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Lauren
Coordinator
Good morning everyone and welcome to the Delta Airlines March quarter financial results conference call. My name is Lauren and I will be your coordinator. At this time all participants are in a listen only mode until we conduct a question and answer session following the presentation. As a reminder today's call is being recorded. I would now like to turn the conference over to Jill Greer, Vice President of Investor Relations. Please go ahead. Thanks.
Jill Greer
Vice President of Investor Relations
Good morning everyone. Thanks for joining us. We have a small team here in the room today including our CEO Ed Bastion, our President Glenn Hauenstein and our CFO Paul Jacobson. The rest of our leadership team is on the line for the Q&A. The call today will focus on our response to COVID-19 with Ed giving an overview of our priorities and Paul giving an expense and liquidity update. To get in as many questions as possible during the Q&A, please limit yourself to one question and a brief follow-up. Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filing. We'll also discuss non-GAAP financial measures and you can find a reconciliation of our non-GAAP measures on the Investor Relations page at .Delta.com. And with that I'll turn the call over to Ed.
Ed Bastion
CEO
Thanks Jill. Good morning everyone. We appreciate you taking time to join us today. The first quarter of 2020 has truly been like no other in our history. The hearts and prayers of the entire Delta family are with the thousands worldwide who have lost loved ones to this pandemic. None of us could possibly have anticipated the speed with which COVID-19 has affected the health of the world's people and slowed economies across the globe. This has led to an unprecedented situation where demand for near-term air travel dropped to almost zero in a matter of weeks. Our response has been focused on three priorities. First, protecting the health and the safety of our employees and our customers. Second, preserving our financial liquidity to work through this crisis. And third, ensuring we're well positioned to recover once the virus is contained and building a plan to accelerate our progress through this period of recovery. Nothing is more important than the health and the safety of our people and our customers and we have substantially increased our investment in cleanliness across the organization. These include a wide range of safety and cleaning measures on our planes, at the airports, and across our facilities. And these actions won't end when the virus abates. We're taking steps to help our employees and customers practice social distancing. They include blocking middle seats, pausing automatic upgrades, modifying our boarding process, and reducing meal service and other touch points. I've always said we have the best team in the industry. I want to thank all 90,000 of them for the incredible work that they are doing. Our employees are on the front lines in the fight against the virus, keeping our nation's airways open for essential travel, even as they worry about their own health. Our nation has a lot of heroes in this battle against the virus and I'm proud of the men and The CARES Act payroll support program recognizes the important role our employees play in supporting the U.S. economy and we are grateful to the president, members of congress and the administration and particularly secretary Mnuchin for their support and their leadership. On Monday we received 2.7 billion dollars of the 5.4 billion that's expected over the next few months. 3.8 billion of this is direct aid with 1.6 billion dollars in a low interest, unsecured 10-year loan. When you combine this relief with our actions in the capital markets and our aggressive cost management, we expect to have at least 10 billion dollars in liquidity at the end of the June quarter. Since early March we've raised 5.4 billion dollars in new financing and will likely raise several billion more this quarter, a strong indication of the confidence that the capital markets have in Delta. And while this will help ensure we have liquidity to weather the crisis, with a more than 90 percent expected reduction in revenues this quarter, we needed to quickly address cost to stem cash burn. We have taken actions to reduce our total cost base by over 50 percent in the June quarter. This amounts to a 5 billion dollar reduction over the prior year, which is impressive given the very short time frame with which we've had to get this done. And it was the great spirit of the Delta people that were a big part of making that happen. Right now 37,000 employees, more than one-third of our workforce, have elected to take voluntary unpaid leaves ranging from 30 days to one year, a significant personal sacrifice that I will forever be grateful for. This is helping reduce our daily cash burn, which started at 100 million dollars per day in March, down to 50 million dollars a day starting next month in May. Paul will go into more detail on these cost reductions and the cash burn trajectory that we are seeing. After taking care of the safety of our customers and our people and protecting the financial liquidity of our enterprise, the third priority we have is starting to build our recovery plan. These are truly unprecedented times and the path to recovery is uncertain and will likely be choppy. And while we all wish we could predict the pace of the recovery, the truth is our recovery will be dictated by our customers feeling safe, both physically and financially, to begin to travel at scale. Given the combined effects of the pandemic and associated financial impact on the global economy, we believe that it could be up to three years before we see a sustainable recovery. And to succeed throughout that environment, we will likely need to resize our business in the near term to protect it in the long term. And while the resizing of our business over the short term is painful, it will also be an opportunity to accelerate strategies to streamline our company, simplify our fleet, and reduce our fixed cost base in ways not possible in the past. It will allow us to advance the timelines of some of our critical airport infrastructure projects as we don't have the same constraints that limited progress and drove higher costs to construct. We'll be focused what it takes to regain consumer confidence to travel and we are enlisting the very best medical advisors to help us navigate the journey from testing through to vaccines and helping translate those solutions to our business model. Safety will no longer be limited to flight safety, but personal safety as well. And while we may have more questions than answers about our path forward at present, one thing that is certain, it is that the strengths that are core to Delta's business, our people, our brand, our network, and our operational work liability are enduring. These advantages will continue to differentiate Delta and position us to succeed. In short, we have the same aspirations for our company today that we had a short 60 days ago. And while the path to recovery may take several years, there are many aspects to this crisis that will make us better, stronger, and more resilient airlines. In fact, I believe that the customer of tomorrow will place a higher premium on the quality of service than ever before. And that is our calling card, the strength of our brand, our reliability, and the service excellence of our people, redefining personal safety for our customers and serving as the bedrock not just for our recovery, but our acceleration into the future. So that is how we're navigating this crisis, taking the very best care of our customers and our people, preserving the financial liquidity of the enterprise, and building a plan to not just rescale the business over the recovery period, but to streamline it and accelerate progress on our long-term strategy. I'd like to thank all of our employees, our partners, our community and government leaders, our suppliers, our banks, our owners, everyone who is helping to contribute to protect Delta's long-term success. Our customers continue to send thousands of strong messages of support on a daily basis, which I greatly appreciate. And I also appreciate the great work of our leadership team in navigating a crisis in which we know we will prevail. Thank you all for that. And before I turn the call over to Paul, I have some good news that I hope you have all heard. As you know, Paul has announced, had announced his plans to retire on February 28th, but he never left the office. And I personally asked him to reconsider and he's graciously agreed. Paul is an incredibly important part of our team and we're fortunate that he'll remain as Delta CFO.
Paul Jacobson
CFO
Paul? Thank you, Ed. And good morning, everybody. Thank you all for joining us. It is great to be here. Thank you for that, Ed. Our March quarter pre-tax loss of $422 million, $1.3 billion lower than last year, was Delta's first quarterly loss in almost a decade. As revenues rapidly deteriorated through the month of March, we took decisive action to reduce our cost base and preserve liquidity, ending the quarter with $6 billion in cash. Our ability to move the needle on costs in the month of March was limited as schedules and bid periods were largely set. Starting this month, however, our cost structure has taken a big step down with the adjustments we have made. These actions include strategically parking more than 650 aircraft to get optimal maintenance savings and reducing our facilities expense by consolidating concourses and temporarily closing sky clubs. We've eliminated the majority of our discretionary spend for things like contractors and advertising as well. We also instituted a hiring freeze and reduced work hours across the business. And as Ed mentioned, 37,000 of our employees have volunteered to take an unpaid leave of absence. Together, these actions have resulted in savings of approximately $550 million in the June quarter alone. With such a large capacity pulldown, we needed to go beyond what we normally would consider volume-related costs. Because of our aggressive cost management, we were able to swiftly make 60% of our total operating expenses variable in this environment. These efforts have offset more than $200 million of unplanned expenditures associated with new cleaning procedures and the recent debt raises that we've accomplished. Combined with $2 billion in lower fuel expense from reduced flying and lower fuel prices, we expect a $5 billion reduction in total operating expense for the June quarter. Our ability to achieve these savings simply would not be possible without the dedication, spirit, and commitment of the Delft people. With the immediate needs of the June quarter addressed, we're now beginning to think about how we reset the cost structure of company for the longer term. Glenn and his team are developing scenario views of what the revenue environment might look like for the next several years. This will underpin not only how our network should adapt, but how our cost structure will need to as well. In the current environment, we can take a fresh zero-based look at our cost structure, especially where we spend money on overhead like facilities, advertising, and third-party contract providers. And as Ed simplification, we'll have a lasting benefit to our cost structure going forward. Because ultimately, cost reductions are the biggest lever to mitigate cash burn in an uncertain revenue environment. At the end of March, cash burn was running approximately $100 million per day. You can think of this in two parts, roughly $10 to $20 million in negative net sales as refunds outpaced bookings and the difference in expense burn. As we move through the June quarter, we expect net sales to remain slightly negative as we work down our refund backlog and take additional capacity actions. When close in-demand returns, cash will recover as corporate customers purchase new tickets and leisure travelers are utilizing their travel credits over a multi-year period. In addition to our work on expenses, we've had good success negotiating deferred payments to airports, vendors, and lessors. During this time, we've also moved quickly to reduce capital outflows, cutting more than $3 billion of our planned 2020 capex, suspending all shareholder returns, and deferring elective voluntary pension funding. Putting this together, we expect cash burn should come down to $50 million per day beginning in May, a 50% reduction from where we just a few short weeks ago. That moderation should continue in the back half of the year as revenue recovers modestly, but we are prepared for cash flow to remain negative through the end of the year. To make it through this period, we have been actively and aggressively raising liquidity. The work we put into the balance sheet over the last decade has made a tremendous difference as we went into this crisis with more than $20 billion in unencumbered assets and low debt levels. Since early March, we've raised $5.4 billion of new financing at an average rate of just under 4%, encumbering approximately $6.5 billion of collateral. For the remainder of the year, we have an exhaustive list of potential initiatives that we could action if needed to further bolster liquidity. Among other things, this list includes raising additional debt against our unencumbered assets. We are also eligible for a $4.6 billion secured loan under the CARES Act. While we plan to apply for that loan later this month to reserve our place, we have several months to determine if we will take those funds and accept the loan. In closing, Delta has experienced shocks before, perhaps not this big, but in many ways, we spent the last decade preparing for this next disruption. Our people have acted quickly and decisively to protect the financial health of the organization, and I'm proud of what the team has accomplished in just a short period of time. This environment remains fluid and anything but predictable, but we will continue to plan for every eventuality and are committed to taking the steps necessary to ensure that Delta is positioned to help lead the industry and the economy out of this crisis. With that, I'll turn the call back over to Jill to begin the Q&A.
Jill Greer
Vice President of Investor Relations
Thanks, Paul. Lauren, if you could give the analysts the instructions to get into the call queue.
Lauren
Coordinator
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Andrew Dodora with Bank of America.
Andrew Dodora
Analyst at Bank of America
Hi. Good morning, everyone. Can you hear me okay? We can. Good morning, Andrew. Great. Thank you for the time. Ed or Paul, I know Paul, you gave a little bit of color around this, but maybe provide a bit more granularity on how you get from the $100 million of cash burn at the back half of the second quarter. What are some of your assumptions around the air traffic liability drawdown, any opportunities of refinery, etc.? Any color here would be helpful.
Paul Jacobson
CFO
Sure. Thanks. First of all, thanks, Andrew, for being here and for your question. It really is an -the-board effort across the expense base, obviously certain volume-based costs like passenger commissions, passenger service items have come down commensurate with the loss of travel demand. We've seen 80 to 90 percent reductions in some of those line items. We mentioned briefly in early March that we were taking actions across our maintenance program, and Gil and our technical operations team have done an amazing job of stripping out over 80 percent of our maintenance costs in the June quarter year over year. That's largely as a function of the fact that the performing fleet today doesn't need nearly as much inventory of serviceable parts and components that we had planned. So we've been able to shift our focus to those critical items, reducing over 80 percent from that. We mentioned all of those salaries and related across the board that has been a collective effort coming forward. The suspension of CAPEX, obviously a big piece of that. We had done a good bit of that even in the second half of March, but really it's across the operational side that's driving a lot of that incremental benefit.
Ed Bastion
CEO
The other thing, Andrew, is all the leaves of our employees, over 30,000 employees have taken voluntary leaves, many of them in April, the current month we're in, on an unpaid basis and are extending those throughout not just the quarter but some into the full year. Those are monumental and they're really helpful.
Andrew Dodora
Analyst at Bank of America
Got it. Thank you for that. Then just a second question here, maybe a bigger picture question here for you on your fleet, given some of your comments on what you view to be kind of a long recovery process here. When you look at the other side of this crisis, what do you think will be the biggest changes for the Delta fleet? Do you think it will be a little bit more weighted towards newer aircraft with better union economics? How are you thinking about that, especially as you speak with the OEMs right now? Thank you.
Ed Bastion
CEO
Well, certainly anything that was scheduled to retire over the next five years as an accelerated path towards retirement, just to be very simple and straightforward. The MD-80s were already retiring this year, so that's on the MD-90s. We'll probably be making that decision soon in a similar vein. We've got 767, 757s, some of the older models that we operate. We'll certainly be looking at the smaller RJs that we operate. But we'll be taking the time to, as they say, accelerate into the future and fast-forwarding many of these decisions with simplification and streamlining of our entire business model at the core of the new normal for Delta. Many of the things that we are on a path to do, I think we shorten that pathway considerably as a result of this crisis.
Andrew Dodora
Analyst at Bank of America
Thank you for that.
Ed Bastion
CEO
Sure.
Lauren
Coordinator
Our next question comes from Jamie Baker with JP Morgan. Hey,
Jamie Baker
Analyst at JP Morgan
good morning, everybody. I'm Paul. The best news of today is that you're with us on the call and we'll be going forward. I'm sure you're going to hear that from others, but I did want to add my voice after Ed's comments. Now, when you spoke at our conference a month ago, a month and a half, at that time it was a $20 billion unencumbered asset pool. You said the recent deals drew that down by about $6.5 billion. Does that mean the current pool is $13.5 billion or have any of the underlying assets been revalued? And as a clarification on that, have you yet identified what collateral you might post as part of a government loan and whether a treasury could equity in SkyMiles?
Paul Jacobson
CFO
Well, first of all, Jamie, thank you for your kind comments. It's really, really good to be here too. The simple math is the right one, the way we're looking at it. We have constantly updated the market values of the collateral and where we look. So, yeah, against what we just disclosed, we've got about 13.5 that we continue to review and we have a list against those assets. So, you know, we're going to continue to move forward on raising liquidity, making sure that we shore up that balance sheet and keeping all options on the table. As for the government loan program, we haven't had any specific conversations, as I mentioned in my comments. We have worked out with them that we are going to apply for the loan by April 30th, but the provisions of that program give us until September 30th to decide whether we'll actually action and structure and take that loan going forward. That helps. Oh,
Jamie Baker
Analyst at JP Morgan
sorry, go ahead. Go ahead.
Paul Jacobson
CFO
Sorry. I was going to say no conversations about any specific collateral at this point in time. We have shared with them that we are committed, as is the not just the language, but the spirit of the program to access it if there are no reasonable capital markets opportunities available and we still feel pretty good about what's available to us in the market.
Jamie Baker
Analyst at JP Morgan
Got it. And second question, you also made reference to, you know, aircraft capex essentially going down to zero. Looking to clarify that, does that mean that you're simply not sending any cash to Toulouse or saying that there's full financing already in place? So, put differently, if we do see an aircraft deliver this year, should we assume that it is fully financed?
Ed Bastion
CEO
Hi, Jamie. The situation with Airbus is one that obviously we've got a great relationship. We're having constructive dialogue, but the reality is, as I've shared with Guillaume, and he shares our pain, you know, we've got 600 aircraft on the ground. We don't need any more aircraft to be on the ground. And we'll work through this issue. We don't have any plans to expend cash, to your point, over the balance of this year on new aircraft. Whether eventually over the course of the year we wind up taking some fully financed aircraft, that's an open question right now. But the reality is that they're good partners and they're working with us on it.
Jamie Baker
Analyst at JP Morgan
I appreciate it. Thank you both.
Lauren
Coordinator
Our next question comes from Mike Lindenburg with Deutsche Bank.
Mike Lindenburg
Analyst at Deutsche Bank
Oh, yeah. Hey, Paul. Glad you never left. So, two questions here. When we think about the payroll support program and as you respond to the money, how are you going to account for that? How does that run through P&L? I understand
Mike Lindenburg
Analyst at Deutsche Bank
the
Mike Lindenburg
Analyst at Deutsche Bank
loan piece will show up as interest expense. Would that be an extraordinary item?
Paul Jacobson
CFO
So, Mike, good morning. The loan, the grant piece net of the loan will actually flow through as a contra-expense item, essentially offsetting the requirements that are in there for maintaining workforce, etc. So it'll show up as an offset to salaries and related or operating. We're still working through that. But it will flow through the P&L. The loan piece of it will obviously be capitalized on the balance sheet as a debt instrument. Interest expense will flow through that and the warrant will be reflected as equity.
Mike Lindenburg
Analyst at Deutsche Bank
Okay. Then just to be clear, then, just the 100 going to 50 million, it's not reflecting that as an offset coming from P&L, or at least impacting the cash.
Paul Jacobson
CFO
No, it's in all the cash numbers that we've talked about in terms of ending above $10 billion in June.
Ed Bastion
CEO
Great. Okay,
Mike Lindenburg
Analyst at Deutsche Bank
great. Then just secondly, as we think about the MX program, we were at a number around four billion on its way to call it seven billion. As we think about the components, the rate doesn't change. It will probably be down in 2020 and maybe acquisition doesn't grow much or
Mike Lindenburg
Analyst at Deutsche Bank
moderates.
Mike Lindenburg
Analyst at Deutsche Bank
Is that a fair way to think about the trajectory in 2020?
Ed Bastion
CEO
I think so, Mike. I know MX has their call later in the week on earnings and they'll probably discuss how they're doing, how they're faring through the crisis. Clearly, given the fact that passenger demand has fallen off so dramatically, our card has not fallen off nearly as dramatically, but it's down in numbers in the short term. It's one of the things that's enabling us to keep, we've got a 10% revenue target in the current quarter compared to our current plan. That's one of the contributing factors is the spend on the card.
Mike Lindenburg
Analyst at Deutsche Bank
Okay, very good. Thank you.
Ed Bastion
CEO
I think when MX talks on Friday, I think you'll probably have some better. I'm close to Steve and I know their numbers, so I don't want to share anything, but I think when you hear their perspective, it'll better answer your questions than I can.
Mike Lindenburg
Analyst at Deutsche Bank
Great. Thank you.
Lauren
Coordinator
Next question comes from Savi Sith with Raymond James.
Savi Sith
Analyst at Raymond James
Good morning. I was wondering if you could help me bridge the liquidity getting from $6 billion to $10 billion. It appears cash trend will be around $5.5 billion in the quarter. You have the maybe most or all of the $5.4 billion in TST. I think based on the disclosures, you have the lease back of one to two and the aircraft mortgages and perhaps some term loans there. I think that leaves a gap of about $2 to $2.5 billion. Is that financing that you need yet to do to reach that $10 billion or am I missing something there?
Paul Jacobson
CFO
Savi, it's Paul. I would simply say that you're good at math. That worked pretty well.
Savi Sith
Analyst at Raymond James
I guess that math degree worked out well for me. You're using it
Joseph
Analyst at Stiefel
well.
Savi Sith
Analyst at Raymond James
Just a follow-up on that. As you think about your financing opportunities, I know you talked about having unencumbered assets, but if you think about unencumbered assets, miles, equity, or maybe even doing something with Traynor, how would you prioritize that or see the best fit for financing going forward?
Paul Jacobson
CFO
Savi, I think we have, as I mentioned, an exhaustive list of potential opportunities that range across the board, including secured debt, equity, convertible, the government loan program, SkyMod, lots of different things on it. What I would say is that we're looking to optimize two things. Number one, which is availability and ease of financing, and two is just availability of the markets in general. We have found great success in both the secured debt markets as well as the sale leaseback markets that have done particularly well for us. We would certainly put that at a higher priority than we would be thinking about equity down the road. While the uncertainty means that we can't rule anything out, we're certainly prioritizing use of our unencumbered assets.
Ed Bastion
CEO
Savi, I would share Paul's thoughts on the financing prioritization, but don't forget the most important liquidity we raise is cost savings in this environment where revenue isn't coming in the door. While it's great that we have access to the capital markets and the team is doing a very good job, the fact that we're able to save 50% of our total operating costs that we had in our forecast just 30 days ago in the current quarter, that's $5 billion as well. That's a meaningful statement of liquidity that we'll obviously continue to build off of.
Savi Sith
Analyst at Raymond James
Very good point. All right, thank you.
Lauren
Coordinator
Our next question comes from Brandon Oglinski with Barclays.
Brandon Oglinski
Analyst at Barclays
Hey, good morning everyone and thanks for taking my question. So I guess just to follow up on that, you know, in terms of equity funding, I guess why not maybe potentially be a bit more aggressive here because if you need the equity financing in the future, obviously that's not guaranteed to be there. Can you give us your thoughts there?
Ed Bastion
CEO
Brandon, you were real clear coming to this. Your question about a potential equity race, is that what you're asking us?
Brandon Oglinski
Analyst at Barclays
Sorry, my phone's cutting out, Ed. The question is, you know, if you need equity financing in the future, it could be harder to get. So I guess why not potentially be more aggressive on that part of the balance sheet right now?
Ed Bastion
CEO
Yeah, well again, we're not in a position to take any options off the table. We're looking at all options. We have no plan for that at the moment. We've got a pretty good list of opportunities to raise liquidity from before executing that option. But, you know, we're not going to exclude any option going forward until we have a better view when the recovery is going to come.
Brandon Oglinski
Analyst at Barclays
Okay, appreciate that. And then, Paul, on the unencumbered assets, I think around 13 or 14 billion you disclosed, how much of that is aircraft? And, you know, what should investors expect that you could get LTVs on that asset base?
Paul Jacobson
CFO
Well, Brandon, it varies. I would say that about half of that is aircraft of various ages and vintages. Some of the newer airplanes that we have been doing sale lease backs on, we've been getting 100%, sometimes even marginally a little bit more than what we had raised on that basis. Some of the older airplanes, as we are looking at that, are going to have less sale lease back content, more secure debt type content that would have a lower loan to value going forward. So it really varies across the pool. But we've taken that pool. We've assigned value to what we think is doable and we're marching along that plan.
Brandon Oglinski
Analyst at Barclays
Okay, thank you.
Paul Jacobson
CFO
Thank you.
Lauren
Coordinator
Our next question comes from David Vernon with Bernstein.
David Vernon
Analyst at Bernstein
Hey, good morning, guys. Thanks for taking the time. First question for you on the approach towards taking cross holdings in global partners. Obviously, there's going to be quite a few markdowns of those assets as we go through the next couple months here. Would you think about that asset as a potential source of liquidity on the way back up or would you continue to think that those investments are kind of strategic and core to the delta of the future as well?
Ed Bastion
CEO
David, again, you broke up a bit on the phone. Your question is about our investments in our international partners. Yes.
David Vernon
Analyst at Bernstein
Monetizing them. Well, on the way back up, yeah. I'm just wondering if you may be thinking about that strategy of cross holdings differently.
Ed Bastion
CEO
Those are all strategic partnerships and they'll all go through and they are all going through a very similar situation. In fact, arguably even more stressed than the U.S. airlines are, given that the international business across the board is pretty much down to very, very small numbers. We are in constant contact with them. We'll continue to provide our insight, our expertise. We're not in a position to be making any financial commitments to any of them and they are aware of that and we'll work with them as the recovery takes hold. This recovery is going to be choppy. It's going to take some time. My expectation, I think our expectation is domestic will come back faster than international, but international will come back. There's a path to getting there and we're very proud of those partnerships and I have no interest in trying to sell them or monetizing them at this point or any time in the future, candidly.
David Vernon
Analyst at Bernstein
All right. I appreciate that color. Then maybe just as a longer term question for Glenn or Ed, maybe you could comment on how investors should be thinking about the range of reasonable margins assuming demand does take a couple of years to recover. Should we be expecting the margin profile of the business to be dependent on getting back to 2019 levels or would you expect to be able to maybe come out of this at a better margin level with less volume than you had in the past?
Ed Bastion
CEO
David, that's a really open-ended speculative question. How I'm looking at this for myself, we're all 40 days into this, is that there's a big crisis that we're in the midst of. We're going to need to navigate the crisis. We're prepared at Delta to go through it for whatever time it takes. We've got the liquidity. We've got the balance sheet strength. We've got the resiliency of our brand. We'll get through this. It may take several years to get through it, but we will get through it. Once we're able to demonstrate to our customers confidence in the safety of air travel, just like we do today in flight safety, there's a personal safety, travel will continue. It may not continue in all of its current form. There will be some impact, maybe telecommuting or some personal impact. Maybe some people do. Maybe that will change the nature of travel a bit. Business is done -to-face. People enjoy experiences. All the things we've seen over the last period of years actually has, in my opinion, caused people to mistravel more than ever before in this lockdown phase. We'll get back. Whether it means our margins are going to be at the same level, I would hope so. That's certainly going to be our goal. We'll be a smaller industry coming through this, I have no doubt. There will be opportunities to be streamlined. I think people will pay a premium for service excellence like never before. Those are my views on your question.
Joseph
Analyst at Stiefel
Thank you.
Lauren
Coordinator
The next question comes from Hunter K. with Wolf Research.
Hunter K.
Analyst at Wolf Research
It's so funny you just said that. I was literally going to ask you about that comment you made. In the prepared remarks, you said the customer of tomorrow will place a higher premium on quality of service. You seem to emphasize that in the script. I want to know what you mean by that. And how are you going to position Delta to capitalize on it from a product perspective?
Ed Bastion
CEO
I think it's premature to be speculating on product per se, Hunter. But I firmly believe that. When you ask people what's the most important thing to get them to start traveling in, it's going to be confidence in their safety, their personal safety, not just their physical safety. At Delta, we have years and years and years of expertise in flight safety expertise. We've got rigor and analytical tools. We are the safest form of transportation in the world of any form of transportation in the U.S. aviation system. And by applying that same level of analytical rigor and insight, working with the medical community, and I'm not trying to be a healthcare professional here, but we do have medical expertise and advisors that we are working with and will continue to work with to help translate the return of business to where people feel safe and accommodate that. We'll make whatever changes to the business model that will be necessary. If it turns out to be immunity, passports will be a new form. You think about everything that came out of 9-11 with TSA and Homeland Security and new public agencies. Could there be a new public health agency coming out that requires a new passport to travel? I don't know. But we'll be on the forefront of all those advances. But I do believe people will value not just the experience, but who's providing the experience and the reliability and the service excellence of that. And that's our calling card. That's our brand. That's what Delta stands for.
Hunter K.
Analyst at Wolf Research
Right. Right. Right. And that's all fair. But you were kind of there before, too, so what I'm trying to parse out is what you expect to actually change. It's ironic, actually, about lower load factors three months ago on this call. It's one of these things that maybe you think about running a lower load factor permanently and having less variability in pricing. So maybe it's a -75% load factor you guys run all the time so people feel a bit more spaced out, or the seats themselves are further apart. What kind of stuff are you talking about changing here that's different?
Ed Bastion
CEO
I think all those are fair observations. I don't know what the answer is. We're going to spend the time in these next few months to, as we build the company that we want for the future, not necessarily rebuild what we had. And we'll be asking ourselves that question. We'll be asking consumers those questions. We'll have a chance to test as we move forward, as we walk through this recovery. It's going to take several years. It's going to be multi-phased. It's going to be choppy along the way. We'll have opportunities to test all those species and see what it takes. Ultimately, it's going to be what it was to take to inspire confidence in air travel and the safety of that. Maybe it's a vaccine in two years on a widespread. I don't know, but there's a host of ideas and options and alternatives that we are exploring. We'll do whatever it takes to make sure that we get our business model not just back to where it was, but improved and more resilient for the future. Our margins, whether our load factors come down or not, it's possible. They certainly will be in the short to medium term. Whether they eventually get back to 90 percent, who knows? But we'll figure it out as we go. The only thing I know is that there will be fewer airplanes flying in the skies for an extended period of time. That's going to be an opportunity for us to focus more on a more premium experience and getting paid for what we deliver.
Hunter K.
Analyst at Wolf Research
Ed, thank you.
Lauren
Coordinator
Our next question comes from Dwayne Fenningworth with Evercore ISI.
Dwayne Fenningworth
Analyst at Evercore ISI
Hey, thanks, and thank you for doing this call. Just had a question on your international JV partners. What are the potential capital needs to keep some of them going if they are unable to get stimulus funding?
Ed Bastion
CEO
Well, I think all of our international partners are working with their local governments as to what's required to provide backstop and support similar to how we work with our government here in the US. I'd say the thing that's a little different in most of the international marketplace is that they're talking about loans as compared to grants. We were very successful. I give the US airline aviation industry some real kudos for getting out in front of this working with A4A, working with all the CEOs across our space to understand that this is not just about putting more debt on airlines' balance sheets but keeping people in their jobs for a period of time to give us a chance to understand what the other side of this looks like in six months. I don't know that you'll see that on an international scale. I think there will be a lot of loans. You may see some international airlines nationalized. I think there's going to be an array of alternatives. You will see some international airlines go away. You will see some international airlines, I'm not talking about ours specifically. This is probably go through administrative and bankruptcy processes. I think as we look at the trajectory of the recovery, it's going to be slower internationally than domestically. As a result, we're going to stay really close to our partners and help provide them not the financial support but certainly the commercial support and the strategic savvy to navigate a very uncertain recovery.
Dwayne Fenningworth
Analyst at Evercore ISI
Thanks. Then just for my follow-up, I had a couple questions this morning on Traynor. Interesting times with negative crude prices. Is this something that you're in the process of down? To the extent you are, is there any potential working capital tailwind if you were to wind Traynor down? Thanks for taking the questions.
Paul Jacobson
CFO
Sure, Dwayne. Before I answer that, I want to go back to one thing that David had asked. Just to clarify for the avoidance of any doubt, the partner investments that he asked about monetizing that Ed said we're not interested are not included in our unencumbered asset calculation just in case there was doubt about that. As we think about Traynor, Dwayne, obviously we've made some adjustments both in terms of where the markets sit but also in terms of our own declines in jet fuel consumption which have been significant. We have cut production at Traynor. We're operating about just a little over half of what we were and blending all that jet fuel into diesel. Traynor is covering its variable costs and contributing to fixed costs in the short term. That being said, we do expect it to produce a loss in the second quarter. As we think about Traynor, obviously we are thinking about what does the airline look like afterwards. We'll feel strategy but that's obviously somewhat muted in the current environment today.
Dwayne Fenningworth
Analyst at Evercore ISI
Would there be a working capital tail end if you were to wind it down?
Paul Jacobson
CFO
Nothing significant as we have a lot of that working capital already securitized and we've managed to keep that relatively constant throughout all the operations.
Dwayne Fenningworth
Analyst at Evercore ISI
Thank you.
Lauren
Coordinator
Our next question comes from Helene Becker with Cowan.
Helene Becker
Analyst at Cowan
Thanks very much, Operator. Hi, everybody. Thank you very much for the time. Here are my two questions. One is do you think this will be a demand-led recovery? How are you thinking about recovery in that regard? Second, Ed, you talked a lot about what you can do once people get on your planes and certainly at the gate there's a lot you can do. There's probably a lot you can do in the check-in process. What about in the airport? Are you working with your various airports about how you can ensure customer... I don't know what the right word is because it's not safety but I really don't know what word it is. It is safety.
Ed Bastion
CEO
It's personal hygiene. It's personal safety. The answer to your second question I'll take first is yes, we are. We've got a lot of staff in the airport environment and not a lot of departures so we've reallocated a lot of our team members to ensuring not just the cleanliness and the hygiene aboard our aircraft. You would probably not be surprised to know that as we continue to survey our customers even though we have fewer traveling we still continue to survey them that our cleanliness scores are through ceiling. Three, four X times improvements on board the planes and if you want to go check it out for yourself I encourage you to travel on us. You can see that. But working through the airport, the facilities, working with TSA and the BIN, all the things that we have to do to reduce touch points and allow customers the same level of safety on board of planes as they transit through our facilities. So we are looking through all of that. What will return to the recovery? I don't know. I simply classify it as a demand. Certainly I think demand will be there when it's safe to travel. When people feel confident that through both the medical progress we make through the medical community, through government leadership when people indicate that it's safe to travel. And that's when the recovery will take shape. This is very unlike anything we've ever encountered. We've encountered a lot of crazies in our industry. This one where people physically do not feel safe to venture out of their homes is unique to us and we've got to inspire the confidence they have to start traveling again.
Helene Becker
Analyst at Cowan
That's very helpful and if it helps. I'm pretty sick of Paradise prison. I love my health but I miss traveling.
Ed Bastion
CEO
Good. We miss seeing you, Helene.
Lauren
Coordinator
Have
Helene Becker
Analyst at Cowan
a day.
Lauren
Coordinator
Thank you.
Ed Bastion
CEO
Thank you.
Lauren
Coordinator
Our next question comes from Joseph with Stiefel.
Joseph
Analyst at Stiefel
Yes, thanks. Good morning. Just two straightforward questions for you, Paul, on the marketing company or the loyalty program. Is there a scenario where you could do a pre-sale with Amex and use it as collateral for government money? And then what is the value of that asset worth? Do you see it? I think it's a pretty big note that's protecting shareholders from dilution at this point. So can you just talk about what would you think the assets were?
Paul Jacobson
CFO
Well, Joe, I think you've done a lot more work on that than we have necessarily. But I would say that we have not contemplated securitizing it or monetizing it in any way. And the asset base that we have and the permitted liens under our agreements, we think ultimately would make a loan. So I don't think we need to look to loyalty for that. As for the opportunity to do a pre-sale, I'm not going to get into any details. That's obviously a conversation that we would have with American Express. And Ed speaks to them very regularly and that's born out of the partnership mentality. It's not anything that we would comment on here publicly. Yeah, the only thing, Joe, I think we have to do an equity issuance
Joseph
Analyst at Stiefel
or pre-sale in order to qualify for the government debt money.
Ed Bastion
CEO
Joe, no, no, we don't. I just wanted to add on to what Paul was saying about Amex. They're great partners. We've been through thick and thin with them. We've done pre-sales in the past. If we come to the point where we feel that's an important source of liquidity, we'll have good constructive conversations, but we are not having conversations unlike publicly reported documents that indicate we are, we are not. But we're staying close to our good partners in that. And at some point, we very well may, but there's nothing imminent to announce there now.
Joseph
Analyst at Stiefel
Okay, that's helpful. And then I don't know if Glenn is on the call or Ed would like to talk about it. Can you just talk about demand? What forward bookings look like and what maybe the mix of corporate versus leisure tells you at this point in terms of which is holding up? Just kind of any commentary that you feel comfortable talking about. Thank you.
Glenn Hauenstein
President
Well, it's where I categorize this with we're bumping along the bottom here. And, you know, bookings are down. Traffic is down about 95%. And there's that's that's where we're sitting. And it's a mix of people who need to get there. That's essential people traveling, as I've said before. So people who need to get to see sick people, people who are first responders, people whose work goes on and it's required for them to travel. And so it's really people who are perceived as being safer, we'll see the larger volumes come back. But with everybody having stay at home orders, it's hard to envision when you can't leave your house, how you would go to travel at this point.
Ed Bastion
CEO
Yeah, it's, you know, the demand questions are, are hard to answer, because there's not a lot of data right now. But, you know, one data point, which is progress is that, you know, our cash sales are now starting to equal the refunds going out the door, right? So wasn't the case 30 days ago, we were being over overwhelmed by the amount of cash refunds relative to new cash sales coming in. So, so it's going to take some time. We're prepared for the for the duration. And we know we've got a we've got a good product and good service and a good brand that will be there when when people feel set to travel.
Joseph
Analyst at Stiefel
Thank you.
Lauren
Coordinator
Our next question comes from Miles Walton with UBS.
Mike Lindenburg
Analyst at Deutsche Bank
Frank, into the comments. First on the government assistance, for payroll protection beyond September 30. As you think about it, is that something you think is necessary for the industry, or the industry would would ask for
Ed Bastion
CEO
additional government support beyond September 30? Is that your question, Miles?
Mike Lindenburg
Analyst at Deutsche Bank
It is. Yeah.
Ed Bastion
CEO
You know, I wouldn't I wouldn't speculate. I, my sense is the appetite for additional relief beyond that will be will be challenging. And I think the combination of the PSP together with the loans to provide us with liquidity we need to get through this crisis. That'd be my view.
Mike Lindenburg
Analyst at Deutsche Bank
Okay. And then secondarily, kind of post crisis, I know you said it'd take a few years, but just a business model to run an airline. You think that now airlines are effectively going to have to sit on six months of cash, you know, expenses in cash to satisfy whatever criteria there is to whether the next pandemic should have come along?
Ed Bastion
CEO
I don't know. That's a, that would be a difficult financial burden to carry. I don't think we can build our business models to sustain, you know, once in a century pandemics. And we'll learn a lot from this. We'll be a lot more resilient about this. This will take us a bit of time as an industry to dig out of. We'll go plenty of time to ask those questions in the future. But for now, we're very focused on weathering this storm, getting through over the next several years, and then we'll have time to think about that.
Mike Lindenburg
Analyst at Deutsche Bank
Okay. Thank
Joseph
Analyst at Stiefel
you.
Lauren
Coordinator
Our next question comes from Katherine O'Brien with Goldman Sachs. Good morning, everyone. Thanks for the time. Hope you all are safe and healthy. So two fairly quick ones. If you're not expecting any aircraft deliveries for the medium term or perhaps not even through the end of this year, is that 1.2 billion cash inflows in the sale be factoring in the transaction you disclosed today on aircraft already in your fleet? And then if so, you know, do you have any aircraft remaining in your fleet that might be attractive to put into the future of Sally's backfield?
Paul Jacobson
CFO
Good morning, Katie. So the answer to your first question is absolutely that those are all sale lease backs on the existing fleet. And I didn't catch the second question. Apologies.
Lauren
Coordinator
Oh, sure. So I said, are there any other remaining aircraft that would maybe be attractive to put into future sell these back deals that are that are currently in your fleet?
Paul Jacobson
CFO
Yeah, we still have some, as I mentioned in the in my earlier comments about half of the vintage models that we think are good candidates for sale effects and some older aircraft that at the end of the day probably are not that would be more in line for a secure debt type transaction. But we still have some.
Lauren
Coordinator
Yes. Okay, got it. Appreciate that. And then you just for my follow up, you know, the rate at which you've been able to get costs out of the system is impressive. Should we expect those cost savings to increase through year end and potentially further lower that June Q exit rate cash burn? Or are there any items where you've been granted deferrals in the short term that may be come back online towards year end? Thanks.
Ed Bastion
CEO
Well, thanks, Katie. We are going to do our best to continue with the programs we've got in place working through voluntary measures with our employees. They're doing a great job of taking taking leaves and reducing work hours and finding ways to preserve cash. Our maintenance program, we're doing the same thing. I think we'll have that same goal in Q3, certainly. And hopefully Q4 and give us time to start building demand over the balance of the year to where the revenue can start to catch up with the level of cost savings that we're having and use that to reduce the cash burn. But in the short term, it seems not a massive effort. And I think you're going to see that that continually. There's always been a lot of dialogue in our business as to what our true variable cost structure is. We're saying that we've got a lot of variability that we've built into the cost structure and it's proving to be an important source of resiliency for us in our strategy here.
Lauren
Coordinator
Okay, thanks. Appreciate that.
Jill Greer
Vice President of Investor Relations
Sure. Hey, Lauren, we're going to do one more question from the analyst.
Lauren
Coordinator
Thank you. Our next question comes from Steven Trent with Citi.
Steve Trent
Analyst at Citi
Thank you very much, everybody. And I appreciate you taking my question. Hope everybody's and your families are okay. Quick one for me. I was wondering if you could just give us a little color on how you might pivot a little to perhaps take opportunities of more air cargo flow? With passenger flow depressed at the moment?
Ed Bastion
CEO
Thanks, David. I hope your family is well as well. We're doing that. We have a lot of work going on in the cargo space. We probably should mention that during the call more. We've instituted charters going over to China as we're bringing medical supplies, PPE, back to the workers on the front line of this crisis. We're working with a number of different companies to do that through. We've looked at and we're taking some of the main deck seats off a few of our international planes to facilitate taking greater lift in the work term. And we'll continue to use those resources where it makes sense for certainly for some time to come. The team in cargo, Sean is doing a really, really nice job. And we've got a lot of people supporting in the broader community what we can do with relief efforts. And we're proud. The other thing we've done we didn't talk about is that we've repatriated over 5,000 people working with the State Department from markets that we don't even fly to historically or going into India and bringing tons of people back to their families safely. We continue to do some of those missions going forward.
Steve Trent
Analyst at Citi
Very helpful. And just one last follow-up, actually a follow-up to the gentleman from Steeples' questions. When we think about the credit card side of it, longer term it's fair to say that a lot of that consumer-oriented card activity should continue to spool up in line with your expectations. Is that fair to say?
Ed Bastion
CEO
Absolutely. Again, there's nothing in this crisis that shows us that any individual part of our business model doesn't work over time. But as long as people feel safe, everything's going to work. So spending will work travel will work experience will continue to be important. And our partnership with American Suppress is incredibly strategic and important to us in the future.
Steve Trent
Analyst at Citi
Thank you very much everybody and be safe. Thank you. You too. Thanks Steve.
Jill Greer
Vice President of Investor Relations
That's going to wrap the analyst portion of the call. We're actually having some technical difficulties on the call control. So I'm going to turn it over to our Chief Marketing and Communications Officer Tim Mates to address the media.
Tim Mates
Chief Marketing and Communications Officer
Well, I just wanted to thank everybody for your patience and your participation today. It's unfortunate that we're having this technical issue because Ed and the Executive Management team had actually asked for and expressed an interest in additional time to handle questions. So I think we will follow up with the varying members of my team to get these questions answered and get them into you. We had 10 reporters queued up for this. So if you don't mind, we'll follow up.
Jill Greer
Vice President of Investor Relations
We will work to set up a separate call. Hold on just a minute.
Tim Mates
Chief Marketing and Communications Officer
Again, thank you for your patience. We are going to follow up but members of my team will follow up with each of the reporters that we know were in the queue today. We'll get ways of following up on your questions but just wanted to thank you for your time and your participation today and know that we do know who was queued up and we will follow up with each of you with different members of my team. So our apologies.
Lauren
Coordinator
Thanks Lauren. Thank you and that does conclude today's conference. Thank you for your participation today.
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