Delta cuts fleet after $5.7bn loss
Delta Air Lines is axing flights and retiring more aircraft after posting a nearly $6 billion loss during the second quarter as the coronavirus pandemic continues to ravage passenger demand.
In an earnings release, the carrier says to be a "smaller, more efficient airline" it will accelerate the retirement of its entire MD-88, MD-90, 777 and 737-700 fleets and portions of the 767-300ER and A320 fleets this year.
Delta reported a $5.7 billion net loss during the period compared with a $1.4 billion net profit during the three months ending in June 2019.
Operating revenues fell by more than $11 billion, or 88%, year-over-year to $1.5 billion.
During the quarter, Delta recorded a write-down of $1.1 billion in its investment in LATAM Airlines and a $770 million write-down in its investment in Aeromexico following their financial losses and separate Chapter 11 bankruptcy filings. Delta also wrote down its investment in Virgin Atlantic during the quarter, resulting in a $200 million charge.
Total adjusted operating expense for the June quarter decreased $5.5 billion or 53% versus the prior-year quarter excluding a $1.3 billion CARES Act benefit and $2.5 billion in restructuring charges from fleet-related decisions and other charges.
This performance was driven by a $1.9 billion or 84% reduction in fuel expense, a 90% reduction in maintenance expense from parking over 700 aircraft and significantly lower volume- and revenue-related expenses. Salaries and benefits expense was down 24%, helped by more than 45,000 employees electing to take voluntary unpaid leaves.
"Our June quarter cost performance reflects extraordinary work by the entire Delta team, as we removed more than 50% from our adjusted cost base," said Paul Jacobson, Delta's chief financial officer. "We expect to achieve a similar 50% year-over-year reduction in the September quarter despite a sequential increase in capacity, reflecting the increased variability we have achieved in our cost structure."
Demand for air travel declined significantly with enplaned passengers down 93% year over year. Passenger revenues declined 94% on 85% lower capacity. Non-ticket revenue declined 65%, as cargo, MRO and loyalty revenues declined at a lower rate than ticket revenue.
Ed Bastian, Delta's chief executive officer, says: "Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery."
The Atlanta-based airline has cut in half the number of flights it planned to add next month to 500 flights per day from 1,000.
Delta says it is taking advantage of reduced demand to accelerate airport construction projects in Los Angeles, New-York LaGuardia and Salt Lake City to shorten timelines and lower the total cost for the projects. The carrier is also launching voluntary separation and early retirement programmes to manage headcount and rescale operations.
Less burn
Delta accepted $5.4 billion in payroll assistance from the federal government's coronavirus aid package, or CARES Act, in April. Also, the airline is evaluating taking another $4.6 billion in general loans from the CARES Act.
It reduced its late March cash burn by 70% to $27 million in June. Daily cash burn averaged $43 million for the quarter.
The carrier finished the three months with $15.7 billion of liquidity. Cash used in operations during the quarter was $290 million.
At the end of the quarter, the company had total debt and finance lease obligations of $24.6 billion with adjusted net debt of $13.9 billion.
During the quarter, the company raised $11 billion in new liquidity at a blended average rate of 6.5%.
New financings completed during the quarter included $5 billion in slots, gates and routes secured funding, $2.8 billion in sale-leaseback transactions, $1.4 billion of the PSP loan, $1.3 billion in unsecured notes, $243 million in B tranches of enhanced equipment trust certificates and an additional $250 million on its 364-day secured term loan.
"Our average daily cash burn has improved each month sequentially since March, and we remain committed to achieving breakeven cash burn by the end of the year," Jacobson adds. "By raising cash early and aggressively managing costs, we are prepared to navigate what will be a volatile revenue period while making decisions that position Delta well for the eventual recovery."