Q1 2020 Earnings Call
Please standby.
Good morning, everyone and welcome to the Delta Airlines March quarter Financial results Conference call. My name is Loren and I will be your coordinator.
This time, all participants are any in listen only mode until we conducted a question and answer session. Following the presentation. As a reminder, today's call is being recorded I would now like to trying to.
Rents over the Jill Greer, Vice President Investor Relations. Please go ahead.
Thanks, Good morning, everyone. Thanks for joining us.
We have a smoking here in the room today, including Hersey, you adoption or president going outside of our CFO, Paul Jacobson rest of our leadership team is on the line for the acuity.
Today will focus on a rich.
Prosecutors 19, with giving an overview of our priorities and Paul giving an extensive liquidity update to get in as many questions as possible during the culinary. Please limit yourself to one question in a brief gondola.
Today's discussion contains forward looking statements that represent our beliefs or expectations about future events.
Forward looking statements involve risks.
Certainties that could cause actual results could differ materially from the forward looking statements.
Factors that may cause such differences are described in deltas FTC filing.
We'll also discuss non-GAAP financial measures and you can find a reconciliation of our non-GAAP measures on the Investor Relations changes IR myself about call. It was I'll turn the call over that.
Joel Good morning, everyone. We appreciate you taking time to join us today.
Quarter of 2020 has truly been like no other organ injury hartson present, the entire dealt with family or was it sounds as worldwide loss loved ones to this pandemic.
None of us could possibly have anticipated to speed, which cobiz 19.
Hello.
People and slowing economies across the globe.
It was lunch with unprecedented situation, where demand for near term or traveled to walk through almost zero in about two weeks.
Our response has been focused on three priorities first protecting the health and safety of our employees and our customers.
Second preserving our financial liquidity to work through this crisis.
Robert ensuring we're well positioned to recover once the virus is contained in building a plan to accelerate or progress through this period of local.
Nothing is more important than the health and safety for people and all customers.
And we have substantially increased our investment in Colombia, that's across the organization. These include a wide range of shaky, including measures on our planes at the airports and across all facilities and these actions won't and when the virus abates.
Taking steps to help our employees and customers practice social differences.
Include locking little things.
I would think automatic oak ridge, modifying onboarding process, and reducing Neal service and other touch points I've always said, we have put that stream in the industry I want to take all 90000 pretty incredible work that they are doing.
Our employees around the foreign lines in the fight against.
The virus, keeping our nation's airways open for central travel, even as they worry about the wrong, though.
Our nation has a lot of heroes in this battle against survivors and I'm proud of the men and women adult and serving our nation in this time to meet.
He cares acts payroll support program recognizes the important role for employees.
Boy and supporting the U.S. economy, we are grateful to the prices are members of Congress and the administration, and particularly secretary solution to their support and their leadership.
Monday, we received $2.7 billion of the 5.4 billion that's expected over the next few months three.
8 billion or this is direct grade with $1.6 billion in a low interest on secure tenure loans.
When you combine this release with our actions in the capital markets and our aggressive cost management, we expect to have at least $10 billion and liquidity at the end of the Jim.
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Since early March we've raised $5.4 billion in new financing the will likely rates several billion more this quarter, a strong indication of a confidence that the capital markets have been dealt.
While this will help ensure we have liquidity to wasn't the crisis.
More than 90.
As expected reduction in revenues this quarter, we needed to quickly less costly to stem cash burn.
We have taken actions to reduce our total cost base by over 50% in the June quarter. This amounts to a 5 billion dollar reduction over the prior year, which is impressive given the very short.
Which we passed to get the stones.
It was the great spirit of the Delta people that work big part of making that happen right now 37000 employees more than one third of our workforce have elected to take voluntary unpaid leaves ranging from 30 days to one year.
That's a good.
Personal sacrifice that I will forever be grateful for this is helping reduce our daily cash burn, which started at $100 million per day in March down to $50 million today, starting next month in that.
Paul will go into more detail on these cost reductions and the cash for trajectory that we are seeing.
[noise] after taking care of the safety of our customers and our people and protecting the financial liquidity of our enterprise third priority. We're.
Starting to build a recovery plan.
These are truly unprecedented times in the past the recovery is on sort of and that will likely be choppy.
Well, we all wish we could predict the pace of the recovery. The truth is a recovery will be dictated by our customers feeling sick, both physically and financially to begin to travel at scale.
Given the combined effect Super pandemic and associated financial impact on the global economy. We.
That it could be up to three years before we see a sustainable recovery.
It should exceed throughout that environment, we will likely need to restart business in the near term to protected in the long term.
While the recycling bought business over the short term is painful will also be an opportunity to accelerate.
She's a streamline or something simplify our fleet and reduce our fixed cost base in ways not possible in the past.
He will allow us to advance the timelines as some of our critical airport infrastructure projects as we don't have the same constraints the limited progress.
Drove higher costs to construct.
We'll be focused on what.
It takes to regain consumer confidence to travel and we are listing the very best medical advisors to help us navigate the journey from testing through two vaccines and helping translate those solutions to our business model safety will no longer be limited the flight to safety personal safety as well.
And while.
We may have more questions and answers about our pets afford at present, one thing that is certain it is that the strength of record adult this business our people our brand our network and our operational were liability barring. During these advantages will continue to differentiate delta and position us to succeed.
In short we have the same aspirations for a company today that we had a short 60 days ago.
Well the path to recovery May take several years there are many aspects to this crisis that will make us a better stronger and more resilient airlines.
In fact.
Believes that the customer up tomorrow will place a higher.
Your premium on the quality of service than ever before and that is our calling card the strength of our bread aisle reliability and the service excellence or people redefining personal safety for customers in serving as the bedrock notches for our recovery, what our acceleration into the future.
So that is how we're navigating.
That's great just taking the very best care about customers in our people preserving the financial liquidity every enterprise and building a plan to not just we scaled the business over the recovery period, but the streamline it and accelerate progress on our long term strategy.
Just like all of our employees our partners.
Our community and government leaders or suppliers or banks are owners, everyone who's helping to contribute to protect felt as long term success. Our customers continue to send thousands of strong message of sport on a daily basis, which I greatly appreciate and I also appreciate the great work of our leadership team and.
We're getting a crisis, which we know we will prevail. Thank you all for that and before I turn the call over to Paul I have some good news that I hope you have all her as you know Paul has announced had announced is the plans to retire on February 28, but we never left the office and I personally asked him to reconsider it needs graciously agreed.
Falls, an incredibly important part of our team and we're fortunate to who remain as Delta CFO Paul.
Thank you Ed and good morning, everybody. Thank you all for joining us that it's great to be here and thank you for that Ed.
Our March quarter pre tax loss of $422 million $1.3 billion lower than last.
Last year was deltas first quarterly loss and almost a decade.
As revenues rapidly deteriorated through the month of March we took decisive action to reduce our cost base and preserve liquidity ending the quarter with $6 billion in cash.
Our ability to move the needle on costs in the month of March was limited to schedules and bid.
Periods were largely set.
Starting this month however, our cost structure has taken a big step down with the adjustments we have made.
These actions include strategically parking more than 650 aircraft to get optimal maintenance savings and reducing our facilities expense by consolidating concourses and temporarily clothing sky.
We have a limited eliminated the majority of our discretionary spend for things like contractors and advertising as well.
We also instituted a hiring freeze and reduce work hours across the business and as I had mentioned 37000 of our employees have volunteered to take an unpaid leave of absence.
Together these actions.
In savings of approximately $550 million in the June quarter alone.
With such a large capacity pull down we needed to go beyond what we normally would consider volume related costs because of our aggressive cost management, we're able to swiftly make 60% of our total operating expenses variable.
In this environment.
He's off the efforts of offset more than $200 million of unplanned expenditures associated with new cleaning procedures and the recent that raises that we've accomplished.
[noise] combined with $2 billion and lower fuel expense from reduced flying and lower fuel prices, we expect a 5 billion dollar reduction.
And in total operating expense for the June quarter.
Our ability to achieve these savings simply would not be possible without the dedication spirit and commitment of the delta people.
With the immediate needs of the June quarter address we're now beginning to think about how we reset the cost structure of the company for the longer term.
Glenn and his team are developing scenario views of what the revenue environment might look like for the next several years. This will underpin not only how our network should adopt but how our cost structure will need to as well.
The current environment, we can take a fraction zero based look at our cost structure.
That's really where we spend money on.
Her head like facilities advertising and third party contract providers.
And as Ed mentioned accelerating work on initiatives like fleet simplification will have a lasting benefit to our cost structure going forward.
Because ultimately cost reductions are the biggest lever to mitigate cash burn in an uncertain revenue environment.
At the end of March cash burn was running approximately $100 million per day.
You can think of this in two parts roughly $10 million to $20 million a negative net sales as refunds outpaced bookings and the difference in expense burn.
As we move through the June quarter, we expect net sales to remain slightly.
It is as we work down our refund backlog and take additional capacity auctions.
When close end demand returns cash will recover as corporate customers purchase new tickets and leisure travelers are utilizing their travel credits over a multiyear period.
In addition to our work on expenses, we've had good success.
Thats negotiating deferred payments to airports vendors and less stores.
During this time, we've also moved quickly to reduce capital outflows cutting more than $3 billion of our plan to 2020, Capex spending all shareholder returns and deferring elective voluntary pension funding.
Putting this together.
We expect cash burn should come down to $50 million per day, beginning in May a 50% reduction from where we were just a few short weeks ago.
That moderation should continue in the back half of the year as revenue recovers modestly, but we are prepared for cash flow to remain negative through the end of the year.
That make it through this period, we have been actively and aggressively raising liquidity.
The work, we put into the balance sheet over the last decade has made a tremendous difference as we went into this crisis was more than $20 billion, an unencumbered assets and low debt levels.
Since early March we raised $5.4 billion of new.
Dancing at an average rate of just under 4% Encumbering approximately six and a half a billion dollars a collateral.
For the remainder of the year, we have an exhaustive list of potential initiatives that we could action if needed to further bolster liquidity.
The other thing this must include raising additional debt against our remaining.
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We're also eligible for a $4.6 billion secured loan under the care that while we plan to apply for that loan later this month to preserve our place we have several months to determine if we will take those funds and except the low.
In closing Delta has experienced.
Before perhaps not this big but in many ways. We spent the last decade preparing for this next disruption.
People have acted quickly and decisively to protect the financial health of the organization and I'm proud of what the team has accomplished in just a short period of time.
This environment remains fluid and.
Thing, but predictable, but we will continue to plan for every eventuality at are committed to taking the steps necessary to ensure that delta positioned to help lead the industry and the economy out of this crisis and with that I'll turn the call back over to jail to begin acuity.
Lauren if you take if any a.
I see inception, you get into the coking.
Thank you if he would like to ask a question signal pay pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off.
Signal to reach our quite yet again that a star one to ask a question and we'll pause for just a moment to allow everyone and.
Kennedy the signal.
Well take our first question from Andrew Didora with Bank of America.
Hi, Good morning, everyone can you hear me okay.
Okay.
Great. Thank you for thank you for the time.
At all Paul.
You gave a little bit of color around this but maybe provide a bit more granularity.
From $100 million of cash burn at the end of March.
$50 million run rate actions in the back half of the second quarter.
The biggest drivers here as a capex what are some of your assumptions around the air traffic liability draw down.
Any opportunities at the refinery et cetera, so any color here would be helpful.
I'm sure. Thank first of all thanks, Andrew for for being here for your question you know it it really isn't across the board effort across the expense base, obviously certain volume based cost like passenger commissions passenger service.
Have come down commensurate with the Oh, the loss of travel demand, we've seen 80% to 90% reductions in some of those line items.
We mentioned briefly in early March that we were taking actions across our maintenance program and Gil that our technical operations team have done an.
Than job of stripping out 80% over 80% of our maintenance costs in the June quarter.
Year over year, that's largely as a function of the fact that the the performing fleet today doesn't mirror need nearly as much inventory of serviceable parts.
And components that we had planned so.
We've been able to shift our focus to those critical items, reducing over 80%.
From that we mentioned all of the salaries and related across the board that has been a collective effort are coming forward. The the suspension of Capex, obviously, a big piece of that we had done a good bit of.
That in the even in the second half of March, but really it's across the operational side. That's that's driving a lot of that incremental benefit.
The thing Andrew as all the Lees broke though or 30000 over 30000 employees.
It's taken voluntary leads many of them in April for a month.
On another.
Paid basis, and or extending those throughout not just the quarter, but some into the full year and those those are those are monumental and there are really helpful.
Got it thank you for that and then.
Just a second question here, maybe bigger picture question here for you on your suites given some of your.
That's all.
You can you kind of a long recovery process here. So when you look at the other side of this crisis. What do you think will be the biggest changes for the Delta fleet and you think it'll be a little bit more weighted towards newer aircraft with her unit economics, how are you thinking about that and especially as we speak with millions right now thank you.
Well certainly anything that was scheduled to retire over the next five years as an accelerated oh path towards retirement.
Just a because these very very simple and straightforward.
MD Eightys were already we're acquiring this year. So that's on the MD ninetys will probably be making that decision soon and it's in a similar vein.
I'm here, we've got 76775 Sevens you know there's some of the older. Some of the older models that we operate well certainly be looking at the charges in the small organs that we operate.
It will be.
Taking the time to be as they say accelerate into the future.
And fast forwarding.
Many of these is decisions with simplification and streamlining of our entire business model at the core of the a of the new normal for Delta. Many things that we're on a path to do I think we shortened that pathway considerably as result of this crisis.
Yes.
Thanks.
Thank you for that.
Sure.
Our next question comes from Jamie Baker with JP Morgan.
Hey, good morning, everybody got <unk> Pauls Best news of today's that you're with us on the call and we'll be going forward I'm sure you're gonna here that from others, but I.
I did want to add my voice after a after ed's comments.
Now when you spoke about.
Comps a month ago month, and a half whatever [laughter] at that time. It was a 20 billion dollar unencumbered asset pool.
You said the recent deals through that down by about six and a half billion [laughter] does that mean, the current pool was 13 and a half or have any of the underlying assets didn't read valued and Andrew as they.
Perfect casing on that have you get identified were collateral you might post as part of a government loan and whether a you know treasury could take equity and Skymiles huh.
Well first of all Jamie. Thank you. Thank you for your kind comments, it's it's really really good to be here too I you know the simple math is.
Right one the way we're looking at it we have constantly upgrade updated the market values of the collateral and where we look so yeah against what we just disclose we've got about 13 and a half of it we continue to review and we have a list a against those assets.
So you know where we're going to continue to move forward on raising liquidity and making sure that we shore up that balance sheet and keeping all options on the table.
For the government loan program, we haven't had any specific conversations as I mentioned in my comments, we have worked out with them, but we are.
Going to apply for the grass I'm, sorry for the low by April Thirtyth, but the provisions of that program I give us until September thirtyth to decide whether we'll actually action and structure and take that loans going forward.
That helps and Oh, sorry go ahead go ahead sorry.
No no conversations about any specific collateral at this point in time, we have shared with them that we are committed as is the not just the language, but the spirit of the program to access it if there are no reasonable capital markets opportunities available and we still feel pretty good about what's available to us in the.
Okay.
Got it and second question you also made reference to.
Aircraft Capex, essentially going down to zero looking to clarify that does that mean that you are simply not sending any cash to loose or are you simply saying that there's full financing already in place to put.
Differently, if we do see an aircraft delivered this year should we assume that it is fully finance totally fine.
Oh, Hi, Jamie said.
Hi.
<unk>.
[noise] situation with Airbus is one that obviously, we've got a great relationship we're having constructive dialogue.
But the reality is as I'm sure the ski on them.
He shares are saying you know we've got 600 aircraft on the ground, we don't need anymore aircraft to be putting on the ground and we'll work through a this issue. We don't have any plans to expand cash to your point over the balance of this year on.
A new aircraft or whether eventually over the over the course of the year, we wind up taking some fully finance aircraft that that's an open open question right now, but the reality is that they're they're good partners and the working or something.
I appreciate it thank you both.
Our next question comes.
Mike Linenberg like a bunch of bank.
Yeah, Hey, I'm talking about.
But you never left.
So two questions here, what do we think about that favorable support program and as he was funny. How are you going to account for that how does that lunch you now I understand.
Loan fees will show up as interest expense that'd be like an extraordinary item.
So Mike good morning, the the below the grant piece net of the low will actually flow through as a contra expense item.
It's actually essentially offsetting the.
Requirements that are in there for maintaining workforce et cetera, So it'll show up as an offset to a salaries and related or other operating we're still working through that but it will flow through the PML, but the loan piece of it will obviously be a capitalized on the balance sheet as the debt instrument interest expense will flow through that.
And the war it will be reflected as equity.
Okay, then just supposed to be clear then.
You're going to 50 million, it's not reflecting that as an offset coming you now right or at least impacting the cash.
No I said.
Yeah.
It's in all the cash.
Birds that we've talked about in terms of ending.
$10 billion in a in June.
You know sort of Casper no like though.
Okay, Great interest secondly, as we think about the MX program, we were at a number around four.
On its way to call. It 7 billion as we think about the.
Got it.
Great doesn't change.
Well, probably be down in 2020, and and maybe acquisition doesn't grow much or or.
Moderates is that had a fair way to think about the trajectory and 26.
Okay.
I think so Mike.
You know like I know.
No.
Exercise their call later in the week on earnings and they'll probably.
You know discuss how they're doing how they're they're flowing through the prices.
Clearly given the fact that passenger demand is falling off so dramatically ARCC part of cars like arts them, because that's not fall of nearly as dramatically, but it's down in.
[noise] numbers, the short term and it's one of the things that's that's enabling us to keep keep Oh, we got 10% revenue a target in the in the current quarter compared to our current plan that that would that's one of the contributing factors is the the spend on the spend on the <unk>.
Okay very good. Thank you take it I think when you when when you know when MX.
Talks on Friday, they'll give you a product some better I don't want it.
Closed to Steve and I know, there's numbers when I want to share anything, but I think when you when you hear their perspective.
Her answer your questions that I can.
Great. Thank you.
Our next question comes from savvy fit with Raymond James.
Hi, Good morning, and I can you can't stop he had a bridge the liquidity kind of getting from 6 billion put 10 billion and it appears you know cash spend will be around five and a half yearly ending the quarter.
Are you have to kind of maybe most or all of that a 5.4 billion MPS team and I think based on the disclosure that you know sale leaseback of one two and that's going to aircraft mortgages at that time lines. There I think that need to gather that T. Two and a half billion is that you know financing that you need yet to do to reach.
That 10 million or am I missing something.
Savi, it's Paul I would simply say that you're good at math.
That was that worked pretty well [laughter].
[laughter] I guess that that you know nasty Green works out laugh at me and just kind of thing as well.
[laughter] just a follow up on that and you think about your financing opportunities I know you talked about how do you not encumbered assets that you think about like unencumbered assets Myles equity.
Yes, I, maybe even like doing something with trainer.
I would you prioritize that are sick and I see you kind of the best fit for.
For kind of financing going forward.
Well, Saudi I think a we have a as I mentioned, an exhaustive list of potential opportunities that that range across the board.
Moving secured debt equity convertible the government loan program Skymiles <unk>.
Lots of different things on it or what I would say is that we're looking to optimize two things number one which is availability and a and ease of financing into its just availability of the markets in general.
We have found great success in both the secured debt markets as well as the sale leaseback markets that have done.
Particularly well for us and we would certainly puts out at a higher priority then we would be thinking about equity down the road. So while the uncertainty means that we can't rule anything out we're certainly prioritizing use of our unencumbered assets.
And I would I would say here.
The I would sure Paul.
Lots on on the financing probably organization, but don't forget the most important liquidity. We raise is cost savings deals in this environment, where revenue was coming into door and while it's great that we have access to the capital markets in the team's doing a very good job.
There were able to say, 50% of our total operating costs.
So we had in order for forecasts, just 30 days ago in the current quarter to $5 billion as well. So that's a that's a meaningful statement of liquidity that we'll obviously continue to.
Okay.
Yeah, Good point I think you.
Our next question comes from Brandon Oglenski.
<unk> with Barclays.
Hey, good morning, everyone and thanks for taking my question.
Yes, just a follow up on that.
No in terms of equity funding I guess, one up maybe potentially be a bit more aggressive here because if you need the equity.
I think it's in the future obviously, that's not guaranteed to be there can you give us our thoughts there.
Brendan you were real clear comes it was your question about a potential equity raises that we were asked was.
Sorry, My my phone cutting out as I.
The question is if you need equity financing in the future it could be harder to get so I guess why not potentially be more aggressive on that part of the balance sheet right now.
Yeah, well figure out where we're not into position to take any options off the table Oh, we're looking at at all options. We have no plans for that at the moment.
We've got a pretty good list of opportunities to to raise liquidity from before for executing that option, but you know we're not we're not going to exclude any.
And going forward until we have a better view and when the recovery is going to come.
Okay. Appreciate that and then Paul on the unencumbered assets I think about 13 or 14 going to disclose how much of that as aircraft and what should investors analysts, but you could get ltvs on that asset base.
Well brand into it it varies I would say that about a about half of that is aircraft of various ages and vintages some of the new where airplanes.
We had been doing sale leasebacks on we've been getting 100%, sometimes even marginally a little bit more than what we had appraised.
For.
On that on that basis, some of the older airplanes, a as we are looking at that are gonna have a less sale leaseback content more secured debt type content that would have a lower loan to value going forward. So it really varies across the pool, but we've we've taken that pool, we've assigned value to what we think.
It's doable and what marching along that plant.
Okay. Thank you. Thank you.
Our next question comes from David Vernon with Bernstein.
Hey, good morning, guys.
Thanks for taking the time.
First question for you on.
The the approach towards taking a cross holdings and global partners, obviously, there's going to be quite a few mark down so those assets as we go through the next couple of months here would you think about that asset as a potential source of liquidity on the way back up or would you think continue to think that those at.
That's our kind of strategic and core to the Delta the feature as well.
Gave it again you broke up a bit on the fall into your question is about our investments in our international partners.
Yes, yes.
[laughter] Monica monetizing them.
Yeah, well on the way back off yet.
Just wondering if the if you maybe thinking about that strategy across business differently and we are those those are all strategic partnerships and they'll all go through and they are all going through a very similar situation in size.
Arguably isn't even more more stressed then the a the domestic u.
Airlines are given that the international business across the board is pretty much downs is very very small numbers we are.
In contrast constant contact with them, we'll continue to provide our are inside our expertise were not into position to be making any financial commitments.
Ah to any of them or they are aware of that and we'll we'll work with them as recovery takes hold.
<unk> recovery is going to be topic, it's going to take some time my expectation I think our expectation is domestic will come back you know faster than international but international book on that.
And there's there's a there's a path to getting there and we're very proud of those those partnerships and I have no no interest in trying to sell them or monetizing them at the so at this point or anytime in the future candidly.
All right appreciate that color and then maybe just as a maybe longer term question.
For for Glenn or and maybe you could comment on how investors should be thinking about the range of reasonable margins assuming demand does take a couple of years with other should we be expecting the margin profile the business to be dependent on getting back to 2019 levels or.
Would you expect to be able to maybe not as I said it better.
Or margin level, that's with less volume that you had in the past.
Hey, that's a.
So that's a really open ended speculative question I.
Like I guess, how I'm looking at this for myself a little all of you know 40 days into this right is that.
There is a there's there's a.
Big you know there was a crisis that were in the myself, we're going to be to navigate the crisis. We're prepared to delta to go through whatever time. It takes a we've got the liquidity was that the balance sheet strength, because the resiliency of our people and <unk> brand, we'll get through this it may take several years to get to it but we will get brewed once we're able to demonstrate.
Great to learn customers' confidence in the safety of those air travel chips like we do today in place safety is a personal safety travel will will continue it may not continue in all of its current form.
You know there will be some some impact maybe maybe telecommute commuting or some sort of things.
If everyone's enjoying being on zoom videos I personally don't but maybe some people do maybe that'll change what's the nature of travel a bit.
But you did this is Don face to face you know people people enjoy experiences all the things we've seen over the last year period of years actually has in my opinion cause people can miss travel more.
More than ever before and this is locked down phase and we'll we'll get back whether it means our margins are going to be at the same level I would hope so.
That's certainly going to be our goal and will be a smaller industry, you'll coming through this I've no doubt.
And that there'll be opportunities to be streamlined and I think people will.
Hey, a premium.
Service excellence like never before.
Those are my views into question.
Yes.
Thank you.
Next question comes from kind of Hunter came with Wolfe research.
I I. So funny, you just said that I was.
Literally going to ask you about that comment you made in the prepared remarks EG you said a customer if tomorrow plays a higher premium on quality of service you seem to emphasize that in the script and I wondered what you mean by that and how are you going to position delta to capitalize on for the products perspective.
Well I I think it's premature to be speculating on product per se cleanser, but I thought I firmly firmly believe that you wouldn't be when you asked people what is what's the most important thing to get them to start traveling in its going to be confidence in their safety to personal safety not just or their.
A couple things do you know we are at Delta, we have years and years and years of expertise in flight safety expertise and we've got rigor and analytical tools. We are the state this form of transportation in the world any form of transportation, the U.S. evaluation system and by applying that same level of analytical rigor in.
Insight working with a medical community and I'm not trying to be a health care professionals here, but we do have medical expertise that buys is that we are working with it will continue to work with the help translate the return of business to where people feel safe and can accommodate will make whatever changes to the business model that will be necessary.
If it turns out to be immunity passports will be a new format.
You know you think about everything that came out of 911 with with the Italian homeland security and new public agencies could there be a new public.
Health agency coming out that requires into a new and Ah Ah passports it to travel and <unk>.
I don't know what will be on the forefront of all of all those advances, but I do believe people value not just the experience, but you know who's providing experience in the reliability in the service excellence of that and that's that's not calling card that's our Brent that's with Delta Stenciling.
Right right right and that's all fair, but.
When you were kind of their before too you know so I see what I'm trying to parse how it is what you expect to actually change is one of those things it's ironic actually about lower load factors three months ago. In this call is one of these things that maybe think about running a lower load factor, that's sort of permanently and having less variability in pricing so they need to 65.
75% load factor you guys went all the time, so people feel that more spaced out immediately seats themselves are further are partly I mean like.
What kind of stuff you're talking about changing here, that's a different I think <unk> I think all those are fair there your observation sector I don't know what the answers and we're going to spend the time in these these next few months.
Once too as we build the company that we want to the future not necessarily rebuilt what we had there will be asking ourselves to a question will be asking consumers are those questions will be.
We will be will have a chance to test as well as we move forward as we walk through this recovery is going to take.
Several years is.
And could be multiphase, it's going to be choppy, along the way a will have opportunities to test all those species and see what what what it takes.
Ultimately, it's going to be what it was just play to inspire confidence in air travel and and the safety of that you know maybe maybe it's.
Seen in two years on widespread I I don't know, but there's a host of ideas and options and alternatives that we are exploring and we'll we'll do whatever it takes to make sure that we get our business model not just back to where it was but improved and more resilient for the future.
On margins, whether whether at low prices come down or.
It is possible they certainly we'll be able to in the short to medium term.
Whether they eventually get back to a 90% who knows but we'll we'll figure it out as we go the other thing wrong I do knows that there will be fewer there airplanes flying in disguise for an extended period of time and that that's going to be an opportunity for us to the focus more on on.
The more premium experience in getting getting.
Getting paid for what we deliver.
Yeah. Thank you.
Our next question comes from Italy, pending work with Evercore ISI.
Hey, Thanks, and thank you for for doing.
This call just had a question on your international JV partners.
What are the potential capital need to keep some of them going if they are unable to get stimulus funding.
Well I think all of our international partners or.
Working with their local.
Governments as to what's required to provide a backstop and supports similar to how we work with all government here in the U.S. I'd say the thing that's a little different.
Most of the international marketplaces that they're talking about loans.
As compared to grants and we were a very successful I give the the U.S. airline aviation industry. Some some real queued up for getting out in front of this working today for a working with all though the Ceos of close sort of space to understand that this is not just about putting more debt on.
Airlines balances, but keeping people in their jobs for a period of time to give us a chance to understand what the other side of this looks like in six months I don't know that you'll see that on an international scale I think there will be your loans you may see some international Airlines nationalized I think though there was going to be an array of array of all front as you may you will see some.
Another lines go right you will teach them or international Airlines, that's on our specifically because just love to go through administrative and bankruptcy processes. So I think as we as we look at the two trajectory of the recovery, it's going to be slower internationally than domestically and as a result that we're gonna stay really close to our partners and help.
Provide them, though not the financial support, but certainly the commercial support and the strategic savvy to navigate a very uncertain recovery.
Thanks, and then just just for my follow up had a couple of questions. This morning on trainer.
No.
Interesting times with.
We would negative crude prices and you know it is this something that's.
That you're in the process of winding down.
And to the extent you are is there any potential working capital tailwind. If you were wind trainer down and thanks for taking the questions.
I'm sure Dwayne and.
Before I answer that I want to go back to one thing that David had asked and just to just to clarify for the avoidance of any doubt that the partner investments that he asked about monetizing that had said we're not interested are not included in our unencumbered assets calculation. Just just in case, there was down about that.
And as when you think about a as.
We think about trainer Duane obviously, we've made some adjustments both in terms of where the markets. It.
But also in terms of our own.
Declines in jet fuel production or with our jet fuel consumption, which have been significant we have we have cut production.
At trainer, where we're operating about just a little over half of what are what we were and blending all that jet fuel into diesel and traders covering.
It's a it's variable costs and contributing to fixed costs in the short term that being said, we do expect it to produce a loss in the second quarter and as we think.
About trainer obviously were.
We are thinking about what does the airline look like a afterwards and will well assess all about it remains an important part of our overall.
Strategy, but that's obviously somewhat muted in the current environment today.
Would there be a working capital tailwind if you were to kind.
On a wind it down.
No no no nothing significant as as we have a lot of that working capital already securitized and.
We managed to keep that relatively constant throughout all the operation.
Thank you.
Our next question comes from Helane Becker.
With Cowen.
Thanks, very much operator, hi, everybody and thank you very much for the time I'm sure my two questions.
One is do you think this will be.
Demand led recovery how are you thinking about recovery.
In that regard and second Ed you talked a lot about like you can do you know once people get on your claims and certainly I can see Theres a lot you can do there's probably a lot you can do in the check in process, but what about in the airport. How how do you are you working with you are.
Airport.
Various airports about how you can ensure customer I don't know whats right, where it is because it's not see ski by.
And I really don't [laughter] I wouldn't it.
Right.
It is said to its its personal hygiene its personal safety.
And and the answer to your your second question I'll take first is yes. We are we've got a lot of staff in the in the airport environment and.
Not a lot departures so were we reallocated a lot of our team members to to ensuring the or not.
Just the cleanliness and the hygiene aboard or our aircraft.
You would probably not be surprised and though that as we continue to serve their customers. Even though we have fewer traveling we still continue to survey them, Doug cleanliness scores on through the ceiling through four X times improvements on on the onboard the claims.
And any do you want to go check it out for yourself and until we get them to travel unless you can do you consider that have been working through through the airport the facilities working with T. as saying you know put them all the things that we have to do to reduce touch points and allow customers deals is is it the same level of.
Safety onboard airplanes as as they they transit to work for our facilities. So we are we are looking looking through all of that what well will return to the recovery I don't I don't I don't know like I simply classified as a demand and certainly I think demand will be there when it's safe to travel once people feel confident that.
They you know to both the medical.
Progress, we made to the medical community government or leadership when people you know indicate that it's safe to travel and and that's one that's one of the recovery will take shape.
This is very young unlike anything we've been evolent counter it wasn't kind of a lot of.
A lot of crises in our industry. This one will people physically do not feel safe to venture out of their homes is is unique to us and we've got to inspire the confidence they houses to start telling them.
That's that's very helpful and and if it helps I'm pretty sick of Paradise prison I Love My House.
But I missed traveling.
Good we must be missing differently.
[laughter].
Yep.
Thank you.
Our next question comes from Joseph Denardi with Stifel.
Yes, that's a good morning.
Just to street for questions for you on a on the marketing company loyalty program.
There is an area, where you can do a pre sale with amex and use that as collateral for.
Government money and then what is the value of that assets worth as you see it.
It's a.
Pretty big Nope, that's protecting shareholder dilution at this point. So can you just talk about what would you think the assets worth.
Well, Joe I think you've done a lot more work on that then than we have necessarily but a away I would say that yeah.
The we have not contemplated securitizing, it or monetizing it a in anyway and up you know the asset base that that we have and Ah Ah the permitted liens under our agreements we think ultimately would make a pretty good package, if we decided to take a.
Government loans I don't think we need to look to their loyalty for that as for the opportunity to do a presale I'm not going to get into any details. That's obviously a conversation.
We would have and our.
With American Express and add speaks to.
So then very regularly and that's that's born out of the partnership mentality. It's it's it's not anything that we would comment on your publicly.
The only thing we always do you have to doing that Q equity issuance.
Or or at least one we're going to qualified to fill the governments that money.
No no no we don't.
Yeah, I just wanted to add onto a fall was saying about damage there they're great partners.
We've been through thick and thin who them a we've done pretty sales in the in the past if we.
Come to the point, where we feel that's it that's an important sources of liquidity.
Hi, good constructive conversations, but we're not having.
Places on like publicly reported quite concerned because we are we are not and what we're staying close to our good partners in that and at some point, we very well made but not so there's nothing there is nothing imminent to announce it now.
Okay. That's helpful and then I didn't know when his own color.
We'd like to talk about it can you just talking about.
What forward bookings look like and what maybe the Mexico corporate versus a loser tells you.
At this point.
In terms of which is holding up.
Just going any any commentary you feel comfortable talking about thank you.
Well it's a.
I'd categorize this whereas we're bumping along the bottom here.
And you know bookings are down traffic is down about 95%.
And.
So that's that's where we're sitting and it's a mix of people who need to get there that's a central people traveling as I've said before so people.
Good to see sick people people, who are first responders.
People, whose work goes on and that's required for them to travel and so it's really people, where do you need to travel and I think as I've said before as people perceive it as being sued for we'll see the Oh larger volumes come.
Back.
ER with everybody having stay at home orders, it's hard to envision.
Can't leave your house, how you would go to travel at this point.
Yeah, it's a positive demand questions or or a.
Hard to answer because there's not a lot of data right now, but one data point, which is progresses that you know where cash.
Those are now starting to go to equal to three funds going out the door right. So that wasn't the case 30 days ago were being over overwhelmed by the amount of cash refunds relative to cash sales coming in so so it's going to take some thought Oh, we're prepared for the for the duration and we've got to we've got a good product and good.
Service and the good brands that will be there when most people for a second trial.
Thank you.
Your next question comes from Myles Walton with CBS.
[noise] printers to the comments first on the the government assistance for payroll protection beyond.
September Thirtyth.
As you think about it is that something you think is necessary for the industry or the industry would would ask for.
An additional government support the on September Thirtyth is that your question marks.
It is yeah.
You know I wouldn't I wouldn't speculate I.
Uh huh.
My sense is the appetite.
For additional of relief beyond that will be a little bit will be challenging.
And I.
I think the combination of the P.S.P. together with the loans should provide us with liquidity, we need to get through this crisis that'd be my.
Good.
Okay, and then secondarily kind of post crisis.
He says it took a few years, but just a business model to run an airline.
I think that now airlines are effectively gonna have to sit on six months of cash.
<unk> expenses in cash to to satisfy.
Five whatever criteria there is two or whether the next pandemic should it come along.
I I don't know, that's a that would be a difficult oh.
Yeah financial burden to carry Ah I don't think we can build our business models to.
The saying once in a century pandemics and we'll learn a lot from this will be a lot more resilient about this this will take us at the time as an industry to dig into the goal of plenty of time to asked those questions in the future but for now we're we're very focused on on weathering. This weathering the storm getting through over the next several years and then we'll have time to think about.
Yes.
Okay. Thank you.
Our next question comes from Catherine O'brien with Goldman Sachs.
Good morning, everyone thinks and the time hope you all are eating healthy.
So two fairly quick one it does not expect.
I think any aircraft deliveries for the medium term or perhaps now you can do any ended this year is that 1.2 billion catching some from the sale leaseback transaction you disclosed today on aircraft already in your fleet and then it. So you know do you have any aircraft from me and your fleet that might be attractive to put into future it sounds like battlefield.
Hey, good morning, Katy so the the answer to your first question is absolutely that those are all sale lease backs on me a existing fleet and I didn't catch the second question apologies.
Oh sure in place that are there any other meaning aircraft when need be attractive to put into future Sally.
Talk deals that are kinda currently in your fleet.
Yeah, we still have some as I mentioned in the.
In my earlier comments about half of the remaining is aircraft, which includes suit. Some newer vintage models that are that we think are good candidates for sale leasebacks and some older aircraft.
That at the a ended the they probably are not that would be more in line for secured debt transaction.
But we still have something yes.
Okay got it appreciate that and maybe just on for my follow up you know the rate at once you've been able to get costs out of the system is impressive how should we expect some competing to increase through year end.
And and potentially further lower that he had between cash burn or are there any items, where you've been granted deferrals in the short term that need to come back online towards here I think.
Oh, Thanks, Katy we are going to do our best to continue with the programs. We've got in place of working through voluntary measures.
With our employees are doing a great job, taking a taking a leaves and reducing work hours and finding ways to to preserve preserve cash or maintenance program. We're doing the same thing like I think we'll have that same goal is into Q3 certainly.
And hopefully Q4.
And give us time to start building demand over the over the balance of the year two to where the where the revenue could start to catch up with who level of cost savings that we're having and and use that to reduce the reduce the cash burn, but you on the short term teams on a massive massive effort and I think you're going to see that.
As I continue really spent a lot of dialogue in our our businesses to what our true variable cost structure is.
So we're seeing that we've got a lot of variability that we've built into into the cost structure is proving to be a an important source of resiliency for us in our strategy here.
Okay.
Okay. Thanks.
Appreciate that.
Sure.
Born we're gonna do one more question for many analysts.
Thank you. Our next question comes from Stephen Trent with Citi.
Thank you very much everybody and appreciate you taking my questions will probably bodies and their families are okay.
Quick ones for me I was wondering if you could just give us a little color on how you might pivot a little too perhaps take opportunities are more air cargo a flow passenger smoke.
At the moment.
Oh Thanksgiving to help your family as well as well.
Oh, we're doing that we have a a lot of work going on a in the cargo space, we probably should true mentioned that during the call more weve instituted a charters going over to China, as we're bringing our medical supplies P. P back to the.
The workers on the front line of this crisis, a we're working with was a number of different companies.
Two to <unk> to do that fruit or we are we've looked at and were taking some of the the main deck Ah suits or a few of our international planes to facilitate.
We are taking greater lift a into short term and we'll continue to use those resources, where they where it makes sense for certainly for some time to come.
Theme in whole team in cargo and the team and cargo shown call is doing a really really nice job and and we've got a lot of a lot of a lot of people supporting.
In the broader community what work to do with release efforts and with the other thing. We've done we didn't talk about is that Weve weepy Patriot. It you know over 5000.
People working with the state Department from market. So we didnt, we don't even a flight to historically or you know going into India, and bringing bringing.
Tons of people back to their family safely and we continue to do some of those machines going forward.
Very helpful and just one last follow up actually up a follow up to the gentleman from steeples questions. When we think about the.
Credit card side of the business longer term it's.
Fair to say that a lot of that consumer oriented card activity should continue to move up in line with your expectations is that is that fair to say.
Absolutely. There's there's again there's nothing in this this crisis that shows us any individual part of our business.
This model.
Doesn't work overtime, but as long as people feel safe everything's going to work, so spending will work or travel work experience.
Well, we'll continue to be important and our partnership with Americans blesses incredibly strategically important to us in the future.
Thank you very much.
Body and he said.
Thank you.
Okay, that's going to wrap the analyst portion of the call we're actually having some technical difficulties on the call control, so I'm going to turn it over to our Chief marketing Communications Officer 10 minutes to address the media.
Well I just wanted to thank everybody for your patience and your participation today it's on.
Fortunate there were having just technical issue because that into the executive management team, but actually asked for.
And expressed an interest in additional time to handle question. So I think we will follow up with a very members of my team to get these questions answered and and get them into you we had 10 reporters.
Queued up for this so if you don't mind will follow up.
We won't be able to work inside of a separate call that's doing them.
Hold on just in that.
But again, thank you for your patience, we were going to follow up but members of my team will follow up with each of the reporters that we know we're a into Q today, we'll get a varying wage and following up on your questions, but just wanted to thank you for your time and your participation today and know that we do know who was skewed up and we will follow up with each of you with different members of my team.
So our apologies.
Thanks Lauren.
Thank you and that does conclude today's conference. Thank you for your participation today.
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