DL 2Q 2020 Earnings - $7B Loss
 

DL reported their first full quarter of COVID earnings before the bell today. About what I expected but still some eye popping numbers. Some major points:

• $3.9B adjusted pre-tax loss
• $3.2B in write-downs and special items (including stakes in LATAM, VS, and AM and early plane retirements -- sounds like they also allowed VS to defer £400M in payments but won't offer any further assistance)
• Cash burn down from $100M day to $27M day and expected to breakeven by end of year
• Bastian sees recovery now being at least 2 years away
• Bastian has started seeing new decline in bookings as cases have started to climb again
• Lower furlough number than UA/AA at with ~15k but between furloughs and early retirements, expects staff to shrink by 45k from pre-COVID level of 91k
• $15.7B in liquidity including $11B they raised in 2Q at an blended interest rate of 6.5% (not as bad as I expected)

Bastian quote in PR:

Overall the fact they've gotten down to $27M/day cash burn when they had originally projected being at $50M and their belief that they'll be at breakeven by the end of the year are the two positives I take away from their earnings. That plus healthy liquidity with a relatively reasonable blended interest rate seems to put DL on solid footing to survive the crisis.

https://s2.q4cdn.com/181345880/files...20-Results.pdf

https://on.ft.com/2DJV2Fn (FT paywall)

The other big news is the retirement of the 737-700 subfleet. A bit surprising as many are relatively young, serve niche routes, and won't really eliminate much in terms of the fleet complexity given that they are a subtype of a major fleet type (737NG). But presumably that lift will be provided by A319 and A220s instead as they have similar (but not identical) performance characteristics. The retirement of select A320/763s is not surprising given the age of some of those frames.

It is unfortunate but not surprising to see bookings falling. I've cancelled multiple near-term tips including a cancellation of my July 4th plans in response to rising cases in many key vacation states.

Also looks like the £400M in payment deferral for VS was part of a larger £1.2B rescue package they announced this morning. £400M in deferrals from both DL and Virgin Group, £200M in new capital for Virgin Group/Branson, and £170M from hedge fund Davidson Kemper. A separate FT article (not linked here) states that this rescue package "will help secure the grounded airline’s future for the next five years after months of negotiating with shareholders and private investors."

That's good news for DL even if comes with a £400M payment deferral.

https://www.marketwatch.com/story/vi...ort-2020-07-14

Won't miss them for a second. Hated them the moment they entered the fleet. Hopefully the rest of the 737s are next, but sadly I don't see the 739s departing any time soon.

AFAIK they never got the updated PTV screens either....those we getting quite dated.

The only destination I can think of that I consistently reached on the -700 is EYW which has been a challenging airport to meet capacity demands against runway length in the past, but I guess the A220 could step in here? Particularly as demand has likely significantly softened w/ the situation in FL.

I would think A220 or even an E175 would be fine.

The 737 has also been used in the past for routes like ATL-JAC, TGU, and very recently BUR and probably some others I'm missing.

Delta probably figures the routes it will not be able to service (or will have to regularly fly payload restricted / on regionals) will not have much demand for the forseeable future anyways. Perhaps Delta also expects to be able to sell these for some cash given their young age, although I have no idea who is buying airplanes right now. In a way, Delta is taking the opportunity to clean up their route network during unusual times to eliminate a subtype, although again I'm curious how much value it brings given the 99% commonality with their 738 and 739 fleet. In fairness, there are other small fixed costs associated with a fleet type and Delta probably decided it's just not worth it for 10 airplanes.

I'm surprised they aren't going to start dumping some 737-800s. These are older than the -700s.

Is this in reference to air travel recovery, or their share price?

I took it to mean air travel recovery. It's part of the bigger quote above from the earnings announcement release:

“Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery. In this difficult environment, the strengths that are core to Delta’s business –our people,our brand, our network and our operational reliability –guide every decision we make, differentiating Delta with our customers and positioning us to succeed when demand returns.”

I hope they keep them. They are nicer to fly on than the 737-900s.

The 73G retirement is also somewhat surprising to me considering that they are only ~10 years old and share a common type rating/parts with the 738/739, but perhaps they are coming up on a heavy check and DL just wants to dump them instead. Surprised we still haven’t heard anything from corporate on the 717 future other than half the fleet will be parked next summer, but I guess DL is probably still working with Boeing on the future of the lease agreements and I assume they will be the next fleet to go.

I suspect the 717 piece is potentially tied to the 737Max trial balloon that came out earlier this year. Unless DL is adding the 787 to their fleet, there's nothing else in the Boeing stable since the NGs are no longer in production. The only viable pathway forward is the 737Max and I suspect at a minimum, DL is waiting to ensure re-certification is fully approved and perhaps more order cancellations from AA and others so DL can snag them at bargain basement pricing (if they decide to go that direction).

I also completely overlooked the mention in the press release that DL will be retiring "portions of the 767-300ER and A320 fleets in 2020" -- that's the first I've heard. The 767-300ER makes some sense with the A359 and the fact they haven't been refurbished. The A320 is a real shame -- that's a great plane, really enjoyed flying it a few times on RDU - SEA and v.v. in multiple classes (Exit Row, C+, and F). Much more comfortable for than the 738s and 739s that show up during peak travel months on the transcons.

Not sure some of those figures you have are correct as DL has not put out the target number of employees needed by Oct 1 (other than the pilots - they have also issued WARNing notices to the pilots that about 2,500 of them could be furloughed). The 45K figure may be the number Ed mentioned as employees who have volunteered for voluntary leaves of absence since April with various duration. In July, they have about 35K on these voluntary leaves.

Last night was the deadline for the non-pilot employees to submit their interest in taking the retirement and voluntary severance packages. Apparently, they received 17,435 positive responses, which is about 20% of the workforce. This does not yet include the pilot group which is under a separate contract. IIRC, there are currently about 15,000 pilots, so the non-pilot ranks are about 76,000 (so 17000 of 76000 is about the 20% figure mentioned). The pilots have until July 19 to sign up for the retirement/voluntary separation packages. Apparently Ed is still optimistic that they can achieve few to no furloughs with those figures so far.