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Delta Air Lines Drops $7 billion in Catastrophic Second Quarter

The novel Coronavirus outbreak took a very tangible toll on Delta, as the air carrier reported a GAAP pre-tax loss of $7 billion in 2020’s second quarter. The airline blamed COVID-19 and the decimated demand for travel as the primary factors for the dramatic losses.

The COVID-19 pandemic continues to wreak havoc for airlines, as evidenced by Delta’s second quarter performance. The Atlanta-based airline announced a GAAP pre-tax loss of $7 billion in the June quarter 2020, reflecting a loss per share of $9.01 on a total revenue of $1.5 billion.

COVID-19 At Fault for 91 Percent Sales Drop and 93 Percent Decreased Passengers

Under adjusted numbers, the pre-tax loss came out to only $3.9 billion. However, those numbers exclude $3.2 billion Delta spent on “items directly related to the impact of COVID-19 and the company’s response.”

Actual sales provided the most damaging numbers, as the airline was only able to pull in $1.2 billion, excluding refinery sales. Emplaned passengers decreased by 93 percent compared to the June quarter 2020, putting sales down by 91 percent compared to the same time in 2019. Total airline capacity was down 81 percent year-over-year.

“A $3.9 billion adjusted pre-tax loss for the June quarter on a more than $11 billion decline in revenue over last year, illustrates the truly staggering impact of the COVID-19 pandemic on our business,” airline CEO Ed Bastian said in a press release. “In the face of this challenge, our people have acted quickly and decisively to protect our customers and our company, reducing our average daily cash burn by more than 70 percent since late March to $27 million in the month of June.”

While sales were down, the reduced capacity and operations also allowed Delta to cut their quarterly operating expenses by $5.5 billion. To cut costs even further, the airline will also decrease their fleet size and accelerate the retirement of several older aircraft. By the end of the year, the carrier wants to ground a number of older aircraft, including the entire fleet of the McDonnell-Douglas MD-88 and MD-90, along with the Boeing 737-700 and 777 airframes. The airline will also reduce the number of Boeing 767-300ER and Airbus A320 aircraft in operation.

Does anyone remember being a passenger aboard the "Mad Dog?" They were an experience, weren't they?

A Delta Air Lines MD-90 touches down for its final commercial flight. The “Mad Dog” was one of four aircraft types retired by Delta to save money. Image courtesy: Delta Air Lines

Delta Took $5.4 Billion in CARES Act Relief, While Writing Down Foreign Investments

To keep afloat during the spring months, Delta accepted a total of $5.4 billion of government funding through the CARES Act. Of that money, $4.9 billion came through the Payroll Support Program, while the remainder took the form of a $1.4 billion unsecured, low-interest loan payable over 10 years. The airline expects to use all those funds by the end of the year.

Even though the government support helped, the airline’s daily cash burn rate averaged $43 million during the quarter. In June alone, the airline spent $27 million per day to maintain operations. While the number is incredibly high, carrier executives celebrated the reduced number as a small win.

“Our average daily cash burn has improved sequentially each month since March and we remain committed to achieving breakeven cash burn by the end of the year,” Delta chief financial officer Paul Jacobsen said in the release. “We successfully bolstered our liquidity to $15.7 billion at the end of June through new financings and CARES Act funding during the quarter, with adjusted net debt of $13.9 billion increasing by $3.4 billion since the beginning of the year. By raising cash early and aggressively managing costs, we are prepared to navigate what will be a volatile revenue period while making decisions that position Delta well for the eventual recovery.”

The airline also acknowledges losses from their investments in foreign airlines. From April to June 2020, Delta wrote down $1.1 billion in their LATAM investment and $770 million from their Aeromexico investment, after both airlines declared bankruptcy.

Of the three legacy carriers, Delta was the first to share second quarter results with investors and the public. United Airlines will hold their earnings call on Wednesday, July 22, 2020, followed by American Airlines and Southwest Airlines on Thursday, July 23, 2020.

Feature image courtesy: Delta Air Lines