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Delta To Ground 600 Aircraft As Airlines Go Into Survival Mode

North American and international airlines are adjusting operations and their financial outlook on an almost daily basis as the coronavirus pandemic continues to get worse. In an effort to stabilize their balance sheets, they are reducing capacity on a rolling

Benzinga · 03/18/2020 20:32

North American and international airlines are adjusting operations and their financial outlook on an almost daily basis as the coronavirus pandemic continues to get worse. In an effort to stabilize their balance sheets, they are reducing capacity on a rolling basis, putting capital expenditures on ice, offering unpaid leave and severely reducing base salaries of top executives.

Passenger airline stocks are down about 30% on U.S. exchanges today and industry representatives are working with the U.S. government to secure a bailout in excess of $50 billion. 

Delta Air Lines (NYSE: DAL) said Wednesday it will shrink its network by 70% and park at least half of its fleet – more than 600 aircraft – as business continues to evaporate following the U.S. declaration of a national emergency. Five days ago the airline said it would downsize its flight schedule by 40% and ground 300 planes. Four-fifths of all international flights will be scrapped over the next two or three months.

In a message to employees, CEO Ed Bastian stated that revenue for March is expected to be almost $2 billion lower than a year ago, with projections for April falling even more. 

"Cash preservation remains our top financial priority right now. Making swift decisions now to reduce the losses and preserve cash will provide us the resources to rebound from the other side of this crisis and protect Delta's future," Bastian said. The Atlanta-based company is striving to save more than $4 billion in cash in the second quarter alone, he added.

Effective immediately, Delta is deferring nearly all capital spending, including all new aircraft deliveries until the company has a better understanding of the financial damage from the crisis. Other steps being taken include:

  • Accelerating retirement of older aircraft such as the MD-88/90s and some Boeing 767s.
  • All Delta officers are taking a 50% pay cut through June 30, with directors and managing directors taking a 25% pay cut (Last week Bastian took a 100% pay cut for six months.)
  • The board of directors is foregoing compensation for six months.
  • Consolidation of facilities in Atlanta and other locations with less airport space needed, and the closing of most Delta Sky Clubs until demand recovers.
  • Reducing maintenance spending not related to safety operations.
  • Reducing the use of outside vendors.

Bastian said that about 10,000 employees have volunteered to take unpaid leave so far, noting that workforce cuts are the absolute last resort to keep the company viable.

United Airlines (NASDAQ: UAL) now says it plans to slash 60% of its planned flight schedule in April, including 85% of its international flights due to the continued drop in travel demand and expanding government prohibitions on travel. United said Tuesday evening that it will operate about 45 daily flights in April across the Atlantic, Pacific and Latin America. It doesn't plan to suspend service to any U.S. city, but the fast-changing crisis could change that thinking, it added.

On Wednesday, the U.S. and Canada agreed to close their shared border to non-essential travel, which likely will lead to further cancellations and reduced bookings. Two days ago Canada closed its borders to foreign nationals, excluding Americans.

Canadian leisure airline Transat said it has immediately suspended sales for departures through April 30 to and from most destinations in the U.S., Europe, Mexico and the Caribbean. Additional cost-cutting measures will include temporary layoffs and reduction of hours or salary for many employees, the company said.

Las Vegas-based leisure airline Allegiant said it expects to cut April and May flying by up to 35% and has ceased construction on two resorts to preserve cash.

JetBlue said it is taking in less than $4 million per day this month compared to an average of $22 million on a typical day a year ago, driven by fewer bookings, much lower fares and a cancel rate 10 times the norm. CEO Robyn Hayes, in a letter to employees, said $4 million doesn't come close to covering daily expenses.

In response, JetBlue plans to reduce capacity by at least 40% in April and May, with further cuts likely in June and July. Aircraft will be stored, Hayes said. The company is also reviewing its order book with Airbus for opportunities to slow deliveries and reduce aircraft pre-deliveery payments, and it will defer taking four previously used airplanes announced earlier this year.

JetBlue also secured an extra line of credit allowing it to borrow an additional $1 billion.

Earlier this week, Alaska Airlines (NYSE: ALK) revised planned capacity reductions to 10% or more for April and at least 15% for May, up from 3% a week ago. Officials said in a regulatory filing that the airline plans to borrow an additional $500 million, suspend $300 million in capital spending by deferring pre-delivery aircraft payments and other projects, suspend share repurchases and offer employees unpaid leaves of absence for 30-, 60- and 90-day time-frames. 

Also on Wednesday, Emirates Airlines asked pilots and cabin crews to take unpaid leave and Qatar Airways laid off about 200 workers, Reuters reported. Etihad Airways, another Gulf carrier, eliminated more flights, including to Egypt and India.

The rapid deterioration of the economy raíses severe doubts about whether airlines will be able to salvage any business from the traditionally busy summer travel season.

As FreightWaves reported earlier, passenger airlines are turning to the cargo market as one source of revenue by offering their airplanes on a charter basis to shippers. Although passenger traffic is rapidly disappearing, shippers are desperate to move cargo and are having difficulty finding space to book. 

IAG Group, the parent company of British Airways, advised freight forwarders on Wednesday that its airplanes are available on a charter basis.

Image by Danilo Bueno from Pixabay