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COVID-19 Costs Delta $607 Million In Q1

N202JQ Embraer ERJ-175 arriving from LaGuardia

The COVID-19 crisis forced airlines to ground aircraft and cut capacity overnight – and we now know the financial toll it created on Delta Air Lines. In a pre-market opening announcement, the Atlanta-based airline declared a pre-tax loss of $607 million in the opening months of 2020, a drop of $0.84 per share. The losses were the first time Delta reported a negative result in five years.

Capacity cuts and cost savings coming for Delta

Like their legacy competitors, Delta is losing money due to the fact they are flying minimal passengers during this difficult time. Stay-at-Home orders in several states, combined with the highly-contagious nature of the novel Coronavirus outbreak, is reducing demand to record lows.

“With the significant impact of COVID-19 on Delta’s revenue, we were burning $100 million per day at the end of March,” Delta chief financial officer Paul Jacobson said in a press release. “Through our decisive actions, we expect that cash burn to moderate to approximately $50 million per day by the end of the June quarter.”

Delta is making several changes to reduce their spending and stabilize business. For the June quarter, the airline will reduce total system capacity by 85 percent. The domestic network will be reduced by 80 percent of its normal capacity, while international capacity will be cut by 90 percent.

Of the flights operating, middle seats are blocked and automatic upgrades are being paused until further notice. The airline is also modifying the boarding process to ensure passengers stay six feet apart and meal service is reduced to essentials only.

The capacity drop isn’t limited to the skies. On the ground, over 650 aircraft will be grounded until further notice, while Delta Sky Clubs will remain closed. The moves will help Delta save an estimated $5 billion compared to the same period in 2019, and secure $10 billion in liquidity by the end of the quarter.

Airline to receive estimated $5.4 billion in CARES Act support

Delta has also come to terms with the Federal government on how much support they will take out of the CARES Act fund. The airline is expected to receive $5.4 billion in support: $3.8 billion in grants and a $1.6 billion low-interest, unsecured loan repayable over 10 years. Despite the support, the airline is offering 37,000 employees a short-term unpaid leave, while enacting an indefinite hiring freeze.

In exchange, the carrier will also offer a stock purchasing program to the U.S. Treasury in exchange for the financial aid. Delta will issue a warrant to the government to purchase up to 6.5 million common shares in the airline, at a price of $24.39 each with a five-year maturity.

The results are less severe than those of United Airlines. On Monday, Apr. 20, 2020, United announced a pre-tax loss of $2.1 billion, tied to the novel Coronavirus pandemic.

holiosan May 6, 2020

They need to sell that stock that they bought back to artificially inflate the price. After that they can get cheap loans from us.