Summary
- delta has increased its fair share of cash since the beginning of the COVID-19 pandemic and believes it is well positioned to handle the debt due over the next 18 months.
- There is no certainty that delta will ultimately achieve its goal of balanced daily cash burn by 2020 as demand trends remain opaque, but the airline is not deviating from its plan to achieve that goal.
- The airline is also unsurprisingly in talks with airbus Postpone deliveries as it declares to do its best to minimize aircraft deliveries over the next 18 to 24 months.
delta assures that its cash on hand is robust enough to weather the COVID-19 crisis
US Airlines have raised massive amounts of liquidity since the beginning of the COVID-19 pandemic. delta closed the second quarter of 2020 with $ 15.7 billion in liquidity, and company executives recently announced that the newly raised liquidity (approximately $ 15 billion) has a mixed average rate of 5.5% .
The $ 15.7 billion that includes wage subsidies delta Received under the Coronavirus-Aid, Relief and Economic Security (CARES) Act, corresponds to approximately 19 months of liquidity.
delta assures that its level of liquidity is more than sufficient to handle the upcoming debt maturities, which is $ 450 million due in December 2020 and an unsecured loan of 600 million that is debt that delta raised during the COVID-19 crisis; “So we’ve already successfully refinanced that,” said delta Paul Jacobson, Chief Financial Officer.
Additionally, delta has a $ 3 billion bridging loan due March 2021 with collateral attached.
The airline has stressed that it will continue to be able to raise additional capital, either on its own or by using unencumbered assets. delta is also entitled to a CARES act loan of 4.6 billion US Government.
delta remains focused on zero daily cash burn by YE2020 but demand is under pressure
delta improved its daily cash burn, reducing it from $ 100 million in March 2020 to $ 27 million in June 2020, which is better than previous predictions of a daily cash burn of $ 30 million for that month.
The airline expects to maintain the same level of cash burn in July 2020 as it was in June 2020 as demand growth has stalled.
In June-2020 delta saw a steady increase in net sales while refunds decreased, and although the increase in sales has flattened out as infections have increased, Mr. Jacobson said sales remain stable at this point.
“As we see the further way to reduce our operating costs [by] 50% and keeping these net sales relatively flat, it’s July [Jul-2020] comes out flat by June [Jun-2020]”Explained Mr. Jacobson.
delta reduced its total cost of ownership by 50% year-over-year in Q2 2020 and expects its costs to decrease by the same amount in Q3 2020. The decrease in costs is largely due to more than 40,000 employees who have taken voluntary, short-term unpaid leave and crews who have reduced their working hours. Around 17,000 employees of the airline have also volunteered to leave the company.
It will be difficult to find more cost-cutting measures to zero the airline’s cash burn by the end of 2020, and delta CEO Ed Bastian has confirmed that “it will really be on the commercial side of the business, that will be much more important in getting us to that break-even level”. [daily cash burn] as the demand hopefully … starts to pick up again when we look at late summer and autumn ”.
A total of, delta continues to believe it could take two years or more to benefit from a sustained recovery, Bastian said, given the combined impact of the pandemic and the associated impact on the global economy. And the airline expects its revenue in Q3 2020 to be just a fraction of the previous year’s figure – 20 to 25%.
delta works with airbus to adjust deliveries as hundreds of jets are parked
How delta works to meet its cash burn goals, the airline is also involved airbus regarding his order book at the airframe. This is shown by the CAPA fleet database delta has a total of 245 airbus Aircraft to order, and the manufacturer represents 98% of the airline’s total backlog.
“We are clearly in a situation in which we do not need any planes,” said Bastian. “We have a lot of planes on the ground and we are doing our best for the next 18 to 24 months to minimize shipments,” he said.
According to CAPA’s fleet database delta has 597 aircraft in service and 781 inactive. The airline is also retiring 100 aircraft in 2020.
Mr. Bastian explained that delta worked with airbus but nothing was finished yet. “I can assure you that there will be no cash capex on any aircraft delta for some time, ”he emphasized.
Unpredictable demand will make it difficult for you US Airlines to Achieve Cash Burn Goals
delta, like so many airlines, is breaking new ground to position the company to withstand the significant challenges posed by the COVID-19 pandemic. And similar to most of them US Airlines, delta is working feverishly to reduce its cash burn to zero so that it can better withstand the crisis and cope with the upcoming debt maturities.
But with almost zero visibility on demand via that US High season, it could get tough for delta and be US Counterparties to meet their cash burn goals.
As the fall and winter seasons draw closer, when cash flow is typically much leaner than summer, airlines will inevitably begin to develop medium-term scenarios that do not involve an early return of revenue and further reduction in cash. Burns are instructed.
