Delta Air Lines plans to amend its debt arrangements to avoid a default following a sharp fall in travel demand due to the coronavirus crisis, the carrier warns in a regulatory filing.
"Our primary credit facilities have various financial and other covenants that require us to maintain a minimum fixed charge coverage ratio and a minimum asset coverage ratio. Based on the reduction in demand that we have experienced and are continuing to experience as a result of the COVID-19 pandemic, we expect that we will not be able to satisfy the current minimum fixed charge coverage ratio by early next year," says Delta.
"We plan to seek and expect to obtain amendments to these credit facilities prior to a breach. However, our efforts to obtain such amendments may not be successful, which would lead to an event of default."
Delta expects revenue for the second quarter to be reduced by 90% compared with the year-earlier period, with systemwide capacity down 85% year over year.
The carrier says it is on track to reduce its daily cash outflow to $40 million by the end of the second quarter from approximately $100 million per day as of 31 March.
The move is part of its goal to reduce the average daily cash outflow to zero by 31 December 2020.
“We believe this improvement in average daily cash outflow would result from modest continued demand recovery, particularly with domestic leisure travel beginning to return as states lift shelter-in-place orders, and additional cost-cutting initiatives. We expect the recovery in international demand to lag domestic demand," says Delta.
The carrier has added 100 additional domestic flights in June and plans to continue to rebuild its schedule in the September 2020 quarter "as demand returns."
The carrier is “seeking" to have $10 billion in cash, cash equivalents, short-term investments and borrowing capacity under its revolving credit facilities as of 31 December.
Since early March, Delta has raised more than $10 billion through various financing arrangements, including the issuance of $3.5 billion of our senior secured notes due 2027 and the entry into two secured term loan facilities, with total net proceeds of approximately $4.4 billion.
It also received $3.8 billion in funding support to date pursuant to the payroll support programme under the Coronavirus Aid, Relief and Economic Security Act (CARES Act)
At the end of the second quarter, it expects to have approximately $6-7 billion of unencumbered collateral, primarily aircraft, with some engines and spare parts, and in excess of $14 billion in cash, cash equivalents, short-term investments and borrowing capacity under its revolving credit facilities.
It had operating lease obligations of $6 billion as of 31 March.
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