Q2 2020 Southwest Airlines Co Earnings Call

So items in our second quarter results, which we excluded from our trends for non-GAAP purposes, and we will reference those non-GAAP results and our remarks.

And of course, we have in depth information and reconciliations in our earnings release from this morning on both forward looking statements and GAAP and non-GAAP results. So please be sure to check those out.

And now we'll go ahead and get started and I'll turn it over to Gary. Thank you burn and good morning, everybody and thanks for joining us on our second quarter earnings call.

This is a record quarterly loss for us and of course that can never be something that we're pleased about.

Since our last earnings call in April we have accomplished a great deal and perform better than the goals, we laid out at the time.

Most importantly, we boosted our liquidity we've cut operating costs, we generated traffic momentum we've cut our daily cash burn rate to 16 million a day in June.

And importantly, our success in generating traffic was key and key to the next several quarters.

We have a viable flight schedule for our customers to choose from we're operating in extremely reliable airline.

Our people are delivering exceptional hospitality.

We committed to the southwest promise on May the first to assure our employees and our customers that their safety comes first.

And we're offering low fares with no hidden fees and all that adds up to record high levels of customer satisfaction and.

And of course that is crucial.

We offered voluntary separation and extended lead program.

Closed on July the 15, as we did planned.

Almost 17000 employees signed up.

And we're working on reorganizing the company and adjusting our fourth quarter flight schedule to roughly match, our people capacity, which year over year will be down roughly 25%.

And the majority of the volunteers selected the extended leaves and there will be recall, if we need to add capacity quickly and that gives us tremendous flexibility and significant cost savings over the next several years.

Implementing this program is a major objective in the third quarter.

And while we have a planned for pay cuts benefit cups, furloughs and layoffs, we do not intend to pursue any of those at least through the end of this year.

Kind of 19 cases surged unexpectedly this month and the us as an outlier.

And of course that a disappointing.

And we've seen a dramatic impact to our trends as far as traffic revenue and bookings this month and we've had to reduce.

Well, the very credible revenue forecast for the third quarter.

Hundreds of millions of dollars and we would have easily beat our second quarter daily cash burn number but for that.

We'll have to work harder now and adjust August and September capacity in order to meet our goal of continued reduction and daily cash burn.

We were on a path to breakeven by the end of the year.

That is still my goal.

The first quarter may be more realistic.

This year and probably the first half of next year will be a gain of tactics and integrations, we're going to execute well monitor and we'll constantly adjust and that means the schedule and our fares and our spending.

Overall I'm very pleased I'm very encouraged we knew this would be a long sawtooth slog.

With a lot of unexpected twist and turns and its proving to be so.

Our country in the world needs to.

Beat this virus.

Until then.

We're going to have to be resilient, we're gonna have to persevere and we're going to have to manage.

I think everybody needs to understand that we know enough now to know that we have a long long way to go.

And we will manage to sustain the health of our company. Accordingly, we were very well prepared for this we're prepared for a prolonged war against this pandemic. Our people have literally done all they have been asked and I could not be more proud.

And I've never seen anything like this in my life.

But after these many months of battle I'm more confident than ever that we will not just survive, but we will thrive.

So we have a lot to cover this morning before we get to your questions.

So with that very quick overview, let me quickly turn the call over to Bob Jordan, Our executive Vice President who among other things is going to talk about our voluntary separation program and extended time off.

Well. Thank you Gary good morning, everybody is going to be with you, especially on this topic.

As you know even in the process of offering voluntary separation and extended leave option saw employees.

They are voluntary and they are hugely important as we work to reduce our staffing our operating costs and the cash burn and these are the most generous programs we have ever offered as a company.

The response for our employees was terrific and I just want to say a huge. Thank you. These are really hard decisions and our employees took them very seriously each person electing to separate are taken extended leave reduces our cash burn and that helps preserve other jobs I just want to say, thank you to everybody to consider the options and especially to those that Joe.

Goes up to opt in to participate.

First of all numbers on these are still being finalized they don't expect that they will change materially.

Approximately 15900 employees requested either voluntary separation or an extended leave of absence and those about 4400 requested voluntary separation.

And the remaining 12500 requested an extended leave of 612 or 18 months and longer.

4400, voluntary separations represents 7% or so of the workforce and the active workforce.

And the nearly 17000 total between the two programs represent about 27% of the acting workforce and other 12500 request for an extended leave over 60% or for a year longer. So the way I think about that the combination of voluntary separation and leaves on a year or long represent 20% of the active workforce.

Was just a huge amount of flexibility.

While the response from every group was really good I do want to call out our pilots.

Because of the Realty financial value.

He was key to have them participate in our pilots really came through.

With over 2300, electing one of the two programs and that represents about 25% of all active pilots.

And I'm, just really proud of them and I'm really proud of all of our employees.

We will be granting all request for separation.

And the vast majority of those will be separated before September 30.

The extended lead requests are perfectly balanced across the company as you would expect than the operation. So there's a little bit of work to do there, but our goal is to allow every employee that wants to take an extended leave the take it and those extended leaves our effect on September onest.

Should the business recover faster than expected the program allows for employees to be recalled within a reasonable notice time.

Now with a quick update on the the expected financial benefits as outlined in our earnings release. This morning, we estimated around $1.7 billion of accruals in the third and then the second and third quarter related to the two programs in terms of cash payments nearly half will be paid out this year voluntary separation.

And the remainder over several years as it relates to benefit costs and extended lead.

However, we will see a material cost savings in salaries wages and benefits in the fourth quarter of over $400 million.

Our cost savings are expected to grow substantially in 2021.

The recall flexibility that I discussed with extended time off could create some variability in the financial impact.

Should we see a significant rebound in our business, but we currently estimate 2021 cost savings to be more than $1 billion.

Because the leaves the offer very in laying the financial benefits will decrease over an extended period of time.

Again, though the vast majority of employees requested a leave of a year or longer and these programs are really about solving our staffing as our capacity moves over the next 12 to 18 months.

So while our capacity plans may fluctuate I've, just super happy with the numbers and how they help better align our cost too.

Lower level of flying.

And I am just totally grateful to the people southwest airlines for their response.

Every single work group.

Responded better than we had forecasted so thats just really gratifying.

The provides critical flexibility right when we needed and I'm hopeful we won't need additional actions.

But if demand continues to stall we will begin to assess actions to further reduce staffing operating costs and cash burn.

And with a very brief update I will turn it over to Mike.

Thanks, Bob.

Issued all that work that Bob covered we made significant adjustments to our operation in the UK.

We started the quarter navigating through cancellations and customer we accommodations based on the weak demand.

The lack of demand led us to implement aircraft for food storage programs.

The trip cancellations created Crewing and hotel challenges.

Of that we also introduced the south was promise, which drove significant changes in our operational procedures.

Throughout all of those efforts are people will produce the best quarterly operation than I can remember.

They were who really they were magnificent near team work was per.

So as I mentioned.

The month of April we will reducing flight and re accommodate the few customers that flew on other flight.

We had nearly 4000 flights a day scheduled in April and we operated about half of those.

All of those cancellations counted begins to our on time performance and although we were 98% on time on flights. We did operate our on time performance for April was 47%.

That pulled down our overall quarterly results to 71.5%.

We were more than happy to make that trade off given the cash savings of non operating those nearing fly.

But from May through June Thirtyth, we were able to adjust our flight schedules for demand and we operated those schedules as published.

TP for that period was 94.8% and that's the best May and June performance in 25 years.

Our bank handling continue improve rollout of our bags ending program last year, and we added cargo scanning here in the second quarter, we had the lowest level of mishandled bags in our history in the second quarter.

Our customer net promoter score was also higher than we have on record.

So our network design and our decision support tools were using in our operations create a solid foundation for whatever the future holes, we have the ability to add or cut flat to close and as desired and that operational flexibility is just critical in this environment.

So turning to the fleet, we had roughly 400 aircraft and long term storage or temporary parking programs in April and that included our 34 Max aircraft.

Since April our daily scheduled trips increased throughout the quarter and into July and then Additionally, our loads were in that we're increasing on each flight and so we added roughly 6900 extra sections beyond those scheduled as a result.

Those items required more aircraft availability. So we added 300 aircraft back into the active fleet and at this point, we have about 100 aircraft, including the Max and long term storage were temporary parking programs.

We remain committed to the Max we look forward to its returned to service. It is our most cost effective airplane and having it back into service will give us more certainty in terms of fleet planning.

Given the most recent Boeing and Epay comments were helpful to begin revenue service in late December.

But given the history of delays it certainly could slide into the first quarter.

It will take at least a couple of months from the date the F.A. formally on grounds the aircraft for the fly and revenue service.

And that time will be needed from annual updates coordination with our certificate management office required maintenance on the aircraft pilot training and then validation or readiness flights that we want to perform.

So wrapping up.

The most active action packed quarters, we've ever had.

We navigated through the activities exceptionally well producing superb operating results and customer accolades for our service.

And as I said during the last quarter call. We're at war with Cobot 19, and we're blessed to have a ferocious group warriors.

As it already for the fight and they inspire me and our customers every day.

So Tom was that overview alright, thank you might new jump right into it so.

So our second quarter operating revenues were down right around 83% year over year and those I'd capacity that was down right at the 5% and we did see stronger demand in sequential improvement each month throughout the quarter.

We've given you updates throughout the quarter regarding April may we recap those most of the earnings release I'm just going to provide a few quick comments on June and get right into the third quarter.

So moving into June may trends were an improvement over April with consistent net positive bookings in a steady improvement throughout the month and that continues in June and we saw another steady improvement trends, which was very encouraging.

With June operating revenues down 73% year over year load factor of 50% and that was on capacity that was down 44%.

Our business travel has been much more severely impacted and leisure travel as you'd expect and the result was the second quarter revenue and passengers for business travel fell roughly 90% to 95%.

We've had a lot discussions with corporate travel managers and we have been hearing some pretty cautious optimism about travel resuming back in the third and fourth quarters, but certainly with the recent spike in coated cases that is far from what's going to happen. It's been a much slower than we thought.

And then May gears alluded to this might lose this we introduced the southwest promise and the purpose of the promise wasn't due to everything that we could make sure that we're taking care of our employees and taking care of our customers and giving them the confidence in a comfort to travel with us again.

As you expect we're doing customer research every week and the things that are the most important in them. There are lot of things, we're doing with the southwest prospect things really stand out first is the wearing masks by both employees and customers.

The second is the big deal is looming seats available for sale and promoting social distancing. The gate area is wells during the porting process during the fourth.

And finally, the awards that are tech ops in ground ops teams doing round enhance cleaning of the aircrafts is right at the top list as well. So those are the three big things the awareness among travelers. The south was promise is very high in the feedback we're getting from our customers. After the travel with those their confidence in southwestern are likely to flat. This again.

In this environment is extraordinarily high and they attribute that specifically to what we're seeing in what we're doing with the southwest promise.

We previously announced that we'll continue to block the middle seats through at least September which caps are lids, what percentage of seats sold at 65% and we've made the decision to extend this through October.

As you may recall as loads picked up back in late May into June we actually began to add in extra flights as Mike alluded to to catch the demand that we're still in the load factor restrictions and for the quarter. We added roughly 6900 flights and the vast majority roughly 80% covered there are flying costs, which far outweighed those that didnt occur.

Being is as Mike alluded to again, we have we had the ability we have the tools and the capability to adjust our scheduled upper zone as demand changes while during a very good job managing article overall cash burn.

This we've also announced a change to our mass or face covering policy. This begin next week. So beginning on July 27th we will be requiring all customers to where faced covering throughout the flight except for the brief period when someone is taking a drink breeding and snack.

The only exception this will be for children under the age of too and medical exemptions will no longer be accepted as a reason not to wear masks. The reason we're doing this is we're simply seeing too many exceptions. The policy and has put our flight crews in a really tough spot and also made our customers pre uncomfortable. So this is something that goes in effect next week.

So we are continuing to get very positive feedback from both our employees in our customers in the southwest promise, we're very committed to its a big piece of what we're doing right now and you can see in their day of travel customer net promoter scores, which is Gary alluded to is at the it's an all time quarterly record of 79, which is pretty darn amazing given the environment that we're in.

So our customers are certainly appreciate what renewing with the southwest crops.

Turning to Q3 with our mid June Investor update we estimated a another modest improvement for July at that point, we're expecting operating revenues be down roughly 65, 70% with capacity down 30.

In a load factor in the 45% to 55% range.

Obviously as Koby cases began to spike again in late June across the country that areas. The country. The been performing with relative strength, which is Texas and Florida began to slow very dramatically and now we're estimating July operating revenues to be down roughly 70% to 75% year over year with a load factor in the 40% to 45% range.

Over the past several weeks, we've seen our net bookings declined 10 to 15 points year over year versus what we're seeing coming to the month, which is a pretty significant change very quickly very abrupt.

The trends are similar in August demand as much softer than we anticipated and we're estimating August operating revenues to be down 70% to 80% year over year with the load factor. The 30 40, 30% to 40% range and Thats on capacity. This currently down 20% year over year.

So we clearly have more work to do to bring our August capacity down further.

Not yet to keep in mind, we actually have a fair number of bookings for August already Sony be careful of making any major adjustments the scheduling could actually do more arm the good.

Having said that we do have opportunities for our capacity down for us.

At this point is pre challenging to give you a real clear estimate for September but the demand environment. There. We're seeing in August as carrying over into September and demand for fall travel has slowed considerably over the past several weeks as well.

The September schedule was originally published with capacity down 10% to 15% year over year. We just recently republished September and brought down an additional 11 points. So september's current published schedule is down roughly 20% to 25% year over year, but again, given the demand environment, we intend to be more aggressive and reducing the September schedule.

So for Q3 capacity is currently planned down 21, 20 to 30 percents, but we know we have more work and bring it down further.

And the approach that we take with capacity cuts is very specific and we're going right down to the market in the flight level. If we have a flight that covers variable costs that maintains strong itineraries in a market. It probably makes sense our by better off continue to have that flights in the schedule in most cases, but is the end of the data demand environment has to support the capacity and by.

It's Vanessa and our focus right now continues to be achieving a sustainable level cash breakeven or better.

Very quickly I want to give you a quick update on our southwest business initiatives and it's very obvious the business travel is down dramatically right now and we think it's going to take several years for business travel to recover.

But we also know we under index and the pretty significant way in the managed corporate travel business. So as business travel begins to recover.

The size of the market of size the pie, maybe smaller for a period of time, but we intend to have a bigger slice of that.

So we're continuing to make a lot of progress with our GDS deployments. We are now live on Travelports, Apollo Worldspan and Galileo platforms, and we will be lilac almond days before year end.

And we're taking advantage of the slowdown in business travel or doing a lot of work with the Tms seeds and corporate travel managers across the country and we're seeing tremendous tremendous support to have the southwest product available to them on industry standard GDS platforms.

You may have seen that earlier this week, we announced that we will be terminating our GDS relationship with sabre at the end of the year.

We have been working with sabre for.

I don't know nearly two years trying to get a contract in place that will allow us as a full functionality within the same request form we just have not been able to get there. So we are turning our contract will be sunsetting, our sabre GDS channel in the year.

David product that we're currently using has very limited functionality and it's it's apartment is for standard which makes it difficult for Tmcs and corporate travel manager for.

It's also by far in this is important it's also by far the smallest by a long shot of our business channels and most of the customers that use. This channel also book on southwest through our other channels as well. So good. So we feel confident it will be able to recapture most the revenue.

Throughout new GDS platforms, as we've announced the six months in advance Louise working with our customers on a conversion process, we want to head up and going as the business recovers I think we're going to being a very strong position to grow our market share in our presence in the corporate market.

So as that I'm going to turn it over to Tammy.

Thank you Tom engine on every line item round out our comments today, we can have review and our cost for foreign that our liquidity cash.

And we both where we have been effort question.

Before I begin I also want to say a steak. Thank you.

All of our incredible team and there might be the toughest challenge we've ever faced and our history at least during my career at southwest, but there's everything we referred to rapidly that like Eric.

I just couldn't imagine more talented and determine group of people to be working alongside at least back to overcome those prices keep Catholic helping a strong decade and Tom.

Going into second quarter, our top financial priority, we can be liquidity and reduced cash burn to minimize the impact of has been 19 on our business with our revenue production down dramatically, we took swift action to reduce and we essentially eliminated all capital and apart.

From key investment in important projects, such as yes, we deferred or canceled non essential discretionary spend and we implemented voluntary unpaid leave program with strong take rate as Bob already captured.

And at my covered we did all of this small running a high quality operation and our people take great care of our customers.

Our second quarter alone our actions resulted in savings of 3.5 billion spend.

This is what we were planning coming into this year.

Our second quarter performance and cash spending were in line with the expectation we laid out at this time of our laughing.

And excluding special items, our second quarter nominal expenses increased 36% year over year and decreased nearly 40% versus our pre pandemic plan and that was on a year over year capacity decline at the 5%.

And average court cash spend came in around 34 million per day and second quarter.

As a reminder, our original pre pandemic outlet for second quarter Court cash spend within the range at 60 to 65 million per day does a swift actions taken to reduce our costs were very meaningful.

In addition, key the operating expense relief as a result of large capacity.

Our fuel prices continue to help our second quarter fuel price was $1.33 per gallon down 80 cents, our 38% year over year.

And while recent fuel prices have increased in the light as seen in first quarter, we're continuing to see significant year over year, mainly from lower energy prices.

Lower end market fuel prices saved us 153 million in second quarter alone compared to market price outlets at the beginning of this year.

Third quarter, we estimate fuel price and the dollar 20 to $1.30 cents per gallon rain range that we had nearly 300 million savings from the decrease in market prices since the beginning of the year and significantly lower than last year's third quarter fuel price of $2, a seven cents per gallon.

We do not have Florida, so our fuel hedging program allows us to fully participate and falling market prices.

While we have not made material changes to our 2020 portfolio a percentage hedged in our premium cost per gallon had increased as a direct result of lower fuel gallon.

Being contain our second quarter premium expense, albeit 4 million lower year over year at 24 million back to 12 cents per gallon compared with five cents per gallon in second quarter last year that higher premium cost per gallon will continue to be higher by default that long ads.

For the is down, but the 97 million fuel hedging premium costs. This year remains unchanged.

In addition to lower fuel prices, our fuel efficiency improved at 14.5% year over year, driven by many older aircraft the impact on lower load factors and a less congested airspace, leading to less taxi, an idle ground time and better on time performance.

Excluding fuel and special item second quarter operating costs were down 24% year over year, we saw significant relief and our variable flight driven non fuel expenses, primarily in salary wages and benefits maintenance expense and airport cost.

We have cut spending and virtually every category. Our 2020 operating expenses are now expected to be down over 2.7 billion. This year compared with original plan and this includes the benefit of fewer fuel gallons kissing from lower capacity.

We had several special items in second quarter that we covered in this mornings press release first we had fuel hedge special item that resulted in 21 million of expense.

It's been excluded from our second quarter results.

Second we recognized a 220.

222 million dollar gang from sale leaseback transactions and other operating expenses.

And as a reminder, discovered at 10 737 Dash 800 aircraft and 10 737 net eight aircraft. These were essentially financing 10 transactions as part of our efforts to bolster liquidity and the quality of the aircraft and market can.

Additions resulted in the sizable gains.

And third we had 1.1 billion of payroll support program proceeds allocated to second quarter that were an offset to salary wages and benefits.

Net against an accrual of 307 million related to our voluntary separation program.

We've already covered the specifics on the take rates on the voluntary program, but I wanted to add my thank you to the employees that elected to participate looking at third quarter. We expect the remaining 1.2 billion and payroll support program proceeds to be recorded as an offset.

To a salary wages and benefit as well as an estimated charge and the range of 1.3 billion to 1.4 billion related to voluntary employee programs as Bob covered.

Nearly half of the cash payouts for the voluntary separation program will occur by year end and we expect overall savings above program add too far exceed the upfront costs.

Overall, we had a seller second quarter at cost performance and it is truly a testament to the swift actions and hence focus.

By the entire southwest team.

Based on current plans for third quarter 2020 capacity to decrease in the range of 20% to 30% year over year third quarter operating expenses, excluding fuel and all expense special items and profit sharing expense.

Are expected to decrease in the range of 10% to 20% year over year.

Yes, and represents a sequential increase from second quarter, driven primarily by higher flight driven expenses and certainly.

Our modest relative to the sequential increase and capacity.

With regard to our capital spend forecast, we have more than offset the 1.4 to 1.5 billion of Capex originally planned for this year.

The reduction is driven by our 2020 and 2021 fleet delivery agreement with Boeing I canceling are deferring the majority of capital investment projects. Originally planned for this year and supplier proceeds and sale leaseback proceeds both of which we consider as reductions to.

Aircraft Capex.

And we go back to our fleet.

Continue to feel very comfortable with our fleet flexibility over the next several years.

Our latest agreement with Boeing and our current planning assumptions.

We will take no more than 48 aircraft through the end of 2021.

We don't have the specifics finalized with Boeing yet and that's by design as the agreement yet the time and flexibility to continue monitoring demand and fleet need for the next 18 months.

There have been no formal updates to our contractual book order with Boeing yet and the order book included in our first quarter to into its still reflective of the overall contractual agreement with orders and options for more than 330, Max aircraft through the end of two.

2026. In addition to the no more than 48, we are evaluating for 2020 and 2020 when combined.

At some point, we'll need to adjust 2020, and 2021 deliveries down and ship delivery slots by year, but we have not been canceled any of our orders or options with Boeing over the life.

The agreement.

We are well positioned to be nimble and right sizing our fleet, whether through retirement to adjust to lower demand our to return aircraft in service and ramp up our capacity.

What's the environmental out.

Moving now to liquidity, we ended the second quarter with cash and short term investments of 14.5 billion and we currently have a cash balance of 14 billion.

Since our last earnings call, we have raised more than 10 billion to further bolster our cash reserves.

In addition to find Nancy and sent leaseback transactions, we raised 2.2 billion due to a common stock offering and have received a 2.9 billion and payroll support program proceeds and the remaining 326 million is expected by the end.

This month.

We also pay back our 1 billion revolver and paid off our 3.7 billion one year secured term loan, which released 4.5 billion and aircraft collateral. We now have approximately 12 billion an unencumbered assets with approximately.

Slide 10 billion an aircraft.

And that doesn't include the significant value from our rapid rewards loyalty program I'll just point out. In addition, we noted in our press release. This morning that we have signed a letter of intent with the U.S treasury to apply for 2.8 billion loan as part.

The Cures Act.

We are not committed to taking this loan and we haven't decided that we will take the loan.

Yet.

Yes, signing a letter of intent was just part of the process to keep the supply as a backstop should we determine we need it down the road.

Taking into account 2020 operating expense savings of over 2.7 billion the cash savings through the suspension of dividends and share repurchases and reduced capital spending we have reduced our 2020 cash outlays by over 7 billion versus plan.

That is very meaningful and it took the teamwork of all of our employees to make such a big and impactful shed and such a short amount of time.

Of course based changes are necessary to manage our core cash burn and we are doing just that to clarify our core cash and I already covered for second quarter is meant to quantify the true run rate of our ongoing hot average core cash burn takes our spending and.

Incorporates the benefits of operating revenues net of trip cancellations.

For a second quarter average core cash burn was 23 million per day with a rate.

$16 million per day in June.

A little ahead of the guidance due to solid cost control and revenue trends holding up well for the vast majority of the Matt.

Our current estimate for core cash burn for July is approximately $18 million today with third quarter estimated to be similar to second quarter is 23 million per day.

As core cash burn remains our focus we will continue to explore opportunities to improve our our nights as we are currently doing with our reevaluation of our August and September flight schedule.

In closing we have the U.S.

Industries and strongest balance sheet, we are the only domestic airline to be rated investment grade by all three rating agencies. Even after debt raises we are in a net cash position of over 4 billion with leverage at 49%.

And our goal remains to protect our balance sheet and investment grade rating.

We came into this crisis and a strong position and have bolstered our liquidity to put us in an even stronger competitive position to manage through this uncertain time and to thrive app on the other side at this crisis.

No one knows how the pandemic will continue to unfold in the coming months.

Where we sit today I am encouraged by the resilience of derm determination of our people and we remain laser focused on taking care of our employees customers and our shareholders.

With that Chad, we are ready to take questions.

Thank you we will now begin our question and answer this question to ask a question you May Press Star then one of your telephone keypad.

If you're using speakerphone, please pick up your handset pricing.

Withdraw your question Please press star too.

In our first question will come from Hunter Kay.

Research. Please go ahead.

Hi, everybody. Thank you.

Gary do you view not taking the cures act loan and consequences that may come with that whether thats brain drain or regulatory as a potential competitive advantage for southwest over the next two three years.

Hi, Yes, Hunter I would say that that is one element of it I think.

We're trying to rack up as many competitive advantages as we can.

Fortunately Tami got this question earlier this morning, but.

We've got very high quality financings in place we've done two senior unsecured.

Bills.

Very reasonable interest rates.

So it's no evidence of our ability to access the capital markets. We've got.

Weve leased.

Collateral that we had.

To pledge early on during the crisis with a couple of deferred.

Bank term loan deals that we were doing but all that.

But for you to us so at this point, we've got 12 billion and collateral available.

That is an airplane so.

The the.

As I'm sure you know the terms of government loan are pretty onerous, including a significant file awards.

So, yes, I think we would much rather.

Avoid those and I think whats near and Dear to shareholders Arts as it puts restrictions on dividends, which I object to.

And share repurchases I object to that as well, we're not paying dividends and share buyback shares now, but obviously, we'd like to have that flexibility in the future and I'm sure you would too. So there's a lot of reasons why we'd like to avoid that and if our competitors habit, absolutely I think it puts them at a disadvantage.

Thank you and then.

It's interesting the Max problem, probably made your question, whether or not you should continue at a single fleet type, but now in the krona buyers are probably relieved that you don't have a second fleet types. So first of all that fair statement and then would love your updated thoughts on how you're thinking about that going forward. Thank you know I think.

Tom.

May want to chime in too.

From a strategic standpoint, but if you just look at our overall.

Our business model, we looked at it again.

Ed.

Challenged ourselves, whether we needed to make fundamental changes in this environment and we have included quite the opposite we're at a very strong position.

And I would put the fleet strategy.

And that.

Conceptually as well I know that Mike believes that the Max as the best narrow body airplanes in the world.

It's frustrating that would spend on the sidelines all this time, but.

Certainly the.

A lack of complexity.

Oriented around having a single fleet type is extremely helpful.

This is a low cost environment, it's another opportunity to sustain that.

We'll have to continue to evaluate our fleet strategy separate from our overall business model going forward.

It's a high hurdle to overcome.

To to commit to a second fleet oil. These days I assume the company will but certainly not obvious that that's anything we need to do any time. Soon so yes short answer is I do think that thats.

A welcome advantage currently.

This kind of interesting is perfect.

Going through this covance thing.

Yes, pre introspective, sometimes you had to step back to look at it now fluid thinking this is part of the restructuring work but.

I feel like our network is fundamentally very very sound in very very strong I feel like our business strategy would you have to go back and look as you look at restructuring is very very fundamentally sound and secure and Mr. Hug couldn't views based on a very efficient.

Operation, which is where the 737 comes is based on low cost, which is where the 737 comes in is based on low fares, which drive the low cost, which rose from 37 comes in so as we go back as part of our restructuring think about our fundamental strategy our store our core corporate strategy remains very very sound and intact.

And thats were going to build on terms the restructuring work going forward.

And maybe even maybe even believe though that's more appropriate than ever.

For the current environment. So actually were very very confident but we've got to get more passengers, though that there is no theres no getting around that.

Thanks, Gary lesser.

In the next question will come from Darryl Genovesi with vertical research partners. Please go ahead.

Hi, Hi, everybody. Thanks for the time.

Okay.

Thank you guys provided.

Reconciliation table for cash for a number.

For the second quarter can you just help us understand exactly how you're getting to that 23 million.