Q2 2020 American Airlines Group Inc Earnings Call

[music].

Good morning, and welcome to the American Airlines Group second quarter 2020 earnings call.

Today's conference call is being recorded.

This time, all participant lines on in listen only mode.

Following the presentation, we will conduct the question and answer session.

Asked the question during the session you need the press Star then one on your telephone.

If you acquire any further assistance. Please press star then zero to speak with an operator.

And now I would like to turn the copper so what's your moderator managing director of Investor Relations Mr., Dan Craven. Please go ahead.

Thanks, Aaron good morning, everyone.

For the American Airlines group's second quarter earnings Conference call.

So on the call. This morning, we have done founder chairman and CEO, Robert action Francona Derocher cheap natural.

Okay, and the call for acuity session or separately or senior executives, including Maya Leibman, Chief Information Officer, Elise Eberwein SVP of people Communications, Steve Johnson, our VP of corporate Affairs, Basi Rogers, Chief revenue Officer, Dave and David CE, Mark Our Chief operating officer like we normally do.

Doug will start to call with an overview of our order and the actions we're taking during this and Devin and Dan will follow with details on our liquidity and cost outlook. After Derricks comments, we will open the call for analyst questions and lastly questions from the media to get as many questions as possible. Please limit yourself to one question and a follow up.

Before we again, we must state that today's call does contain forward looking statements, including statements concerning future revenues cost forecast.

Capacity fleet plans and liquidity these statements represent or predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ from those projected information about some of these risks and uncertainties can be found in our earnings press release issued this morning, and our form 10-Q for the quarter ended June 30.

2020. In addition, we'll be discussing certain non-GAAP financial measures. This morning, which exclude the impact of unusual items a reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found in the Investor Relations section of our website.

The webcast of this call will be also archived on our website. The information that we're giving you oncology as of today's date, we undertake no obligation to update the information subsequently so thanks again for joining US this morning and at this point I'd like to hand, the call over to our chairman and CEO Doug Parker.

Good morning, everyone. Thanks for joining us today I'm going to give some color on the work we're doing to manage the current environment.

Sure that we're well positioned would come out of this crisis theres going to provide an update on our liquidity cash burn and then as Dave noted we have several executives in the room, including our President Robert Isom, and our Chief revenue Officer bus you Roger here to answer any questions you ma'am.

So to began I need to acknowledge in applaud the entire America West Airlines to you.

The past five months, we've been more than difficult and our team is consistently risen to the challenge taking care of customers and each other.

The stability of their own employment remains uncertain.

Our team does and much more each and every day.

Say that they're leading this current leading to this crisis with Grace is an understatement of enormous.

And we're all humbled by their work ethic and professional.

Turning now the actions, we're taking the phase to covert 19, the resulting severe disruption to global demand for Aircom.

Sure crisis continues our teams did an exceptional job managing through that crisis as evidenced by the trends we saw throughout the second quarter.

We are prepared to weather the storm ahead and be in a position us exceed when demand recovers.

In the near term our actions are centered on three pillars.

Our cash reserves conserving the cash we do use and adjusting the way we find through the winter customers return of his guys you can do so with complete.

Confidence that save money enjoyable to do so.

Moreover, we are flying when and where they want to go.

So first on cash we have the second quarter, two $2.2 billion available liquidity.

Which included an important net $3.6 billion that we raised during the quarter to the capital markets.

We also to sign term sheet with U.S. Department of Treasury for an additional $4.75 billion secured loan or to the cares.

And we expect that loan to close in the third quarter.

In addition, we announced this morning to senior secured note transaction with goat transactions with Goldman Sachs merchant totaling $1.2 billion. So when those transactions are combined with our quarter any liquidity balance of 10.2 billion.

We would have a pro forma liquidity balance of approximately 16.2 billion.

Yes.

Its ability to raise more money than they are talking about that humans.

With regard to conserving cash and our cash burn or daily cash burn rate for the quarter was around $55 million, which was better than our prior guidance of $70 million per day.

We were particularly pleased with the rate of improvement throughout.

That daily burn was nearly $100 million per day in April.

At around $56 million in May and was $30 million for per day for the month of Jude.

Then improvement was driven by both aggressive cost management, which Terry will discuss in more detail and significant revenue growth throughout the period.

As to revenue demand was at its lowest point in April of course, we had a remarkably low system load factor of 15% and a remarkably low passenger revenue previous number 1.8 cents.

But as several states began to reopen we began to see demand increase, particularly in some markets, where we haven't network advantage.

So with some aircraft ownership and labor cost, we made a tactical decision to fire larger scheduled in some of our competitors competitors and keeping our large connecting hubs in Dallas Fort worth in Charlotte larger than the rest of our network.

So anymore that larger schedule, we saw increasing loads and unit revenues across assist our.

Our load factor to jump from 15% in April to 45% may and 64% in June.

And our passenger revenue per has increased from that 1.8 cents in April to 6.9 cents in May and 10.3 cents in June.

I was at DFW and show performed particularly well with 80% of our flight operating in operating at over 60% load factors throughout the mortgages.

Now lets freedom improves going to slow as we head into a seasonally softer travel season, and certainly as demand growth is plateaued of late due to increasing infection rates in state and city quarantine restrictions.

We modified our schedules accordingly, we now expect our third quarter system capacity to be down approximately 60% urea.

As the Katrin trends, we expect our third quarter burn rates to be well below our second quarter rates and our fourth quarter rates to be lower than that there.

Our goal to be cash positive in 2021 as demand for air travel gradually improves.

Regarding liquidity, we expect in the third quarter was approximately $13 billion and then assumes no additional financing activity. In addition to it other than those transactions I already mentioned.

That's a historic is closer to consumer demand, where the best things. We can do during this crisis is to put our energy toward winning customer confidence to that end. We've established a travel health advisory panel comprise of internal leaders from our operations to ins and outs and outside experts to advise us on health and cleaning matters throughout our operations.

Also started working with the global bio risk Advisory Council and accreditation for the cleaning and disinfecting practices for our aircraft and land.

These steps along with more generous change fee waivers rebooking opportunities referrals flights.

That's helped our customers feel good about flying and feel very good about choosing America.

Looking now we're we're building an even more robust network for our customers last week, we announced a new partnership with Jeff will provide seamless connectivity for travelers in the northeast and create more choice for customers across our complementary domestic international network.

Jetblue partnership in the West Coast aligns with Alaska, We announced earlier this year will further strengthen our network and will help to ensure we are positioned for success over the long term.

So it's going to be feel about how we're managing those pandemic and our prospects for future success, we feel terribly about the impact it's having a much of our team.

We know we will be a smaller drilling going forward and we've worked to right size all aspects of the organization to that round.

Actually 5100 management support staff positions were eliminated this summer in a manner consistent with the carriers.

And last week, we sent worn letters to 25000 American Airlines frontline team.

We're doing everything we can to mitigate the impact and by working with our Union partners. We put forward new voluntary foundry leave and really our programs for our frontline team.

There's also an effort underway by our Union partners to extend the current payroll support program into 2021.

We're proud to support this union, let initiative as we believe our entire industry and the share of keeping hard working frontline team members input.

With that I'll turn it over Derek will give more detail on liquidity and cash burn Derrick.

Thanks, Doug and good morning, everyone before I begin my remarks. It would also like to thank our entire team and acknowledge what they have endured in recent months. There continued professionalism toward our customers and fellow team members is a model for all of us and we're proud to serve alongside them.

We reported a GAAP net loss of 2.1 billion or $4.82 per share in the second quarter. During the second quarter. We did recognize 1.7 billion a pre tax net special items, primarily a $2 billion credit, resulting from the payroll support program financial assistance, excluding those net special items.

We reported a net loss of 3.4 billion or $7, an 82 cents per share.

With this historic decline into and passenger demand. Our primary focus has been to ensure we have sufficient liquidity to make it through a week recovery.

We had moved quickly to raise incremental liquidity and reduce our cash burn. We've also taken steps to drive efficiencies in our operations by further et cetera, celebrating our fleet simplification plan and aligning our cost structure to the new world we find ourselves.

We will continue to leverage the flexibility we have in our scheduling process and we will let demand serve as a guide posts for our future capacity levels. We will continue to be relentless in identifying additional ways to improve our cash burn rate going forward.

Sorry, the fleet and we as we announced in April our fleet simplification plan went into high gear during the quarter as we officially retired the embraer one ninetys Boeing seven by Sevens, Boeing 767, and Airbus Athree hundred 3300 aircraft.

As well as a number of regional Jets. In addition, we put the Athree hundred 32, hundreds in several of our older Boeing 737 into temporary storage programs.

These changes have reduced our active fleet count by more than 150 aircraft and accelerated our fleet simplification strategy. Removing these aircraft will also have a material impact on our cost structure going forward as it means we will avoid significant future maintenance expense future training costs and future aircraft.

Sparing costs associated with operating a more fragmented fleet mix.

These changes alone are expected to bring about significant fleet related maintenance savings to the PNM all through 2021.

On the expense front, we have taken a fresh look at how our but how we budget the airline and have taken a zero based approach to our planning for the remainder of 2020 and 2021. These actions have reduced our estimated 2020 operating and capital expenditures by more than 15 billion.

Beyond the fuel and volume related savings that were achieved through our capacity reductions, we have removed or deferred non essential expenses throughout the business.

We have had great success with our voluntary leave an early out programs with more than 41000 employ stepping up to help by opting into a leave or early retirement.

And as Doug mentioned earlier, we just completed at 30% Rightsizing of our management and support staff, resulting in annual estimated savings of more than a half a billion.

Well this will with a difficult process to go through we are grateful to those who have who are leaving the company for the many contributions they have made to our airline.

With regard to capital expenditures, we currently have committed financing on nearly all of our 2020 aircraft deliveries and do not intend to take any deliveries without committed financing.

Beyond this we have removed 700 million from our projected non aircraft capital spending plan in 2020, and Thats 200 million more than we announced last quarter and another 300 million in 2021, we will continue to aggressively pursue other opportunities to conserve working capital.

While we are moving quickly to pull down our costs, we're not done and we'll continue to take the necessary steps to rightsize our cost structure for the future.

Finally on liquidity, we have moved quickly to reduce our our daily cash burn and strengthen our liquidity position.

Well there are several burn rate definitions out there we define it as the sum of all net cash receipts less all cash disbursements that includes all debt payments and interest payments, but it does exclude the effect of new financings and new aircraft purchases.

Using that definition, our second quarter average cash burn rate was approximately 55 million per day, which was down from our original guidance of 70 million per day and as Doug said, we ended the month of June at 30 million per day.

We ended the second quarter with 10.2 billion of liquidity during the quarter. We raised net 3.6 billion through the issuance of two and a half billion of secured bonds of which 1 billion was used to refinance our 364 day delayed draw facility 1.1 billion, an equity in 1 billion and convertible bonds. We also raised through.

260 million in JFK municipal bonds, which the net proceeds are in our restricted cash balance until construction spending occurs.

Importantly, we do not have any large non aircraft debt maturities until our 750 million unsecured bonds mature in June 2022.

During the quarter, we received 90% of are allowed and payroll support program funds and we expect to receive the remainder in July.

Separately, we have reached initial terms with the Treasury department for the approximately 4.75 billion unsecured loan, which we expect to close in the third quarter.

In addition, we announced in a separate 8-K issued this morning $1.2 billion of committed financing subject to final documentation and other closing conditions in the form of two senior secured no transactions with Goldman Sachs Merchant Bank.

1 billion of the notes will be secured by a first lien first priority lean against the American Airlines brand and related trademarks and IP and 200 million will be in secured by existing incremental capacity under our Laguardia Reagan national collateral the IP nodes allow us to incur up to another additional.

4 billion of first lien debt using that collateral we expect this transaction to close in the third quarter and as Doug mentioned when these transactions are combined with our quarter ending cash balance of 10.2 billion, we have a pro forma liquidity balance of approximately 16.2 billion.

Beyond what we have raised thus far based on recent appraisals, we have approximately 4 billion of unencumbered assets at our disposal. These consist of aircraft spare parts equipment in real estate. This number excludes accounts receivable and any additional borrowing capacity under our secured debt or loyalty program beyond the cares Act loan. This morning, we provide.

At an 8-K, which included an update on our collateral position as detailed in that file.

While we are happy these transactions have improved our liquidity position, we recognize they have come at a cost of increasing the debt load of the company and diluting our shareholders. However, it is important to note that even after these transactions our weighted average cost is that a slightly above 4% investors should know that we did not take these steps like.

Lee and improving our balance sheet as our imperative once we get through this pandemic.

As for future cash burn given the recent uptake in KOVA 19 cases, and new quarantine restrictions in some areas. We've adjusted our revenue recovery forecast accordingly.

Based on our current forecast, we expect a third quarter will with a product to end the third quarter with approximately $13 billion of a live available liquidity assuming no. Other financing activity. In addition to those I mentioned already.

The team has done an incredible job reducing costs in this environment and shutting down all discretionary spending.

As we have said previously our goal is to get our daily cash burn rate to zero as quickly as possible. So that we don't burn cash in 2021. However, the timing of reaching this goal will be greatly impacted by the demand recovery timeline as the benefits from the majority of the cost cut have already been realized.

In summary, it's very in a very short period of time, we have taken swift action to bolster our liquidity manage our near term maturities and capital requirements and fortify our balance sheet to withstand what may be a protracted recovery with that I will hand, it back to Doug for closing comments before we take questions.

Thanks, Eric for any questions my its own I missed the moves mistakenly think the America west team as part of this.

Instead of the entire American Airlines to you.

Thats clearly 40 and this crisis.

Certainly feels like the old America less days at times.

Hey, right.

Thanks here things going on to the entire team of course on that note.

Before we into questions I do want to getting knowledge the amazing work of our team.

Although we certainly did not none of us could foresee a pandemic like this the fact is here we are living that exact reality.

End of a pandemic wasn't enough to test. Our motto is also experienced saddened start reality.

While we have yet to go in this country and our quest for inclusion inequality. This summer we along with the rest of the world I've seen a brutal net markers of our fellow citizens and brought to light the reality and persistence systemic racism in our country.

In the wake of the passing of our friends Civil rights leader Congressman John Lewis.

It's fitting to state clearly once again black lives manner, while all of US our responsibility to create a better world for our black neighbors coworkers friends and fellow citizens.

Sure you that at American Airlines, we stand proud ready to do our part to support and lead in the areas of diversity and inclusion.

On that note operator, we're ready for questions.

Thank you.

As a reminder to ask the question you only need to press Star then one on your telephone to withdraw your question. Please press the pound cake.

Our first question comes on the line Helane Becker with Cowen. Your line is now open.

Thanks, very much upgrader, hi, Doug.

Thank you remember the America was today.

Thank you so [laughter] I remember a lot Doug just a lot [laughter]. So okay. This is not something to lap over because we are experiencing something really horrible in our industry something I thought honestly between now and retirement I would never see again.

So I'm going to claim to be a gerakan asked this question.

Have a lot of aircraft on the balance sheet does and obviously you have to be a smaller airline.

For some period of time until we recover to last year a level. So.

Makes sense to figure out the way to return those aircraft or.

Somehow figure out a way to get Allison under this $50 billion in death that you have on the balance sheet that.

Point has to be repaid.

I'm sure I'll start and Atlanta.

Europe Imager caused a fair question.

We as you know we built up a good but it does owner balance sheet as we as we modernize roughly the good news is we do have the most our industry and we don't need to continue that work.

We're happy with we have we view this opportunity to accelerate the retirement of a lot of our older aircraft, which will make us even more efficient as we emerged from this crisis.

We believe the aircraft that we have remaining in our fleet.

Is about the right signs or the network, we're going to need as we move you know into in the 2021, if indeed the terms not turns out not to be the case, we will adjust accordingly of course, but it's much more about the right size the network as opposed to that level. The answer the debt levels is too just to give you are willing to be.

Cash positive as as I said again, our goal is to do 2021.

To use all the cash regenerate too.

We reduced December which we will do over time.

All of US have increased our are on our debt burden to this crisis to fund the losses.

And you're right American was higher than the others.

I would note.

First off we do have.

The maturity profile is an is is in our favor at least as relates to the crisis.

Derek stated we don't have.

Other than a 750 million dollar term loans due in the middle of 2020 Twos is our next large non aircraft debt payment, which.

Which helps of course and as to what it's done through.

As opposed to amortization largely increase interest expense.

As we look at our interest expense in 2021 of these right now.

Interest expenses would be about $300 million higher than what we spent interest expense in 2019.

Aircraft down I think a couple hundred million morsel totaled $500 million of additional expense.

That's that's certainly not something we line but.

The the reduction in management specialist headcounts, we talked about saved more than that.

And on top of that all the other physicians, we efficiencies appeared that they're talking about add savings. In addition to that so we're highly confident that as demand returns and as we return.

Take care customers, we will be able to serves to reduce the that loan.

As we go as we go for it and that's we attended.

Yes. It can you just say why interest expense declined.

Corridor.

Net interest expense number.

Mhm.

In the quarter.

Sequentially on the way to review every year.

No.

There.

It's going to industry interest.

Okay.

[music].

Yeah, I'll look line, but I don't I don't see it's good it's got to be interest rates going down in our.

Our variable debt is over 60, 70% of our debt. So it's got to be driven by that.

That makes sense, alright, well, thanks, and thanks, Doug for that very detailed answer I really appreciate it.

Line.

Thank you. Our next question comes on the line of David Vernon with Bernstein. Your line is now open.

Hey, good morning, guys. So I wanted to ask a little bit about the sequential trends kind of into the third quarter and the back half of the year, we're going from the 100 million hours, a day to $30 million today.

We expect that number to continue to come down to the at a steady state level of of demand I guess, the I'm trying to figure out what level of impacted the actions you've taken what would happen would have.

As a fully implemented and run through the through the piano. If you give some color on on the trajectory of that that burn rate at a constant demand level that would be helpful.

Yes.

We try to think in our comments.

[music].

That.

Much of the as Eric said.

The cost reductions are largely in place.

And there is something that occurs in the third quarter.

And then certainly with.

With the October one.

We have the ability to reduce our labor costs.

Those are enormous numbers in terms of daily cash.

Good.

Three or $4 million, a day type numbers on that the bulk of what would be required to get to improvement is demand improvement.

So what we what we said again was that we expect the sequential improvement in.

Okay.

The third quarter portion was linked quarter and then on fourth quarter with third quarter, and then into 2021 to be a gold being cash positive. So but those trends are much more about demand gradual demand improvement than they are about cross.

And David I mean, just from a cost perspective, we were down at 46% in the second quarter, how that trended even tighter was 41 in April 49, and they 48 in June so in that in that area, where we were from a capacity perspective, so that could change just depending on if you.

Add back capacity or don't add back capacity, but that's that's kinda trend we were running from a cost perspective throughout the second quarter. Those real estate those will remain at only increased by capacity because all of the that costs have been taken out and as Doug talked about there might be at Nother little step function.

And in October.

Depending on where we go from from that from a cost perspective in October.

Alright, thank you.

Yeah.

Thank you.

Our next question comes on the line of Savi Syth with Raymond James Your line is now open.

Hi, good morning.

Just a little bit more on the AD.

Cash burn and actually related to the plans for this summer and.

And while injuries and severance that Youve provided yes.

To that you can expect to execute him.

Thanks, Doug you mentioned, maybe three to 4 million a day savings is that how we should look at it.

And then if the PST grandsons extended and how does that impact the planning process.

Hey, Savi this out on the severance and we did not do a weve spread it out over time period. So there is no big cash outflow from a severance perspective. So the everybody is getting paid through October timeframe.

So that the number that Doug talked about about two to three is pretty good.

And that includes the the severance that people get today for that are leaving and any other adjustments that that we can do.

From an efficiency standpoint in the third quarter. So those are those are the key as we get into the third third quarter, but the severance is it's not a lump sum it says it's spread out over time.

That help it did that that that's helpful and what's it like what's the savings that you expect that can offset then that completely.

Oh, that's the two to three we talked about that is the say okay.

Hi, Kevin is not much capital and then just follow up to that is like if the PSP Grant gets extended how does that impact the planning process. Given I guess in this is a something that has happened to have it has to happen over a couple of months bands.

Yes, yes.

The legislation has proposed IR unions, just as a simple extension of the PSP program. So.

The dates changed from October 1st March 31st.

I would mean that our commitment to.

And voluntarily separate anyone would be extended on March 31 years.

And.

And the funds the b.

Ones that were allocated and it was one of $25 billion to compensate airlines for.

We're retaining for paying our team and the time I would be reallocated. So.

When you wouldn't you wouldn't have that savings and you'd have funds.

Offset.

Helpful. Thank you.

Thank you. Our next question comes on the line as Katherine O'brien with Goldman Sachs. Your line is now open.

Good morning, everyone. Thanks, much for the time.

Okay.

Hey, guys.

Just a couple of questions on the reasons demand downturn, hoping you could help us screen the magnitude of that.

Any color on gross bookings were in June versus July or is it any way to think about the fall off.

Keep good bye.

Nine could you just walk us through.

Okay.

Okay.

Well that third quarter, what's the outlook down 60 different a couple of weeks ago, maybe there's more towns like right now.

A couple in there that really trying to get a better than the magnitude of this slowdown.

Hey, this is not seen it thanks for the question I'll start into that.

What we're seeing are pretty consistent trends with what you've heard reported on we're seeing right now net bookings down 70, 580% [laughter] market difference from where we where I'm certainly in the month of June and even May what American Airlines sign on what we probably disproportionately benefited from was that a number of state.

Across the sunbelt upside or reopening in May and June with every phase of reopening we saw steady improvement of net bookings both among our leisure segment and among the business segments.

And it's at its probably high water Mark on the net bookings across the system were down 50% Sunbelt They were down net 35, 40%.

Now, we're seeing that I'm down net 70, 580% I'm still our sunbelt bookings outpaced the rest of the system as we go forward, we anticipate many of those trends to continue a we see.

Really a minimal to really a token enough business travel out there and not a lot of indicators that that's likely to improve so unsurprisingly, where we're building the airline capacity around that demand projections. So I'm you see is taking down Q3, more and we're continuing to evaluate Q4 and beyond.

Okay understood.

And then maybe just a question on the cash burn outlook.

Thank you second quarter liquidity jumped out new 6 billion in that range, including you know everything announced this morning to get that $13 billion expected third quarter and liquidity.

You know about 35 million daily burn I guess, maybe a little bit north of that if I include for that.

Peak on I guess first and then.

No.

Can you walk us through what type of revenue assumption or underlying that and then you get to get the fourth quarter being lower than that what kind of revenue assumption.

Our improvement.

Thank god that lower thanks appreciate the time, but.

Sure, Yes, I mean, I'll start rather on the math other than just please note.

Those are the we view the a and number is approximate so.

But we want to trying to imply any certain level of precision around that number that you should additions and put precise numbers I'm on these daily cash burn numbers.

So but anyway you. Thank you.

I'm trying to match right.

And the we have very limited demand growth.

In that 13 billion dollar.

At quarter end number so not much at all and.

In our in our nor real.

Much increase and the.

Fourth quarter really consistent we won't give us your just described so.

Anyway, we can we assume that our conservative as it relates demand as we said on expenses, where there's I'll just give a little commentary on these okay.

Just the daily cash burn numbers.

So I know are important to our investors news they vary so much.

Yeah, certainly by month.

And therefore by quarter sometimes.

We just need to be careful about looking at those is as real trends as long as I understand that.

Yes, I understand how they compare to others now others exclude different things when we there are issues, it's not a GAAP measure.

I know we know it's important measure thats why we give you a quarter end estimated liquidity balance, but less but we try to have less focus on that actual number.

Theres just so much variability around.

Understood. Thanks appreciate it thank you.

Thank you.

Next question comes on the line of Mike Linenberg Deutsche Bank. Your line is now open.

Oh, Hey, Hey, guys, Hey, everyone. Thanks, Good morning, I guess two quick ones here.

Eric I know that.

Believe you know under the carriers Act you can get her social security taxes I get the portion this year I think for.

Homes and contribution I think you some.

Benefit of payroll you have you have a sense of how that maybe collectively those other various initiatives that we don't spend too much time on but how much that could be your liquidity in 2020.

Yeah, I know one item I know for share on the pension side of things.

We do have to make a pension payment on January one, which is the holidays, where we end up having to do it on December 31st Ah. So there's not a did not have zero number in 2020, but we had originally thought it would be around a 500 now it's down to 140, so there's a significant savings there.

The we have gotten some tax refunds in the $170 million range, which have been positive in one of them as 85 million, we're getting this quarter in the in the third quarter and then the deferral love those other taxes, we have them all in 2021 anyway. So that you know you're going after paying back in two.

2021, so the net impact over 20 and 21 is zero.

Okay. Okay. That's helpful. And then just up my second question.

Two Timbuktu you know looking you announced the can't Blue recently, the Jetblue a agreement recently and it seems very similar to what you announced with Alaska back in February and I realize.

It's a really tough backdrop to start noticing any sort of benefits from from the Alaska deal I guess since it is initially only up and running in a few months is there anything that you can tell us with respect to maybe quick wins and things that you've seen as we started to work more closely with Alaska that will materialize.

With that I'm going to Jetblue agreement. Thank you, yes, yes. Thanks to the question, Mike I'm happy to give it back let me let me put my answer in some some context here that I am at American Airlines, we had sort of.

A unique problems, we look all across our hub, our our Hobbs excluding.

The northeast as New York, and Boston and the West Coast print is unit revenue premiums of 10% to 12% higher than than the industry.

Indeed has grown since the time of our merger as we.

Gauge rebuilt the regional network improved conductivity and grown in Dallas Fort worth.

In the northeast and the West Coast. However, we produced a 10% RASM deficit to the industry. It is important because about 20% to 23% about 2019 capacity and deployed in the west coast in the northeast, but not in perspective about DFW and 2019 was about 26, 27% of the airline.

Charlotte was about 12% to 13% of the airline so we had a material amount of our capacity in these markets and both of these cases, but the west coast and the northeast infrastructure is constrained and we're in a situation where were really too small to win and too big to go and exit.

And so we need to figure out away that and then there's such a massive customer base that we need to find a way to go on access that revenue. So in our partnerships, both with Alaska and Jetblue what it entirely about it is.

Creating a a different in creative competitive alternative to the larger networks on than our competitors offer on those codes.

Not so that was doing exactly what you see us doing so we continue to go and build our our Seattle Haagen together with Alaska, We will go and create the best network on the West coast with jet Blue.

You know American Airlines is historically in New York State a great case study for this historically, we have a 10% originating sharing the largest air travel market.

In the World, we operate 50 seat jets and some of the most expensive aircraft annual incentive airports in the world and so by doing this we leverage the strength of both of these caught these companies at the play here is very much that if we can do this we go in and attract more customers to our joined up networks.

Financially data of course, rectifies very massive revenue problem, we have across our our our hubs system. It creates a really pro competitive outcome and very importantly, it keeps these really vibrant and independent competitors vibrant independent competitors. So we are really keen about all of them the big covenants as honest to go and execute make these.

Partnership as seamless as possible I, we're working very ardently at that indeed today, we're announcing a last his formal invitation into one world that will really accelerate the process and we're envisioning by the end of this year. Our worst case early 2021 will have them as a full fledged member a and we are eager to go and progress the and.

Gration with Jetblue as well.

Great. Thanks, I see thanks for the detail yet.

Thank you Mike.

Thanks, Thank you.

Our next question comes on the line of Jamie Baker with JP Morgan. Your line is now open.

Hey, good morning, everybody.

I guess this means I'll.

Wrap up the cactus triumvirate.

I I [laughter] given the hole in the majority of opined Derek can you walk through how the branded website is worth enough to support up to $5 billion of additional first lien debt excuse me with loyalties already pledge elsewhere and that those are pretty material.

Good news and we don't think that most investors have those in their liquidity models prior to today's disclosures.

Right. So I mean, we have a we haven't appraisal and both of the transactions I mean as as we went into this process. As you know we ran appraisals on everything because we needed to do that as as we were.

Looking at the government loan in what we want to do it the government loans. So we ran an appraisal just on the.

Frequent Flyer program and then we separated out everything else.

And put it into the into the brand discussion I would say you know the value of that.

Is it depends on where the values, but somewhere in that $10 billion range, whereas the frequent flyer program as we announced before is somewhere in the $20 million range. So we've done appraisals on both.

You know that you that transaction, we've been working on for a little bit or the this recent one.

And as we negotiate a got ourselves the ability to do an extra $4 billion underneath that transaction in its held up by a an appraisal that that weve that we've done.

And in regards to potential forward mileage sale or you have you reached the conclusion with treasury, yet that you could speak to that potential phenomenon.

We have not actually been could we have not reached a conclusion with treasury yet we're still working with treasury on the trend on the $4.75 billion transaction, a and where we will go there.

But I, but I think it's as we've seen if it is not a four miles transaction I'm on top of that you know as you know our competitor was very successful and did it get a really nice transaction to take their frequent flyer program and take it to the market that.

Will it probably would take us a little bit of time to do that just because our our company is our frequent flyer program is not set up as a separate company, which.

Our competitors was for them the ability to do that transaction, so that ability as their they won't mean, we're at 4.75 or we have a bigger program and I think they raised 6.8 6.9 billion against that.

So I think in the future that transaction is there it's out there today for us but it is there in the future. So if if we cannot utilize a the room underneath the government loan that transactions available in the future.

And if I can just squeeze a short third went in you know on Jetblue can you just remind us what you can and can't do in regards to the partnership you know what level of coordination pricing scheduling is legally permissible.

Yeah, I can't answer the question Jamie.

The way leave envisioned it it'd be really a oh pretty broad partnership.

Where of course, we would have extensive code sharing back and forth frequent flyer benefits and a big enough of a corporate dealing a big part of what what makes this down certainly is as we look at it on something that we didn't really great for customers Pratt came to we envision being able to take out things like 50 seat regional jets, which are on a name.

He's really uncompetitive product in a place like New York, our Boston.

And our range a number of slot moves within.

JFK Laguardia, such that certainly and grow its mainline present, that's where you see us adding more long haul services in New York, and indeed overtime, we anticipate being able to do a whole lot more of that and then of course also for our new partner Jetblue. They also get to go in and expand so in doing that we see.

A lot of ways that we can get worked together.

That may be little unconventional from from traditional cousin shares in the past that can create a huge benefit for our customers on a very big benefit to our team that can help both of these airlines really participate.

In the recovery out and what happens.

Thanks, gentlemen.

Thanks Jay.

Thank you. Our next question comes from the line of.

Let's see quite global your line is now open Oh, hey, Thank some good morning, guys I'm just following up on that that the alliance with Jetblue and Alaska bus. So I guess, if I heard correctly, 23% of the flying it when 2019 is the goal to get that back to industry parity wrap.

Number do you think you can get up with these alliances get to a premium and I guess, you know kind of where im going this for investors as they think about 23% of the point is this you know revenues that could improve 10% across 23% on the plane, if we get back to parity.

Yes, that's an excellent question, Dan I had sound way to think of the problem. Yes look at hand edited to clarify the numbers in 2019 about 20% to 23% of capacity base was on the West Coast, New York, Boston right compare that are actually strongest performing market the DFW in Charlotte, which collectively reps.

Then in about 48, 49% of the airline so theres a material amount of capacity that there was at the end for a long time is producing RASM below the industry average now in the perfect. The back half of 2019, I think a lot of the way you described that makes sense. The open question is how the world recovered how quickly we can we can achieve.

Steady state, but for that reason these partnerships are all the more more critical to be able to be done now because.

The reality is left to everyone zone devices, the third and fourth largest carriers in New York just won't be able to compete for a new York for a diminished New York originating premium customer given the current demand outlook. There. So by having this yeah, maybe a little bit a time before we're able to head.

He was achieved some of the financial goals that we walked from this thing but for us as long as we are dealing what is right by the customer in New York in Boston on providing real competition to the larger networks that we faced there there's a real path for how we go about doing it and as you say that there's probably a lot of upside through the.

The thing that we envision being able to go.

And it's certainly scale the massive fixed expenses of operating at places like New York over things like Widebodies instead of over things like 50 seat regional jet. So we think that there's a lot of of long term economic benefit there on the current prices that the pandemic create the uncertainty in demand makes it a little bit of an uncertain path for how we go from here to there but.

The core way in which you're thinking about it is similar to how we think about.

Very good I guess, a follow up question here, Doug going back to your commentary. This morning, I'm on CNBC to generate cash next year in start paying down debt or maybe this is for Derek.

Based on what you see and you know today and whats in the business plan can you give us a balance sheet roadmap from here what what's the range of debt. You know you you would aspirationally or could prepaying next year and you know what do you want to balance sheet to looked like realistically at the end of next year in and then as we look three years down the road.

Yes.

I'll start and.

Good morning.

I'll, let him, but it's it's.

Really aren't ready to give any sort of targets at this point.

In the 2020, 120 22 and beyond.

When any sort of specificity and so it's so much dependent upon what happens with returns demand.

Man return.

What I know is this.

Again, we we have a goal being cash you're getting regionals cash positive in 2021 that sort of ours demand growth.

Don't think unreasonable demand growth.

And we believe we can do that as that happens and as there's more stability per se that happens we will we will definitely be using.

All free cash to retire all free cash flow to retire.

Yes.

And as we have more certainty as to what the economic environment looks like going forward. We can give you better indications of kind of calls.

That levels and credit ratios going forward. This can be hard for us to do on this call Yeah, and Dan I'll give you know, but I mean, just you know we part of the debt that we took on as the revolver. Obviously a 2.8. So you know as the as the cash balance works up we would return the revolver.

As you know the carriers AG loan and the PSP loan, which combine or 6.4 billion or prepayable at any point in time.

We have pre payable aircraft mortgages of 3.1 billion and our SGR as our pre payable at we can pay down an eight point times. We have 17 to 20 billion that is as long as we get the liquidity and get the cash that we could use that to pay off the debt. That's that's there first thing we would do is there.

Evolve or and we would just return returned the revolver when we're comfortable and that's about 2.8 billion of the deck.

Very good there's regular against it.

Yes.

Great.

Thanks, you guys.

<unk>.

Thank you. Our next question comes from the mine Hyundai Kia with Wolfe Research. Your line is now open.

Hi, good morning.

Doug.

There.

Briefly what is the through what is your three year vision for American Airlines.

Well I guess kind of <unk>, we're going to kinda like when it.

At this point in time.

No describing once the next three years looks like.

The easiest thing to do.

But sitting here right now again first time like I can get through the first one pretty easy.

Which beginning.

Through this crisis and getting this airline back to where we're generating cash instead of talking about burning cash.

So.

That that I know, we can do look on.

I will tell you this honor.

Which may be helpful.

As hormones this crisis and there's not much good you can say about one nice one thing.

One opportunity it's given us.

Which I think it which I think is more helpful to us and others when American them.

And it gave us a chance you know post integration.

Literally start them, taking a look bars show in the world and started.

Got it down and started from scratch.

That's a real opportunities.

That we're going to that we're using that allows us to only add back what makes sense things that might have taken as a very long time to continue to get.

Through.

Getting getting management reductions are getting older aircraft retired.

Getting more efficient throughout the airline.

Flying exactly where it makes sense.

Looking at network.

So the total it makes sense.

But I am routes not doing as well as others.

That's what that's going to make as much more efficiently come out of that.

We're excited about that so we're going to add back only what makes sense will come through a more efficiently.

That looking forward to that day, when we're through all this and.

And we can and we have that advantage. So but that's that's that's has been helpful. Dawson again, something I guess I am probably because we had more on need to do that coming still through integration I'm I think that gives us more opportunity to do that so anyway as it relates because of that once we get to a more steady state environment.

What I think you'll see from American is where is relative to our competitors are relative performance will be improved and as the industry improves we will endeavor to put to work through to two.

Our due to pay down the debt we've had we've all had to incur to.

On the one.

Okay. Thanks, and then I just my second question just three very specific ones can you. Just please give me your daily cash burn number for Threeq you. What are you expecting for revenue in Threeq and how much you expecting third quarter operating expense to decline.

Yeah, again I think.

So we gave was to give you and liquidity number that Didnt do you know the duty lands.

So you can calculate from that an estimated cash burn I'm sure.

During the other ones well I think occurred the third quarter cost down is going to be adjusted because with US you said as we pull the capacity out. So we ran about 46% in the second quarter down in cost. We believe that we're going to fly. So we filed we feel a little bit more in July but we.

We're going to pull down August and September so I think that it'll be a little bit a lower than that but but not too far off so in the if we're at 46 for the quarter, we're probably going to be in the 40 42 range.

For that in the third quarter from an extent expense standpoint, and then you know from a revenue standpoint, we were at 86% down in the second quarter.

Yeah, maybe 80% in the third quarter 70, 580% in the third quarter, but depending on what we deal with capacity in August and September which has brought US you said were.

I'm looking at that now and with a bias to bring it that.

Thank you Derek.

Yeah, it's hard.

Thank you. Our next question comes on the line of Joseph Denardi with Stifel. Your line is now open.

Hey, good morning, Doug or Robert I think I think you all are in the window are nearing the window on when you could renegotiate or start talking to city and Barclays about an extension can you just talk about.

Their willingness to to engage their appetite for the business given the challenges that the travel industry is facing and whether we should assume an improvement in economics, even if it's not.

Are the same magnitude as the last contract, but still an improvement in economics.

If and when you can get to new contract. Thank you.

So just real quick its Robert.

We have the ability to renegotiate 20 to 2022.

The contracts come come do we obviously are working and have them working with both city and Barclays. I can tell you from the work with both partners that there's tremendous interest we know that the American Airlines.

Customer base in our loyalty program are incredible assets to both Barclays and the city. We have every intent to continue those relationships and expect a tremendous amount of value tend to come back out to American now obviously, the current environment is not the best in which to be talking about.

Increasing values, but as we take a look to the stabilization of the business and take a look out for the future I'm quite confident that the economics are going to be equal to a better than what they are today.

Thank you then Derrick.

I think you're you're in a wells are getting bigger.

So you've got that go on for you which is nice.

[laughter] can you just remind us how that works and then your ability to to use those I think you had some that began to expire in 2023. So just how that works. Thank you.

Yeah, I mean right now we have federal at 9.1 billion stayed at about three we believe we can use them. We're still you know as we look at forecast Oh, we believe that they will all be used in the one in 2023 will be used if not we will add to put up a valuation allowance for them.

If you look at a forecast and assume that they can't do use but as of right now with the tax ability and the changes. We can do we believe we will use all the 5.1 that were on prior to prior at the beginning of this year and that they'll all be.

He used by 2023, we've got enough room to be able to use them all.

Okay. Thank you.

Thank you Sir our next question comes on the line of Stephen Trent City.

Your line is now open.

Thank you. Thank you everybody and appreciate you taking my question I'm just.

Sure, Yes in terms of your longer term thinking what's the view with respect to.

Maintaining new York and Philadelphia hubs.

And I know you're canceling some.

International destinations, but I'm just trying to think in terms of.

How you're thinking about the optimization of those assets.

Hi, Stephen this is wasit. Thanks for the question.

We need we envision keeping both the Philadelphia and and the New York hubs.

And we've seen as before when when we put the merger together, there's a lot of worry that DSW, Charlotte and indeed, DSW being switzer overlapping and contradictory purposes. Indeed, as we as we grow in any one we've seen the RASM performance of all of them ground by having multiple how does that that have similar purposes. You can go in.

Create a lot of value for the customer and we see the same footprint not just with New York in Philadelphia, but the three hubs of New York, London in Philadelphia.

We're going to go into a world where international is going to have a much longer recovery path.

And frankly American airline already was producing I'm less than industry, rather than an international so we envision Philadelphia as being the primary connecting points to Philadelphia, we can connect I missed the 90% of of the country through their the loan Inceptions being New York in Boston in upstate new.

Our in New York City, we will focus it very heavily around.

Well when the markets had a new York had a major connecting markets that feed inc. things like Vegas, Orlando things like that.

In London, we have a great market and with our partner high AG the opportunity to go and expand.

Ah London, where we can go provide more conductivity not just into Europe. It into places like Middle East Africa, India between the three even though we go into a world where demand is more defeated where where next year, we will be a materially smaller carrier and extremely small ikaria internationally. This enables us to go and take a bigger.

Our share of what demand is there provide a massive amount of connectivity to the customers in the process.

Okay very helpful. Let me leave it there and then everybody stay healthy and say.

Thanks, Dave.

Ladies and gentlemen, you all what the media and you would like to ask the question at this time. Please press Star then one on your telephone.

In that of Star then one if people I think that's question one last quick question.

Our first question come from the line of David Koning with associated press.

Your line is now open.

Hi, David.

There's a guy even work at America West and he said yesterday that his current airline expects that revenues can rise to about 50% of pre cobalt and stayed there until there's a vaccine is widely available I wondered if you know Doug if you agree with that view.

If you have a different ideas about how the recovery unfolds and how you're going to get the even the 50%.

You know there and I know that guy to and Ah, but and I also know he said, it's anyone's guess that which has just so.

Again, certainly is reasonable I don't have any reason to.

We disagree with Scott I'm, and certainly you know kind of what we're planning.

For as we look forward is consistent with.

That type of recovery.

I don't think any of us but weve.

Good evening close to.

The well the old demand until there is a vaccine and that's why we spread so.

Anyway.

Point on that point, you know I hope is right to the once that happens demand returns quickly, though so anyway.

Curled just kind of a temporary stall here with the recent surgeon cases.

Well.

Yeah, there's again, what we've seen a with certain cases, which also we saw what was continual growth in demand you know.

Sequentially month to month.

Plateau, and so that's certainly happened and we're you know as those cases as cases, hopefully Paul in the future one would expect.

What do you feel we've offered rhythm in June as demand recovers somewhat but again nothing no nothing but that we would anticipate a really gets back to the kind of the man, which on 2019 until the country's moving again. Maybe this is this is less about you know people's concern about flying and much more about.

Having a reason to travel.

And I mean, I mean business opened in moving and having places to go when you travel and not needing to corn seed and as those things happen more and more people travel, but clearly.

In some cases, all that's not going to happen until we get to effects.

Okay. Thank you.

[music].

Thank you. Our next question comes from the line of Tracey.

Listen well wait limiting your line is now open.

Hey, Tracy.

Hi, good morning.

Yeah.

On how business travel.

Evolve do you see any permanent changes.

Hey, Tracy this is not too. Thanks for the question I look at remains to be seen so much.

What this crisis. It is not just the demand is low that they're sick such uncertainty about Oh, yes, we do see evolutions that are out there, but in many ways. We're already seeing it that the customer segmentation is changing a little bit from business and leisure, which airlines that historically defined and it's time to transact.

And and much more what customers are keen to regain tend to resume their economic life, and which customers are less ready.

And oftentimes the differences between those are a function of people's confidence in resuming AD com and necessity. So a great example of this is whenever we were in the first week of April which is probably our power lowest point for for booking.

Small and medium sized book business bookings out of Texas or almost zero. They were like 10000 to week, which is not even single digit percentages by June 15th after taxes went through phase three reopening they had increased 300% to 45000, or so which is still relatively small but far from.

I have far from from where we would like them to be in that same period corporate bookings didn't really change at all so it is likely to think that for a period of time, one business business bookings as we can historically followed them is going to be very different and companies are unlikely to go and resume their economic life certainly not.

It bigger companies and there's a there's a lot of uncertainty around what and how the smaller companies might might be so we are planning certainly for some very conservative assumptions.

And in many ways continuing to adapt the airline for the changing customer base.

Thanks.

Thanks Tracy.

They're already gone the next question.

Thank you. Our next question comes on the line of House Insider with Wall Street Journal. Your line is now thanks.

Hello, Hi, good morning.

Is there anything you can share about sort of how many flights or in terms of capacity Lucky change will be from July to augment.

[laughter].

As it looks like is still playing to fly more than some of your peers that tenant how you see it.

Hey, Allianz as I said, thanks for the question is going to speak again.

Look we had if we haven't finished loading all back changes into August or are even into September and it had to how we love. The change is probably going to occur over multiple periods of time.

As we kind of described for we've changed a lot of our internal processes around these things because in this environment of uncertain demand there last to adapt and we have to be flexible. So we described ourselves being nimble or adaptable, it's not a euphemism for flying more on any is exactly that that in a base of uncertain demand the airline asked to evolve and so what.

We envision doing really in August you'll see it pretty consistent with with our comments on this call that we continue to see.

Our biggest Hobbs DSW and Charlotte building.

We anticipate keeping the connectivity there, but feeling a lot of other adjustments because markets that are much more dependent on business style traffic.

Are likely to tend to not come in.

To put a finer point on it once we cross labor day historically in this airline about 40% of our revenues come off of business and and it's pretty on reasonable at this point I think we'll get anywhere close to that so routes that are more dependent on business are likely to come out, but rather than making a single blanket call and taking it all at one time, you'll see us makes us cut over a period.

Time, so we envision really in August where we're still taking bookings that a lot more about capacity will sit in the biggest has not and and as we mentioned earlier, we'll take some pretty material.

Reductions to what we're out there selling both in the second half August and post Labor day, such that Q2, three capacity will be at a minimum down about 60%.

Got it I'm just trying to get my mind on how much of this is seasonal you know just does this have a sort of never going to come back in the fall and how much of it it's sort of a change in thinking about the demand trajectory.

Well, what I'd say there is there's definitely some seasonality to it and really it's not very much of a change is thinking about keeping the airline schedule and operating practices really flexible. So we can adapt to changing dynamic landscape.

That's that's what we've been getting throughout the crisis, but we'll continue to do along the way.

Alright, thank you.

Thank you.

Next question comes from the line of Claire pushing with financial times.

Well on is now open.

Hi, I'm happy to Seadrill response from the Vice President or the European Commission for home Affairs regarding that letter you sound about Trans Atlantic Colvin testing.

And what sort of would this testing regime look like.

Hey, this is vasil I'll I'll I'm starting to the question. We added the Canada answers. The we are are still on looking at it and evaluating it discussing heavily as our partner high energy and so we don't have a lot of of of insight yet but in the next few days.

And we expected.

And we have not had a response just when I left.

Thank you.

Thank you.

Thank you. Our next question comes on the line of Justin Bachman with Bloomberg LP. Your line is now open.

Hi, good morning, and thanks for the time today I wanted to ask about there were 12 or so a Boeing Max aircraft that you were looking for additional help in financing that would it be delivered this year up do you have any updates on on where that stands and if those airplanes are coming to American or if you've.

Decided to move on or defer those.

Yeah, Hey, just is there.

The plan is to take those aircraft what we're working with Boeing is a firm up that financing and make sure that you know with the the delays in the aircraft that debt financing is from I'm wearing a really good discussions with the Boeing team working hard are great partner for US we totally plan on taking those aircraft there's 30.

I mean that are built that haven't come to us yet and there is another four that are supposed to come by the ended the year. So another 17, so we're working with Boeing to make sure that those are financed as we said in a comments that we don't plan on taken any aircraft that are financed but we're working well and we're also looking at the 21 and 22 aircraft.

We're not we're not done we're at we're in we're talking with them. All conversations are good and our plan would our plan would be to still take all 100 aircraft. We have on order overtime or just when we take them is the discussions that we're having but good discussions not done yet what we've done pretty soon nothing.

So all those 17 that you just mentioned will that be this year or does some of those slip into 21.

Oh, we hope all 17, it this year, but it all depends on when the when.

You know the aircraft is backup in the air and how quickly they can get them and deliver but we were we wouldn't be okay to have a mall. This year. Some of them may slip into next year, but I would assume by early part of next year. They would all be here.

Great. Thank you.

[music].

Thank you.

Next question comes from the line of level Joseph.

CNBC Your line is now open.

Hi, good morning, everybody.

The salaries.

LIBOR Bill looks like it down.

Close to 21% compared with last year or you don't have any money left over.

It continues on that trajectory there like what do you sling schedules or other lead and are you can you use the cares payroll support for severance packages or do you have other plan if that happens.

When you do have a left over from me Kathy.

We will not have any left over from the PSC I think the or the amount of yes. This there the amount of history that we received goes about 76% of the salaries over the second and third quarter. So there wont wont be any money left and we can't use that TSP.

Money for severance and other things that's other cash.

Okay. Thanks.

Thanks.

Thank you Hi last question come from the line of Edward Russell with TPG. Your line is now open.

Hi, Thanks for taking my question My just wanted to get in your own words on it. If you think that American strategy to fly more capacity in the second quarter, especially in June was was worth it and if you just to explain why what you're thinking behind that.

Sure and I'll start than us.

Hi, Ben.

And but is it.

We didn't see why warrants in my view anyway, we've gotten to somewhat.

Made into a bigger this year, then certainly the way we think of it fits into the tactic in crisis management.

As you know world, we're all managing through a price just trying to figure out what's best for individual airlines.

You know again I think it's accurate to say that we flew twice as much as some other airlines.

But it's also gradually to say that weve to 40% of our prior schedule. Another owns 20% of their cars.

So and the real story, there that were down 60% and they're not 80%.

This is a crisis world. We all worked to figure out what's best for Airlines, our network team did a phenomenal job I'm seeing that well [laughter] as we all had pulled on schedules.

That kind of activity in particular had been reduced throughout the country and that we could by focusing on our DFW in Charlotte hubs Hum.

The ability to have more connectivity than others and give us an advantage.

Oh, No limited demand that was there to carry more than we would otherwise so that that absolutely works.

In June as I said in my comments in our our our revenue PRASM in June was was six times what it wasn't it.

And weak that would not have in the case every phone.

Only 20% of our capacity and maybe wave supplying more and having that kind of increasing Rob we're extremely happy with it it's worked well into July we're happy with results we've seen in July.

Our load factors remain high and higher than our competitors airlines, even though we're flying more so we're really happy with that tactic. It's it's not going to make a big difference you know six months from now this is at some point, Chris and trying to be bigger than everyone else overtime. It's just a tactic during this crisis it's worked out.

It really well for us.

We're really proud of Boston, what is to use network to Brian's or no. One is another key driver wages and even came it was strategy.

To to manage the crisis has worked really well.

Yes, yes, the only thing I I would add to that and that is and as Doug said it very much work well for us simple way to think of it as weekly 60% more than than our primary competitors and generated 60% more passenger revenue so I'm by any means.

Being able to have that come in was being a big part black cash burn looks looks the way. It does but also to put a finer point on a few things that I've just mentioned little it taught us a lot to along the way you know is as we went through June fewer than 2% of our flights for flying below 25% very.

I'm actually strongest hub BMW in Charlotte, where 60% the airline and and.

Produced 11, and 12 sent resins, which even in a normal June would be a really good June for many of the airline all all around the world.

That was very instructive to us and also by flying that Big we got to get a really we have to try a lot of thing.

Across the commercial organization that has taught us a lot about how our customer base is evolving and those are all things we're putting in the practice I'd like I've said this was a tactic of managing and it was really a onetime thing that we did knowing the June and July would be months, where if there weren't discretionary leisure travelers. That's the time to get them I'm clearly.

In the fall or the airline becomes more dependent on on business travel that is no longer a a planning reality for us and so we're adjusting that we're taking the insights we learned along the way with us.

Great. Thank you very much yeah.

Thank you. This concludes today's question and answer session I would now like to turn the call back to chairman and CEO, Doug Parker for closing remarks.

[noise]. Thank you very much your interest.

And we appreciate if you have any questions either contact investor relations or are we usually department. We appreciate your time. Thanks Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Everyone have a great though.

[music].

[music].

[music].

Good morning, welcome to the American Airlines Group second quarter, 2020, <unk> earnings call.

Today's conference call it they recorded.

At this time, all parts of the but like all in listen only mode.

Following the presentation, we will conduct the question and answer session.

The question during the session you want me to press so are they want to your telephone.

If you acquire any further that's please press star then there will to speak with an operator.

And now I would like the telecom so what's your moderator managing director of Investor Relations.

Craving. Please go ahead.

Thanks, Sarah and good morning, everyone and welcome to the American Airlines group's second quarter earnings Conference call joining us on the call. This morning, we have Doug Parker, Chairman and CEO, Robert action plans and I think their current Chief financial Officer.

Also on the call for acuity fashion, our summer senior executive equity Maya Leibman, Chief Information Officer, Elise Eberwein, you'd be communications, Steve Johnson, our you'd be a corporate affairs.

<unk>, Chief revenue Officer, Dan and Devin CE, Mark our Chief operating officer like we normally do that will start the call with an overview order and the actions were taken during this and Devin and Dan will follow with details on our liquidity and cost out.

Parents comments, we'll open the call for analyst questions Lastly questions from the media you get as many questions as possible. Please limit yourself to one question a follow up.

Oh, Yeah, we must stay that today's call does contain forward looking statements, including statements concerning future revenues cost forecast. After the fleet plans on liquidity these statements represent or predictions and expectations as to future events and numerous risks and uncertainties could cause actual results to differ from those projected.

Information about some of these risks and uncertainties can be found in our earnings press release issued this morning, and our form 10-Q for the quarter ended June Thirtyth 20 Twond.

In addition, we'll be discussing certain non-GAAP financial measure this morning, which exclude the impact of unusual items.

A reconciliation of those numbers to the GAAP financial measures is included in the earnings release and that can be found in the Investor Relations section of our website.

A webcast of this call will be also archived on our website information on that we're giving you on the color as of today's date, we undertake no obligation to update the information subsequently so thanks again for joining US this morning and at this point I'd like to end the call over to our chairman and CEO Doug Parker.

Good morning, everyone. Thanks for joining us today I'm going to give some color on the work we're doing to manage the current environment.

Sure that we're well positioned when we come out of this crisis theres going to provide an update our liquidity cash part and then as Dave noted we have several executives in the room, including our President Robert Isom, and our Chief revenue Officer Basi, Roger here to answer any questions you have.

So to recap I need to acknowledge that applaud the entire America West Airlines to you.

The past five months have been more in a difficult and our team has consistently resin to the challenge taking care of customers and each other.

As the stability of their own employment remains uncertain.

Our two Douglas and much more each and every day.

Say that they're leading this current leading to this crisis with Grace is an understatement of enormous.

And we're all humbled by their work ethic and professional.

Turning now the actions, we're taking the basic over 90 in the resulting severe disruption to global demand for air travel.

Sure crisis continues.

Darren exceptional job managing through that crisis as evidenced by the trends we saw throughout the second quarter.

And we're prepared to one of the storm ahead and be in a position as exceed when demand recovers.

In the near term our actions are centered on three pillars.

Going up or cash reserves conserving the cash we do use.

Shifting away, we fly sort of what our customer return of this guys. You can do start with complete common.

Let us say, if you get enjoyable to do so.

Moreover, we're flying when and where they want to go.

So first on cash.

The second quarter with to $10.2 billion available liquidity.

Which included an important net $3.6 billion that we raised during the quarter to the capital markets.

We also have assigned term sheet with US department of Treasury for an additional $4.75 billion secured loan or the Caribbean and.

We expect that we want to close in third quarter.

In addition, we announced this morning to senior secured note transaction would vote transactions with Goldman Sachs merchant bank totaling $1.2 billion. So when those transactions are combined with our quarter end liquidity balance of 10.2 billion.

We would have a pro forma liquidity balance of approximately 16.2 billion.

Yes.

Good morning to raise more money, then I'm talking about that humans.

With regard to conserving cash and our cash burn our daily cash burn rate for the quarter.

Around $55 million, which was better than our prior guidance of $70 million per day.

We're particularly pleased with the relative improvement throughout.

That daily burn was nearly $100 million per day in April.

Around $56 million in May and was $30 million for per day for the amount that you.

And improvement was driven by both aggressive cost management, which Terry will discuss in more detail and significant revenue growth throughout the period.

As to revenue demand was at its lowest point in April of course, we had a remarkably low system load factor of 15%.

Remarkably low passenger revenue president of a 1.8 cents.

Several states began to reopen we began to see demand increase, particularly in some markets, where we had a network advantage.

So with some aircraft ownership labor cost, we made a tactical decision to far larger scheduled in some of our competitors competitors and keeping our large connecting hubs in Dallas Fort worth in Charlotte larger than the rest.

So anymore that larger schedule, we saw increasing loads and unit revenues across the system.

Our load factor to jump from 15% in April to 45% may and 64% and you.

And our passenger revenue per has increased from 1.8 cents in April to 6.9 cents in May and 10.3 cents in June.

The DFW answer all performed particularly well with 80% of our flight operating an operating over 60% load factors throughout the mortgages.

Now, let's return on for what's going to slow as we head into a seasonally softer travel season, and certainly as demand growth is planned sort of late due to increasing infection rates in state city quarantine restrictions, we modified our schedules. Accordingly, we now expect our third quarter system capacity to be down approximately 60% year over year.

As you kind of current trends, we expect our third quarter burn rates to be well below our second quarter rates and our fourth quarter rates to be lower than there.

Our goal to be cash positive between 21 as demand for air travel gradually improves.

Regarding the quality, we expect in the third quarter of approximately $13 million that assumes no additional financing activity. In addition to.

Other than those transactions I already mentioned.

That's a restaurant is closer to consumer demand.

Things, we can do during this crisis is to put our energy toward winning customer commitments.

That end, we've established a travel health advisory panel comprise of internal leaders from our operations team announced and outside experts to advise us on health and cleaning matters throughout our operations.

We also started working with the global bio risk Advisory Council accreditation from the cleaning and disinfecting practices for our aircraft and lab.

These steps along with more generous change fee waivers rebooking opportunities reform flights.

That's helped our customers feel good about flying and feel very good about choosing America.

Looking now we're we're building an even more robust network for our customers last week, we announced a new partnership with Jeff will provide seamless connectivity for travelers in the northeast and create more choice for customers across our complementary domestic international now.

We're partnership and the West Coast aligns with Alaska, We announced earlier this year.

Further strengthen our network and will help to ensure we are positioned for success over the long term.

So it's going to we feel about how we're managing those pandemic and our prospects for future success.

We feel terribly about the impact it's having a much of arty.

We know we will be a smaller drilling going forward and we've worked to right size all aspects of the organization that route.

Actually 5100 management and supports that positions were eliminated this summer in a manner consistent with the cares.

And last week, we sent Warner's 25000 American Airlines frontline team.

We're doing everything we can to mitigate the impact and by working with our Union partners. We put forward new voluntary voluntary leave in early October ramps for frontline team.

There's also an effort underway by our Union partners to extend the current payroll support program into 2021.

Proud as important as Union led initiatives, we believe our entire industry and the share of keeping heard working frontline team members and what.

With that I'll turn it over there who will give more detail on liquidity and cash burn Derrick.

Thanks, Doug Good morning, everyone before I begin my remarks, I would also like to thank our entire team and acknowledge what they have endured in recent months.

Contain professionalism toward our customers and fellow team members is a model for all of us and we're proud to serve alongside them.

We reported a GAAP net loss of $2.1 billion or $4.82 per share in the second quarter. During the second quarter. We did recognize 1.7 billion a pre tax net special items, primarily a $2 billion credit, resulting from the payroll support program financial assistance, excluding those net special items.

Reported a net loss of 3.4 billion or $7 Navy two cents per share.

With this historic decline into and passenger demand. Our primary focus has been to ensure we have sufficient liquidity to make it through a week recovery.

We have moved quickly to raise incremental liquidity and reduce our cash burn. We've also taken steps to drive efficiencies in our operation by further et cetera, celebrating our fleet simplification plan.

Aligning our cost structure to the new world, we find ourselves.

We will continue to leverage the flexibility we have in our scheduling process and we will let demand serve as a guide post for our future capacity levels. We will continue to be relentless in identifying additional ways to improve our cash burn rate going forward.

Sorry, the fleet as we as we announced in April our fleet simplification plan went into high gear during the quarter as we officially retired the embraer one ninetys Boeing seven by Sevens, Boeing 767, and Airbus Athree 3300 aircraft.

Well as a number of regional Jets. In addition, we put the Athree hundred 32, hundreds and several of our older Boeing 737 into temporary storage programs.

These changes have reduced our active fleet count by more than 150 aircraft and accelerated our fleet simplification strategy. Removing these aircraft will also have a material impact on our cost structure going forward as it means we will avoid significant future maintenance expense future training costs in future aircraft.

Sparing costs associated with operating a more fragmented fleet mix.

These changes alone are expected to bring about significant fleet related maintenance savings to the PML through 2021.

On the expense front, we have taken a fresh look at how our but how we budget the airline and have taken a zero based approach to our planning for the remainder of 2020 and 2021. These actions have reduced our estimated 2020 operating and capital expenditures by more than $15 billion.

Beyond the fuel and volume related savings that were achieved through our capacity reductions, we have removed or deferred non essential expenses throughout the business.

We have had great success with our voluntary leave an early out programs with more than 41000 employees stepping up to help by opting into a leave or early retirement.

As Doug mentioned earlier, we just completed a 30% rightsizing of our management and support staff, resulting in annual estimated savings of more than a half a billion.

Well this will with a difficult process to go through we are grateful to those who who are leaving the company for the many contributions they have made to our airline.

With regard to capital expenditures, we currently have committed financing on nearly all of our 2020 aircraft deliveries and do not intend to take any deliveries without committed financing.

On this we have removed 700 million from our projected non aircraft capital spending plan in 2020, and Thats 200 million more than we announced last quarter and another 300 million in 2021, we will continue to aggressively pursue other opportunities to conserve working capital.

Well, we are moving quickly to pull down our costs, we're not done and we'll continue to take the necessary steps to rightsize our cost structure for the future.

Finally on liquidity, we've moved quickly to reduce our daily cash burn and strengthen our liquidity position.

While there are several burn rate definitions out there we define it as the sum of all net cash receipts less all cash disbursements that includes all debt payments and interest payments, but an AD does exclude the effect of new financings and new aircraft purchases.

Using that definition, our second quarter average cash burn rate was approximately 55 million per day, which was down from our original guidance of 70 million per day and as Doug said, we ended the month of June at 30 million per day.

We ended the second quarter with $10.2 billion of liquidity during the quarter. We raised net 3.6 billion through the issuance of two and a half billion dollars of secured bonds, which 1 billion was used to refinance our 364 days delayed draw facility $1.1 billion, an equity and 1 billion in convertible bonds. We also raised.

360 million in JFK municipal bonds, which the net proceeds are in our restricted cash balance until construction spending occurs importantly, we do not have any large non aircraft debt maturities until our 750 million unsecured bonds mature in June 2022.

During the quarter, we received 90% of or a lot and payroll support program funds and we expect to receive the remainder in July separately. We have reached initial terms with the Treasury Department for the approximately 4.75 billion secured loan, which we expect to close in the third quarter.

In addition, we announced in a separate AK issued this morning 1.2 billion of committed financing subject to final documentation and other closing conditions in the form of two senior secured no transactions with Goldman Sachs Merchant Bank.

1 billion of the notes will be secured by a first lien first priority lean against the American Airlines brand and related trademarks and IP and 200 million will be in secured by existing incremental capacity under our Laguardia Reagan national collateral the IP nodes allow us to incur up to another additional.

$4 billion first lien debt using that collateral we expect this transaction to close in the third quarter and as Doug mentioned when these transactions are combined with our quarter ending cash balance of 10.2 billion, we have a pro forma liquidity balance of approximately $16.2 billion.

And what we have raised thus far based on recent appraisals, we have approximately 4 billion of unencumbered assets at our disposal. These consists of aircraft spare parts equipment in real estate. This number excludes accounts receivable and any additional borrowing capacity under our secured debt loyalty program beyond that cares Act loan. This morning, we provide.

In an 8-K, which included an update on our collateral position as detailed in that file.

While we are happy these transactions have improved our liquidity position, we recognize they have come at a cost of increasing the debt loaded the company and diluting our shareholders. However, it is important to note that even after these transactions our weighted average cost of that is slightly above 4% investors should know that we did not take these steps light.

Okay, and improving our balance sheet as our imperative once we get through this pandemic.

As for future cash burn given that recent uptake in covert 19 cases, and new quarantine restrictions in some areas. We've adjusted our revenue recovery forecast accordingly.

Based on our current forecast, we expect the third quarter, well with a product to end the third quarter with approximately $13 billion of OLED available liquidity, assuming no. Other financing activity. In addition to those I mentioned already.

The team has done an incredible job reducing costs in this environment and shutting down all discretionary spending.

As we have said previously our goal is to get our daily cash burn rate to zero as quickly as possible. So that we don't burn cash in 2021. However, the timing of reaching this goal will be greatly impacted by the demand recovery timeline as the benefits from the majority of the cost cut have already been realized.

In summary, it's very in a very short period of time, we've taken Swift action to bolster our liquidity manage our near term maturities and capital requirements and fortify our balance sheet to withstand what may be a protracted recovery with that I will hand, it back to Doug for closing comments before we take questions.

Thanks, Derek anniversary of the questions my its own I'm mistaken mistakenly think the America west team as part of this.

Instead of the entire American Airlines to you.

Yes, clearly for Indian this crisis.

Certainly feels like the old America West phases at times.

Hey Ranch.

Thanks here, thanks for the entire team of course and on that note.

Before we get the questions I do want to again acknowledge the amazing work of our team.

Although we certainly did not none of us could foresee pandemic like this the fact is here we are living that exact reality.

End of a pandemic wasn't enough to test our mental was also experienced saddened start reality.

Well, we have yet to go in this country and our quest for inclusion inequality. This summer we along with the rest of the world and see the brutal net markers of our fellow citizens and brought to light the reality and persistence systemic racism in our country.

In the wake of the passing of our friends Civil rights leader Congressman John Lewis.

Fitting to state clearly once again black lives matter.

All of us our responsibility to create a better world for our black neighbors coworkers friends and although citizens I can assure you that at American Airlines, we stand proud ready to do our part to support and lead in the areas of diversity and inclusion.

On that note operator, we're ready for questions.

Thank you as a reminder to ask a question you any depressed star then one on your telephone to withdraw your question. Please press the pound cake.

Our first question comes on the line of Helane Becker with Cowen. Your line is now open.

Thanks, very much operator, hi, Doug.

Thank you if you remember the America was today.

Thank you.

All right under a lot Doug just a lot.

[laughter]. So okay. This is not something to lap over because we are experiencing something really horrible.

In our industry something I thought honestly between now and retirement I would never see again.

So.

Claim to be a generic and asked this question.

Have a lot of aircraft on the balance sheet.

And obviously you have to be smaller airline.

For some period of time until we recover cholesterol level. So.

Makes sense to figure out the way to return those aircraft or.

And somehow figure out a way to get out from under this $50 billion in debt that you have on the balance sheet that.

Point has to be repaid.

Sure I'll start in Atlanta.

Inventory fair question.

We as you know we built up a good bit intended on our balance sheet as we as we Moderniser fleet. The good news as we do have the most our industry and we don't need to continue that work.

We're happy with.

We have use this opportunity to accelerate the retirement of a lot of our older aircraft, which will make us even more efficient as we emerged from this crisis.

We believe the aircraft that we have remaining in our fleet.

Is about the right size or the network, we're going to need as we move.

In the 2021.

If indeed, the terms not turns out not really case, we will adjust accordingly of course.

Invest more about the right size the network as oppose to that level.

Sure the debt levels is too just to give you airline to be cash positive.

And again, our goal is to do 2021.

To use all the cash regenerate too.

We reduced the Denver, which we will do over time.

All of us have increased our our our debt burden through this crisis on the losses.

And you're right, Matt was higher than the others.

I would note.

First off we do have.

The maturity profile as it is using our favorite leaves as it relates to the crisis.

Derek.

We don't have.

Other than us and 150 million dollar term loans due in the middle of 2020 Twos is our next large non aircraft that payment, which.

Which helps of course.

As to what it's done through.

As opposed to amortization increased interest expense.

As we look at our interest expense.

2021 at least right now.

Interest expenses would be about $300 million higher than what we interest expense in 2019.

Aircraft I think a couple hundred million more so totaled $500 million an additional expense.

Yes, that's certainly not something we line.

Okay.

The the reduction in management specialist headcounts, we talked about saved more than that.

And on top of that all the other efficiencies we efficiencies Adair their talked about.

Savings in addition to that so.

We're highly confident that as demand returns and as we return to take care customers will be able to serves to reduce the that loan.

As we got as we go for it and Thats we intended.

Can you just say why interest expense declined.

Corridor.

Net interest expense number.

Maybe.

Quarter.

Sequentially Orlando year over year.

We are over year.

Interest.

Yes.

So.

Yes, I'll look line, but I don't see it has got an interest rate going down in our.

Our variable debt is over 60, 70% of our debt. So it's it's got to be driven by that.

All right that makes sense, alright, well, thanks, and thanks, Doug for that very detailed answer I really appreciate it.

Your line.

Thank you. Our next question comes on the line of David Vernon with Bernstein. Your line is now open.

Hey, good morning, guys. So I wanted to ask a little bit about the sequential trends kind of into the third quarter and the back half of the year, if we're going from the $100 million a data $30 million today.

We expect that number to continue to come down sort of at a steady state level of of demand I guess I'm trying to figure out what level of impacted the actions you've taken what would happen would have.

They are fully implemented and run through the.

Through the piano, if you give some color on on the trajectory of that that burn rate at a constant demand level that would be helpful.

Yes.

Yes.

We try to think in our comments.

That.

Much of that as Eric said.

The cost reductions are largely in place.

And there are some than that occurs in the third quarter.

And certainly with.

With the October one day, where we have the ability to reduce our labor costs.

Those are enormous numbers in terms of billing cash.

Okay.

Three or $4 million, a day excite numbers on that but the bulk of what would be required to get to improvement is demand improvement.

Yeah.

What we what we said again was that we expect the sequential improvement in.

Okay.

Third quarter portion was linked quarter, and then on fourth quarter with third quarter and going into 2021 to be Goldman cash positive. So, but those trends are much more about demand gradual demand improvement there about cost.

Yes, and David I mean, just from a cost perspective, we were down 46% in the second quarter that trended even tighter was 41 in April 49, M&A 48 June so in that in that area, where we were from a capacity perspective, so that could change just depending on.

If you add back capacity or don't add back capacity, but that's that's kind of the trend we were running from a cost perspective throughout the third second quarter. Those real estate those will remain and only increased by capacity because all of the that costs have been taken out and as Doug talked about there might be at now there will still.

Function in October.

And the depending on where we go from from that from a cost perspective in October.

Alright, thank you.

Yes.

Thank you.

Next question comes on the line of Sabal side.

With Raymond James Your line is now from.

Hey, good morning.

Just a little bit more on the AD.

Cash burn and actually related to the plans for this kind of chevron.

And well injuries and severance to that Youve provided just how much of that you can expect to execute and and I think Doug you mentioned, maybe three to 4 million a day savings is that how we should look at it.

And then the PST grant is extended.

How does that impact and the planning process.

I would hate savviness out on the severance we did not do we have spread it out over time period. So there is no big cash outflow from a severance perspective.

So the everybody's getting paid through October timeframe.

So thats the number that Doug talked about about two to three is pretty good.

And that includes the the severance that people get today for that are leaving and any other adjustments that that we can do.

From an efficiency standpoint in the third quarter. So those are those the key.

As we get into the third third quarter, but the severance is it's not a lump sum it says it's spread out over time.

That help.

That's helpful and what's it like what's the savings that Youd expect does that can offset them that completely.

Oh, that's the two to three we talked about that as the say okay. Okay.

This is not much yet and then just follow up to that is like if the PSP Grant gets extended how does that impact the planning process given him and Justin This is.

Something that has happened to have it has to happen over a couple of months bands.

Yes, yes.

The legislation has proposed our unions just as a simple extension of the PSP program. So.

Debates change from October Onest March 31st.

I mean that our commitment to.

And voluntarily separate anyone would be extended March 31st.

And.

Funds that were allocated in it was $125 billion to compensate airlines for.

We're retaining for paying our team limit on I will be reallocated. So.

If you wouldn't you wouldn't have that savings and you'd have funds.

Offset.

Helpful. Thank you.

Thank you. Our next question comes from the line as Catherine Albrighton with Goldman Sachs. Your line is now open.

Good morning, everyone. Thank you much of the time.

Yes.

Hey, guys.

A couple of questions on the weakened demand downturn was hoping you could help frame the magnitude of that.

Any color on gross bookings were in June versus July or just any way to think about the fall off we've seen.

Thank you good bye.

Could you just walk us through actions, you're taking to address the secret.

Well that third quarter quasi outlook of down 60 different a couple of weeks ago, maybe there's more downside risks now.

There that really trying to get a better sense of the magnitude of this slowdown.

Hey, this is vaccine and thanks for the question I'll start into that.

What we're seeing are pretty consistent trends with what you've heard reported on we're seeing right now net bookings down 70, 580%.

This is mark in difference from where we were certainly in the month in June and even in May.

What American Airlines on what we probably disproportionately benefited from was that a number of states across the standout upside reopening in may and June on with every phase of reopening we saw steady improvement of net bookings, both among our leisure segments and among the business segments.

Add has at its probably high watermark.

Net bookings across the system were down 50% Sunbelt they were down net 35, 40%.

Now, we're seeing that down net 70, 580% I'm still our sunbelt bookings outpaced the rest of the system as we go forward, we anticipate many of those trends to continue we see.

Really a minimal to really a token enough business travel out there and not a lot of indicators that thats likely to improve so unsurprisingly, where we're building the airline capacity around that demand projection. So you see us taking down Q3, more and we're continuing to evaluate Q4 and beyond.

Okay understood.

And then maybe just a question on the cash burn outlook.

Thank you second quarter liquidity adjust out some new 6 billion and debt raise including everything announced this morning to get that $13 billion expected third quarter and liquidity.

About 35 million daily burn I guess, maybe a little bit north of that if I include Sarah that last 10% of peak on I guess first amendment.

And then can you walk us through what type of revenue assumptions, our underlying that and then you get to get the fourth quarter being lower than that what kind of revenue assumption.

Our improved.

Got that.

Lower thanks appreciate the time.

Sure Destocking Oscar.

No other on demand and just please note.

Those are we view the.

In number is approximate so.

We want to trying to imply any certain level of precision around that number that dish additions.

Precise numbers I'm on the daily cash our numbers.

So but anyway you.

Yes, I'm trying to match right.

We have very limited.

And growth.

In that 13 billion dollar.

Quarter end number so not much at all and.

In our in our.

No real.

Much increase.

Fourth quarter really consistent we won't know across you just described so.

Anyway.

Conservative as it relates demand as we said on the expenses.

A little commentary on these okay.

Just the daily cash burn numbers.

I know are important to our investors news to vary so much.

Yes, certainly by month.

And therefore by quarter sometimes.

We just need to be careful about looking at those is real trends as long as I understand that.

I understand how they compare to others now others exclude different things when we there are issues and it's not a GAAP measure.

I know we know it's important measure thats why we give you a quarter end.

Estimated liquidity balance.

Less but we try to have less focused on that actual number.

There's just so much variability around.

Understood. Thanks appreciate it thank you.

Thank you.

Next question comes from the line of Mike Linenberg Deutsche Bank. Your line is now open.

Okay.

Hey, guys, Hey, everyone. Thanks, Good morning, I guess, two quick ones here, Eric I know that I believe under the carriers Act you can get for social security taxes I get the portion this year I think that's for sure.

Your minimum pumps and contribution I think you some benefit of payroll.

You have a sense.

How that may be collectively other various initiatives that we don't spend too much time on but how much that could boost your liquidity in 2020.

Yes, I know one item I know for share on the pension side of things.

We do have to make a pension payment on January one which is a holiday. So we end up having to do it on December 31st.

So there is not as Vince had zero number in 2020, but we had originally thought it would be around 500 now it's down to 140, so there's a significant savings there.

We have guidance of tax refunds in the $170 million range, which have been positive and one of as 85 million, we're getting this quarter in the in the third quarter.

And then the deferral of those other taxes, we have a mall in 2021 anyway, so that you're going after paying back in 2021, so the net impact over 20 and 21 is zero.

Okay. That's helpful. And then just Doug My second question really too.

Looking you announced the cat Blue recently Jetblue agreement recently and it seems very similar to what you announced with Alaska back in February and I realized.

Really tough backdrop to start.

Noticing any sort of benefits from from the Alaska deal I guess since it is initially fully up and running in a few months is there anything that you can tell us with respect to maybe quick wins and things that you've seen as we started to work more closely with Alaska that will materialize with.

Im going to get below agreement. Thank you, yes, yes. Thanks to the question, Mike I'm happy to give it back let me let me put my answer in some some context here that yes at American Airlines, we have sort of.

A unique products, we look across our hub, our our high excluding.

The northeast as New York in Boston, and the West Coast produce unit revenue premiums of tenant 12% higher than than the industry.

Thats grown since the time of our merger as we've upped gauge rebuilt the regional network improved client activity and grown in Dallas Fort worth.

In the northeast in the West Coast. However, we produce a 10% RASM deficit to the industry. It is important because.

About 20% to 23% about 2019 capacity is deployed in the west coast in the northeast, but then perspective about DFW in 2019 was about 26, 27% of the airline Charlotte was about 12% to 13% of the airline. So we have a material amount of our capacity in these markets and both of these cases, but.

The west coast and the northeast infrastructure is constrained.

We are in a situation, where we're really too small to win and too big to go and exit.

So we need to figure out away that and there is such a massive customer base that we need to find a way to go and access that revenue. So in our partnerships, both with Alaska and Jetblue what is entirely about it is.

Creating a different and creative competitive alternative to the larger networks on than our competitors offer on those codes and that's exactly what you see us doing so we continue to go and build our Seattle hardening together with Alaska, We will go and create the best network on the West coast with jet Blue.

American Airlines is historically in New York State a great case study for this historically, we have a 10% originating share in the largest air travel market.

In the World, we operate 50 seat jets and some of the most expensive aircraft and incentive airports in the world.

So by doing this we leveraged the strength of both of these cut these companies. The play here is very much that if we can do this we go in and.

Attract more customers to our joined up networks financially that of course rectify the very massive revenue problem, we have across our our hubs system.

It creates a really pro competitive outcome and very importantly, it keeps these really vibrant and independent competitors vibrant independent competitors. So we are really keen about all of them the big bonuses on us to go and execute make these partnerships as seamless as possible.

Working very ardently at that indeed today, we're announcing I'll ask this formal invitation into one world that will really accelerate the process and we're envisioning by the end of this year or worse case early 2021 will have them as a full fledged member and we are eager to go and progress the integration with Jetblue as well.

Great. Thanks, Leslie thanks for the detail yet.

Thank you Mike.

Thanks, Thank you.

Our next question comes from the line of Jamie Baker with JP Morgan. Your line is now open.

Hey, good morning, everybody.

I guess this means our ill.

Wrap up the cactus triumvirate.

Yes, yes.

Given the whole lane and Mike you've already opined Derek can you walk through how the branded website is worth enough to support up to $5 billion of additional first lien debt excuse me with loyalties already pledge elsewhere and those are pretty material figures and we don't think that most invest.

I just had those in their liquidity models prior to today's disclosures.

Right. So I mean, we haven't we have an appraisal on both the transactions I mean as as we went into this process. As you know we ran appraisals on everything because we needed to do that as as we were.

Looking at the government loan and what we want to do with the government loans. So we ran an appraisal just on the.

Frequent Flyer program and then we separated out everything else.

And put it into the into the brand discussion I would say.

The value of that is yes, it depends on where the values, but somewhere in that $10 billion range.

Brad the frequent Flyer program as we announced before is somewhere in that $20 million range. So.

John Appraisals on both.

That is that transaction, we've been working on for a little bit. This recent one.

And as we negotiated got ourselves the ability to do an extra $4 billion underneath that transaction in its held up by an appraisal that that weve that we've done.

And in regards to potential forward mileage sale or you have you reached the conclusion with treasury, yet that you could speak to that potential phenomenon.

We have not actually can clearly we have not reached a conclusion with treasury yet we're still working with treasury on the trend on the $4.75 billion transaction.

And where we will go there.

But I, but I think it's as we've seen.

If it is not a forward miles transaction on top of that.

You know our competitor was very successful and it did a really nice transaction.

Take their frequent flyer program and take it to the market.

That is available at probably would take us a little bit of time to do that just because our our company is our free to fire program is not set up as a separate company, which our competitors was for them the ability to do that transaction so that ability as there. They were I mean, we're at 4.75, we have.

The bigger program and I think they raised 6.8 6.9 billion against that.

So I think in the future that transaction is there is out there today for us but it is there in the future. So if if we can that.

Utilize.

The room underneath the government loan debt transactions available in the future.

If I can just squeeze a short third one in Jetblue can you just remind us what you can and can't do in regards to the partnership what level of coordination pricing scheduling of legally permissible.

Yes, I cant thanks for the question Jamie.

The way leave envisioned it it'd be really.

Pretty broad partnership.

Of course, we would have extensive code sharing back and forth.

Frequent flyer benefits and a big amount of of corporate dealing a big part of what what makes this down certainly as we look at it.

We will be great customers fracking too, we envision being able to take out things like 50 seat regional jets, which are on an anyways really uncompetitive product that place at New York Our Boston.

And.

Arranged a number of slot moves within.

JFK Laguardia such that certainly.

And grow its mainline PRASM, thats, where you see us adding more.

Long haul services in New York, and indeed over time, we anticipate being able to do a whole lot more of that and then of course also for our new partner Jetblue. They also get to go in and expand so and doing that we see a lot of ways that leasing yet work together.

That may be little unconventional from from traditional kind of shares in the past that can create a huge benefit for our customers very big benefit to our team that can help both of these airlines really participate.

In the recovery and what happens.

Thanks, gentlemen.

Thanks Jay.

Thank you. Our next question comes from the line of.

Yes.

Let's see quite global your line is now open.

Hey, Thanks, good morning, guys.

Just following up on that that the alliance with jet Blue in Alaska. So I guess, if I heard correctly, 23% of the flying.

In 2019 is the goal to get that back to industry parity RASM or do you think you can get up with these alliances get to a premium and I guess kind of where im going this for investors as they think about 23% of the point is this revenues that could improve 10% across 23% on the fly and if we get back to parity.

Yes, that's an excellent question, Dan I had sound way to think of the problem, Yes look and it had to clarify the numbers in 2019 about 20% to 23% our capacity base was on the West Coast, New York, Boston, Ryan compare that are actually strongest performing markets DSW in Charlotte, which.

Resented about 48, 49% of the airline so theres a material amount of capacity that there was and it for a long time, producing RASM below the industry average now.

In the.

Perfect. The back half the 2019, I think a lot of the way you described that makes sense. The open question is how the world recoveries. How quickly we can we can achieve steady state but for that reason. These partnerships are all the more more critical to be able to be done now.

Because.

The reality is left to everyone zone devices that third and fourth largest carriers in New York just won't be able to compete for a New York diminished New York originating premium customer given the current demand outlook. There. So by having this maybe a little bit of time before able to head.

Achieved some of the financial goals that we want from this thing but.

For us as long as we are doing what is right by the customer in New York and Boston on providing real competition to the larger networks that we face there there's a real path for how we go about doing it and as you say that there's probably a lot of upside through this thing that we envision being able to go.

And certainly scale the massive fixed expenses of operating at places like New York over things like wide bodies instead of over things like 50 seat regional Jets. So we think that there's a lot of long term economic benefit there. The current crisis that the pandemic create the uncertainty in demand makes it a little bit of an uncertain path for how we go from here to there but.

The core way in which you're thinking about it is similar to how we think about.

Very good.

I guess a follow up question here.

Going back to your commentary this morning.

On CNBC to generate cash next year and start paying down debt or maybe this is for Derek.

Based on what you see in today and whats in the business plan can you give us a balance sheet roadmap from here what what's the range of debt you you would aspirationally or could prepaid next year and what do you want to balance sheet to look like realistically at the end of next year in and then as we look three years down the road.

Yes.

I'll start and get more.

I'll, let him but it's.

Really arent give any sort of targets at this point.

The 2021 and 2020 to be on.

With any sort of specificity and so it's so much dependent upon what happens with return to demand.

Then return.

What I know is this.

Again, we we have a goal being cash youre getting ourselves cash positive in 2021 that sort of ours demand growth.

I think on reasonable demand growth.

And we believe we can do that as that happens and as there is more stability per se that happens we will we will definitely be using.

Ill free cash to retire all free cash flow to retire.

Thanks.

And as we have more certainty as to what the economic environment looks like going forward. We can give you better indications of kind of calls.

That levels and credit ratios going forward as can be hard for us to do on this call and Dan I'll give you know bad I mean, just.

Part of that that we took on as the revolver, obviously a 2.8 so.

As the cash balance works up we would return the revolver.

As you know the care exact loan and the PSP loan, which combine or 6.4 billion or pre payable at any point in time.

We have pre payable aircraft mortgages of 3.1 billion at our SGR as our pre payable at we can pay down an eight point times, we have 17 to 20 billion that.

It is as long as we get the liquidity and get the cash that we could use that to pay off.

The debt that's that's there.

First thing we would do is the revolver and we would just return return the revolver.

One more comfortable and that's about 2.8 billion of the deck.

Yes.

Yes.

Are you.

Thank you guys.

Thanks.

Thank you. Our next question comes from the line of contact Kim with Wolfe Research. Your line is now open.

Hi, good morning.

Doug.

Eric.

Doug.

Briefly what is the through what is your three year vision for American Airlines.

Well I guess kind is going to kind of like one of them.

At this point in time.

No describing what the next three years looks like.

The easiest thing to do.

But sitting here right now again first.

I can get through the first one for you.

Getting.

Through this crisis and getting this airline.

Back to where we're generating cash instead of talking about burning cash so.

No we can do look on.

I'll tell you this honor.

Maybe helpful.

As hormones this crisis.

And there's not much good you can say about one nice one thing.

One opportunity it's given us.

I wish I knew which I think is more helpful to us and others, we had American than others. It gave us a chance post integration.

Literally start than taking a look barnes airline in the world and started.

Got it down starting from scratch.

That's a real opportunities.

We're going to that we're using.

That allows us to only add back what makes sense.

Things that might have taken as a very long time to continue to get.

Through.

Getting getting management reductions are getting older aircraft retire.

Getting more efficient throughout the airline.

Flying exactly where it makes sense.

Looking at network.

Total it makes sense.

But some ralph doing as well as others.

That's that's going to make as much more efficiently come out of that.

We're excited about that so we're going to add back.

What makes sense will come through a more efficiently.

That looking part of that day, when we're through all this and.

And we can we have that advantage. So but that's that's has been helpful to us and again something I'd say.

Probably because we had more on need to do that coming still through integration I think that gives us more opportunity to do that so anyway as it relates because of that once we get to a more steady state environment.

What I think you'll see from American is where is relative to our competitors are relative performance will be improved.

And as the industry improves we will.

Endeavor to come to work through to two.

And our.

To to pay down the debt we've had we've all had to incur.

On the launch.

Okay. Thanks, and then just my second question just three very specific ones can you. Just please give me your daily cash burn number for Threeq you. What are you expecting for revenue in Threeq and how much you expecting third quarter operating expense to decline.

Yes, I think.

The guidance, we gave was to give you and liquidity numbers in the clean energy Lance.

So you can calculate from that an estimated cash burn I am sure.

During the other ones.

Kurt the third quarter costs down is going to be adjusted because with US you said as we pull the capacity out. So we ran about 46% in the second quarter down and cost.

We believe that we're going to fly so we flow we flew a little bit more in July, but we think we're going to pull down.

August and September so I think that it'll be a little bit.

Lower than that but but not too far off so in the if we're at 46 for the quarter, we're probably going to be in the 40 42 range.

For that in the third quarter from an extent expense standpoint, and then.

From a revenue standpoint.

We were at 86% down in the second quarter.

Maybe 80% in the third quarter 70, 580% in the third quarter, but depending on what we deal with capacity in August and September which as boss you said we're.

Looking at that now and with a bias to bring it back.

Thank you Derek.

Yep.

Sure.

Thank you. Our next question comes on the line of Joseph Denardi with Stifel. Your line is now open.

Hey, good morning.

Doug or Robert I think.

I think you all are in the window or nearing the window on when you could renegotiate or start talking to city in Barclays about an extension can you just talk about.

Their willingness to to engage their appetite for the business given the challenges that the travel industry is facing and whether we should assume an improvement in economics, even if it's not.

The same magnitude as the last contract, but still an improvement in economics.

If and when you can get a new contract. Thank you.

So just real quick its Robert.

We have the ability to renegotiate 20 to 2022.

The contracts come come do we obviously are working and have been working with both city. It in Barclays. I can tell you from the work with both partners that Theres tremendous interest we know that the American Airlines.

Customer base in our loyalty program are incredible assets to both Barclays and the city. We have every intent to continue those relationships and expect a tremendous amount of value test to come back to American obviously, the current environment is not the best in which could be talking about.

Yes.

Increasing values, but as we take a look too.

Stabilization of the business and take a look out for the future I'm quite confident that the economics are going to be equal to a better than what they are today.

Thank you then Derrick.

I think your your annual wells are getting bigger.

So you've got that go on for you which is nice.

Can you just remind us how that works and then your ability to to use those I think you had some that began to expire in 2023. So just how that works. Thank you.

Yeah, I mean right now we have federal at 9.1 billion stayed at about three.

We believe we can use them. We are still you know as we look at forecast out we believe that they will all be used in the one in 2023 will be use.

We will add to put up a valuation allowance for them.

If you look at a forecast and assume that they can't be use.

As of right now.

With the tax ability and the changes we can do we believe we will use all of that 0.1 that we're on prior to.

At the beginning of this year and that they'll all be used by 2023, we've got enough room to be able to use them all.

Okay. Thank you.

Yes.

Thank you. Our next question comes on the line of Stephen Trent Citi. Your line is now open.

Thank you. Thank you everybody and I appreciate you taking my question.

So curious in terms of your longer term thinking.

What's that view with respect to.

Maintaining new York and Philadelphia hubs.

And I know you're canceling some.

International destinations, but.

Just trying to think in terms of.

How youre thinking about the optimization of those assets.

Hi, Stephen this is wasit thanks for the.