Delta records $7 billion pre tax loss for June quarter

Yesterday, Delta became the first of the big airlines to reveal the enormous scale of the financial impact of the COVID-19 crisis when it reported its results for the quarter ending June 2020.

The headline pre-tax loss was $7.0 billion, although Delta also reported an adjusted figure of $3.9 billion. That excluded $2.5 billion of restructuring charges (mainly aircraft write-downs for retiring aircraft) and $2.1 billion of write-downs on the company’s investments in LATAM, Aeromexico and Virgin. Also excluded from the adjusted figure was $1.3 billion of CARES Act grants from the US Government. Without the CARES grant, the headline loss for the quarter would have been $8.3 billion.

The other striking thing about the results was the ballooning of both sides of the balance sheet as the company raised debt to boost cash liquidity. Cash and short term investments went from $2.9 billion a year ago to $15.7 billion at the end of June. Total debt including off balance sheet leases went from $9.9 billion to an eye-watering $29.9 billion.

Prior to the crisis, Delta had one of the strongest balance sheets in the industry. It says a lot for the state of the rest of the industry that this is still probably the case, despite the huge losses wiping out almost half their accounting equity in one quarter.

In terms of cash burn, the company’s preferred measure excluding financial items and the CARES grant proceeds was $43m a day. At that rate, they would burn through even their newly inflated cash reserves in twelve months. It is no surprise that they were keen to emphasise the lower cash burn for the final month of the quarter at $27m a day, which would give them a more reassuring 19 months of runway.

One other interesting item which caught my eye was that 60% of their $5.0 billion “air traffic liability” (money received for flights yet to take place) is represented by travel credits. That means that the use of vouchers rather than giving cash refunds saved them $3.0 billion of cash.

I guess that is worth a little unpopularity at times like this.