Q1 2020 Earnings Call
[noise] good morning, and welcome to United Airlines Holdings Earnings Conference call for the first quarter 2020 by name spread there will be Iraq conference facilitator today.
Following the initial remarks for management to we will open the lines for questions at that time. If he has a question. Please press star one on your touched on unfolds. This call is being recorded and is copyrighted. Please note that nor portion of the call may be recorded transcribed or rebroadcast without the company's permission your.
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I will now turn the presentation over to your hosts for today's call Mike less good Vice President of corporate development and Investor Relations. Please go ahead Sir.
Thank you Brian Good morning, everyone and welcome. Your line is first quarter 2020 earnings conference call.
Yesterday, we used our earnings release, which is available on our website IR about United Dot Com.
Information in Yesterdays release, and the remarks made during this conference call may contain forward looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance. All forward looking statements are based upon information currently available to the company.
A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release form 10-K in other reports filed with the FCC by United Airlines Holdings, and United Airlines for more thorough description of these factors also during the course of our call we will discuss several non-GAAP financial measures.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please refer to tables at the end of our earnings release, which is available on our website joining.
Joining us on the call today to discuss a robust results and outlook, our Chief Executive Officer, Oscar Munoz, President, Scott Kirby and executive Vice President and Chief Financial Officer, Jerry Laderman.
In addition, we have other members of the executive team on the line available to assist with M&A and now I'd like to turn the call over to Oscar.
Thanks, Mike and my Thanks to all of you for joining us today on loss somewhat unorthodox.
I think that.
Most of our of our days that forced us to do this but I appreciate you joining us.
As the outbreak in response to that covered 19 crisis that is clearly impacted where we have the company, but every sector of our economy and certainly nearly every aspect of our daily life.
And while in that regard United is not inception, I do believe firmly believe that our team response has proven exceptional.
That's true up our management team would put United in the Vanguard responding to this crisis taken early and aggressive actions to mitigate.
And went back to our business to protect the health of our customers and employees and to help accelerate a concern.
Amongst policymakers in DC, but what you saw labeled as the carries that.
I also believe the axes of our employees the grace under extra ordinary pressure has been nothing less than exceptional they've taken care of by customers and kept us line and importantly flying say.
We've also been out in front working to use the incredible capabilities of our airline to support the communities. We serve in the fight against called at 19, though our service is somewhat curtailed.
Our commitment to be an old service is in full view.
Examples we've operated more than 130 repatriation lights, bringing in more than 18500 American home. We were stranded abroad. We've also flown over more than 800 cargo only flights worldwide, bringing more than 28 million pounds of a variety of cargo guides, such as food healthcare related items and supplies today.
Nations worldwide you can see why we're also proud to be part of this United family.
We Fortunately during this time, we are all facing uncertainty.
Well there are two things of which we are certain first it is certain that demand will return. Unfortunately, it's just don't know when no one Don.
Theres no question that at some point on people will be ready to travel again.
Second I'm somewhat bias here there is no group of people in the world that I would rather be in the trenches and to tackle the both disruptive crisis in the history of the aviation business and the men and women of United Airlines.
Not just the members of the management team, we won't know we've been literally working around the clock to mobilize United's early aggressive and in many cases industry, leading response, but also our frontline employees, who have been out daily taking care of our customers and taking care of each other now.
Now Scott and Jerry will go into great detail about the many actions we've taken from raising liquidity the slashing our capital expenditures and operating costs to working to ensure our teams and customers have effective cleaning and safety procedures in place every day.
The team is addressing every issue and looking at the long term building scenario plans for whatever difficult decisions made yet.
But before we take you through those points, let me close on a personal note as you know as many of you know in the call. This will be the final fine I speak with all of you as CEO of United I.
I want to thank all of you and Investor community not only the analyst invoices that are often heard on these calls, but our shareholders and all our stakeholders everyone. We serve we count on.
The United team has built an incredible foundation together and nearly past five years and I never we never going to expect that we would all be tested it will be in test them up by this crisis, but with every action on please take the share and shoulder and the birdies. They provide more proof that the fundamentals of what we built together remains strong.
And ultimately I believe that's our grain of asset and that's what I'm. So proud to leave to my incredibly capable on a successor and Scott Kirby who will be taking over the rain here at the end of the mine and saw into going to further detailed these actions were taken I want to handed over to our future CEO Scott Curtis.
Thank you ask there. Thank you to the amazing people of United Airlines for the incredible job, they're doing despite the unprecedented challenges we're facing.
I'm proud to be serving the nation right now is an essential service.
Many of the people were carrying are traveling for critical reason.
Over the last several weeks as a country we've come to better appreciate how much we rely on farmworkers grocery store workers delivery drivers and of course healthcare workers.
I'm proud to country now also better understand just how important are customer service agents technician store clerk router load planners ramp workers why that limit cables dispatchers empowered our to our economy customers.
While it may we're flying 90% fewer flights than we expected and flying at very low load factors without the commitment and professionalism that people in the extraordinary circumstances, we could imply that people who need to travel now.
For example, we've flown free of charge hundreds of medical professionals, who volunteered to travel to community struggling to treat influx of coded 19 patients.
In other cases, it simply a customer urgently trying to get home to see a critically ill loved ones.
In a normal environment, we're proud to say, we're about uniting people in connecting the world.
In a world of social distancing that may seem less relevant, but it's actually even more important because most of the people who are traveling now need to travel.
Before I begin I also want to say huge thank you to us get.
We can be United in a difficult time and brought together the employees to show what being United together really mean.
Under his leadership, we saw strong operational performance a renewed focus on the customer and a return to growth of the airline and financial success.
All brought to us by the people of United Airlines.
We did an amazing job turning that around and preparing us to address the current corona virus as a team.
Personally Oscar has been a friend and a true mentor to me during our time together.
I've always been able to count on Oscar for effective and constructive feedback on certain that I'll be a much better CEO for having had the honor of working for Oscar the glass for years and look forward to continuing that relationship as he moves on to be our executive chairman.
Sheltering from home and doing conference calls from multiple locations is not the kind of fend off we had planned for Oscar.
I know that I speak for the entire United family when I say that we'll look forward to a time when we can all get together and person and give Oscar the in person. Thank you that celebration that he so originally deserves.
Turning back to our response to the crisis.
Safety and cleanliness I've always been important but now they are even more critical as we seek to minimize the.
Potential spread of the virus, United as an industry leader in this regard.
But I'd also say safety has been the top priority at all U.S. Airlines for decades.
The safety protocols and systems, we built to use data to find even the smallest risk and then work the engineered out of that.
We will serve us well as we collectively find ways to ensure that the travel experience is safe.
None of us have all the answers yet, but there is no industry in the world as the kind of track record on safety that airlines have it literally in our DNA.
Out of the leadership role that we're taking United but the one consistent thing all airline executive I've ever known agree on is that we don't compete on site.
We share best practices and learning and while we compete aggressively for customers. We work together to make this as safe as industry in the world.
Thus far however at United in airports, we modified our boarding process to have customer scan their own tickets prior to boarding to help with social different thing.
Boarding fewer customers at a time and boarding from back to front.
Providing math to customers if they don't already have them and plan to recall require all customers to where math soon.
Testing tough just kiosk for printing checked bag tag, which will eliminate the need to touch screen by scanning your boarding pass.
We're installing flexi glass panels that are gate ticket counter for the personal safety of our people as they asked US customers. We're utilizing temperature checks for airport employees in flight attendants prior to beginning work at multiple airport and we're expanding the other locations.
We've enhanced our cleaning protocols and of reallocated manpower to increase cleaning funds.
Promoting a six foot distancing role with a combination of signage and 48 marketing and rearranging employee break rooms to promote social distances.
On board the aircraft, we've enhanced aircraft plenty protocols that we are now using on all turn.
We're utilizing electrostatic spraying disinfect aircraft interiors recurrently spraying all inbound international flights and all aircraft at least once per day.
We expect to be spring every single fly by mid June.
We've implemented streamline meals and beverage surface to minimize personal contact and removed common use material from the seat that we bought middle seats promote social distancing onboard and adjusted flight attendant jumps evocation. So our crew members feel safe and have more space in between each other so we've added onboard announcements encourage customers to do their part to save goes.
Ill health of others, where the first major U.S. airline to require all flight attendants to wear masks onboard and we added flight deck Clini care for our pilots which include gloves Imperial wise.
Turning to our financial situation, how once again emphasize that hope is not a strategy.
Nobody knows when this will end and life will begin to return to normal since the very beginning of the crisis, we reacted proactively and aggressive.
Can count on that continuing.
Plan to continue to react nimbly as the situation involved and won't hesitate to might hard decision like our decision to raise equity when those decisions are prudent.
Since late February the declining demand for air travel as pretty need to be worse than anything anyone who is publicly projecting.
While we were more bearish than anyone in hindsight, even our expectations weren't nearly a bearish enough at the both the depth and duration of this crisis.
Accepting this new reality early however allowed us to get at least a little bit ahead of the tsunami and preparedness to survive what we believed to be the most challenging period in the history of aviation.
Over the weekend at February 22nd.
We began to read the news that the virus and spread to Italy.
That point, we haven't really seen any impact on European or domestic demand, but we concluded that the virus was likely to spread worldwide and over that weekend in the following day, we became the first furious airline to respond to the ccrone of ours by planning for a 20% capacity cat.
Drastically reducing capacity Capex for 2020.
Beginning work to reduce Opex in line with our capacity reduction suspended the share repurchase program and beginning a large and accelerated capital raise.
All of that gave us a head start as the demand environment rapidly deteriorating well beyond even our dire scenario.
Net new bookings are now down essentially 100%, so yes that doesn't mean that its bottom but.
But we aren't seeing any signs of meaningful recovery and near term demand yet, but as we look longer term, we see some evidence of pent up demand for example searches for 2021 spring break travel on our website or actually higher this year than they were at this time last year.
Well, we don't expect many of those to turn into real bookings for travel until the virus is sufficiently contain and the rhythms of daily life become routine again.
For the first few months of this crisis and even with demand at approximately zero, we've been able to avoid involuntary furloughs and pay cuts for our people the care that help with that but only temporarily and only partially.
The grant portion of the cares that only cover three and a half billion of our 6.5 billion ineligible expenses, which consist of salaries and benefits of United employs.
We've been able to rely on voluntary programs and a reduction in hours, thus far to further reduce near term payroll expenses.
We've also been done everything in our power to reduce the impact on United employees.
It is eliminating contracted work at the airport and using our own people for previously outsourced task.
But even with the carriers that are people are already sacrificing with over 20000 people on voluntary leap program and tens of thousands having large reductions in the number of hours and therefore take home pay that they are working.
And then the days in months ahead. Unfortunately more of our employees will start to feel the direct financial impact of this crisis and that's not something that anyone in our management team take lightly our schedule is down 90% and we plan forward to stay at that level until we began to see demand recover.
We made a promise to our people and to American taxpayers to avoid involuntary furloughs or cuts the pay rates for U.S. employees until the end of September and that's a promise we'll keep.
But if demand remains significantly diminished and on October onest, we simply won't be able to endure this crisis as a company without implementing some of the more difficult and painful actions.
These include decisions on involuntary furloughs further reductions in hours as well as other actions that will have an immediate impact on our people in their livelihood.
We care deeply about the families who rely on the paycheck you 90 provide and these are decisions that we will not take lightly but our overriding goal is focused on the long term we have to ensure that United is here to rebound. Once the virus is contained in demand has recovered we simply cannot and will not risks the long term.
Future of United and the jobs. The airline supports just because the short term decisions are really hard.
Turning to the balance sheet. Thank you Jerry in the finance team for the amazing job they've done were like raising liquidity as we've raised over $4 billion, including aircraft financing in March and April. Additionally, I'd like to thank the administration the house and Senate on both sides of the I'll for their support they quickly made available to airlines into the economy in general we built.
The bipartisan cares that has been and we'll continue to be critical to the ability for the country to rebound in the desire. So defeated as we entered the second quarter, we reduced our cash burn to about $50 million per day.
We currently expect will have the cash burned down to about $40 million to $45 million on average per day in the second quarter, even with essentially zero net passenger revenue.
We've taken an access to all non employee expenses Jerry will describe some of these actually give more detail, but we've been able to reduce our cash burn by implementing huge reductions in all expense categories, except employee wages.
The following is not a forecast because it would be a naive to believe we or anyone for that matter can accurately predict the course of this crisis or the recovery.
When we say, we when we say planned for the worst and hope for the best However, we really mean it and there were therefore planning for the environment to possibly continue at essentially zero net passenger revenue for the rest of the year and into 2021, we are projecting that certainly hope it's better than.
In that but we are planning for the possibility.
We're starting may with approximately 9.6 billion at available liquidity. During Twoq you expect to receive most of the remaining two nap going into the first phase of the cares Act grant and loan not counting any additional liquidity raises this with me we expect to exit Q2 with about the same level of liquidity that we have today.
Thank you we forecasted even if we continue with is essentially zero pass through revenue and assuming no additional financing we can get our cash burn rate below 40 million per day and would therefore expect in Threeq you with approximately 6 billion in liquidity and at a minimum and it continues to zero net revenue.
Environment, which we hope won't be the K., we expect to have the option to avail ourselves of the of a $45 billion Cares Act loan, which we project would take our liquidity to over 10 billion heading into the fall.
Beyond that we still have unencumbered assets with the loyalty program being the largest which could be used for additional financing if the zero demand environment last even longer.
All the numbers I just shared with you are based on a scenario, where there's no recovery.
And pastor man remains essentially zero I'll, just emphasize that we are forecasting zero demand, but we are preparing for that as a possibility.
The demand environment is better than that of course, we plan to adjust to close accordingly in closing that's been the most challenging time and my professional career.
Just because of the unprecedented financial cost of this crisis, which is the subject in today's call. Covert 19 has of course also taken a profound human sold.
Every day I correspond with United employees, many of whom I've never met you reached out to me and tell me that they are passionate about serving our customers, but they're scared about their health and the financial hardships their families are already pacing I want to once again, thank those employees for their bravery and environment that continues to change every day.
Oh this does bring to mine the with the Churchill quote when you're going through Hell keep going we are going through Hell right now, but we know this virus will ultimately be to be defeated and we will get to the other side, we can't control or know when or how fast that may happen, but the people of United are doing everything within their power to control.
What we can take care of each other and our customers and to get through health as quickly as possible.
As a management team we have to clear objectives. We got every decision we made from schedule changes to the new cleaning procedures for aircraft and even painful decisions like conducting furloughs.
But we believe these objectives reflect the best collective interest of all stakeholders, including our employ our customers. The communities, we serve and yes, our shareholders in the near term, we're working to position United to bounce back quickly when demand starts to return and we're focused on strengthening unite over the long term suicide.
And the crisis, so that the airline and a high quality jobs. It supports our hair when demand is fully return.
That I'll turn it over to Jerry.
Thanks, Scott Thanks to all of you on the line today.
For the first quarter Twentytwenty reported a net loss of $1.7 billion and net loss of $639 million on adjusted basis.
Those of you keeping track this was the first quarterly loss of United since the first quarter 2014.
Well, we can have a strong quarter quickly deteriorated as a spread of Covis 19, destructive travel as well as alliances everyone around the world.
As a result, my comments today will not be typical foreign earnings call.
I'll comment day when metrics like he asked in margin growth or year over year unit revenue and cost comparisons will matter.
Such metrics simply arent relevant today.
While many of US it worked through significant financial shocks and downturns in our industry for some across multiple times. This is truly unprecedented.
We saw revenues precipitously decline starting in Asia in February and then.
Declining across the rest of the world.
By April revenue was down 95% has compared to expectations at the start of the year.
Therefore in the near term until the recovery really kicks in.
Hany sufficient liquidity and minimizing cash burn are the financial measures that matter. Most we believe our ability to weather the storm will be measured by how nimbly and aggressively we cut costs and preserve cash.
Addressing liquidity, we ended the first quarter with approximately $7.2 billion.
And liquidity and as we start the month of May we have about $9.6 billion and liquidity, including $2 billion available under our revolver.
Our focus on liquidity started early as Scott mentioned as soon as became apparent that we'd be facing a work were up widespread virus. We took a quick action packed client crossing that.
We also began the effort to look at every part of our business and started to take decisive action minimize both our operating expenses and capital spend.
We eliminated all discretionary spending at over 20000 employees, taking voluntary on pay these and reductions in hours.
Stock our project the non critical to the business.
In addition, we reduced our planned adjusted capital expenditures for the year by approximately two and a half billion dollars to projected total below $4.5 billion.
Some specific actions. We've taken include hopping over 200 real estate projects are underway today, you can count on one hand, the number of such projects. We are continuing in this environment. For example, we stop work on United Car project at O'hare Newark, and dollar saving an estimated 69.
Ours.
Also reduced spending on more than 300 technical technology enabled initiatives driving over $300 million and projected sake.
We simplified our onboard product offering which drives an expected $30 million.
In addition to volume related I understand decreasing we identified approximately $45 million estimated airport vendors service efficiencies from the elimination of certain services.
Reducing hours and having United employees temporarily take on work usually performed by vendors.
We also reduced promotional spend which results in about $60 million of expectancy.
These are just a few examples of the thought process, we are going through to leave no stone unturned in our effort to reduce expense and minimize cash burn.
We expect these actions together with lower fuel prices and reduce fine to drive over a $5.5 billion and lower operating expenses in the second quarter and over 50% reduction in capital expenditures in the quarter versus our original plan.
Importantly, we expect our daily cash burn to average between $40 million and $45 million for the second quarter.
This cash burn number excludes the benefit or the government payroll support program and capital raising activity that is not related to new aircraft.
At this level of cash burn and assuming we receive another $2 billion that we expect received by the end of June under the payroll support program. We expect then the second quarter had a similar level of liquidity that we have today.
Turning to our liquidity enhancement activities, we started that process in late February and closed our first transaction in early March.
Since the beginning of March we have secured over $4 billion of additional funding, including approximately $3 billion through three secured term loan facilities and new aircraft financing.
Also a $1.1 billion from our recent common stock offering which includes $100 million the exercise of the underwriters' overallotment option that closed yesterday.
Additionally, we entered into an agreement with a subsidiary of PRC Aviation a major aircraft leasing company to provide these financing for 22 aircrafts scheduled to be delivered to us from going this year, including 277 Dash nine aircraft that were delivered in April.
With respect to our new aircraft commitments.
737, Max is on ground is later this year, we expect to take delivery of 16 Max aircraft. This year all of which are subject to the committed these financing I mentioned as well as another 24 Max aircraft next year.
These 40 Act. These 40 Max aircraft are less than half of a number of Max aircraft. Originally scheduled for delivery by the end of 2021.
We also expect to take delivery of eight more 77 dash nine aircraft for the remainder of this year as well as 877 Nash 10 aircraft next year.
Production all in all of these aircraft basically started before the crisis. So it would have been financially impractical to reschedule. However, since we will not take delivery of any of these aircraft almost fully financed these deliveries will not be a cash drain for us.
Looking beyond next year, we have no additional 77 aircraft on order.
Assuming we take 40 Max aircraft I. Just described we would have an additional 131 Max aircraft scheduled for delivery in 2022 and beyond.
We are discussing the timing of these delivery with these deliveries with Boeing However, one thing uncertain I do not anticipate taking any of those aircraft unless and until we need them.
Shifting gears I want to bank, the United States Treasury Department for the quick implementation of the payroll support program.
We will receive about $5 billion under this program in the form of 3.5 billion dollar Grant and a 1.5 billion dollar low interest loans, which together were only partially cover the cost of our U.S. employee salaries and benefits and allow us to keep our commitment to avoid involuntary further.
Before September Thirtyth.
As compensation for the government hazy U.S. Treasury Department will be receiving warrants to purchase 4.6 million shares of United common stock at a purchase price of 31050 cents per share in April we did receive about $1.8 billion, a good brand and $700 million alone and in connection with receipt.
Those funds, we did issue warrants to the U.S. treasury purchase up to approximately 2.3 million shares of United common stock.
As previously mentioned United has submitted an application under the government loan program, which makes us eligible to receive alone up to $4.5 billion. We expect this phone will be a five year senior secured term loan with interest at LIBOR, plus 300 basis points and pre payable at any time.
If we draw down on alone we expect the issue worn on the same terms as the warrants issued under ponder the payroll support program.
It's a full $4.5 billion as Bart we would expect the issue warrants to purchase 14.2 million shares United common stock.
We expect to have until September thirtyth to decide whether to borrow under the loan program.
Looking ahead, while no one has a clear line of sight to weather recover recovery will occur at United We have and plan to continue to make quick and hard decisions preserve cash kind of backhaul take steps to make sure our employees and customers are safe.
I want to give a special thanks to my entire finance organization, we're countless Howard on the cash conservation and liquidity building initiatives and Big Bank is the entire United family for their tireless efforts everyday in this challenging environment.
Before we begin to question answer session I want to Echo Scott's comments about Oscar and bank Oscar for what he has done for United and its people over the last five years.
The leadership Oscar has brought to United that resulted in changing the culture and fortunes of United has truly remarkable.
On a personal note I want to thank Oscar for the Mentorship. He provides me and the opportunity gave me.
To prove to me that you can teach who've dog, new tricks and for that time forever grateful.
Finally, I want to thank everyone for listening this morning, and with that I'll pass it back to Mike to start with you in any.
Thank you Jerry we will now take questions from analysts community. Please limit yourself to one question if needed one follow up question.
Brandon Please describe the procedure to ask a question.
Thank you Sir the question to answer session will be conducted electronically if you'd like to ask a question. Please press star followed by one on your Touchtone phone.
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Please hold for all these simple our Q.
And from JP Morgan, we as Jamie Baker. Please go ahead.
Hey, good morning, everybody.
First question for Jerry.
Early March the unencumbered asset pool was around 20 billion and that.
Loyalty, though.
Not sure and what form.
I would give us an update on the size of the pool.
And its composition.
Sure, Jamie and actually I think what I said back in March was over 20 billion.
So.
Well there are different ways.
Hello, good collateral and the way we look at May not.
The apples to apples with where others have looked at it.
Having said that and excluding mileage class, which we all that was a valuable asset.
Have at least $10 billion and other available collateral values that we can use to continue to raise secured debt.
This includes at least 8 billion in aircraft spare engines part simulators and equipment and around 2 billion in routes that I would describe the sort of routes to.
Slot constrained airports.
Does not include those slots in the gates and wraps the west restricted airport that could be actually.
Another source of additional liquidity.
And a quick follow up before my second question I'm, the government loan negotiations and I recognize you haven't decided whether you draw alone. If you are approved but have you.
Sided yet what you would pledged as collateral or is that also cylinder discussion.
Jim I expect those discussions in shortly and so yes, I'm going to be limited in my comments about collateral because clearly there will be some portion of the collateral that I described and some of this value that we will put aside in case, we want.
To take that long.
Hi, I expect those discussions to start shortly okay.
Okay got it and Scott you know as it stands.
You know in terms of planning for the worst you know some investors were disappointed when one of your competitors insisted.
That there will add to their current hub structure and look I cannot get it its touchy subject nobody ever come down so yeah, we're going to close Memphis.
But you know you said, you're not going to jeopardize the airline valuable waiting tough decisions. So.
The reasonable for me to ask if there's at least a potential.
The United Permanent crisis network looks different than it is today.
Well, Jamie I'll try to answer the question, even more broadly I think we're sure well we emerge from the that United Airlines is going and the airline industry is going to look different and whether you talk about what you do for safety or the action taken.
To reduce the spread of the virus.
One other things that he's going to be different I'm confident United is.
We're going to you know really change how the airline works in terms of efficiency, we're going to engineer cost permanently out of the system and Linda Joe's leading US you know as we go through this one of the these we are still doing in investing in as a technology efforts. So the movie emerge were more efficient we say to each other every day on our.
The executive team call.
That everything is on the table about what we looked like you know, we maybe differences in the premium travel or maybe there won't be.
But every single thing is on the table and while we don't have any plans to close or.
Would you say everything is on the table. We mean everything there are no sacred cows, our responsibility to our employees our customers and our shareholders is to make sure that United is here for the long haul and provides as many good jobs as possible to our people.
That is might not number one and overriding objective for everything that we do.
And.
The decisions that were going to make in the near term about employee pay or a much harder than decisions. We would have to make about hub structures and and route networks later in the future and we will make the hard decisions that are required to make sure United survived the successful and has the most good job possible for people.
Thank you for those assurances gotten Jerry Thank you very much.
[noise] from Evercore, and we have Duane Pfennigwerth. Please go ahead.
Hey, good morning.
Just with respect to the cash burn in the two Q. The 40 to 45 million how low do you think you can take that into October and beyond and what are the steps you're taking to to get there.
So thanks Wayne.
If we get the October one about to describe I hope and pray.
We won't have to do but we already have they plan on the shelf for if we get the October we know what we're going to do approximately but we're going to do.
To get our cash burn at a worst case.
Down $30 million down to $20 million per day.
So we will go from the something south of 40 in the third quarter.
To something around $20 million in the fourth quarter and that again assumed a continuing zero revenue environment.
I hope that we don't have to do that I hope that everyone that forecasting a recovery is right and we don't have to do that because doing that will be extremely painful for our people and our employees. Most of the difference between where we are in the third quarter and where we would go to in the fourth quarter is employees because we.
We have already.
All non employee expenses have already been cut.
Beyond that to the bone.
And the difference between that third fourth quarter number in that fourth quarter number it is really about employees.
And it will be and I give me to make those decisions.
It will be incredibly painful for our people, but we won't agonize over making the decisions because as I've said before it I'll keep repeating our responsibility is to make sure we have a strong future here at United and the way I look at it is three years from now five years from now how do we have a secure future for United.
And have the most great jobs available for people and if we have to make short term sacrifices and if we get to the fourth quarter and demand is zero, we will have to make short term sacrifice, we will do that and we will get our cash burn down to $20 million today, which obviously gives us an extremely long runway and to make sure that we.
Come out on the other side and emerge.
The United Airlines together.
Thanks, Thanks, Thanks for that detail and just for a follow up Jerry you gave us some of the pieces, but can you tell us where 2021 capital spending stands today relative to the less than four and a half this year. Thank you.
Yes.
An area, we're still working on but I can tell you that the exercise you've gone through this year to reduce capital spend continues into next year.
So we're not going to be increasing capital spend.
Any degree from where we're going to get to as.
As we hit our numbers for everything we reduce issue.
Thank you.
[noise] from you, but yes, we have Myles Walton. Please go ahead.
Thanks, Good morning.
Oscar Scott It was hoping you could get to your perspective on that the customer seek the perception and something like walking the middle C or or spacing Ah departures in the terminal for purposes of creating space and waiting lunches and the like how in tax what do you think that will be to your.
This is recovery in say the fourth quarter and into next year I know, it's got you're sharing is a realistic scenario or pessimistic potential scenario, but in a more baseline recovery scenario are these safety measures you're putting in place do you think they'll still be in place at the end of this year and beginning of next and how impactful will that be to your.
Coverage.
No. This is Oscar let me take a first shot and then Scott has some bad news on that as well I think.
The safety procedures that we're all following first and foremost will be followed by the entire industry. We've proven that we can do that together and proven to be say how long. They last will be a determinant of the situation and the general sort of trust that people have and flying but to be got it goes well beyond all the things that we're going to be doing well I just got it.
Interesting good perspective on how demand what comes out maybe Scott I'll get back over to you.
Sure I skipped a look I think it's too early to know specifically, what what will happen.
I think it's almost certain that are not just airline, but our society will be different you know I'm a month ago. We were afraid if we saw somebody walking down the street here in the United States with the mascot now we're afraid if they're not and I don't know hop permanent all those changes will be but things will be different even once we recover.
And and we start to return to normality.
Well I don't yet know exactly what that means for airlines, what I am confident of the airlines are I think actually is a leading industry in the world when it comes to safely.
Moving to this in my opening remarks, you know airlines will get this part right.
On on safety and we're already taking the lead him doing incredible things not just the United I'm proud of what we're doing a united.
But I'm also encouraged to see what other airlines are doing.
And so we will make sure it is safe to travel on aircraft the real issue for us about demand. However is going to be that people feel safe and have some reason to travel.
Disney World needs to be open taking my kids the Didnt glad it's something I do every year and love it but disneyland needs to be open and you know cafe.
And mediums in Paris need to be open before people are going to go back can.
You mentioned bid conventions need to be open and running so it's not just about airline I'm confident that airline we'll get our portion of the safety correct.
And we'll do that effectively but we're going to need a broader confidence across the whole range of society before demands and returned to normal.
Thanks, and just one clarification, Missouri do you have the retirements so you're planning on an order restaurants a fleet. This year next thanks.
Now we as you know we have a lot of parked aircraft. Those are in our view right now temporarily park and until we see what's needed to run the operation, we're not going to make any firm decisions on those.
Okay. Thank you.
[noise] from Wolfe Research, we have Hunter Kate Please go ahead.
Hi, Good morning couple questions for Scott a I know the focus here is on the near term, obviously, but but what's the primary driver the plan to dig out of this debt pile after things stabilize or is it is zero zero Capex is it a cost play I just basically want to hear your pitch for what you would say to long term investors, who care about the balance sheet.
Yeah.
Good question Hunter and first I'd start with you know, we while we keep acknowledging that we don't know.
When the crisis, well and and then we can begin the recovery.
What we do know as we can minimize the definitely the whole we can keep from digging the debt whole, we can keep in a shallow as possible and that is about minimizing platform. So right. Now we are focused on minimizing the task for an idea. It's looking at our numbers with where we are today. We're currently leading the under.
Great you looked at where we think we can be.
Even in a zero demand environment again, we hope there's not a euro demand environment, but even is zero demand environment in the fourth quarter and into 2021, I think we'll be leading the industry at minimizing the depth of that whole once the recovery starts. However will also we are going to be cautious.
About.
Putting capacity back and beginning that recovery because there are certainly the possibility that there will be false starts there second a second away, we're not going to jump in with both the once we see the first green shoots we're gonna be cautious.
And we're going to work really hard to get back to cash flow breakeven your cash burned down to zero you know as the as the first step.
And continue to be to be cautious our priorities I think we'll be we're clearly going to want to have more liquidity available more cash than we had some we ended the crisis.
Next we'll be to pay down our high cost will be to pay down our debt and those will be ahead of any you know those come number one number two.
Before we start reinvesting capital and then you know shareholder returns are kind of going to be at the back to that.
We don't know when that'll happen, but you know the biggest thing we can do right now is minimized how deep the whole list and that does is the best chance to dig out the most quickly or once the recovery ultimately began to pick one thing. We can all be confident about is there will be a recovery. That's it's something to the virus, we'll do that needed there will be.
Recovery, we just don't know when and so we're taking the actions we can.
To minimize cash burn today, which will set us up better for recovery when it yeah.
Great and then.
I realize it this is should the credit card hold back if she doesn't matter with bookings down 100%, but what kind of conversations you're having with your processors now about when booking started up again, but with people booking travel way out in the future with sort of potentially shaky recovery.
Serious about your mitigated that hold back risk and how the conversations you're having with the processors going about how you're going to handle that.
Hey, Hunter, it's Jerry so as we've disclosed for years the hold backs are based on liquidity has.
And yeah actually if you look back on any of our disclosures are for years.
With our liquidity in the five to 6 billion range, whereas in even at that level, we've said that significantly above the threshold before I go back to kick in and so for liquidity levels, even above that even further away from those thresholds, where where we have an issue.
Thank you Gerry.
From vertical research partners, we have Darryl Genovesi. Please go ahead.
Hi, Good morning, everyone. Thanks for joining me on.
Could you could you guys provide some color on working capital it looks like the air traffic liability for about $500 million this quarter.
Which was an upside surprise and so I guess I was wondering a you could provide you know kind of a cadence of of how things went into or four by month.
Or any way do you think makes sense and then.
Also where you're trending relative to your zero net bookings assumption for Q2.
Sure it's Jerry.
Yes keep in mind.
80 off right typically build through through the first five months of the year. So January February March you were expected to continue a bill and in fact in January February we saw that bill rough numbers.
January was.
Well over 600 million February around 500, Japan March we should continue that slip and was negative by about 650. So we ended March while we were up because it didnt offset.
And then.
After all February January February.
Where we should have been in a normal year in March.
I don't know affiliate and a half higher than where we ended up so when you look at it that way you can understand why there was that there was a small increase.
A lot smaller than we thought and April we don't have a precise number.
Hi for April yet by its significantly smaller than March.
And the way to look at second quarter based on kind of our assumption on kind of zero net bookings couple hundred million a month sort of.
Burned off in a T I would be the way to look at second quarter.
Great. Thank for that Jerry and then.
So thanks for the color on the the delivery expectations can you help us understand I'm, the quarterly capex or delivery cadence.
For the rest of the year as it relates to what you gave us a by aircraft.
And then what you're kind of assuming per aircraft financing enclosed in that 40 to 45 million dollar number.
So.
Let me start with the your last question first so that 40 to 45 includes some.
Inflows.
From the aircraft financing.
Can you be too much detail, because then you get back into.
So numbers, we don't like share like what are we pay for aircraft.
But keep in mind.
Yeah with the sale leaseback transaction, we have.
And you net out deposits in credits and whatnot.
It does provide a cash for us.
We have in the second and third quarter.
Well, probably how we have a disseminates Evans.
It's anybody's guess when the Mac to start all those Max's this year. If they do start are also vsan and so on sale leaseback.
They are there a little bit cash positive as well.
So as I said in my comments the delivery of the aircraft.
It's not a cash drain for us.
And then in terms of.
Cap ex generally we have probably about.
600 million of non aircraft Capex for the rest of year split pretty evenly through the year.
Lisa I.
I think what you should use for your models.
And that's where we are.
Okay from Stifel, We have Joseph Denardi. Please go ahead.
Oh, Thanks, Good morning, Scott I appreciate the tone of your prepared remarks.
Couple of questions for for Jerry.
How are you approaching valuing the mileage plus asset that EBITDA free cash flow just how are you doing that what do you think the programs were ballpark.
And how do you think the government's viewing in terms of asset quality as collateral.
Hey, Joe its isn't really you for that you are one of the experts on timing mileage programs aren't you.
But there is there there's tremendous value there number of different ways to value where to the extent that serves as.
A source of liquidity for the government loan or any other transaction or you will take a look at different ways and there are different ways also to extract value.
On the asset as well and best way look at that you have.
Loans against the business you have.
Ah prepaid miles and you have other other ways.
There is probably an aggregate cap for all that and to the extent, we choose to do it in more than one way to think of it as several pockets and the more we haven't one bucket once we have another bucket, but together yeah, we think there's significant.
Liquidity, we can extract from the program.
Okay. That's a that's helpful and then.
Maybe just a question for Luca fees on the kind of maybe Jerry that there's a smaller fleet a smaller United Airlines necessarily correspond with a smaller co brand portfolio and lower spend on the other side is this just trying to understand maybe how chase is looking at that dynamic you guys getting smaller relative to kind of their willingness to.
Just stand behind you and what they might be willing from a presale standpoint. Thank you.
Hi, Andrew Tuck in haven't done this for a long long time in and growing airlines in shrinking Airlines I have found that historically that.
Whether it be one or two or three year reduction in size, which I've seen before did not have immaterial impact in the size of the co brand in my experience.
I expect that going forward to obviously, there's a new set of conditions out there in the world, but I'm pretty optimistic based on my previous experience that it will not have an impact in the short to medium term.
From Raymond James We have savvy site. Please go ahead.
Hi, good morning.
Just a quick one question and one follow up for me on the question side.
Talk a little bit about you know once we kind of get beyond this survive unload end demand recovers and other than a strategic opportunities that you would have liked to pursue previously but kind of given everything it demand or congestion in airports and you know things like that you couldn't incrementally you might be looking to implement.
Saw the.
I think there probably will be opportunities I mean, certainly there's going to be opportunity.
And restructuring the business I alluded to some of the work that Linda and her team already helping lead us through what the business looks like as to your question. It's certainly it's certain that they're going to be possibilities.
Depending on how long this last and how long you know whether recovery looks like and what others do.
At the moment, we are a little more focused on the near term a lot more focused on the near term.
Well look forward to the day weekend actually spend brainpower thinking about the those opportunities where a lot more focused.
On.
The near term at the moment to be honest with you.
Thank you we have no further questions at this time, well now turn it back to our speakers for closing.
Thanks, all for joining the call today, please contact Investor Relations. If you have any further questions and we look forward to talk me you next quarter.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
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