificates and the
New Class G Certificates.
When we use the term "Certificates" in this
Prospectus, the related discussion applies to
the Class G, Class C and Class D Certificates.
Registration Rights
Agreement..................... On January 30, 2003, we entered into a
Registration Rights Agreement with the Initial
Purchasers and the Trustee providing, among
other things, for the Exchange Offer.
1
The Exchange Offer............ We are offering New Class G Certificates in
exchange for an equal principal amount of Old
Class G Certificates. The New Class G
Certificates will be issued to satisfy our
obligations under the Registration Rights
Agreement.
The New Class G Certificates will be entitled
to the benefits of and will be governed by the
same Pass Through Trust Agreement that governs
the Old Class G Certificates. The form and
terms of the New Class G Certificates are the
same in all material respects as the form and
terms of the Old Class G Certificates, except
that we registered the New Class G Certificates
under the Securities Act so their transfer is
not restricted like the Old Class G
Certificates, the New Class G Certificates do
not contain terms with respect to transfer
restrictions or interest rate increases and the
New Class G Certificates will be available only
in book-entry form.
As of the date of this Prospectus, $391,583,000
face amount ($381,789,096 Pool Balance) of Old
Class G Certificates are outstanding.
Conditions to the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Class G
Certificates being tendered for exchange.
However, the Exchange Offer is subject to
certain customary conditions, which may be
waived by us. See "The Exchange
Offer -- Conditions".
Procedures for Tendering Old
Class G Certificates.......... If you wish to accept the Exchange Offer you
must deliver your Old Class G Certificates to
the Exchange Agent for exchange no later than
5:00 p.m., New York City time, on October 10,
2003. The Expiration Date may be extended under
certain circumstances.
You must also deliver a completed and signed
letter of transmittal together with the Old
Class G Certificates (the "Letter of
Transmittal"). A Letter of Transmittal has been
sent to Certificateholders and a form can be
found as an exhibit to the Registration
Statement. Please refer to "The Exchange
Offer -- Procedures for Tendering".
You must deliver the Old Class G Certificates
and the Letter of Transmittal to U.S. Bank
Trust National Association (the "Exchange
Agent"), as follows:
U.S. Bank Trust National Association
Corporate Trust Services
Attn: Specialized Finance
Westside Flats Operations Center
60 Livingston Avenue
St. Paul, MN 55107
Telephone: (651) 495-3511
Facsimile: (651) 495-8158
If you hold Old Class G Certificates through
DTC and wish to accept the Exchange Offer, you
may do so through DTC's Automated Tender Offer
Program. By accepting the Exchange
2
Offer through such program, you will agree to
be bound by the Letter of Transmittal as though
you had signed the Letter of Transmittal and
delivered it to the Exchange Agent.
See "The Exchange Offer -- Procedures for
Tendering", "-- Book-Entry Transfer" and
"-- Exchange Agent".
Guaranteed Delivery
Procedures.................... If you wish to tender Old Class G Certificates
and your Old Class G Certificates are not
immediately available or you cannot deliver
your Old Class G Certificates and a properly
completed Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date or you cannot complete the book-entry
transfer procedures prior to the Expiration
Date, you may tender your Old Class G
Certificates according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures".
Denominations................. You may only tender Old Class G Certificates in
integral multiples of $100,000. The New Class G
Certificates will be issued in integral
multiples of $1,000.
Withdrawal Rights............. You may withdraw a tender of Old Class G
Certificates at any time before 5:00 p.m., New
York City time, on the Expiration Date. To
withdraw a tender of Old Class G Certificates,
the Exchange Agent must receive a written or
facsimile transmission notice requesting such
withdrawal at its address set forth under "The
Exchange Offer -- Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration
Date. See "The Exchange Offer -- Withdrawal of
Tenders".
Resale of New Class G
Certificates.................. We believe that you can offer for resale,
resell and otherwise transfer the New Class G
Certificates without complying with the
registration and prospectus delivery
requirements of the Securities Act if:
- you acquire the New Class G Certificates in
the ordinary course of your business;
- you have no arrangements or understanding
with any person to participate in the
distribution of the New Class G Certificates;
and
- you are not an "affiliate", as defined in
Rule 405 of the Securities Act, of ours or of
any Trustee or a broker-dealer who acquired
Old Class G Certificates directly from the
Trustee for your own account.
If any of these conditions is not satisfied and
you transfer any New Class G Certificate
without delivering a proper prospectus or
without qualifying for a registration
exemption, you may incur liability under the
Securities Act. We do not assume or indemnify
you against such liability.
Each broker-dealer that receives New Class G
Certificates in exchange for Old Class G
Certificates held for its own account as a
result of market-making or other trading
activities must acknowledge that it will
deliver a prospectus in connection with
3
any resale of such New Class G Certificates. A
broker-dealer may use this Prospectus for an
offer to resell, resale or other transfer of
such New Class G Certificates issued to it in
the Exchange Offer.
For more information on the resale of New Class
G Certificates, see "The Exchange
Offer -- General".
Registration, Clearance and
Settlement.................... The New Class G Certificates will be
represented by one or more permanent global
certificates, which will be registered in the
name of the nominee of DTC. The global
certificates will be deposited with the Trustee
as custodian for DTC. See "Description of the
Certificates -- Book Entry; Delivery and Form".
Delivery of New Class G
Certificates.................. The Exchange Agent will deliver New Class G
Certificates in exchange for all properly
tendered Old Class G Certificates promptly
following the expiration of the Exchange Offer.
Certain Federal Income Tax
Consequences.................. The exchange of New Class G Certificates for
Old Class G Certificates will not be treated as
a taxable event for federal income tax
purposes. See "Certain U.S. Federal Income Tax
Consequences".
Fees and Expenses............. We will pay all expenses, other than certain
applicable taxes, of completing the Exchange
Offer and compliance with the Registration
Rights Agreement. See "The Exchange
Offer -- Fees and Expenses".
Failure to Exchange Old Class
G Certificates................ Once the Exchange Offer has been completed, if
you do not exchange your Old Class G
Certificates for New Class G Certificates in
the Exchange Offer, you will no longer be
entitled to registration rights and will not be
able to offer or sell your Old Class G
Certificates, unless (i) such Old Class G
Certificates are subsequently registered under
the Securities Act (which, subject to certain
exceptions set forth in the Registration Rights
Agreement, we will have no obligation to do) or
(ii) your transaction is exempt from, or
otherwise not subject to, the Securities Act
and applicable state securities laws. See "Risk
Factors -- Risk Factors Relating to the
Certificates and the Exchange
Offer -- Consequences of Failure to Exchange"
and "The Exchange Offer".
Use of Proceeds............... We will not receive any cash proceeds from the
exchange of the New Class G Certificates for
the Old Class G Certificates.
4
SUMMARY OF TERMS OF CERTIFICATES
CLASS G CLASS C(1) CLASS D(1)
CERTIFICATES CERTIFICATES CERTIFICATES
---------------------- ---------------------- ----------------------
Aggregate face amount at
the Issuance Date....... $391,583,000 $135,423,000 $65,392,000
Ratings:
Moody's................... Aaa Not Rated Not Rated
Standard & Poor's......... AAA Not Rated Not Rated
Initial loan to Aircraft
value ratio at the
Issuance Date
(cumulative)(2)......... 49.0% 65.9% 74.1%
Expected maximum loan to
Aircraft value ratio
(cumulative)............ 49.0% 65.9% 74.1%
Expected principal
distribution window (in
years)(3)............... 0.2 - 5.0 5.0 0.2 - 5.0
Initial average life (in
years)(3)............... 4.2 5.0 2.5
Regular Distribution
Dates................... January 25, April 25, January 25, April 25, January 25, April 25,
July 25 and October 25 July 25 and October 25 July 25 and October 25
Final Expected
Distribution Date....... January 25, 2008 January 25, 2008 January 25, 2008
Final Legal Distribution
Date.................... July 25, 2009 January 25, 2008 January 25, 2008
Minimum Denomination...... $100,000 $100,000 $100,000
Section 1110 Protection... Yes Yes Yes
Liquidity Facility
Coverage................ 6 quarterly interest No No
payments
Policy Coverage(4)........ Yes No No
---------------
(1) The Class C and Class D Certificates are not being offered pursuant to this
Prospectus. The Class C and Class D Certificates were purchased by
affiliates of Delta concurrently with the issuance of the Old Class G
Certificates.
(2) These percentages are calculated as of the Issuance Date. The aggregate
appraised base value of the Aircraft was $799,560,000 as of such date. See
"Loan to Aircraft Value Ratios" in this Prospectus summary for the method we
used in calculating the loan to Aircraft value ratios.
(3) Measured from the Issuance Date.
(4) The Policy will support the payment of interest on the Class G Certificates
when due (after taking into account the prior use of any available funds
under the Primary Liquidity Facility, the Primary Cash Collateral Account,
and the Above-Cap Account) and the payment of the outstanding balance of the
Class G Certificates on the Final Legal Distribution Date for the Class G
Certificates and in certain other circumstances as described herein.
5
EQUIPMENT NOTES AND THE AIRCRAFT
The Trusts hold secured Equipment Notes issued for each of twelve Boeing
Aircraft, consisting of two Boeing 737-832 aircraft and ten Boeing 767-332ER
aircraft. All of the Aircraft have been delivered to and are being operated by
Delta. See "Description of the Aircraft and the Appraisals" for a description of
the Aircraft. Set forth below is information about the Aircraft and the
Equipment Notes for those Aircraft.
PRINCIPAL AMOUNT OF
MANUFACTURER'S REGISTRATION DATE APPRAISED BASE SERIES G, C AND D
AIRCRAFT TYPE SERIAL NUMBER NUMBER DELIVERED VALUE(1) EQUIPMENT NOTES
------------- -------------- ------------ --------- -------------- -------------------
Boeing 737-832........ 30816 N3760C 12/21/01 $40,950,000 $33,126,206
Boeing 737-832........ 29628 N3761R 12/20/01 40,950,000 33,126,206
Boeing 767-332ER...... 28450 N193DN 8/21/97 66,930,000 45,441,495
Boeing 767-332ER...... 28451 N194DN 9/26/97 67,140,000 46,024,676
Boeing 767-332ER...... 28452 N195DN 9/30/97 67,140,000 46,024,676
Boeing 767-332ER...... 28453 N196DN 10/30/97 67,333,333 46,191,555
Boeing 767-332ER...... 28454 N197DN 12/23/97 67,690,000 46,476,358
Boeing 767-332ER...... 28455 N198DN 2/2/98 68,630,000 49,661,399
Boeing 767-332ER...... 30595 N1611B 5/15/00 76,203,333 59,007,653
Boeing 767-332ER...... 30596 N178DZ 5/23/00 76,203,333 59,007,653
Boeing 767-332ER...... 30575 N1612T 5/26/01 79,900,000 63,850,820
Boeing 767-332ER...... 32776 N1613B 8/10/01 80,490,000 64,459,302
---------------
(1) The appraised base value of each Aircraft set forth above is the lesser of
the average and median appraised base value of such Aircraft as appraised by
three independent appraisal and consulting firms. The appraisers based their
appraisals on varying assumptions (which may not reflect current market
conditions) and methodologies. See "Description of the Aircraft and the
Appraisals -- The Appraisals." An appraisal is only an estimate of value and
you should not rely on any appraisal as a measure of realizable value. In
its appraisal letter, one of the appraisers points out that, as a result of
the events of September 11, 2001, there has been a significant negative
effect on the current market values of all commercial aircraft and that the
present used aircraft market is considered to be a distressed market. See
"Risk Factors -- Risks Factors Relating to the Certificates and the Exchange
Offer -- Appraisals and Realizable Value of Aircraft."
6
LOAN TO AIRCRAFT VALUE RATIOS
The following table provides loan to Aircraft value ratios ("LTVs") for
each Class of Certificates as of the Issuance Date and each January 25 Regular
Distribution Date. The table is not a forecast or prediction of expected or
likely LTVs, but a mathematical calculation based upon one set of assumptions.
See "Risk Factors -- Risks Factors Relating to the Certificates and the Exchange
Offer -- Appraisals and Realizable Value of Aircraft."
We compiled the following table on an aggregate basis. However, the
Equipment Notes issued under an Indenture are entitled only to certain specified
cross-collateralization provisions as described under "Description of the
Equipment Notes -- Security." The relevant LTVs in a default situation for the
Equipment Notes issued under a particular Indenture would depend on various
factors, including the extent to which the debtor or trustee in bankruptcy
agrees to perform Delta's obligations under the Indentures. Therefore, the
following aggregate LTVs are presented for illustrative purposes only and should
not be interpreted as indicating the degree of cross-collateralization available
to the holders of the Certificates.
AGGREGATE POOL BALANCE(2) LTV(3)
ASSUMED ------------------------------------------ ------------------------------------------
AIRCRAFT CLASS G CLASS C CLASS D CLASS G CLASS C CLASS D
DATE VALUE(1) CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---- ------------ ------------ ------------ ------------ ------------ ------------ ------------
January 30, 2003 $799,560,000 $391,583,000 $135,423,000 $65,392,000 49.0% 65.9% 74.1%
January 25, 2004 772,913,158 366,524,319 135,423,000 50,838,771 47.4 64.9 71.5
January 25, 2005 746,266,316 337,405,695 135,423,000 36,279,570 45.2 63.4 68.2
January 25, 2006 719,619,475 311,162,153 135,423,000 23,157,900 43.2 62.1 65.3
January 25, 2007 692,972,633 282,937,999 135,423,000 9,045,931 40.8 60.4 61.7
January 25, 2008 0 0 0 0 NA NA NA
---------------
(1) In calculating the aggregate Assumed Aircraft Value, we assumed that the
appraised base value of each Aircraft determined as described under
"Equipment Notes and the Aircraft" declines in accordance with the
Depreciation Assumption described under "Description of the Equipment
Notes -- Loan to Value Ratio of the Equipment Notes." Other rates or methods
of depreciation may result in materially different LTVs. We cannot assure
you that the depreciation rate and method assumed for purposes of the table
are the ones most likely to occur or predict the actual future value of any
Aircraft. See "Risk Factors -- Risks Factors Relating to the Certificates
and the Exchange Offer -- Appraisals and Realizable Value of Aircraft."
(2) The "pool balance" for each Class of Certificates indicates, as of any date,
after giving effect to any principal distributions expected to be made on
such date, the portion of the original face amount of such Class of
Certificates that has not been distributed to Certificateholders.
(3) We obtained the LTVs for each Class of Certificates for each January 25
Regular Distribution Date by dividing (i) the expected outstanding pool
balance of such Class together with the expected outstanding pool balance of
all other Classes ranking senior in right to distributions to such Class
after giving effect to the distributions expected to be made on such date,
by (ii) the aggregate Assumed Aircraft Value of the Aircraft on such date
based on the assumptions described above.
7
CASH FLOW STRUCTURE
This diagram illustrates the structure for the offering of the Certificates
and cash flows.
(Cash Flow Structure Chart)
------------------------------
(1) Delta issued Series G, Series C and Series D Equipment Notes in respect of
each Aircraft. The Class C and Class D Certificates are not offered under
this Prospectus. The Equipment Notes with respect to each Aircraft were
issued under a separate Indenture. The only cross-default provision in the
Indentures is an event of default under each Indenture which occurs if all
amounts owing under any Equipment Note are not paid in full on the Final
Payment Date.
(2) The primary liquidity facility and the above-cap liquidity facility are
available with respect to the Class G Certificates and are expected to cover
up to six consecutive quarterly interest distributions on the Class G
Certificates. There will be no liquidity facility in respect of the Class C
and Class D Certificates.
(3) The Policy covers payment of interest on and the outstanding balance of the
Class G Certificates only in the circumstances described herein. See
"Description of the Policy and the Policy Provider Agreement." The Policy
does not cover any amounts payable in respect of the Class C or Class D
Certificates.
8
THE OFFERING
Trusts and Certificates....... Each of the Class G Trust, the Class C Trust
and the Class D Trust were formed pursuant to a
separate trust supplement entered into between
Delta and U.S. Bank Trust National Association
to a basic pass through trust agreement between
Delta and U.S. Bank Trust National Association
(as successor trustee to State Street Bank and
Trust Company of Connecticut, National
Association), as Trustee under each Trust. Each
Class of Certificates represent fractional
undivided interests in the related Trust.
Certificates Offered.......... New Class G Certificates.
Class C and Class D
Certificates.................. We are not offering the Class C or Class D
Certificates pursuant to this Prospectus. We
privately placed the Class C and Class D
Certificates with our affiliates concurrently
with the issuance of the Old Class G
Certificates. There is no liquidity facilities
with respect to the Class C or Class D
Certificates.
Use of Proceeds............... The proceeds from the sale of the Old Class G
Certificates were used to acquire the Series G
Equipment Notes. The Equipment Notes are full
recourse obligations of Delta. Delta used the
proceeds from the issuance of the Series G
Equipment Notes for general corporate purposes.
Subordination Agent, Trustee
and Loan Trustee.............. U.S. Bank Trust National Association.
Policy Provider............... Ambac Assurance Corporation.
Primary Liquidity Provider.... Initially, Landesbank Baden-Wurttemberg for the
Class G Certificates. There is no primary
liquidity facility for the Class C or Class D
Certificates.
Above-Cap Liquidity
Provider...................... Initially, Merrill Lynch Capital Services, Inc.
for the Class G Certificates. There is no
above-cap liquidity facility for the Class C or
Class D Certificates. The obligations of
Merrill Lynch Capital Services, Inc. under the
Above-Cap Liquidity Facility are guaranteed by
its parent company, Merrill Lynch & Co., Inc.
Trust Property................ The property of each Trust includes:
- Equipment Notes acquired by such Trust;
- All rights of such Trust under the
Intercreditor Agreement (including all monies
receivable pursuant to such rights);
- With respect to the Class G Trust, all monies
receivable under the Liquidity Facilities;
- With respect to the Class G Trust, all monies
receivable under the Policy; and
- Funds from time to time deposited with the
Trustee in accounts relating to such Trust.
Regular Distribution Dates.... January 25, April 25, July 25 and October 25 of
each year, commencing on April 25, 2003.
9
Record Dates.................. The fifteenth day preceding the related
Distribution Date.
Distributions................. The Trustee will distribute all payments of
principal, Break Amount (if any), Make-Whole
Amount (if any) and interest received on the
Equipment Notes held in each Trust to the
holders of the Certificates of such Trust,
subject to the subordination provisions
applicable to the Certificates.
Subject to the subordination provisions
applicable to the Certificates,
- scheduled payments of principal and interest
made on the Equipment Notes will be
distributed on the applicable Regular
Distribution Dates; and
- payments of principal, Break Amount (if any),
Make-Whole Amount (if any) and interest made
on the Equipment Notes resulting from any
early redemption of such Equipment Notes will
be distributed on a Special Distribution Date
after not less than 15 days' notice to
Certificateholders.
Intercreditor Agreement....... The Trusts, the Primary Liquidity Provider, the
Above-Cap Liquidity Provider, the Subordination
Agent and the Policy Provider are parties to
the Intercreditor Agreement. The Intercreditor
Agreement states how payments made on the
Equipment Notes, the Primary Liquidity
Facility, the Above-Cap Liquidity Facility and
the Policy will be distributed. The
Intercreditor Agreement also sets forth
agreements among the Trusts, the Liquidity
Providers and the Policy Provider relating to
who will control the exercise of remedies under
the Equipment Notes and the Indentures.
Subordination................. Under the Intercreditor Agreement,
distributions on the Certificates generally
will be made in the following order:
- First, to the holders of the Class G
Certificates;
- Second, to the holders of the Class C
Certificates; and
- Third, to the holders of the Class D
Certificates.
Certain payments to the Primary Liquidity
Provider and to the Policy Provider will be
made prior to payments on the Certificates as
discussed under "Description of the
Intercreditor Agreement -- Priority of
Distributions."
If Delta is in bankruptcy or other specified
defaults have occurred but Delta is continuing
to meet certain of its payment obligations, the
subordination provisions applicable to the
Certificates permit distributions to be made on
junior Certificates prior to making
distributions in full on the more senior
Certificates.
Control of Loan Trustee....... Subject to certain conditions, the "Controlling
Party" will be entitled to direct the Loan
Trustee under such Indenture in taking action
(including in exercising remedies, such as
accelerating such Equipment Notes or
foreclosing the lien on the Aircraft securing
such Equipment Notes).
10
Subject to the following two paragraphs, if
Final Distributions have not been fully paid to
the holders of the Class G Certificates or if
any obligations payable to the Policy Provider
under the Intercreditor Agreement remain
outstanding, so long as no Policy Provider
Default has occurred and is continuing, the
Policy Provider will be the "Controlling
Party". At any other time the "Controlling
Party" will be:
- if Final Distributions have not been fully
paid to holders of the Class G Certificates,
the Class G Trustee;
- if Final Distributions have been fully paid
to the holders of the Class G Certificates,
but not to the holders of the Class C
Certificates, the Class C Trustee; and
- if Final Distributions have been fully paid
to the holders of the Class C Certificates,
the Class D Trustee.
Under certain circumstances, and
notwithstanding the foregoing, the Primary
Liquidity Provider will be the Controlling
Party, unless the Policy Provider pays to the
Primary Liquidity Provider all outstanding
drawings and interest thereon owing to the
Primary Liquidity Provider under the Primary
Liquidity Facility, in which case the Policy
Provider will be the Controlling Party (so long
as no Policy Provider Default has occurred and
is continuing).
In exercising remedies during the nine months
after the earlier of (a) the acceleration of
the Equipment Notes issued pursuant to any
Indenture or (b) the bankruptcy of Delta, the
Controlling Party may not, without the consent
of each Trustee (other than the Trustee of any
Trust all of the Certificates of which are held
or beneficially owned by Delta or any of its
affiliates), direct the sale of such Equipment
Notes or the Aircraft subject to the lien of
such Indenture for less than certain specified
minimums.
Right to Buy Other Classes of
Certificates.................. If Delta is in bankruptcy or certain other
specified events have occurred, the
Certificateholders and the Policy Provider may
have the right to buy certain other Classes of
Certificates on the following basis:
- The Class C Certificateholders (other than
Delta or any of its affiliates) will have the
right to purchase all, but not less than all,
of the Class G Certificates, unless the
Policy Provider has elected to purchase the
Class G Certificates as described below.
- The Class D Certificateholders (other than
Delta or any of its affiliates) will have the
right to purchase all, but not less than all,
of the Class G and Class C Certificates
unless the Policy Provider has elected to
purchase the Class G Certificates as
described below.
- Whether or not any Class of
Certificateholders has purchased or elected
to purchase the Class G Certificates, the
Policy Provider (except in the event of a
Policy Provider Default), if
11
it is then the Controlling Party, will have
the right to purchase all, but not less than
all, of the Class G Certificates.
Once the Policy Provider has purchased the
Class G Certificates, the Class C
Certificateholders and Class D
Certificateholders will no longer have the
right to purchase the Class G Certificates.
The purchase price in each case described above
will be the outstanding principal balance of
the applicable Class of Certificates plus
accrued and undistributed interest, plus Break
Amount (if any), but without any Make-Whole
Amount.
Liquidity Facilities.......... Under the Primary Liquidity Facility, the
Primary Liquidity Provider will, if necessary,
make advances in an aggregate amount that,
together with amounts payable by the Above-Cap
Liquidity Provider under the Above-Cap
Liquidity Facility, is expected to be
sufficient to pay interest distributions on the
Class G Certificates on up to six successive
quarterly Regular Distribution Dates at the
applicable interest rate for the Class G
Certificates. Payments under the Primary
Liquidity Facility and the Above-Cap Liquidity
Facility cannot be used to pay any other amount
in respect of the Certificates.
Notwithstanding the subordination provisions
applicable to the Certificates, the holders of
the Class G Certificates will be entitled to
receive and retain the proceeds of drawings
under the Primary Liquidity Facility and
withdrawals from the account into which
payments under the Above-Cap Liquidity Facility
are required to be made for the Class G Trust.
Upon each drawing under the Primary Liquidity
Facility to pay interest distributions on the
Class G Certificates, the Subordination Agent
will be obligated to reimburse the Primary
Liquidity Provider for the amount of such
drawing, together with interest on such
drawing. Such reimbursement obligation and all
interest, fees and other amounts owing to the
Primary Liquidity Provider under the Primary
Liquidity Facility will rank senior to all of
the Certificates in right of payment.
Policy Coverage............... Under the Policy, the Policy Provider will
honor drawings to cover:
- any shortfall (after the application of
drawings under the Primary Liquidity
Facility, and withdrawals from the Primary
Cash Collateral Account and the Above-Cap
Account (collectively, "Prior Funds")), on
any Regular Distribution Date in interest on
the Class G Certificates; and
- any shortfall (after giving effect to the
application of Prior Funds) on the Final
Legal Distribution Date in the Final
Distribution (other than any unpaid
Make-Whole Amount and unpaid Break Amount) on
the Class G Certificates.
12
Further, upon a default in the payment of
principal of a Series G Equipment Note or if a
Series G Equipment Note is accelerated (a
"Defaulted Series G Equipment Note") then,
- on the first Business Day which is 21 months
after the last Regular Distribution Date on
which full payment was made on that Defaulted
Series G Equipment Note prior to such default
or acceleration, the Policy Provider will pay
the outstanding amount of principal and
accrued and unpaid interest on that Defaulted
Series G Equipment Note; or
- if a Defaulted Series G Equipment Note or any
underlying collateral is disposed of in
connection with the exercise of remedies (a
"Disposition"), the Policy Provider will pay,
after giving effect to the application of
Disposition proceeds and any Prior Funds, the
amount, if any, required to reduce the Pool
Balance of the Class G Certificates by an
amount equal to the outstanding principal
amount of such Defaulted Series G Equipment
Note (less the amount of any Policy Drawings
previously paid by the Policy Provider in
respect of principal of such Defaulted Series
G Equipment Note) plus accrued and unpaid
interest on the amount of such reduction.
If there is no Disposition, instead of paying
the full amount of principal and accrued and
unpaid interest on a Defaulted Series G
Equipment Note at the end of the 21-month
period referred to above, the Policy Provider
may elect, after giving five days' prior
written notice to the Subordination Agent,
instead to pay:
- an amount equal to the scheduled principal
and interest payable but not paid on the
Defaulted Series G Equipment Note (without
regard to the acceleration thereof) during
the 21-month period (after giving effect to
the application of funds received from the
Primary Liquidity Facility, the Primary Cash
Collateral Account and the Above-Cap Account,
in each case, with respect to such interest);
and
- thereafter, on each Regular Distribution
Date, an amount equal to the scheduled
principal and interest otherwise payable on
the Defaulted Series G Equipment Note
(without regard to any acceleration thereof
and without regard to any Prior Funds) until
paid in full.
Notwithstanding an election by the Policy
Provider to pay scheduled payments instead of
accelerated payments as discussed above, the
Policy Provider may, on any Business Day (which
shall be a Special Distribution Date) elected
by the Policy Provider upon 20 days' notice,
cause the Subordination Agent to make a drawing
under the Policy for an amount equal to the
then outstanding principal balance of and
accrued and unpaid interest on the Defaulted
Series G Equipment Note from the immediately
preceding Regular Distribution Date, less any
Policy Drawings previously paid by the Policy
Provider in respect of principal of such
Defaulted Series G Equipment Note. Further,
notwithstanding an election by the Policy
Provider to pay
13
scheduled payments instead of accelerated
payments as discussed above, upon the
occurrence of a Policy Provider Default, the
Subordination Agent shall, on any Business Day
elected by the Subordination Agent upon 20
days' notice to the Policy Provider, make a
drawing under the Policy for an amount equal to
the then outstanding principal balance of and
accrued and unpaid interest on such Defaulted
Series G Equipment Note from the immediately
preceding Regular Distribution Date, less any
Policy Drawings previously paid by the Policy
Provider in respect of principal of such
defaulted Series G Equipment Note.
At the end of the 21-month period referred to
above, the Policy Provider will honor drawings
by the Primary Liquidity Provider of interest
accruing on all outstanding drawings under the
Primary Liquidity Facility from and after the
end of such 21-month period as and when such
interest becomes due in accordance with the
Primary Liquidity Facility.
Accrued and unpaid interest payable by the
Policy Provider on account of the Defaulted
Series G Equipment Notes will be calculated at
the Stated Interest Rate for the Class G
Certificates.
The Policy will cover only the Class G
Certificates and the proceeds of any Policy
Drawing will be applied only to the outstanding
balance of, and interest on, the Class G
Certificates. The Policy Provider will be
entitled to be reimbursed for Policy Drawings
as described in the "Description of the Policy
and the Policy Provider Agreement" and
"Description of Intercreditor
Agreement -- Priority of Distributions."
Equipment Notes
(a) Issuer.................. Under each Indenture, Delta issued Series G,
Series C and Series D Equipment Notes, which
were acquired, respectively, by the Class G,
Class C and Class D Trusts.
(b) Interest................ The Equipment Notes held in each Trust accrue
interest at the rate per annum for the
Certificates issued by such Trust. The rate per
annum for the Class G Certificates is set forth
on the cover page of this Prospectus. The
Series C and Series D Equipment Notes will
accrue interest at LIBOR for each Interest
Period plus a margin of 2.00% and 2.50% per
annum, respectively. Interest on the Equipment
Notes will be payable on January 25, April 25,
July 25 and October 25 of each year, commencing
on April 25, 2003. Interest will be calculated
on the basis of the actual number of days
elapsed over a 360-day year. LIBOR will be
determined from time to time by the Reference
Agent as described in "Description of the
Equipment Notes -- Determination of LIBOR."
(c) Principal............... Principal payments on the Series G Equipment
Notes are scheduled to be received in specified
amounts on January 25, April 25, July 25 and
October 25 in certain years, commencing on
April 25, 2003 and ending on January 25, 2008.
The entire principal of the Series C Equipment
Notes will be payable on
14
January 25, 2008. Principal payments on the
Series D Equipment Notes are scheduled to be
received in specified amounts on January 25,
April 25, July 25 and October 25 in certain
years, commencing on April 25, 2003 and ending
on January 25, 2008.
(d) Rankings................ The Indentures provide for the following
subordination provisions applicable to the
Equipment Notes:
- Series G Equipment Notes issued in respect of
an Aircraft rank senior in right of payment
to the Series C and Series D Equipment Notes
issued in respect of such Aircraft;
- Series C Equipment Notes issued in respect of
an Aircraft rank junior in right of payment
to the Series G Equipment Notes issued in
respect of such Aircraft and rank senior in
right of payment to the Series D Equipment
Notes issued in respect of such Aircraft; and
- Series D Equipment Notes issued in respect of
an Aircraft rank junior in right of payment
to the Series G and Series C Equipment Notes
issued in respect of such Aircraft.
By virtue of the Intercreditor Agreement, all
of the Equipment Notes are effectively
cross-subordinated. This means that payments
received on a junior series of Equipment Notes
issued in respect of one Aircraft may be
applied in accordance with the priority of
payment provisions set forth in the
Intercreditor Agreement to make distributions
on a more senior Class of Certificates.
(e) Redemption.............. Aircraft Event of Loss. If an Event of Loss
occurs with respect to a Core Aircraft, Delta
will either:
- redeem all of the Equipment Notes issued with
respect to such Core Aircraft and redeem the
amount of Series G Equipment Notes issued
under each other Indenture relating to a Core
Aircraft specified in "Description of the
Equipment Notes -- Redemption", or
- substitute an aircraft meeting certain
requirements for such Core Aircraft.
If an Event of Loss occurs with respect to a
Non-Core Aircraft, Delta will either:
- redeem all of the Equipment Notes issued with
respect to such Non-Core Aircraft, or
- substitute an aircraft meeting certain
requirements for such Non-Core Aircraft.
The redemption price in each case will be the
unpaid principal amount of such Equipment Notes
to be redeemed, together with accrued interest
and Break Amount (if any), but without any
Make-Whole Amount. See "Description of the
Equipment Notes -- Redemption."
Optional Redemption. Delta may elect to redeem
at any time prior to maturity all of the
Equipment Notes issued with respect
15
to a Non-Core Aircraft. The redemption price in
such case will be the unpaid principal amount
of such Equipment Notes, together with accrued
interest and Break Amount (if any), plus the
Make-Whole Amount (if any). Delta may not
optionally redeem at any time any of the
Equipment Notes issued with respect to a Core
Aircraft. Delta may not optionally redeem any
of the Equipment Notes with respect to a
Non-Core Aircraft if there is a payment default
under any other Indenture. See "Description of
the Equipment Notes -- Redemption."
The Aircraft with the following registration
numbers (and any aircraft substituted therefor)
are "Core Aircraft": N3760C, N3761R, N193DN,
N194DN, N1611B and N178DZ.
The Aircraft with the following registration
numbers (and any aircraft substituted therefor)
are "Non-Core Aircraft": N195DN, N196DN,
N197DN, N198DN, N1612T and N1613B.
Event of Default. Upon the occurrence of an
Event of Default under an Indenture, any excess
proceeds realized from the sale of the Aircraft
or the exercise of other remedies under such
Indenture will be applied to redeem the
Equipment Notes under other Indentures in
accordance with the third paragraph under
"-- Security".
(f) Security................ The Equipment Notes issued with respect to each
Aircraft are secured by a security interest in
such Aircraft.
In addition, the Equipment Notes are
cross-collateralized to the extent provided in
the Indentures, as summarized below.
Distribution of Excess Proceeds. The proceeds
realized from the sale of an Aircraft or the
exercise of other remedies by the Loan Trustee
under an Indenture will be allocated, after
paying certain administrative expenses and
other related amounts, in the following order
or priority:
- to pay all amounts due and payable on all of
the Equipment Notes issued under such
Indenture in accordance with the priorities
set forth therein;
- to pay to the Loan Trustee under the other
Indentures relating to the Core Aircraft an
amount up to the outstanding principal of,
and unpaid interest accrued on, the Series G
Equipment Notes issued thereunder on a pro
rata basis;
- to pay to the Loan Trustee under the other
Indentures relating to the Non-Core Aircraft
an amount up to the outstanding principal of,
and unpaid interest accrued on, the Series G
Equipment Notes issued thereunder on a pro
rata basis;
- to pay to the Loan Trustee under the other
Indentures an amount up to the outstanding
principal of, and unpaid interest accrued on,
the Series C Equipment Notes issued
thereunder on a pro rata basis; and
- to pay to the Loan Trustee under the other
Indentures an amount up to the outstanding
principal of, and unpaid interest
16
accrued on, the Series D Equipment Notes
issued thereunder on a pro rata basis.
Cross-Default at Final Payment Date. In
addition, if all amounts owing under any
Equipment Note are not paid in full on the
Final Payment Date, the Loan Trustees will be
able to exercise remedies under all remaining
Indentures, including the sale of all Aircraft,
to satisfy the remaining amounts due under any
Equipment Note. Such payment default at the
Final Payment Date is the only cross-default
provision under the Indentures. Therefore,
until the Final Payment Date, if the Equipment
Notes issued under one or more Indentures are
in default and the Equipment Notes issued under
the remaining Indentures are not in default, no
remedies will be exercisable under such
remaining Indentures. If, at any time before
the Final Payment Date, the Equipment Notes
issued under an Indenture are repaid in full
(other than as a result of the exercise of
remedies thereunder), the lien under such
Indenture will be released and will not
thereafter secure any other Equipment Notes.
(g) Section 1110
Protection.................... Cadwalader, Wickersham & Taft LLP, special
counsel to Delta, provided an opinion to the
Trustees that the benefits of Section 1110 of
the Bankruptcy Code are available for each of
the Aircraft.
Certain ERISA
Considerations................ Each person who acquires a Class G Certificate
will be deemed to have represented that either:
- no assets of a Plan or of any trust
established with respect to a Plan shall have
been used to acquire such Class G Certificate
or an interest therein; or
- the purchase and holding of such Class G
Certificate or an interest therein by such
person are exempt from the prohibited
transaction restrictions of the Employee
Retirement Income Security Act of 1974 and
the Internal Revenue Code of 1986 or
materially similar provisions of Similar Law
(as defined herein) pursuant to one or more
prohibited transaction statutory or
administrative exemptions.
See "Certain ERISA Considerations."
Ratings of the Class G
Certificates.................. The Class G Certificates are rated "Aaa" by
Moody's and "AAA" by Standard & Poor's.
A rating is not a recommendation to purchase,
hold or sell Class G Certificates, and such
rating does not address market price or
suitability for a particular investor. There
can be no assurance that such ratings will not
be lowered or withdrawn by either Rating
Agency. See "Risk Factors -- Risks Factors
Relating to the Certificates and the Exchange
Offer -- Ratings of the Certificates."
The Class C and Class D Certificates are not
rated.
17
Threshold Rating Requirements
for the Liquidity Providers... The threshold rating is (i) a short-term
unsecured debt rating of P-1 in the case of
Moody's and a short-term issuer credit rating
of A-1 in the case of Standard & Poor's and
(ii) for any entity that does not have a
short-term rating from either or both of such
rating agencies, then in lieu of such
short-term rating, a long-term unsecured debt
rating of A1 in the case of Moody's and a long-
term issuer credit rating of A+ in the case of
Standard & Poor's.
Primary Liquidity Provider
Rating........................ The initial Primary Liquidity Provider
currently meets the Threshold Rating
requirement.
Above-Cap Liquidity Provider
Rating........................ Merrill Lynch & Co., Inc., the guarantor of the
obligations of the initial Above-Cap Liquidity
Provider, currently meets the Threshold Rating
requirement.
Rating of the Policy
Provider...................... The Policy Provider is currently rated "Aaa" by
Moody's and "AAA" by Standard & Poor's.
Governing Law................. The Certificates and the Equipment Notes are
governed by the laws of the State of New York.
18
SELECTED FINANCIAL AND OPERATING DATA
The following table presents selected financial and operating data of
Delta. We derived the annual historical financial data from Delta's audited
consolidated financial statements and the notes thereto. The audited
consolidated financial statements as of December 31, 2002 and 2001 and for the
years ended December 31, 2002, 2001 and 2000 are incorporated by reference in
this Prospectus and the selected financial and operating data should be read in
conjunction with those financial statements. The consolidated financial data as
of June 30, 2003 and for the six months ended June 30, 2003 and 2002 were
derived from Delta's unaudited consolidated financial statements and may not be
indicative of results for the year as a whole. See "Where You Can Find More
Information."
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------------
2003(1) 2002(2) 2002(3) 2001(4) 2000(5) 1999(6) 1998
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA
(IN MILLIONS, EXCEPT PER
SHARE DATA):
Operating revenues........... $ 6,462 $ 6,577 $ 13,305 $ 13,879 $ 16,741 $ 14,883 $ 14,312
Operating expenses........... 6,801 7,139 14,614 15,481 15,104 13,565 12,509
Operating income (loss)...... (339) (562) (1,309) (1,602) 1,637 1,318 1,803
Interest expense, net(7)..... 338 296 610 410 257 126 66
Net income (loss) before
cumulative effect of change
in accounting principle.... (282) (583) (1,272) (1,216) 928 1,262 1,078
Net income (loss)............ (282) (583) (1,272) (1,216) 828 1,208 1,078
Earnings (loss) per share
before cumulative effect of
change in accounting
principle(8):
Basic...................... (2.35) (4.79) (10.44) (9.99) 7.39 9.05 7.22
Diluted.................... (2.35) (4.79) (10.44) (9.99) 7.05 8.52 6.87
Earnings (loss) per share(8):
Basic...................... (2.35) (4.79) (10.44) (9.99) 6.58 8.66 7.22
Diluted.................... (2.35) (4.79) (10.44) (9.99) 6.28 8.15 6.87
OTHER DATA:
Ratio of earnings (loss) to
fixed charges(9)........... 0.44x (0.40x) (0.51x) (0.51x) 2.37x 3.55x 3.45x
OPERATING STATISTICS:
Revenue passengers enplaned
(thousands)................ 50,879 52,045 107,048 104,943 119,930 110,083 105,304
Available seat miles
(millions)(10)............. 65,238 69,599 141,719 147,837 154,974 147,073 142,154
Revenue passenger miles
(millions)(11)............. 46,958 49,549 102,029 101,717 112,998 106,165 103,342
Operating revenue per
available seat mile........ 9.90c 9.45c 9.39c 9.39c 10.80c 10.12c 10.07c
Passenger mile yield(12)..... 12.73c 12.30c 12.08c 12.74c 13.86c 13.14c 12.99c
Operating cost per available
seat mile.................. 10.42c 10.26c 10.31c 10.47c 9.75c 9.22c 8.80c
Passenger load factor(13).... 71.98% 71.19% 71.99% 68.80% 72.91% 72.18% 72.70%
Breakeven passenger load
factor(14)................. 76.06% 77.76% 79.64% 77.31% 65.29% 65.37% 62.94%
19
AT DECEMBER 31,
AT JUNE 30, ---------------------------------------------------
2003 2002 2001 2000 1999 1998(15)
---------------- ------- ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA (IN MILLIONS):
Cash and cash equivalents......... $ 2,815 $ 1,969 $ 2,210 $ 1,364 $ 1,623 $ 618
Total assets...................... 25,557 24,720 23,605 21,931 19,942 14,727
Current liabilities............... 6,373 6,455 6,403 5,245 5,514 4,456
Long-term debt (less current
maturities)(16)................. 11,343 10,074 8,279 5,797 4,144 1,524
Obligations under capital leases
(less current obligations)...... 83 100 68 99 159 196
Shareowners' equity............... 679 893 3,769 5,343 4,908 4,077
---------------
(1) Includes a $43 million pretax charge for the cost of pension and
postretirement obligations for participants in Delta's 2002 workforce
reduction programs; $398 million pretax reduction of operating expenses for
passenger security and air carrier security fee reimbursements received
from the U.S. government under the Emergency Wartime Supplemental
Appropriations Act (the "Appropriations Act"); a $279 million pretax gain
from the sale of Delta's equity investment in Worldspan, L.P. and a $29
million pretax charge for other income and expense items.
(2) Includes a $63 million pretax expense for the temporary carrying costs
associated with surplus pilots and grounded aircraft resulting from
capacity reductions implemented in November 2001, as well as related
requalification training and relocation costs for certain pilots; and a $43
million pretax charge for fair value adjustments of SFAS 133 derivatives.
(3) Includes a $439 million pretax charge for asset writedowns, restructuring
and related items primarily associated with changes to Delta's fleet plan
and its 2002 workforce reduction programs; a $34 million pretax gain for
compensation received under the Air Transportation Safety and System
Stabilization Act (the "Stabilization Act"); and a $94 million net pretax
charge for other income and expense items.
(4) Includes a $1.1 billion pretax charge for asset writedowns, restructuring
and related items primarily associated with the effects of the September
11, 2001 terrorist attacks on our business; a $634 million pretax gain from
the Stabilization Act compensation; and a $186 million net pretax gain for
other income and expense items.
(5) Includes a $108 million pretax charge for restructuring and related items
primarily associated with Delta's early retirement medical option program
offered in 2000; a $151 million net pretax gain from other income and
expense items; and a $164 million cumulative effect, non-cash pretax
charge, resulting from our adoption of SFAS 133 on July 1, 2000.
(6) Includes a $469 million pretax charge for asset writedowns; an $887 million
net pretax gain from other income and expense items; and an $89 million
non-cash pretax charge from the cumulative effect of a change in accounting
principle resulting from our adoption of SAB 101 on January 1, 1999.
(7) Includes interest income.
(8) All earnings per share amounts for 1998 have been restated to reflect the
two-for-one common stock split that became effective on November 2, 1998.
(9) The ratio of earnings (loss) to fixed charges represents the number of
times that fixed charges are covered by earnings. Earnings (loss)
represents income (loss) before income taxes, excluding the cumulative
effect of a change in accounting principle, plus fixed charges and
distributed income of equity investees less capitalized interest and income
(loss) from equity investees. Fixed charges include interest, whether
expensed or capitalized; one-half of rental expense, which Delta believes
is representative of the interest factor in those periods; amortization of
debt costs; and preferred security dividends. Fixed charges exceeded
adjusted earnings (loss) by $2.0 billion and $1.8 billion
20
for the years ended December 31, 2002 and 2001, respectively, and $403
million and $928 million for the six months ended June 30, 2003 and 2002,
respectively.
(10) "Available seat miles" is a measure of capacity which is calculated by
multiplying the total number of seats available for transporting passengers
by the total number of miles flown during a reporting period.
(11) "Revenue passenger mile" represents one revenue-paying passenger
transported one mile and is calculated by multiplying the number of revenue
passengers by the number of miles they are flown during the period.
(12) "Passenger mile yield" represents the amount of passenger revenue earned
per revenue passenger mile during a reporting period.
(13) "Passenger load factor" is a measure of utilized available seating capacity
which is calculated by dividing revenue passenger miles by available seat
miles for a reporting period.
(14) "Break-even passenger load factor" represents the percentage of seats that
must be occupied in order to break-even on a pre-tax income basis.
(15) Effective December 31, 2000, Delta changed its fiscal year end from June 30
to December 31 and reported audited balance sheet data for December 31,
2000 and December 31, 1999. Balance sheet data as of December 31, 1998 was
not required to be audited.
(16) Long-term debt includes $498 million in Special Facilities Revenue Bonds
issued in August 2001 by the Massachusetts Port Authority for the
redevelopment and expansion of Delta's facilities in Terminal A at Boston's
Logan International Airport. Delta has guaranteed the payment of debt
service on these bonds. The related proceeds of the bonds may only be used
for the redevelopment and expansion of Delta's facilities at Logan
International Airport, and, accordingly, are reflected on Delta's
consolidated balance sheets at June 30, 2003, December 31, 2002 and
December 31, 2001 as a restricted investment in "other assets," as required
by accounting principles generally accepted in the United States of
America.
21
RISK FACTORS
You should carefully consider the following risk factors as well as other
information contained in this Prospectus.
RISK FACTORS RELATING TO BUSINESS ENVIRONMENT
THE TERRORIST ATTACKS IN 2001, MILITARY ACTION IN IRAQ AND OTHER WORLD EVENTS
ADVERSELY AFFECTED, AND MAY CONTINUE TO ADVERSELY AFFECT, DELTA'S FINANCIAL
RESULTS
Since the terrorist attacks of September 11, 2001, involving commercial
aircraft of other airlines, Delta and the airline industry have faced the worst
financial crisis in aviation history. The airline industry has experienced
substantial revenue decline and cost increases which have resulted in industry
wide liquidity issues. Additionally, during the March 2003 quarter, the
industry's financial results were negatively impacted by the military action in
Iraq and the Severe Acute Respiratory Syndrome ("SARS") outbreak.
The future impact of the events of September 11, 2001 and the ability of
Delta to weather the current financial crisis will depend on a number of
factors, including, but not limited to, the following: (i) general economic
conditions; (ii) the adverse impact of the terrorist attacks on the demand for
air travel; (iii) the change in Delta's operations and higher costs resulting
from, and customer reaction to, new airline and airport security directives;
(iv) the availability and cost of war and terrorism risk and other insurance for
Delta; (v) the credit downgrades of Delta and other airlines by Moody's and
Standard & Poor's discussed below, and the possibility of additional downgrades,
to the extent it makes it more difficult and/or more costly for Delta to obtain
financing; (vi) potential declines in the values of the aircraft in Delta's
fleet or facilities and any related asset impairment charges; (vii) additional
terrorist activity and/or war; (viii) funding obligations under our defined
benefit pension plans, which are based on various factors, including actual
market performance of our pension plan assets, future 30-year U.S. Treasury bond
yields and regulatory requirements; (ix) the results of the profit improvement
initiatives previously announced by Delta; (x) actions by U.S. or foreign
governments, including the FAA and other regulatory agencies; and (xi) the
outcome of Delta's litigation.
THE CREDIT RATINGS OF DELTA HAVE BEEN DOWNGRADED SINCE 2001
After September 11, 2001, the credit ratings on Delta's senior unsecured
long-term debt were lowered from Baa3 to Ba2 by Moody's and Delta's issuer
credit rating was lowered from BBB- to BB+ by Standard & Poor's, with concurrent
downgrades of senior unsecured and various other debt by both rating agencies.
In November 2001, Standard & Poor's lowered Delta's senior unsecured debt rating
(but no other ratings) from BB+ to BB and in June 2002, Standard & Poor's
lowered Delta's issuer credit rating from BB+ to BB, with concurrent downgrades
of senior unsecured and various other Delta debt ratings. Moody's downgraded
Delta's senior unsecured long-term debt rating from Ba2 to Ba3 in December 2001
with concurrent downgrades of various other Delta debt ratings.
On March 28, 2003, Standard & Poor's lowered Delta's issuer credit rating
from BB to BB-, and Delta's senior unsecured long-term debt rating from BB- to
B. On April 10, 2003, Moody's downgraded Delta's senior implied debt rating from
Ba3 to B1, and Delta's senior unsecured long-term debt rating from Ba3 to B3. On
July 8, 2003, Standard & Poor's affirmed Delta's BB- issuer credit rating and
removed its ratings from CreditWatch.
The credit ratings of certain other airlines have been adjusted by Moody's
and Standard and Poor's in the various aforementioned reviews and in other
independent ratings actions. Moody's outlook on Delta's debt securities is
negative and Standard & Poor's outlook on Delta's issuer credit rating remains
negative. There can be no assurance that Delta's long-term debt rating will not
be lowered further or withdrawn by a rating agency.
Delta's current credit ratings have negatively impacted its ability to (i)
issue unsecured debt, (ii) renew outstanding letters of credit that back certain
of our obligations and (iii) obtain certain financial
22
instruments that we use in our fuel hedging program. Our current credit ratings
have also increased the cost of our financing transactions and the amount of
collateral required for certain financial instruments and insurance coverage.
OUR INSURANCE COSTS HAVE INCREASED SUBSTANTIALLY AS A RESULT OF THE SEPTEMBER
11, 2001 TERRORIST ATTACKS AND FURTHER INCREASES IN INSURANCE COSTS OR
REDUCTIONS IN COVERAGE COULD HAVE A MATERIAL ADVERSE IMPACT ON DELTA
As a result of the terrorist attacks of September 11, 2001, aviation
insurers have significantly reduced the maximum amount of insurance coverage
available to commercial air carriers for liability to persons other than
employees or passengers for claims resulting from acts of terrorism, war, or
similar events. At the same time, they significantly increased the premiums for
such coverage and for aviation insurance in general. Pursuant to authority
granted in the Stabilization Act, the U.S. government has supplemented Delta's
commercial war-risk insurance with a comprehensive war-risk liability policy to
cover losses to passengers, third parties (ground damage) and the aircraft hull.
This coverage is in effect through August 2004. Delta expects that if the
commercial insurance carriers reduce further the amount of insurance coverage
available to Delta or further significantly increase the cost of aviation
insurance, or if the U.S. government fails to renew the war-risk insurance that
it provides, Delta's business, financial position, and results of operations
could be materially adversely affected.
RISK FACTORS RELATING TO DELTA
DELTA CONTINUES TO EXPERIENCE SIGNIFICANT OPERATING LOSSES
Delta reported a net loss of $282 million for the six months ended June 30,
2003, or $2.35 diluted loss per common share, compared to a net loss of $583
million for the six months ended June 30, 2002, or $4.79 diluted loss per common
share. This includes the $398 million of payments that we received from the U.S.
government under the Appropriations Act and a $279 million pretax gain from the
sale of Delta's equity investment in Worldspan, L.P. For the fiscal year ended
December 31, 2002, Delta reported a net loss of $1.3 billion, or $10.44 diluted
loss per common share, compared to a net loss of $1.2 billion, or $9.99 diluted
loss per common share, for the fiscal year ended December 31, 2001.
Delta's operating revenues totaled $6.5 billion for the six months ended
June 30, 2003, a 2% decrease compared to the depressed level recorded for the
six months ended June 30, 2002. Passenger revenues decreased 2% to $6.0 billion.
Revenue passenger miles decreased 5% on a capacity decline of 6%, while
passenger mile yield increased 3%. The 2% decline in passenger revenues for the
six months ended June 30, 2003 was primarily due to the substantial adverse
impact of the military action in Iraq and the difficult revenue environment. The
3% increase in passenger mile yield reflects improved yields in international
markets. Operating expenses for the six months ended June 30, 2003 totaled $6.8
billion, a 5% decrease from $7.1 billion for the six months ended June 30, 2002.
Operating capacity declined 6%, while cost per available seat mile increased
1.6% to 10.42c. The changes in operating expenses and cost per available seat
mile reflect Delta's receipt of $398 million under the Appropriations Act, which
was recorded as an offset to operating expenses, and lower capacity.
Delta estimates that its net loss for the September 2003 quarter will be
approximately $200 million to $250 million. Delta does not expect significant
improvement in the revenue environment through 2003 and also expects significant
cost pressures related to increases in pension and interest expense to continue.
As a result, Delta expects to report a net loss for the year ending December 31,
2003.
SIGNIFICANT CHANGES OR EXTENDED PERIODS OF HIGH FUEL COSTS WOULD MATERIALLY
AFFECT DELTA'S OPERATING RESULTS
Delta's results of operations can be significantly impacted by changes in
the price and availability of jet fuel. Changes in jet fuel prices and
availability have industry-wide impact. Accordingly, lower jet fuel prices may
be offset by increased price competition and lower revenues for all air
carriers. Moreover, there
23
can be no assurance that Delta will be able to increase its fares in response to
any future increases in fuel prices.
Delta's jet fuel purchase contracts do not provide material protection
against price increases or for assured availability of supplies. Delta purchases
most of its jet fuel from petroleum refiners under contracts which establish the
price based on various market indices. Delta also purchases aircraft fuel on the
spot market, from off-shore sources and under contracts which permit the
refiners to set the price and give Delta the right to terminate upon short
notice if the price is unacceptable.
Although Delta is currently able to obtain adequate supplies of jet fuel,
it is impossible to predict the future availability or price of jet fuel.
Political disruptions or war involving oil producing countries, changes in
government policy concerning aircraft fuel production, transportation or
marketing, changes in aircraft fuel production capacity, environmental concerns
and other unpredictable events may result in fuel supply shortages and fuel
price increases in the future.
EMPLOYEE STRIKES AND OTHER LABOR-RELATED DISRUPTIONS MAY ADVERSELY AFFECT
DELTA'S OPERATIONS
Delta's business is labor intensive, requiring large numbers of pilots,
flight attendants, mechanics and other personnel. Strikes or labor disputes with
unionized employees of Delta or Delta's affiliates may adversely affect Delta's
ability to conduct its business. As of June 30, 2003 Delta and Delta's wholly-
owned subsidiaries had a total of 69,800 full-time equivalent employees.
Approximately 18% of these employees are represented by unions. Relations
between air carriers and labor unions in the U.S. are governed by the Railway
Labor Act, which provides that a collective bargaining agreement between an
airline and a labor union does not expire, but instead becomes amendable as of a
stated date. Delta's wholly-owned subsidiary, Atlantic Southeast Airlines, Inc.
("ASA"), is in collective bargaining negotiations with the Air Line Pilots
Association, International ("ALPA"), which represents ASA's approximately 1,500
pilots. See "Recent Developments -- Profit Improvement Initiatives for
information regarding Delta's recent discussions with ALPA.
The outcome of these collective bargaining negotiations cannot presently be
determined. In addition to the current ASA-ALPA negotiations, if Delta or
Delta's affiliates are unable to reach agreement with any of their unionized
work groups on future negotiations regarding the terms of their collective
bargaining agreements, Delta may be subject to work interruptions or stoppages.
Work stoppages may adversely affect Delta's ability to conduct its operations.
U.S. FEDERAL LAW IMPOSES LIMITATIONS ON FOREIGN OWNERSHIP OF U.S. AIRLINES AND
VOTING BY NON-U.S. CITIZENS
U.S. federal law on foreign ownership of U.S. airlines requires that no
more than 25% of Delta's capital stock be voted, directly or indirectly, by
persons who are not U.S. citizens, and that Delta's president and at least
two-thirds of the members of Delta's board of directors be U.S. citizens. As
such, Delta will not register any shares of its capital stock on its stock
register if the amount so registered would exceed the foreign ownership
restrictions imposed by federal law. Accordingly, if and for so long as the
combined foreign ownership holdings of Delta's capital stock reaches the 25%
threshold imposed by federal law, no other non-U.S. citizen will be able to
register its shares of common stock on Delta's stock register and vote its
shares.
WE EXPECT THAT WE WILL NEED TO RAISE SIGNIFICANT ADDITIONAL FINANCING
In the aftermath of the events of September 11, 2001, Delta raised
substantial amounts of funding to finance capital commitments and day-to-day
operations. Delta expects that it will need to raise significant additional
financing in the future to cover its liquidity needs. To the extent Delta may be
unable to access the capital markets for long-term capital spending requirements
or short-term liquidity needs, or Delta's financing costs continue to increase,
including as a result of further credit rating downgrades, Delta's business,
financial position and results of operations would be materially adversely
impacted.
24
OUR INDEBTEDNESS AND OTHER OBLIGATIONS ARE SUBSTANTIAL AND COULD AFFECT OUR
BUSINESS
We have now and will continue to have a significant amount of indebtedness.
As of June 30, 2003, we had approximately $12.2 billion of total consolidated
indebtedness; $5.9 billion of secured indebtedness (excluding secured
indebtedness of our subsidiaries); and approximately $1.8 billion of subsidiary
indebtedness. Our substantial indebtedness could have important consequences.
For example, it could:
- limit our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the funds
available to us for other purposes;
- make us more vulnerable to economic downturns, limiting our ability to
withstand competitive pressures and reducing our flexibility in
responding to changing business and economic conditions; and
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate.
Any of the foregoing could adversely affect our business and our ability to
service our debt.
OUR PENSION PLAN FUNDING OBLIGATIONS ARE SIGNIFICANT
Delta sponsors defined benefit pension plans ("pension plans") for eligible
employees and retirees. We have satisfied our minimum required funding
obligations for our pension plans in 2003. Estimates of our future funding
obligations under these pension plans are based on various assumptions,
including the actual market performance of the plan assets, future 30-year U.S.
Treasury bond yields and regulatory requirements. As previously announced, our
estimated pension plan funding obligation in 2004 is between $350 million and
$450 million. Our funding obligations under the pension plans in later years are
not reasonably estimable at this time because these estimates vary materially
depending on the assumptions used. Nevertheless, we presently expect our funding
obligations under our pension plans in each of the years from 2005 through 2007
will be substantially larger than our estimated funding obligations in 2004. For
additional information regarding our pension plans, see Note 11 (pages 51-55) of
the Notes to the Consolidated Financial Statements in our 2002 Annual Report to
Shareowners, which is incorporated by reference in this Prospectus.
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
THE AIRLINE INDUSTRY IS HIGHLY COMPETITIVE
Delta faces significant competition with respect to domestic and
international routes, services and fares. All domestic routes served by Delta
are subject to competition from both new and established carriers, some of which
have substantially lower costs than Delta and service virtually all of Delta's
domestic routes. On most domestic and international routes, Delta competes with
at least one, and usually more than one, scheduled passenger airline. Delta also
competes with all-cargo carriers, charter airlines and, particularly on its
shorter routes, with surface transportation.
International marketing alliances formed by domestic and foreign carriers,
such as the Star Alliance (among United Airlines, Lufthansa German Airlines and
others), the Oneworld Alliance (among American Airlines, British Airways and
others) and the Wings Alliance (between Northwest Airlines and KLM-Royal Dutch
Airlines), have significantly increased competition in international markets.
Through marketing and codesharing arrangements with U.S. carriers, foreign
carriers have obtained access to interior U.S. routes. Similarly, U.S. carriers
have increased their ability to sell international transportation such as
transatlantic services to and beyond European cities.
25
The airline industry is characterized by substantial price competition. If
price reductions are not offset by increases in traffic or changes in the mix of
traffic that improve Delta's passenger mile yield, Delta's operating results
will be adversely affected.
THE AIRLINE INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION
Airlines are subject to extensive regulatory and legal compliance
requirements that result in significant costs. The FAA from time to time issues
directives and other regulations relating to the maintenance and operation of
aircraft that require significant expenditures. Some FAA requirements cover,
among other things, security measures, collision avoidance systems, airborne
windshear avoidance systems, noise abatement and other environmental concerns,
commuter aircraft safety and increased inspections and maintenance procedures to
be conducted on older aircraft. Delta expects to continue incurring expenses to
comply with the FAA's regulations.
Additional laws, regulations, taxes and airport rates and charges have been
proposed from time to time that could significantly increase the cost of airline
operations or reduce revenues. For example, the Aviation and Transportation
Security Act, which became law in November 2001, mandates the federalization of
certain airport security procedures and imposes additional security requirements
on airports and airlines, most of which are funded by a new per-ticket tax on
passengers and a new tax on airlines. Subsequently, on April 16, 2003, President
Bush signed into law the Appropriations Act which provides, among other things,
for certain payments to the airline industry and the suspension of these taxes
from July 1, 2003 to September 30, 2003. See "Recent Developments." The ability
of U.S. carriers to operate international routes is subject to change because
the applicable arrangements between the United States and foreign governments
may be amended from time to time, or because appropriate slots or facilities are
not made available. Delta cannot provide assurance that laws or regulations
enacted in the future will not adversely affect it.
SEASONALITY AND OTHER FACTORS IMPACT DEMAND FOR AIR TRAVEL
In general, demand for air travel is higher in the June and September
quarters, particularly in international markets, because there is more vacation
travel during these periods than during the remainder of the year. Demand for
air travel is also affected by factors such as economic conditions, war or the
threat of war, fare levels and weather conditions. In addition, demand for air
travel at particular airlines may be impacted from time to time by, among other
things, actual or threatened disruptions to operations due to labor issues. Due
to these and other factors, operating results for an interim period are not
necessarily indicative of operating results for an entire year, and operating
results for a historical period are not necessarily indicative of operating
results for a future period.
THE AIRLINE INDUSTRY HAS SUFFERED SIGNIFICANT LOSSES; AIRLINE BANKRUPTCIES AND
OTHER RESTRUCTURING EFFORTS COULD ADVERSELY AFFECT THE INDUSTRY
The airline industry as a whole suffered significant losses in 2001 and
2002 and is expected to suffer significant losses for all of 2003. Many
airlines, in addition to Delta, have announced reductions in capacity, service
and workforce in response to the industry-wide reductions in passenger demand
and yields. In addition, since September 11, 2001, several air carriers have
sought to reorganize under Chapter 11 of the Bankruptcy Code, including US
Airways, Inc., the seventh largest U.S. air carrier, and UAL Corporation (United
Airlines), the second largest U.S. air carrier. Since filing for Chapter 11 on
August 11, 2002, US Airways has emerged from bankruptcy. Additionally, AMR
Corporation (American Airlines) has recently announced that it restructured
certain labor costs and lowered its operating cost base. Successful completion
of such reorganizations or restructurings could present Delta with competitors
that have significantly lower operating costs derived from renegotiated labor,
supply, and financing contracts. Historically, air carriers involved in
reorganizations have undertaken substantial fare discounting in order to
maintain cash flows and to enhance continued customer loyalty. Such fare
discounting could further lower yields for all carriers, including Delta. In
addition, the market value of aircraft would likely be negatively impacted if a
number of air carriers, including US Airways and United Airlines, seek to
26
further reduce capacity by eliminating aircraft from their fleets. The
bankruptcies of these airlines and the possibility of bankruptcy for other
airlines could make it more difficult and/or more costly for Delta to obtain
financing. See "Risk Factors -- Risk Factors Relating to the Certificates and
the Exchange Offer -- Appraisals and Realizable Value of Aircraft."
THE AIRLINE INDUSTRY HAS BEEN SIGNIFICANTLY IMPACTED BY THE SARS OUTBREAK
During the first six months of 2003, the SARS outbreak, primarily centered
in China and other Southeast Asian countries, with a number of cases in Toronto,
Canada, also significantly impacted airline industry revenues. Due to our small
Pacific presence, however, the SARS outbreak had only a minimal impact on our
revenues for the six months ended June 30, 2003. We are not able to estimate the
impact SARS may have on our future revenues due to uncertainty related to the
spread of this outbreak.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE EXCHANGE OFFER
CONSEQUENCES OF FAILURE TO EXCHANGE
If you fail to deliver the proper documentation to the Exchange Agent in a
timely fashion, your tender of Old Class G Certificates will be rejected. The
New Class G Certificates will be issued in exchange for the Old Class G
Certificates only after timely receipt by the Exchange Agent of the Old Class G
Certificates, a properly completed and executed Letter of Transmittal, or an
Agent's Message in lieu of the Letter of Transmittal, and all other required
documentation. If you wish to tender your Old Class G Certificates in exchange
for New Class G Certificates, you should allow sufficient time to ensure timely
delivery. None of the Exchange Agent, the Trustee or Delta is under any duty to
give holders of Old Class G Certificates notification of defects or
irregularities with respect to tenders of Old Class G Certificates for exchange.
If you do not exchange you Old Class G Certificates for New Class G
Certificates pursuant to the Exchange Offer, or if your tender of Old Class G
Certificates is not accepted, your Old Class G Certificates will continue to be
subject to the restrictions on transfer of such Old Class G Certificates as set
forth in the legend thereon. In general, you may not offer or sell Old Class G
Certificates unless they are registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state under the Securities Act. We do not
currently anticipate that we will register the Old Class G Certificates under
the Securities Act. To the extent that Old Class G Certificates are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but accepted Old Class G Certificates could be adversely affected.
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
Three independent appraisal and consulting firms have prepared appraisals
of the Aircraft. The appraisal letters provided by these firms are annexed to
this Prospectus as Appendix II. Such appraisals are based on varying assumptions
and methodologies (which may differ among the appraisers), and may not
accurately reflect the current market value of the Aircraft. Base value is the
theoretical value for an aircraft that assumes a balanced market, while current
market value is the value for an aircraft in the actual market. The appraisals
were prepared without a physical inspection of the Aircraft. Appraisals that are
based on other assumptions and methodologies may result in valuations that are
materially different from those contained in such appraisals. See "Description
of the Aircraft and the Appraisals -- The Appraisals."
An appraisal is only an estimate of value. It does not necessarily indicate
the price at which an aircraft may be purchased from the aircraft manufacturer.
Nor should an appraisal be relied upon as a measure of realizable value. The
proceeds realized upon a sale of any Aircraft may be less than its appraised
value. The value of an Aircraft if remedies are exercised under the applicable
Indenture will depend on various factors, including market and economic
conditions; the supply of similar aircraft; the availability of buyers; the
condition of the Aircraft; and whether the Aircraft is sold separately or as
part of a block.
27
In addition, the value of the Aircraft has been negatively affected as a
consequence of the events of September 11, 2001 referred to under "-- Risk
Factors Relating to Business Environment -- The Terrorist Attacks in 2001,
Military Action in Iraq and Other World Events Adversely Affected, and May
Continue to Adversely Affect, Delta's Financial Results." In its appraisal
letter, one of the appraisers points out that, as a result of the events of
September 11, 2001, there has been a significant negative effect on current
market values of all commercial aircraft and that the present used aircraft
market is considered to be a distressed market. Accordingly, we cannot assure
you that the proceeds realized from the sale of any Aircraft would be sufficient
to satisfy in full payments due on the Equipment Notes relating to such Aircraft
or the full amount of distributions expected on the Certificates.
REPOSSESSION
There will be no general geographic restrictions on our ability to operate
the Aircraft. Although we do not currently intend to do so, we are permitted to
register the Aircraft in certain foreign jurisdictions and to lease the
Aircraft. It may be difficult, time-consuming and expensive for the Loan Trustee
to exercise its repossession rights if an Aircraft is located outside the United
States, is registered in a foreign jurisdiction or is leased to a foreign or
domestic operator. Additional difficulties may exist if a lessee is the subject
of a bankruptcy, insolvency or similar event.
In addition, some jurisdictions may allow for other liens or other third
party rights to have priority over a Loan Trustee's security interest in an
Aircraft. As a result, the benefits of the related Loan Trustee's security
interest in an Aircraft may be less than they would be if the Aircraft were
located or registered in the United States.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
Under the Intercreditor Agreement, the Primary Liquidity Provider will
receive payment of all amounts owed to it, and the Policy Provider will receive
certain amounts owed to it, before the holders of any Class of Certificates
receive any funds. In addition, in specified default situations, the
Subordination Agent and the Trustees will receive certain payments before the
holders of any Class of Certificates receive distributions. See "Description of
the Intercreditor Agreement -- Priority of Distributions."
If Delta is in bankruptcy or other specified defaults have occurred but
Delta is continuing to meet specified payment obligations and the applicable
Loan to Aircraft value tests are met, the subordination provisions applicable to
the Certificates permit distributions to be made to junior Certificates prior to
making distributions in full on more senior Certificates. For a more detailed
discussion of the subordination provisions of the Intercreditor Agreement, see
"Description of the Certificates -- Subordination."
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
Subject to certain conditions, the Loan Trustee under each Indenture will
be directed by the Subordination Agent (at the direction of the Controlling
Party) in exercising remedies under such Indenture, including accelerating the
applicable Equipment Notes or foreclosing the lien on the Aircraft securing such
Equipment Notes. See "Description of the Certificates -- Indenture Events of
Default and Certain Rights Upon an Indenture Event of Default."
Subject to the following two paragraphs, if Final Distributions have not
been fully paid to the holders of the Class G Certificates or if any obligations
payable to the Policy Provider under the Intercreditor Agreement remain
outstanding, so long as no Policy Provider Default has occurred and is
continuing, the Policy Provider will be the Controlling Party. At any other time
the Controlling Party will be:
- if Final Distributions have not been fully paid to holders of the Class G
Certificates, the Class G Trustee;
- if Final Distributions have been fully paid to the holders of the Class G
Certificates, but not to the holders of the Class C Certificates, the
Class C Trustee; and
28
- if Final Distributions have been fully paid to the holders of the Class C
Certificates, the Class D Trustee.
Under certain circumstances, and notwithstanding the foregoing, the Primary
Liquidity Provider will be the Controlling Party, unless the Policy Provider
pays to the Primary Liquidity Provider all outstanding drawings and interest
thereon owing to the Primary Liquidity Provider under the Primary Liquidity
Facility, in which case the Policy Provider will be the Controlling Party (so
long as no Policy Provider Default has occurred and is continuing).
During the continuation of any Indenture Event of Default, the Controlling
Party may accelerate the Equipment Notes issued under the related Indenture and
sell such Equipment Notes or the related Aircraft, subject to certain
limitations. See "Description of the Intercreditor Agreement -- Intercreditor
Rights -- Sale of Equipment Notes or Aircraft." The market for any Aircraft or
Equipment Notes, as the case may be, during any Indenture Event of Default may
be very limited, and we cannot assure you as to whether they could be sold or
the price at which they could be sold. If the Controlling Party sells any
Equipment Notes for less than their outstanding principal amount or sells any
Aircraft for less than the outstanding principal amount of the related Equipment
Notes, certain holders of Certificates will receive a smaller amount of
principal distributions than anticipated and, if the shortfall arises from the
sale of the Equipment Notes, will not have any claim for the shortfall against
Delta, any Trustee, any Liquidity Provider or the Policy Provider (except, with
respect to the holders of the Class G Certificates, as described in "Description
of the Policy and the Policy Provider Agreement -- The Policy").
RATINGS OF THE CERTIFICATES
When issued the Old Class G Certificates were assigned ratings of Aaa by
Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. ("Standard & Poor's,"
and together with Moody's, the "Rating Agencies"). The Class C and D
Certificates are not rated. A rating is not a recommendation to purchase, hold
or sell the Class G Certificates and the rating does not address market price of
the Class G Certificates or suitability of investing in the Class G Certificates
for a particular investor. A rating may not remain for any given period of time
and may be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future (including the downgrading of Delta, the Policy
Provider, the Primary Liquidity Provider or the Above-Cap Liquidity Provider) so
warrant.
The ratings of the Class G Certificates are based primarily on the default
risk of the Policy Provider and address the likelihood of timely payment of
interest when due on the Class G Certificates and the ultimate payment of
principal of the Class G Certificates by the Final Legal Distribution Date. Such
ratings do not address the possibility of certain defaults, voluntary
redemptions or other circumstances (such as an Event of Loss to an Aircraft)
which could result in the payment of the outstanding principal amount of the
Class G Certificates prior to the Final Expected Distribution Date specified in
"Summary -- Summary of the Terms of the Certificates." See "Description of the
Certificates."
The reduction, suspension or withdrawal of the ratings of the Class G
Certificates will not, by itself, constitute an Indenture Event of Default.
ABOVE-CAP LIQUIDITY FACILITY
The Above-Cap Liquidity Facility for the Class G Certificates provides that
upon the occurrence of certain events, such Above-Cap Liquidity Facility shall
be terminated. If the Above-Cap Liquidity Facility is so terminated, the
Above-Cap Liquidity Provider is required to deposit into the Above-Cap Reserve
Account a termination payment expected to be sufficient to cover future payments
under the Above-Cap Liquidity Facility, assuming LIBOR will not exceed 20%. See
"Description of Liquidity Facilities -- Above-Cap Liquidity Facility --
Payments." Thus, if LIBOR at any time exceeds 20%, there can be no assurance
that the amounts available in the Above-Cap Reserve Account related to the
terminated Above-Cap Liquidity Facility would be sufficient to cover any
interest shortfalls on the Class G Certificates as otherwise described herein.
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NO PROTECTION AGAINST HIGHLY LEVERAGED OR EXTRAORDINARY TRANSACTIONS
The Certificates, the Equipment Notes and the underlying agreements will
not contain any financial or other covenants or "event risk" provisions
protecting the Certificateholders in the event of a highly leveraged or other
extraordinary transaction affecting Delta or its affiliates.
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to the Exchange Offer, there has been no public market for the Class
G Certificates. Neither Delta nor the Class G Trust intends to apply for listing
of the Class G Certificates on any securities exchange or otherwise. In
addition, until the Class G Certificates are registered under the Securities
Act, they will be subject to restrictions on transfer. The Initial Purchasers
may assist in resales of the Class G Certificates, but they are not required to
do so, and any market-making activity may be discontinued at any time without
notice at the sole discretion of each Initial Purchaser. A secondary market for
the Class G Certificates may not develop. If a secondary market does develop, it
might not continue or it might not be sufficiently liquid to allow you to resell
any of your Class G Certificates. If an active public market does not develop,
the market price and liquidity of the Class G Certificates may be adversely
affected.
RISK FACTORS RELATING TO THE POLICY PROVIDER
THE IMPACT OF ANY DECLINE IN THE FINANCIAL CONDITION OF THE POLICY PROVIDER
The AAA rating by Standard & Poor's and the Aaa rating by Moody's of the
Class G Certificates are based, primarily, on the existence of the Policy
insuring the timely and full payment of interest accrued and payable on the
Class G Certificates on each Regular Distribution Date and the payment of
principal on or (under certain circumstances) before the Final Legal
Distribution Date. Any decline in the financial condition of the Policy Provider
or the insolvency of the Policy Provider may result in the downgrade of the
foregoing ratings of the Class G Certificates and may impair the ability of the
Policy Provider to make payments to the holders of the Class G Certificates
pursuant to the Policy. In addition, in the event of the insolvency of the
Policy Provider, under insurance insolvency proceedings it is possible that the
Subordination Agent would be unable to recover the full amount due under the
Class G Certificates on its unsecured claim against the Policy Provider. For
information on the financial information generally available with respect to the
Policy Provider, see "Description of the Policy Provider" and "Description of
the Policy and the Policy Provider Agreement -- The Policy."
THE LIMITED NATURE OF THE POLICY
Although drawings under the Policy for interest payments may be made when
interest is due, drawings for principal payments may not, except in certain
circumstances, be made until the Final Legal Distribution Date for the Class G
Certificates. The Policy provides no coverage for the Class C or Class D
Certificates.
THE POLICY PROVIDER AS A CONTROLLING PARTY
Unless a Policy Provider Default has occurred, the Policy Provider will act
as the Controlling Party until the Final Distributions are distributed to the
holders of the Class G Certificates and all obligations payable to the Policy
Provider under the Intercreditor Agreement are reimbursed (unless the Primary
Liquidity Provider has the right to become the Controlling Party). As the
Controlling Party, the Policy Provider will have the ability, subject to certain
limitations, to direct the Subordination Agent in the exercise of all remedies,
including the ability to direct the Subordination Agent to sell any or all of
the Equipment Notes or to instruct the Loan Trustee under the applicable
Indenture to accelerate the Equipment Notes issued under such Indenture and to
foreclose upon the lien created thereunder. As the Controlling Party, the Policy
Provider will be in a position to take actions that are beneficial to the Policy
Provider and the holders of the Class G Certificates but detrimental to the
holders of the Class C or Class D Certificates.
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OTHER RISK FACTOR
ARTHUR ANDERSEN LLP AUDITED CERTAIN FINANCIAL INFORMATION INCLUDED OR
INCORPORATED IN THIS PROSPECTUS. IN THE EVENT SUCH FINANCIAL INFORMATION IS
LATER DETERMINED TO CONTAIN FALSE STATEMENTS, YOU MAY BE UNABLE TO RECOVER
DAMAGES FROM ARTHUR ANDERSEN LLP.
Our consolidated balance sheet as of December 31, 2001 and the related
statements of operations, shareholders' equity and cash flows for the fiscal
years ending December 31, 2001 and 2000 were audited by Arthur Andersen LLP.
Arthur Andersen LLP has ceased operations in the U.S. As a result, you may be
limited in your ability to recover damages from Arthur Andersen LLP under the
Securities Act if it is later determined that there are false statements
contained in any portions of this Prospectus that have been prepared in reliance
on financial statements audited by Arthur Andersen LLP.
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THE EXCHANGE OFFER
The following summary describes certain provisions of the registration
rights agreement, dated as of January 30, 2003 (the "Registration Rights
Agreement"), among Delta, the Initial Purchasers and the Trustee. This summary
does not purport to be complete and is qualified in its entirety by reference to
all of the provisions of the Registration Rights Agreement, which have been
filed as exhibits to the Registration Statement. Copies are available as set
forth under "Where You Can Find More Information."
GENERAL
In connection with the issuance of the Old Class G Certificates, the
Initial Purchasers became entitled to the benefits of the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, we have agreed to use
our reasonable best efforts to, within 270 calendar days after January 30, 2003,
which is the date the Old Class G Certificates were issued (the "Issuance
Date"): (i) file the Registration Statement, of which this Prospectus is a part,
with the Commission for a registered exchange offer (the "Exchange Offer") with
respect to an issue of New Class G Certificates identical in all material
respects to the Old Class G Certificates (except that the New Class G
Certificates would not contain terms with respect to transfer restrictions or
interest rate increases); (ii) cause the Registration Statement to become
effective; and (iii) have the Registration Statement remain effective until the
closing of the Exchange Offer. We have agreed to commence the Exchange Offer
promptly after the Registration Statement has been declared effective and to use
our reasonable best efforts to have the Exchange Offer consummated no later than
60 days after the effective date. However, if any changes in law or the
applicable interpretations of the staff of the Commission do not permit us to
effect the Exchange Offer, or if the Registration Statement is not declared
effective within 270 calendar days after the Issuance Date under certain
circumstances, or at the request of a holder not eligible to participate in the
Exchange Offer or under certain other circumstances described in the
Registration Rights Agreement, we have agreed to use our reasonable best efforts
to (a) file with the Commission a shelf registration statement (the "Shelf
Registration Statement") covering resales of the Old Class G Certificates; (b)
cause the Shelf Registration Statement to be declared effective under the
Securities Act by the 270th calendar day after the Issuance Date; and (c) keep
effective the Shelf Registration Statement for a period of two years after its
effective date (or for such shorter period as shall end when all of the Old
Class G Certificates covered by the Shelf Registration Statement have been sold
pursuant thereto or may be freely sold pursuant to Rule 144 under the Securities
Act).
If neither the consummation of the Exchange Offer nor the declaration by
the Commission of the Shelf Registration Statement to be effective (each, a
"Registration Event") occurs on or prior to the 270th calendar day following the
Issuance Date, the interest rate per annum borne by the Equipment Notes and
passed through to holders of Old Class G Certificates will be increased by 0.25%
effective from and including October 27, 2003, to but excluding the date on
which a Registration Event occurs. If the Shelf Registration Statement ceases to
be effective at any time during the period we are required to keep such Shelf
Registration Statement effective for more than 60 days, whether or not
consecutive, during any 12-month period, the interest rate per annum borne by
the Equipment Notes will be increased by 0.25% from the 61st day such Shelf
Registration Statement ceases to be effective during the applicable period until
such time as the Shelf Registration Statement again becomes effective.
If the Exchange Offer is consummated, we will not be required to file the
Shelf Registration Statement other than for those Old Class G Certificates held
by the Initial Purchasers if they are not eligible to participate in the
Exchange Offer, and the interest rate on the Equipment Notes will not be
increased.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, we will accept for exchange all
Old Class G Certificates validly tendered prior to 5:00 p.m., New York City
time, on the Expiration Date. New Class G Certificates of the same class will be
issued in exchange for an equal face amount (and current Pool Balance) of
outstanding Old Class G Certificates accepted in the Exchange Offer. Old Class G
Certificates may be tendered only in integral
32
multiples of $100,000. The Exchange Agent will act as agent for the tendering
holders of Old Class G Certificates for the purpose of receiving New Class G
Certificates from the Trustee and delivering New Class G Certificates to such
tendering holders. Old Class G Certificates shall be deemed to have been
accepted as validly tendered when, as and if we have given oral or written
notice thereof to the Exchange Agent.
The Exchange Offer is not conditioned upon any minimum amount of Old Class
G Certificates being tendered for exchange. However, the obligation to accept
Old Class G Certificates for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth herein under "-- Conditions."
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, we believe that the New Class G
Certificates issued pursuant to the Exchange Offer in exchange for Old Class G
Certificates may be offered for resale, resold or otherwise transferred by a
holder thereof (other than (i) a broker-dealer who purchased such Old Class G
Certificates directly from the Trustee for its own account or (ii) a person that
is an "affiliate," as defined in Rule 405 under the Securities Act, of ours or
of any Trustee) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring such New
Class G Certificates in its ordinary course of business and such holder has no
arrangements or understanding with any person to participate in the distribution
of the New Class G Certificates. Holders of Old Class G Certificates wishing to
accept the Exchange Offer must represent to us that such conditions have been
met. We have not sought, and do not intend to seek, a no-action letter from the
Commission with respect to the effects of the Exchange Offer, and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the New Class G Certificates as it has in such no-action
letters.
Each broker-dealer that receives New Class G Certificates for its own
account as a result of market-making or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Class G Certificates. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by such a broker-dealer in connection with resales of New Class G
Certificates received in exchange for Old Class G Certificates. We have agreed
that, for a period of 90 days after the Expiration Date, we will make this
Prospectus and any amendment or supplement to this Prospectus available to any
such broker-dealer for use in connection with such resales. See "Plan of
Distribution." If a broker-dealer would receive New Class G Certificates for its
own account in exchange for Old Class G Certificates, where such Old Class G
Certificates were not acquired as a result of market-making or other trading
activities, such broker-dealer will not be able to participate in the Exchange
Offer.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Class G Certificates who do not exchange their Old Class G
Certificates for New Class G Certificates in the Exchange Offer will no longer
be entitled to registration rights and will not be able to offer or sell their
Old Class G Certificates, unless such Old Class G Certificates are subsequently
registered under the Securities Act which, subject to limited exceptions, we
will have no obligation to do, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "Risk Factors -- Risk Factors Relating to the Certificates and the
Exchange Offer -- Consequences of Failure to Exchange."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Certificates as of September 5, 2003. As of the date
of this Prospectus, $391,583,000 face amount ($381,789,096 Pool Balance) of Old
Class G Certificates are outstanding.
If any tendered Old Class G Certificates are not accepted for exchange
because of an invalid tender or the occurrence of certain other events set forth
herein, certificates for any such unaccepted Old Class G Certificates will be
returned, without expenses, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
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Holder of Old Class G Certificates who tender in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Class G Certificates pursuant to the Exchange Offer. We will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" means October 10, 2003, unless we, in our sole
discretion, extend the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the Exchange Offer is
not consummated by October 27, 2003, the interest rate borne by the Equipment
Notes and passed through to the Certificateholders is subject to increase. See
"-- General."
In order to extend the Expiration Date, we will notify the Exchange Agent
of any extension by oral or written notice and will mail to the record holders
of Old Class G Certificates an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that we are extending the Exchange
Offer for a specified period of time.
We reserve the right:
- to delay acceptance of any Old Class G Certificates, to extend the
Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Old Class G Certificates not previously accepted if any of
the conditions set forth herein under "-- Conditions" have occurred and
have not been waived by us, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent; and
- to amend the terms of the Exchange Offer in any manner deemed by us to be
advantageous to the holders of the Old Class G Certificates.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old Class G
Certificates of such amendment.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, we shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
DISTRIBUTIONS ON THE NEW CLASS G CERTIFICATES
Interest on the Equipment Notes held by each Trust will be distributed to
holders of the New Class G Certificates. The Equipment Notes held by the Class G
Trust will accrue interest at the rate per annum set forth on the cover page of
this Prospectus. Distributions on the New Class G Certificates will be made from
the last date on which distributions were made on the Old Class G Certificates
surrendered in exchange therefor. No additional distributions will be made on
Old Class G Certificates tendered and accepted for exchange.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, or an Agent's Message in lieu of
the Letter of Transmittal, have the signatures thereon guaranteed if required by
the Letter of Transmittal and mail or otherwise deliver such Letter of
Transmittal or such facsimile and any other required documents to the Exchange
Agent, or have the
34
Agent's Message delivered, prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either:
- certificates for such Old Class G Certificates must be received by the
Exchange Agent along with the Letter of Transmittal; or
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Class G Certificates, if such procedure is
available, into the Exchange Agent's account at DTC pursuant to the
procedure for book-entry transfer described under "-- Book-Entry
Transfer" below, must be received by the Exchange Agent prior to the
Expiration Date; or
- the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of Old Class G Certificates, Letters of Transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, it is recommended that registered mail, properly
insured, with return receipt requested, be used. In all cases, sufficient time
should be allowed to assure timely delivery. No Letters of Transmittal or Old
Class G Certificates should be sent to Delta. Delivery of all documents must be
made to the Exchange Agent at its address set forth below. Holders may also
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect such tender for such holders.
The tender by a holder of Old Class G Certificates will constitute an
agreement between such holder and Delta in accordance with the terms and subject
to the conditions set forth in this Prospectus and in the Letter of Transmittal.
Only a holder of Old Class G Certificates may tender such Old Class G
Certificates in the Exchange Offer. The term "holder" with respect to the
Exchange Offer means any person in whose name Old Class G Certificates are
registered on the Trustee's books or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Class G Certificates are held of record by DTC who desires to deliver Old
Class G Certificates by book-entry transfer at DTC.
Any beneficial holder whose Old Class G Certificates are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on its behalf. If such beneficial holder wishes
to tender on its own behalf, such beneficial holder must, prior to completing
and executing the Letter of Transmittal and delivering its Old Class G
Certificates, either make appropriate arrangements to register ownership of the
Old Class G Certificates in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each, an "Eligible Institution") unless the Old
Class G Certificates tendered pursuant thereto are tendered (a) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (b) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder or holders of any Old Class G
Certificates listed therein, such Old Class G Certificates must be endorsed or
accompanied by bond powers and a proxy that authorizes such person to tender the
Old Class G Certificates on behalf of the registered holder or holders, in
either case as the name of the registered holder or holders appears on the Old
Class G Certificates.
If the Letter of Transmittal or any Old Class G Certificates or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
submit with the Letter of Transmittal evidence satisfactory to us of their
authority to so act.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Class G Certificates
will be determined by us in our sole discretion, which determination will be
final and binding. We reserve the absolute right to reject any and all Old Class
G Certificates not properly tendered or any Old Class G Certificates our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the absolute right to waive any irregularities or conditions of tender
as to particular Old Class G Certificates. Our interpretation of the terms and
conditions of the Exchange Offer, including the instructions in the Letter of
Transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Class G Certificates
must be cured within such time as we shall determine. Neither we, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Class G Certificates
nor shall any of us incur any liability for failure to give such notification.
Tenders of Old Class G Certificates will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Class G Certificates
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the Exchange Agent to the tendering holder of such Old Class G
Certificates (or, in the case of Old Class G Certificates tendered by the
book-entry transfer procedures described below, such Old Class G Certificates
will be credited to an account maintained with DTC), unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the Intercreditor Agreement, Policy Provider Agreement and
Indentures, to (a) purchase or make offers for any Old Class G Certificates that
remain outstanding subsequent to the Expiration Date or, as set forth under
"-- Conditions," to terminate the Exchange Offer in accordance with the terms of
the Registration Rights Agreements and (b) to the extent permitted by applicable
law, purchase Old Class G Certificates in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder of Old Class G Certificates will represent to us
that, among other things, the New Class G Certificates acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, such holder has no arrangements or understanding with any person to
participate in the distribution of the New Class G Certificates and such holder
is not an "affiliate," as defined under Rule 405 of the Securities Act, of ours
or of a Trustee, or if such holder is an affiliate, that such holder will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. If the holder is not a broker-dealer, such holder will
be required to represent that it is not engaged in, and does not intend to
engage in, a distribution of New Class G Certificates. If such holder is a
broker-dealer that will receive New Class G Certificates for its own account in
exchange for Old Class G Certificates that were acquired as a result of
market-making or other trading activities, it will be required to acknowledge
that it will deliver a prospectus in connection with any resale of such New
Class G Certificates.
ACCEPTANCE OF OLD CLASS G CERTIFICATES FOR EXCHANGE; DELIVERY OF NEW CLASS G
CERTIFICATES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Class G Certificates properly tendered will be accepted promptly after
the Expiration Date, and New Class G Certificates will be issued promptly after
acceptance of the Old Class G Certificates. See "-- Conditions" below. For
purposes of the Exchange Offer, Old Class G Certificates shall be deemed to have
been accepted for exchange when, as and if we have given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of New Class G Certificates for Old Class G
Certificates that are accepted for exchange pursuant to the Exchange Offer will
be made only after timely receipt by the Exchange Agent of (i) certificates for
such Old Class G Certificates or a timely Book-Entry Confirmation of such Old
Class G Certificates into the Exchange Agent's account at DTC, (ii) a properly
completed and duly executed Letter of Transmittal, or an Agent's Message in lieu
of the Letter of Transmittal, and (iii) all other required documents. If any
tendered Old Class G Certificates are not accepted for any reason set
36
forth in the terms and conditions of the Exchange Offer or if Old Class G
Certificates are submitted for a greater face amount than the holder desires to
exchange, such unaccepted or nonexchanged Old Class G Certificates will be
returned without expense to the tendering holder thereof (or, in the case of Old
Class G Certificates tendered by the book-entry transfer procedures described
below, such unaccepted or nonexchanged Old Class G Certificates will be credited
to an account maintained with DTC) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Class G Certificates at DTC for purposes of the Exchange Offer. The
Exchange Agent and DTC have confirmed that any financial institution that is a
DTC Participant may use DTC's Automated Tender Offer Program ("ATOP")procedures
to tender Old Class G Certificates in the Exchange Offer. Any financial
institution that is a participant in DTC's book-entry transfer system may make
book-entry delivery of Old Class G Certificates by causing DTC to transfer such
Old Class G Certificates into the Exchange Agent's account at DTC in accordance
with DTC's ATOP procedures for transfer. However, although delivery of Old Class
G Certificates may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or facsimile thereof) with
any required signature guarantees, or an Agent's Message in lieu of the Letter
of Transmittal, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth below
under "-- Exchange Agent" on or prior to 5:00 p.m., New York City time, on the
Expiration Date. The term "Agent's Message" means a message, transmitted by DTC
and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, that states that DTC has received an express acknowledgment from a
DTC Participant tendering Old Class G Certificates that are the subject of such
Book-Entry Confirmation that such DTC Participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that we may enforce such
agreement against such DTC Participant. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders of the Old Class G Certificates who wish to tender their Old Class
G Certificates and (i) whose Old Class G Certificates are not immediately
available, or (ii) who cannot deliver their Old Class G Certificates, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may tender their Old Class G Certificates if:
- the tender is made through an Eligible Institution;
- prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Old Class G
Certificates and the amount of Old Class G Certificates tendered, stating
that the tender is being made thereby and guaranteeing that within five
business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Class G Certificates to be tendered in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
- such properly completed and executed Letter of Transmittal (or facsimile
thereof) together with the certificates representing the Old Class G
Certificates to be tendered in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
37
WITHDRAWAL OF TENDERS
Tenders of Old Class G Certificates may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be
effective, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at the address set forth below under "-- Exchange Agent." Any
such notice of withdrawal must specify the name of the person having tendered
the Old Class G Certificates to be withdrawn, identify the Old Class G
Certificates to be withdrawn, including the face amount of such Old Class G
Certificates, and (where certificates for Old Class G Certificates have been
transmitted) specify the name in which such Old Class G Certificates are
registered, if different from that of the withdrawing holder. If certificates
for Old Class G Certificates have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Class
G Certificates have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn Old Class G
Certificates and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices. Our determination shall be final
and binding on all parties. Any Old Class G Certificates so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Class G Certificates that have been tendered for
exchange but that are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Class G
Certificates tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such Old
Class G Certificates will be credited to an account maintained with DTC for the
Old Class G Certificates) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Old Class G
Certificates may be retendered by following one of the procedures described
under "-- Procedures for Tendering" and "-- Book-Entry Transfer" above at any
time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, we will not be
required to accept for exchange, or exchange New Class G Certificates for, any
Old Class G Certificates not previously accepted for exchange, and we may
terminate or amend the Exchange Offer before the acceptance of such Old Class G
Certificates, if: (i) any action or proceeding is instituted or threatened in
any court or by or before a governmental agency with respect to the Exchange
Offer that, in our judgement, might materially impair our ability to proceed
with the Exchange Offer or (ii) any law, statute or regulation is proposed,
adopted or enacted, or any existing laws, statute, rule or regulation is
interpreted by the staff of the Commission or a court of competent jurisdiction
in a manner that, in our judgement, might materially impair our ability to
proceed with the Exchange Offer. In addition, we have no obligation to, and will
not knowingly, permit acceptance of tenders of Old Class G Certificates from our
affiliates (within the meaning of Rule 405 under the Securities Act) or from any
other holder or holders who are not eligible to participate in the Exchange
Offer under applicable law or interpretations thereof by the Commission, or if
the New Class G Certificates to be received by such holder or holders of Old
Class G Certificates in the Exchange Offer, upon receipt, will not be tradable
by such holder without restriction under the Securities Act and the Exchange Act
and without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
38
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
U.S. Bank Trust National Association
Corporate Trust Services
Attention: Specialized Finance
Westside Flats Operations Center
60 Livingston Avenue
St. Paul, MN 55107
Facsimile Transmission:
(651) 495-8158
Confirm by Telephone:
(651) 495-3511
FEES AND EXPENSES
We will pay the expenses of soliciting tenders pursuant to the Exchange
Offer. The principal solicitation for tenders pursuant to the Exchange Offer is
being made by mail; however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by our officers and regular employees.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. We will, however, pay the Exchange
Agent reasonable and customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection with its
services. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Old Class G Certificates, and in handling or forwarding tenders for exchange.
We will pay the expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting, legal, printing and related fees and expenses. We will pay all
transfer taxes, if any, applicable to the exchange of Old Class G Certificates
pursuant to the Exchange Offer. If, however, certificates representing New Class
G Certificates or Old Class G Certificates for amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the Old Class G
Certificates tendered, or if tendered Old Class G Certificates are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of Old
Class G Certificates pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
39
THE COMPANY
Delta is a major air carrier that provides air transportation for
passengers and freight throughout the United States and around the world. Based
on the most currently available data, Delta is the second largest carrier in
terms of passengers carried and the third largest as measured by operating
revenues and revenue passenger miles flown. Delta is the leading U.S.
transatlantic airline offering the most daily flight departures, servicing the
largest number of nonstop routes and carrying more passengers than any other
U.S. airline. We operate hubs at Atlanta, Cincinnati, Dallas/Fort Worth and Salt
Lake City. We also operate international gateways in Atlanta and at New York's
John F. Kennedy International Airport.
Delta is a Delaware corporation headquartered in Atlanta, Georgia. Our
address is Hartsfield Atlanta International Airport, Atlanta, Georgia 30320, and
the telephone number is (404) 715-2600. Our website is www.delta.com. The
information contained in our website is not part of this Prospectus.
RECENT DEVELOPMENTS
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2003
Delta reported a net loss of $282 million for the six months ended June 30,
2003, or $2.35 diluted loss per common share, compared to a net loss of $583
million for the six months ended June 30, 2002, or $4.79 diluted loss per common
share. This includes the $398 million of payments that we received from the U.S.
government under the Appropriations Act and a $279 million pretax gain from the
sale of Delta's equity investment in Worldspan, L.P. For the fiscal year ended
December 31, 2002, Delta reported a net loss of $1.3 billion, or $10.44 diluted
loss per common share, compared to a net loss of $1.2 billion, or $9.99 diluted
loss per common share, for the fiscal year ended December 31, 2001.
Delta's operating revenues totaled $6.5 billion for the six months ended
June 30, 2003, a 2% decrease compared to the depressed level recorded for the
six months ended June 30, 2002. Passenger revenues decreased 2% to $6.0 billion.
Revenue passenger miles decreased 5% on a capacity decline of 6%, while
passenger mile yield increased 3%. The 2% decline in passenger revenues for the
six months ended June 30, 2003 was primarily due to the substantial adverse
impact of the military action in Iraq and the difficult revenue environment. The
3% increase in passenger mile yield reflects improved yields in international
markets. Operating expenses for the six months ended June 30, 2003 totaled $6.8
billion, a 5% decrease from $7.1 billion for the six months ended June 30, 2002.
Operating capacity declined 6%, while cost per available seat mile increased
1.6% to 10.42c. The changes in operating expenses and cost per available seat
mile reflect Delta's receipt of $398 million under the Appropriations Act, which
was recorded as an offset to operating expenses, and lower capacity.
Delta estimates that its net loss for the September 2003 quarter will be
approximately $200 million to $250 million. Delta does not expect improvement in
the revenue environment through 2003 and also expects significant cost pressures
related to increases in pension and interest expenses to continue. As a result,
Delta expects to report a net loss for the year ending December 31, 2003.
PROFIT IMPROVEMENT INITIATIVES
We believe it is essential for us to reduce our costs to compete in this
business environment. Accordingly during the first half of 2003, we continued to
develop and implement initiatives to achieve our goal of reducing non-fuel unit
costs by 15% by the end of 2005. In addition, we recently presented a proposal
to ALPA, which represents Delta's pilots, to move towards a competitive pilot
cost structure. On July 23, 2003, ALPA announced that Delta's current approach
to negotiations aimed at reducing pilot employment costs does not furnish a
basis for agreement. As a result, no further negotiations are scheduled at this
time. We remain hopeful that we and ALPA can find common ground for renewed
negotiations soon. The existing collective bargaining agreement becomes
amendable on May 1, 2005.
40
STOCK OPTION EXCHANGE PROGRAM
On June 30, 2003, Delta announced that it had completed an employee stock
option exchange program, which expired on June 25, 2003. Delta canceled options
to purchase approximately 31.6 million shares of its common stock and expects to
issue new options to purchase approximately 12.1 million shares of common stock
in exchange. Approximately 80% of the eligible options were exchanged under the
program. Under the terms of the offer, Delta expects to grant replacement stock
options on December 26, 2003.
DISCONTINUATION OF COMMON STOCK CASH DIVIDENDS
On July 24, 2003, Delta's Board of Directors announced that it would
immediately discontinue the payment of quarterly common stock cash dividends.
The Board of Directors has made no decision at this time regarding the
semi-annual dividend payments on Delta's Series B ESOP Convertible Preferred
Stock.
DEBT EXCHANGE OFFER
On July 25, 2003, Delta commenced a voluntary exchange offer for $300
million outstanding principal amount of its 6.65% Series C Medium-Term Notes due
2004, and $500 million outstanding principal amount of its 7.70% Senior Notes
due 2005. The new senior notes to be issued will accrue interest at 10% per
annum and will mature August 15, 2008. The exchange offer expires on September
4, 2003, unless extended.
USE OF PROCEEDS
There will be no cash proceeds from the issuance of the New Class G
Certificates pursuant to the Exchange Offer. The proceeds from the sale of the
Old Class G Certificates was used by the Class G Trust to acquire the Series G
Equipment Notes. The Series G Equipment Notes are full recourse obligations of
Delta. Delta used the proceeds from the issuance of the Series G Equipment Notes
for general corporate purposes.
DESCRIPTION OF THE POLICY PROVIDER
GENERAL
The information set forth in this section, including any financial
statements incorporated by reference herein, has been provided by Ambac
Assurance Corporation ("Ambac" or the "Policy Provider") for inclusion in this
Prospectus, and such information has not been independently verified by Delta,
the Initial Purchasers, the Trustees or the Liquidity Providers. Accordingly,
notwithstanding anything to the contrary herein, none of Delta, the Initial
Purchasers, the Trusts or the Liquidity Providers assumes any responsibility for
the accuracy, completeness or applicability of such information.
Ambac is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Commonwealth of
Puerto Rico, the Territory of Guam and the U.S. Virgin Islands. Ambac primarily
insures newly-issued municipal and structured finance obligations. Ambac is a
wholly-owned subsidiary of Ambac Financial Group, Inc., a 100% publicly-held
company. Standard & Poor's and Fitch Ratings have each assigned a "AAA"
financial strength rating to Ambac and Moody's has assigned a "Aaa" financial
strength rating to Ambac.
The following are hereby incorporated by reference into this Prospectus and
will be deemed to be a part hereof: (i) the consolidated financial statements of
the Policy Provider and its subsidiaries as of December 31, 2002 and December
31, 2001, and for each of the years in the three-year period ended December 31,
2002, prepared in accordance with accounting principles generally accepted in
the United States of America, included in the Annual Report on Form 10-K of
Ambac Financial Group, Inc. (which
41
was filed with the SEC on March 28, 2003, SEC File Number 1-10777); (ii) the
unaudited consolidated financial statements of the Policy Provider and its
subsidiaries as of March 31, 2003 and for the periods ending March 31, 2003 and
March 31, 2002 included in the Quarterly Report on Form 10-Q of Ambac Financial
Group, Inc. for the period ended March 31, 2003 (which was filed with the SEC on
May 15, 2003), and as of June 30, 2003 and for the periods ending June 30, 2003
and June 30, 2002 included in the Quarterly Report on Form 10-Q of Ambac
Financial Group, Inc. for the period ended June 30, 2003 (which was filed with
the SEC on August 14, 2003); and (iii) the Current Reports on Form 8-K filed
with the SEC on January 24, 2003, February 28, 2003, March 4, 2003, March 20,
2003, March 26, 2003, March 31, 2003, April 21, 2003 and July 18, 2003, as such
reports relate to Ambac. Any statement contained in a document incorporated
herein by reference shall be modified or superseded for the purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other document subsequently filed with the SEC that is also incorporated in this
Prospectus modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
All documents filed by Ambac Financial Group, Inc. with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, including any financial
statements contained therein, subsequent to the date of this Prospectus and
prior to the termination of the offering of the Class G Certificates, shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of those documents.
The following table sets forth the capitalization of Ambac as of December
31, 2001, December 31, 2002 and June 30, 2003, in conformity with accounting
principles generally accepted in the United States of America.
AMBAC FINANCIAL INFORMATION
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CAPITALIZATION TABLE
($ MILLIONS)
DECEMBER 31, DECEMBER 31, JUNE 30,
2001 2002 2003
------------ ------------ -----------
(UNAUDITED)
Unearned premiums................................ $1,790 $2,137 $2,381
Notes payable to affiliates...................... 64 111 57
Other liabilities................................ 908 1,865 2,232
------ ------ ------
Total liabilities.............................. 2,762 4,113 4,670
------ ------ ------
Stockholder's equity:
Common stock................................... 82 82 82
Additional paid-in capital..................... 928 920 1,003
Accumulated other comprehensive income......... 81 231 309
Retained earnings.............................. 2,386 2,849 3,121
------ ------ ------
Total stockholder's equity..................... 3,477 4,082 4,515
------ ------ ------
Total liabilities and stockholder's equity..... $6,239 $8,195 $9,185
====== ====== ======
For additional financial information concerning Ambac and its subsidiaries,
see the audited financial statements of Ambac and its subsidiaries incorporated
by reference herein. Copies of the filings with the SEC relating to Ambac
incorporated in this Prospectus as described above, including the financial
statements of Ambac contained therein, and copies of Ambac's annual statement
for the year ended December 31, 2002 prepared on the basis of accounting
practices prescribed or permitted by the State of Wisconsin Office of the
Commissioner of Insurance are available, without charge, from Ambac. The
42
address of Ambac's administrative offices and its telephone number are One State
Street Plaza, 19th Floor, New York, New York, 10004 and (212) 668-0340.
Ambac makes no representation regarding the New Class G Certificates or the
advisability of investing in the New Class G Certificates and makes no
representation regarding, nor has it participated in the preparation of, this
Prospectus other than the information supplied by Ambac and presented under the
heading "Description of the Policy Provider" and in the financial statements of
Ambac and the other filings by Ambac with the SEC incorporated herein by
reference.
IN THE EVENT THAT AMBAC WERE TO BECOME INSOLVENT, ANY CLAIMS ARISING UNDER
THE POLICY WOULD BE EXCLUDED FROM COVERAGE BY THE CONNECTICUT GUARANTY
ASSOCIATION.
43
DESCRIPTION OF THE CERTIFICATES
The following summary of particular terms of the Certificates does not
purport to be complete and is qualified in its entirety by reference to all of
the provisions of the Basic Agreement, the Certificates, the Trust Supplements,
the Liquidity Facilities, the Intercreditor Agreement, the Reference Agency
Agreement and the Policy, which have been filed as exhibits to the Registration
Statement. Copies are available as set forth under "Where You Can Find More
Information."
Except as otherwise indicated, the following summary relates to each of the
Trusts and the Certificates issued by each Trust. The terms and conditions
governing each of the Trusts are substantially the same, except as described
under "-- Subordination" below and elsewhere in this Prospectus and except that
the principal amount and scheduled principal repayments of the Equipment Notes
held by each Trust and the interest rate and maturity date of the Equipment
Notes held by each Trust differ.
GENERAL
The Class G, Class C and Class D Certificates were issued on January 30,
2003. Each pass through certificate (collectively, the "Certificates")
represents a fractional undivided interest in one of the three Delta Air Lines
2003-1 Pass Through Trusts: the "Class G Trust," the "Class C Trust" and the
"Class D Trust," and, collectively, the "Trusts." The Trusts were formed
pursuant to a pass through trust agreement between Delta and U.S. Bank Trust
National Association (as successor trustee to State Street Bank and Trust
Company of Connecticut, National Association), as trustee, dated November 16,
2000 (the "Basic Agreement"), and three separate supplements thereto (each, a
"Trust Supplement" and, together with the Basic Agreement, collectively, the
"Pass Through Trust Agreements"). The trustee under the Class G Trust, the Class
C Trust and the Class D Trust is referred to herein, respectively, as the "Class
G Trustee," the "Class C Trustee" and the "Class D Trustee," and collectively as
the "Trustees." The Certificates issued by the Class G Trust, the Class C Trust
and the Class D Trust are referred to herein, respectively, as the "Class G
Certificates," the "Class C Certificates" and the "Class D Certificates". The
Class G Trust purchased all of the Series G Equipment Notes, the Class C Trust
purchased all of the Series C Equipment Notes and the Class D Trust purchased
all of the Series D Equipment Notes. The holders of the Class G Certificates,
the Class C Certificates and the Class D Certificates are referred to herein,
respectively, as the "Class G Certificateholders," the "Class C
Certificateholders" and the "Class D Certificateholders," and collectively as
the "Certificateholders." The sum of the initial principal balance of the
Equipment Notes held by each Trust equaled the initial aggregate face amount of
the Certificates issued by such Trust.
The New Class G Certificates will be issued pursuant to the Class G Pass
Through Trust Agreement. The forms and terms of the New Class G Certificates are
the same in all material respects as the form and terms of the Old Class G
Certificates, except that:
- we registered the New Class G Certificates under the Securities Act so
their transfer is not restricted like the Old Class G Certificates;
- the New Class G Certificates will not contain restrictions on transfer or
provisions relating to interest rate increases; and
- the New Class G Certificates will be available only in book-entry form.
Each Certificate represents a fractional undivided interest in the Trust
created by the Basic Agreement and the applicable Trust Supplement pursuant to
which such Certificate is issued. (Basic Agreement, Section 2.01) The property
of each Trust (the "Trust Property") will consist of:
- subject to the Intercreditor Agreement, the Equipment Notes acquired by
such Trust, all monies at any time paid thereon and all monies due and to
become due thereunder;
- the rights of such Trust under the Intercreditor Agreement (including all
rights to receive monies receivable in respect of such rights);
44
- for the Class G Trust, all monies receivable under the Liquidity
Facilities;
- for the Class G Trust, all monies receivable under the Policy; and
- funds from time to time deposited with the Trustee in accounts relating
to such Trust.
The Certificates represent interests in the respective Trusts only, and all
payments and distributions thereon will be made only from the Trust Property of
the related Trust. (Basic Agreement, Section 3.09) The Certificates do not
represent indebtedness of the Trusts, and references in this Prospectus to
interest accruing on the Certificates are included for purposes of computation
only. The Certificates do not represent an interest in or obligation of Delta,
the Trustees, the Subordination Agent, any of the Loan Trustees or any affiliate
of any thereof. Each Certificateholder by its acceptance of a Certificate agrees
to look solely to the income and proceeds from the Trust Property of the related
Trust for payments and distributions on such Certificate.
The New Class G Certificates will be issued in fully registered form only
and will be subject to the provisions described below under "-- Book-Entry
Registration; Delivery and Form." The New Class G Certificates will be issued
only in minimum denominations of $1,000 or integral multiples thereof. (Basic
Agreement, Section 3.01)
DISTRIBUTION OF PAYMENTS ON EQUIPMENT NOTES
The following description of distributions on the Certificates should be
read in conjunction with the description of the Intercreditor Agreement because
the Intercreditor Agreement may alter the following provisions in a default
situation. See "-- Subordination" and "Description of the Intercreditor
Agreement."
Payments of principal, Break Amount (if any), Make-Whole Amount (if any)
and interest on the Equipment Notes or with respect to other Trust Property held
in each Trust will be distributed by the Trustee to Certificateholders of such
Trust on the date receipt of such payment is confirmed, except in the case of
certain types of Special Payments.
The Equipment Notes held in each Trust will accrue interest at the
applicable rate per annum for Certificates issued by such Trust, payable on
January 25, April 25, July 25 and October 25 of each year, commencing on April
25, 2003. The rate per annum for the Class G Certificates is set forth on the
cover page of this Prospectus. The Equipment Notes held in the Class C Trust and
the Class D Trust will accrue interest at LIBOR for each Interest Period plus a
margin of 2.00% and 2.50% per annum, respectively. The interest rate applicable
to each Class of Certificates is referred to as the "Stated Interest Rate" for
such Trust. Such interest payments will be distributed to Certificateholders of
such Trust on each such date until the final Distribution Date for such Trust,
subject to the Intercreditor Agreement. Interest will be calculated on the basis
of the actual number of days elapsed over a 360-day year.
Interest payable on the Equipment Notes will be determined based on LIBOR.
See "Description of the Equipment Notes -- Determination of LIBOR" for an
explanation of how LIBOR is to be determined for each Interest Period.
As promptly as practicable after the determination of LIBOR for an Interest
Period under the Reference Agency Agreement, the Reference Agent will give
notice of such determination of LIBOR to Delta, the Trustees, the Loan Trustees,
the Subordination Agent, the Policy Provider and the Liquidity Providers.
Distributions of interest applicable to the Class G Certificates will be
supported by the Primary Liquidity Facility and the Above-Cap Liquidity
Facility, which together are expected to provide an aggregate amount sufficient
to distribute interest on the Pool Balance thereof at the Stated Interest Rate
for the Class G Trust on up to six successive quarterly Regular Distribution
Dates (without regard to any future distributions of principal of the Class G
Certificates). The Liquidity Facilities do not provide for drawings thereunder
to pay for principal of, Break Amount or Make-Whole Amount on the Class G
Certificates, any interest with respect to the Class G Certificates in excess of
the Stated Interest Rate or principal of, interest, Break Amount or Make-Whole
Amount with respect to the Certificates of any other
45
Class. Therefore, only the holders of the Class G Certificates will be entitled
to receive and retain the proceeds of drawings under the Primary Liquidity
Facility and the Above-Cap Liquidity Facility. See "Description of the Liquidity
Facilities."
After use of any available funds under the Primary Liquidity Facility, the
Primary Cash Collateral Account and the Above-Cap Account, the payment of
interest on the Class G Certificates will be supported by the Policy. See
"Description of the Policy and the Policy Provider Agreement -- The Policy."
Payments of principal of the Series G Equipment Notes are scheduled to be
received by the Trustee in installments on January 25, April 25, July 25 and
October 25 in certain years, commencing on April 25, 2003 and ending on January
25, 2008. The entire principal amount of the Series C Equipment Notes will be
payable on January 25, 2008. Payments of principal of the Series D Equipment
Notes are scheduled to be received by the Trustee in installments on January 25,
April 25, July 25 and October 25 in certain years, commencing on April 25, 2003
and ending on January 25, 2008.
Scheduled payments of interest on or principal of the Equipment Notes are
referred to herein as "Scheduled Payments," and January 25, April 25, July 25
and October 25 of each year are referred to herein as "Regular Distribution
Dates" (each Regular Distribution Date and Special Distribution Date, a
"Distribution Date"). See "Description of the Equipment Notes -- Principal and
Interest Payments." The "Final Legal Distribution Date" for the Class G
Certificates is July 25, 2009.
Payment of principal of the Class G Certificates on the Final Legal
Distribution Date and, in certain limited circumstances earlier, will be
supported by the Policy. See "Description of the Policy and the Policy Provider
Agreement -- The Policy."
Subject to the Intercreditor Agreement, on each Regular Distribution Date
the Trustee of each Trust will distribute to the Certificateholders of such
Trust all Scheduled Payments received in respect of Equipment Notes held on
behalf of such Trust, the receipt of which is confirmed by the Trustee on such
Regular Distribution Date. Each Certificateholder of each Trust will be entitled
to receive, subject to the Intercreditor Agreement, its proportionate share,
based upon its fractional interest in such Trust, of any distribution in respect
of Scheduled Payments of principal of or interest on Equipment Notes held on
behalf of such Trust. Each such distribution of Scheduled Payments will be made
by the applicable Trustee to the Certificateholders of record of the relevant
Trust on the record date applicable to such Scheduled Payment (15 days prior to
each Regular Distribution Date) subject to certain exceptions. (Basic Agreement,
Section 4.02(a)) If a Scheduled Payment is not received by the applicable
Trustee on a Regular Distribution Date but is received within five days
thereafter, it will be distributed on the date received to such holders of
record. If it is received after such five-day period, it will be treated as a
Special Payment and distributed as described below.
Any payment in respect of, or any proceeds of, any Equipment Note, or the
Collateral under, and as defined in, any Indenture other than a Scheduled
Payment (each, a "Special Payment") will be distributed on, in the case of an
early redemption of any Equipment Note, the date of such early redemption (which
shall be a Business Day), and otherwise on the Business Day specified for
distribution of such Special Payment pursuant to a notice delivered by each
Trustee as soon as practicable after the Trustee has received notice of such
Special Payment, or has received the funds for such Special Payment (each, a
"Special Distribution Date"), as described below. Any such distribution will be
subject to the Intercreditor Agreement.
The Trustee of each Trust will mail a notice to the Certificateholders of
such Trust stating the scheduled Special Distribution Date, the related record
date, the amount of the Special Payment and the reason for the Special Payment.
In the case of a redemption of the Equipment Notes held in the related Trust,
such notice will be mailed not less than 15 days prior to the date such Special
Payment is scheduled to be distributed, and in the case of any other Special
Payment, such notice will be mailed as soon as practicable after the Trustee has
confirmed that it has received funds for such Special Payment. (Basic Agreement,
Section 4.02(c)) Each distribution of a Special Payment, other than a Final
46
Distribution, on a Special Distribution Date for any Trust will be made by the
Trustee to the Certificateholders of record of such Trust on the record date
applicable to such Special Payment. (Basic Agreement, Section 4.02(b)) See
"-- Indenture Events of Default and Certain Rights Upon an Indenture Event of
Default" and "Description of the Equipment Notes -- Redemption."
In the case of the distribution of proceeds from any "No Proceeds Drawing"
or "Avoidance Drawing" as described in "Description of the Policy and the Policy
Provider Agreement -- The Policy," the Class G Trustee will mail a notice to the
Class G Certificateholders stating the scheduled Special Distribution Date, the
related Record Date, the amount of such distribution and the reason for such
distribution. Such notice will be mailed not less than 15 days prior to the date
such proceeds are scheduled to be distributed. Each such distribution will be
made by the Class G Trustee to the Certificateholders of record of the related
Trust on the Record Date applicable to such distribution. (Basic Agreement,
Section 4.02(c))
Each Pass Through Trust Agreement requires that the Trustee establish and
maintain, for the related Trust and for the benefit of the Certificateholders of
such Trust, one or more non-interest bearing accounts (the "Certificate
Account") for the deposit of payments representing Scheduled Payments received
by such Trustee. Each Pass Through Trust Agreement requires that the Trustee
establish and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more accounts (the "Special Payments
Account") for the deposit of payments representing Special Payments received by
such Trustee, which will be non-interest bearing except in certain circumstances
where the Trustee may invest amounts in such account in certain Permitted
Investments. Pursuant to the terms of each Pass Through Trust Agreement, the
Trustee is required to deposit any Scheduled Payments relating to the applicable
Trust received by it in the Certificate Account of such Trust and to deposit any
Special Payments so received by it in the Special Payments Account of such
Trust. (Basic Agreement, Section 4.01) All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Basic Agreement, Section 4.02)
The Final Distribution for each Trust will be made only upon presentation
and surrender of the Certificates for such Trust at the office or agency of the
Trustee specified in the notice given by the Trustee of such Final Distribution.
See "-- Termination of the Trusts" below. Distributions in respect of
Certificates issued in global form will be made as described in "-- Book-Entry
Registration; Delivery and Form" below.
If any Distribution Date is not a Business Day, distributions scheduled to
be made on such Regular Distribution Date or Special Distribution Date will be
made on the next succeeding Business Day and interest shall be added for such
additional period.
"Business Day" means, with respect to the Certificates of any Class, any
day (a) other than a Saturday, a Sunday or a day on which, (i) commercial banks
are required or authorized to close in New York, New York, Atlanta, Georgia, or,
so long as any Certificate of such Class is outstanding, the city and state in
which the Trustee, the Subordination Agent or any related Loan Trustee maintains
its corporate trust office or receives and disburses funds, or (ii) with respect
to draws under the Policy, the fiscal agent (if any) under the Policy, at its
office specified in the Policy, the Policy Provider, at its office specified in
the Policy, and insurance companies in New York, New York are required or
authorized by law or executive order to close and (b) with respect to drawings
under any Liquidity Facility, which is a "Business Day" as defined in such
Liquidity Facility.
SUBORDINATION
The Certificates are subject to subordination terms set forth in the
Intercreditor Agreement which vary depending upon whether a Triggering Event has
occurred. See "Description of the Intercreditor Agreement -- Priority of
Distributions."
POOL FACTORS
The "Pool Balance" of the Certificates issued by any Trust indicates, as of
any date, the original aggregate face amount of the Certificates of such Trust
less the aggregate amount of all payments made in
47
respect of the Certificates of such Trust other than payments made in respect of
interest or Break Amount or Make-Whole Amount thereon or reimbursement of any
costs and expenses incurred in connection therewith. The Pool Balance of the
Certificates issued by any Trust as of any Distribution Date will be computed
after giving effect to any payment of principal of the Equipment Notes or other
Trust Property held in such Trust and the distribution thereof to be made on
that date and, with respect to the Class G Trust, payments under the Policy made
for the benefit of the Class G Certificateholders (other than in respect of the
Primary Liquidity Facility and interest on the Class G Certificates). (Basic
Agreement, Section 1.01)
The "Pool Factor" for each Trust as of any date is the quotient (rounded to
the seventh decimal place) computed by dividing (i) the Pool Balance as of such
date by (ii) the original aggregate face amount of the Certificates of such
Trust. The Pool Factor for each Trust as of any Distribution Date will be
computed after giving effect to any payment of principal of the Equipment Notes
or other Trust Property held in such Trust and the distribution thereof to be
made on that date. (Basic Agreement, Section 1.01) The Pool Factor for each
Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter,
the Pool Factor for each Trust will decline as described herein to reflect
reductions in the Pool Balance of such Trust. The amount of a
Certificateholder's pro rata share of the Pool Balance of a Trust can be
determined by multiplying the original denomination of the Certificateholder's
Certificate of such Trust by the Pool Factor for such Trust as of the applicable
Distribution Date. Notice of the Pool Factor and the Pool Balance for each Trust
will be mailed to Certificateholders of such Trust on each Distribution Date.
(Basic Agreement, Section 4.03)
The following table sets forth the aggregate principal amortization
schedule for the Equipment Notes held in each Trust and resulting Pool Factors
with respect to such Trust. The actual aggregate principal amortization schedule
applicable to a Trust and the resulting Pool Factors with respect to such Trust
may differ from those set forth below because the scheduled distribution of
principal payments for any Trust would be affected if any Equipment Notes held
in such Trust are redeemed or if a default in payment of the principal of such
Equipment Notes occurred.
CLASS G CLASS C CLASS D
----------------------------- --------------------------- ---------------------------
SCHEDULED SCHEDULED EXPECTED SCHEDULED
PAYMENTS OF EXPECTED PAYMENTS OF POOL PAYMENTS OF EXPECTED
DATE PRINCIPAL POOL FACTOR PRINCIPAL FACTOR PRINCIPAL POOL FACTOR
---- --------------- ----------- --------------- --------- ------------- -----------
April 25, 2003 $ 4,738,304.37 0.9878996 $ 0.00 1.0000000 $3,024,107.49 0.9537542
July 25, 2003 5,055,599.68 0.9749889 0.00 1.0000000 3,896,791.59 0.8941629
October 25, 2003 8,121,834.91 0.9542479 0.00 1.0000000 4,060,886.36 0.8320622
January 25, 2004 7,142,942.21 0.9360067 0.00 1.0000000 3,571,443.77 0.7774463
April 25, 2004 5,111,926.94 0.9229522 0.00 1.0000000 2,555,943.92 0.7383598
July 25, 2004 6,153,134.89 0.9072387 0.00 1.0000000 3,076,543.91 0.6913121
October 25, 2004 9,359,979.69 0.8833358 0.00 1.0000000 4,679,954.08 0.6197444
January 25, 2005 8,493,582.34 0.8616454 0.00 1.0000000 4,246,758.71 0.5548014
April 25, 2005 4,935,221.70 0.8490422 0.00 1.0000000 2,467,591.97 0.5170660
July 25, 2005 7,241,510.92 0.8305492 0.00 1.0000000 3,620,727.80 0.4616964
October 25, 2005 7,480,110.05 0.8114470 0.00 1.0000000 3,740,026.46 0.4045024
January 25, 2006 6,586,698.90 0.7946263 0.00 1.0000000 3,293,324.27 0.3541396
April 25, 2006 4,709,386.88 0.7825998 0.00 1.0000000 2,354,675.42 0.3181310
July 25, 2006 7,067,614.38 0.7645509 0.00 1.0000000 3,533,780.17 0.2640911
October 25, 2006 8,615,463.15 0.7425493 0.00 1.0000000 4,307,698.65 0.1982161
January 25, 2007 7,831,689.67 0.7225492 0.00 1.0000000 3,915,814.91 0.1383339
April 25, 2007 4,482,619.97 0.7111018 0.00 1.0000000 2,241,292.84 0.1040592
July 25, 2007 6,068,003.41 0.6956057 0.00 1.0000000 3,033,978.51 0.0576624
October 25, 2007 7,540,795.02 0.6763485 0.00 1.0000000 3,770,368.68 0.0000044
January 25, 2008 264,846,580.92 0.0000000 135,423,000.00 0.0000000 290.49 0.0000000
48
The Pool Factor and Pool Balance of each Trust will be recomputed if there
has been an early redemption or default in the payment of principal or interest
in respect of one or more of the Equipment Notes held in a Trust, as described
in "-- Indenture Events of Default and Certain Rights Upon an Indenture Event of
Default" and "Description of the Equipment Notes -- Redemption," or any drawing
under the Policy (other than in respect of interest on the Certificates). Notice
of the Pool Factors and Pool Balances of each Trust as so recomputed after
giving effect to any Special Payment to Certificateholders resulting from such
an early redemption or default in respect of one more Equipment Notes will be
mailed to Certificateholders of Certificates of the related Trust with such
Special Payment, as described in "-- Reports to Certificateholders."
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the applicable Trustee will include with each
distribution of a Scheduled Payment or Special Payment to Certificateholders of
the related Trust a statement, giving effect to such distribution to be made on
such Distribution Date, setting forth the following information (per $1,000
aggregate principal amount of Certificates as to items (1) and (2) below):
(1) the amount of such distribution allocable to principal and the amount
allocable to Break Amount and Make-Whole Amount, if any, indicating any
portion thereof paid by the Policy Provider in the case of the Class G
Certificates;
(2) the amount of such distribution allocable to interest, indicating any
portion thereof paid by the Liquidity Providers and/or Policy Provider in
the case of the Class G Certificates;
(3) the Pool Balance and the Pool Factor for such Trust; and
(4) LIBOR for the current and immediately preceding Interest Periods, as
determined by the Reference Agent. (Trust Supplements, Section 6.01)
As long as the Class G Certificates are registered in the name of Cede &
Co. ("Cede"), as nominee for The Depository Trust Company ("DTC"), on the record
date prior to each Distribution Date, the Class G Trustee will request from DTC
a securities position listing setting forth the names of all DTC Participants
reflected on DTC's books as holding interests in the Class G Certificates on
such record date. On each Distribution Date, the Class G Trustee will mail to
each such DTC Participant the statement described above and will make available
additional copies as requested by such DTC Participant for forwarding to
Certificate Owners. (Basic Agreement, Section 4.03(a))
In addition, after the end of each calendar year, the applicable Trustee
will prepare for each Certificateholder of each Trust at any time during the
preceding calendar year a report containing the sum of the amounts determined
pursuant to clauses (1) and (2) above with respect to the Trust for such
calendar year or, if such person was a Certificateholder during only a portion
of such calendar year, for the applicable portion of such calendar year, and
such other items as are readily available to such Trustee and which a
Certificateholder reasonably requests as necessary for the purpose of such
Certificateholder's preparation of its U.S. federal income tax returns. Such
report and such other items will be prepared on the basis of information
supplied to the applicable Trustee by the DTC Participants and will be delivered
by such Trustee to such DTC Participants to be available for forwarding by such
DTC Participants to Certificate Owners. (Basic Agreement, Section 4.03(b))
At such time, if any, as the Class G Certificates are issued in the form of
definitive certificates, the Class G Trustee will prepare and deliver the
information described above to each Certificateholder of record of the Class G
Trust as the name and period of record ownership of such Certificateholder
appears on the records of the registrar of the Class G Certificates.
INDENTURE EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN INDENTURE EVENT OF
DEFAULT
Because the Equipment Notes issued under an Indenture are held in more than
one Trust, a continuing Indenture Event of Default under such Indenture would
affect the Equipment Notes held by
49
each such Trust. For a description of the Indenture Events of Default under each
Indenture, see "Description of the Equipment Notes -- Indenture Events of
Default, Notice and Waiver." There are no cross-acceleration provisions in the
Indentures and the only cross-default provision in the Indentures is an event of
default under each Indenture which occurs if all amounts owing under any
Equipment Note are not paid in full on the Final Payment Date. Consequently,
until the Final Payment Date, events resulting in an Indenture Event of Default
under any particular Indenture may or may not result in an Indenture Event of
Default under any other Indenture.
If the same institution acts as Trustee of multiple Trusts, in the absence
of instructions from the Certificateholders of any such Trust, such Trustee
could be faced with a potential conflict of interest upon an Indenture Event of
Default. In such event, each Trustee has indicated that it would resign as
Trustee of some or all such Trusts, and a successor trustee would be appointed
in accordance with the terms of the applicable Pass Through Trust Agreement.
U.S. Bank Trust National Association, will be the initial Trustee under each
Trust.
Upon the occurrence and continuation of an Indenture Event of Default under
any Indenture, the Controlling Party will direct the Loan Trustee under such
Indenture in the exercise of remedies and may accelerate the Equipment Notes
issued under such Indenture and sell all (but not less than all) of such
Equipment Notes or the related Aircraft to any person, subject to certain
limitations. See "Description of the Intercreditor Agreement -- Intercreditor
Rights -- Sale of Equipment Notes or Aircraft." The proceeds of such sale will
be distributed pursuant to the provisions of the Intercreditor Agreement. Any
proceeds so distributed to any Trustee upon any such sale will be deposited in
the applicable Special Payments Account and will be distributed to the
Certificateholders of the applicable Trust on a Special Distribution Date.
(Basic Agreement, Sections 4.01 and 4.02) The market for Equipment Notes at the
time of the existence of an Indenture Event of Default may be very limited, and
there can be no assurance whether they could be sold or as to the price at which
they could be sold. If a Loan Trustee sells any such Equipment Notes for less
than their outstanding principal amount, certain Certificateholders will receive
a smaller amount of principal distributions than anticipated and will not have
any claim for the shortfall against Delta, any Liquidity Provider, the Policy
Provider (except in the case of the Class G Certificates) or any Trustee.
Neither such Trustee nor the Certificateholders of such Trust, furthermore,
could take action with respect to any remaining Equipment Notes held in such
Trust as long as no Indenture Events of Default existed with respect thereto.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust by the Subordination Agent on account of the Equipment Notes or other
Trust Property held in such Trust following an Indenture Event of Default under
any Indenture will be deposited in the Special Payments Account for such Trust
and will be distributed to the Certificateholders of such Trust on a Special
Distribution Date. (Basic Agreement, Sections 4.01 and 4.02).
Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes held by the Trustee in the Special Payments Account for such Trust will,
to the extent practicable, be invested and reinvested by such Trustee in certain
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Basic Agreement, Section 4.04)
"Permitted Investments" are defined as obligations of the United States or
agencies or instrumentalities thereof the payment of which is backed by the full
faith and credit of the United States and which mature in not more than 60 days
or such lesser time as is required for the distribution of any such funds on a
Special Distribution Date. (Basic Agreement, Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the related
Trust will, within 90 days after the occurrence of a default (as defined below)
known to it, notify the Certificateholders of such Trust by mail of such
default, unless such default has been cured or waived; provided that, except in
50
the case of default in a payment of principal, Break Amount (if any), Make-Whole
Amount (if any), or interest on any of the Equipment Notes held in such Trust,
the applicable Trustee will 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. (Basic Agreement, Section 7.02) The term "default" with
respect to a Trust, for the purpose of the provision described in this paragraph
only, means an event that is, or after notice or lapse of time or both would
become, an event of default with respect to such Trust or a Triggering Event
under the Intercreditor Agreement. The term "event of default" with respect to a
Trust means an Indenture Event of Default under any Indenture pursuant to which
Equipment Notes held by such Trust were issued.
Subject to certain qualifications set forth in each Pass Through Trust
Agreement and to the Intercreditor Agreement, the Certificateholders of each
Trust holding Certificates evidencing fractional undivided interests aggregating
not less than a majority in interest in such Trust will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee with respect to such Trust or pursuant to the terms of the
Intercreditor Agreement, or exercising any trust or power conferred on such
Trustee under such Pass Through Trust Agreement or the Intercreditor Agreement,
including any right of such Trustee as Controlling Party under the Intercreditor
Agreement or as holder of the Equipment Notes (the "Noteholder"). (Basic
Agreement, Section 6.04)
Subject to the Intercreditor Agreement, the holders of the Certificates of
a Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust may on behalf of the holders of all of the
Certificates of such Trust waive any past "default" or "event of default" under
the related Pass Through Trust Agreement and its consequences or, if the Trustee
of such Trust is the Controlling Party, may direct the Trustee to instruct the
applicable Loan Trustee to waive any past Indenture Event of Default and its
consequences; provided, however, the consent of each holder of a Certificate of
a Trust is required to waive (i) a default in the deposit of any Scheduled
Payment or Special Payment or in the distribution thereof, (ii) a default in
payment of the principal, Break Amount, (if any), Make-Whole Amount (if any) or
interest with respect to any of the Equipment Notes held in such Trust and (iii)
a default in respect of any covenant or provision of the related Pass Through
Trust Agreement that cannot be modified or amended without the consent of each
Certificateholder of such Trust affected thereby. (Basic Agreement, Section
6.05) Each Indenture will provide that, with certain exceptions, the holders of
the majority in aggregate unpaid principal amount of the Equipment Notes issued
thereunder may on behalf of all such Noteholders waive any past default or
Indenture Event of Default thereunder. Notwithstanding the foregoing provisions
of this paragraph, however, pursuant to the Intercreditor Agreement only the
Controlling Party will be entitled to waive any such past default or Indenture
Event of Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
After the occurrence and during the continuation of a Triggering Event,
with ten days' prior written notice to the Trustee and each Certificateholder of
the same Class:
- the Class C Certificateholders (other than Delta or any of its
affiliates) will have the right to purchase all, but not less than all,
of the Class G Certificates (unless the Policy Provider has elected to
purchase the Class G Certificates as provided below);
- the Class D Certificateholders (other than Delta or any of its
affiliates) will have the right to purchase all, but not less than all,
of the Class G Certificates (unless the Policy Provider has elected to
purchase the Class G Certificates as provided below) and to purchase all,
but not less than all, of the Class C Certificates; and
- whether or not the Class C Certificateholders or the Class D
Certificateholders have purchased or elected to purchase the Class G
Certificates, the Policy Provider (except in the event of a Policy
51
Provider Default), if it is then the Controlling Party, shall have the
right to purchase all, but not less than all, of the Class G
Certificates.
Once the Policy Provider has purchased the Class G Certificates, the Class
C Certificateholders and the Class D Certificateholders will no longer have the
right to purchase the Class G Certificates.
In each case the purchase price for a Class of Certificates will be equal
to the Pool Balance of such Class plus accrued and undistributed interest
thereon and Break Amount (if any) to the date of purchase, without any
Make-Whole Amount but including any other amounts then due and payable to the
Certificateholders of such Class. Such purchase right may be exercised by any
Certificateholder of the Class or Classes entitled to such right. In each case,
if prior to the end of the ten-day notice period, any other Certificateholder of
the same Class notifies the purchasing Certificateholder that the other
Certificateholder wants to participate in such purchase, then such other
Certificateholder may join with the purchasing Certificateholder to purchase the
Certificates pro rata based on the interest in the Trust held by each
Certificateholder. (Trust Supplements, Section 7.01)
PTC EVENT OF DEFAULT
A "PTC Event of Default" with respect to any Class of Certificates means
the failure to distribute within ten Business Days after the applicable
Distribution Date either:
- the outstanding Pool Balance of such Class of Certificates on the Final
Legal Distribution Date for such Class (unless, in the case of the Class
G Certificates, the Subordination Agent has made a drawing under the
Policy in an aggregate amount sufficient to pay such outstanding Pool
Balance and has distributed such amount to the related Trustee); or
- interest scheduled for distribution on such Class of Certificates on any
Distribution Date (unless in the case of the Class G Certificates, the
Subordination Agent has made an Interest Drawing, or a withdrawal from
the Primary Cash Collateral Account and/or Above-Cap Account, and/or a
drawing under the Policy, in an amount sufficient to pay such interest
and has distributed such amount to the Trustee entitled thereto).
Any failure to make expected principal distributions with respect to any
Class of Certificates on any Regular Distribution Date (other than the Final
Legal Distribution Date) will not constitute a PTC Event of Default with respect
to such Certificates.
A PTC Event of Default with respect to the most senior outstanding Class of
Certificates resulting from an Indenture Event of Default under all Indentures
will constitute a Triggering Event. For a discussion of the consequences of the
occurrence of a Triggering Event, see "Description of the Intercreditor
Agreement -- Priority of Distributions."
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Delta will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of its assets as an entirety to
any other person unless:
- the successor or transferee entity is organized and validly existing
under the laws of the United States or any state thereof or the District
of Columbia;
- the successor or transferee entity is, if and to the extent required
under Section 1110 of the United States Bankruptcy Code (the "Bankruptcy
Code") in order that the Loan Trustee continues to be entitled to any
benefits of Section 1110 with respect to an Aircraft, a "citizen of the
United States" (as defined in Title 49 of the United States Code relating
to aviation (the "Transportation Code")) holding an air carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter
447 of the Transportation Code;
52
- the successor or transferee entity expressly assumes all of the
obligations of Delta contained in the Basic Agreement and any Trust
Supplement, the Indentures, and the Participation Agreements;
- if the Aircraft are, at the time, registered with the FAA, the transferor
or successor entity makes such filings and recordings with the FAA
pursuant to the Transportation Code, or if the Aircraft are, at the time,
not registered with the FAA, the transferor or successor makes such
filings and recordings with the applicable aviation authority, as are
necessary to evidence such consolidation, merger or transfer; and
- Delta has delivered a certificate and an opinion or opinions of counsel
indicating that such transaction, in effect, complies with such
conditions.
In addition, after giving effect to such transaction, no Indenture Event of
Default shall have occurred and be continuing. (Basic Agreement, Section 5.02;
Participation Agreements, Section 6.02)
MODIFICATION OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains provisions permitting Delta and
the Trustee to enter into a supplement to such Pass Through Trust Agreement or,
if applicable, permitting the execution of amendments or supplements to the
Intercreditor Agreement or the Reference Agency Agreement or, with respect to
the Pass Through Trust Agreement for the Class G Trust, any Liquidity Facility,
the Policy and the Policy Provider Agreement, without the consent of the holders
of any of the Certificates of such Trust (but, in the case of certain of the
following relating to the Class G Trust, subject to the prior written consent of
the Policy Provider) to, among other things:
- evidence the succession of another corporation or entity to Delta and the
assumption by such corporation or entity of Delta's obligations under
such Pass Through Trust Agreement, the Intercreditor Agreement, the
Reference Agency Agreement, any Liquidity Facility or the Policy Provider
Agreement;
- add to the covenants of Delta for the benefit of holders of such
Certificates or surrender any right or power conferred upon Delta in such
Pass Through Trust Agreement, the Intercreditor Agreement, the Reference
Agency Agreement, any Liquidity Facility, the Policy or the Policy
Provider Agreement;
- to cure any ambiguity or correct any mistake or inconsistency in such
Pass Through Trust Agreement, the Intercreditor Agreement, the Reference
Agency Agreement, any Liquidity Facility, the Policy or the Policy
Provider Agreement;
- make or modify any other provision with respect to matters or questions
arising under such Pass Through Trust Agreement, the Intercreditor
Agreement, the Reference Agency Agreement, any Liquidity Facility, the
Policy or the Policy Provider Agreement as Delta may deem necessary or
desirable and that will not materially adversely affect the interests of
the holders of such Certificates;
- comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which the Certificates
are listed (or to facilitate any listing of any certificates on any
exchange or the quotation system) or of any regulatory body;
- modify, eliminate or add to the provisions of such Pass Through Trust
Agreement, the Intercreditor Agreement, any Liquidity Facility, the
Policy or the Policy Provider Agreement to the extent necessary to
continue the qualification of such Pass Through Trust Agreement
(including any supplemental agreement), the Intercreditor Agreement, any
Liquidity Facility, the Policy or the Policy Provider Agreement under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and
add to such Pass Through Trust Agreement, the Intercreditor Agreement,
the
53
Reference Agency Agreement, any Liquidity Facility, the Policy or the
Policy Provider Agreement such other provisions as may be expressly
permitted by the Trust Indenture Act;
- provide for a successor Trustee under such Pass Through Trust Agreement
and add to or change any of the provisions of such Pass Through Trust
Agreement, the Intercreditor Agreement, the Reference Agency Agreement,
any Liquidity Facility, the Policy or the Policy Provider Agreement as
necessary to facilitate the administration of the Trusts under such Pass
Through Trust Agreement by more than one Trustee or, as provided in the
Intercreditor Agreement, to provide for multiple Liquidity Facilities for
such Trust;
- provide certain information to the Trustee as required in such Pass
Through Trust Agreement;
- add to or change the Basic Agreement and any Trust Supplement to
facilitate the issuance of any Certificates in bearer form or to
facilitate or provide for the issuance of any Certificates in global form
in addition to or in place of Certificates in certificated form;
- provide for the delivery of Certificates or any supplement to such Pass
Through Trust Agreement in or by means of any computerized, electronic or
other medium, including computer diskette;
- correct or supplement the description of any property of any Trust; and
- modify, eliminate or add to the provisions of such Pass Through Trust
Agreement to reflect the substitution of a substitute aircraft for any
Aircraft;
provided, however, that no such supplement shall cause any Trust to become an
association taxable as a corporation for U.S. federal income tax purposes.
(Basic Agreement, Section 9.01)
Each Pass Through Trust Agreement also contains provisions permitting the
execution, with the consent of the holders of the Certificates of the related
Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust, and, with respect to the Pass Through Trust
Agreement for the Class G Trust, the Policy Provider, of supplemental agreements
adding any provisions to or changing or eliminating any of the provisions of
such Pass Through Trust Agreement, the Intercreditor Agreement, or with respect
to the Pass Through Trust Agreement for the Class G Trust, any Liquidity
Facility, the Policy or the Policy Provider Agreement to the extent applicable
to such Certificateholders or modifying the rights of the Certificateholders
under such Pass Through Trust Agreement, the Intercreditor Agreement, any
Liquidity Facility, the Policy or the Policy Provider Agreement, except that no
such supplemental agreement may, without the consent of the Policy Provider
(with respect to the Pass Through Trust Agreement for the Class G Trust) and the
holder of each outstanding Certificate adversely affected thereby:
- reduce in any manner the amount of, or delay the timing of, any receipt
by the Trustee of payments on the Equipment Notes held in such Trust, or
distributions in respect of any Certificate of such Trust, or change the
date or place of any payment or change the coin or currency in which such
Certificate is payable, or impair the right of any Certificateholder of
such Trust to institute suit for the enforcement of any such payment when
due;
- permit the disposition of any Equipment Note held in such Trust, except
as provided in such Pass Through Trust Agreement, the Intercreditor
Agreement or any applicable Liquidity Facility;
- alter the priority of distributions specified in the Intercreditor
Agreement in a manner materially adverse to such Certificateholders;
- reduce the percentage of the aggregate fractional undivided interests of
the Trust provided for in such Pass Through Trust Agreement, the consent
of the holders of which is required for any such supplemental agreement
or for any waiver provided for in such Pass Through Trust Agreement;
- cause such Trust to become an association taxable as a corporation for
U.S. federal income tax purposes; or
- to terminate or modify the Policy.
54
If a Trustee, as holder (or beneficial owner through the Subordination
Agent) of any Equipment Note in trust for the benefit of the Certificateholders
of the relevant Trust or as Controlling Party under the Intercreditor Agreement,
receives (directly or indirectly through the Subordination Agent) a request for
a consent to any amendment, modification, waiver or supplement under any
Indenture, any Participation Agreement, any Equipment Note or any other related
document, the Trustee will forthwith send a notice of such proposed amendment,
modification, waiver or supplement to each Certificateholder of the relevant
Trust registered on the register of such Trust as of the date of such notice and
the Policy Provider. The Trustee will request from the Certificateholders or the
Policy Provider, as the case may be, a direction as to:
- whether or not to take or refrain from taking (or direct the
Subordination Agent to take or refrain from taking) any action that a
Noteholder or the Controlling Party has the option to take or direct;
- whether or not to give or execute (or direct the Subordination Agent to
give or execute) any waivers, consents, amendments, modifications or
supplements as a Noteholder or as Controlling Party; and
- how to vote (or direct the Subordination Agent to vote) any Equipment
Note if a vote has been called for with respect thereto. (Section 10.01;
Intercreditor Agreement, Section 8.01(b))
If Certificateholders are entitled to direct the Trustee and such a request
for Certificateholder direction has been made, in directing any action or
casting any vote or giving any consent as the holder of any Equipment Note (or
in directing the Subordination Agent in any of the foregoing):
- other than as the Controlling Party, the Trustee will vote for or give
consent to any such action with respect to such Equipment Note in the
same proportion as that of (x) the aggregate face amount of all
Certificates actually voted in favor of or for giving consent to such
action by such direction of Certificateholders to (y) the aggregate face
amount of all outstanding Certificates of the relevant Trust; and
- as the Controlling Party, the Trustee will vote as directed in such
Certificateholder direction by the Certificateholders evidencing
fractional undivided interests aggregating not less than a majority in
interest in the relevant Trust. (Basic Agreement, Section 10.01)
For purposes of the preceding paragraph, a Certificate is deemed "actually
voted" if the Certificateholder has delivered to the Trustee an instrument
evidencing such Certificateholder's consent to such direction prior to one
Business Day before the Trustee directs such action or casts such vote or gives
such consent. Notwithstanding the foregoing, but subject to certain rights of
the Certificateholders under the relevant Pass Through Trust Agreement and
subject to the Intercreditor Agreement, the Trustee may, in its own discretion
and at its own direction, consent and notify the relevant Loan Trustee of such
consent (or direct the Subordination Agent to consent and notify the relevant
Loan Trustee of such consent) to any amendment, modification, waiver or
supplement under the relevant Indenture, Participation Agreement, Equipment Note
or any other related document, if an Indenture Event of Default under any
Indenture has occurred and is continuing, or if such amendment, modification,
waiver or supplement will not materially adversely affect the interests of the
Certificateholders. (Basic Agreement, Section 10.01)
Pursuant to the Intercreditor Agreement, with respect to any Indenture at
any given time, the Loan Trustee under such Indenture will be directed in
taking, or refraining from taking, any action thereunder or with respect to the
Equipment Notes issued under such Indenture by the Subordination Agent (as
directed by the Controlling Party). Any such Trustee acting as Controlling Party
will direct the Subordination Agent as such Trustee is directed by
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest in the relevant Trust. (Intercreditor
Agreement, Section 2.06 and 8.01(b)) Notwithstanding the foregoing, no
amendment, modification, consent or waiver of any Indenture, Equipment Note,
Participation Agreement or other related document will, without the consent of
the Primary Liquidity Provider, the Policy Provider and the Trustee of each
Trust (other than any Trust all of the Certificates of which are held or
beneficially owned by Delta and/or any of its affiliates) whose
Certificateholders would be affected thereby (i) reduce the amount of principal
or interest
55
payable by Delta under any Equipment Note issued under any Indenture or delay
the timing of any such payment, (ii) create any lien with respect to any
collateral prior to or pari passu with the lien of the related Indenture or
deprive any holder of an Equipment Note issued under such Indenture of the
benefit of the lien of such Indenture upon the related collateral, or (iii)
reduce the percentage in principal amount of the outstanding Equipment Notes
issued under any Indenture required to take or approve any action under such
Indenture. (Intercreditor Agreement, Section 8.01(b)) See "-- Indenture Events
of Default and Certain Rights Upon an Indenture Event of Default" for a
description of the rights of the Certificateholders of each Trust to direct the
respective Trustees.
TERMINATION OF THE TRUSTS
The obligations of Delta and the applicable Trustee with respect to a Trust
will terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the applicable Pass
Through Trust Agreement and the disposition of all property held in such Trust.
The applicable Trustee will mail to each Certificateholder of record of such
Trust notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the distribution of such final payment for
such Trust. The Final Distribution to any Certificateholder of such Trust will
be made only upon surrender of such Certificateholder's Certificates at the
office or agency of the applicable Trustee specified in such notice of
termination. (Basic Agreement, Section 11.01)
In the event that all of the Certificateholders do not surrender their
Certificates for cancellation within six months after the date specified in such
written notice, the applicable Trustee will give a second written notice to the
remaining Certificateholders to surrender their Certificates for cancellation
and receive the final distribution. No additional interest will accrue on the
Certificates after the Distribution Date specified in the first written notice.
In the event that any money held by a Trustee for the payment of distributions
on the Certificates remains unclaimed for two years (or such lesser time as the
Trustee shall be satisfied, after sixty days' notice from Delta, is one month
prior to the escheat period provided under applicable law) after the final
distribution date with respect thereto, such Trustee shall pay to each Loan
Trustee the appropriate amount of money relating to such Loan Trustee.
THE TRUSTEES
The Trustee for each Trust initially will be U.S. Bank Trust National
Association. The Trustee's address is U.S. Bank Trust National Association, 225
Asylum Street, Goodwin Square, Hartford, Connecticut 06103, Attention: Corporate
Trust Division.
With certain exceptions, the Trustee makes no representations as to the
validity or sufficiency of the Basic Agreement, the Trust Supplements, the
Certificates, the Equipment Notes, the Indentures, the Intercreditor Agreement,
the Participation Agreements, any Liquidity Facility, the Policy, or other
related documents. (Basic Agreement, Sections 7.04 and 7.15) The Trustee of any
Trust will not be liable to the Certificateholders of such Trust for any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in face amount of outstanding
Certificates of such Trust. Subject to certain provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under any Pass
Through Trust Agreement at the request of any holders of Certificates issued
thereunder unless there has been offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred by
such Trustee in exercising such rights or powers. (Basic Agreement, Section
7.03(e)) Each Pass Through Trust Agreement provides that the applicable Trustee
in its individual or any other capacity may acquire and hold Certificates issued
thereunder and, subject to certain conditions, may otherwise deal with Delta
with the same rights it would have if it were not the Trustee. (Basic Agreement,
Section 7.05)
BOOK-ENTRY REGISTRATION; DELIVERY AND FORM
GENERAL
Each Class of New Class G Certificates will be represented by one or more
fully registered global certificates ("Global Certificates"). Each global
certificate will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. ("Cede"), the nominee of DTC.
56
DTC has informed Delta as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
("DTC Participants") and facilitate the clearance and settlement of securities
transactions between DTC Participants through electronic book-entry changes in
accounts of DTC Participants, thereby eliminating the need for physical movement
of certificates. DTC participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is 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 ("Indirect
Participants").
Delta expects that, pursuant to procedures established by DTC, (i) upon the
issuance of the Global Certificates, DTC or its custodian will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by such Global Certificates to the accounts of persons who
have accounts with such depositary and (ii) ownership of beneficial interests in
the Global Certificates will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of DTC Participants) and the records of DTC Participants
(with respect to interests of persons other than DTC Participants). Ownership of
beneficial interests in the Global Certificates will be limited to DTC
Participants or persons who hold interests through DTC Participants. The laws of
some states required that certain purchasers of securities take physical
delivery of such securities. Such limits and such laws may limit the market for
beneficial interests in the Global Certificates.
So long as DTC or its nominee is the registered owner or holder of the
Global Certificates, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the Class G Certificates represented by such
Global Certificates for all purposes under the Class G Certificates and Class G
Pass Through Trust Agreement. All references in this Prospectus to actions by
the Class G Certificateholders shall refer to actions taken by DTC upon
instructions from DTC Participants, and all references to distributions,
notices, reports and statements to the Class G Certificateholders will refer, as
the case may be, to distributions, notices, reports and statements to DTC or
such nominee, as the registered holder of the Class G Certificates. No
beneficial owners of an interest in the Global Certificates will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided or under the Class G Pass Through Trust Agreement.
Such beneficial owners of an interest in the Global Certificates, and registered
owners of a Definitive Certificate, are referred to herein individually as a
"Certificate Owner" and collectively as the "Certificate Owners."
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Certificates among DTC Participants on whose behalf it acts with respect to the
Certificates. Certificate Owners that are not DTC Participants but that desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Certificates may do so only through DTC Participants. DTC Participants and
indirect participants with which Certificate Owners have accounts with respect
to the Certificates, however, are required to make book-entry transfers on
behalf of their respective customers. In addition, under the Rules, DTC is
required to receive and transmit to the DTC Participants distributions of
principal of, premium, if any, and interest with respect to the Certificates.
Certificate Owners thus will receive all distributions of principal, premium, if
any, and interest from the Trustee through DTC Participants or indirect
participants, as the case may be. Under this book-entry system, Certificate
Owners may experience some delay in their receipt of payments because such
payments will be forwarded by the Trustee to Cede, as nominee for DTC, and DTC
in turn will forward the payments to the appropriate DTC Participants in amounts
proportionate to the principal amount of such DTC Participants' respective
holdings of beneficial interests in the Certificates, as shown on the records of
DTC or its nominee. Distributions by DTC Participants to indirect participants
or Certificate Owners, as the case may be, will be the responsibility of such
DTC Participants.
57
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, the only "Certificateholder" under the Basic
Agreement will be Cede, as nominee of DTC. Certificate Owners therefore will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Basic Agreement, and Certificate Owners will be permitted to exercise the rights
of Certificateholders only indirectly through DTC and DTC Participants. DTC has
advised Delta that it will take any action permitted to be taken by
Certificateholders under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised Delta that in the event any action requires
approval by Certificateholders of a certain percentage of beneficial interest in
each Trust, DTC will take such action only at the direction of and on behalf of
DTC Participants whose holdings include undivided interests that satisfy any
such percentage. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of DTC
Participants whose holdings include such undivided interests. Conveyance of
notices and other communications by DTC to DTC Participants and by DTC
Participants to indirect participants and to Certificate Owners will be governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of indirect participants, the ability of a Certificate Owner to pledge
Certificates to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Certificates, may be limited due to the
lack of a physical certificate for such Certificates.
Payments of the principal of, Break Amount (if any), Make-Whole Amount (if
any) and interest on the Global Certificates will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. Neither Delta, the Class G
Trustee, nor any paying agent 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 Global Certificates or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Delta expects that DTC or in its nominee, upon receipt of any payment of
principal, Break Amount (if any), Make-Whole Amount (if any) or interest in
respect of the Global Certificates, will credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial ownership
interests in the principal amount of such Global Certificates, as shown on the
records of DTC or in its nominee. Delta also expects that payments by DTC
Participants to owners of beneficial interests in such Global Certificates held
through such DTC Participants will be governed by the standing instructions and
customary practices of such DTC Participants. Such payments will be the
responsibility of such DTC Participants.
Neither Delta nor the Trustee nor any agent of Delta or the 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
Certificates held by Cede, as nominee for DTC; for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests; or for
the performance by DTC, any DTC Participant or any indirect participant of their
respective obligations under the Rules or any other statutory, regulatory,
contractual or customary procedures governing their obligations.
The information contained in this Prospectus concerning DTC and its
book-entry system has been obtained from sources Delta believes to be reliable,
but Delta has not verified such information and takes no responsibility for the
accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
As long as Certificates are registered in the name of DTC or its nominee,
all payments made by Delta to the Loan Trustee under any Indenture will be in
immediately available funds. Such payments, including the final distribution of
principal with respect to the Certificates of any Trust, will be passed through
to DTC in immediately available funds.
58
Any Certificates registered in the name of DTC or its nominee will trade in
DTC's Same-Day Funds Settlement System until maturity, and secondary market
trading activity in the Certificates will therefore be required by DTC to settle
in immediately available funds. No assurance can be given as the effect, if any,
of settlement in same day funds on trading activity in the Certificates.
DEFINITIVE CERTIFICATES
Interest in Global Certificates with respect to the Class G Certificates
will be exchangeable or transferable, as the case may be, for Definitive
Certificates only if (i) DTC advises the Class G Trustee in writing that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to such Certificates and the Class G Trustee is unable
to locate a qualified successor, (ii) Delta, at its option, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of certain
events of default or other events specified in the Class G Pass Through Trust
Agreement, the Class G Certificateholders with fractional undivided interests
aggregating not less than a majority in interest in the Class G Trust advise the
Class G Trustee, Delta and DTC through DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Certificateholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Class G Trustee will be required to notify all Class G
Certificateholders through DTC of the availability of Definitive Certificates.
Upon surrender by DTC of the certificate representing the Global Certificates
and receipt of instructions for re-registration, the Class G Trustee will
reissue the applicable Certificate as Definitive Certificates to Class G
Certificateholders.
Distribution of principal, Break Amount (if any), Make-Whole Amount (if
any) and interest with respect to the Class G Certificates will thereafter be
made by the Class G Trustee directly in accordance with the procedures set forth
in the Class G Pass Through Trust Agreement, to holders in whose names the
Definitive Certificates were registered at the close of business on the
applicable record date. Such distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the Class G
Trustee. The final payment on any Class G Certificate, however, will be made
only upon presentation and surrender of the Class G Certificate at the office or
agency specified in the notice of final distribution to the Class G
Certificateholders.
DESCRIPTION OF LIQUIDITY FACILITIES
The following summary describes certain terms of the Liquidity Facilities
and certain provisions of the Intercreditor Agreement relating to the Liquidity
Facilities. There is no liquidity facility for the Class C and Class D
Certificates. Therefore, the statements under this caption apply only to the
Class G Trust and any reference to a Liquidity Facility should be read to
exclude the Class C and Class D Trusts. The summary does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Liquidity Facilities and the Intercreditor Agreement, which have been
filed as exhibits to the Registration Statement. Copies are available as set
forth under "Where You Can Find More Information." The term "Liquidity
Facilities" refers to the Primary Liquidity Facility and the Above-Cap Liquidity
Facility.
PRIMARY LIQUIDITY FACILITY
GENERAL
The primary liquidity provider (the "Primary Liquidity Provider") entered
into a revolving credit agreement (the "Primary Liquidity Facility") with the
Subordination Agent with respect to the Class G Trust. Under the Primary
Liquidity Facility, the Primary Liquidity Provider will, if necessary, make one
or more advances ("Interest Drawings") to the Subordination Agent to be used
solely to pay interest on the Class G Certificates when due, subject to certain
limitations. The Primary Liquidity Facility, together with the amounts in the
Above-Cap Account, if any, are expected to be sufficient to pay interest on the
59
Class G Certificates on up to six consecutive quarterly Regular Distribution
Dates at the Stated Interest Rate for the Class G Certificates. If interest
payment defaults occur which exceed the amount covered by or available under the
Primary Liquidity Facility and funds available in the Above-Cap Account, the
Class G Certificateholders will bear their allocable share of the deficiencies
to the extent that there are no other sources of funds (including funds from the
Policy). Although Landesbank Baden-Wurttemberg is the initial Primary Liquidity
Provider, it may be replaced by one or more other entities under certain
circumstances.
DRAWINGS
The initial amount available under the Primary Liquidity Facility as of the
issuance of the Old Class G Certificates was $75,217,115.51
Except as otherwise provided below, the Primary Liquidity Facility enables
the Subordination Agent to make Interest Drawings thereunder promptly on or
after any Regular Distribution Date in order to make interest distributions then
scheduled for the Class G Certificates at the Stated Interest Rate for the Class
G Trust to the extent that the amount (including any required payments by the
Policy Provider following a Policy Provider Election), if any, available to the
Subordination Agent on such Regular Distribution Date is not sufficient to pay
such interest. The maximum amount available to be drawn under the Primary
Liquidity Facility on any Regular Distribution Date to fund any shortfall of
interest on the Class G Certificates will not exceed the then Maximum Available
Commitment under the Primary Liquidity Facility. The "Maximum Available
Commitment" at any time is an amount equal to the then Required Amount of the
Primary Liquidity Facility less the aggregate amount of each Interest Drawing
then outstanding under the Primary Liquidity Facility at such time, provided
that following a Downgrade Drawing or a Final Drawing under the Primary
Liquidity Facility, the Maximum Available Commitment under such Liquidity
Facility will be zero.
"Required Amount" means, on any day, the aggregate amount sufficient to pay
interest, on the Pool Balance of the Class G Certificates, at the Capped
Interest Rate, on the six successive quarterly Regular Distribution Dates
immediately following such date or if such date is a Regular Distribution Date,
on such date and the succeeding five Regular Distribution Dates, in each case
calculated without regard to expected future payments of principal on such
Certificates. The Pool Balance for purposes of the definition of Required
Amount, if any Policy Provider Election has been made, shall be deemed to be
reduced by the amount (if positive) by which (i) the outstanding principal
balance of each Series G Equipment Note in respect of which such Policy Provider
Election has been made shall exceed (ii) the amount of any Policy Drawing
previously paid by the Policy Provider in respect of principal of such Series G
Equipment Note.
The initial "Capped Interest Rate" was 12.75% per annum as of the issuance
of the Old Class G Certificates. As of the issuance of the New Class G
Certificates, the Capped Interest Rate will decrease to 12.50% per annum.
The Primary Liquidity Facility does not provide for drawings thereunder to
pay for principal of, Make-Whole Amount (if any) or Break Amount (if any) on the
Class G Certificates or any interest with respect to the Class G Certificates in
excess of the Stated Interest Rate for the Class G Certificates, or to pay
principal of or interest, Break Amount or Make-Whole Amount on the Certificates
of any other Class. The Primary Liquidity Facility does not provide for drawings
thereunder to pay interest with respect to the Class G Certificates in excess of
an amount equal to six quarterly installments of interest calculated at the
Capped Interest Rate. (Primary Liquidity Facility, Section 2.02; Intercreditor
Agreement, Section 3.06)
Each payment by the Primary Liquidity Provider will reduce by the same
amount the Maximum Available Commitment under the Primary Liquidity Facility,
subject to reinstatement as hereinafter described. With respect to any Interest
Drawings, upon reimbursement of the Liquidity Provider in full or in part for
the amount of such Interest Drawings plus accrued interest thereon, the Maximum
Available Commitment under the Primary Liquidity Facility will be reinstated by
the amount reimbursed but not to exceed the then Required Amount of the Primary
Liquidity Facility; provided, however, the Primary
60
Liquidity Facility will not be so reinstated at any time if (i) a Liquidity
Event of Default has occurred and is continuing and (ii) less than 65% of the
then aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes. Any amounts paid by the Policy Provider to the
Primary Liquidity Provider as described in "Description of the Intercreditor
Agreement -- Intercreditor Rights -- Controlling Party" will not reinstate the
Primary Liquidity Facility, but any reimbursement of such amounts received by
the Policy Provider under the distribution provisions of the Intercreditor
Agreement will reinstate the Primary Liquidity Facility to the extent of such
reimbursement unless (i) a Liquidity Event of Default shall have occurred and be
continuing and (ii) less than 65% of the then aggregate outstanding principal
amount of all Equipment Notes are Performing Equipment Notes. With respect to
any other drawings under the Primary Liquidity Facility, amounts available to be
drawn thereunder are not subject to reinstatement. (Primary Liquidity Facility,
Section 2.02(a); Intercreditor Agreement, Section 3.06(g)). Following each
reduction of the Pool Balance for the Class G Trust, the Required Amount of the
Primary Liquidity Facility will be reduced automatically to an amount sufficient
to pay interest on the Class G Pool Balance on the next six successive quarterly
Regular Distribution Dates (without regard to expected future distributions of
principal of such Certificates) at the Capped Interest Rate for the Class G
Trust. (Primary Liquidity Facility, Section 2.04) The Required Amount of the
Primary Liquidity Facility will also be reduced upon a reduction of the Capped
Interest Rate.
"Performing Equipment Note" means an Equipment Note issued pursuant to an
Indenture with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that in the
event of a bankruptcy proceeding in which Delta is a debtor under the Bankruptcy
Code, (i) any payment default occurring before the date of the order for relief
for such proceedings shall not be taken into consideration during the 60-day
period under Section 1110(a)(2)(A) of the Bankruptcy Code (or such longer period
as may apply under Section 1110(b) of the Bankruptcy Code) (the "Section 1110
Period"), (ii) any payment default occurring after the date of the order for
relief in such proceeding will not be taken into consideration if such payment
default is cured under Section 1110(a)(2)(B) of the Bankruptcy Code before the
later of 30 days after the date of such default or the expiration of the Section
1110 Period and (iii) any payment default occurring after the Section 1110
Period will not be taken into consideration if such payment default is cured
before the end of the grace period, if any, set forth in the related Indenture.
(Intercreditor Agreement, Section 1.01)
REPLACEMENT OF PRIMARY LIQUIDITY FACILITY
If at any time the short-term unsecured debt rating of the Primary
Liquidity Provider issued by Moody's or the short-term issuer credit rating of
the Primary Liquidity Provider issued by Standard & Poor's (or if the Primary
Liquidity Provider does not have a short-term unsecured debt rating or short-
term issuer credit rating, as applicable, issued by Moody's or Standard &
Poor's, the long-term unsecured debt rating or long-term issuer credit rating of
the Primary Liquidity Provider issued by such Rating Agency) is lower than the
Threshold Rating, the Primary Liquidity Facility may be replaced by a
Replacement Primary Liquidity Facility. If the Primary Liquidity Facility is not
so replaced with a Replacement Primary Liquidity Facility within 10 days after
such downgrading, the Subordination Agent will draw the then Maximum Available
Commitment under the Primary Liquidity Facility (the "Downgrade Drawing"). The
Subordination Agent will deposit the proceeds of any Downgrade Drawing into a
primary cash collateral account (the "Primary Cash Collateral Account") for the
Class G Certificates and will use these proceeds for the same purposes and under
the same circumstances and subject to the same conditions as cash payments of
Interest Drawings under the Primary Liquidity Facility would be used. (Primary
Liquidity Facility, Section 2.02(c); Intercreditor Agreement, Section 3.06(c))
A "Replacement Primary Liquidity Facility" for the Primary Liquidity
Facility will mean an irrevocable revolving credit agreement (or agreements) in
substantially the form of the replaced Primary Liquidity Facility, including
reinstatement provisions, or in such other form (which may include a letter of
credit, surety bond, financial insurance policy or guaranty) as will permit the
Rating Agencies to confirm in writing their respective ratings then in effect
for the Class G Certificates (before downgrading of such ratings, if any, as a
result of the occurrence of a Downgrade Event) without regard to the Policy, to
be
61
consented to by the Policy Provider, which consent shall not be unreasonably
withheld or delayed, in a face amount (or in an aggregate face amount) equal to
the Required Amount, and issued by a person (or persons) having debt ratings
issued by both Rating Agencies that are equal to or higher than the Threshold
Rating. (Intercreditor Agreement, Section 1.01) The provider of any Replacement
Primary Liquidity Facility will have the same rights (including, without
limitation, priority distribution rights and rights as Controlling Party) under
the Intercreditor Agreement as the replaced Primary Liquidity Provider.
"Threshold Rating" means (i) a short-term unsecured debt rating of P-1 in
the case of Moody's and a short-term issuer credit rating of A-1 in the case of
Standard & Poor's, and (ii) in the case of any entity that does not have a
short-term rating from either or both of such rating agencies, then in lieu of
such short-term rating, a long-term unsecured debt rating of A1 in the case of
Moody's and a long-term issuer credit rating of A+ in the case of Standard &
Poor's.
The initial Primary Liquidity Facility provides that the Primary Liquidity
Provider's obligations thereunder will expire on the earliest of:
- the 15th day after the Final Legal Distribution Date for the Class G
Certificates;
- the date on which the Subordination Agent delivers to the Primary
Liquidity Provider a certification that Final Distributions on all of the
Class G Certificates have been paid in full or provision has been made
for such payment;
- the date on which the Subordination Agent delivers to the Primary
Liquidity Provider a certification that a Replacement Primary Liquidity
Facility has been substituted for the Primary Liquidity Facility;
- the fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from the Primary Liquidity Provider (see "-- Liquidity
Events of Default"); and
- the date on which no amount is or may (including by reason of
reinstatement) become available for drawing under the Primary Liquidity
Facility.
The initial Primary Liquidity Facility provides that such facility will
continue until 15 days after the Final Legal Distribution Date. However, as
discussed herein, the initial Primary Liquidity Facility may be replaced prior
to such time by a Replacement Liquidity Facility. If the initial Primary
Liquidity Facility is replaced by a Replacement Primary Liquidity Facility, such
Replacement Primary Liquidity Facility may or may not extend until 15 days after
the Final Legal Distribution Date. The Intercreditor Agreement will provide for
the replacement of the Replacement Primary Liquidity Facility if such
Replacement Primary Liquidity Facility is scheduled to expire earlier than 15
days after the Final Legal Distribution Date for the Class G Certificates and
such Replacement Primary Liquidity Facility is not extended at least 25 days
prior to its then scheduled expiration date. If such Replacement Primary
Liquidity Facility is not so extended or replaced by the 25th day prior to its
then scheduled expiration date, the Subordination Agent shall request a drawing
in full up to the then Maximum Available Commitment under such Replacement
Primary Liquidity Facility (the "Non-Extension Drawing"). The Subordination
Agent will hold the proceeds of the Non-Extension Drawing in the Primary Cash
Collateral Account as cash collateral to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under such Replacement Primary Liquidity Facility would be
used. (Intercreditor Agreement, Section 3.06(d))
Subject to certain limitations, Delta may, at its option, arrange for a
Replacement Primary Liquidity Facility to replace the Primary Liquidity Facility
(including without limitation any Replacement Primary Liquidity Facility
described in the following sentence). If a Replacement Primary Liquidity
Facility is provided at any time after a Downgrade Drawing or a Non-Extension
Drawing under the initial Primary Liquidity Facility or any Replacement Primary
Liquidity Facility, the funds with respect to the Primary Liquidity Facility or
such Replacement Primary Liquidity Facility on deposit in the Primary Cash
Collateral Account will be returned to the Primary Liquidity Provider being
replaced. (Intercreditor Agreement, Section 3.06(e))
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Upon receipt by the Subordination Agent of a Termination Notice with
respect to the Primary Liquidity Facility from the Primary Liquidity Provider,
the Subordination Agent will request a final drawing (a "Final Drawing") under
the Primary Liquidity Facility in an amount equal to the then Maximum Available
Commitment thereunder. The Subordination Agent will hold the proceeds of the
Final Drawing in the Primary Cash Collateral Account as cash collateral to be
used for the same purposes and under the same circumstances, and subject to the
same conditions, as cash payments of Interest Drawings under the Primary
Liquidity Facility would be used. (Primary Liquidity Facility, Section 2.02(d);
Intercreditor Agreement, Section 3.06(i))
Drawings under the Primary Liquidity Facility will be made by delivery by
the Subordination Agent of a certificate in the form required by the Primary
Liquidity Facility. Upon receipt of such a certificate, the Primary Liquidity
Provider is obligated to make payment of the drawing requested thereby in
immediately available funds. Upon payment by the Primary Liquidity Provider of
the amount specified in any drawing under the Primary Liquidity Facility, the
Primary Liquidity Provider will be fully discharged of its obligations under the
Primary Liquidity Facility with respect to such drawing and will not thereafter
be obligated to make any further payments under the Primary Liquidity Facility
in respect of such drawing to the Subordination Agent or any other person.
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under the Primary
Liquidity Facility by reason of an Interest Drawing, Final Drawing, Downgrade
Drawing or Non-Extension Drawing and interest thereon, but only to the extent
that the Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn under the initial Primary Liquidity Facility by reason of an
Interest Drawing or Final Drawing (each, a "Drawing") will be immediately due
and payable, together with interest on the amount of such Drawing. From the date
of such Drawing to (but excluding) the third business day following the Primary
Liquidity Provider's receipt of the notice of such Drawing, interest will accrue
at the Base Rate plus 1.70% per annum. Thereafter, interest will accrue at the
Liquidity Facility LIBOR for the applicable interest period plus 1.70% per
annum.
"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for each
day of the period for which the Base Rate is to be determined (or, if such day
is not a business day, for the next preceding business day) by the Federal
Reserve Bank of New York, or if such rate is not so published for any day that
is a business day, the average of the quotations for such day for such
transactions received by the Primary Liquidity Provider from three Federal funds
brokers of recognized standing selected by it (and reasonably satisfactory to
Delta) plus one quarter of one percent (0.25%) per annum.
"Liquidity Facility LIBOR" means, with respect to any interest period, the
rate per annum at which U.S. dollars are offered in the London interbank market
as shown on Page 3750 of the Telerate Systems Incorporated screen service (or
any successor thereto), at approximately 11:00 A.M. (London time) two London
Banking Days before the first day of such interest period, for a period
comparable to such interest period, or if such rate is not available, a rate per
annum determined by certain alternative methods. "London Banking Day" means any
day on which commercial banks are open for general business in London, England.
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DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under the Primary Liquidity Facility by reason of a
Downgrade Drawing or a Non-Extension Drawing and deposited in the Primary Cash
Collateral Account will be treated as follows:
- such amount will be released on any Distribution Date to the Primary
Liquidity Provider to pay any obligations to the Primary Liquidity
Provider to the extent such amount exceeds the Required Amount;
- any portion of such amount withdrawn from the Primary Cash Collateral
Account to pay interest distributions on the Class G Certificates will be
treated in the same way as Interest Drawings; and
- the balance of such amount will be invested in certain specified eligible
investments.
Any Downgrade Drawing under the initial Primary Liquidity Facility, other
than any portion thereof applied to the payment of interest distributions on the
Class G Certificates, will bear interest (x) subject to clause (y) below, in an
amount equal to the investment earnings on amounts deposited in the Primary Cash
Collateral Account and (y) from and after the date, if any, on which it is
converted into a Final Drawing as described below under "-- Liquidity Events of
Default," at a rate equal to LIBOR for the applicable interest period plus 1.70%
per annum. In addition, prior to conversion to a Final Drawing, a commitment fee
will continue to be payable on the amounts on deposit in the Primary Cash
Collateral Account.
LIQUIDITY EVENTS OF DEFAULT
Events of default under the Primary Liquidity Facility (each, a "Liquidity
Event of Default") consist of:
- the acceleration of all the Equipment Notes; or
- certain bankruptcy or similar events involving Delta. (Primary Liquidity
Facility, Section 1.01)
If (i) any Liquidity Event of Default under the Primary Liquidity Facility
has occurred and is continuing and (ii) less than 65% of the aggregate
outstanding principal amount of all Equipment Notes are Performing Equipment
Notes, the Primary Liquidity Provider may, in its discretion, give a notice of
termination of the Primary Liquidity Facility (a "Termination Notice"). The
Termination Notice will have the following consequences:
- the Primary Liquidity Facility will expire on the fifth Business Day
after the date on which such Termination Notice is received by the
Subordination Agent;
- the Subordination Agent will request promptly, and the Primary Liquidity
Provider will honor, a Final Drawing thereunder in an amount equal to the
then Maximum Available Commitment thereunder;
- any Drawing remaining unreimbursed as of the date of termination will be
converted automatically into a Final Drawing under the Primary Liquidity
Facility; and
- all amounts owing to the Primary Liquidity Provider will become
immediately due and payable.
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the Primary Liquidity Provider only to the extent of funds
available therefor after giving effect to the payments in accordance with the
provisions set forth under "Description of the Intercreditor Agreement --
Priority of Distributions." (Primary Liquidity Facility, Section 6.01)
Upon the circumstances described under "Description of the Intercreditor
Agreement -- Intercreditor Rights," the Primary Liquidity Provider may become
the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.06(c))
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PRIMARY LIQUIDITY PROVIDER
The initial Primary Liquidity Provider for the Class G Trust is Landesbank
Baden-Wurttemberg, a bank established in Germany as a public law institution
with legal capacity (Rechtsfahige Anstalt des Offentlichen Rechts). Landesbank
Baden-Wurttemberg has short-term debt rating of P-1 from Moody's and a
short-term issuer credit rating of A-1+ from Standard & Poor's, and a long-term
debt rating of Aaa from Moody's and a long term issuer credit rating of AAA from
Standard & Poor's.
ABOVE-CAP LIQUIDITY FACILITY
GENERAL
The above-cap liquidity provider (the "Above-Cap Liquidity Provider" and,
together with the Primary Liquidity Provider, the "Liquidity Providers") entered
into an irrevocable interest rate cap agreement with the Subordination Agent
with respect to the Class G Trust (the "Above-Cap Liquidity Facility").
PAYMENTS
Under the Above-Cap Liquidity Facility, subject to conditions set forth
therein, the Above-Cap Liquidity Provider will make payments on any Distribution
Date if (i) after giving effect to the provisions of the Intercreditor Agreement
(but without regard to drawings under the Primary Liquidity Facility or
withdrawals from the Primary Cash Collateral Account or Above-Cap Account), the
Subordination Agent does not have sufficient funds for the payment of interest
on the Class G Certificates, and (ii) then effective LIBOR exceeds the Capped
LIBOR, in an amount (an "Above-Cap Payment") equal to (regardless of whether any
portion of such amount has been or is being funded by the Primary Liquidity
Provider as an Interest Drawing) the product of (x) the excess of LIBOR over the
Capped LIBOR, multiplied by (y) the Pool Balance of the Class G Certificates,
multiplied by (z) actual days elapsed in the applicable interest period divided
by 360. An Above-Cap Payment under the Above-Cap Liquidity Facility will be made
to the Subordination Agent, which will immediately deposit such Above-Cap
Payment in the Above-Cap Account to be available for withdrawals as described in
"-- Above-Cap Account" below. The Above-Cap Liquidity Facility will be available
to make payments only as long as the Primary Liquidity Facility is available to
be drawn or there are amounts available to be withdrawn in the Primary Cash
Collateral Account or the Above-Cap Account.
The "Capped LIBOR" is 11.75% per annum.
The Above-Cap Liquidity Facility does not provide for payments thereunder
to pay, directly or indirectly, principal of, Break Amount or Make-Whole Amount
on, the Class G Certificates or principal of, or interest, Break Amount or
Make-Whole Amount on, the Certificates of any other Class. (Intercreditor
Agreement, Section 3.6) The Subordination Agent will have no obligation to
reimburse the Above-Cap Liquidity Provider for any Above-Cap Payment.
EARLY TERMINATION
If at any time (i) the Above-Cap Liquidity Provider (or, in the case of the
initial Above-Cap Liquidity Facility, the Above-Cap Liquidity Guarantor) fails
to meet the Threshold Rating, (ii) in the case of the initial Above-Cap
Liquidity Facility, the Above-Cap Liquidity Guarantor's guarantee of the initial
Above-Cap Liquidity Provider's obligations thereunder becomes invalid or
unenforceable, or (iii) certain other events relating to certain changes in law
or other circumstances occur, then the Above-Cap Liquidity Facility may be
replaced by a Replacement Above-Cap Liquidity Facility. If the Above-Cap
Liquidity Facility is not so replaced within ten days after an event specified
in clause (i) or (ii) above, or within 20 days after an event specified in
clause (iii) above, the Above-Cap Liquidity Provider will pay the Subordination
Agent for deposit into an account (the "Above-Cap Reserve Account")
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for the benefit of the Class G Certificates an amount in cash (the "Above-Cap
Reserve Amount") equal to the product of:
- 1.528, multiplied by
- 20% per annum minus Capped LIBOR, multiplied by
- the Pool Balance of the Class G Certificates,
plus all other unpaid amounts then due under the Above-Cap Liquidity Facility.
Upon such payment, the Above-Cap Liquidity Facility will terminate.
The Above-Cap Liquidity Facility may be terminated upon the occurrence of
certain other specified events with respect to the Above-cap Liquidity Provider
without the right of replacement and upon the occurrence of any such event, the
Above-Cap Liquidity Provider will be obligated to pay the Above-Cap Reserve
Amount into the Above-Cap Reserve Account.
A "Replacement Above-Cap Liquidity Facility" for the Above-Cap Liquidity
Facility will mean an irrevocable interest rate cap agreement (or agreements) in
substantially the form of the replaced Above-Cap Liquidity Facility or in such
other form as will permit the Rating Agencies to confirm in writing their
respective ratings then in effect for the Class G Certificates (without regard
to the Policy and before downgrading of such ratings, if any, as a result of the
downgrading of the Above-Cap Liquidity Provider) and issued by a person (or
persons) having ratings issued by each of Moody's and Standard & Poor's that are
equal to or higher than the Threshold Rating and which person shall be consented
to by the Policy Provider (which consent shall not be unreasonably withheld or
delayed). (Intercreditor Agreement, Section 1.01)
Amounts will be withdrawn from the Above-Cap Reserve Account and deposited
in the Above-Cap Account as needed, to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as Above-Cap
Payments under the Above-Cap Liquidity Facility (were the Above-Cap Liquidity
Facility still in effect) would be used. Cash deposited into the Above-Cap
Reserve Account will be invested in certain specified eligible investments.
The Above-Cap Liquidity Facility provides that the Above-Cap Liquidity
Provider's obligations thereunder will expire on the earlier of the first
Business Day after (i) the Final Legal Distribution Date for the Class G
Certificates and (ii) the date of payment in full of Final Distributions with
respect to the Class G Certificates.
ABOVE-CAP ACCOUNT
The Subordination Agent will maintain an account for the Class G Trust (the
"Above-Cap Account") into which Above-Cap Payments made by the Above-Cap
Provider will be deposited. If, on any Distribution Date, after giving effect to
the subordination provisions of the Intercreditor Agreement and after giving
effect to any Interest Drawing under the Primary Liquidity Facility or
withdrawals from the Primary Cash Collateral Account, there are insufficient
funds available to the Subordination Agent to pay interest on the Class G
Certificates (regardless of whether LIBOR is lower or higher than Capped LIBOR),
the Subordination Agent shall make a withdrawal from the Above-Cap Account to
the extent funds are available in such Above-Cap Account (after giving effect to
any Above-Cap Payment or any equivalent transfer required from the Above-Cap
Reserve Account) to fund such shortfall.
Amounts deposited into the Above-Cap Account are not available to pay
principal of or any Make-Whole Amount on, or Break Amount (if any) with respect
to, the Class G Certificates. On the earlier of the first Business Day after (i)
the Final Legal Distribution Date for the Class G Trust and (ii) the date of
payment in full of Final Distributions with respect to the Class G Certificates,
the Subordination Agent will pay to the Above-Cap Liquidity Provider an amount
equal to the sum of the amounts remaining in the Above-Cap Account and the
Above-Cap Reserve Account, if any.
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Amounts available under the Above-Cap Liquidity Facility, together with the
maximum amount of Interest Drawings available under the Primary Liquidity
Facility, are expected to be sufficient to pay interest (calculated at the
Stated Interest Rate applicable to the Class G Certificates) on the Class G
Certificates on up to six consecutive Regular Distribution Dates (without regard
to any expected future payments of principal of such Certificates).
Notwithstanding the subordination provisions of the Intercreditor
Agreement, only the holders of the Class G Certificates will be entitled to
receive and retain the proceeds of withdrawals from the Above-Cap Account.
ABOVE-CAP LIQUIDITY PROVIDER
The initial Above-Cap Liquidity Provider for the Class G Trust is Merrill
Lynch Capital Services, Inc. The obligations of the initial Above-Cap Liquidity
Provider under the Above-Cap Liquidity Facility are guaranteed by its parent
company, Merrill Lynch & Co., Inc. (the "Above-Cap Liquidity Guarantor"). The
Above-Cap Liquidity Guarantor has a short-term unsecured debt rating of P-1 from
Moody's and a short-term issuer debt rating of A-1 from Standard & Poor's.
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DESCRIPTION OF THE POLICY AND THE POLICY PROVIDER AGREEMENT
The following summary describes certain terms of the Policy and certain
provisions of the Policy Provider Agreement. The summary does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Policy, which has been filed as an exhibit to the Registration Statement.
Copies are available as set forth under "Where You Can Find More Information."
THE POLICY
The Policy Provider issued a certificate guaranty insurance policy (the
"Policy") in favor of the Subordination Agent, for the benefit of the holders of
the Class G Certificates, and the Primary Liquidity Provider, with respect to
certain interest payments. The Policy does not cover any amounts payable on the
Class C or Class D Certificates. The Intercreditor Agreement directs the
Subordination Agent to make a drawing under the Policy under the following five
circumstances:
INTEREST DRAWINGS
If on any Regular Distribution Date (other than the Final Legal
Distribution Date), after giving effect to
- the application of funds in accordance with the priorities set forth
under "Description of the Intercreditor Agreement -- Priority of
Distributions,"
- any drawings under the Primary Liquidity Facility in respect of interest
due on the Class G Certificates,
- any withdrawal of funds from the Primary Cash Collateral Account in
respect of such interest, and
- any withdrawal from the Above-Cap Account in respect of such interest,
the Subordination Agent does not then have sufficient funds available for the
payment of all amounts due and owing in respect of accrued and unpaid interest
on the Pool Balance of the Class G Certificates at the Stated Interest Rate for
such Class of Certificates, the Subordination Agent is to request a Policy
Drawing under the Policy in an amount sufficient to enable the Subordination
Agent to pay such interest.
PROCEEDS DEFICIENCY DRAWING
If the Subordination Agent receives a Special Payment consisting of
proceeds of the Disposition of any Defaulted Series G Equipment Note or
Collateral under (and as defined in) the related Indenture, on any Business Day
elected by the Subordination Agent upon 20 days' notice to the Policy Provider,
the Policy Provider will pay, after giving effect to the application of any
Disposition proceeds and (if such Disposition occurs prior to a Policy Provider
Election with respect to such Defaulted Series G Equipment Note) Prior Funds,
the amount, if any, required to reduce the Pool Balance of such Class by an
amount equal to the outstanding principal amount of such Defaulted Series G
Equipment Note (less the amount of any Policy Drawings previously paid by the
Policy Provider in respect of principal of such Defaulted Series G Equipment
Note) plus accrued and unpaid interest from the immediately preceding Regular
Distribution Date on the amount of such reduction.
NO PROCEEDS DRAWING
On the first Business Day (which shall be a Special Distribution Date) that
is 21 months after the last date on which full payment was made on a Series G
Equipment Note as to which there has subsequently been a failure to pay
principal or that has been accelerated, if on or before such day there has not
previously been a proceeds deficiency drawing as described in the preceding
paragraph with respect to such Equipment Note, then the Subordination Agent will
request a drawing under the Policy for the Class G Trust in an amount equal to
the then outstanding principal amount of such Defaulted Series G Equipment Note
plus accrued and unpaid interest thereon at the Stated Interest Rate from the
immediately preceding Regular Distribution Date. The Subordination Agent will
give prompt notice to
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each Trustee, Delta, the Primary Liquidity Provider and the Policy Provider
establishing the Special Distribution Date, which notice will be given not less
than 25 days prior to such Special Distribution Date. After the payment by the
Policy Provider in full of the requested drawing, the Subordination Agent will
have no right to make any further drawing under the Policy in respect of the
Defaulted Series G Equipment Note except for an Avoidance Drawing as described
below.
Notwithstanding the foregoing, at the end of any such 21-month period, so
long as no Policy Provider Default has occurred and is continuing, the Policy
Provider may, elect by giving notice to the Subordination Agent at least five
days prior to the end of such 21-month period (the "Policy Provider Election")
instead to pay
- on such Special Distribution Date an amount equal to the scheduled
principal and interest payable but not paid on the Defaulted Series G
Equipment Note (without regard to the acceleration thereof) during such
21-month period (after giving effect to the application of funds received
from the Primary Liquidity Facility, the Primary Cash Collateral Account
and the Above-Cap Account) and
- thereafter, on each Regular Distribution Date, an amount equal to the
scheduled principal and interest payable on the Defaulted Series G
Equipment Note (without regard to any acceleration thereof or any funds
available under the Primary Liquidity Facility, the Primary Cash
Collateral Account or the Above-Cap Account) until the establishment of
an Election Distribution Date or a Special Distribution Date.
Following a Policy Provider Election, on any Business Day (which shall be a
Special Distribution Date) elected by the Policy Provider upon 20 days' notice
to the Subordination Agent, the Policy Provider may (notwithstanding the Policy
Provider Election) request the Subordination Agent to, and the Subordination
Agent shall, make a Policy Drawing for the Class G Trust for an amount equal to
the then outstanding principal balance of the Defaulted Series G Equipment Note
(less any Policy Drawing previously paid by the Policy Provider in respect of
principal of such Defaulted Series G Equipment Note) and accrued and unpaid
interest thereon at the Stated Interest Rate for the Class G Certificates from
the immediately preceding Regular Distribution Date to such Special Distribution
Date.
Further, after a Policy Provider Election, following the occurrence and
continuation of a Policy Provider Default, the Subordination Agent will be
required on a Business Day specified by the Subordination Agent upon 20 days'
notice to the Policy Provider (such specified Business Day, an "Election
Distribution Date," which shall be a Special Distribution Date) to make a Policy
Drawing for the Class G Trust for an amount equal to the then outstanding
principal balance of the Defaulted Series G Equipment Note (less any Policy
Drawings previously paid by the Policy Provider in respect of principal of such
Equipment Note) and accrued and unpaid interest thereon at the Stated Interest
Rate for the Class G Certificates from the immediately preceding Regular
Distribution Date to such Election Distribution Date.
Regardless of whether or not the Policy Provider makes a Policy Provider
Election, the Policy Provider shall from and after the end of the 21-month
period honor drawings by the Primary Liquidity Provider in respect of the
payment of interest accruing on the outstanding drawings of the Primary
Liquidity Facility from and after the end of such 21-month period as and when
such interest becomes due in accordance with the Primary Liquidity Facility. Any
amendment or modification of the Policy Provider's obligations to make payments
to the Primary Liquidity Provider requires the consent of the Primary Liquidity
Provider.
FINAL POLICY DRAWING
If, after giving effect to the application of any Prior Funds, the
Subordination Agent does not have sufficient funds available on the Final Legal
Distribution Date of the Class G Certificates for the payment in full of the
Final Distribution (calculated as at such date but excluding any unpaid Break
Amount or Make-Whole Amount) on the Class G Certificates, the Subordination
Agent shall request a Policy
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Drawing in an amount sufficient to enable the Subordination Agent to pay the
Final Distribution (calculated as at such date but excluding any unpaid Break
Amount or Make-Whole Amount or interest thereon) on the Class G Certificates.
AVOIDANCE DRAWING
If at any time the Subordination Agent has actual knowledge of the issuance
of any Order prior to the expiration of the Policy, the Subordination Agent will
give prompt notice to each Trustee, Delta, each Liquidity Provider and the
Policy Provider of such Order and establishing as a Special Distribution Date
the date that is the earlier of the third Business Day that immediately precedes
the expiration of the Policy and the Business Day that immediately follows the
25th day after the Subordination Agent's notice. With respect to that Special
Distribution Date, the Subordination Agent will request a Policy Drawing for the
relevant Preference Amount and deliver to the Policy Provider a copy of the
documentation required by the Policy with respect to such Order.
GENERAL
All requests by the Subordination Agent for a Policy Drawing under the
Policy are to be made by it no later than 1:00 p.m. (New York City time) on (or,
in the case of any Preference Amount, at least three Business Days prior to) the
applicable Distribution Date and in the form required by the Policy and
delivered to the Policy Provider in accordance with the Policy. All proceeds of
any Policy Drawing are to be deposited by the Subordination Agent in the policy
account established by the Subordination Agent under the Intercreditor Agreement
(the "Policy Account") and from there paid to the Class G Trustee for
distribution to the holders of the Class G Certificates without regard to the
subordination provisions of the Intercreditor Agreement. In the case of any
Preference Amounts, however, all or part of the Policy Drawing will be paid
directly to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy to the extent such amounts have not been paid by the
Certificateholders. If any request for a Policy Drawing is rejected because it
does not satisfy the requirements of the Policy, the Subordination Agent will
resubmit the request so as to satisfy those requirements.
The Policy provides that if such a request for a Policy Drawing is properly
submitted or resubmitted it will pay to the Subordination Agent for deposit in
the Policy Account the applicable payment under the Policy no later than 4:00
p.m. on the later of the relevant Distribution Date and the date the request is
received by the Policy Provider (if received by 1:00 p.m. on such date) or on
the next Business Day (if the request is received after that time).
Subject to the reimbursement rights of the Primary Liquidity Provider, the
Policy Provider is subrogated to all of the rights of the holders of the Class G
Certificates to payment on the Class G Certificates to the extent of the
payments made under the Policy. Once any payment made under the Policy is
received by the Subordination Agent, the Policy Provider will have no further
obligation in respect of those payments, regardless of whether or not the funds
are properly distributed by the Subordination Agent or the Trustee for the Class
G Trust. The Policy Provider is not required to make any payment except at the
times and in the amounts expressly set forth in the Policy.
The Policy does not cover (i) shortfalls, if any, attributable to the
liability of the Class G Trust, the Class G Trustee, or the Subordination Agent
for withholding taxes, if any (including interest and penalties in respect of
that liability), (ii) any Break-Amount or Make-Whole Amount or interest thereon,
(iii) any premium, prepayment penalty or other accelerated payment, which at any
time becomes due on or with respect to any Class G Certificate, or (iv) any
failure of the Subordination Agent or the Trustee of such Trust to make any
payment due to the holders of the Class G Certificates from funds received.
The Policy is noncancellable. The Policy expires and terminates without any
action on the part of the Policy Provider or any other person on the date that
is one year and one day following the date on which Final Distributions on the
Class G Certificates are made, unless an Insolvency Proceeding has commenced and
has not been concluded or dismissed on the date of termination of the Policy, in
which case on the later of (i) the date of the conclusion or dismissal of such
Insolvency Proceeding without continuing
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jurisdiction by the court in such Insolvency Proceeding and (ii) the date on
which the Policy Provider has made all payments required to be made under the
terms of the Policy in respect of Preference Amounts. No portion of the premium
under the Policy is refundable for any reason including payment or provision
being made for payment.
The Policy is construed under the laws of the State of New York.
DEFINITIONS
"Insolvency Proceeding" means the commencement of any bankruptcy,
insolvency, readjustment of debt, reorganization, marshalling of assets and
liabilities or similar proceedings by or against Delta or any Liquidity Provider
and the commencement of any proceedings by Delta or any Liquidity Provider for
the winding up or liquidation of its affairs or the consent to the appointment
of a trustee, conservator, receiver, or liquidator in any bankruptcy,
insolvency, readjustment of debt, reorganization, marshalling of assets and
liabilities or similar proceedings of or relating to Delta or any Liquidity
Provider.
"Order" means a final, non-appealable order of a court of competent
jurisdiction exercising jurisdiction in an insolvency proceeding providing for
recovery of a Preference Amount.
"Preference Amount" means any payment of principal of, or interest at the
applicable Stated Interest Rate on, the Series G Equipment Notes made to the
Class G Trustee or the Subordination Agent or (without duplication) any payment
of the Pool Balance of, or interest at the applicable State Interest Rate on,
the Class G Certificates (or any payment of the proceeds of any drawing under
the Primary Liquidity Facility or the Above-Cap Account in respect of the Class
G Certificates) made to a holder which has become recoverable or had been
recovered from the Class G Trustee , the Subordination Agent or the holders (as
the case may be) as a result of such payment being determined or deemed a
preferential transfer pursuant to the United States Bankruptcy Code or otherwise
rescinded or required to be returned in accordance with an Order, provided that
Preference Amount shall not include any amounts that were or are required to be
deducted in respect of taxes from the related preferential transfer.
THE POLICY PROVIDER AGREEMENT
Pursuant to the insurance and indemnity agreement (the "Policy Provider
Agreement"), dated the Issuance Date, among the Subordination Agent, Delta, the
Class G Trustee and the Policy Provider, the Subordination Agent agreed to
reimburse the Policy Provider for amounts paid pursuant to Policy Drawings under
the Policy. These rights to reimbursement from the Subordination Agent are
subject, pursuant to the terms of the Policy Provider Agreement and the
Intercreditor Agreement, to the priorities set forth in the Intercreditor
Agreement. Under certain circumstances, Delta will directly reimburse the Policy
Provider with respect to the Policy Drawings to the extent not reimbursed under
the Intercreditor Agreement. Pursuant to a policy fee letter (the "Policy Fee
Letter"), Delta and the Subordination Agent (but without duplication) agreed to
pay the Policy Provider a premium for the Policy and any other amounts due under
the Policy Fee Letter.
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain provisions of the Intercreditor
Agreement (the "Intercreditor Agreement") among the Trustees, the Liquidity
Providers, the Policy Provider and U.S. Bank Trust National Association, as
subordination agent (the "Subordination Agent"). The summary does not purport to
be complete and is qualified in its entirety by reference to all of the
provisions of the Intercreditor Agreement, which has been filed as an exhibit to
the Registration Statement. Copies are available as set forth under "Where You
Can Find More Information."
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INTERCREDITOR RIGHTS
GENERAL
The Equipment Notes relating to each Trust were issued to and registered in
the name of the Subordination Agent as agent and trustee for the Trustee of such
Trust.
CONTROLLING PARTY
With respect to any Indenture at any given time, the Loan Trustee under
such Indenture will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under such Indenture by
the Subordination Agent acting at the direction of the Controlling Party. For so
long as the Subordination Agent is the registered holder of the Equipment Notes
and the Policy Provider is not the Controlling Party, the Subordination Agent
will act with respect to the preceding sentence in accordance with the
directions of the Trustee acting as Controlling Party. Any such Trustee acting
as Controlling Party will direct the Subordination Agent as directed by
Certificateholders evidencing fractional undivided interests aggregating not
less than an majority in interest in the relevant Trust. (Intercreditor
Agreement, Sections 2.06 and 8.01(b))
Notwithstanding the foregoing, no amendment, modification, consent or
waiver will, without the consent of each Liquidity Provider, the Policy Provider
and the Trustee (other than the Trustee of any Trust all of the Certificates of
which are held or beneficially owned by Delta and/or any of its affiliates) of
each Trust whose Certificateholders would be affected thereby reduce the amount
of principal or interest payable by Delta under any Equipment Note issued under
any Indenture or delay the timing of such payment. (Intercreditor Agreement,
Section 8.01(b)) See "Description of the Certificates -- Indenture Events of
Default and Certain Rights Upon an Indenture Event of Default" for a description
of the rights of the Certificateholders of each Trust to direct the respective
Trustees.
Subject to the following paragraph, if Final Distributions have not been
fully paid to the holders of the Class G Certificates or if any obligations
payable to the Policy Provider under the Intercreditor Agreement remain
outstanding, so long as no Policy Provider Default has occurred and is
continuing, the Policy Provider will be the "Controlling Party". At any other
time, the "Controlling Party" will be:
- if Final Distributions have been not been paid in full to the holders of
Class G Certificates, the Class G Trustee;
- if Final Distributions have been paid in full to the holders of the Class
G Certificates, but not to the holders of the Class C Certificates, the
Class C Trustee; and
- if Final Distributions have been paid in full to the holders of the Class
G Certificates and Class C Certificates, the Class D Trustee.
At any time after 18 months from the earliest to occur of (x) the date on
which the entire Required Amount under the Primary Liquidity Facility has been
drawn (excluding a Downgrade Drawing or Non-Extension Drawing) and remains
unreimbursed, (y) the date on which the portion of any Downgrade Drawing or
Non-Extension Drawing equal to the Required Amount as of such date has been
withdrawn from the Primary Cash Collateral Account to pay interest on the Class
G Certificates and remain unreimbursed or, if earlier, the date on which the
entire amount of any Downgrade Drawing or Non-Extension Drawing is converted to
a Final Drawing and remains unreimbursed, and (z) the date on which all
Equipment Notes under all Indentures have been accelerated (provided that in the
event of a bankruptcy proceeding under the U.S. Bankruptcy Code in which Delta
is a debtor, any amounts payable in respect of Equipment Notes which have become
immediately due and payable by declaration or otherwise will not be considered
accelerated for purposes of this clause (z) until the expiration of the 60-day
period under Section 1110(a)(2)(A) of the Bankruptcy Code or such longer period
as may apply under Section 1110(a)(2)(B) or Section 1110(b) of the Bankruptcy
Code), the Primary Liquidity Provider (so long as such Primary Liquidity
Provider has not defaulted in its obligation to make any advance under the
Primary Liquidity Facility) will have the right to become the Controlling Party
with
72
respect to any Indenture, provided that if the Policy Provider pays to the
Primary Liquidity Provider all outstanding drawings and interest thereon owing
to such Primary Liquidity Provider under the Primary Liquidity Facility,
including all interest accrued thereon to such date, the Policy Provider shall
be the Controlling Party so long as the Policy Provider pays to the Primary
Liquidity Provider all drawings under the Primary Liquidity Facility outstanding
from time to time thereafter and interest thereon and so long as no Policy
Provider Default has occurred and is continuing. (Intercreditor Agreement,
Section 2.06)
For purposes of giving effect to the rights of the Controlling Party, the
Trustees (other than the Controlling Party) irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record holder of the Equipment
Notes, will exercise its voting rights in respect of the Equipment Notes as
directed by the Controlling Party, subject to the provisions of the
Intercreditor Agreement. (Intercreditor Agreement, Sections 2.06 and 8.01(b))
For a description of certain limitations on the Controlling Party's rights to
exercise remedies, see "Description of the Equipment Notes -- Remedies".
"Policy Provider Default" means the occurrence of any of the following
events: (a) the Policy Provider fails to make a payment required under any
Policy in accordance with its terms and such failure remains unremedied for two
Business Days following the delivery of written notice of such failure to the
Policy Provider, (b) the Policy Provider (i) files any petition or commences any
case or proceeding under any provisions of any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii)
makes a general assignment for the benefit of its creditors or (iii) has an
order for relief entered against it under any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization that is
final and nonappealable, or (c) a court of competent jurisdiction, the Wisconsin
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material portion of
its property (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Policy Provider (or taking of possession of all or any
material portion of the Policy Provider's property).
"Final Distributions" means, with respect to the Certificates of any Trust
on any Distribution Date, the sum of (x) the aggregate amount of all accrued and
unpaid interest in respect of such Certificates and (y) the Pool Balance of such
Certificates as of the immediately preceding Distribution Date. For purposes of
calculating Final Distributions with respect to the Certificates of any Trust,
any Make-Whole Amount or Break Amount paid on the Equipment Notes held in such
Trust that has not been distributed to the Certificateholders of such Trust
(other than such Make-Whole Amount or Break Amount or a portion thereof applied
to the distributions of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
such Final Distributions. (Intercreditor Agreement, Section 1.01)
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Following the occurrence and during the continuation of any Indenture Event
of Default under any Indenture, the Controlling Party may direct the
Subordination Agent to accelerate the Equipment Notes issued under such
Indenture and, subject to the provisions of the immediately following sentence,
sell all (but not less than all) of such Equipment Notes or the related Aircraft
to any person. So long as any Certificates are outstanding, during the nine
months after the earlier of (x) the acceleration of the Equipment Notes issued
under any Indenture and (y) the bankruptcy or insolvency of Delta, no Aircraft
subject to the lien of such Indenture or such Equipment Notes may be sold
without the consent of each Trustee (other than the Trustee of any Trust all of
the Certificates of which are held or beneficially owned by Delta and/or an
affiliate of Delta), if the net proceeds from such sale would be less than the
Minimum Sale Price for such Aircraft or such Equipment Notes.
"Minimum Sale Price" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (i) 75% of
the Appraised Current Market Value of such
73
Aircraft and (ii) the aggregate outstanding principal amount of such Equipment
Notes, plus accrued and unpaid interest thereon.
PRIORITY OF DISTRIBUTIONS
The subordination terms applicable to the Certificates vary depending upon
whether a Triggering Event has occurred. "Triggering Event" means (i) the
occurrence of an Indenture Event of Default under all Indentures resulting in a
PTC Event of Default with respect to the most senior Class of Certificates then
outstanding, (ii) the acceleration of all of the outstanding Equipment Notes or
(iii) certain bankruptcy or insolvency events involving Delta.
BEFORE A TRIGGERING EVENT
So long as no Triggering Event has occurred (whether or not continuing),
all payments made in respect of the Equipment Notes and certain other payments
received on any Distribution Date will be distributed promptly by the
Subordination Agent on such Distribution Date in the following order of
priority:
- to the Primary Liquidity Provider to the extent required to pay Liquidity
Expenses and to the Policy Provider to the extent required to pay Policy
Expenses, pro rata;
- to the Primary Liquidity Provider to the extent required to pay accrued
and unpaid interest on the Liquidity Obligations (as determined after
giving effect to payments made by the Policy Provider to the Primary
Liquidity Provider in respect of interest on drawings under the Primary
Liquidity Facility and in accordance with the Intercreditor Agreement)
and to the Policy Provider to the extent required to pay interest accrued
on certain Policy Provider Obligations (as provided in the definition
thereof) and, if the Policy Provider has elected to pay to the Primary
Liquidity Provider all outstanding drawings and interest thereon owing to
the Primary Liquidity Provider under the Primary Liquidity Facility, to
the extent required to reimburse the Policy Provider for the amount of
such payment made to the Primary Liquidity Provider attributable to
interest accrued on such drawings, pro rata;
- if applicable, to replenish the Primary Cash Collateral Account up to the
Required Amount, and then to the Primary Liquidity Provider to the extent
required to pay or reimburse the Primary Liquidity Provider for certain
Liquidity Obligations (other than amounts payable pursuant to the two
preceding clauses and as determined after giving effect to payments made
by the Policy Provider to the Primary Liquidity Provider in respect of
principal of drawings under the Primary Liquidity Facility) and, if the
Policy Provider has elected to pay to the Primary Liquidity Provider all
outstanding drawings and interest thereon owing to the Primary Liquidity
Provider under the Primary Liquidity Facility, to the Policy Provider to
the extent required to reimburse the Policy Provider for any payment made
to the Primary Liquidity Provider in respect of principal of drawings
under the Primary Liquidity Facility;
- to the Primary Liquidity Provider (if any amounts are distributed to
replenish the Primary Cash Collateral Account as described in the
previous bullet point), an amount equal to the excess of (x) the
aggregate outstanding amount of unreimbursed drawings under the Primary
Liquidity Facility (whether or not then due and after giving effect to
any other payments made in reimbursement of such drawings on such
Distribution Date) over (y) the Required Amount;
- if the Above-Cap Reserve Account has been previously funded, to replenish
the Above-Cap Reserve Account in an amount equal to the Above-Cap Reserve
Amount, as recalculated as of such date (less any amount then on deposit
in the Above-Cap Account);
- to the Class G Trustee to the extent required to pay Expected
Distributions on the Class G Certificates;
74
- to the Policy Provider to the extent required to pay Policy Provider
Obligations (other than amounts payable pursuant to the clauses above and
Policy Provider Interest Amounts);
- to the Policy Provider to the extent required to pay Excess Reimbursement
Obligations, Policy Provider Interest Amounts and any amounts due under
the Policy Fee Letter;
- to the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates; provided that if such Class C
Certificates have been transferred by the initial holder thereof to any
entity other than Delta or any of its affiliates, the Expected
Distributions on the Class C Certificates shall be distributed to the
Class C Trustee prior to the payment of Excess Reimbursement Obligations,
Policy Provider Interest Amounts and any amounts due under the Policy Fee
Letter to the Policy Provider;
- to the Class D Trustee to the extent required to pay Expected
Distributions on the Class D Certificates;
- to the Subordination Agent and each Trustee for the payment of certain
fees and expenses; and
- if the Above-Cap Reserve Account has been previously funded, to the
Above-Cap Reserve Account in an amount equal to the Above-Cap Reserve
Amount (as recalculated as of such date).
"Liquidity Expenses" means the Liquidity Obligations other than (i) the
principal amount of any drawing under the Primary Liquidity Facility and (ii)
any interest accrued on any Liquidity Obligations.
"Policy Expenses" means all amounts (including amounts in respect of
expenses) owing to the Policy Provider under the Policy Provider Agreement or
certain other agreements other than any amounts due under the Policy Fee Letter,
the amount of any Excess Reimbursement Obligations, any Policy Drawing and any
interest accrued thereon, reimbursement of and interest on the Liquidity
Obligations in respect of the Primary Liquidity Facility paid by the Policy
Provider to the Primary Liquidity Provider, any indemnity payments owed to the
Policy Provider and any amounts that the Policy Provider is entitled to receive
by virtue of the subrogation rights of the Policy Provider under the
Intercreditor Agreement, including, without limitation, fees and expenses
incurred in connection with the enforcement of such rights.
"Liquidity Obligations" means the obligations to reimburse or to pay the
Primary Liquidity Provider all principal, interest, fees and other amounts owing
to it under the Primary Liquidity Facility or certain other agreements.
"Policy Provider Interest Amount" means (i) interest on unreimbursed Policy
Drawings to the extent not included in Policy Provider Obligations and (ii)
interest on all amounts due and unpaid to the Policy Provider under the Policy
Provider Agreement (including, without limitation, interest on all due and
unpaid premiums, fees, expenses and indemnities), in each case, accruing at a
rate of LIBOR plus 2.00% per annum. For the avoidance of doubt, interest on
unreimbursed Policy Drawings shall be deemed to accrue from the date which such
Policy Drawing was made.
"Policy Provider Obligations" means all Policy Drawings and all
reimbursement and other amounts, including fees and indemnities, due to the
Policy Provider under the Policy Provider Agreement to the extent not included
in Policy Expenses but shall not include (i) any amounts due under the Policy
Fee Letter, (ii) Excess Reimbursement Obligations and (iii) any interest on
Policy Drawings except, if the Primary Liquidity Provider has failed to honor
its obligation to make a payment on any Interest Drawing with respect to the
Class G Certificates, interest on the portion of any Policy Drawing made to
cover the shortfall attributable to such failure by the Primary Liquidity
Provider in an amount equal to the amount of interest that would have accrued on
such Interest Drawing if such Interest Drawing had been made at the interest
rate applicable to such Interest Drawing under the Primary Liquidity Facility
until such Policy Drawing has been repaid in full, up to a maximum of six such
Policy Drawings. For the avoidance of doubt and subject to the effect of the
payment priorities with respect to Excess Reimbursement Obligations, Policy
Provider Obligations include reimbursement of and interest on the Liquidity
Obligations in respect of the Primary Liquidity Facility paid by the Policy
Provider to the Primary Liquidity Provider.
75
"Policy Drawing" means, with respect to any Policy, any payment of a claim
under such Policy.
"Excess Reimbursement Obligations" means (a) in the event of any Policy
Provider Election, the portion of the Policy Provider Obligations that
represents interest on the Equipment Note in respect of which the Policy
Provider Election has been made in excess of 21 months of interest at the
interest rate applicable to such Equipment Note and (b) any interest on the
Liquidity Obligations in respect of the Primary Liquidity Facility paid by the
Policy Provider to the Primary Liquidity Provider from and after the end of the
21-month period referred to under the caption "Description of the Policy and the
Policy Provider Agreement -- The Policy -- No Proceeds Drawing."
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date"), the sum of (1)
accrued and unpaid interest in respect of such Certificates and (2) the
difference between:
(a) the Pool Balance of such Certificates as of the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of the Certificates
of such Trust); and
(b) the Pool Balance of such Certificates as of the Current Distribution
Date calculated on the basis that (i) the principal of the Equipment Notes
held in such Trust has been paid when due (whether at stated maturity, upon
redemption, prepayment, purchase, acceleration or otherwise) and such
payments have been distributed to the holders of such Certificates and (ii)
the principal of any Equipment Notes formerly held in such Trust that have
been sold pursuant to the Intercreditor Agreement has been paid in full and
such payments have been distributed to the holders of such Certificates.
(Intercreditor Agreement, Section 1.01)
For purposes of calculating Expected Distributions with respect to the
Certificates of any Trust, any Make-Whole Amount or Break Amount paid on the
Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such Make-Whole Amount or Break
Amount or a portion thereof applied to distributions of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
will be added to the amount of Expected Distributions.
For purposes of determining the priority of distributions on account of the
redemption of Equipment Notes issued pursuant to an Indenture, clause (1) of the
definition of Expected Distributions set forth above shall be deemed to read as
follows: "(1) accrued, due and unpaid interest on such Certificates together
with (without duplication) accrued and unpaid interest on a portion of such
Certificates equal to the outstanding principal amount of the Equipment Notes
being redeemed or prepaid (immediately prior to such redemption or prepayment)."
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times thereafter, all funds received by the
Subordination Agent in respect of the Equipment Notes and certain other payments
received by the Subordination Agent will be distributed promptly by the
Subordination Agent in the following order of priority:
- to the Subordination Agent and any Trustee, to the extent required to pay
certain reasonable out-of-pocket costs and expenses actually incurred by
the Subordination Agent or such Trustee in protection of, or realization
of the value of, the Equipment Notes or any Collateral under (and as
defined in) any Indenture, or to any Certificateholder, the Policy
Provider or the Primary Liquidity Provider for payments made to the
Subordination Agent or any Trustee in respect of such amounts;
- to the Primary Liquidity Provider to the extent required to pay Liquidity
Expenses and to the Policy Provider to the extent required to pay the
Policy Expenses, pro rata;
- to the Primary Liquidity Provider to the extent required to pay accrued
and unpaid interest on the Liquidity Obligations (as determined after
giving effect to payments made by the Policy Provider to the Primary
Liquidity Provider in respect of interest on drawings under the Primary
Liquidity
76
Facility in accordance with the Intercreditor Agreement) and to the
Policy Provider to the extent required to pay interest accrued on certain
Policy Provider Obligations (as provided in the definition thereof) and,
if the Policy Provider has elected to pay to the Primary Liquidity
Provider all outstanding drawings and interest thereon owing to the
Primary Liquidity Provider under the Primary Liquidity Facility, to
reimburse the Policy Provider for the amount of such payment made to the
Primary Liquidity Provider, attributable to interest accrued on such
drawings, pro rata;
- (i) if applicable, to replenish the Primary Cash Collateral Account up to
the Required Amount unless, in the case of this clause (i), (x) less than
65% of the aggregate outstanding principal amount of all Equipment Notes
are Performing Equipment Notes and a Liquidity Event of Default has
occurred and is continuing under the Primary Liquidity Facility or (y) a
Final Drawing has occurred under the Primary Liquidity Facility), and
then (ii) to the Primary Liquidity Provider to the extent required to pay
the outstanding amount of all Liquidity Obligations (as determined after
giving effect to payments made by the Policy Provider to the Primary
Liquidity Provider in respect of principal of drawings under the Primary
Liquidity Facility) and, if the Policy Provider has elected to pay to the
Primary Liquidity Provider all outstanding drawings and interest thereon
owing to the Primary Liquidity Provider under the Primary Liquidity
Facility, to the Policy Provider to the extent required to reimburse the
Policy Provider for any payment made to the Primary Liquidity Provider in
respect of principal of drawings under the Primary Liquidity Facility;
- to the Primary Liquidity Provider (if any amounts are distributed to
replenish the Primary Cash Collateral Account as described in the
previous bullet point), an amount equal to the excess of (x) the
aggregate outstanding amount of unreimbursed drawings under the Primary
Liquidity Facility (whether or not then due and after giving effect to
any other payments made in reimbursement of such drawings on such
Distribution Date) over (y) the Required Amount;
- unless (x) less than 65% of the aggregate outstanding principal amount of
all Equipment Notes are Performing Equipment Notes and a Liquidity Event
of Default has occurred and is continuing under the Primary Liquidity
Facility or (y) a Final Drawing has occurred under the Primary Liquidity
Facility, to the Above-Cap Reserve Account up to an amount equal to the
Above-Cap Reserve Amount as recalculated as of such date (less any amount
then on deposit in the Above-Cap Account);
- to the Subordination Agent and any Trustee to the extent required to pay
certain fees, taxes, charges and other amounts payable or to any
Certificateholder for payments made to the Subordination Agent or any
Trustee in respect of such amounts;
- to the Class G Trustee to the extent required to pay Adjusted Expected
Distributions on the Class G Certificates;
- to the Policy Provider in payment of the Policy Provider Obligations
(other than amounts payable pursuant to the first four clauses above and
any Policy Provider Interest Amounts) and any amounts due under the
Policy Fee Letter;
- to pay any Excess Reimbursement Obligations and Policy Provider Interest
Amounts to the Policy Provider;
- to the Class C Trustee to the extent required to pay Adjusted Expected
Distributions on the Class C Certificates; provided that if such Class C
Certificates have been transferred by the initial holder thereof to an
entity other than Delta or any of its affiliates, the Adjusted Expected
Distributions on the Class C Certificates shall be distributed to the
Class C Trustee prior to the payment of Excess Reimbursement Obligations
and Policy Provider Interest Amounts to the Policy Provider;
- to the Class D Trustee to the extent required to pay Adjusted Expected
Distributions on the Class D Certificates;
77
- unless (x) less than 65% of the aggregate outstanding principal amount of
all Equipment Notes are Performing Equipment Notes and a Liquidity Event
of Default has occurred and is continuing under the Primary Liquidity
Facility or (y) a Final Drawing has occurred under the Primary Liquidity
Facility, to the Above-Cap Reserve Account up to an amount equal to the
Above-Cap Reserve Amount (as recalculated as of such date);
- to the Class G Trustee to the extent required to pay Final Distributions
on the Class G Certificates in full;
- to the Class C Trustee to the extent required to pay Final Distributions
on the Class C Certificates in full; and
- to the Class D Trustee to the extent required to pay Final Distributions
on the Class D Certificates in full.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest in respect of such Certificates and (2) the greater of:
(a) the difference between (x) the Pool Balance of such Certificates as of
the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original aggregate
face amount of the Certificates of such Trust) and (y) the Pool Balance of
such Certificates as of the Current Distribution Date calculated on the
basis that (i) the principal of the Equipment Notes other than Performing
Equipment Notes (the "Non-Performing Equipment Notes") held in such Trust
has been paid in full and such payments have been distributed to the
holders of such Certificates, (ii) the principal of the Performing
Equipment Notes held in such Trust has been paid when due (but without
giving effect to any acceleration of Performing Equipment Notes) and such
payments have been distributed to the holders of such Certificates and
(iii) the principal of any Equipment Notes formerly held in such Trust that
have been sold pursuant to the Intercreditor Agreement has been paid in
full and such payments have been distributed to the holders of such
Certificates; and
(b) the amount of the excess, if any, of (i) the Pool Balance of such Class
of Certificates as of the immediately preceding Distribution Date (or, if
the Current Distribution Date is the first Distribution Date, the original
aggregate face amount of the Certificates of such Trust), over (ii) the
Aggregate LTV Collateral Amount for such Class of Certificates for the
Current Distribution Date;
provided that, until the date of the initial LTV Appraisals for all of the
Aircraft, clause (b) shall not apply.
For purposes of calculating Adjusted Expected Distributions with respect to
the Certificates of any Trust, any Break Amount or Make-Whole Amount paid on the
Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such Break Amount or Make-Whole
Amount or a portion thereof applied to distributions of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
will be added to the amount of Adjusted Expected Distributions.
"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means an amount, not less than zero, equal to the sum of the
applicable LTV Collateral Amounts for such Class of Certificates for all
Aircraft, minus the Pool Balance for each Class of Certificates, if any, senior
to such Class, after giving effect to any distribution of principal on such
Distribution Date with respect to such senior Class or Classes.
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft (or with respect to any such Aircraft that has suffered an Event of
Loss under and as defined in the relevant Indenture, the amount of the insurance
proceeds paid to the related Loan Trustee in respect thereof to the extent then
held by such Loan Trustee (and/or on deposit in the
78
Special Payments Account) or payable to such Loan Trustee in respect thereof or
with respect to any such Aircraft that has been released from the related
Indenture pursuant to the defeasance provisions thereof, the amount of money and
U.S. Government Obligations deposited with the Loan Trustee pursuant thereto as
of such Distribution Date) and (ii) the outstanding principal amount of the
Equipment Notes secured by such Aircraft after giving effect to any principal
payments of such Equipment Notes on or before such Distribution Date.
"LTV Ratio" means for the Class G Certificates 49.0%, for the Class C
Certificates 65.9% and for the Class D Certificates 74.1%.
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the three most recent LTV Appraisals of such Aircraft.
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
After a Triggering Event occurs and any Equipment Note becomes a
Non-Performing Equipment Note, the Subordination Agent will obtain LTV
Appraisals of all of the Aircraft as soon as practicable and additional LTV
Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling Party reasonably objects to the
appraised value of the Aircraft shown in such LTV Appraisals, the Controlling
Party shall have the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
Aircraft).
Interest Drawings under the Primary Liquidity Facility, withdrawals from
the Primary Cash Collateral Account and withdrawals from the Above-Cap Account,
in each case in respect of interest distributable on the Glass G Certificates,
will be distributed to the Class G Trustee and drawings under the Policy will be
distributed to the Class G Trustee, notwithstanding the priority of
distributions set forth in the Intercreditor Agreement and otherwise described
herein.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent, as the registered holder of any
Equipment Note, receives a request for its consent to any amendment,
modification or waiver under such Equipment Note or other related document, the
Subordination Agent will exercise its voting rights as directed by the
Controlling Party; provided that no amendment, waiver, modification or consent
shall, without the consent of the Policy Provider, each Liquidity Provider and
the Trustee (other than the Trustee of any Trust all of the Certificates of
which are held or beneficially owned by Delta and/or any of its affiliates) of
each Trust whose Certificateholders would be affected, (i) reduce the amount of
principal or interest payable by Delta under any Equipment Note or delay the
timing of such payment, (ii) create any lien with respect to the Collateral
prior to, pari passu with or subordinate to the lien of such Indenture or
deprive any holder of an Equipment Note issued under such Indenture of the
benefit of the lien of such Indenture upon the Collateral or (iii) reduce the
percentage in principal amount of the outstanding Equipment Notes issued under
such Indenture required to take or approve any action under such Indenture.
(Intercreditor Agreement, Section 8.01(b))
THE SUBORDINATION AGENT
U.S. Bank Trust National Association, is the Subordination Agent under the
Intercreditor Agreement. Delta and its affiliates may from time to time enter
into banking and trustee relationships with the Subordination Agent and its
affiliates. The Subordination Agent's address is U.S. Bank Trust National
Association, 225 Asylum Street, Goodwin Square, Hartford, Connecticut 06103,
Attention: Corporate Trust Division.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Delta or the Controlling Party may at any
79
time remove the Subordination Agent as provided in the Intercreditor Agreement.
In such circumstances, a successor Subordination Agent will be appointed as
provided in the Intercreditor Agreement. Any resignation or removal of the
Subordination Agent and appointment of a successor Subordination Agent does not
become effective until acceptance of the appointment by the successor
Subordination Agent. (Intercreditor Agreement, Section 7.01)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft consist of two Boeing 737-832 aircraft and ten Boeing
767-332ER aircraft (collectively, the "Aircraft"), all of which have been
delivered new to Delta by the manufacturer. The Aircraft have been designed to
be in compliance with Stage 3 noise level standards, which are the most
restrictive regulatory standards currently in effect in the United States for
aircraft noise abatement.
The Boeing 737-832 is a single aisle commercial jet aircraft. Seating
capacity is 154 seats in Delta's standard configuration. The 737-832 is deployed
on Delta's North American routes, as well as to points in the Caribbean, Central
America and the northern rim of South America. The 737-832 is powered by two
CFM56-7B26 jet engines manufactured by CFM International, Inc.
The Boeing 767-332ER is a twin aisle commercial jet aircraft. Seating
capacities are 190 and 195 seats for Delta's transatlantic configuration. The
767-332ER is deployed primarily on Delta's transatlantic and South American
routes. Six of the 767-332ER Aircraft are powered by two PW4060 jet engines
manufactured by United Technologies Corporation and four of the 767-332ER
Aircraft are powered by two CF6-80C2B6F jet engines manufactured by General
Electric Company.
THE APPRAISALS
The table below sets forth the appraised base values of the Aircraft as of
the Issuance Date as determined by Aircraft Information Systems, Inc. ("AISI"),
AvSolutions, Inc. ("AvSolutions") and BK Associates, Inc. ("BK," and together
with AISI and AvSolutions, the "Appraisers"), independent aircraft appraisal and
consulting firms, and certain additional information regarding the Aircraft.
APPRAISERS' VALUATIONS APPRAISED
DATE --------------------------------------- BASE
AIRCRAFT TYPE REGISTRATION NUMBER DELIVERED AISI AVSOLUTIONS BK VALUE(1)
------------- ------------------- --------- ----------- ----------- ----------- -----------
Boeing 737-832....... N3760C 12/21/01 $40,950,000 $44,480,000 $40,650,000 $40,950,000
Boeing 737-832....... N3761R 12/20/01 40,950,000 44,480,000 40,650,000 40,950,000
Boeing 767-332ER..... N193DN 8/21/97 65,310,000 66,930,000 68,650,000 66,930,000
Boeing 767-332ER..... N194DN 9/26/97 65,310,000 67,210,000 68,900,000 67,140,000
Boeing 767-332ER..... N195DN 9/30/97 65,310,000 67,210,000 68,900,000 67,140,000
Boeing 767-332ER..... N196DN 10/30/97 65,310,000 67,490,000 69,200,000 67,333,333
Boeing 767-332ER..... N197DN 12/23/97 65,310,000 68,060,000 69,700,000 67,690,000
Boeing 767-332ER..... N198DN 2/2/98 68,310,000 68,630,000 70,400,000 68,630,000
Boeing 767-332ER..... N1611B 5/15/00 74,280,000 76,780,000 77,550,000 76,203,333
Boeing 767-332ER..... N178DZ 5/23/00 74,280,000 76,780,000 77,550,000 76,203,333
Boeing 767-332ER..... N1612T 5/26/01 78,190,000 80,710,000 80,800,000 79,900,000
Boeing 767-332ER..... N1613B 8/10/01 78,190,000 81,730,000 81,550,000 80,490,000
---------------
(1) The appraised base value of each Aircraft is the lesser of the average and
median base values of such Aircraft as determined by the Appraisers.
According to the International Society of Transport Aircraft Trading,
"appraised base value" is defined as each Appraiser's opinion of the underlying
economic value of an Aircraft in an open, unrestricted, stable market
environment with a reasonable balance of supply and demand, and assumes full
80
consideration of its "highest and best use." An Aircraft's appraised base value
is founded in the historical trend of values and in the projection of value
trends and presumes an arm's length, cash transaction between willing, able and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing.
Each Appraiser was asked to provide its opinion as to the appraised base
value of each Aircraft. All three Appraisers performed "desk-top" appraisals
without any physical inspection of the Aircraft. The Appraisals are based on
various assumptions and methodologies which vary among the appraisals and may
not reflect current market conditions. Appraisals that are based on different
assumptions and methodologies may result in valuations that are materially
different from those contained in the appraisals.
The Appraisers have delivered letters setting forth their respective
appraisals, copies of which are annexed to this Prospectus as Appendix II. For a
discussion of the assumptions and methodologies used in each of the appraisals,
you should read such letters.
An appraisal is only an estimate of value. It does not necessarily indicate
the price at which an aircraft may be purchased from the manufacturer or any
other seller, nor should it be relied upon as a measure of realizable value. The
proceeds realized upon a sale of any Aircraft may be less than its appraised
value. In addition, the value of the Aircraft in the event of the exercise of
remedies under the applicable Indenture will depend on market and economic
conditions at the time, the availability of buyers, the condition of the
Aircraft, whether the Aircraft are sold separately or in one or more groups and
other factors. In its appraisal letter, one of the appraisers points out that,
as a result of the events of September 11, 2001, there has been a significant
negative effect on current market values of all commercial aircraft and that the
present used aircraft market is considered to be a distressed market.
Accordingly, there can be no assurance that the proceeds realized upon any such
exercise of remedies with respect to the Aircraft pursuant to the applicable
Indenture would equal the appraised value of such Aircraft or be sufficient to
satisfy in full payments due on the Equipment Notes relating to such Aircraft or
on the Certificates. See "Risk Factors -- Risks Factors Relating to the
Certificates and the Exchange Offer -- Appraisals and Realizable Value of
Aircraft."
DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes certain terms of the Equipment Notes. The
summary does not purport to be complete and makes use of terms defined in and
are qualified in its entirety by reference to all of the provisions of the
Equipment Notes, the Indentures and the Participation Agreements, which have
been filed as exhibits to the Registration Statement. Copies are available as
set forth under "Where You Can Find More Information." Except as otherwise
indicated, the following summaries relate to the Equipment Notes, the Indenture,
and the Participation Agreement applicable to each Aircraft.
GENERAL
Pursuant to the terms of a Participation Agreement among Delta, the
Trustees, the Subordination Agent and the Loan Trustee with respect to each
Aircraft (each, a "Participation Agreement"), the Trusts purchased from Delta
the Equipment Notes issued under the related Indenture. Equipment Notes were
issued in three series with respect to each Aircraft: the "Series G Equipment
Notes," the "Series C Equipment Notes" and the "Series D Equipment Notes"
(collectively, the "Equipment Notes"). The Equipment Notes with respect to each
Aircraft were issued under a separate indenture (each, an "Indenture") between
Delta and U.S. Bank Trust National Association, as loan trustee thereunder
(each, a "Loan Trustee"). The Equipment Notes are direct, full recourse
obligations of Delta.
SUBORDINATION
The Indentures provide for the following subordination provisions
applicable to the Equipment Notes:
- Series G Equipment Notes issued in respect of an Aircraft rank senior in
right of payment to the Series C and Series D Equipment Notes issued in
respect of such Aircraft;
81
- Series C Equipment Notes issued in respect of an Aircraft rank junior in
right of payment to the Series G Equipment Notes issued in respect of
such Aircraft and rank senior in right of payment to the Series D
Equipment Notes issued in respect of such Aircraft; and
- Series D Equipment Notes issued in respect of an Aircraft rank junior in
right of payment to the Series G and Series C Equipment Notes issued in
respect of such Aircraft.
By virtue of the Intercreditor Agreement, all of the Equipment Notes are
effectively cross-subordinated. This means that payments received on a junior
series of Equipment Notes issued in respect of one Aircraft may be applied in
accordance with the priority of payment provisions set forth in the
Intercreditor Agreement to make distributions on a more senior Class of
Certificates.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, scheduled
installments of interest paid on the Equipment Notes held in each Trust will be
passed through to the Certificateholders of such Trust on the dates of such
payment and at the rate per annum applicable to the Certificates issued by such
Trust until the final expected Regular Distribution Date for such Trust. Subject
to the provisions of the Intercreditor Agreement, principal paid on the
Equipment Notes held in each Trust will be passed through to the
Certificateholders of such Trust in scheduled amounts on the dates set forth
herein until the final expected Regular Distribution Date for such Trust.
Interest will be payable on the unpaid principal amount of each Equipment
Note at the rate applicable to such Equipment Note on January 25, April 25, July
25 and October 25 of each year, commencing on April 25, 2003. Interest will be
computed on the actual number of days elapsed over a 360-day year. Overdue
amounts of principal, Break Amount (if any), Make-Whole Amount (if any) and
interest on each series of Equipment Notes will, to the extent permitted by
applicable law, bear interest at the interest rate applicable to such series of
Equipment Notes, which interest rate equals the rate per annum applicable to the
Certificates issued by the Trust that hold such series of Equipment Notes plus
1.00%.
The principal payments of the Series G Equipment Notes are scheduled to be
made on January 25, April 25, July 25 and October 25 in certain years,
commencing on April 25, 2003 and ending on January 25, 2008. The entire
principal of the Series C Equipment Notes will be payable on January 25, 2008.
The principal payments of the Series D Equipment Notes are scheduled to be made
on January 25, April 25, July 25 and October 25 in certain years, commencing on
April 25, 2003 and ending on January 25, 2008. See "Description of the
Certificates -Pool Factors" for a discussion of the scheduled payments of
principal of the Equipment Notes and Appendix III for the schedule of payments
of principal of each Equipment Note issued with respect to each Aircraft.
If any due date for a payment of principal, Break Amount (if any),
Make-Whole Amount (if any) or interest with respect to the Equipment Notes is
not a Business Day, such payment will be due on the next succeeding Business Day
and interest will be added for the additional period.
DETERMINATION OF LIBOR
For the purpose of calculating LIBOR for the periods from and including an
Equipment Note payment date to and including the date preceding the next
succeeding Equipment Note payment date (each, an "Interest Period"), Delta
entered into a Reference Agency Agreement (the "Reference Agency Agreement")
with U.S. Bank Trust National Association, as reference agent (the "Reference
Agent"), the Subordination Agent and the Loan Trustee. The Reference Agent will
determine LIBOR for each Interest Period, on a date (the "Reference Date") that
is two London Banking Days before the date on which such Interest Period
commences.
On each Reference Date, the Reference Agent will determine LIBOR ("LIBOR")
as the rate for deposits in U.S. dollars for a period of three months that
appears on the display designated as page "3750"
82
on the Telerate Monitor (or such other page or service as may replace it) as of
11:00 a.m. (London time) on such date.
If the rate determined as described in the foregoing paragraph does not
appear on the Telerate Page 3750, the Reference Agent will determine LIBOR on
the basis of the rates at which deposits in U.S. Dollars are offered by certain
reference banks as described in the Reference Agency Agreement at approximately
11:00 a.m., London time, on the Reference Date for such Interest Period to prime
banks in the London interbank market for a period of three months commencing on
the first day of such Interest Period and in an amount that is representative
for a single transaction in the London interbank market at the relevant time.
The Reference Agent will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that Interest Period will be the
arithmetic mean of the quotations. If fewer than two quotations are provided,
the interest rate for the next Interest Period shall be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the Reference
Agent in good faith and in a commercially reasonable manner, at approximately
11:00 a.m., New York City time, on the first day of such Interest Period for
loans in U.S. Dollars to leading European banks for a period of three months
commencing on the first day of such Interest Period and in an amount that is
representative for a single transaction in the New York market at the relevant
time, except that, if the banks so selected by the Reference Agent are not
quoting as mentioned above, LIBOR for such Interest Period shall be LIBOR as in
effect for the last preceding Interest Period.
The Reference Agent's determination of LIBOR (in the absence of negligence,
willful default, bad faith or manifest error) will be conclusive and binding
upon all parties.
As promptly as is practicable after the determination thereof, the
Reference Agent will give notice of its determination of LIBOR for the relevant
Interest Period to Delta, the Trustees, the Loan Trustees, the Subordination
Agent, the Initial Purchasers, the Policy Provider and the Liquidity Providers.
Delta reserves the right to terminate the appointment of the Reference
Agent at any time on 30 days' notice and to appoint a replacement reference
agent in its place. Notice of any such termination will be given to the
Trustees, the Loan Trustees and the Subordination Agent. The Reference Agent may
not be removed or resign its duties without a successor having been appointed.
REDEMPTION
If an Event of Loss occurs with respect to an Aircraft and such Aircraft is
not replaced by Delta under the related Indenture, the Equipment Notes issued
with respect to such Aircraft will be redeemed, in whole, at a price equal to
the aggregate unpaid principal amount thereof, together with accrued and unpaid
interest thereon to (but excluding) the date of redemption, Break Amount (if
any) but without any Make-Whole Amount, on a Special Distribution Date. If the
Equipment Notes redeemed pursuant to the preceding sentence relate to a Core
Aircraft, a portion of the Series G Equipment Notes issued under each Indenture
relating to the remaining Core Aircraft will also be redeemed at a price equal
to the principal amount of such portion, together with accrued and unpaid
interest thereon to (but excluding) the date of redemption, Break Amount (if
any) but without any Make-Whole Amount, on a Special Distribution Date. The
portion of the Series G Equipment Notes issued under each Indenture relating to
the remaining Core Aircraft to be redeemed will be the lesser of (x) a pro rata
share, based on the amount of Series G Equipment Notes outstanding under each
Indenture relating to a Core Aircraft (other than the Core Aircraft which
suffered the Event of Loss), of the "Excess Amount" set forth in the table below
for the Core Aircraft which suffered the Event of Loss, opposite the date in
such table immediately preceding or concurrent with the date of such redemption
and (y) the outstanding principal amount of Series G Equipment Notes under such
Indenture.
83
EXCESS AMOUNT BY CORE AIRCRAFT
---------------------------------------------------------------------------
DATE N3760C N3761R N193DN N194DN N1611B N178DZ
---- ---------- ---------- ---------- ---------- ---------- ----------
January 30, 2003..... $4,968,931 $4,968,931 $6,816,224 $6,903,701 $8,851,148 $8,851,148
April 25, 2003....... 4,968,931 4,968,931 6,816,224 6,903,701 8,602,983 8,602,983
July 25, 2003........ 4,968,931 4,968,931 6,628,417 6,903,701 8,210,513 8,210,513
October 25, 2003..... 4,968,931 4,968,931 6,327,141 6,354,816 8,210,513 8,210,513
January 25, 2004..... 4,719,830 4,719,830 6,327,141 6,354,816 8,210,513 8,210,513
April 25, 2004....... 4,719,830 4,719,830 6,327,141 6,354,816 7,937,365 7,937,365
July 25, 2004........ 4,719,830 4,719,830 6,092,916 6,354,816 7,772,162 7,772,162
October 25, 2004..... 4,719,830 4,719,830 5,802,662 5,828,070 7,772,162 7,772,162
January 25, 2005..... 4,296,408 4,296,408 5,802,662 5,828,070 7,772,162 7,772,162
April 25, 2005....... 4,296,408 4,296,408 5,802,662 5,828,070 7,504,646 7,504,646
July 25, 2005........ 4,296,408 4,296,408 5,579,460 5,828,070 7,025,932 7,025,932
October 25, 2005..... 4,296,408 4,296,408 5,300,228 5,323,464 7,025,932 7,025,932
January 25, 2006..... 4,065,135 4,065,135 5,300,228 5,323,464 7,025,932 7,025,932
April 25, 2006....... 4,065,135 4,065,135 5,300,228 5,323,464 6,775,311 6,775,311
July 25, 2006........ 4,065,135 4,065,135 5,088,049 5,323,464 6,467,433 6,467,433
October 25, 2006..... 4,065,135 4,065,135 4,819,839 4,840,998 6,467,433 6,467,433
January 25, 2007..... 3,671,427 3,671,427 4,819,839 4,840,998 6,467,433 6,467,433
April 25, 2007....... 3,671,427 3,671,427 4,819,839 4,840,998 6,228,076 6,228,076
July 25, 2007........ 3,671,427 3,671,427 4,618,682 4,840,998 5,931,462 5,931,462
October 25, 2007..... 3,671,427 3,671,427 4,361,494 4,380,672 5,931,462 5,931,462
January 25, 2008..... 0 0 0 0 0 0
So long as there is no payment default under any other Indenture, all of
the Equipment Notes issued with respect to a Non-Core Aircraft may be redeemed
in whole prior to maturity at any time at the option of Delta, at a price equal
to the aggregate unpaid principal amount thereof, together with accrued and
unpaid interest thereon to (but excluding) the date of redemption, Break Amount
(if any) plus the Make-Whole Amount for the applicable series of Equipment
Notes. Equipment Notes issued with respect to any Core Aircraft may not be
optionally redeemed by Delta at any time prior to maturity. (Indentures, Section
2.11) Notice of optional redemption of Equipment Notes issued with respect to a
Non-Core Aircraft and notice of mandatory redemption of Equipment Notes in
connection with an Event of Loss to any Aircraft will be given to each holder of
such Equipment Notes not less than 15 nor more than 60 days prior to the
applicable redemption date. A notice of optional redemption may be revoked not
later than three days before the proposed redemption date. (Indentures, Sections
2.11 and 2.12)
"Break Amount" means, as of any date of payment, redemption or acceleration
of any Equipment Note (the "Applicable Date"), an amount determined by the
Reference Agent on the date that is two Business Days prior to the Applicable
Date pursuant to the formula set forth below; provided, however, that no Break
Amount will be payable (x) if the Break Amount, as calculated pursuant to the
formula set forth below, is equal to or less than zero or (y) on or in respect
of any Applicable Date that is a payment date,
Break Amount = Z -- Y
Where:
X = with respect to any applicable Interest Period, the sum of (i) the
amount of the outstanding principal amount of such Equipment Note as of the
first day of the then applicable Interest Period plus (ii) interest payable
thereon during such entire Interest Period at then effective LIBOR,
84
Y = X, discounted to present value from the last day of the then applicable
Interest Period to the Applicable Date, using then effective LIBOR as the
discount rate,
Z = X, discounted to present value from the last day of the then applicable
Interest Period to the Applicable Date, using a rate equal to the
applicable London interbank offered rate for a period commencing on the
Applicable Date and ending on the last day of the then applicable Interest
Period, determined by the Reference Agent as of two Business Days prior to
the Applicable Date as the discount rate.
"Core Aircraft" means the Aircraft with the following registration numbers
(and any aircraft substituted therefor): N3760C, N3761R, N193DN, N194DN, N1611B
and N178DZ.
"Final Payment Date" means January 25, 2008 (or if such date is not a
Business Day, the next succeeding Business Day).
The "Make-Whole Amount" with respect to the Series G Equipment Notes to be
redeemed on any redemption date will be an amount equal to the following
percentage of the principal amount of the Series G Equipment Notes redeemed:
IF REDEEMED DURING THE YEAR PRIOR TO THE ANNIVERSARY OF THE
CLOSING DATE INDICATED BELOW: PERCENTAGE:
----------------------------------------------------------- -----------
1st......................................................... 1.50%
2nd......................................................... 1.00%
3rd......................................................... 0.50%
4th and thereafter.......................................... 0.00%
There is no Make-Whole Amount with respect to the Class C or Class D Equipment
Notes. (Indentures, Schedule I).
"Non-Core Aircraft" means the Aircraft with the following registration
numbers (and any aircraft substituted therefor): N195DN, N196DN, N197DN, N198DN,
N1612T and N1613B.
Upon the occurrence of an Event of Default under an Indenture, any excess
proceeds realized from the sale of the Aircraft or the exercise of other
remedies under such Indenture will be applied to redeem the Equipment Notes
under other Indentures in accordance with the third paragraph under "--
Security".
SECURITY
The Equipment Notes issued with respect to each Aircraft are secured by a
security interest in the Aircraft, certain limited rights under the aircraft
purchase agreement between Delta and Boeing, certain requisition and insurance
proceeds with respect to such Aircraft and all proceeds of the foregoing.
(Indentures, Granting Clause).
The Equipment Notes are cross-collateralized to the extent provided in the
Indentures, as summarized below.
The proceeds realized from the sale of an Aircraft or the exercise of other
remedies by the Loan Trustee under an Indenture will be allocated, after paying
certain administrative expenses or other related amounts, in the following
order:
- to pay all amounts due and payable on all of the Equipment Notes issued
under such Indenture, in accordance with the priorities set forth
therein;
- to pay to the Loan Trustee under the other Indentures relating to the
Core Aircraft an amount up to the outstanding principal of, and unpaid
interest accrued on, the Series G Equipment Notes issued thereunder on a
pro rata basis;
85
- to pay to the Loan Trustee under the other Indentures relating to the
Non-Core Aircraft an amount up to the outstanding principal of, and
unpaid interest accrued on, the Series G Equipment Notes issued
thereunder on a pro rata basis;
- to pay to the Loan Trustee under the other Indentures an amount up to the
outstanding principal of, and unpaid interest accrued on, the Series C
Equipment Notes issued thereunder on a pro rata basis; and
- to pay to the Loan Trustee under the other Indentures an amount up to the
outstanding principal of, and unpaid interest accrued on, the Series D
Equipment Notes issued thereunder on a pro rata basis.
In addition, if all amounts owing under any Equipment Note are not paid in
full on the Final Payment Date, the Loan Trustees will be able to exercise
remedies under all remaining Indentures, including the sale of all Aircraft, to
satisfy the remaining amounts due under any Equipment Note. Such payment default
at the Final Payment Date is the only cross-collateralization provision under
the Indenture. Therefore, until the Final Payment Date, if the Equipment Notes
issued under one or more Indentures are in default and the Equipment Notes
issued under the remaining Indentures are not in default, no remedies will be
exercisable under such remaining Indentures.
If, at any time before the Final Payment Date, the Equipment Notes issued
under an Indenture are repaid in full (other than as a result of the exercise of
remedies thereunder), the lien under such Indenture will be released and will
not thereafter secure any other Equipment Notes.
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The tables in Appendix IV set forth Loan to Aircraft value ratios for the
Equipment Notes issued in respect of each Aircraft as of the Issuance Date and
each January 25 Regular Distribution Date. The LTVs were obtained by dividing
(i) the outstanding principal amount (assuming no payment default or early
redemption) of such Equipment Notes determined immediately after giving effect
to the payments scheduled to be made on each such Regular Distribution Date by
(ii) assumed aircraft value (the "Assumed Aircraft Value"), calculated based on
the Depreciation Assumption, of the Aircraft securing such Equipment Notes.
The tables in Appendix IV are based on the assumption (the "Depreciation
Assumption") that the Assumed Aircraft Value of each Aircraft depreciates
annually by approximately 3% of the appraised base value at delivery. The
appraised base value at delivery of an Aircraft is the theoretical value that
when depreciated at 3% per year from the initial delivery of such Aircraft by
the manufacturer, results in the appraised base value of such Aircraft specified
under "Summary -- Equipment Notes and the Aircraft."
Other rates or methods of depreciation would result in materially different
LTVs, and no assurance can be given (i) that the depreciation rate and method
assumed for the purposes of the tables are the ones most likely to occur or (ii)
as to the actual future value of any Aircraft. Thus the tables should not be
considered a forecast or prediction of expected or likely LTVs, but simply a
mathematical calculation based on one set of assumptions.
LIMITATION OF LIABILITY
Except as otherwise provided in the Indentures, no Loan Trustee, in its
individual capacity, is answerable or accountable under the Indentures or the
Equipment Notes under any circumstances except, among other things, for its own
willful misconduct or negligence.
INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
"Indenture Events of Default" under each Indenture will include:
- the failure by Delta to pay any interest, principal, Break Amount, (if
any) or Make-Whole Amount (if any) within 15 days after the same has
become due on any Equipment Note;
86
- the failure by Delta to pay any amount (other than interest, principal,
Break Amount (if any) or Make-Whole Amount (if any)) when due under the
Indenture, any Equipment Note or any other operative documents for more
than 30 days after Delta receives written notice;
- the failure by Delta to carry and maintain insurance or indemnity on or
with respect to the Aircraft in accordance with the provisions of such
Indenture; provided that no such failure to carry and maintain insurance
will constitute an Indenture Event of Default until the earlier of (i)
the date such failure has continued unremedied for a period of 30 days
after the Loan Trustee receives notice of the cancellation or lapse of
such insurance or (ii) the date such insurance is not in effect as to the
Loan Trustee;
- the failure by Delta to perform or observe any other covenant or
condition to be performed or observed by it under any operative document
that continues for a period of 60 days after Delta receives written
notice; provided that if such failure is capable of being remedied, no
such failure will constitute an Indenture Event of Default for a period
of one year after such notice is received by Delta so long as Delta is
diligently proceeding to remedy such failure;
- any representation or warranty made by Delta in the related operative
documents proves to have been incorrect in any material respect when
made, and such incorrectness continues to be material to the transactions
contemplated by the Indenture and remains unremedied for a period of 60
days after Delta receives written notice; provided that, if such
incorrectness is capable of being remedied, no such incorrectness will
constitute an Indenture Event of Default for a period of one year after
such notice is received by Delta so long as Delta is diligently
proceeding to remedy such incorrectness;
- the occurrence of certain events of bankruptcy, reorganization or
insolvency of Delta; or
- if any amounts in respect of the Equipment Notes issued under such
Indenture or Equipment Notes issued under the other Indentures, including
any payment of interest, principal, Break Amount, (if any) or Make-Whole
Amount (if any) on any such Equipment Note has not be paid in full on the
Final Payment Date. (Indentures, Section 4.01).
The only cross-default provision in the Indentures is an event of default
under each Indenture which occurs if all amounts owing under any Equipment Note
are not paid in full on the Final Payment Date. Consequently, until the Final
Payment Date, events resulting in an Indenture Event of Default under any
particular Indenture may or may not result in an Indenture Event of Default
occurring under any other Indenture. Until the Final Payment Date, if the
Equipment Notes issued with respect to one or more Aircraft are in default and
the Equipment Notes issued with respect to the remaining Aircraft are not in
default, no remedies will be exercisable under the Indentures with respect to
such remaining Aircraft.
Each Indenture provides that the holders of a majority in aggregate unpaid
principal amount of the Equipment Notes outstanding under such Indenture, by
written instruction to the Loan Trustee, may on behalf of all the Noteholders
waive any existing default and its consequences under such Indenture, except a
default in the payment of the principal of, Make-Whole Amount (if any), Break
Amount (if any) or interest due under any such Equipment Notes or a default in
respect of any covenant or provision of such Indenture that cannot be modified
or amended without the consent of each Noteholder. (Indentures, Section 4.05)
This provision is subject to the terms of the Intercreditor Agreement.
REMEDIES
The exercise of remedies under the Indentures will be subject to the terms
of the Intercreditor Agreement, and the following description should be read in
conjunction with the description of the Intercreditor Agreement.
If an Indenture Event of Default occurs and is continuing under an
Indenture, the related Loan Trustee may, and upon receipt of written
instructions of the holders of a majority in principal amount of the Equipment
Notes then outstanding under such Indenture will, declare the principal of all
such
87
Equipment Notes issued thereunder immediately due and payable, together with all
accrued but unpaid interest thereon (but without any Make-Whole Amount). The
holders of a majority in principal amount of Equipment Notes outstanding under
an Indenture may rescind any declaration of acceleration of such Equipment Notes
if (i) there has been paid to the related Loan Trustee an amount sufficient to
pay all overdue installments of principal and interest on any such Equipment
Notes, and all other amounts owing under the operative documents, that have
become due otherwise than by such declaration of acceleration and (ii) all other
Indenture Events of Default, other than nonpayment of principal amount or
interest on the Equipment Notes that have become due solely because of such
acceleration, have been cured or waived; provided, that no such rescission or
annulment shall extend to or affect any subsequent default or Event of Default
or impair any right consequent thereon. (Indentures, Section 4.02(d)).
Each Indenture provides that if an Indenture Event of Default under such
Indenture has occurred and is continuing, the related Loan Trustee may exercise
certain rights or remedies available to it under such Indenture or under
applicable law. Such remedies include the right to take possession of the
Aircraft and to sell all or any part of the airframe or any engine comprising
the Aircraft subject to such Indenture. (Indentures, Section 4.02(a))
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
Section 1110 of the Bankruptcy Code ("Section 1110") provides that, subject
to the limitations specified therein, the right of a secured party with a
security interest in "equipment" (as defined in Section 1110) to take possession
of such equipment in compliance with the provisions of a security agreement and
to enforce any of its rights or remedies thereunder is not affected after 60
days after the date of the order for relief in a case under Chapter 11 of the
Bankruptcy Code by any provision of the Bankruptcy Code. Section 1110 provides
that the right to take possession of an aircraft and enforce other remedies may
not be exercised for 60 days following the date of the order for relief in
reorganization proceedings and may not be exercised at all after such 60-day
period (or such longer period consented to by the holder of a security interest
and approved by the court), if the trustee in reorganization agrees, subject to
the approval of the court, to perform the debtor's obligations under the
security agreement and cures all defaults (other than defaults resulting solely
from the financial condition, bankruptcy, insolvency or reorganization of the
debtor, the appointment of a trustee or custodian or the failure to satisfy any
penalty rate or provision relating to a default arising from any failure by the
debtor to perform non-monetary obligations under the applicable agreement).
"Equipment" is defined in Section 1110, in part, as "an aircraft, aircraft
engine, propeller, appliance, or spare part (as defined in section 40102 of
title 49 of the United States Code) that is subject to a security interest
granted by, leased to, or conditionally sold to a debtor that, at the time such
transaction is entered into, holds an air carrier operating certificate issued
pursuant to chapter 447 of title 49 of the United States Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo."
It was a condition to the Trustee's obligations to purchase Equipment Notes
with respect to each Aircraft that Cadwalader, Wickersham & Taft LLP, special
counsel to Delta, provide an opinion to the Trustees that, if Delta were to
become a debtor under Chapter 11 of the Bankruptcy Code, the Loan Trustee would
be entitled to the benefits of Section 1110 with respect to the airframe and
engines comprising the Aircraft originally subjected to the lien of the relevant
Indenture. This opinion was subject to certain qualifications and assumptions.
The opinion of Cadwalader, Wickersham & Taft LLP did not address the
possible replacement of an Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the related Loan Trustee will be entitled
to Section 1110 benefits with respect to the replacement airframe unless there
is a change in law or court interpretation that results in Section 1110 not
being available. See "-- Certain Provisions of the Indentures -- Events of
Loss." The opinion of Cadwalader, Wickersham & Taft LLP also did not address
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the availability of Section 1110 with respect to the bankruptcy proceedings of
any possible lessee of an Aircraft if it is leased by Delta.
In certain circumstances following the bankruptcy or insolvency of Delta
where the obligations of Delta under any Indenture exceed the value of the
Aircraft collateral under such Indenture, post-petition interest will not accrue
on the related Equipment Notes. In addition, to the extent that distributions
are made to any Certificateholders, whether under the Intercreditor Agreement or
from drawings on the Liquidity Facilities, in respect of amounts that would have
been funded by post-petition interest payments on such Equipment Notes had such
payments been made, there would be a shortfall between the claim allowable
against Delta on such Equipment Notes after the disposition of the Aircraft
collateral securing such Equipment Notes and the remaining balance of the
Certificates. Such shortfall would first reduce some or all of the remaining
claim against Delta available to the Trustees for the most junior Classes.
If an Indenture Event of Default under any Indenture occurs and is
continuing, any sums held or received by the related Loan Trustee may be applied
to reimburse such Loan Trustee for any tax, expense or other loss incurred by it
and to pay any other amounts due to such Loan Trustee prior to any payments to
holders of the Equipment Notes issued under such Indenture. (Indentures, Section
3.03)
MODIFICATION OF INDENTURES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the Participation Agreement may not be amended or modified, except
to the extent indicated below.
In addition, any Indenture may be amended without the consent of the
Noteholders to, among other things, (i) cure any defect or inconsistency in such
Indenture or the Equipment Notes issued thereunder (provided that such change
does not adversely affect the interests of any Noteholder in its capacity solely
as Noteholder); (ii) make any other provisions or amendments with respect to
matters or questions arising under such Indenture or such Equipment Notes or to
amend, modify or supplement any provision thereof, provided that such action
does not adversely affect the interests of any such holder, the Policy Provider
or the Liquidity Providers; (iii) cure any ambiguity or correct any mistake; or
(iv) provide for compliance with applicable law. (Indentures, Section 9.01)
Each Indenture provides that without the consent of the holder of each
Equipment Note outstanding under such Indenture affected thereby and the Policy
Provider, no amendment or modification of such Indenture may, among other
things, (i) reduce the principal amount of, Break Amount (if any), Make-Whole
Amount (if any) or interest payable on, any Equipment Notes issued under such
Indenture, (ii) change the date on which any principal amount of, Break Amount
(if any), Make-Whole Amount (if any) or interest on any Equipment Note, is due
or payable; (iii) create any lien with respect to the Collateral (as defined in
such Indenture) prior to or pari passu with the lien of such Indenture, except
as provided in such Indenture, or deprive any holder of an Equipment Note issued
under such Indenture of the benefit of the lien of such Indenture upon the
Collateral or Indenture Estate or (iv) reduce the percentage in principal amount
of outstanding Equipment Notes issued under such Indenture required to take or
approve any action under such Indenture. (Indentures, Section 9.02(a))
INDEMNIFICATION
Delta is required to indemnify each Loan Trustee, the Liquidity Providers,
the Policy Provider, the Subordination Agent, and each Trustee, but not the
holders of Certificates, for certain losses, claims and other matters.
(Participation Agreements, Section 4.02) The Loan Trustee is not indemnified,
however, for actions arising from its negligence or willful misconduct, or for
the inaccuracy of any representation or warranty made in its individual capacity
under the Indenture.
The Loan Trustee will not be required to take any action or refrain from
taking any action (other than notifying the Noteholders if it knows of an Event
of Default or of a default arising from Delta's failure to pay overdue
principal, interest or Break Amount (if any) or Make-Whole Amount (if any)
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under any Equipment Note) unless it has received indemnification satisfactory to
it against any risks incurred in connection therewith. (Indentures, Section
5.03)
CERTAIN PROVISIONS OF THE INDENTURES
MAINTENANCE AND OPERATION
Under the terms of each Indenture, Delta is obligated, among other things
and at its expense, to keep each Aircraft duly registered, and to maintain,
service and repair the Aircraft (or to cause the same to be done) (i) so as to
keep it in such condition as necessary to maintain the airworthiness certificate
for the Aircraft in good standing at all times (other than during temporary
periods of storage, maintenance, testing or modification or during periods of
grounding by applicable governmental authorities) and (ii) using the same
standards as Delta (or a lessee, if a lease is in effect) uses with respect to
similar aircraft operated by Delta (or such lessee) in similar circumstances.
(Indentures, Section 7.02(c) and (e))
Delta has agreed not to maintain, use or operate any Aircraft in violation
of any law, rule or regulation of any government having jurisdiction over such
Aircraft, or in violation of any airworthiness certificate, license or
registration relating to such Aircraft, except to the extent Delta (or any
lessee) is contesting in good faith the validity or application of any such law,
rule or regulation in any manner that does not involve any material risk of
sale, forfeiture or loss of the Aircraft or impair the lien of the related
Indenture. (Indentures, Section 7.02(b))
Delta must make (or cause to be made) all alterations, modifications and
additions to each Airframe and Engine necessary to meet the applicable
requirements of the Federal Aviation Administration (the "FAA") or any other
applicable governmental authority of another jurisdiction in which the Aircraft
may then be registered; provided, however, that Delta (or any lessee) may in
good faith contest the validity or application of any such requirement in any
manner that does not involve a material risk of sale, forfeiture or loss of the
Aircraft and does not adversely affect the Loan Trustee's interest in the
Collateral under (and as defined in) the related Indenture. Delta (or any
lessee) may add further parts and make other alterations, modifications and
additions to any Airframe or any Engine as Delta (or any lessee) deems desirable
in the proper conduct of its business, including removal (without replacement)
of parts, so long as such alterations, modifications, additions or removals do
not materially diminish the value or utility of such Airframe or Engine below
its value or utility immediately prior to such alteration, modification,
addition or removal (assuming such Airframe or Engine was maintained in
accordance with the related Indenture), except that the value (but not the
utility) of any Airframe or Engine may be reduced from time to time by the value
of any such parts which have been removed that Delta deems obsolete or no longer
suitable or appropriate for use on such Airframe or Engine. All parts (with
certain exceptions) incorporated or installed in or added to such Airframe or
Engine as a result of such alterations, modifications or additions will be
subject to the lien of the related Indenture. Delta (or any lessee) is permitted
to remove (without replacement) parts which were added by Delta (or any lessee)
that are in addition to, and not in replacement of or substitution for, any part
originally incorporated or installed in or attached to an Airframe or Engine at
the time of delivery thereof to Delta, not required to be incorporated or
installed in or attached to any Airframe or Engine pursuant to applicable
requirements of the FAA or other jurisdiction in which the Aircraft may then be
registered, and can be removed without materially diminishing the requisite
value or utility of the Aircraft. (Indentures, Section 7.04 (c))
Except as set forth above, Delta is obligated to replace or cause to be
replaced all parts that are incorporated or installed in or attached to any
Airframe or any Engine and become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use. Any
such replacement parts will become subject the related Indenture in lieu of the
part replaced. (Indentures, Section 7.04 (a))
REGISTRATION, LEASING AND POSSESSION
Although Delta has no current intention to do so, Delta is permitted to
register an Aircraft in certain jurisdictions outside the United States, subject
to certain conditions specified in the related Indenture.
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These conditions include a requirement that the laws of the new jurisdiction of
registration will give effect to the lien of and the security interest created
by the related Indenture in the applicable Aircraft. (Indentures, Section 7.02
(e)) Delta also is permitted, subject to certain limitations, to lease any
Aircraft to any United States certificated air carrier or to certain foreign air
carriers. In addition, subject to certain limitations, Delta is permitted to
transfer possession of any Airframe or any Engine other than by lease, including
transfers of possession by Delta or any lessee in connection with certain
interchange and pooling arrangements, transfers to the government of Canada,
France, Germany, Japan, The Netherlands, Sweden, Switzerland, the United Kingdom
or the United States or any instrumentality or agency thereof, and transfers in
connection with maintenance or modifications. There are no general geographical
restrictions on Delta's (or any lessee's) ability to operate the Aircraft. The
extent to which the relevant Loan Trustee's lien would be recognized in an
Aircraft if such Aircraft were located in certain countries is uncertain. In
addition, any exercise of the right to repossess an Aircraft may be difficult,
expensive and time-consuming, particularly when such Aircraft is located outside
the United States or has been registered in a foreign jurisdiction or leased to
a foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft, which may be subject to delays and
political risk. When a defaulting lessee or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply. (Indentures, Section 7.02(b)).
See "Risk Factors -- Risks Factors Relating to the Certificates and the Exchange
Offer -- Repossession."
In addition, at the time of foreclosing on the lien on the Aircraft under
the related Indenture, an Airframe subject to such Indenture, might not be
equipped with Engines subject to the same Indenture. If Delta fails to transfer
title to engines not owned by Delta that are attached to repossessed Aircraft,
it could be difficult, expensive and time-consuming to assemble an Aircraft
consisting of an Airframe and Engines subject to the Indenture.
LIENS
Delta is required to maintain each Aircraft free of any liens, other than
the lien of the Indenture and the rights of others under agreements or
arrangements permitted by the terms of the related Indenture, and liens
attributable to other parties to the operative documents and pass through
documents related thereto and other than certain other specified liens,
including but not limited to (i) liens for taxes either not yet due or being
contested in good faith by appropriate proceedings so long as such proceedings
do not involve any material risk of the sale, forfeiture or loss of the Airframe
or any Engine or the Loan Trustee's interest therein or impair the lien of the
related Indenture; (ii) materialmen's, mechanics' and other similar liens
arising in the ordinary course of business and securing obligations that either
are not yet overdue for more than 60 days or are being contested in good faith
by appropriate proceedings so long as such proceedings do not involve any
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
the Loan Trustee's interest therein or impair the lien of the related Indenture;
(iii) judgment liens so long as such judgment is discharged or vacated within 60
days or the execution of such judgment is stayed pending appeal or such judgment
is discharged, vacated or reversed within 60 days after expiration of such stay;
(iv) salvage or similar rights of insurers under insurance policies maintained
by Delta; (v) any other lien as to which Delta has provided a bond or other
security adequate in the reasonable opinion of the relevant Loan Trustee and
(vi) any lien approved in writing by the Loan Trustee. (Indentures, Section
7.01)
INSURANCE
Subject to certain exceptions, Delta is required to maintain or cause to be
maintained, at its or any lessee's expense, all-risk aircraft hull insurance
covering each Aircraft, at all times in an amount not less than 110% of the
aggregate outstanding principal amount of the Equipment Notes relating to such
Aircraft. However, after giving effect to self-insurance permitted as described
below, the amount payable under such insurance may be less than such amounts
payable with respect to the Equipment Notes. If an Aircraft suffers an Event of
Loss, insurance proceeds up to an amount equal to the outstanding principal
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amount of the Equipment Notes, together with accrued but unpaid interest
thereon, plus an amount equal to the interest that will accrue on the
outstanding principal amount of the Equipment Notes during the period commencing
on the date following the date of payment of such insurance proceeds to the Loan
Trustee and ending on the loss payment date (the sum of those amounts being, the
"Loan Amount") will be paid to the applicable Loan Trustee. If an Aircraft or
Engine suffers loss or damage not constituting an Event of Loss but involving
insurance proceeds in excess of $8,000,000 (in the case of a Boeing 737-832) or
$15,000,000 (in the case of a Boeing 767-332ER), proceeds in excess of such
specified amounts up to the Loan Amount will be payable to the applicable Loan
Trustee and the proceeds up to such specified amounts and proceeds in excess of
the Loan Amount will be payable directly to Delta so long as an Indenture Event
of Default does not exist. So long as the loss does not constitute an Event of
Loss, insurance proceeds will be applied to repair or replace the equipment.
(Indentures, Section 7.06)
In addition, Delta is obligated to maintain or cause to be maintained
aircraft liability insurance at its or any lessee's expense, including, without
limitation, bodily injury, personal injury and property damage liability
insurance (exclusive of manufacturer's product liability insurance) and
contractual liability insurance with respect to each Aircraft. Such liability
insurance must be underwritten by insurers of recognized responsibility. The
amount of such liability insurance coverage may not be less than the amount of
aircraft liability insurance from time to time applicable to similar aircraft in
Delta's fleet on which Delta carries insurance. (Indentures, Section 7.06)
Delta also is required to maintain or cause to be maintained war-risk
insurance with respect to each Aircraft if and to the extent such insurance is
maintained by Delta (or any lessee) with respect to other similar aircraft
operated by Delta (or such lessee) on the same routes on which the Aircraft is
operated. (Indentures, Section 7.06)
Delta may self-insure under a program applicable to all aircraft in its
fleet, but the amount of such self-insurance in the aggregate may not exceed for
any 12-month policy year 1% of the average aggregate insurable value (during the
preceding policy year) of all aircraft on which Delta carries insurance, unless
an insurance broker of national standing certifies that the standard among other
major U.S. airlines is a higher level of self-insurance, in which case Delta may
self-insure the Aircraft to such higher level. In addition, Delta may
self-insure to the extent of (i) any applicable deductible per Aircraft that is
not in excess of the amount customarily allowed as a deductible in the industry
or is required to facilitate claims handling, or (ii) any applicable mandatory
minimum per aircraft (or, if applicable, per annum or other period) liability
insurance or hull insurance deductibles imposed by the aircraft liability or
hull insurers. (Indentures, Section 7.06)
In respect of each Aircraft, Delta is required to name the relevant Loan
Trustee, the Subordination Agent, each Trustee, the Policy Provider and the
Liquidity Providers as additional insured parties as their respective interests
may appear under all liability insurance policies required by the terms of the
Indenture with respect to such Aircraft. In addition, the hull and liability
insurance policies will be required to provide that, in respect of the interests
of such additional insured party, the insurance shall not be invalidated by any
act or omission of Delta. (Indentures, Section 7.02(b))
Subject to certain customary exceptions, Delta may not operate (or permit
any lessee to operate) any Aircraft in any area that is excluded from coverage
by any insurance policy in effect with respect to such Aircraft and required by
the Indenture. (Indentures, 7.06)
EVENTS OF LOSS
If an Event of Loss occurs with respect to the Airframe or the Airframe and
one or more Engines of an Aircraft, Delta must elect within 90 days after such
occurrence (i) to replace such Airframe and any such Engines or (ii) to pay the
applicable Loan Trustee the outstanding principal amount of the Equipment Notes
relating to such Aircraft together with interest accrued thereon. Depending upon
Delta's election, not later than the first Business Day after the 120th day
following the date of occurrence of such Event of Loss, Delta will (i) redeem
the Equipment Notes under the applicable Indenture by paying to the Loan Trustee
the outstanding unpaid principal amount of such Equipment Notes, together with
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accrued interest thereon, but without any Make-Whole Amount and if such Aircraft
which suffered such Event of Loss is a Core Aircraft, pursuant to the other
Indentures relating to the other Core Aircraft, redeem a portion (as specified
in the Indentures relating to the other Core Aircraft) of the Series G Equipment
Notes relating to such other Core Aircraft or (ii) substitute an airframe (or
airframe and one or more engines, as the case may be) for the Airframe, or
Airframe and Engine(s), that suffered such Event of Loss. If Delta elects to
replace an Airframe (or Airframe and one or more Engines, as the case may be)
that suffered such Event of Loss, it will do so with an airframe or airframe and
engines of the same model as the Airframe or Airframe and Engines to be replaced
or a comparable or improved model, which airframe has been delivered from the
manufacturer no earlier than one year prior to the date that the Airframe being
replaced was delivered from the manufacturer, and with a value and utility
(without regard to hours or cycles) at least equal to the Airframe or Airframe
and Engines to be replaced, assuming that such Airframe and such Engines were in
the condition and repair required by the related Indenture. Delta is also
required to provide to the relevant Loan Trustee opinions of counsel (i) to the
effect that such Loan Trustee will be entitled to the benefits of Section 1110
with respect to the replacement airframe (unless, as a result of a change in law
or governmental or judicial interpretation, such benefits were not available
with respect to the Aircraft immediately prior to such replacement), and (ii) as
to the due registration of the replacement aircraft and the due recordation of a
supplement to the Indenture relating to such replacement aircraft and the
validity and perfection of the security interest granted to the Loan Trustee in
the replacement aircraft. If Delta elects not to replace such Airframe, or
Airframe and Engine(s), then upon payment of the outstanding principal amount of
the Equipment Notes issued with respect to such Aircraft, together with accrued
but unpaid interest thereon and the Break Amount (if any) (but without any
Make-Whole Amount), the lien of the Indenture will terminate with respect to
such Aircraft, and the obligation of Delta thereafter to make the scheduled
interest and principal payments with respect to such Equipment Notes will cease.
The payments made under the Indenture by Delta will be deposited with the
applicable Loan Trustee. Amounts in excess of the amounts due and owing under
the Equipment Notes issued with respect to such Aircraft will be distributed by
such Loan Trustee to Delta. (Indentures, Sections 2.10, 3.02, 7.05(a) and
7.05(c))
If an Event of Loss occurs with respect to an Engine alone, Delta is
required to replace such Engine within 120 days after the occurrence of such
Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine will be the same model as the
Engine to be replaced, or a comparable or improved model of the same or another
manufacturer, suitable for installation and use on the Airframe, and will have a
value and utility (without regard to hours or cycles) at least equal to the
Engine to be replaced, assuming that such Engine was in the condition and repair
required by the terms of the relevant Indenture. (Indentures, Section 7.05(b))
An "Event of Loss" with respect to an Aircraft, Airframe or any Engine
means any of the following events:
- the destruction of such property, damage to such property beyond repair
or rendition of such property permanently unfit for normal use;
- any damage to such property that results in an insurance settlement with
respect to such property on the basis of a total loss or a compromised or
constructive total loss;
- any theft, hijacking or disappearance of such property for a period
exceeding 180 days;
- the requisition for use of such property by any government (other than a
requisition for use by the government of Canada, France, Germany, Japan,
The Netherlands, Sweden, Switzerland, the United Kingdom or the United
States or the government of the country of registry of the Aircraft) that
results in the loss of possession of such property by Delta (or any
lessee) for a period exceeding 12 consecutive months;
- the operation or location of the Aircraft, while under requisition for
use by any government, in an area excluded from coverage by any insurance
policy required by the terms of the Indenture, unless Delta has obtained
indemnity or insurance in lieu thereof from such government;
93
- any requisition of title, capture, seizure, deprivation, confiscation or
detention (excluding requisition for use or hire not involving a
requisition of title) of the Aircraft by any government that results in
the loss of title or use of the Aircraft by Delta (or a permitted lessee)
for a period in excess of 180 days;
- as a result of any law, rule, regulation, order or other action by the
FAA or other government of the country of registry, the use of the
Aircraft in the normal business of air transportation is prohibited by
virtue of a condition affecting all aircraft of the same type for a
period of 18 consecutive months, unless Delta is diligently carrying
forward all steps that are necessary or desirable to permit the normal
use of the Aircraft or, in any event, if such use is prohibited for a
period of three consecutive years ;
- with respect to any Engine, any divestiture of title to such Engine or,
in certain circumstances, the installation of such Engine on an airframe
that is subject to a conditional sale or other security agreement.
An Event of Loss with respect to an Aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the Airframe that is a part of such
Aircraft. (Indentures, Annex A)
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal U.S. federal income
tax consequences to Certificate Owners that exchange Old Class G Certificates
for New Class G Certificates pursuant to the Exchange Offer. The discussion does
not address all of the U.S. federal income tax consequences that may be relevant
to all Certificate Owners in light of their particular circumstances (including,
for example, any special rules applicable to tax-exempt organizations, banks,
dealers in securities or commodities, insurance companies and holders that hold
Class G Certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. dollars). This discussion is addressed to
beneficial owners of Class G Certificates that are (i) individual citizens or
residents of the United States, (ii) corporations created or organized in or
under the laws of the United States, any state thereof or the District of
Columbia or (iii) partnerships (including entities treated as partnerships),
trusts or estates treated, for U.S. federal income tax purposes, as domestic
partnerships, trusts or estates ("U.S. Persons"). This discussion is based upon
the tax laws of the United States as in effect on the date hereof, as well as
judicial and administrative interpretations thereof (in final or proposed form)
available on or before such date. All of the foregoing are subject to change or
differing interpretations, which could apply retroactively. No ruling has been
or will be sought from the Internal Revenue Service with respect to any of the
U.S. federal income tax consequences discussed below, and no assurance can be
given that the Internal Revenue Service will not take contrary positions.
Certificate Owners should consult their own tax advisors regarding the federal,
state, local and any other tax consequences to them of exchanging Old Class G
Certificates for New Class G Certificates in light of their own particular
circumstances.
The exchange of Old Class G Certificates for New Class G Certificates
pursuant to the Exchange Offer will not be treated as a taxable event for
federal income tax purposes. Receipt of New Class G Certificates in the Exchange
Offer will be treated as a continuation of the original investment of the
Certificate Owner in the Old Class G Certificates. Similarly, there would be no
federal income tax consequences to a Certificate Owner that does not participate
in the Exchange Offer. In particular, no gain or loss will be recognized by
Certificate Owners as a result of the Exchange Offer and, for purposes of
determining gain or loss on a subsequent sale of Certificates, a Certificate
Owner's basis and holding period for the Certificates will not be affected by
the Exchange Offer.
Treasury regulations issued February 28, 2003 directed at tax shelter
activity require taxpayers to disclose certain information on Internal Revenue
Service Form 8886 if they participate in a "reportable transaction." A
transaction may be a "reportable transaction" based upon any of several indicia,
including the existence of book-tax differences or the recognition of a loss
with respect to an investment in the Class G Certificates in excess of certain
thresholds. Certificateholders should consult their own tax advisors concerning
any possible disclosure obligation with respect to their investment or the
Exchange Offer.
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CERTAIN ERISA CONSIDERATIONS
GENERAL
A fiduciary of a retirement plan or other employee benefit plan or
arrangement, including for this purpose an individual retirement account,
annuity or Keogh plan, that is subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or such a plan or
arrangement which is a foreign, church or governmental plan or arrangement
exempt from Title I of ERISA and Section 4975 of the Code but subject to a
foreign, federal, state, or local law which is substantially similar to the
provisions of Title I of ERISA or Section 4975 of the Code (each, a "Similar
Law") (in each case, a "Plan"), should consider whether an investment in the
Class G Certificates is appropriate for the Plan, taking into account the
provisions of the Plan documents, the overall investment policy of the Plan and
the composition of the Plan's investment portfolio, as there are imposed on Plan
fiduciaries certain fiduciary requirements, including those of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan. Further, a fiduciary
should consider the fact that in the future there may be no market in which such
fiduciary would be able to sell or otherwise dispose of the Class G
Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase Class G
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code and Similar Law to such an investment, and to confirm that such purchase
and holding will not constitute or result in a non-exempt prohibited transaction
or any other violation of an applicable requirement of ERISA.
PLAN ASSETS ISSUES
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Class G Certificate, the Plan's assets
will include both the Class G Certificate and an undivided interest in each of
the underlying assets of the corresponding Trust, including the Equipment Notes
held by such Trust, unless it is established that equity participation in the
Trust by benefit plan investors (including but not limited to Plans and entities
whose underlying assets include Plan assets by reason of an employee benefit
plan's investment in the entity) is not significant within the meaning of the
Plan Asset Regulation. In this regard, the extent to which there is equity
participation in a particular Trust by, or on behalf of, benefit plan investors
will not be monitored. If the assets of a Trust are deemed to constitute the
assets of a Plan, transactions involving the assets of such Trust could be
subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code or materially similar provisions of Similar Law unless a statutory or
administrative exemption is applicable to the transaction.
PROHIBITED TRANSACTION EXEMPTIONS
In addition, whether or not the assets of a Trust are deemed to be Plan
assets under the Plan Asset Regulation, the fiduciary of a Plan that proposes to
purchase and hold any Class G Certificates should consider, among other things,
whether such purchase and holding may involve (i) the direct or indirect
extension of credit to a party in interest or a disqualified person, (ii) the
sale or exchange of any property between a Plan and a party in interest or a
disqualified person, or (iii) the transfer to, or use by or for the benefit of,
a party in interest or a disqualified person, of any Plan assets. Such parties
in interest or disqualified persons could include, without limitation, Delta and
its affiliates, the Initial Purchasers, the Trustees, the Liquidity Provider and
Ambac. Moreover, if the Class G Certificates are purchased by a Plan and the
Certificates of a subordinate Class are held by a party in interest or a
disqualified person with respect to such Plan, the exercise by the holder of the
subordinate Classes of Certificates of its right to purchase the Class G
Certificates upon the occurrence and during the continuation of a Triggering
Event
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could be considered to constitute a prohibited transaction unless a statutory or
administrative exemption were applicable. In addition, if the subordinate
Classes of Certificates are purchased by a Plan and the Class G Certificates are
held by a party in interest or a disqualified person with respect to such Plan,
the exercise by the holder of the subordinate Class of Certificates of its right
to purchase the Class G Certificates upon the occurrence and during the
continuation of a Triggering Event could be considered to constitute a
prohibited transaction unless a statutory or administrative exemption were
applicable. Depending on the satisfaction of certain conditions which may
include the identity of the Plan fiduciary making the decision to acquire or
hold the Class G Certificates on behalf of a Plan, Prohibited Transaction Class
Exemption ("PTCE") 91-38 (relating to investments by bank collective investment
funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 95-60 (relating to investments by an
insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house asset manager) or PTCE 90-1 (relating to investments by
insurance company pooled separate accounts) (collectively, the "Class
Exemptions") could provide an exemption from the prohibited transaction
provisions of ERISA and Section 4975 of the Code. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the Certificates.
EACH PERSON WHO ACQUIRES OR ACCEPTS A CLASS G CERTIFICATE OR AN INTEREST
THEREIN WILL BE DEEMED BY SUCH ACQUISITION OR ACCEPTANCE TO HAVE REPRESENTED AND
WARRANTED THAT EITHER: (I) NO ASSETS OF A PLAN OR ANY TRUST ESTABLISHED WITH
RESPECT TO A PLAN HAVE BEEN USED TO ACQUIRE SUCH CLASS G CERTIFICATE OR AN
INTEREST THEREIN OR (II) THE PURCHASE AND HOLDING OF SUCH CLASS G CERTIFICATE OR
AN INTEREST THEREIN BY SUCH PERSON ARE EXEMPT FROM THE PROHIBITED TRANSACTION
RESTRICTIONS OF ERISA AND THE CODE OR MATERIALLY SIMILAR PROVISIONS OF SIMILAR
LAW PURSUANT TO ONE OR MORE PROHIBITED TRANSACTION STATUTORY OR ADMINISTRATIVE
EXEMPTIONS.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
Any insurance company proposing to purchase Class G Certificates should
consider the implications of the United States Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86,
114 S. Ct. 517 (1993), which in certain circumstances treats such general
account assets as assets of a Plan that owns a policy or other contract with
such insurance company, as well as the effect of Section 401(c) of ERISA as
interpreted by regulations issued by the United States Department of Labor in
January, 2000 (the "General Account Regulations"). The General Account
Regulations should not, however, adversely affect the applicability of PTCE
95-60 to purchases of the Class G Certificates by insurance company general
accounts. The plan asset status of insurance company separate accounts is
unaffected by Section 401(c) of ERISA, and separate account assets continue to
be treated as the assets of any Plan invested in a separate account, except to
the extent provided in the Plan Asset Regulation.
EACH PLAN FIDUCIARY SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING THE
POTENTIAL CONSEQUENCES TO THE PLAN UNDER ERISA, THE CODE OR SIMILAR LAW OF AN
INVESTMENT IN ANY OF THE CLASS G CERTIFICATES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Class G Certificates for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Class G Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Class G Certificates
received in exchange for Old Class G Certificates where such Old Class G
Certificates were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 90 days after the
Expiration Date, we will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
96
We will not receive any proceeds from any sale of New Class G Certificates
by broker-dealers. New Class G Certificates received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Class G Certificates or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Class G Certificates.
Any broker-dealer that resells New Class G Certificates that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Class G Certificates may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit of
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a Prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, Delta will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. Delta has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Class G Certificates (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL OPINIONS
The validity of the New Class G Certificates is being passed upon for Delta
by Cadwalader, Wickersham & Taft LLP, New York, New York, special counsel to
Delta.
EXPERTS
The consolidated balance sheet as of December 31, 2001 and the related
consolidated statements of operations, cash flows and shareowners' equity for
each of the years ended December 31, 2001, 2000, 1999 and 1998 and related
schedules incorporated by reference in the Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. Reference is made to said report, which includes an explanatory
paragraph with respect to the change in the methods of accounting for derivative
instruments and hedging activities as discussed in Note 4 to the audited
consolidated financial statements. Arthur Andersen LLP has ceased operations in
the U.S.
On March 6, 2002, Delta's Board of Directors decided to retain Deloitte &
Touche LLP as Delta's independent public accountants and dismissed Arthur
Andersen LLP, Delta's former auditors. There were no disagreements with the
former auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure at the time of the change or
with respect to Delta's financial statements for fiscal years 1998, 1999, 2000
and 2001, which, if not resolved to the former auditor's satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
connection with their report. Prior to retaining Deloitte & Touche LLP, Delta
had not consulted with Deloitte & Touche LLP regarding accounting principles.
The consolidated balance sheet as of December 31, 2002 and the related
consolidated statements of operations, cash flows and shareowners' equity for
the year ended December 31, 2002, incorporated by reference in this Prospectus
from the Company's Annual Report on Form 10-K for the year ended December 31,
2002, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes explanatory paragraphs relating to (1) the Company's change in its
method of accounting for goodwill and other intangible assets to conform with
Statement of Financial Accounting Standards No. 142 and (2) the application of
procedures relating to certain revised disclosures in Notes 5, 9, 17 and 21
related to the 2001 and 2000 consolidated financial
97
statements that were audited by other auditors who have ceased operations and
for which Deloitte & Touche LLP have expressed no opinion or other form of
assurance other than with respect to such disclosures), which is also
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 2003 and 2002 and June 30, 2003 and 2002, which is incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act for
their reports on the unaudited interim financial information because those
reports are not "reports" or a "part" of the Registration Statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of Ambac and subsidiaries as of
December 31, 2002 and 2001 and for each of the years in the three-year period
ended December 31, 2002 are incorporated by reference in this Prospectus in
reliance on the report of KPMG LLP, independent certified public accountants,
incorporated by reference in this Prospectus given on the authority of that firm
as experts in accounting and auditing.
APPRAISERS
The references to AISI, AvSolutions and BK, and to their respective
appraisal reports, are included herein in reliance upon the authority of each
such firm as an expert with respect to the matters contained in its appraisal
report.
98
APPENDIX I
INDEX OF DEFINED TERMS
The following is an index showing the page in this Prospectus where certain
defined terms appear.
DEFINED TERM PAGE
------------ ----
Above-Cap Account.................... 66
Above-Cap Liquidity Facility......... 65
Above-Cap Liquidity Guarantor........ 67
Above-Cap Liquidity Provider......... 65
Above-Cap Payment.................... 65
Above-Cap Reserve Account............ 65
Above-Cap Reserve Amount............. 66
Adjusted Expected Distributions...... 78
Agent's Message...................... 37
Aggregate LTV Collateral Amount...... 78
Aircraft............................. 80
AISI................................. 80
ALPA................................. 24
Ambac................................ 41
Applicable Date...................... 84
Appraised Current Market Value....... 79
Appraisers........................... 80
Appropriations Act................... 20
ASA.................................. 24
Assumed Aircraft Value............... 86
ATOP................................. 37
AvSolutions.......................... 80
Bankruptcy Code...................... 52
Base Rate............................ 63
Basic Agreement...................... 44
Book-Entry Confirmation.............. 35
Break Amount......................... 84
BK................................... 80
Business Day......................... 47
Capped Interest Rate................. 60
Capped LIBOR......................... 65
Cede................................. 49
Certificate Account.................. 47
Certificate Owner.................... 57
Certificate Owners................... 57
Certificateholders................... 44
Certificates......................... 44
citizen of the United States......... 52
Class C Certificateholders........... 44
Class C Certificates................. 44
DEFINED TERM PAGE
------------ ----
Class C Trust........................ 44
Class C Trustee...................... 44
Class D Certificateholders........... 44
Class D Certificates................. 44
Class D Trust........................ 44
Class D Trustee...................... 44
Class Exemptions..................... 96
Class G Certificateholders........... 44
Class G Certificates................. 44
Class G Trust........................ 44
Class G Trustee...................... 44
Code................................. 95
Commission........................... iv
Controlling Party.................... 72
Core Aircraft........................ 85
Current Distribution Date............ 76
default.............................. 51
Defaulted Series G Equipment Note.... 13
Delta................................ iv
Depreciation Assumption.............. 86
Disposition.......................... 13
Distribution Date.................... 46
Downgrade Drawing.................... 61
Drawing.............................. 63
DTC.................................. 49
DTC Participants..................... 57
Election Distribution Date........... 69
Eligible Institution................. 35
Equipment Notes...................... 81
ERISA................................ 95
event of default..................... 51
Event of Loss........................ 93
Excess Reimbursement Obligations..... 76
Exchange Act......................... iii
Exchange Agent....................... 2
Exchange Offer....................... 32
Expected Distributions............... 76
FAA.................................. 90
Final Distributions.................. 73
Final Drawing........................ 63
I-1
DEFINED TERM PAGE
------------ ----
Final Legal Distribution Date........ 46
Final Payment Date................... 85
General Account Regulations.......... 96
Global Certificates.................. 56
Indenture............................ 81
Indenture Events of Default.......... 86
Indirect Participants................ 57
Initial Purchasers................... 1
Insolvency Proceeding................ 71
Intercreditor Agreement.............. 71
Interest Drawings.................... 59
Interest Period...................... 82
Issuance Date........................ 32
Letter of Transmittal................ 2
LIBOR................................ 82
Liquidity Event of Default........... 64
Liquidity Expenses................... 75
Liquidity Facilities................. 59
Liquidity Facility LIBOR............. 63
Liquidity Obligations................ 75
Liquidity Providers.................. 65
Loan Amount.......................... 92
Loan Trustee......................... 81
London Banking Day................... 63
LTV Appraisal........................ 79
LTV Collateral Amount................ 78
LTV Ratio............................ 79
LTVs................................. 7
Make-Whole Amount.................... 85
Maximum Available Commitment......... 60
Minimum Sale Price................... 73
Moody's.............................. 29
New Class G Certificates............. 1
Non-Core Aircraft.................... 85
Non-Extension Drawing................ 62
Non-Performing Equipment Notes....... 78
Noteholder........................... 51
Old Class G Certificates............. 1
Order................................ 71
Participation Agreement.............. 81
Pass Through Trust Agreements........ 44
Performing Equipment Note............ 61
Permitted Investments................ 50
Plan................................. 95
DEFINED TERM PAGE
------------ ----
Plan Asset Regulation................ 95
Policy............................... 68
Policy Account....................... 70
Policy Drawing....................... 76
Policy Expenses...................... 75
Policy Fee Letter.................... 71
Policy Provider...................... 41
Policy Provider Agreement............ 71
Policy Provider Default.............. 73
Policy Provider Election............. 69
Policy Provider Interest Amount...... 75
Policy Provider Obligations.......... 75
Pool Balance......................... 47
Pool Factor.......................... 48
Preference Amount.................... 71
Prior Funds.......................... 12
Primary Cash Collateral Account...... 61
Primary Liquidity Facility........... 59
Primary Liquidity Provider........... 59
Prospectus........................... iii
PTC Event of Default................. 52
PTCE................................. 96
Rating Agencies...................... 29
Reference Agency Agreement........... 82
Reference Agent...................... 82
Reference Date....................... 82
Registration Event................... 32
Registration Rights Agreement........ 32
Registration Statement............... iv
Regular Distribution Dates........... 46
Replacement Above-Cap Liquidity
Facility........................... 66
Replacement Primary Liquidity
Facility........................... 61
Required Amount...................... 60
Scheduled Payments................... 46
SEC.................................. iv
Section 1110......................... 88
Section 1110 Period.................. 61
Securities Act....................... iii
Series C Equipment Notes............. 81
Series D Equipment Notes............. 81
Series G Equipment Notes............. 81
Shelf Registration Statement......... 32
Similar Law.......................... 95
Special Distribution Date............ 46
I-2
DEFINED TERM PAGE
------------ ----
Special Payment...................... 46
Special Payments Account............. 47
Stabilization Act.................... 20
Standard & Poor's.................... 29
Stated Interest Rate................. 45
Subordination Agent.................. 71
Termination Notice................... 64
Threshold Rating..................... 62
DEFINED TERM PAGE
------------ ----
Transportation Code.................. 52
Triggering Event..................... 74
Trust Indenture Act.................. 53
Trust Property....................... 44
Trust Supplement..................... 44
Trustees............................. 44
Trusts............................... 44
U.S. Persons......................... 94
I-3
APPENDIX II
APPRAISAL LETTERS
II-1
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
Delta Air Lines
Hartsfield International Airport
Atlanta, GA 30320
Half-Life Base Value Opinion
12 Selected Delta Aircraft
AISI File No.: A3S007BVO
21 January 2003
Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 January 2003
Delta Air Lines
Hartsfield International Airport
Atlanta, GA 30320
Subject: Half-Life Base Value Opinion - 12 Aircraft
AISI File number: A3S007BVO
Ref: (a) Fax correspondence - Delta Air Lines to AISI 26 August 2002
(b) Salomon Smith Barney Telcon - 21 January 2003
Dear Ladies and Gentlemen:
Aircraft Information Services, Inc. (AISI) is pleased to offer our opinion to
Delta Air Lines (Delta) of the half-life base values of the Fleet of 12
selected Delta Aircraft as identified and defined in Table I and reference (a)
data above (the 'Aircraft').
1. Methodology and Definitions
The standard terms of reference for commercial aircraft value are 'base value'
and 'current market value' of an 'average' aircraft. Base value is a
theoretical value that assumes a hypothetical balanced market while current
market value is the value in the real market; both assume a hypothetical
average aircraft condition. All other values are derived from these values.
AISI value definitions are consistent with the current definitions of the
International Society of Transport Aircraft Trading (ISTAT), those of 01
January 1994. AISI is a member of that organization and employs an ISTAT
Certified and Senior Certified Appraiser.
AISI defines a 'base value' as that of a transaction between an equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, with supply and
demand of the sale item roughly in balance and with no event which would cause
a short term change in the market. Base values are typically given for aircraft
in 'new' condition, 'average half-life' condition, or 'adjusted' for an
aircraft in a specifically described condition at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
otherwise specified in this report.
Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 January 2003
AISI File No. A3S007BVO
Page -2-
AISI also assumes that airframe, engine and component maintenance and essential
records are sufficient to permit normal commercial operation under a strict
airworthiness authority.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval
or interval between maintenance services, is at a condition which is one-half
of the total interval.
An 'adjusted' appraisal reflects an adjustment from half life condition for the
actual condition, utilization, life remaining or time remaining of an airframe,
engine or component.
It should be noted that AISI and ISTAT value definitions apply to a transaction
involving a single aircraft, and that transactions involving more than one
aircraft are often executed at considerable and highly variable discounts to a
single aircraft price, for a variety of reasons relating to an individual buyer
or seller.
AISI defines a 'current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions
including short term events, whether at, above or below the base value
conditions. Assumption of a single unit sale and definitions of aircraft
condition, buyer/seller qualifications and type of transaction remain unchanged
from that of base value. Current market value takes into consideration the
status of the economy in which the aircraft is used, the status of supply and
demand for the particular aircraft type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future
value considerations, or to consider how actual market values vary from
theoretical base values. Base values are less volatile than current market
values and tend to diminish regularly with time. Base values are normally
inappropriate to determine near term values. AISI encourages the use of current
market values to consider the probable near term value of an aircraft.
If more than one aircraft is contained in this report than it should be noted
that the values given are not directly additive, that is, the total of the
given values is not the value of the fleet but rather the sum of the values of
the individual aircraft if sold individually over time so as not to exceed
demand.
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 January 2003
AISI File No. A3S007BVO
Page -3-
2. Valuation
The aircraft are valued predicated upon the reference (a) and (b) data which
describes the aircraft MTOW and any engine or equipment upgrades. Following is
AISI's opinion of the half-life base value for the subject aircraft in January
2003 US dollars. Valuations are presented in Table I subject to the
assumptions, definitions and disclaimers herein.
The terrorist actions that occurred in the United States on 11 September 2001
have had a significant negative effect on current market values of all
commercial aircraft as demand for air travel has declined sharply. The amount
of decline varies considerably with new aircraft affected the least and older
aircraft affected the most. The present used aircraft market is considered to
be a distressed market and is very tenuous, with very few transactions upon
which to determine value opinions.
Base value opinions normally decline regularly with time; declines of base
value in excess of the norm have occurred only where irreversible market
changes have occurred with regard to specific aircraft types in the judgment of
AISI. Typically an irreversible market change occurs when it is believed that
the decline in current market value is permanent, thus causing a corresponding
but usually smaller decline in base value.
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 January 2003
AISI File No. A3S007BVO
Page -4-
Table I
Aircraft
Manufacturer's Aircraft Registration Half-Life Base Value
Delivery Date Serial Number Number January 2003 US Dollars
Boeing 737-832; CFM56-7B26, 157,200 lb. mtow
Dec-01 30816 N3760C 40,950,000
Dec-01 29628 N3761R 40,950,000
Boeing 767-300ER; PW4060, 407,000 lb. mtow
Aug-97 28450 N193DN 65,310,000
Sep-97 28451 N194DN 65,310,000
Sep-97 28452 N195DN 65,310,000
Oct-97 28453 N196DN 65,310,000
Dec-97 28454 N197DN 65,310,000
Feb-98 28455 N198DN 68,310,000
Boeing 767-300ER; CF6-80C2B6F, 407,000 lb. mtow
May-00 30595 N1611B 74,280,000
May-01 30575 N1612T 78,190,000
Aug-01 32776 N1613B 78,190,000
May-00 30596 N178DZ 74,280,000
[AIRCRAFT INFORMATION SERVICES, INC. LOGO]
21 January 2003
AISI File No. A3S007BVO
Page -5-
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft or
equipment. AISI has no past, present, or anticipated future interest in the
subject aircraft or equipment. The conclusions and opinions expressed in this
report are based on published information, information provided by others,
reasonable interpretations and calculations thereof and are given in good
faith. Such conclusions and opinions are judgments that reflect conditions and
values which are current at the time of this report. The values and conditions
reported upon are subject to any subsequent change. AISI shall not be liable to
any party for damages arising out of reliance or alleged reliance on this
report, or for any party's action or failure to act as a result of reliance or
alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
(John McNicol Signature)
John McNicol
Vice President
Appraisals & Forecasts
LOGO
January 21, 2003
Delta Air Lines, Inc.
Paul A. Jacobson
Manager -- Capital Markets
Post Office Box 20534
Atlanta, GA 30320-2534
Dear Mr. Jacobson:
AvSOLUTIONS is pleased to provide its opinion of the base values as of
January 2003 of two Boeing 737-800 aircraft and ten (10) Boeing 767-300ER
aircraft (collectively, the "Aircraft"). A list of the twelve (12) aircraft,
along with their delivery dates, engine types, serial numbers, and Maximum
Take-Off Weights is provided as Attachment 1 of this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledgeable parties
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the base values and fair
market values of aircraft and associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then compared with reported market values at a specified
point in time. Such data reflects the effect of deterioration in aircraft
performance due to usage and exposure to the elements, as well as the effect of
obsolescence due to the evolutionary development and implementation of new
designs and materials.
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the
LOGO
relationship is identified, one can then postulate the effects of the difference
between the economic circumstances at the time when the cross-sectional data
were collected and the current situation.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is primarily relying on
information supplied by Delta Air Lines and from data within AvSOLUTIONS' own
database. In determining the base value of the Aircraft, the following
assumptions have been researched and determined:
1. AvSOLUTIONS has not inspected the Aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or
condition.
2. The Aircraft have been delivered to Delta Air Lines.
3. The Aircraft are certified, maintained and operated under United States
Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The Aircraft have half-time remaining to their next major overhaul or
scheduled shop visit on their airframes, engines, landing gear and auxiliary
power units.
6. The Aircraft have no damage history.
7. The Aircraft are in good condition.
8. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each Aircraft are as listed in
Attachment 1.
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, Inc. and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by Delta Air
Lines (the "Client") or any other party with regard to the Aircraft. By
accepting this report, the Client agrees that AvSOLUTIONS shall bear no
responsibil-
LOGO
ity or legal liability regarding this report. Further, this report is prepared
for the exclusive use of the Client and shall not be provided to other parties
without AvSOLUTIONS' express consent.
AvSOLUTIONS hereby states that this valuation report has been
independently prepared and fairly represents the Aircraft and AvSOLUTIONS'
opinion of their values. AvSOLUTIONS further states that it has no present or
contemplated future interest or association with the Aircraft.
Sincerely yours,
(Scott E. Daniels Signature)
Scott E. Daniels
Director, Asset Management
LOGO
Attachment 1
DELTA AIR LINES
Serial
Number Registration Delivery Engine MTOW Base Value
MSN Number Date Type (lb) $ millions
BOEING 737-800
1 30816 N3760C 21-Dec-01 CFM56-7B26 157,200 44.48
2 29628 N3761R 20-Dec-01 CFM56-7B26 157,200 44.48
BOEING 767-300ER
3 28450 N193DN 21-Aug-97 PW4060 407,000 66.93
4 28451 N194DN 26-Sep-97 PW4060 407,000 67.21
5 28452 N195DN 30-Sep-97 PW4060 407,000 67.21
6 28453 N196DN 30-Oct-97 PW4060 407,000 67.49
7 28454 N197DN 23-Dec-97 PW4060 407,000 68.06
8 28455 N198DN 02-Feb-98 PW4060 407,000 68.63
9 30595 N1611B 15-May-00 CF6-80C2B6F 407,000 76.78
10 30575 N1612T 26-May-01 CF6-80C2B6F 407,000 80.71
11 32776 N1613B 10-Aug-01 CF6-80C2B6F 407,000 81.73
12 30596 N178DZ 23-May-00 CF6-80C2B6F 407,000 76.78
BK ASSOCIATES, INC.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 - Fax (516) 365-6287
January 22, 2003
Mr. Paul Jacobson
Delta Air Lines
Hartsfield International Airport
Atlanta, GA 30320
Dear Paul:
In response to your request, BK Associates, Inc. is pleased to provide this
opinion of the current Base Value on each of 12 commercial jet transport
aircraft, identified as the Delta Aircraft Portfolio (Aircraft). The Aircraft
are further identified in the attached Figure 1 by type, serial number,
registration number, manufacture date, engine model and maximum takeoff weight.
Set forth below is a summary of the methodology, considerations and assumptions
utilized in this appraisal.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of FMV, to which BK Associates subscribes, the quoted FMV is the
Appraiser's opinion of the most likely trading price that may be generated for
an aircraft under the market circumstances that are perceived to exist at the
time in question. The FMV assumes that the aircraft is valued for its highest
and best use, that the parties to the hypothetical sale transaction are willing,
able, prudent and knowledgeable, and under no unusual pressure for a prompt
sale, and that the transaction would be negotiated in an open and unrestricted
market on an arm's length basis, for cash or equivalent consideration, and given
an adequate amount of time for effective exposure to prospective buyers, which
BK Associates considers to be 12 to 18 months.
BASE VALUE
Base value is the Appraiser's opinion of the underlying economic value of an
aircraft in an open, unrestricted, stable market environment with a reasonable
balance of supply and demand, and assumes full consideration of its "highest and
best use". An aircraft's base value is founded in the historical trend of values
and in the projection of future value trends and presumes an arm's length, cash
transaction between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing.
January 22, 2003
Page 2
VALUE METHODOLOGY
As the definition suggests, Base Value is determined from historic and future
value trends and is not influenced by current market conditions. It is often
determined as a function of the original cost of the aircraft, technical
characteristics of competing aircraft, and development of new models. BK
Associates has determined from analysis of historic data, a relationship between
aircraft age and its value as a percentage of original value for the average
aircraft. These data form the basis for base value and forecast value
determinations but must be adjusted to reflect the value of engine and gross
weight options and other features of the aircraft.
LIMITING CONDITIONS AND ASSUMPTIONS
BK has neither inspected the Aircraft nor their maintenance records but relied
upon information supplied by Delta Air Lines and from BK's own database. In
determining the base value of an aircraft, the following assumptions apply to
the aircraft:
1. Each aircraft has half-time remaining to its next major overhaul or
scheduled shop visit on its airframe, engines, landing gear and auxiliary
power unit. (Unless aircraft is a new delivery.)
2. The aircraft is in compliance under a Federal Aviation Administration
approved airline maintenance program, with all airworthiness directives,
mandatory modifications and applicable service bulletins currently up to
industry standard.
3. The interior of the aircraft is in a standard configuration for its
specific type, with the buyer furnished equipment and options of the types
and models generally accepted and utilized in the industry.
4. The aircraft is in current flight operations.
5. The aircraft is sold for cash without seller financing.
6. The aircraft is in average or better condition.
7. There is no accident damage.
CONCLUSIONS
Our base value opinion stated herein is given after consideration of the
significant event of terrorism that occurred within the United States on
September 11, 2001. During the ensuing days since that event, we have begun to
see how our industry has been adversely
January 22, 2003
Page 3
affected. Passenger demand for air travel has dropped dramatically causing
airlines to reduce flight schedules and ground significant quantities of their
fleets. In response to this initial industry reaction, BK Associates has
selectively reduced our opinion of aircraft current fair market values. Today,
we are unsure of the long-term effect on aircraft values and will continue to
review the industry status. Since our base values, as provided in this appraisal
letter, are derived from historical value trends and are not immediately
influenced by current supply and demand issues, we have not affected base values
at this time.
Based on the above methodology, considerations and assumptions, it is our
opinion that the current base value of each aircraft as of today is as shown in
Figure 1 attached hereto.
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely,
BK ASSOCIATES, INC.
(R. L. Britton Signature)
R. L. Britton
Vice President
ISTAT Senior Certified Appraiser
RLB/kf
Attachment
January 22, 2003
Page 4
DELTA AIR LINES INC.
TWELVE AIRCRAFT PORTFOLIO
JANUARY 2003
BASE
ACFT SERIAL REG MFG. VALUE
TYPE NUMBER NUMBER DATE ENGINE MTOW ($ MIL)
---- ------ ------ ---- ------ ---- -------
1 B737-800 30816 N3760C Dec-01 CFM56-7B26 157,200 40.65
2 B737-800 29628 N3761R Dec-01 CFM56-7B26 157,200 40.65
3 B767-300ER 28450 N193DN Aug-97 PW4060 407,000 68.65
4 B767-300ER 28451 N194DN Sep-97 PW4060 407,000 68.90
5 B767-300ER 28452 N195DN Sep-97 PW4060 407,000 68.90
6 B767-300ER 28453 N196DN Oct-97 PW4060 407,000 69.20
7 B767-300ER 28454 N197DN Dec-97 PW4060 407,000 69.70
8 B767-300ER 28455 N198DN Feb-98 PW4060 407,000 70.40
9 B767-300ER 30595 N1611B May-00 CF6-80C2B6F 407,000 77.55
10 B767-300ER 30575 N1612T May-01 CF6-80C2B6F 407,000 80.80
11 B767-300ER 32776 N1613B Aug-01 CF6-80C2B6F 407,000 81.55
12 B767-300ER 30596 N178DZ May-00 CF6-80C2B6F 407,000 77.55
Note the B737-800 aircraft are listed with
CFM56-7B26 engines. However, BK Associates has
been informed the engines installed are
CFM56-7B26 engines purchased with an operating
limit to CFM56-7B24 status. With this limit, BK
Associates has valued the aircraft as though
they are powered by the CFM56-7B24 engines.
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES G EQUIPMENT NOTES
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN
---- -------------- -------------- -------------- -------------- -------------- --------------
April 25, 2003....... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 25, 2003........ 0.00 0.00 707,055.82 0.00 0.00 0.00
October 25, 2003..... 0.00 0.00 1,339,010.88 2,439,498.38 2,439,498.38 1,098,625.74
January 25, 2004..... 1,107,117.84 1,107,117.84 0.00 0.00 0.00 1,349,622.63
April 25, 2004....... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2004........ 0.00 0.00 1,040,999.31 0.00 0.00 0.00
October 25, 2004..... 0.00 0.00 1,290,022.67 2,341,098.45 2,341,098.45 1,049,249.30
January 25, 2005..... 1,881,880.19 1,881,880.19 0.00 0.00 0.00 1,300,246.20
April 25, 2005....... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2005........ 0.00 0.00 992,011.11 0.00 0.00 0.00
October 25, 2005..... 0.00 0.00 1,241,034.47 2,242,698.51 2,242,698.51 999,872.87
January 25, 2006..... 1,027,880.76 1,027,880.76 0.00 0.00 0.00 1,250,869.76
April 25, 2006....... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2006........ 0.00 0.00 943,022.90 0.00 0.00 0.00
October 25, 2006..... 0.00 0.00 1,192,046.27 2,144,298.58 2,144,298.58 950,496.43
January 25, 2007..... 1,749,818.43 1,749,818.43 0.00 0.00 0.00 1,201,493.32
April 25, 2007....... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2007........ 0.00 0.00 894,034.70 0.00 0.00 0.00
October 25, 2007..... 0.00 0.00 1,143,058.06 2,045,898.64 2,045,898.64 901,119.99
January 25, 2008..... 16,150,787.91 16,150,787.91 19,217,751.61 19,302,986.85 19,302,986.85 20,526,133.10
B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N197DN N198DN N1611B N178DZ N1612T N1613B
---- -------------- -------------- -------------- -------------- -------------- --------------
April 25, 2003....... $ 0.00 $ 1,669,849.99 $1, 009,892.08 $ 1,009,892.08 $ 1,048,670.22 $ 0.00
July 25, 2003........ 0.00 0.00 1,477,572.84 1,477,572.84 518,234.11 875,164.07
October 25, 2003..... 0.00 0.00 0.00 0.00 0.00 805,201.53
January 25, 2004..... 2,463,181.70 1,115,902.20 0.00 0.00 0.00 0.00
April 25, 2004....... 0.00 1,370,846.15 1,213,995.47 1,213,995.47 1,313,089.85 0.00
July 25, 2004........ 0.00 0.00 734,237.81 734,237.81 2,320,217.02 1,323,442.94
October 25, 2004..... 0.00 0.00 0.00 0.00 0.00 2,338,510.82
January 25, 2005..... 2,363,826.47 1,065,749.29 0.00 0.00 0.00 0.00
April 25, 2005....... 0.00 1,320,693.24 1,188,964.64 1,188,964.64 1,236,599.18 0.00
July 25, 2005........ 0.00 0.00 2,127,620.93 2,127,620.93 747,908.78 1,246,349.17
October 25, 2005..... 0.00 0.00 0.00 0.00 0.00 753,805.69
January 25, 2006..... 2,264,471.24 1,015,596.38 0.00 0.00 0.00 0.00
April 25, 2006....... 0.00 1,270,540.33 1,113,872.13 1,113,872.13 1,211,102.29 0.00
July 25, 2006........ 0.00 0.00 1,368,352.28 1,368,352.28 2,167,235.67 1,220,651.25
October 25, 2006..... 0.00 0.00 0.00 0.00 0.00 2,184,323.29
January 25, 2007..... 2,165,116.01 965,443.48 0.00 0.00 0.00 0.00
April 25, 2007....... 0.00 1,220,387.43 1,063,810.46 1,063,810.46 1,134,611.62 0.00
July 25, 2007........ 0.00 0.00 1,318,290.61 1,318,290.61 1,393,830.00 1,143,557.49
October 25, 2007..... 0.00 0.00 0.00 0.00 0.00 1,404,819.69
January 25, 2008..... 21,561,000.45 21,772,070.51 26,195,384.93 26,195,384.93 29,118,887.55 29,352,418.32
III-1
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES C EQUIPMENT NOTES
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN
---- ------------- ------------- ------------- ------------- ------------- --------------
April 25, 2003........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 25, 2003............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2003......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2004......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2004........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2004............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2004......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2005......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2005........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2005............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2005......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2006......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2006........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2006............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2006......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2007......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2007........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2007............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2007......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2008......... 8,325,376.09 8,325,376.09 9,858,854.66 9,901,472.19 9,901,472.19 10,513,044.00
B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N197DN N198DN N1611B N178DZ N1612T N1613B
---- -------------- -------------- -------------- -------------- -------------- --------------
April 25, 2003........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 25, 2003............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2003......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2004......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2004........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2004............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2004......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2005......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2005........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2005............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2005......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2006......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2006........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2006............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2006......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2007......... 0.00 0.00 0.00 0.00 0.00 0.00
April 25, 2007........... 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2007............ 0.00 0.00 0.00 0.00 0.00 0.00
October 25, 2007......... 0.00 0.00 0.00 0.00 0.00 0.00
January 25, 2008......... 11,030,476.57 11,136,011.37 13,347,663.84 13,347,663.84 14,809,412.01 14,926,177.15
III-2
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
SERIES D EQUIPMENT NOTES
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN N197DN
---- ----------- ----------- ----------- ------------- ------------- ----------- -------------
April 25, 2003.......... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 25, 2003........... 0.00 0.00 544,989.57 0.00 0.00 0.00 0.00
October 25, 2003........ 0.00 0.00 669,500.32 1,219,739.84 1,219,739.84 549,308.67 0.00
January 25, 2004........ 553,554.68 553,554.68 0.00 0.00 0.00 674,806.15 1,231,581.43
April 25, 2004.......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2004........... 0.00 0.00 520,495.68 0.00 0.00 0.00 0.00
October 25, 2004........ 0.00 0.00 645,006.41 1,170,540.28 1,170,540.28 524,620.64 0.00
January 25, 2005........ 940,932.90 940,932.90 0.00 0.00 0.00 650,118.13 1,181,904.20
April 25, 2005.......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2005........... 0.00 0.00 496,001.77 0.00 0.00 0.00 0.00
October 25, 2005........ 0.00 0.00 620,512.49 1,121,340.69 1,121,340.69 499,932.62 0.00
January 25, 2006........ 513,936.45 513,936.45 0.00 0.00 0.00 625,430.10 1,132,226.96
April 25, 2006.......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2006........... 0.00 0.00 471,507.84 0.00 0.00 0.00 0.00
October 25, 2006........ 0.00 0.00 596,018.58 1,072,141.09 1,072,141.09 475,244.59 0.00
January 25, 2007........ 874,902.53 874,902.53 0.00 0.00 0.00 600,742.07 1,082,549.73
April 25, 2007.......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 25, 2007........... 0.00 0.00 447,013.93 0.00 0.00 0.00 0.00
October 25, 2007........ 0.00 0.00 571,524.66 1,022,941.50 1,022,941.50 450,556.54 0.00
January 25, 2008........ 17.87 17.87 21.14 21.24 21.24 22.55 23.65
B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N198DN N1611B N178DZ N1612T N1613B
---- ------------- ------------- ------------- ------------- -------------
April 25, 2003.......... $1,065,741.14 $ 644,539.05 $ 644,539.05 $ 669,288.25 $ 0.00
July 25, 2003........... 0.00 1,138,894.26 1,138,894.26 399,448.23 674,565.27
October 25, 2003........ 0.00 0.00 0.00 0.00 402,597.69
January 25, 2004........ 557,946.83 0.00 0.00 0.00 0.00
April 25, 2004.......... 685,417.83 606,993.09 606,993.09 656,539.91 0.00
July 25, 2004........... 0.00 367,116.09 367,116.09 1,160,099.64 661,716.41
October 25, 2004........ 0.00 0.00 0.00 0.00 1,169,246.47
January 25, 2005........ 532,870.58 0.00 0.00 0.00 0.00
April 25, 2005.......... 660,341.57 594,477.77 594,477.77 618,294.86 0.00
July 25, 2005........... 0.00 1,063,802.34 1,063,802.34 373,951.53 623,169.82
October 25, 2005........ 0.00 0.00 0.00 0.00 376,899.97
January 25, 2006........ 507,794.31 0.00 0.00 0.00 0.00
April 25, 2006.......... 635,265.30 556,931.80 556,931.80 605,546.52 0.00
July 25, 2006........... 0.00 684,170.91 684,170.91 1,083,609.55 610,320.96
October 25, 2006........ 0.00 0.00 0.00 0.00 1,092,153.30
January 25, 2007........ 482,718.05 0.00 0.00 0.00 0.00
April 25, 2007.......... 610,189.05 531,901.16 531,901.16 567,301.47 0.00
July 25, 2007........... 0.00 659,140.27 659,140.27 696,909.67 571,774.37
October 25, 2007........ 0.00 0.00 0.00 0.00 702,404.48
January 25, 2008........ 23.89 28.63 28.63 31.77 32.01
III-3
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
SERIES G EQUIPMENT NOTES
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN N197DN N198DN
---- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
January 30, 2003.............. 53.5% 53.5% 44.8% 45.5% 45.5% 45.5% 45.5% 47.8%
April 25, 2003................ 53.5 53.5 44.8 45.5 45.5 45.5 45.5 45.3
July 25, 2003................. 53.5 53.5 45.4 45.5 45.5 45.5 45.5 45.3
October 25, 2003.............. 53.5 53.5 43.3 43.3 43.3 45.5 45.5 45.3
January 25, 2004.............. 52.4 52.4 43.3 43.3 43.3 43.4 43.4 45.3
April 25, 2004................ 52.4 52.4 43.3 43.3 43.3 43.4 43.4 43.2
July 25, 2004................. 52.4 52.4 43.3 43.3 43.3 43.4 43.4 43.2
October 25, 2004.............. 52.4 52.4 41.2 41.2 41.2 43.4 43.4 43.2
January 25, 2005.............. 49.3 49.3 41.2 41.2 41.2 41.3 41.3 43.2
April 25, 2005................ 49.3 49.3 41.2 41.2 41.2 41.3 41.3 41.1
July 25, 2005................. 49.3 49.3 41.2 41.2 41.2 41.3 41.3 41.1
October 25, 2005.............. 49.3 49.3 39.1 39.1 39.1 41.2 41.3 41.1
January 25, 2006.............. 48.2 48.2 39.1 39.1 39.1 39.2 39.2 41.1
April 25, 2006................ 48.2 48.2 39.1 39.1 39.1 39.2 39.2 39.0
July 25, 2006................. 48.2 48.2 39.1 39.1 39.1 39.2 39.2 39.0
October 25, 2006.............. 48.2 48.2 37.0 37.0 37.0 39.1 39.2 39.0
January 25, 2007.............. 45.0 45.0 37.0 37.0 37.0 37.1 37.1 39.0
April 25, 2007................ 45.0 45.0 37.0 37.0 37.0 37.1 37.1 36.9
July 25, 2007................. 45.0 45.0 36.9 37.0 37.0 37.1 37.1 36.9
October 25, 2007.............. 45.0 45.0 34.9 34.9 34.9 37.0 37.1 36.9
January 25, 2008.............. NA NA NA NA NA NA NA NA
B767-332ER B767-332ER B767-332ER B767-332ER
DATE N1611B N178DZ N1612T N1613B
---- ---------- ---------- ---------- ----------
January 30, 2003.............. 50.9% 50.9% 52.8% 53.0%
April 25, 2003................ 51.2 51.2 53.2 53.0
July 25, 2003................. 49.2 49.2 52.5 53.6
October 25, 2003.............. 49.2 49.2 52.5 52.5
January 25, 2004.............. 49.2 49.2 52.5 52.5
April 25, 2004................ 49.2 49.2 52.5 52.5
July 25, 2004................. 48.2 48.2 49.4 52.5
October 25, 2004.............. 48.2 48.2 49.4 49.4
January 25, 2005.............. 48.2 48.2 49.4 49.4
April 25, 2005................ 48.2 48.2 49.4 49.4
July 25, 2005................. 45.1 45.1 48.3 49.4
October 25, 2005.............. 45.1 45.1 48.3 48.3
January 25, 2006.............. 45.1 45.1 48.3 48.3
April 25, 2006................ 45.0 45.0 48.3 48.3
July 25, 2006................. 43.0 43.0 45.2 48.3
October 25, 2006.............. 43.0 43.0 45.2 45.2
January 25, 2007.............. 43.0 43.0 45.2 45.2
April 25, 2007................ 43.0 43.0 45.2 45.2
July 25, 2007................. 40.9 40.9 43.1 45.2
October 25, 2007.............. 40.9 40.9 43.1 43.1
January 25, 2008.............. NA NA NA NA
IV-1
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
SERIES C EQUIPMENT NOTES
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN N197DN N198DN
---- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
January 30, 2003............. 73.9% 73.9% 59.6% 60.2% 60.2% 61.1% 61.8% 64.0%
April 25, 2003............... 73.9 73.9 59.6 60.2 60.2 61.1 61.8 61.6
July 25, 2003................ 73.9 73.9 60.6 60.2 60.2 61.1 61.8 61.6
October 25, 2003............. 73.9 73.9 58.6 58.6 58.6 61.6 61.8 61.6
January 25, 2004............. 73.4 73.4 58.6 58.6 58.6 59.6 60.3 62.1
April 25, 2004............... 73.4 73.4 58.6 58.6 58.6 59.6 60.3 60.1
July 25, 2004................ 73.4 73.4 59.1 58.6 58.6 59.6 60.3 60.1
October 25, 2004............. 73.4 73.4 57.0 57.1 57.1 60.2 60.3 60.1
January 25, 2005............. 70.9 70.9 57.0 57.1 57.1 58.1 58.8 60.7
April 25, 2005............... 70.9 70.9 57.0 57.1 57.1 58.1 58.8 58.6
July 25, 2005................ 70.9 70.9 57.6 57.1 57.1 58.1 58.8 58.6
October 25, 2005............. 70.9 70.9 55.6 55.6 55.6 58.7 58.8 58.6
January 25, 2006............. 70.6 70.6 55.6 55.6 55.6 56.6 57.4 59.3
April 25, 2006............... 70.6 70.6 55.6 55.6 55.6 56.6 57.4 57.2
July 25, 2006................ 70.6 70.6 56.2 55.6 55.6 56.6 57.4 57.2
October 25, 2006............. 70.6 70.6 54.1 54.2 54.2 57.3 57.4 57.2
January 25, 2007............. 68.2 68.2 54.1 54.2 54.2 55.2 56.1 57.9
April 25, 2007............... 68.2 68.2 54.1 54.2 54.2 55.2 56.1 55.8
July 25, 2007................ 68.2 68.2 54.8 54.2 54.2 55.2 56.1 55.8
October 25, 2007............. 68.2 68.2 52.8 52.8 52.8 56.0 56.1 55.8
January 25, 2008............. NA NA NA NA NA NA NA NA
B767-332ER B767-332ER B767-332ER B767-332ER
DATE N1611B N178DZ N1612T N1613B
---- ---------- ---------- ---------- ----------
January 30, 2003............. 68.4% 68.4% 71.4% 71.5%
April 25, 2003............... 69.3 69.3 72. 3 71.5
July 25, 2003................ 67.3 67.3 71.6 72.7
October 25, 2003............. 67.3 67.3 71.6 71.7
January 25, 2004............. 67.3 67.3 71.6 71.7
April 25, 2004............... 67.9 67.9 72.2 71.7
July 25, 2004................ 66.9 66.9 69.1 72.3
October 25, 2004............. 66.9 66.9 69.1 69.2
January 25, 2005............. 66.9 66.9 69.1 69.2
April 25, 2005............... 67.5 67.5 69.8 69.2
July 25, 2005................ 64.4 64.4 68.8 69.8
October 25, 2005............. 64.4 64.4 68.8 68.8
January 25, 2006............. 64.4 64.4 68.8 68.8
April 25, 2006............... 65.1 65.1 69.4 68.8
July 25, 2006................ 63.1 63.1 66.4 69.5
October 25, 2006............. 63.1 63.1 66.4 66.4
January 25, 2007............. 63.1 63.1 66.4 66.4
April 25, 2007............... 63.8 63.8 67.1 66.4
July 25, 2007................ 61.7 61.7 65.0 67.1
October 25, 2007............. 61.7 61.7 65.0 65.1
January 25, 2008............. NA NA NA NA
IV-2
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
SERIES D EQUIPMENT NOTE
B737-832 B737-832 B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER B767-332ER
DATE N3760C N3761R N193DN N194DN N195DN N196DN N197DN N198DN
---- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
January 30, 2003.............. 80.9% 80.9% 67.9% 68.6% 68.6% 68.6% 68.7% 72.4%
April 25, 2003................ 80.9 80.9 67.9 68.6 68.6 68.6 68.7 68.4
July 25, 2003................. 80.9 80.9 68.4 68.6 68.6 68.6 68.7 68.4
October 25, 2003.............. 80.9 80.9 65.3 65.4 65.4 68.6 68.7 68.4
January 25, 2004.............. 79.3 79.3 65.3 65.4 65.4 65.5 65.5 68.3
April 25, 2004................ 79.3 79.3 65.3 65.4 65.4 65.5 65.5 65.2
July 25, 2004................. 79.3 79.3 65.3 65.4 65.4 65.5 65.5 65.2
October 25, 2004.............. 79.3 79.3 62.2 62.3 62.3 65.4 65.5 65.2
January 25, 2005.............. 74.6 74.6 62.2 62.3 62.3 62.3 62.4 65.2
April 25, 2005................ 74.6 74.6 62.2 62.3 62.3 62.3 62.4 62.1
July 25, 2005................. 74.6 74.6 62.2 62.3 62.3 62.3 62.4 62.1
October 25, 2005.............. 74.6 74.6 59.0 59.1 59.1 62.3 62.4 62.1
January 25, 2006.............. 72.9 72.9 59.0 59.1 59.1 59.2 59.2 62.1
April 25, 2006................ 72.9 72.9 59.0 59.1 59.1 59.2 59.2 59.0
July 25, 2006................. 72.9 72.9 59.0 59.1 59.1 59.2 59.2 59.0
October 25, 2006.............. 72.9 72.9 55.9 56.0 56.0 59.1 59.2 59.0
January 25, 2007.............. 68.2 68.2 55.9 56.0 56.0 56.0 56.1 58.9
April 25, 2007................ 68.2 68.2 55.9 56.0 56.0 56.0 56.1 55.8
July 25, 2007................. 68.2 68.2 55.9 56.0 56.0 56.0 56.1 55.8
October 25, 2007.............. 68.2 68.2 52.8 52.8 52.8 56.0 56.1 55.8
January 25, 2008.............. NA NA NA NA NA NA NA NA
B767-332ER B767-332ER B767-332ER B767-332ER
DATE N1611B N178DZ N1612T N1613B
---- ---------- ---------- ---------- ----------
January 30, 2003.............. 77.4% 77.4% 79.9% 80.1%
April 25, 2003................ 77.7 77.7 80.2 80.1
July 25, 2003................. 74.2 74.2 79.1 80.7
October 25, 2003.............. 74.2 74.2 79.1 79.1
January 25, 2004.............. 74.2 74.2 79.1 79.1
April 25, 2004................ 74.2 74.2 79.0 79.1
July 25, 2004................. 72.6 72.6 74.4 79.1
October 25, 2004.............. 72.6 72.6 74.4 74.4
January 25, 2005.............. 72.6 72.6 74.4 74.4
April 25, 2005................ 72.6 72.6 74.4 74.4
July 25, 2005................. 68.0 68.0 72.8 74.4
October 25, 2005.............. 68.0 68.0 72.8 72.9
January 25, 2006.............. 68.0 68.0 72.8 72.9
April 25, 2006................ 67.9 67.9 72.8 72.9
July 25, 2006................. 64.9 64.9 68.2 72.8
October 25, 2006.............. 64.9 64.9 68.2 68.2
January 25, 2007.............. 64.9 64.9 68.2 68.2
April 25, 2007................ 64.8 64.8 68.1 68.2
July 25, 2007................. 61.7 61.7 65.0 68.2
October 25, 2007.............. 61.7 61.7 65.0 65.1
January 25, 2008.............. NA NA NA NA
IV-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or to any of its stockholders for monetary damages for a breach
of fiduciary duty as a director, except (i) for breach of the director's duty of
loyalty, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for certain unlawful
dividends and stock repurchases or (iv) for any transaction from which the
director derived an improper personal benefit. Article Eighteenth of the
Certificate of Incorporation of Delta (the "Certificate") provided that no
director shall be personally liable to Delta or its stockholders for monetary
damages for any breach of his fiduciary duty as a director, except as provided
in Section 102 of the DGCL.
Section 145 of the DGCL provides that in the case of any action other than
one by or in the right of the corporation, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity on behalf of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145 of the DGCL provides that in the case of an action by or in the
right of a corporation to procure a judgment in its favor, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any action or suit by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in such capacity on behalf of another corporation
or enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted under standards similar to those set forth in the
preceding paragraph, except that no indemnification may be made in respect of
any action or claim as to which such person shall have been adjudged to be
liable to the corporation unless a court determines that such person is fairly
and reasonably entitled to indemnification.
Article Tenth of the Certificate provides that Delta shall to the extent
permitted be law indemnify any person for all liabilities incurred by or imposed
upon him as a result of any actual or threatened action, suit or proceeding,
whether civil, criminal, administrative or investigative, in which he shall be
involved by reason of the fact that he is or was serving as a director, officer
or employee of Delta, or that, at the request of Delta, he is or was serving
another corporation or enterprise in any capacity.
Delta has purchased and maintains at its expense on behalf of directors and
officers insurance, within certain limits, covering liabilities that may be
incurred by them in such capacities.
ITEM 21. LIST OF EXHIBITS
EXHIBIT
REFERENCE
NUMBER DOCUMENT DESCRIPTION
--------- --------------------
4.1 Pass Through Trust Agreement, dated as of November 16, 2000,
between Delta Air Lines, Inc. ("Delta") and U.S. Bank
National Association (as successor to State Street Bank and
Trust Company of Connecticut, National Association) (the
"Pass-Through Trustee")*
4.2 Trust Supplement No. 2003-1G, dated as of January 30, 2003,
between Delta and the Pass Through Trustee*
4.3 Form of Exchange Pass Through Certificate, Series 2003-1G
(included in Exhibit 4.2)*
II-1
EXHIBIT
REFERENCE
NUMBER DOCUMENT DESCRIPTION
--------- --------------------
4.4 Intercreditor Agreement, dated as of January 30, 2003, among
the Pass Through Trustee, Landesbank Baden-Wurttemberg (the
"Primary Liquidity Provider"), Merrill Lynch Capital
Services, Inc. (the "Above-Cap Liquidity Provider"), U.S.
Trust Bank National Association (the "Subordination Agent")
and Ambac Assurance Corporation (the "Policy Provider")*
4.5 Revolving Credit Agreement (2003-1G), dated as of January
30, 2003, between the Subordination Agent and the Primary
Liquidity Provider*
4.6 Above-Cap Liquidity Facility, dated as of January 30, 2003,
between the Subordination Agent and the Above-Cap Liquidity
Provider*
4.7 Registration Rights Agreement, dated January 30, 2003, among
Delta, the Pass Through Trustee, Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Lyonnais Securities (USA) Inc.,
Deutsche Bank Securities Inc., ING Financial Markets LLC,
J.P. Morgan Securities Inc., Salomon Smith Barney Inc. and
U.S. Bancorp Piper Jaffray Inc.*
4.8 Participation Agreement (N3760C) dated as of January 30,
2003, by and among Delta, the Pass Through Trustee, the
Subordination Agent, U.S. Bank Trust National Association,
as loan trustee (the "Loan Trustee"), and U.S. Bank Trust
National Association, in its individual capacity as set
forth therein*
4.9 Indenture and Security Agreement (N3760C) dated as of
January 30, 2003, by and between Delta and the Loan Trustee*
4.10 Form of Series 2003-1 Equipment Notes issued in connection
with the Boeing aircraft bearing U.S. registration number
N3760C (included in Exhibit 4.9)*
4.11 Participation Agreement (N195DN) dated as of January 30,
2003, by and among Delta, the Pass Through Trustee the
Subordination Agent, the Loan Trustee, and U.S. Bank Trust
National Association, in its individual capacity as set
forth therein*
4.12 Indenture and Security Agreement (N195DN) dated as of
January 30, 2003 by and between Delta and the Loan Trustee*
4.13 Form of Series 2003-1 Equipment Notes issued in connection
with the Boeing aircraft bearing U.S. registration number
(N195DN) (included in Exhibit 4.12)*
5.1 Opinion of Cadwalader, Wickersham & Taft LLP*
15.1 Letter from Deloitte & Touche LLP regarding unaudited
interim financial information
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG LLP
23.3 Consent of Cadwalader, Wickersham & Taft LLP (included in
Exhibit 5.1)*
23.4 Consent of Aircraft Information Systems, Inc.*
23.5 Consent of AvSolutions, Inc.*
23.6 Consent of BK Associates, Inc.*
24.1 Powers of Attorney*
25.1 Statement of Eligibility of U.S. Bank Trust National
Association for the 2003-1G Pass Through Certificates on
Form T-1*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
99.4 Form of Letter to Clients*
99.5 Schedule I*
---------------
* Previously filed.
II-2
Pursuant to Instruction 2 to Item 601 of Regulation S-K, Exhibit 99.5 filed
herewith contains (a) a list of other documents applicable to the Boeing
aircraft that relate to the offering of Delta's Pass Through Certificates,
Series 2003-1, which documents are substantially identical to those applicable
to the Boeing 737 and 767 aircraft bearing United States registration number
N376OC and (b) a list of other documents applicable to the Boeing aircraft that
relate to the offering of Delta's Pass Through Certificates, Series 2003-1,
which documents are substantially identical to those applicable to the Boeing
767 aircraft bearing United States registration number N195DN. Exhibit 99.5 sets
forth the details by which such other documents differ from the corresponding
documents filed in respect of the aircraft bearing United States registrations
number N3760C and N195DN, respectively.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) To reflect in the prospectus any facts or events or arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if the change in volume represents no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of such registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4, and has duly caused this Amendment No. 1 to
Form S-4 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, and State of Georgia, on the
5th day of September, 2003.
DELTA AIR LINES, INC.
By: /s/ M. MICHELE BURNS
------------------------------------
M. Michele Burns
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by or on behalf of the following
persons in the capacities indicated on the 5th day of September, 2003.
SIGNATURE TITLE
--------- -----
* Chairman of the Board and Chief Executive Officer
------------------------------------------------ (Principal Executive Officer)
Leo F. Mullin
* Director
------------------------------------------------
Edward H. Budd
* Director
------------------------------------------------
George M. C. Fisher
* Director
------------------------------------------------
David R. Goode
* Director
------------------------------------------------
Gerald Grinstein
* Director
------------------------------------------------
James M. Kilts
* Director
------------------------------------------------
John F. Smith, Jr.
* Director
------------------------------------------------
Joan E. Spero
* Director
------------------------------------------------
Andrew J. Young
*By: /s/ M. MICHELE BURNS Attorney-in-Fact
-----------------------------------------
M. Michele Burns
II-5