Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020, Allegion travel company aren't as conference call at this time off because the front lines are analysts and only loan optical speakers presentation there'll be a question and answer session. So ask the questions on the fashion, you'll need to pass tar them one on your tell us.
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Sees me as I thought today's topic is being recorded if you acquire any further assistance. Please press farther they are.
I would not like the hand accomplice over to your speaker today Sherry will send direct.
<unk>. Please go ahead.
Thank you Sarah welcome to the we didn't travel companies first quarter 2020 earnings call on the call with me today are more Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's President, Greg Anderson or Chief Financial Officer got show, the N.R.E.V.P. and Chief operating officer.
Scotty Angelo or <unk> marketing officer drew wells are repeated revenue in planning and a handful of others to help me answer questions.
We will start with some time three and then open it up to question.
The company's comments today will contain forward looking statements concerning your future performances strategically various risk factors could cause the underlying assumptions of these statements and our actual results to defer materially from those expressed or implied by air forward looking statements.
Risk factors and others are more fully disclosed in our filings with the F.T.C. any forward looking statements are based on information available to US today, we undertake no obligation to update publicly any forward looking statements, whether as a result of future events, new information or otherwise.
The company cautions investors not to place undo reliance on forward looking statements, which maybe based on assumptions in events that do not materialize.
<unk> earnings released as well as the rebroadcast <unk>.
The company's Investor Relations site, and I are dot allegion error dot com with that I'll turn it over to maurie.
<unk>. Thank you everyone for joining us today, it's been awhile.
Oh first let me thank all of our team members their spouses and family says we've continued fire passengers during these difficult and.
Disturbing times. Thank you all very much as I said not <unk>. These are unprecedented times, we are living through most of your business in your calls from the different carriers the past two weeks and.
The story from each of them is more from <unk> and capacity changes to the quality liquidity and more liquidity.
Veteran will provide you with some talk show, where we are today and going for you would hear from our management team on the specifics regarding liquidity.
As long as how we are managing our schedule and how we were responding to our customers.
[noise] over the years, we provide prided ourselves on being different you were here today. How are we continue to differentiate ourselves from our industry critical component for US has been Armada, that's always been a core strength.
Based on our mom or management team in our terrific team members. We believe we will emerge stronger from his wife changing experience in the coming months and years currently none of US has ever seen environment, where book revenues as well as future revenues disappeared in less than a month.
During the last three weeks of March each week's fall with so much worse than what we thought it might be.
I told Marty or key members that.
Fears or lack of knowledge.
The lack of knowledge was definitely the case for the middle of marched through April.
We were starting does have some clarity knowledge from beginning to understand the path out of this calamity that we find ourselves in.
Huh.
Types of traffic.
My opinion in this industry international business for leisure I believe the first tool being slow to return in our case the case more business you're seeing another important evolution.
World is learning to do things on line to work from home and our specific case, we'd have multiple board meetings by video conferencing and planned to do it for the foreseeable future. This would not have happened, but for a cold it will change our habits. Some think it will.
Historically coming out of downturns, where is your customers have been first returned from January aligned with the onset of the G.F.C., we found leisure traffic responded.
Quite well in that first <unk>, we believe that will be the case with respect to this downturn that leisure traffic will respond faster.
Business in international and why we do not have any specific forecasts to make we are seeing some increases the past few weeks.
Or stress our audio tour audience that how fortunate I feel to be involved was such a quality management team.
Group has done extraordinary work the past eight weeks not only are they talented but just as important they are working very well together I'm comfortable stating. This group will continue to shine for us in the coming months and you'll hear from most of them today, So judge for yourself.
We were among the first to react to the code that situation recognizing quickly this was not a passing phenomenon.
Immediately began treating our schedule cutting expenses in capital.
Investments working with vendors ongoing payables had renegotiating our relationships with them as well.
We have approximately 25% of our team members participating in some form of pay reduction program today and tomorrow, thank them for that effort.
Quickly seized all construction expenditures on sunseeker.
Scotty Angelo R.C.M. old since late March has been focused on how we are going to recover he's been serving our customers weekly for the past eight weeks about their opinions on the pandemic, how they feel about it when they plan to travel next and other key questions.
Why do you have some further detail in a few minutes.
I would never wish for an event such as this pandemic, but you gotta Jamaicans here is dramatically altered the economic landscape bankruptcies had begun as I'm sure you're aware of the anchor past weekend cooperate approximately 45 age recordings, we've seen a fair motors are type recently filed chapter 11, others will follow you are.
Carriers is you know or you have a little park over 2500 aircraft in the next few weeks.
In the space in 30 to 60 days, what was once a robust seller's market for airplanes and equipment Oh. The sword has been turned on at 10.
Most powerful liquidity tool we have today is to stop cash from leaving the building both operating expenses in capital expenditures, but for some aircraft we agree but <unk> agreed to purchase for delivering the back half of this year and a few in the first quarter of 21.
We have dramatically reduced our context.
On the early 2021 deliveries we are not have any further aircraft commitment as a result will be able to exploit one of our core competency our ability to trade into the aircraft marketplace. We have a long history and trading used aircraft.
Regarding our fleet near term you're looking at what is the right size as a cashier remove we want to retire or a number of aircraft, perhaps as many as 10 to 15, because the upcoming expensive maintenance work.
We will put these retired aircraft to good use in addition to saving.
Capital for repairs, we will benefit from party out the aircraft, particularly the motors.
We were facing a great deal of expense in the coming years, particularly motor overhauls now however between our motor Motors from retirement and the inevitable built a availability of turned out aircraft, we will substantially reduce cash outlay into my opinion for playing motor work in other parts cost in the coming here.
My belief, we will begin to see numbers folder three twenties in three nineties in their motors available as part opportunities and they're not too distant future and prices will begin to react accordingly.
Furthermore, we will be one of the few players I believe.
In the market with the wherewithal to purchase these assets you.
You heard repeatedly in the recent calls companies are playing for the worse than hoping for the best you here today are version of this truth, we're definitely planning for the worst.
Because that in near term, we were reviewing parking as many as 10 aircraft because demand softness.
However, I believe you can for our release in our comments today that our financial strength is among the best.
Restraint give us the flexibility to respond if the market snaps back.
A combination of the purchased aircraft I mentioned earlier for the rest of this year it into early 2021, and the returnable The park aircraft.
Put down here shortly.
To service will give us a fleet for 2021, roughly the size it is today.
Shall we want to grow or take advantage of opportunities. We believe there will be a wide variety of reasonably priced aircraft that we can pursue and purchase.
As I mentioned, a moment ago or model has always been one of our core strength first and foremost we maintain optionality with our parked aircraft annually, we expand and contract or network based on seasonal demands. We also have a simple network out and back.
The ideal approach one has to cancel so much and there are so many of their operations given a dramatic reduction in demand that we have been seen.
By trading and used aircraft. We also have an inexpensive model over the years no. One has been able to match or a combination of a low cost structure and low utilization in the coming months, you'll see our costs coming noticeably as we focus on operational efficiencies.
As I said previously reducing costs and capital expenditures.
The best way for a carried her husband their liquidity.
One of my favorite things when we operated empty eighties was we were non capital intensive business competing in the capital intensive industry.
We will be able to use this description in the not too distant future.
I'm a larger shareholder in this company with almost 20% position I want to assure you all the we are doing unnecessary things to guarantee our future.
We're still the same hard nosed discipline company industry leader, you're used to seeing we're right sizing the company, we're managing expenses in capital outlays, we have sufficient liquidity are flexibility in managing capacity continues to pay divas dividends.
80% of our markets do not have any competition, we will continue these traditions.
<unk> closing I have been amazed at the very options one season and how to act. During this pandemic in my own family are those who don't want to come out they want to stay locked down. They believe there's a virus in every hard surface in floating everywhere in the air others are ready to Rumble looking to get back out and resumed their lives.
When we're to choose 100% sample, perhaps 40 to 50 would want to return to normal times, while the balance do not.
We use an airline have to be able to cope with this level of uncertainty be able to write size ourselves to service those 40 or 50, looking a rumble and the company months and hopefully see the remaining 50 return later this year in 2021 in my opinion, we have the ability to size ourselves better than any other carrier, there's flexibility will serve as well in the coming months.
Some years as it has to pass 19 years.
Lastly, I want to personally thank each one of our team members for all they have done during this crying past six day weeks you are the backbone of the company and while we were still in the woods the sunlight shining through a bit more each day. Thank you John.
Do more in a good afternoon every one over these unprecedented times there have been comments made.
My most if not all companies across industries, how they will come out at the end of this different but better company you have to ask yourself what exactly the mean.
Our answer I'm sure is much different than most in probably the least expected given their earnings season commentary, that's a better balance sheet, that's right better stronger balance sheet.
The steps to get there are difficult painful to not without emotion thought required in order to come out the other side better position greater financial flexibility and more options.
One of these difficult but require decisions wants to shut down the sunseeker resort development.
<unk> said from the outset, the most important component of our model is the airline.
We have to do everything we can to preserve the cash Register and earnings released outlines numerous additional steps that have been taken to date.
We will not put any more capital into the project for at least an 18 month that'd be deliver on our expectations that the strongest balance sheet when we come out of this.
Elitist model has been well tested over its history and there's no doubt.
19 is the ultimate hurdle.
Having said that the financial discipline, the willingness and creativity to adapt and change in our dedicated passionate allegion team will create opportunities this model never dreamed up.
Furthermore, the power the model in the speed at which the team has reacted to date and put us in a position to non pursue equity dilutive transactions at this time, given what we are seemed to date.
But that alternate over to Scott Shelton.
Thank you, John and could actually and everyone first I'd like to think our 4500 plus team members across the network.
For their outstanding service and professionalism and the space of this global Cobin 19 pandemic.
Your efforts everyone tremendous I realize just cause mostly entirely about liquidity capital raising efforts in cash preservation, but our team members and partners across the U.S. are the backbone in the face of organization and their own wavering commitment and loyalty to our customers is why organization has and will continue to be successful in the future.
Even bracy uncertainty.
Flexible and incredibly challenging times and for that all of your senior leadership. Thanks to you.
From the onset of the pandemic, we have three media focus areas first was to ensure the safety of our passengers in lesion team members second is that we're rapidly adjusting of our daily operations to reflect in near zero demand environment. While also positioning our operational costs structure for a long term slow recovery.
And third was to develop an aircraft stories program for potential fleet management scenarios as the recovery curve for aggressors.
As indicated <unk> in our release, we began to experience some booking softness in late February and although we hadn't experienced a covert 19 related fight cancellation. We activated are easy C., which is our emergency command center.
On March six.
To coordinate all aspects of our emergency response program anticipatory stamped that proved to be invaluable from an execution standpoint over the next 60 days.
Going into too much detail. This group was responsible for developing many of the code related safety and health strategies policy and procedure enhancements and overall operational execution in that first hours days of the pandemic.
Some of the the key highlights co champion along with the marketing team allegiance going the distance for health and safety <unk> are are clean program for all aircraft to include scheduled in deep cleaning procedures.
Implemented hospital, great standards across the system establish routine treat treatments schedule for all aircraft with advanced and time, a micro bolio protect since that kills viruses germs and bacteria.
On contact we were the first to provide customers with a complimentary health and safety kit upon boarding which included a single use face mask, a disposable non latex gloves in sanitizing wipes.
We deploy B.O.C. filters on her aircraft, which exceed <unk>.
Air quality standards Socialists names practices have been put in place wherever possible turn check in and out or gates and on border aircraft.
Health acknowledgement certification during online mobile check and also we've extended our adventure are voucher redemption policy from one year to two years from.
From initial booking and that's that's important because for basically the 60 day period, beginning first of March we have returned 235 million and vouchers to consumers. So.
That allows them to extend for an additional year.
Well beyond are near term scheduling philosophy, we wanted to create as much selling opportunities as possible coming out of a a negative to net zero demand environment. This movement, keeping as wide as a selling footprint as possible. In this case. This means maintaining 18 operational basis fully staffer a baseline of activity that we could reasonably be fine.
Basically initial schedule, reflecting a relatively free excuse me full pre coded selling profile with a few exceptions to take advantage of potential opportunities that states and communities come online travel restrictions or east and non essential business as an entertainment experiences present themselves.
This is no way and the most cost effective approach.
There are lots of obstacles in challenges and executing to the public schedule that will largely go on phone and it creates a signalling costs that could otherwise be mitigated, but we still the tradeoff is worth it in the near term.
A byproduct of this is the micromanaging of our flight schedules fire network team on a weekly if not daily basis looking at individual dispatched decisions based on cash profitability.
At the end of the day.
Ultimately have to get back to find your schedule we publish.
There has to be schedule integrity, given the traditional frequency profile, we fly but as loads in the main slowly build we can continue to execute on this <unk> basically load load cancellations equals minimal passenger disruptions.
Overall, it's proven to be successful relatively speaking as we and we are capturing more flying then we would've otherwise captured during this got will speak borne out in the second and lastly, our fleet aircraft induction and maintenance an engineering teams have done a tremendous job launching an Airbus aircraft storage program on the fly to accommodate any number of fleet scenarios.
As we pressure to back half a year or teams have done a great job at positioning majority of our fleet to be ready on short notice. This is particularly important given how we're over scheduling airline in the near term.
Long term as indicating the release, we expect to retire indoor store as many as 25 aircraft, which can be action based on any number of different scenarios. Once again. Thanks to all involved you get the network in plain team the tools they need to navigate it very troubling environment and what that'll turn it over to Scottish Angela things Scott.
Maury alluded to since late March or commercial approach has been focusing tightly and executing a recovery road map that leverage is our robots monitoring of the Kobe 19 situation in order to lay the foundation for recovery and the next generation of Air travel post cope with 19.
And ultimately to driver recovery. They capitalize is our new opportunities that may arise.
Are directed customer distribution model and Moreover, the direct customer relationship. It enables us to maintain has been invaluable during this period.
In terms of gauging customers sentiment monday's uncertain time and in terms of capturing customer demand is it returns to the market.
We stayed close to our customers and we think continuously gauging their sentiment do proprietary tracking surveys that we still did each of the past eight weeks.
As of Sunday, our customers are telling us they overwhelmingly believe things are getting better.
And well most expect it will take more than six months for life to return to quote unquote normal nearly two thirds planned to travel by air before the end of the year.
Also promising news for the leisure travel sector overall is that about half say they plan to stay in a hotel or vacation rental property.
Nearly one third planned to visit friends or relatives and the remaining 20 per cent planned to travel between their primary resident and the second vacation home.
Also one post partnership with our corporate intelligent and data science team, we've been able to monitor help economic and other factors impacting the city's we third.
Today, both the personal health and the economic help as well as the overall sentiment for most of our key origins cities in the mid West in mid Atlantic have been consistent with a near term recovery scenario for much of our network.
Quickly identify and capture demand on a route by route bases, which began to lift off the bottom in mid April.
Since then we've seen steady growth in the number of qualified flight search is being conducted by web users at Allegion Dot com.
With some time periods in markets at levels, even higher than last year.
More importantly, we've seen this elevated web traffic begin to translate into an uptick in bookings for select markets over the past few weeks correlated with beaches opening on Florida is west coast and Panhandle.
That being said, our two largest summer travel destinations Orlando and Las Vegas, we'll need to reopen their flagship theme parks in casino resorts and for that matter NFL stadiums for us to see the next step change in demand recovery.
Finally, as we continue up the recovery curve. We're also benefiting from other aspects of our unique business model, namely the proprietary booking platform, which is enabling us to fast track development of contactless or touch free elements of the customer traveled journey as well as offer hotel land only booking capability.
For those looking to drive to Las Vegas, or Florida resorts drive market travel is expected to recover faster than air to these destination and we've been working closely with the leading agencies and bureaus in both regions to play a role in their comeback.
Remaining true to our purpose even home flexing during these challenging times, we're exploring all natural options to capture greater share of leisure travel spend as the returns to the market.
And with that I'll turn it over to drill wells.
Thank you Scott and thanks, everyone for joining us this afternoon.
I want to build a bit on what you heard so far and expand briefly on our approach and our differences from the industry at large.
We have taken in this environment with largely the same detailed processes that we used to assess capacity in a normal state just at a significantly more frequent rate.
We've maintained a very broad network and selling from and all future round trips are assessed for cash profitability.
While most carriers are less than 30% of their scheduled for May we held about 75% of flights available.
We made some hard decisions on a tire routes and got in front of some low hanging fruit such as lower demand Tuesday flying or consolidating flying in the event, we have multiple daily flights on the same route.
For the remaining 75%, we're monitoring net bookings and making decisions on a round trip basis as we get clarity to the final strength of flights a week or more in advance.
As Morry mentioned, our business model is set up to quickly and appropriately respond to any level of demand.
Like all others, our capacity was significantly reduced in April as we operated just 12.6% of the expected departures.
However, we completed weeks flying as well was 9.6% of the original expectation and highs 24.6%.
Our own background in structure and relative simplicity of scheduling provide a tremendous benefit when making very granular decisions.
While the certainly drives a lot of work in the short term reviewing and forecasting flying that is likely to be cancelled I believe strongly that it puts us in an advantageous position symbols of visibility and more importantly, the ability to react immediately whenever and wherever demand begins to return whether in a one off or sustain form.
Bookings are not there yet however, as you heard today, where we are seeing mild sequential improvement.
Theres a long way to go still the leveraging the flexibility of this business model will put us in a remarkable position when system wide demand does return.
And with that I'd like turn over to Greg. Thanks, drew food and thanks, everyone for joining us today.
For the first quarter 2020, we reported a consolidated GAAP net loss of $2, an eight cents per share and this was due to an impairment charge of over $160 million related to our non airlines subsidiaries.
On an airline only basis, we recorded over $50 million, an op income or a 12.6% op margin.
This is despite seeing a precipitous drop in revenue during March our busiest month of the year and is a testament of the earnings power and flexibility of our unique model.
Rather than discuss the puts and takes of these results we felt it appropriate to focus on the metrics that matter most in the current environment, maintaining sufficient liquidity and minimizing cash burn.
Due to the impact from Cowen 19, we took quick in aggressive action to cut costs and preserve liquidity. This is outlined in our earnings release. So far we estimate. These actions will result in nearly $375 million or total cash outflow reductions to our initial full year 2020 plan with approximately 80% of the reductions in the form of Capex and assist.
Mention of our quarterly dividend.
The remaining balance is attributed to the removal of non flight relating operating costs, including but not limited to marketing contractors travel subscriptions non airline labor and renegotiating contracts with vendors.
Perhaps worth noting the 375 million reduction in cash outflows does not take into account further cost reductions we achieved by pulling back capacity.
Such as variable cost associated with airline labor fuel stations and maintenance.
Regarding liquidity in February we went to the market to reprice, our term loan B facility and achieved 150 basis point reduction to our rate due to strong demand. We also upsized the facility by $100 million at the time. It was unclear the importance of this move as a short couple of weeks later the impact from coated 19 began to put pressure on the capital markets.
Including this upsize we ended the March quarter with the $464 million in total cash.
In April we obtained financing of 301 $31 million secured by two Athree 20 aircraft and a very low interest rate.
Also in April we received our first installment of the cares act payroll support for $86 million in our monthly cash burn was reduced to $65 million or $2.1 million per day.
The cash burn partially offset these two liquidity inflows to bring our ending April total cash balance to $516 million.
In addition, allegiance portion to the payroll support under the cares Act as a $172 million capital, which we received in April and we will receive the bulk of the remaining amount in the second quarter.
As we look ahead, we expect the cadence of average cash burn for the second and third quarters to be approximately 2.1 and $1.5 million per day, respectively.
These average burn rates assumed gross bookings per day of $750000 for both quarters, which is based on booking trends. We saw mid April we've continued to see modest improvements in bookings since that time as drew mentioned.
This is down more than 85% from 2019 levels in comparison, a year ago. This amount would've been approximately $5.5 million per day and gross bookings for reference our low point in gross bookings during the last few months with about $250000 per day.
So to be clear the 750000 average bookings per day is not our forecast is just simply held constant to highlight the area. We can control our costs.
However should demand stays at these low levels in the fourth quarter, we estimate an average cash burn a well under $1 million per day.
Reducing our cash burn is the most efficient liquidity strategy, we can affect another efficient mode of increasing liquidity comes through our federal tax refunds has afforded to us by the Cures Act. This legislation allows for a five year carry back on tax net operating losses. So for Legion. This means a $94 million cash refund on our 2018 19 and oils and.
Early April we submitted these and oil carry back claims with the IRS and expect to receive this cash refund in the coming weeks, we expect an even larger cash refund more than $100 million to come in for our estimated 2020 and a wells early next year.
We also applied for a portion of the cares act loan of up to $276 million. We're currently evaluating our need to tap. This program for liquidity a terrific benefit of the loan program as the Optionality of provides not only to the serve as a backstop through September has the added benefit of being a benchmark did is proving helpful for us in discussions with other lenders for additional financing.
I would like to add my most sincere thanks to the Treasury department in their advisors, a PGT and clearly they have been working tirelessly round the clock to ensure quick access to as much needed liquidity.
The cares act alone as provided up to sit nearly $650 million in the late in available liquidity to liquidity to Allegion via noel's PSP than loans of this amount 350 million pertaining to the NFL and PSP does not have to be paid back to $350 million of non debt liquidity would cover more than 85% of our total cash burn from April through time.
December this assumes that down case scenario previously mentioned of daily booking down 85% with an average of $1.5 million daily cash burn throughout the period.
This example helps illustrate why our number one priority in terms of liquidity is further reducing our costs.
While there have been many tough decisions to date and likely more money to come.
Doing so is the best defense of our balance sheet improved vital and coming out as healthy as possible on the other side.
As it relates to the additional alternative sources of liquidity, we have several levers available and we are keeping all options on the table. However, based on our current numerous scenario planning at this time, we think it is unlikely we will need to pull any of these levers as noted earlier the optionality of the Treasury loan provides us additional time to continue monitoring this environment.
Available amount of up to 202 or 276 million through September provides us confidence we have the access to ample liquidity to make it to the other side.
Turning to Capex for the remaining nine months of 2020 gross Capex is now under $200 million. This amount includes the potential acquisition of up to seven 320 aircraft in force CFM engines, we are an ongoing discussions with the respective counterparties of these assets, but any we may take will be financed regarding fleet no. One knows when demand will return therefore fleet.
Next ability is critical accordingly, we are working on plans to strategically park up to 25 of our existing aircraft depending on the demand environment. Our current expectation is up to half of these aircraft maybe permanently retired we intend to maintain flexibility with the other half by either retiring or reinstating based on the recovery timing of travel demand.
Retiring in our parking these aircraft allows us to meaningfully optimize spend on engine maintenance down the road by way of example, we now expect our 2020 and 21 heavy maintenance capex to be reduced by $60 million to $75 million respectively.
Additionally, strategically parking aircraft now will provide optionality for us to bring some of them back beginning 21 should travel demand warranted, we have commitments for only two future aircraft next year and if we purchase we expect to finance them, including these two aircraft. We would expect total gross capex for 21 to be less than $150 million.
Quarter Allegion travel is our airline our number one priority is to insurance survival and long term success in order to make this happen we have suspended construction indefinitely on some seeker and restructure t. snap and nonstop to be self sufficient in terms of cash flow as a result of suspending construction pumps on seeker, coupled with no current plans to complete we have recognized 137 million dollar.
Our impairment over its related assets, writing them down to a fair market value roughly $35 million.
A focus of ours coming out of this environment will be too quickly restore our balance sheet. We're planning to maintain a regular debt servicing scheduled during the crisis and make nearly $300 million of principal payments from now until the end. The 21. These principal payments should help to offset the incremental debt added as a result of Coburn 19 in closing we're nimble airline uniquely built on a flexible capacity.
The strategy. We believe this will help us during this crisis. However, we will continue to maintain disciplined and further rightsizing our cost structure to support any demand environment to help restore earning powers our earnings power as timely as possible and with that ill turn it over for Kuni.
So.
Thank you.
As a reminder to ask the question you need to press Star then one on your telephone to withdraw your question. Please press the pound Keane, we ask that you limit yourself to one question and one follow up.
Our first question comes on the line of like Linenberg with Deutsche Bank.
Let's now open.
Oh, Hey, good afternoon.
Actually two questions here for Greg So some seeker.
Okay. Thanks tank in basically nothing for the next 18 months and yet dairies isn't there some debt or is there any sort of liability is there any sort of cost.
Initiated with it over the next 18 months, keeping you can sort of this more blades state is there going to be cash out the door any sort of charges.
It's not completely zero or is it.
Hey, Michael Thanks for the question.
As far as debt, there's no debt that we have drawn on that so theres no debt obligations at this point.
In terms of additional costs now there is some outstanding payables that we've committed to fee for stopping down that we're bleeding out over the next few months. So we intend to make those payments and down but that's built into our cash for a number that we provided and then there is some minor investments are there some minor costs I'd say nominee.
I want to just secure our investment in that property, but nothing to write home about.
Okay like tax payments to right you have to paid.
Or maybe there is not there's nothing there im just thinking as property tax or maybe there's there's actually not in the state of hard and I think of that itself.
Yes, and everything is pretty minor, it's not it's not a meaningful investment or not a meaningful okay.
Yeah.
Okay Thats helpful. And then just my second question.
When you see to Dan.
When encumbered assets in anything that you could potentially circuit switched to secure additional financings.
Whether it's the loan program ended the Cures Act.
What.
What do you currently have and can you give us just a rough estimate.
Available unencumbered collateral will be.
Sure Michael the.
So all of our non aircraft and engine collateral that pledged to the term loan so really the dry powder. We have for the most part is our unencumbered aircraft and engines and then I'd also add we have a lot of equity in our aircraft because that's currently under.
Secured financing because we're paying it off so quickly.
But in total our unencumbered assets and our aircraft engines I think we have about 28 aircraft eight spare CFM engines that are unencumbered.
So that gives US 36 million I think the fair market value. Currently is about 430 to 450 million on these assets and so depending on the ltvs between 50% to 75% you could probably raised 215 day 250 or so million.
Thats fantastic. Thanks, Thanks for all that detail Greg. Thank you.
Sure.
Thank you. Our next question comes on the line at the Catherine O'brien with Goldman Sachs.
Your line is now open.
Hi, good afternoon, everyone. Thanks for the time.
Sure. So please thanks.
Just a couple on a cash burn.
So I guess first.
Are you, including the impact of the share grants in that cash burn I just wasn't entirely clear and then I had a couple as of the cash spread lump.
Sure no problem Katie.
No. We're not those are the impact of the PSP grants are excluded from our cash burn number.
Okay perfect.
And then just on the southern 50000 daily gross bookings is that offset at all by refund.
And so maybe maybe the net revenue assumption is lower and then how does that net assumption compared with what you're seeing right now and then lastly on the cash burn what's what's driving the improvement on the cost died from Twoq to Threeq Q since you're assuming revenue assumptions are static. Thanks.
Sure the yes, the 750 gross Thats a gross number.
The so there would refunds with net that down we've seen I think relative to others I don't want to get into the exact amounts relative to other carriers I think we have modest cash refunds out the door.
And then as far as the cost reductions that you're seeing in the cadence I would say a lot of the efforts that we outlined in the release to have taken place thats kind of the driver from where we've seen the second quarter average to go down to the third quarter average, but what really is driving that down interest we have outstanding payable as morry mentioned this in his.
His opening remarks, what once this started in early March we reached out to all of our vendors, but we started working on deferred payment plans and it was a.
Monumental effort across the board, we appreciate our vendor partners and everyone, but we're committed to paying all our vendors and so you're seeing us lead that that outstanding payables out over the next few months and then we'll get back to normal rate. So thats worth about I guess 500000 per day on if you do the quick math and then I think the fourth quarter dropped that were alluding to is that would be.
Just the Rightsizing of our cost structure, just based on where demand is at and so that 750000 gross booking numbers were just trying to keep that constant to show you a down case scenario and just to really highlight where the cost puts and takes to be.
Okay understood and then nave I give us any copeland sunseeker, so just to be clear all of these impairments were non cash and then on the future Sunseeker, you're saying nothing are seen any funds from allegiance at least 18 months.
Two on that if you can't find the strategic partnership would you be able to pause construction for that entire period are there any cost to locking down the site can you kind of already answered, but on that to Mike and then second do you find that strategic partner to continue construction and startup costs.
Would you floor with that.
And I guess, if you do move forward that would you only consider partner that would allow you the same flexibility and bundling packages et cetera that that you would have had without a partner. Thanks. So much you're like 17 months ahead of us right now.
Okay.
For so it's shutdown, it's not what we're doing we added pick a number it's an asset we got to do some eventually but like I said that moves ahead of us.
And it adds the impairments noncash Katie just to answer your first part impairment out of the noncash impairment.
Great. Thanks sometime.
Thank you.
Thank you. Our next question comes from the line of Duane Pfennigwerth.
With Evercore ISI. Your line is now open.
Hey, thanks, Thanks for the time.
So one I just wanted to say that the commentary on declining cash burn with no improvement in underlying demand.
Perfectly clear and I think thats, a really interesting perspective.
Regarding demand you said it got as low as I think 250000, a day and you're seeing 750000.
Per day at some point or recovered to that where is that now is it better than the 750000.
I think thats is under that that's a pretty good look at where we're at today.
Okay, and then big picture.
2021, obviously, you guys can flex up flex down depending upon how you think this is going to play out in my guess is July is sort of a pivot month.
Into the rest of the year, but can you just give us a range of outcomes in into 2021.
And then just as a follow up how confident are you.
And your ability to sort of re size the cost structure to those various scenarios.
I'll just visited all kind of kick it off with I guess scenarios and we will be kind of a non after that anything it's pretty much still so on the table you're right that July the pivot month, but.
We are able to give a lot of insight into what's going to happen in three and four Q.
Enzyme I guess, what you think about second wave, what you think may happen with Orlando and Vegas, and as I think there's so many moving parts that the spectrum of possible scenarios is gigantic leased from from my vantage point I'll look to others are upticked, a little bit different thing well, let me let me just make AMERCO comment Duane. This is all about cash management and what drew.
He is doing right now as we're cash.
Forecasting each white literally if we'd make sense, we're running it certainly others that are point once you get three big enough you have to be more.
Discerning and capturing per hour canceling flights with impacting customers and things like that.
But we're certainly in the transition so for the foreseeable future is going to be a cash call.
On just what we're going to do going forward thats, the whole liquidity Byrne with things, we can control the capex the.
All those investment types of things.
I think Greg put in the numbers 375 million, we've taken out this so far of those onetime and ability to do that we're going to continue to focus on that and.
We will slowly, but surely react to the of the marketplaces approved presents itself.
We are good I'm personally optimistic like I said my comments.
I know a lot of people there just wanted to get out and use the commentary grumble people are tired of sitting at home and we just we travel amongst ourselves on the weekends and John can speak for.
Coming out of southern California, their latest paper on the beaches.
Somebody told me they were down and.
Loughlin this weekend as river run through their place was packed with people as Walt will all people social distancing was not an ever lexicon reporting to him. So you get in all kinds of signals and.
Thing that I see personally is there's there's really no hard data you can point at in many ways that suits opinions and some people have an opinion that they're going to go out in other people. They wouldn't be caught outdoors of God came down instead. It was all clear so it's just going to be.
It's who's going to be a wait and see as we kind of fuel our way through this.
During the only thing to worth commenting on in your question.
Well, it's had to do with the confidence around a rightsizing our cost structure.
Whether or not we're confident about doing that in the emphatic answers yes.
We've demonstrated that passed and we will demonstrate that going forward so but so.
You've heard us in our commentary and you can see the language in the release, but were very positive bumped into we'll do that.
Thanks, John if I could sneak one more in not that your Oh Vegas story, but but you are there and I think in many respects. The airlines are somewhat ahead of the resorts and the hotels.
What are you hearing from Vegas, what do you what is your view of the reopening plan.
How far before customers can sort of confidently book vacation packages in Vegas, and thanks for taking the questions.
Well I mean, I don't I don't know that there's any visibility in that regard I mean, I think when you look at lot of the Vegas hotels.
They were hoping to open early as you can see just by their booking windows lot of them are allowing people to book into memorial weekend.
That didnt happen.
Having said that the governor.
Pretty quick announcements when it came to opening up some of the local.
Elements that we have here.
Didnt give a lot of.
Advance notice in that regard, but I'd imagine.
Maybe our hope would be that when it comes to the strip in the resort corridor, but there would be a lot of advance notice on that realizing that people need that advance notice to build book and react to it properly, especially the operators. So my guess would be that that would happen.
But trying to predict anything would be very difficult in this environment as to when that would happen.
Okay very fair.
We've had some operators Duane.
Well when the gentleman.
Metrics.
The suggested he wanted to open on Memorial day weekend, I talked to him personally and.
But you have not had the powers that be.
So the switch so they can do things other people have suggested they want to open may 15th.
I think chomping at the bid we talked to one hotels said it was fully booked for June.
Well you know that when you look at a two kilometers six in hotels are also.
The rate will hear in Nevada is you have gaming, which is a privilege license rights. So that requires not only the governor but be tries to gaming control board to approve that so that's the added drink goals that you have here in Nevada, I would imagine both bodies will act in concert nearby that that decision.
I would hope that happen sooner rather than later, but.
Predicting a date would be impossible.
Our two weakest viewer pick our big five for four markets. The two tougher ones right now our Orlando in Los Vegas and.
They are trailing the others that we're seeing pretty good activity on so we've got upside looking forward to that and I would think Disney Disneyworld and Orlando is going to be now they just they open Shanghai so they've got to be in the in the power are moving towards that day, that's coming I think we all understand that it's you just can't pick date certain as one is.
Going but.
I will be absolutely astonished if these hotels here in Vegas aren't opened within the next 30 to 45 days.
I would too and I think you when you look at Florida, They send out in front of this.
Opening the state so to speak and Disney I know.
As the there they are taking bookings on the Disney World resorts.
Beginning on July one so thats somewhat of a have a statement that theyre kind of making that they think they're going to probably open up around that timeframe. They've started an open up their retail locations already so I am sure Disney's in conversation does the operators are here, so I would agree with for the purposes.
Probably not 30 to 45 date on trend.
Thank you.
Thanks.
Thank you. Our next question comes from the line of jealous of the Lardy with Stifel. Your line is now open.
Hey, good evening guys.
Moreover, can you just maybe opine on what you think this means for air travel demand.
Longer term I guess is going to lead to any structural changes in your business I mean, obviously play some pretty big bets on kind of the resiliency of travel and.
The secular drivers of growth behind that does this change how you view any of that longer term.
Well you do I think you've got two fundamental issues, it's how long does people's memories last and how fast doses disappear.
Here are very predictable Spcs I think in many cases of 20 to do things and alike. I think the main structural change in many ways is going to be in the business World, where you've proven that you can do a lot of work with the resumes in the world.
Having said that when times get good people know they forget these things and you look back at the mentality going into March 1st in this country in the month mentality on April 1st.
It was a sea change can you get back their role as 12 years going to two to March Onest does it happen. This weaker next obviously no.
And I think you'll see this go back a steadier history, it's going to be structural I think around those types of things as far as sizing and alike.
Who knows.
I'd like our prospects because we are nichey and we can play in places that other people can't are uncomfortable.
Grew nine of our focus in 2005 northwest came after us and put airplanes on top of US you know from Fargo and good morning, and the like into vigorous and they stay around for a year, but they just didn't work for them because they're not built to to work like we are so that's a plus is or short term problems with the people coming down Hill.
Maybe but.
Long term I don't think your works that way for us, but the industry.
It's got to shrink obviously, but.
I'm I'm reasonably bullish that has a population we're going to grow.
We're going to be I think right now I don't see any material weakness in the economy that other than we're spending like drunken sailors and what are not that are that are having a problem, but there'll be short term problems with unemployment certainly but.
We're not.
Scott the annual probably better this that doesn't seem from our surveys that its is.
It's Michael My God people are doing nothing that's right.
No in fact.
The majority of people in our surveys report their personal financial situation.
As largely stayed the same.
End or gotten better obviously most of those in stayed the same.
Getting better the ones that might have right at the bigger checks.
But.
The fact is.
In the Midwest mid Atlantic among the upper West I got it quite yet they don't share the opinion that in the evening news is putting out there in.
We see in here that one more stat for you fall you know most tracking surveys out there have asked the question about do you go all end for public health or do you balance.
Public health with the needs of the economy. The nation as a whole has been 50 50. The allegion customer base has been 70 525 every time, we've asked that question in favor of you balance public health, what the need to the economy and you get out there. So our footprint just so happens to mirror, one where the sentiment is very debt.
Then a general pop survey that captures New York, Dallas, Atlanta, Los Angeles.
Yes.
Okay. That's helpful.
And then maybe one for Greg or Scott one of the key differences you guys have is the ability to flex up and down and so can you just maybe quantify a little bit more like if you shrink. This lead by 25 aircraft. What is your Opex do in that environment. If you shrink it by 35 like what are the deal are there certain pain points.
Along the way where it gets harder to.
To scale up and down can you just maybe quantify that a little bit. Thank you.
Sure Hey, Joe just Craig I'll kick it off and Scott will jump in and.
Just wanted to say real quick we enjoyed your spirited debate with Hunter. The other day moderated by our good friend Mr. Davis that was interesting information on the loyalty programs.
Thanks, Greg just just.
Just given our is just to given our cost structure, Joe and I think just to maybe adjusted tagline or punch line as a good example is.
Like September you know, we just we don't fly in September. So we've built the cost structure around fleet buying used flea and low ownership cost and if we think about the current environment. We're in.
Save ownership cost, we're just we're pretty much variable and will kind of rightsize out as we come out so and by that I mean, the fuel obviously variable we're seeing low fuel costs, we're seeing on the labor for the next couple quarters Thats a pass through FY kind of kind of ought to think about it that way our stations. Our airports, we don't have evergreen or long term current contra.
Our next with our airports very small them costs, I think relative and again variable now the maintenance side same thing.
Vast majority that's variable.
Advertising sales, if you think about that the.
Pretty much we pulled all our marketing spend and so the to cost going through that'll be our interchange which is variable.
And then other I think there's some of that is fixed variable, but we've done a good job of pulling a lot of that back as we've alluded to in that $375 million number and then I think perhaps worth mentioning to adjust our compensation strategy Maury and team has set this up in the beginning is for a lot of our particular corporate overhead folks, we we keep low base salaries and pay.
Hi variable.
On the on the upside with bonuses and to put that into perspective, I think last year, Joe we paid roughly 10% of our total labor costs were on profit sharing your bonuses. So that obviously in this type of situation will meaningfully move down but.
And Scott I didn't know if the one of that anything else on that yet I think you on the I would add.
There's been a conscious effort to grow kind of small and midsize studies.
Gregs point, we don't have much of a have a long term.
Expensive facility footprint.
Largely variable.
But these these commitments to ground small cities is relatively expensive, obviously, you don't get much.
Or very good productivity out of flight crews.
So those those come on as as those cities growth.
So assuming demand does not snap back in a meaningful way.
If youre going to get officials on efficient on the cost structure, you would like to reviewed likely reduce some of the really small cities that you do have and consolidate those into larger basis, where you can drive productivity.
But labor is a big piece of this and we're working to see this new for the for the in the near term to see where demand shakes out, but that's definitely a lever that we're going to look at longer term.
Thanks, guys.
Thanks, Joe.
Thank you Sir our next question comes on the line of savvy sit with Raymond James Your line is now open.
Hi, good afternoon.
Just wondering I know you're being very taxi call that that planning currently but I was wondering if you can give some high level thoughts on how you're thinking about twoq you in terms of capacity and an awful.
And then also just to clarify clarification on on 2020 Capex with the reduction does that you expect investment spend around to hear any more on this year.
Sure. So this is Jerry I'll kick it off with kind of capacity it and make turn over to Greg.
Like I mentioned, we're trying to keep is brought of selling footprint as possible. We still have about 70, 570% of June available for sale as and we will monitor those as we get closer in made obviously come in and roughly half month as path and we've actually some of those cancelled but for memorial day weekend beyond I think we saw over.
80% on sale so.
We're watching these closely that will come down, but it's hard to get a lot of guidance as we're going to be following these to 714 days out before making phone calls on anything.
And saw the on the Capex question, yet it's about just over 300 for the full year.
The kind of whats remaining left is.
About $200 million the vast majority of that is through aircraft and engines, which we expect to finance and then theres. Some minor amounts on the other kind of what we call color other capex with in things like that and then there's just some minor trail off on the heavy maintenance spend.
And then if I might add follow up on on a question and we think about cost going forward and is there going into the team is the air making related to co that the stuff that might.
Linger on such as cleaning procedures and things like that is that a significant cost burden or is that pretty minor and when you kind of think about the grand Siena. Thanks.
I'll kick it off in NHL, they might want to jump into bed.
I think what we didn't we've done, particularly with the kind of personal safety in the masks in the kids and everything we've done that was a good investment by our company.
While I wouldn't say, it's not minor minor I mean, there's a decent amount of it it's not going to meaningfully impact our numbers moving forward and that is built into the cash burn that weve provided.
Yes, I think the only thing I'd also.
That is.
You know maybe not in these times, because there's real discipline that a lot of fine but.
The actual cost of product isn't isn't substantial but if you are building extra time, if you're doing kind of mid term cleaning. So if you're going to increase the duty day.
Is going to its really going to change your profile and your staffing models. So.
We are the hospitals, how do you do this while still maintaining kind of a kind of a crew productivity metric in mind, and so we're not giving us out yet, but that's something that we're we're mindful of as we move forward.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Hunter Keay Wolfe Research. Your line is now open.
Hey, thanks.
Hey, Greg, who who won the debate dude.
[laughter] I thought it was a draw has very well done.
It's been very good.
What actually great what triggered the 137 million write down was there some sort of accounting test.
That was assists us a subjective call to just from a pure accounting perspective, what will trigger that.
Yes, so the triggering event was the suspension of construction and so and I guess kind of way to think about it is because we have no clear line of sight of when that resumed.
When you go through an impairment analysis, you'll to like a cash flow recoverability test, but without the clear line of sight sits were unable to kind of come up with the I think at appropriate number. If you will just because there's so much uncertainty right now and so what you do then you re write that down to the current fair market value.
Okay.
And then.
Morry I'd ask you to dream, a little bit on this one with me here.
Is there a way to totally rethink how you pay your frontline people.
Maybe a given like higher pay.
On an hourly basis, but you takeaway minimum guarantees or maybe even put some of these frontline folks on annual salaries and you give them an annual bonus the based on company performance is there anything like that that you can affect pay wise that could give even more variability.
Works out both for you and for the company obviously.
Realize this also be done in collective bargaining of course, but.
Is there anything that you can think about long term at effect in long term change as it relates to compensating people out of this thing, particularly the front line.
Well you hit the nail and ahead, it's all tied to contracts and.
The way that people are paid and we're creatures of habit and we're used to thinking the way, we think persist and there's these contracts could build up some of them are 50 60 years old that are build up of all the over arching little things that the average person.
I would would look to I'd like to think that to the nice thing about our model is we don't enter change a lot of people solar and Orlando is or is that contain base. It goes up and back and the like.
One of the construction of constructive things I'd like to see US do his work with the pilots fine tune in particular to see about what's a better way to compensate you in a base and tested.
Got to go back to you guys want untested and you've got to schedule and pay or the two fundamentals for these folks them appropriately. So so if you want to do some things of enhanced for both sides. You got to just it's hard to sit across the table and just say, let's try this because it's easy for the whole group and that's that's a hard sell but I would.
Recommend to our folks that let's pick a base, let's try some ideas and we should be testing something all the time, it's there's just a good way for businesses and and organizations to be continually cherries checking what theyre doing and could we do it better but there won't be anything.
Short term I don't think at this point to 100.
So.
People looking to change candidly to their defense, they're scared to death too I mean, you on February Onest channel.
Your choice, who John's if you were a pilot I think we did an internal calculation that show there would be as many is 25000 pilots how to work you're not too distant future.
Thats a life changing.
For one of these folks have never seen anything like this it's that's pretty tough tools Hall.
Okay more thanks a lot.
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Thank you. This concludes today's question and answer session I would now like to turn the call back to lower Gallagher for closing remarks.
Thank you all very much appreciate your time, we'll see you in July I would guess at this point.
Thanks, again bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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