Delta Air Lines revealed in its 10-K filing that its valuation allowance for deferred tax assets at the end of 2013 was $177 million, dramatically lower than the over $10 billion recorded at the end of 2012. Here is an excerpt from a press report from Bloomberg in January 2014, regarding this allowance: Delta Air Lines Inc. (DAL) led shares of U.S. carriers higher after posting fourth-quarter profit that topped analysts estimates and forecasting an operating margin of as much as 8 percent in this years initial three months. . . . Airlines are benefiting from lower fuel prices, constraints on capacity growth, controls on operating costs and demand thats keeping planes full, said Ray Neidl of Nexa Capital Partners LLC, a Washington-based aerospace and transportation consulting firm. . . . Net income was $8.48 billion, including an $8 billion non-cash gain from the reversal of a tax valuation allowance.

The following is an excerpt from a disclosure note to Deltas 2013 financial statements: NOTE 12. INCOME TAXES (In part) Deferred Taxes The components of deferred tax assets and liabilities at December 31 were as follows ($ in millions):

		December 31
		2013				2012
Deferred tax assets:
Net operating loss carryforwards		$6,024				$6,414
Pension, postretirement and other benefits		4,982				6,415
AMT credit carryforward		378				402
Deferred revenue		1,965				2,133
Other		698				881
Valuation allowance		(177	)			(10,963	)
Total deferred tax assets		$13,870				$5,282
Deferred tax liabilities:
Depreciation		$4,799				$4,851
Intangible assets		1,704				1,730
Other		639				285
Total deferred tax liabilities		$7,142				$6,866

Required: 1. What is a valuation allowance against deferred tax assets? When must such an allowance be recorded? Use Deltas situation to help illustrate your response. 2. Is an amount recorded in a valuation allowance for a deferred tax asset permanent? 3. Consider the excerpt from Bloombergs press release. Recalculate the effect on Deltas 2013 net income of the change in Deltas valuation allowance for its deferred tax assets.