Good morning ladies and gentlemen and welcome to the Delta Air Lines June 2008 quarter financial results conference call. (Operator Instructions) I would now like to turn the presentation over to Shannon Mutschler, General Manager of Investor Relations for Delta Air Lines; please proceed.

Good morning everyone. Thank you for joining us today to discuss Delta’s June 2008 quarter financial results. Speaking on today’s call are Richard Anderson, Chief Executive Officer and Ed Bastian, President and Chief Financial Officer. Also joining us for Q&A is Glen Hauenstein, Executive Vice President of Network and Revenue Management and Hank Halter, Senior Vice President and Controller. Before we begin please note this call is being webcast live via the internet and is also being recorded. If you decide to ask a question it will be included in both our live transmission as well as any future use of this recording. Any recording or other use or transmission of the text or audio for today’s call is not allowed without the express written permission of Delta Air Lines. Today’s discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Delta’s SEC filings. We will also discuss certain non-GAAP financial measures. You can find the reconciliation of those non-GAAP measures on our Investor Relations website at www.delta.com. With that, I’ll turn the call over to our Chief Executive Officer, Richard Anderson.

Thank you Shannon and good morning everyone. Thanks for joining us on the call today. This morning we announced Delta’s financial results for the June, 2008 quarter. Excluding special items Delta recorded net income for the second quarter of $137 million in spite of record high fuel prices that drove more then $1 billion in additional fuel input costs year-over-year. This compared to net income of $274 million in the June quarter of 2007. On a GAAP basis we recorded a $1 billion loss driven mainly by a $1.1 billion non-cash impairment charge and you’ll recall last quarter we had the first part of that charge and this is the final true-up and a $96 million severance charge and I’d note on the $96 million severance charge, that was part of our process that we initiated earlier in the year to reduce overall staffing at the airline and that process has gone well and will result in significant payback within the year. Generating positive earnings for the quarter given the unprecedented rise in the price of jet fuel is something that not many of our competitors will be able to report and it is a testament to the hard work of all the people at Delta Air Lines. They are delivering on our internal financial goals and they’re running a great airline. For the last 12 months Delta ranks number two among our competitive set for on time performance. In addition the latest view of key statistics ranked Delta in the top five for baggage performance in May and we had a 32% decline in the number of mishandled bags year-over-year in the June quarter. This improvement reflects our ongoing investment in technology and process reengineering so we appreciate and want to thank all the Delta employees for their great…

Thanks Richard, good morning everyone and thank you for joining us today. For the June quarter Delta reported a $1 billion loss which includes three special charges; a $1.1 billion non-cash charge net of $119 million tax benefit relating to the impairment of goodwill and other intangibles. This charge represents a true-up to the estimates recorded in March and reflects third party evaluations that were finalized during the June quarter. Next a $96 million severance charge related to the over 4,000 employees who participated in our early retirement program announced last quarter. About one-third of those employees have left the company as of June, 80% in total will have left by the end of September and the remainder will exit by the end of this year. And finally a small $6 million charge related to facilities restructure. Excluding these special charges net income for the period was $137 million which compares to net income of $274 million in the June, 2007 quarter. On a base of 396 million diluted shares this equates to earnings per share of $0.35 per share and compares to [consensus] of $0.10 per share. Operating margin in the quarter was 4% in spite of the fact that fuel prices were 50% higher on a year-over-year basis. In fact higher fuel prices added over $1 billion in additional fuel input costs this quarter. Delta was able to mitigate almost 80% of this additional fuel cost through the increased revenues of almost $500 million including international expansion as well as the other revenue gains that Richard was referring to, productivity initiatives and importantly fuel hedging gains which totaled $313 million in the quarter. Delta began taking aggressive actions to combat rising fuel costs last year when we developed our 2008 business plan which included $400 million in revenue…

(Operator Instructions) Your first question comes from the line of Mike Linenberg – Merrill Lynch Mike Linenberg – Merrill Lynch: As it relates to your cuts in capacity, what does that mean for airport costs and specifically I’m looking at some of the stuff that you’re pulling back in Las Angeles, do we see on a unit basis those numbers move up or do you have a unique opportunity with the merging in the offing to go back to these airport authorities and re-cut deals?

One of the integration teams has the facilities groups of the two organizations and you’ll notice in this quarter we’ve already gone down the road of staring to do that with part of the special charge that we have in the GAAP reported earnings of $6 million is related to reduction of those facilities. We have a plan with Northwest that basically every airport in the United States to rationalize our capacity. LA would be a prime example where you can consolidate into one of the two facilities and probably have a gain on the facility that you get rid of at an airport like that. There’s a lot more opportunity and we have one team dedicated to that and our station overlap, to give you some idea, our station overlap synergy number on the cost side is well in excess of $100 million. You’ve hit the nail on the head. Mike Linenberg – Merrill Lynch: The situation with Mesa, obviously I believe, I don’t know if its formally out on appeal yet, but from what I’ve heard is that at present they’re not flying, or the airplanes aren’t in the schedule, what’s the minimum that you have to pay them, I don’t know if its on a monthly basis, what cash is going out and yet you’re not receiving any services?

Since its pending litigation it would be best for us to not comment on what the status of it is. So while I wish I could answer your question, I think that its best advice that given the nature of the litigation with Mesa that we stay off the record on that.

Your next question comes from the line of Daniel McKenzie – Credit Suisse Daniel McKenzie – Credit Suisse: Economic conditions appear to be deteriorating pretty rapidly in the euro area and open skies appears to be a counter-punch for Delta going into London Heathrow, so I’m wondering what gives you the comfort that international demand is going to keep pace with the capacity that’s entering the market looking ahead.

We react to demand and our commitment to our shareholders and our employees is that we will react to demand changes relatively quickly and I think that you would see from the domestic pull-down that we had this summer that we were way out ahead of the industry in seeing what was happening last fall and we reacted quickly. We are paring down some of our international growth and we’re taking the laggards out of the network for the fall anticipating that the robust growth that we’ve seen over the past two years in international and traffic and revenues will start to level out as we move into the fourth quarter. But right now everything is still remaining very strong from all indications including forward bookings and advance yields. So as we see that softening we will react. We have a lot of opportunities to continue to move the asset base around and maximize revenue so I’m relatively confident that we will adjust appropriately but I do share your concern that we may see a softening in some of the international markets moving forward.

Remember also that our growth in the transatlantic is largely going across to new territories, into Africa, into The Middle East so it’s not solely in the open skies arena in terms of some of the classical European arrangements so we’ve got a little bit of a different footprint then some of our competitors. Daniel McKenzie – Credit Suisse: Given the surprise on the integration costs I wonder if you could highlight some of the big buckets where the $600 million spend is going to be and is there potentially some room for improvement there?

When we announced the deal back in the April timeframe we said integration costs were not to exceed $1 billion so we were confident at that point but we needed to do some more detailed work to get the number down to where you’re seeing it. Some of the big areas that we’re going to be spending are obviously in the technology space. It’s going to be critical that we had an effective and seamless technology integration of the two airlines. There’s going to be money spent in aircraft modifications in terms of bringing our product standards into a consistent look and feel. We’re going to be moving expeditiously to try to bring from a customer perspective our brand together as rapidly as possible. You’re going to see some costs on the maintenance programs as well as we bring our maintenance programs into a single standard so that we can receive a single operating certificate and you’re also going to see transaction costs which whether it be advisor fees and they’re not just Delta’s fees, obviously they’re the Northwest fees as well and some costs on the financing side. Those are some of the larger bucketed areas for the integration and we expect the $600 million to be over three year timeframe. Our commitment to our shareholders is that we will get out ahead of the value of the deal. We will not be spending money waiting for value to show up. We’re going to time the cost of the integration to the value received.

Your next question comes from the line of Jamie Baker – J. P. Morgan Jamie Baker – J. P. Morgan: I’m wondering if you’ve changed your mind regarding the decision to wait until after the deal closes to secure any additional funding. Obviously there’s some risk that whatever financing pool is out there today could dry up between now and then.

We have not changed our mind in a macro sense, we are working on some targeted initiatives that we might be able to close pre the merger transaction closing and I know the Northwest team is working on some specific tactical cash raising opportunities as well. But the bigger cash raising opportunities we continue to believe will be following our close of the merger which will be in the fourth quarter. Jamie Baker – J. P. Morgan: As you potentially bake off the Affinity card providers off one and another, any thought on the expected proceeds you might be able to generate particularly now that you can frame your optimism against what Continental was able to achieve?

There is a very substantial opportunity there. When you think about the size of what this frequent flyer program will be and you just kind of look at what our other revenue line is at Delta and the other revenue line at Northwest and try to glean out sort of what the size is, its substantially more then the numbers that Continental posted in their reported mileage and we’re pretty optimistic about that because the termination periods of the two Affinity cards at each of Northwest and Delta are pretty well aligned. So we’re actually pretty excited about that opportunity. Jamie Baker – J. P. Morgan: Based on the capacity cuts that you and others have announced so far and based on your view for 2009 do you think the model is working again at $4 jet fuel that you can be profitable next year, has enough capacity come out?

I think we’re still in the planning process for 2009 and I think probably what we’d look at doing is in the 3Q call is try to give you a bit more of an update but I think we need to see where the final schedule takes come in in the fall. There’s still, while there have been a number of announcements we still need to see what the final schedules are and I think we’ve got a bit more work to do on our business plan looking out at 2009. I think the model has got to—the whole industry model has got to evolve much more quickly in that kind of a fuel environment and you’ve got to really be thinking through about—you’ve got to really be thinking through what does the network look like? What size aircraft work at what demand levels? When you think about the amount of leisure traffic, there’s been a lot of capacity built in the United States over the past decade to carry pretty much low end traffic, unlike the Europeans by the way. You think about the European model, the European model is a model that doesn’t have as much sort of excess capacity to carry the lower end traffic and it’s probably the lower end traffic that is not going to want to purchase at the market clearing price that covers the cost of fuel. We’re spending a lot of time rethinking what that model, what the industry model looks like and how you make it work at those levels but a lot of its going to depend upon what the total industry reaction is to these fuel price levels and how that reaction is demonstrated in the capacity changes that are made over the next two quarters.

Your next question comes from the line of Gary Chase – Lehman Brothers Gary Chase – Lehman Brothers: You mentioned in the prepared commentary you’re planning to remove 100 regional jets, or affectively remove the equivalent of 100 regional jets by the end of the year is that foreshadowing additional capacity reductions off the mainline, away from the mainline during 2009 or should we consider that pretty consistent with what you talked about in terms of your capacity plan for the fourth quarter and the run rate of that?

I think it’s consistent with what we’re looking at for the fourth quarter but certainly you can’t [force] the mainline and the regional portfolios from themselves. When you look at this fuel environment there’s no question the most inefficient and least productive aircraft that we operate are the smaller gauged regional jets and that’s why we’re moving as aggressively as we are to reduce that—we’ve announced some deals here very recently and we’re going to probably have some additional announcements coming over the next few months. I’d expect there to be some potential for some additional mainline reductions going into next year.

It’s hard to breakout what portion of the 100 but its really a bit additive if you will. In other words there’s some of that 100 that’s in the domestic pull-down and I don’t have the exact breakout but there’s some of it that’s on top of that because we’re just looking at what 50-seat airplanes look like on some of the longer stage lengths and it just doesn’t make sense on the longer stage lengths for sure. Some of those will be additive and as we finish our capacity planning for the fourth quarter and the first quarter you should expect us to continue to trim on the regional jet fleet. Gary Chase – Lehman Brothers: If I could ask you to tighten up a little bit, I think the stuff that you’ve disclosed about how the synergies are going to look for next year is important because you’re talking about realizing more operational synergy then you are cash integration costs and in an environment like this where liquidity is at a premium as you’ve acknowledged, that’s really important. Can we talk about the $500 million that you’re expecting to generate in 2009 and just give us a sense of what that is that’s hitting and what you’re confidence level is in that $500 million and the speed with which that will spool versus the $2 billion you expect to get to over time?

The bulk of the early savings or the synergy benefits if you recall are going to come initially from the coupling of the networks together. So being able to fully flow the fleet back and forth between the two networks that’s one of the rationale why we wanted to get the unified pilot deal done prior to closing as well as with the integrated seniority list prior to closing so that you’ll see the network synergies are probably the bulk of that $500 million in the first year. Network synergies includes not just S curve and presence but benefits also coming from our frequent flyer program, benefits coming potentially from the Affinity card program as well. Many of the cost synergies will take a little bit longer to get at because some of those are technology oriented and they also will require us to continue to work with the various labor groups at Delta as well as Northwest and there will be some cost dis-synergies attached to those in the first year. I think you can think about the first year as largely being a revenue play and then by the second year we’re starting to ramp up the cost synergies and the network synergies are taking firmer shape. Gary Chase – Lehman Brothers: You mentioned, I think you said a $3.2 billion liquidity target by the end of the year and you noted you expect to close the merger before the year end and there might be some liquidity opportunities that follow that, does the $3.2 billion contemplate any additional financing or is that just sort of where you expect to end prior to additional financing options you may pursue?

The $3.2 billion is a Delta stand-alone estimate and it has no benefit from any financing or cash raising opportunities that we’re exploring.

We would expect on the timeline that we have that between Delta and Northwest there will be fairly significant cash raising done prior to the close but the lion share will come after the close but we’re pretty comfortable with where we are on the liquidity position because we already have contemplated a couple of actions that one of which is the Affinity card we alluded to earlier—a couple of actions that can substantially increase the combined free liquidity of the merged entity.

Your next question comes from the line of Ray Neidl – Calyon Securities Ray Neidl – Calyon Securities: With the grounding of 100 regional aircraft I was just wondering if you could go into a little bit more detail on what you think your regional needs will be going forward both as Delta stand-alone and then after the merger, will there be more cutbacks and will you take [inaudible] from Northwest and use your own pilots to fly a lot of the regionals?

One of the benefits that we factored into the update synergy analysis is the fact that we’ll be fairly large scale customer if you will of the regional jets, in fact I think we’re going to have roughly 40% of the smaller gauge regional jets under Delta code between us and Northwest by—at the time we close this deal. We do expect there’s going to be rationalization of the portfolio. We do expect that the 100 aircraft reduction that you see, there will be additions to that, not in terms of reductions not additional aircraft, but additional reductions and I think more importantly I think it gives us a chance to sit down with our contract partners across both networks on the regional jet front and talk about how we can do business more effectively together and more efficiently together because there’s a lot of redundancy and a lot of cost to operating as many contracts as both we and Northwest do. We’ll have a nice blend of owned carriers as well as contract carriers and I think there’s going to be a substantial value that we can create over the next couple of years there.

The interesting thing on the owned side when you take Comair, Mesaba, and Compass even they will still continue to be operated as separate carriers; there are very significant overhead and fleet commonality opportunities that can come from operating those sort of more collectively. They’d each maintained their separate carrier status but at the same time there are many overhead and SG&A opportunities that can be rationalized because that’s in and of itself a very large airline, those three airlines combined in terms of their fleets. Ray Neidl – Calyon Securities: Being that Delta is one of the leaders in writing a letter to congress for an investigation on the futures markets and oil, would you like to go into a little bit more detail on why you think that market may be manipulated and more importantly what you think the positive aspects of an investigation will do in possibly lowering oil prices?

When you think about what’s happened in the money markets generally, the bond market, the stock market, the mortgage lending market, pretty much all the other places for money to go the last two years have not been very good. And when you look at where the large investment banks are making a lot of their money these days, it’s in the commodities market. And if you look over the last three or four years all investment advisors to endowments and pension and trusts, have now moved into the new category class of “commodities.” So since 2004 you’ve had about $350 billion move into the futures market and when you look at just the pure paper trading on a daily basis versus what the actual consumption is, it’s significantly higher. And these are very unregulated markets and while the lobby on the other side of this is incredibly powerful, the Nimex and the Chicago Mercantile Exchange, and Goldman Sachs and firms like that, make an enormous amount of money in churning these futures markets. And I think there’s a fundamental public policy that with respect to food and fuel are you going to have that kind of speculation in the market that drives price. When you have price of a barrel of oil go up $10, $11 as we had it happen one day earlier this summer, when an investment bank issues a report saying oil is going to $150 or $200 and then immediately everybody rolls their futures, there’s something more going on in the market in a relatively unregulated market, there’s more going on there then just hooking supply to demand. We think that—just like yesterday the SEC reacted very quickly to speculation in the stock market. We haven’t seen that kind of reaction in the commodities market and because all of these other markets are doing so poorly and PEs are down so low, all the money is flooding in to the long commodity markets. So you’re seeing it in wheat, in corn, in oil, and ultimately there have to be some public policy decisions made about whether or not that’s the right public policy. Ray Neidl – Calyon Securities: And would you be in favor of more transparent SEC investigations of the short player and stocks?

I think the work that the SEC is doing right now is the right work. I think that from a policy standpoint what they’re trying to do is make the markets work and when markets don’t work because of aberrant sort of behavior like this, it’s not good for anybody.

Your next question comes from the line of William Green – Morgan Stanley William Green – Morgan Stanley: Can we just come back to the synergies here and can I ask you—do you have an impact from Continental leaving SkyTeam and do you have any assumptions of more mergers coming down later on and is the SkyTeam ATI incremental to the synergy or is it within the synergy?

Yes when we did the deal we fully were aware that there was a high risk that Continental would be leaving SkyTeam so we factored that into our thinking. I would tell you it’s not a big number in our view. William Green – Morgan Stanley: I thought Northwest had said it was somewhere around $125 to $200 somewhere around that from the joint venture that they have?

There’s clearly some value on the Northwest side, but at the end of the day it’s probably as it relates to SkyTeam in and of itself it’s not a big--

It’s not much at all. Over time with yield management mapping and steps that had been taken over time between the two carriers it’s not a very material amount of money. William Green – Morgan Stanley: In your synergies do you assume there are more mergers or no this is it?

Our synergies again, the focus was putting our two networks together against the economic backdrop that we can see today. When we did this work, are we assuming there’s going to be a follow-on deal? You tell me, I think at some point we certainly thought there was going to be; now it appears there may not be for a little bit of time. I’m not certain that it’s shaded plus or minus as the industry consolidates. We do believe long-term there probably will be some additional consolidation but its certainly not going to be in the near-term. William Green – Morgan Stanley: Is the SkyTeam ATI benefit in the synergy number or no?

Yes.

Its understated, its in the synergy benefit but I would say that overall we haven’t really leveraged the full impact of what having 30% of the market in an immunized joint venture with KLM, Air France, Northwest and Delta is long-term really going to be able to create because if you look at the margins that Northwest has across the transatlantic they are among the highest margin in any airline business anywhere in the world. When you think about being able to leverage that across a network that’s three times as big it has significant opportunities. William Green – Morgan Stanley: If I turn to the cost segment how much did the cost synergy change as a result of the pilot deal?

The cost synergy number didn’t change in aggregate much, the timing moved a little bit up so we have the cost synergies kicking in on the Northwest side day one whereas when we announced the deal in April we didn’t have a deal so that was viewed as it was going to be a slower ramp. That said also the revenue benefits have kicked in day one on a much enhanced basis so there’s substantial accretion given to the fact that we actually have this deal done. William Green – Morgan Stanley: If you look at the capacity cuts that you’ve got planned for the fourth quarter how much above that sort of absolute value of that capacity cut should we expect RASM to go up, how much yield managing can you really do above and beyond the cut?

Well I think that’s the $64,000 question isn’t it. Unprecedented industry capacity reductions, will that translate, what will the actual economic backdrop be? What will be able to be translated into unit revenue increases? And while we’re cautiously optimistic we don’t know if that’s enough yet, if that’s enough capacity from the industry and to add to Richard’s comment earlier, more industry capacity has to come out. The question is where does it have to come from? Does it have to come from those carriers that don’t have business plans that are languishing in bankruptcy court or does it have to come from the legacy carriers? And I guess the markets will determine that too. So there’s a lot out on the plate waiting to see how this evolves into the fall and our commitment to our shareholders and to our employees is to stay ahead and I think we’ve done a good job to date staying ahead and we plan on continuing to stay ahead as these trends develop. But we don’t have great visibility into October, November for revenue yet and that’s when a lot of the capacity actually hits so cautiously optimistic, would hope that—it needs to be double-digit numbers to cover fuel. Right and so we’re hoping we get there and we’re hoping that the industry environment stays in a rational pricing and that demand holds out.

Your next question comes from the line of Kevin Crissey - UBS Kevin Crissey – UBS: Can you talk about the merger review process outside of the US and the status in the EU?

That process is moving on quite well. I know there was a recent announcement about a suspension of the review, that’s apparently—my understanding is that’s a fairly small detail that needs to be wrinkled out. We do not expect there to be any delay as a result of that EU review process and our ability to close the deal by the end of this year. Kevin Crissey – UBS: Could you talk about—AirTrans according to the stock market and on our numbers AirTrans in significant trouble; can you talk about your approach to AirTran markets and capacity cuts as it relates to those markets?

There are no capacity cuts in AirTran markets, as a matter of fact, despite the fact that we are down in general capacity by about 13% to 14% in the fall domestically, we are actually up in AirTran competitive markets into and out of Atlanta. Some of the point to point flying we have taken reductions in. But into and out of Atlanta of course Atlanta being our core strength market we are continuing to leave that capacity in. Kevin Crissey – UBS: In terms of the first bag fee, I think Northwest has it and you don’t, where is that heading?

We will study it, we will continue to study it but we have no plans to implement it at this point.

Your final question comes from the line of Chris Cuomo – Goldman Sachs Chris Cuomo – Goldman Sachs: If you could perhaps just dig a little bit deeper into the pricing activity that you’re seeing in the here and now sort of in the domestic markets as opposed to what you expect looking forward, with respect to competitor action, your own action, you are cutting domestic capacity reasonably significantly, but only generating modest yield gains in Q2, could you just comment on what’s driving that? Why is that the case?

I think there are a couple of issues that are going on and we’re studying each one of these individually because there have been unprecedented moves in pricing by the legacy carriers in the non-LCC competitive markets and there are a lot of satellite airports and we’re seeing changes in traffic patterns which we’re having to react to by either going back on some of the pricing increases in the fuel surcharges to move the traffic back into the appropriate airports or we’re cutting capacity. So we are in a transition process here. The whole industry is. I think what you’ve seen, and we’ve given our increase in length of haul is that our capacity cuts have put us at the upper end of the range of where the industry is at as far as unit revenues go and we think there’s a lot more opportunity as we fine tune this. We’ve never as an industry seen pricing move as quickly as we have. Of course in response to the run up in fuel and that creates an entirely different demand set and now we have to go back and analyze individual markets, every individual market. Was that the right move? Is there more upward mobility in pricing? Do we have to move back on some markets or should we take capacity out? And that’s the process we are in right now and that’s I think why we’re not doing more capacity cuts right now. We’re waiting to see essentially where this equilibrium goes and how when we fine tune it what more we can get out and as the industry starts to come to the party in the fall, what the implication of that is. But there are carriers out there pricing for cash. And that’s really continuing to put a big dampening on the impact so while I’m optimistic that Delta will be in a great relative position I’m also wondering, maybe you can help me answer this is, we hear there’s a global demand for narrow body equipment yet carriers that are in bankruptcy today, those planes are not leaving and so what is the global demand environment and is it softer then we think?

One further point, remember also that a significant amount of our capacity reductions really kick in at the end of the summer season so you haven’t seen the yield effects yet of the large scale domestic pull-down. It will be kicking in in the August, September timeframe. Chris Cuomo – Goldman Sachs: How about just quickly on the other revenue line, obviously you and may other carriers have instituted a number of additional fees and charges, have you put a target out there or sort of all in bucket that you’re seeking to achieve and broadly speaking how are you tracking with respect to your initial goals?

We are tracking on to [plus] on the initial goals. We’re seeing on the other revenue line about a 25% to 30% growth rate all in when you factor in not just the fees and the additional charges from decoupling the pricing environment and actually charges for services rendered, but also look at what we have on our SkyMiles program, when you look at what we’re doing in cargo, when you look at what we’re doing in our third party MRO business, we’re expecting non-passenger revenues for Delta this year, full year, to end the year at about $2.8 billion; a substantial business and that’s growing at a 25% growth rate and we continue to see that growth into next year as well. It’s a big part of our strategy with respect to how the business model is changing and the type of revenue we’re needing to generate to cover this higher fuel cost. Chris Cuomo – Goldman Sachs: The real important question, what’s your second half crude oil assumption, what are you going with, the forward curve?

We use the forward curve on our guidance; I think we gave guidance on fuel for the third quarter roughly in the 135 range crude assumption is the assumption.

That concludes the question-and-answer session for today’s conference call. Thank you very much for your participation.