Deutsche Bank Markets Research Rating Buy Forecast Change North America United States Et:nano T:ckot Price at 6Jun 2014 1USDI 42.23 Industrials DAL N DAL US NYS DAL Price Target 48.00 Airlines 52...yea range 42.23 - 17.36 Delta Air Lines, Inc. Date 9 June 2014 EPS momentum carrying into 2H 2014/2015; Raising estimates/PT EPS momenium 'yen by better revenue e<pec led to continue Since the start of the quarter, revenue trends have been stronger-than- expected. In May, Delta unit revenues increased 7%, at the high end of the company's +6% to 7% range (tightened higher from +5% to 7% in the beginning of May). That PRASM came in at the high end of the tightened range could reflect better close in (i.e. business) bookings, in our view. Given that we are seeing similar trends across our US airline coverage universe, we believe that we are not only seeing the benefits of consolidation, but that the macroeconomic backdrop is also improving. As such we are raising our June Q and Pi 2014/2015 estimates and raising our PT: Buy. Jet fuel should also provide a tailwincl In addition to the aforementioned strength in revenue trends, we have also seen jet fuel crack spreads narrow markedly over the past month and a half, providing a further boost to June Q earnings. Jet fuel spreads to Brent and WTI have decreased 34% and 20% since mid-April, so while Brent and WTI are trading at similar levels the price of jet fuel per gallon has fallen 4%. Raising June 0, 2014, and 2015 riarnmcbl We are raising our June 0 2014 EPS estimate to $1.05 (vs. consensus of $1.02) from $1.00 as strong revenue and lower fuel prices are better-than-expected. We expect the revenue strength seen in the June Q to continue in the second half of 2014 and into 2015 as the benefits of the last round of consolidation provide better pricing power and the macro backdrop improves. As such, we are raising our 2014 and 2015 EPS estimate to $3.05 (vs. consensus of $3.04) from $2.85 and $3.55 (vs. consensus of $3.51) from $3.10, respectively. Valuation and risks Given our improved earnings outlook and our belief that Delta merits a multiple slightly above the group's historical range given its continued efforts to de-risk the business and reward shareholders (plans to pay down an additional $2 billion in net debt, increased dividend by 50%, and announced new $2 billion share repurchase program during the June 0), we are raising our price target to $48 from S40. Our price target is derived by the application of a 13.5 PIE multiple to our 2015 forecast, slightly above the group's historical 10x - 12x range. Turning to risks, fuel price volatility is a key risk for Delta—we estimate every 100/0 move in jet fuel (ceteris paribus) impacts our 2014 EPS forecast of $3.05 by $0.70. Other risks include economic weakness, government regulation, labor issues, the threat of terrorism and war, and the revaluation of the stock market resulting in higher equity risk premiums for airline stocks. Performance ro Im 3m 12m Absolute 12.0 19.4 141.5 !fOfeCalli And 'limn S&P 500 INDEX 4.4 3.9 20.1 Year End Dec 31 2013A 2014E 2015E sent oaarew ant FY EPS (USD) 114 3.05 3.55 P/E (x) 6.4 13.9 11.9 Revenue (USDm) 37,773.0 40,368.3 43,069.5 San Denbo an opting coastribleEfitetY lvtichml Lincnbece Research Analyst (+I) 212 250-9254 michaellinenberg@dboom Rielia fitv;isr Research Associate (+11212 250-9469 [email protected] Coax-ono ,1"ibi•bi Research Associate (+1)212 250-8949 catherinem.ebrionCadb.corn Rad Income Doug Remo, CEA Research Analyst (+11 212 250-9319 [email protected] Key changes Price Target 40.00 to 48.00 20.0% EPS jUSD) 285 to 3.05 7.0% Revenue 40.026 to 40.368 0.9% (USD01) SCGIC • tA.....:OND 8.•-•1 s°0 611 121)2 ail 3 —ow Pa twat. tee %PSC,' tuOtac cOt.b...41 12/13 Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0124134 SDNY_GM_00270318 EFTA01461861