Q1 2020 Earnings Call
[laughter].
Good morning, and welcome to the American Airlines Group first quarter 2020 earnings call Today's conference.
Paul is being recorded at this time all lines are in a listen only mode. Following the presentation, we will conduct a question.
To answer session to ask a question during this session you.
We'll need to press star one on your telephone if you require any.
Further assistance. Please press star Zero I would now like to turn the conference over to your moderator managing director of Investor relation.
Since Mr. Dan Cravens. Please go ahead Sir.
Hey, good morning, everyone and welcome to the American Airlines Group first quarter 2020 earnings conference call with us in their rate.
This morning, we update our chairman and CEO, Robert Isom, our President and Derek Kerr, Our Chief Financial Officer also on the call for Q and access and several of our senior execs, including month.
Hi, ALLEVYN Chief Information Officer, Steve Johnson are you VP of corporate Affairs, Don Casey or senior Vice President of revenue management and velocity Rogers Senior VP of network planning.
The focus on today's call will be our response to covert 19 like we normally do Doug will start the call with an overview of our ordering the actions. We're taking Robert will then follow with commentary about our team members first customers network. Derek will then walk us through the details on.
Our fleet cost outlook and liquidity and then after we hear from those comments. We'll here are we will open the call for analyst questions in lastly.
Lessons from the media to get in as many questions as possible. Please limit yourself to one question and a follow up.
Who began we must based on today's call does contain forward looking statements, including statements concerning future revenues cost forecast of capacity bleed and liquidity these statements represent or predictions.
Patients as a future events with numerous risks and uncertainties could cause actual results to differ from those projected information about some of these risk.
Our website.
Yes. So this will also be archived on our website and the information there we're giving you on the cause as of today's date and we undertake no obligation to update the information subsequently so thanks again for joining us at this point I'll turn the call recurrent chairman and CEO Doug Harbor.
Thanks, Dan.
Good morning, everybody and thanks for joining us.
Forgo the numbers I would offer a few thoughts on the challenging to lose that we and our entire industry are facing.
The speed.
Sure, it's an effort to the American Airlines team during this crisis, but nothing short of extraordinary.
The human an economic Tolko was 19 million norm.
Chris.
Unlike others, we lost members of our own team.
These are heavy for their families Brendan co workers.
But in the basin is great loss. The American team continues to rise with the challenge and meet the needs of our customers and the communities we serve.
Good morning, everyone is every day and transporting first responders to whether most needed and other Americans, where they feel mosaic.
Our team members are frontline heroes of this battle.
They are what make summer.
Okay great.
So we have the entire leadership team I want to thank our team for what they continue to do everyday.
Turning to this quarter's results.
Are the most important recent event.
And our employees.
And I think it's important to note that this would not have as possible.
Vendors amount of work and advocacy.
Half of Airlines NRG members.
So what else are you think michelito and his team today, Brian as well as Michael Inquiry, Ceos and Bastion Robin Hayes Petering Group, Gary Kelly, Oscar Munoz and Brad till.
We work in an intensely competitive business.
But in response to this crisis, we pulled together to save or industry and same jobs.
I'm proud to have been apart.
We also had great support from our team members and the unions there over the.
So I'd like to also publicly thank all of our American Airlines Union leaders as well as those represent other airline employees.
We absolutely could not gotten is done without their leadership.
The joint desire from all of us define for our team.
So as important as a care that is certainly this honor that cares provides the industry the breathing.
When we need to manage the worst parts of the prices.
Apparently you members that we otherwise would it be to develop.
For does not makes the core problem at all of which is which is revenue generation.
It was your revenue.
The following an estimated 95% year over year in April.
Well no one on the perfect Crystal ball I think we all expect that recovery will be slow.
And demand for travel will be surprise for quite some time.
So in this environment there are three critical issues that any elements.
First ensuring the safety and collaborative team members and customers second.
Maintaining ample liquidity to ride through sustained crisis, and third planning for an uncertain future.
We had American are taking aggressive steps in each regard.
I will provide a quick overview and then Robert Derek will provide more detail manage.
First as it relates to safety, we dramatically increase the frequency and intensity of aircraft cleaning.
We're limiting 16 sales on every flight, including not allowing half of the main Kevin middle seems to be aside.
We reduced food and beverage servers on price.
Let me contact with others.
Let me first we will begin the gradual ramp up and providing customers with PB kits, which include mass consumer timing wise as well as require flight attendant to wear masks and why.
Turning to liquidity.
These numbers were all airlines come in two cents of initiatives raising cash and conserving cash.
On the first.
64 day delayed draw term long winter not having meaningful non aircraft that amortization payments, one or two years.
So you're confident with that level liquidity, but then it is uncertain environment will continue looking for Roger for additional sources, we have more than $10 billion of unencumbered assets and our disposal.
And excludes the value of our advantage program.
Our plan is diverse work and Treasury department to secure our here that loan.
$4.75 billion at attractive rates.
Thanks, more other initiatives as needed from there.
As you conserving cash Daryl described our initiatives in more detail we've been acts as a comprehensive cash preservation plan to eliminate all unnecessary operating and capital expenditures.
This will reduce our daily cash burn rate.
From an expected average of $70 million per day in the second quarter, two approximately $50 million today for the month of June.
For commissions and more streamlined airlines.
And it is most efficiently we need to begin making decisions about how large an airline we will run we want to Rob.
Summer of 2021 beyond.
As you all know things like aircraft availability pilot training and maintenance programs do not have short planning or items.
No that's always been managing our business, but today those capacity plans are severely complicated by the extreme uncertainty regarding the anticipated level demand for Andrew.
Just for the next few months for the next few years.
So we had American reside err on the side of being smaller than we might like rather large.
As Derek will describe as our first quarter financial indicate we made the decision to retire our entire 757767, Athree hundred 3300, and Embraer 190 fleets as well.
A certain regional underground.
These decisions alone will reduce or 2021 fleet count by approximately 100 aircraft at 100 aircraft versus our prior plans and we'll continue to assess further reductions as we move forward.
So in conclusion for me these are unprecedented times real world our country enter industry.
The uncertainty relative.
Is your weighs on everyone for good reason.
There's no way to overstate the gravity of the situation for the airlines.
And difficult decisions lie ahead drones.
And leadership, regardless of the carriers that process will be the leadership that gives us through the coming months in years.
Leaders, who understand the importance in the nobility what are people do and therefore work selflessly in support of them inside.
And then for air travel has been dramatic and unlike anything we've ever experienced across the industry cancellations and rapidly.
Yes, as new bookings.
We have made dire circumstances in the past American team has always persevered and I'm confident we'll do so again.
Thank you our team members and customers is Paramount.
We are taking a proactive.
I was to ensure that our team is safe by reducing contact point horizon personal protective equipment like face masks in glass.
Provisioning sanitizer wise.
These steps are critical to ensure our team feel.
Let's say in can instill that confidence that our customers as well.
Well I'm humbled by our team spirit and proud understand the buy them in these challenging times.
American continues to provide critical air service to those who need to travel during the pandemic.
On the asset we have met or exceeded CDC guidelines, and we'll continue to coordinate with public health officials, all health and safety requirements.
Enhance our already thorough cleaning process, we've implemented additional safety measures to ensure aircraft cleanliness and to accommodate social distancing.
Specifically.
We are enhancing our cleaning procedures through expanded offering onboard and the use of EPA approved disinfectant in high touch areas.
For this includes everything from bands and galleys to trade payables.
Yes and seat belt.
Well expand on all slides this implies an operational conditions allow.
To that end American airlines strongly encouraged as customers to work.
Thanks, Matt when they track.
Additionally, we have timberland temporarily relax, our seeding policies and adjusted our airport procedure.
Theres three major 31st American will limit the number passengers on each aircraft, we will not OSI, 50% of main Kevin.
We'll see that every flight and we'll use the on those the only way.
Travel occurring through the end of September, allowing them to change plant and travels through December December 2021, without incurring any change fees address.
Finally, we have ways change fees for customers, who purchased new tickets by May 31st 20.
20 for future track.
And for our corporate customers, we've introduced more flexible travel waivers and free name changes.
We recognize the interruption of I'm traveling for most People's we're making it easier for our customers to earn advantage elite status. This year and we've seen extend in 2020 advantage status into early.
2022 for all members. Additionally, we have extended all.
We've also delayed entering several new markets planned for launch later this year.
New service between often India.
Hi, Chris tricks in Los Angeles, Bangalore in Seattle will all be pushed into 2021.
In addition, we.
And delayed the start of other new routes, including London Heathrow to bottom.
Hello leaves the Dallas Fort worth.
Got a blanket the Philadelphia and Clafoutis Chicago.
While we introduced our Scott.
I will dramatically.
We have started operating cargo only flights in March to transport critical goods between the US Europe Asia and Latin America.
These are the first cargo only five Americans operators this lease 1984.
We are currently able to transport more than 6.5 million pounds, a critical goods weekly on our cargo only flows and we'll look to further opportunities to expand the service and bring medical supplies in protective gear to the areas.
For most in need.
While we continue to provide essentially our service to those who needed most right now our team is also extended their service outside the operation.
Team.
Certainly and we are closely managing our capacity in costs, while taking care of our team members and customers.
Well I want to share in coming months as we ramp up our operation postcode 19.
With that ill pass it on generic.
Thanks, Robert Good morning, everyone I do would like to thank our entire team for doing an amazing job during these uncertain times.
Dedication and determination to get through this crisis is inspiring for all of us.
As you saw in our press release and form 10-Q. This morning, we reported a GAAP net loss of 2.2 billion.
Or $5 in 26 cents per share excluding net special items, we reported a net loss of 1.1 billion.
Our $2.65 per share we began the quarter on track to exceed our guidance. However, the call with 19 pandemic an unprecedented drop in demand.
During March radically changed our outlook.
Given the and unpredictable nature of this event, we suspended our guidance for all of 2020.
In light of the current environment, our sole focus is to ensure we have sufficient liquidity.
To withstand this crisis, we have driven efficiencies in our operations.
By accelerating our fleets and books Colocation plan and aligning our cost structure to are significantly lower capacity levels.
We will continue to match capacity with demand and optimize our costs to our level of flying and identify additional ways to improve our cash burn rate moving forward.
As Doug mentioned, the significant falloff in demand has given us an opportunity to accelerate our long term fleet strategy.
We have essentially retire the embraer 190, and Boeing 767 fleets, which were originally scheduled to exit by the end of 2020.
We have also accelerated the retirement of our Boeing seven five sevens and Airbus Athree hundred 33, hundreds both leads were expected to retire over the next few years.
In addition, we have removed a number of smaller regional aircraft from our fleet.
By removing meaningfully types, we avoid significant future made in excess expense removed.
Complexity from our operation and bringing forward the efficiencies associated with operating fewer aircraft types.
These savings include reduced aircrafts bearing.
Reduce parts and inventories and crew scheduling efficiency.
All of which will have a significant effect on our cost structure going forward.
Even with these changes we retain the flexibility pursue efficient growth through increased utilization or further reduce our fleet to match demand across our system and hubs.
We have reduced our estimated 2020 operating and capital expenditures by more than $12 billion. In addition, the lower fuel. These savings have been achieved through a wide range of initiatives, including reductions in flying and heavy maintenance expenses.
Beyond just volume related reductions, we've taken a hard line and discretionary expenditures.
Specifically, we have deferred of marketing.
Event and training expenses consolidated their footprint at the airport facilities and reduce the use of correct contractors printers.
We have also suspended all non essential hiring pausing on contract pay increases reduced executive and board compensation and implemented voluntary leave an early retirement programs to lower our near term and long term labor costs.
No I will add to address our near term costs, we will continue to take the necessary steps to rightsize our cost structure for the lower levels of capacity, we expect in the near future.
Finally on liquidity, we've moved quickly to preserve and bolster our cash position. We ended the quarter was 6.8 billion and liquidity.
During the first quarter, we raised 2 million through the issuance over 500 million dollar unsecured note.
A 1 billion three.
Okay, and 64 day delayed draw term loan facility and approximately 477 million aircraft financings were also able to reduce the pricing of our 1.2 billion dollar term loan and extended out till 2027.
During the quarter. We also finalized the initial terms of the financial assistance, we will receive as part of the carriers at.
This will come into forms direct financial assistance or 4.1 billion and a low interest rate loan of 1.7 billion.
Separately, we have applied for alone from the Treasury Department of approximately 4.75 billion.
These funds as well as relief on various taxes, including fuel tax savings payroll tax deferment and taken related taxes will provide much needed support for us to navigate this extraordinary environment.
I would have any large non aircraft debt maturities for more than 24 months.
We also have additional sources of liquidity, we recently engaged third party of razors to evaluate some of the company's unencumbered assets based on these appraisal.
As we believe the value of our unencumbered assets is in excess of 10 billion, excluding the loyalty program.
And we expect to pledge a portion of our assets for the secured loan we have applied for under the carriers there.
With respect to capital expenditures, we currently have committed financing for nearly all of our 2020 deliveries.
Beyond this we have removed 500 million for projected not aircraft capital spend plan in 2020, and another 200 million in 2021.
We'll continue to aggressively pursue other opportunities conserve cash and working capital.
As for cash burn our average estimated second quarter burn rate is expected to be approximately 70 million per day.
However, as our cost initiatives gain traction our daily cash burn as expected decline overtime, we expect that burn rate to improved or approximately 50 million per day for the month of June.
Based on our current forecast, we expect to have approximately $11 billion of liquidity at the end of the second quarter, which assumes no incremental financing beyond the government loan and little to no increase in demand for air travel.
And it.
In accordance with the carriers that we have suspended our capital return program, including share repurchases and the payment of future dividends.
In summary, we are facing a challenge like that is like unlike anything we've ever seen in a short period of time, our team did a phenomenal job taking costs out of the business and increasing liquidity I couldn't be more proud of what they have all accomplished.
While we are by no means done and we are prepared for a long road to recovery, while the situation remains fluid, we will do everything possible to protect their business and ensure American emerges from this crisis more efficient and competitive than before.
And with that I'll turn back to the operator.
Thanks, Doug Thanks, Derek operator, we're ready for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question first abound Keith.
Your first question comes from David Byrne from Bernstein.
Hi, David.
Hey, Ryan.
Go ahead Mr. Vernon.
Sorry about the sorry about that guys.
Work from home fun. So is there just to clarify the.
$11 billion liquidity at the end of the second quarter that assumes the inflow from.
The care both portions of the character grant that allow the delay.
Correct there there is a.
Portion of their 7% of and granted does come in the second quarter. So there is about 600 million.
The graph that shows up in July so, but for the most of our yes. It includes about 10 billion.
The government Grant and loan and then 600 comes in July.
Okay, and then as we think about.
The moving parts to get out of that 50 million burn rate.
How much of the the actions that would get you to 50 would be.
Hi, there temporaries and voluntary.
Sort of time off arrangements Im just trying to get a sense for how much of an additional sort of touched so the cost the cash burn rate you guys are going to need to make in that September timeframe as they care loans come off Arkansas.
Looking at it typically today.
10 billion last together you get into the first part of next year, but it seems like Theres still some more to be done on the cost side. There can you give us a sense for how much more to get out of that 50 million today.
Yes, I think I think what ill tell you how we get there I mean, we then the difference between where we are now and where we get to is there's been a significant amount of refunds other than those that has caused the number to be higher now than it has.
And as barge men's take hold those take a Logan in time. So those are now starting to take hold and will stay in place as we go forward.
Ontario.
And ladies in early out the early also be there forever. The voluntary leaves we have some three months from six months from nine months.
And we believe if we need to do that in the future. We can do that again, the capex reductions are permanent and those and those are out throughout the whole time.
Some of this is.
Reductions in departures so.
The San Diego and assumes really very minimal receipts. So.
So the difference I think from a cost structure perspective, all of this is in place and can stay in place.
[music].
Yes.
Eric and his comments to your question, which is.
At $11 million at quarter end does assume the government involvement and also some as we've done other.
And whether financing so we were expecting in the quarter with.
So with a significant amount of unencumbered assets still in place. So there will be more to do beyond that if we need.
Alright, thanks, guys.
Okay.
Thanks.
Yes.
Your next question comes from Mike Linenberg from Deutsche Bank.
Hey, good morning, everyone.
Okay.
Just a couple of questions here, so when I look at your Capex I guess it was 3.3 billion coming in and then Derrick I think you indicated that 500 million of non aircraft.
Yes, I mean taken out so I think it was one six were looking at about 1.1 billion of non aircraft Capex.
If you could just talk about.
What what that 1.1 billion is and then the 1.7 billion of aircraft Capex you indicated that you've already it's already funded presumably those.
Aircraft deliveries are actually cash accretive can you can you talk about maybe how that how that structured thanks.
Yes, I think as I go in for the answer is yes. They are cash accretive they're 100% financed if not more.
So all of those we do plan on taking all of those deliveries in there there are positive too.
2020 forecast on the deliveries are in the back half because they're max's that have been pushed out.
But those are all cash accretive as we go forward.
As far as the Capex, we're down to about one one we've cut out everything that we can the biggest the biggest project thats in that Capex is our.
Consolidating the fleets.
And making sure that the configuration on most of the fleet, saying that project is going to continue and we are going to the aircraft on the ground will have the ability to speed that up a little bit. So we don't plan on an pulling back on that project is I think it's very important for operation is very important imports.
For the team.
Yes.
Yes.
And that takes out at least 40% kind of that have that have that capex.
The rest of it is just mandatory staff, we have to do with ours.
There are some other IP projects that would be still like to move forward within those are involved in there.
We're really.
Thank you.
Good morning, redone have all been.
Well when taken out of the capital plan for the next two years.
Users 15 of those.
No Sir.
Sure Okay.
Good morning.
We do so those are out there.
Joining me.
But.
I think there's.
The levers to go down Varadero and you've been through injury to is more in place and publication for sure. If you went down that path, but as you said there financed out ways.
We're looking at.
Those those are those lead times and we're looking at as we go forward and then maybe you have some lease expirations. They let go next year and dairy, Okay, 50, seaters and corresponding amenity theater, yes, well, yes, okay. Good point all right. Thanks, everyone.
Thanks, Mike.
Your next question comes from Jamie Baker with JP Morgan.
Hey, good morning, everybody.
And your negotiations are going well are you wouldn't have put the.
The government loan in your liquidity build but is.
Is there a plane being case, the treasury turns you down Mccann.
As a follow up or have we also confirmed with treasury and I may have just overlooked is that 100% of the proceeds could be drawn on loans.
No we're having.
We've been working with Treasury I mean that the government grant process went really well, we really appreciate everything they've done.
For this program.
No we.
And even the loans. We can go we can a half ago. So weve started to have some conversations but.
Our our working with the Treasury team in the.
The team has been great.
Yeah, We then constructive conversations as we as we move forward and with the collateral we have we believe that there's.
We can get a deal done.
And then everything they're going to be reasonable about it. So we're moving down that path. We believe we're going to get it done.
And so thats our number one goal as we move forward they get that complete first and then with the extra collateral we will have left in the end as the to go down and look at other opportunities as we move forward, but I'm confident that working with the Treasury Department and the team that we can.
Can get the government loan put in place.
Jamie So you get online so just to.
As we and others who users.
Some people in treasury as well like you and I were among those.
We're around in 2001.
I was I was running an airline that needed help.
Through the from the Treasury Department and it was extraordinarily difficult.
This is this feels dramatically different.
That time.
This Treasury Department is working night and day during the weekend to get much these liquidity into the U.S economy to make sure clearly is able to get running again and that includes how they're certainly includes.
We are treating.
This this.
Airline support so it was it was clear with the Apparels Barbara.
I think.
Ill now they're doing what they have to do of course, we just make sure that.
US taxpayer is payback.
Q1, Q2 barrels per program.
That would make it absolutely guarantee we're getting paid back to things like.
Unemployment savings and higher income taxes on 70% of the grant our lead again.
Wasn't went into a loan with a very low interest loans over 10 years.
As it relates to the loan.
The loan program itself.
They have.
At the time, we talked about perils important laboratory.
There are good and storage all of us.
Global arguments of annex fees and recognize again, they want to ensure that the taxpayers repaired.
But I think they know the best way to do that as ensure the airlines have liquidity to get through I mean, what are the crisis. So.
Well.
Again, we still start to get through.
The work you alluded to it.
But you're right. We wouldn't have we wouldn't have talked about our look into that is our next source of most division capital we didn't feel confident though that it would be the next first efficient capital.
There really is.
Five year loans.
Different rates for carriers based upon.
Running as we were told.
For us, it's why were plus Threefifty, you're not going to today's line, where that's a little over 4% five year mine that that is the most efficient financing out there for American Airlines.
You know, they're looking for it needs to be secured manager.
They are willing to be.
Certainly one reasonable that collateral and also going to look into just for appraisals that we have.
That we feel we feel very confident we will.
The order rate level and still have significant unencumbered collateral accurate.
Got it Doug that that.
Perspective is actually really really valuable because.
Right.
The United President with the TSB was.
We clearly on my mind, so I just I appreciate all of that commentary a quick follow up to.
To your earlier comments, Doug about recycling franchises.
Might have been sort of what Mike was going as well a lot of my home is cutting in and out but not looking for 2021 capacity guide unless you want to give us one but.
My question is how much could you shrink relative to the 2019 baseline if you only put down.
The aircraft and allow leases to expire I get put differently. How much could you think before their begins to be a cost in terms of parking aircraft not not thinking about facilities not thinking about the toll on labor.
Steve specific.
Aircraft question.
Digital airplanes among above the 100, what we've already announced well.
Hopefully you still have owned in fully depreciated aircraft you have right expirations coming up at that I don't have particularly good clarity.
And if you allow those to expire and put down owned aircraft Theres no real expense to that my question is how much on a percentage basis could you drink asked them.
Before contemplating putting down an airplane for which there is still an ownership cost or lease expense.
At.
10% relative to 2019, and 20% and if you don't have the figure that's fine I mean, we've done in the back of the envelope I was just curious to hear your your take.
Hey, Jamie this is this is ideal.
The thing is a little bit ever on airplanes basis versus an asset base, because they're engaged will change.
Seven basis, we estimate that number between 18% to 20% depending on how you draw that time period and my number includes all Jeff regional narrow bodies widebody, alright, and then basis that number's, probably more in the end the 15% because of course, the things we look to do a takeout smaller.
Yes, Mike 50 Seaters.
And keep more economical gains like bigger 737, the 21 things like that right perfect Thats exactly what I was looking for I'll pass the Mike to the next analyst. Thanks, So much gentlemen, good luck maybe JV.
Your next question comes from Joseph Denardi from Stifel.
Yes.
Yes, thanks, good morning.
Thank you Eric you saw the the nature of the.
Unencumbered assets that you have some kind of realistically what what sort of capital you can raise against that and then.
What is the value of the loyalty program.
Kind of a pretty big note between.
Yes, yes still out there for you. Thank you.
Yes, I think.
Go into number two I mean, you year. The one that has done the best work on the loyalty programs by far.
And your number is pretty good from where we.
Headline appraisal of the program. So I think the the value of that program is high and I think you have pointed that out rightly so and.
You have or in the range of the appraisals that we've gotten back for that.
So that that that as a very high value to us.
The 10 billion about 2 billion is aircraft spare parts engines, those kind of things about 5 billion is slots. So it gets us to seven.
We've got a are about 1.8 billion in real estate about 1.2 billion. So.
There are different things, we can do with different.
Thanks.
So of that 10 billion.
40, 40%, maybe loan to value on certain things, 40% to 50%.
Just in the fact that I think some can do more than others and gain more cash from an LTV basis than other collateral, but maybe the as a four to five.
We also have.
Our slot games and routes 364.
Deal that we have to refinance at some point in time, there is 4.4 billion of collateral in there which.
We will be used at some point in time to refinance and.
Probably do a bigger transaction.
As you as you combine that with other collateral that we have.
Okay. That's helpful. And then maybe for US to what is what is getting is much smaller do you think you might be on the other side of this means for.
The hub structure of the network. Thank you.
Yes, thanks for the question.
Which I will answer, but I mean does this mean that we strain hands or eliminate one so let me be very direct about this.
No plans.
Close any hub in fact far from it.
As we see this with era, the core of our customer proposition is providing high activity.
That is something that we do not just.
Versus all other airlines that given all of their network Airlines, we are uniquely good providing connections from customers in small cities across China as Northern South America that connect into the global marketplace, So as dark and daunting and this crisis. As this is a moment real clarity. So this is not about snap filling our customer proposition but.
Sharpening and refocusing it.
And so with with that in mind. The way we are thinking about trying to get a lot of the same value that historically people try to a range through how closure is first and foremost as as Derek and Doug mentioned through lease simplification right. We just being like we just take our fleet is quite you take our direct expense when we simplify.
Hi away sleep, then you take out more intractable expenses like indirect costs apartment fueling fixed overheads things like that.
But importantly that makes the airline a lot more lean and a lot more nimble a lot more capable of being able to move fleets around markets are responding to a recovery. When it comes on and you may have the things that have in a difficult for us the frankly over the last four five years.
And then to the other thing that we looked at view.
That kind of on the agility is really put the capacity even more aggressively to aware.
Where the demand and without going too far into it I think I can very confidently say you won't see SVP can DSL easy. This this whole process I went back far from it.
And the third thing, which is really different from from past crises for US is really the power of our partnerships here because now we have things such as our growing partnership with Alaska on the West Coast.
And a lot of markets that are challenging over that does it have growth inhibited because of constraints on slots or gains are route.
What we're now able to deal with his offer the customer a much larger network that can compete with bigger rivals and often have unwinnable markets. So that means that we should be able to see that in higher quality revenues for American airlines.
Lower at a lower amount of investment.
So we do not plan for for.
Mass scale have closures in fact, our hubs or a massive assets as we think about a really are very focused customer proposition coming out of.
Thank you.
Your next question comes from Duane Pfennigwerth from Evercore.
Hi, Thanks.
Right.
Good morning regarding your commentary about a multiyear recovery.
And what this looks like in the long term just curious if you could share what the financial targets are that will shape. Your plan. So as we as we think about.
The crisis here and now Boenning over 6 billion in cash just this quarter your exit rate implies about four and a half billion burn rate into Threeq you.
Net debt on its way to perhaps 40 billion this year.
What are the financial targets that will shape your 2021 plans Bon less cash.
Yes, thanks joint.
At this point or New York and again as I think all of those are.
Through the current liquidity crisis, rather than building 2021 client.
But for sure.
As we come out of this.
Prior prior to this American I've gotten to the point, where we are we were happily through a large.
Capex program, and we're moving aggressively towards using our free cash flow to de lever the balance sheet that will certainly be the case as we go ahead of us.
Now.
As we as we as we do move to generating free cash flow in the future.
The proceeds that free cash flow, we go into pay down debt pay down as aggressively as we can.
So, but that's it that's once you can expect to see where we're going to that point.
But.
I think more concrete and that in terms of.
Estimates or metrics for 2021 at this point.
And then just on the 11 billion liquidity target.
What are you assuming for the working capital headwind related to the air traffic liability.
You had a lot of questions around this for a number of airlines not just American.
Can you walk us through the mechanics of why the Hcl.
Did not decline in the March quarter, and the outlook for that into the June quarter, considering things like cancellations et cetera. Thanks for taking the questions.
Yes, I mean, they tailgating decline in the quarter VJ was it was positive bias.
Ill turn the corner was positive 665.
We had positive 785 in January positive or 87 in February and negative 618 in March.
In the time when NGL does build for us.
And ladies and you know this and even really until middle of March. So those two happen we did have refunds.
During the quarter about 900 million. So we did have NGL grow we add refunds of $900 million really driven by sales in the first two months of the of the.
I am hearing.
I believe that Hcl will decline in the second quarter.
Our projections.
I think in April we had refunds, we haven't finalized the yet we think is in the 600 million dollar range if not more.
And we do project.
400 in May and about 200 more in June so on a quarter is going to be it by.
Some 1.2 to 1.3 billion dollars' worth of refunds.
And that is built into the.
Well into the daily cash burn numbers that we gave you.
That's why we talked about receipts being really low in a.
50, or 70 billion.
$70 million in day daily burn.
So that as bill gain we do have an ATM and we think is going to be negative but in the first quarter was positive really because the.
As we as we enter March things looked really good from where we were and I think for all of people that was pretty pretty much. The same picture, we just had to burn coming in in March.
Very clear thanks there.
Yes.
Your next question comes from Hunter Kaye from Wolfe Research.
Hi, good morning, Thanks for giving me on.
So I know is kind of following the question the ones that were 21, but I mean, how do you plan on digging out of this debt pile here, Doug and based on what you said it doesn't seem like you guys are going to be really.
Gutting costs, so I mean pragmatically speaking like how do you dig out of this debt pile, how do you generate that free cash flow once you get through this crisis.
Through earnings.
Again so.
We were we were.
Nicely for gasoline positive free cash flow prior to this.
We need to get through we're generating free cash flow in the future.
And as Weve, obviously, when we went to pay down over time.
The.
As Derek noted.
Well, we do indeed.
Come out of this more than we would've liked.
As it relates to the actual cash flow.
Situation regarding that.
We don't have any major amortization for the next couple of years.
And like you say as we as we come out others like all carriers and get through appointed you may begin to a point again, we're generating positive cash flow.
Which we certainly will at some point and when we get we then.
As we go for it.
However, we are really good I mean, the work that's been done and get the cost structure, where it is right now is only getting so.
As soon as team are working through what was schedules going to like look like in 2021.
The whole purpose of retiring ways was to simplify things into drive the cost structure, where it needs to be and we're still looking at other opportunities to do that.
So we we will go through a comprehensive.
Look at the expenses of the airline.
Over the next.
Few months here to right size, the expenses to whereabouts who's going from a.
Network perspective.
Okay, and then of the 39000 volunteers for early retirement and.
In the like how many of those 39000 are permanently retired.
There were 4500 earlier.
Thanks Derek.
Yes.
Your next question comes from Myles Walton from UBI, Yes.
Thanks. Good morning, Doug has had a question for you on customer behavior, and specifically is your alter some of the procedures for for safety onboard the plane and then something like walking in the middle see.
How long do you think something like that last says, yes customers get used to it I mean, it is it potentially that you're putting it in there and it has to stay through the vaccine development next year and just how is that going to feed into your you're building of.
For Q type of projections and scheduling.
Yes really good question all this is rapidly evolving.
And you know.
We.
Today, it's not much of this obviously.
We sir.
Over 80% or otherwise would do linear going on loans weve ourselves. Thank you. So.
Constraint comes into play a very very rare basis.
So.
So as what we think it's the right thing at this point in time.
Which again I can't really answer your question.
It will continue to evolve.
Over time.
Today, what we're seeing is as much more of a push towards official coverings.
To give customers a level of comfort we certainly are.
Strongly encouraging that views, we as we as we said.
Oil wells will soon.
Ill begin.
Providing customers.
With mascot used drawing occurs.
No.
Right now, we think Thats, an important part of the message to our customers to know that.
We're not going to have every airplane filled there will be some seats available.
Sure.
Does that require there.
And.
So we think we as other airlines are right now because an important part of the messaging.
We'll see we'll for your evolves over time.
I don't know is reimbursement.
No. That's that's fine it's just a slippery slope when you start.
To put something in place you know exactly when to Peel. It back I just wanted to how you're thinking about it and then maybe just a clarification on the the carriers loan how much of the encumbered assets or you are closing a pledge against that so we can no kind of quarter end, which are unencumbered assets are thanks.
We do we don't know yet I mean, we're still working with the.
With the treasury to finalize that so it hasn't been determined in wood will just continue to work with them on what the right collateral value is for the 4.75 billion dollar lump everything else. We're always the of the $10 million plus the advantage program that we have available today.
We certainly expect that we will have ample collateral available for the Treasury Department.
To be to feel good about their 4.75 million dollar.
Lobbying secured and still have significant.
On encumbered assets after that process.
Thank you.
Sure.
Your next question is from Andrew Didora from Bank of America.
Hi, Good morning, everyone. Thanks for giving me in here at the end.
Jim just just want to kind of going to actually go back back to the carriers X. I guess my my understanding of the government loan program is that governments because here to be a lender of last resorts and you need to exhaust a lot of your other avenues of financing before access in the program.
Based on your explanation I think it's fair to assume would you agree that maybe thoughts on this interpretation and then as follow up some mild his question, yes in your discussions with the Treasury heavy indicated that the type of collateral that they would be willing to take because just trying to get a sense of what you could have less if you need to go to the public.
Okay. Thanks.
Okay.
Yes, sure it really starting in there.
Good day.
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The lender of last resort point again, those how much laser driver.
Something to the effective.
Your next to show they don't have reasonable access to.
Through open to public markets or something like that.
And again in discussions with them and and I can't stress enough again how.
Exceptionally reasonable and helpful. There, they're beginning to all of us.
We proposed things, we mentioned to them things such as well.
For example in February.
Mark.
So from earlier this year there we do we were able to do a sea change on a doubling tcf.
We did on secured three points of doing an unsecured L. 3.7, So we could do a sea change on a doubling tcs will be lower than that today, if we try to us each onto a doubling to see.
Double digit number.
There are certainly on a go do that.
They view that as financing now being avail, reasonableness not being valid reasons or so that's that's that's again.
Yes.
And ascertainment certainly their view seems to be.
Not that you need to go.
Raise use all the collateral you Avenue in terms of them only when there's nothing else you can do irrespective of the cost.
And so again, which.
I think is one the right thing to do what we're trying to accomplish which is ensure the industry as liquidity needs.
Reasonable rates in what we've been.
So again I knew I would you think.
Not just secretary manage movies.
Under Secretary Bright Mackintosh, W. Secretary, Justin is and it's the entire team is Justin.
Really very helpful. So.
Then as to the collateral again I'll begin today as we need to work through them.
We have.
$10 billion unencumbered assets plus the advantage for.
Which has.
Appraised values.
Is there to do.
So.
Given all that we feel.
Hi, good about our the what we've said which is that we will we will go raise the government launched I'll have Steve do unencumbered assets now with outstanding Let me use this opportunity one more.
Give credit or is there the treasury team.
We.
The biggest these numbers review and.
$11 million.
At year end.
At quarter end.
With the government loan.
Has us thus far.
Most expensive.
We will have raised in Latin analysis is government alone.
So.
So that we won't need to do other things in future. We've been we've been going about this we want to go through the most efficient source of financing throughout.
And I think you've done really well.
Bill I feel good about that we'll continue to do that.
And right now Thats the best the nice most efficient.
He wants to go after so thats, where we expect to go to the extent.
On that we need to do other things, obviously, we'll do so.
I think I heard.
Gary Kelly on southwest So I'll just call. So this wells there was a nice asymmetrical risk right now for cash.
No not having enough is really expensive having too much.
Maybe someone expensive, but you should use that's paid and that's.
Certainly, where we view it and we're going about it in a way of raising that which is most efficient first.
And.
Getting to those are less efficiently.
Great. Thank you for that and.
Lastly, Derek just a quick modeling modeling question here in the $15 million daily cash burn burn rate in June and beyond what are you assuming what does the WTC amortization assumptions in that number. Thanks.
Oh no lease amortization is for 2020 is about 2.2 billion.
Are there for the full year.
Great. Thank you.
Yes.
Yeah.
At this time, we will take questions from the media is members of the media would like to ask a question. Please press star one.
Your first question comes from Allison Cider from Wall Street Journal.
Hi, Thanks, so much hi.
Let me be did tell us anything about sort of that any supply chain issues, you're seeing for masks.
Where are you getting all these masks are accruing passengers and getting easier to find them.
Hey Alley, its Robert I'll give you what we know look theres a lot of planning that goes into.
Provisioning masks and Sanitizers and when we contemplated making changes to our cleaning programs and also any type of amenities for for our customers.
Things have changed rapidly in just two or three weeks. So as we as we take a look forward.
Sanitizer, we see ample supplies with masks.
It is an issue logistical issue of getting inventories to the right place.
But we have sufficient quantities for our team.
And as our commitment to offer mass and sanitizer.
Customers in flight, you'll see us rolling that out and our supply chain. It will take a number of weeks.
But it's not the issue of months at this point.
So I can't point, you to the exact sources of supply, but I will say that things have certainly ease.
Constraint that certainly ease over the last few weeks to the point that we are able to make commitments like we have to both our team their customers.
Got it thanks, and I, namely for I know you can't exactly where we've heard of other airline.
Having to go to Asia, China in particular to get math, it's out where some of the for sands.
We're sourcing wherever we can get the quality products.
That meets our needs throughout the country, but I don't have the specifics on what percentage comes from where.
Okay. Thanks.
Your next question comes from K, Kyle Arnold from Dallas morning News.
Okay.
Hey, Thanks for taking my call.
I agree one.
You mentioned the 39000 employees that took that early out leave and reduced hours can you talk a little bit about what.
You are permanent port for situation might look like.
After that cares acts.
Restrictions.
And how you give me looking at the neither the size of the.
The airline.
During the next few months.
Yes, Doug.
Honestly, obviously hard to tell given the uncertainty around demand.
Where where we where we will be in.
And how fast moving consumer returns is how much we want to fly.
But certainly I mean is given what we announced today with the retirement of all these aircraft.
We will emerge.
From this in the fall.
With a smaller airline than we anticipated.
Prior to the virus of course and go into 2021 as a smaller airline so.
We will indeed, we will.
Well, certainly irrespective of where demand is.
Go into the fall with.
More team members than we have workforce, which is a challenge for certain.
We hope to get through that.
Same way we've got into this pointed out the fact that we had 40000.
39000 of our team members.
On to your for leaves them early retirement.
I think is indication that we.
Hopefully can be able to manage through that.
Which without having to do furloughs that sort of your goal.
We'll go through and make sure that.
The airline rightsize properly sized.
Good as small as today.
But theres no way that.
Takes care of our two which is has been front of mind for this entire process. So we'll look to do that.
But you have those decisions are things were going to enter regimen, we get to that point.
That's a goal just one on that or we can be uncertainty so.
Again this is not unique to American I think we're all working through is at this point as right now.
We're working through where we're going through the summer.
Through there and.
Through the.
Terms and conditions on the cares itself and this and as we get to the follow on work, we will certainly working.
Fraud productively with our team to make sure we're.
Right size.
Okay.
Your next question comes from Mary Schlangenstein from Bloomberg News.
Hi, good morning. Thanks.
Well when you all been mentioning the advantage program is not being included in your unencumbered assets.
Can you talk about your willingness or your unwillingness to have to use that as collateral.
Yes.
Derek anchor Mary.
I think.
No there theres willingness to use all of our collateral that is necessary.
Perhaps too.
Okay, great liquidity.
So where we needed to be.
We wouldn't Registrational program vessel traffic or anything like that if indeed.
That was an asset.
We can use to raise must be liquidity this time or.
Absolutely Morgan Sir.
Okay.
Also ask on the work leaves do you have any information in terms of yes. It's there are 369.
What percentage of those folks would be coming back light around September thirtyth restrictions on the carriers that will go away.
Okay.
Overall, we have that information very good Jim.
Although we have.
Yes, I just wondering if that's going to complicate your decisions going forward on whether you need to have furloughs or not if you've got a bunch flux coming back.
Off of leave at that site. So we said becomes available and I could get that I'd appreciate it.
Yes.
Oh, yes, I can tell you offline and tell you that obviously, the 369 months, we'll be going back and looking at expanding that wherever we can.
If needed okay.
Thank you.
Right.
Okay.
Your next question is from lastly, Joseph from CNBC.
Hi, good morning, Thanks for taking my question.
The open labor agreements crowded Corona virus, and then that needs to be smaller airline affect those.
Do you think about furloughs had any of the existing labor contract protect those.
Yes.
The existing labor negotiations.
This is the pilots.
Renegotiations.
Those negotiations and obviously has an impact on those as we all work on the pace of negotiations will still continues onward.
We can but right now all of our team is working to make his work into.
Take care of our team members through this issue so nothing certainly nothing to report.
Moving forward.
Beyond where they were at this point.
And again as early as it relates to the labor contracts.
As I said Argo our goal is to get through this.
Without without from us through NCR Im sure unions would support that goal.
Mark.
Hopefully we can do that.
We have.
So we have any weather workforce right size.
Does that.
You want to.
Once we.
I want to rounds of leaves earliest doing so in those.
These that needs to be working doing as well so we're going to.
I will note again.
Go ahead.
And on the lease you have any sense why so many people are taking those leads that childcare.
Can't go to another airline, though but yeah.
When we originally.
It's a combination of things from John Canny tailwind next summer.
Hi, buying assets a variety of means it all depends on the individual.
Thanks.
Your next question comes from Edward Russell PPG.
My question plus you I was wondering if you could go a bit more into your statement on all the hubs coming back.
Should we expect some clubs to come back.
Faster or more robustly than others I know you've been talking in the last year's Charlotte, Dallas, Washington, being the strongest stops.
Hey, Ned they said the question and remains leasing quite quite frankly.
As Darren mentioned, we are just now starting kind of clean sheet exercise for west 2021 might look like in Sal I, Couldnt and Italian with a lot of clarity, but for right now as you look in our schedule clearly we have our biggest connecting complexes that are that are out there primarily so that we answered.
The vast majority of communities under that care that with a minimum of resource expenditure. So thats, all you kind of Sierra existing schedule, they add anything beyond it remains to be seen yet.
Great. Thank you and then one point of clarification.
Robert You mentioned some older seven grew seven that could be retired was about how many where they were they 42 I'm a number.
Yes 42.
Great. Thank you.
Okay.
Right.
Operator, I think we're done taking questions that is correct. Sir there are no further questions at this time.
Excellent alright, well, thanks, everybody for your through 10 through time and attention.
I'll close where I close my comments.
Obviously, the difficult time for our industry our country.
And we couldn't be more proud of how.
Our team and our industry is managing through this we will go through this I'm certain of that.
No our industry will get through this will fight to successfully.
I am, particularly confident at American Airlines will be among those late in the way.
We will keep you apprised as we move forward.
Further questions. Please contact Investor Relations are correct me good thanks a lot.
Ladies and gentlemen, this does conclude today's conference. Thank you for participating you may now disconnect.
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