Delta Plans $2 Billion Buyback as Dividend Increases 50%

Delta Air Lines Inc. boosted its dividend by 50 percent and authorized a $2 billion stock-buyback plan, as airlines start putting cash back into shareholders’ pockets.

Investors will receive $2.75 billion under the plan announced today, Delta said in a statement. The quarterly payout will increase to 9 cents a share from 6 cents starting in the September quarter. The share-repurchase program will be completed by Dec. 31, 2016, Atlanta-based Delta said.

After a $58 billion run of losses last decade, U.S. airlines are trying to make themselves more attractive to investors. Southwest Airlines Co. is also poised to increase dividends this month, according to data compiled by Bloomberg. Alaska Air Group Inc., based in Seattle, raised its dividend by 25 percent in February to 25 cents.

“Thirty-five years since deregulation, they’ve gotten to the point that they are going to be creating wealth instead of destroying wealth,” Michael Derchin, an analyst with CRT Capital Group in Stamford, Connecticut, said in an interview yesterday.

“It’s nice to see them compete on returns to shareholders instead of cutting each others’ throats through fare wars,” he added. “It’s a different kind of competition.”

Delta restarted its dividend last year, following a decade-long break punctuated by bankruptcy and the biggest acquisition in its history, as part of an effort to return $1 billion to stockholders. The company later rejoined the Standard & Poor’s 500 Index after being dropped in 2005 ahead of its Chapter 11 bankruptcy filing.

Bigger Buyback

Analysts including Savanthi Syth of Raymond James in St. Petersburg, Florida, and Kevin Crissey, founder of Skyline Research LLC in Mahwah, New Jersey, had been forecasting a buyback program closer in size to the $500 million share repurchase plan Delta announced a year ago.

Delta rose 0.4 percent to $37.69 at the close in New York. That pushed its increase this year to 37 percent, topping the Standard & Poor’s 500 Index’s 1 percent gain.

Andrew Davis, a Baltimore-based transportation analyst at T. Rowe Price Group, said he thought Delta potentially could have repurchased $2 billion in stock. Most investors probably thought $1 billion was more likely, he said.

“It’s a fantastic example of what the airlines should do,” said Davis, whose company holds about 22 million Delta shares.

American, United

Delta’s new dividend will give it a yield of about 1 percent, which is about what most industrial companies try to provide, Davis said.

Delta’s two largest U.S.-based rivals, American Airlines Group Inc. and United Continental Holdings, will probably hold off on returning some of their cash until at least next year, Derchin and Helane Becker, a New York-based analyst at Cowen & Co., said.

American is still working to integrate its operations with US Airways after merging last year.

“There is an awful lot of work to be done,” Derchin said, including linking the two reservation systems. “Until they get that behind them, I think it might be prudent to hold onto their cash.”

United, which posted the only first-quarter loss among major U.S. carriers, will probably wait to increase its dividend or buy back shares until it improves its financial performance, Derchin said.

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