Delta to retire Boeing 777s, seeks to burn zero cash by end of 2020
The nose of a Delta Air Lines Boeing 777-200ER dedicated to David C. Garrett Jr, former CEO of the airline is seen at the Narita airport.
Fabrizio Gandolfo | SOPA Images | Getty Images
Delta Air Lines said Thursday it may have 7,000 too many pilots this fall and announced it will retire its fleet of Boeing 777s, a sign the airline expects a lengthy downturn in long-haul international travel as the coronavirus batters demand.
CEO Ed Bastian said in a staff memo that the airline aims to eliminate its daily cash burn by the end of the year as the pandemic’s toll on air travel continues.
Delta shares closed down less than 0.2% while the S&P 500 gained 1.2%
The Atlanta-based airline said it has halved its daily cash burn to $50 million a day this month, as planned, by cutting flights and reducing other expenses.
“Our principal financial goal for 2020 is to reduce our cash burn to zero by the end of the year, which will mean, for the next two to three years, a smaller network, fleet and operation in response to substantially reduced customer demand,” Bastian’s memo said.
Demand for flights, particularly to international destinations, has plunged because of the pandemic, travel restrictions and shelter-in-place orders, and airlines have slashed those routes.
“With international travel expected to return slowly, we’ve also made the difficult decision to permanently retire our Boeing 777 fleet — 18 aircraft — by the end of the year,” Bastian told staff. He said more “fuel-efficient and cost-effective” A330s and A350-900 planes, made by Europe’s Airbus will be used instead. “Retiring a fleet as iconic as the 777 is not an easy decision — I know it has a direct impact on many of you who fly, crew and service these jets.”
Delta said it also sped up the retirement of its MD-88 and MD-90 planes.
The airline said in a filing Thursday it expects to post a $1.4 billion to $1.7 billion pretax charge in the second quarter because of the MD-90 and Boeing 777 retirements.
It “concluded that the carrying value of these aircraft was no longer recoverable when compared to their estimated remaining future cash flows.”
Delta and other airlines have said they expect to have to shrink because of diminished demand, which could lead to furloughs and layoffs.
“Based on current capacity expectations for this fall, we will be overstaffed by more than 7,000 pilots,” John Laughter, Delta’s senior vice president of flight operations, said in a note to pilots Thursday, which was seen by CNBC.
“I recognize that is an alarming number so it’s important to know that our intent is to align staffing for what we need over the long term. By the third quarter 2021, we will have between 2,500 and 3,500 pilots more than needed to fly the schedule. That accounts for the pilots who will reach mandatory retirement age between now and next summer.”
The company had close to 13,100 mainline pilots as of the end of 2019, according to a securities filing.
The Air Line Pilots Association said Delta hasn’t taken the union up on voluntary measures such as partially paid leaves of absence.
The union “is disappointed that management is drastically shrinking the airline” and warned that will likely “hinder Delta’s capacity to take advantage of flying opportunities when the eventual recovery happens,” said Chris Riggins, a Delta pilot and spokesman for the airline’s chapter of ALPA, said in a statement. “We believe that management should first discuss and consider ALPA’s proposals before the company heads down a path of drastic cuts, which will cost more in the long-run to execute and harm thousands of Delta pilots and their families.”
Delta didn’t immediately respond to a request for further comment.
Delta and other airlines that accepted portions of $25 billion in federal grants and loans that are dedicated to maintaining payroll are prohibited from laying off or cutting the pay rates of employees through Sept. 30.
The airline is weighing voluntary measures “to minimize potential furloughs and offset impact on our pilots,” Laughter told pilots.
“I know this is difficult news to read, just as it is difficult for me to relay, but the decisive actions we take now will aid us in our recovery as we emerge on the other side,” he said.
— CNBC’s Phil LeBeau contributed to this report.
Clarification: Summaries of this report have been revised to clarify that it was Delta that said it aims to reduce it’s cash burn to zero by the end of the year.