Delta Air Lines (NYSE: DAL) Q1 2020 Earnings Call Transcript

Delta Air Lines Inc (DAL) Q1 2020 earnings call dated Apr. 22, 2020

Corporate Participants:

Jill Greer — Vice President of Investor Relations

Ed Bastian — Chief Executive Officer

Paul Jacobson — Executive Vice President and Chief Financial Officer

Tim Mapes — Senior Vice President and Chief Marketing & Communications Officer

Analysts:

Andrew Didora — Bank of America Merrill Lynch — Analyst

Jamie Baker — JPMorgan — Analyst

Mike Linenberg — Deutsche Bank — Analyst

Savi Syth — Raymond James — Analyst

Brandon Oglenski — Barclays — Analyst

David Vernon — Bernstein — Analyst

Hunter Keay — Wolfe Research — Analyst

Duane Pfennigwerth — Evercore ISI — Analyst

Helane Becker — Cowen and Company — Analyst

Joseph DeNardi — Stifel — Analyst

Myles Walton — UBS — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Stephen Trent — Citigroup — Analyst

Presentation:

Operator

Good morning, everyone and welcome to the Delta Air Lines March Quarter Financial Results Conference Call. My name is Lauren and I will be your coordinator. [Operator Instructions]

I would now like to turn the conference over to Jill Greer, Vice President of Investor Relations. Please go ahead.

Jill Greer — Vice President of Investor Relations

Thanks. Good morning, everyone. Thanks for joining us. We have a small team here in the room today, including our CEO, Ed Bastian; our President, Glen 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. [Operator Instructions]

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 filings. 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 ir.delta.com.

And with that, I’ll turn the call over to Ed.

Ed Bastian — Chief Executive Officer

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 women of Delta serving our nation in this time of need. The CARES Act Payroll Support Program recognizes the important role our employees play in supporting the US 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 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 in a low interest unsecured 10-year loan. When you combine this release with our actions in the capital markets and our aggressive cost management, we expect to have at least $10 billion in liquidity at the end of the June quarter. Since early March, we’ve raised $5.4 billion 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% expected reduction in revenues this quarter. We needed to quickly address costs to stem cash burn. We have taken actions to reduce our total cost base by over 50% in the June quarter. This amounts to a $5 billion reduction over the prior year which is impressive, given the very short 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 per day in March, down to $50 million 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 uncertainty 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 cost to construct it. We will be focused on what it takes to regain consumer confidence to travel and we are listing 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 and answers about our path forward at present. One thing that is certain, it is that the strength that are core to Delta’s business, our people, our brand, our network and our operational reliability 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 assured 60 days ago. And while the path to recovery may take several years, there are many aspects to this crisis that will make us a better, stronger and more resilient airline. 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 re-scale 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 message 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 will remain as Delta’s CFO. Paul?

Paul Jacobson — Executive Vice President and Chief Financial Officer

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 have 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 result in savings of approximately $550 million in the June quarter alone. With such a large capacity pulled down, 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 Delta people.

With the immediate needs of the June quarter addressed, we’re now beginning to think about how we reset the cost structure of the Company for the longer term. Glen and his team are developing scenario view as 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 mentioned accelerating work on initiatives like fleet simplification will 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 million 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 closed 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 were 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% in humbling 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 remaining 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 best predictable. So 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.

And 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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We’ll take our first question from Andrew Didora with Bank of America.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Hi, good morning, everyone. Can you hear me okay?

Ed Bastian — Chief Executive Officer

We can.

Paul Jacobson — Executive Vice President and Chief Financial Officer

Good morning, Andrew.

Andrew Didora — Bank of America Merrill Lynch — Analyst

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 end of March as $50 million run rates kind of in the back half of the second quarter. What’s the biggest drivers here as a capex? What are some of your assumptions around the air traffic liability, drawdown, any opportunities at the refinery, etc? So any color here would be helpful.

Paul Jacobson — Executive Vice President and Chief Financial Officer

Sure. Thanks. First of all, thanks, Andrew for being here for your question. It really is an across 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% 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 80% — over 80% 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% 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 in the — 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 Bastian — Chief Executive Officer

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. And those are — those are monumental and they’re really helpful.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Got it. Thank you for that. And then just a second question here. Maybe, Ed, bigger picture question here for you on your fleets, given some of your comments on what you view to be kind of a long recovery process here. So when you look at the other side of this crisis, what do you think will be the biggest changes for the delta fleet? And do you think it will be a little bit more weighted towards newer aircraft with varying economics and how are you thinking about that, and especially as we speak with the OEMs right now? Thank you.

Ed Bastian — Chief Executive Officer

Well. Certainly, anything that was scheduled to retire over the next five years has 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 and in a similar vein. We got 767, 757, there’s some of the older, some of the older models that we operate. We’ll certainly be looking at the RJs, with smaller RJs that we operate, but we’ll be taking the time to as I 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. And many of the things that we are on a path to do, I think we’ve shorten that pathway considerably as a result of this crisis.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Great. Thank you for that.

Ed Bastian — Chief Executive Officer

Sure.

Operator

Our next question comes from Jamie Baker with JPMorgan.

Jamie Baker — JPMorgan — Analyst

Hey, good morning, everybody. Paul, the best news of today is that you’re with us on the call and will 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. And now when you spoke at our conference a month ago, a month and a half whatever, at that time, it was a $20 billion unencumbered asset pool. You said the recent deals through 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 the government loan and whether treasury could take equity in SkyMiles?

Paul Jacobson — Executive Vice President and Chief Financial Officer

Well, first of all, Jamie, thank you, thank you for your kind comments, it’s really, really good to be here too. I — 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 billion that we continue to review and we have a list against those assets. So 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 grant. I’m sorry for the loan by April 30th, but the provisions of that program give us until September 30th to decide whether we will actually action and structure and take that loan going forward.

Jamie Baker — JPMorgan — Analyst

That helps. Sorry, go ahead. Go ahead, sorry.

Paul Jacobson — Executive Vice President and Chief Financial Officer

No, 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 — JPMorgan — Analyst

Got it. And second good question, you also made reference to the aircraft capex essentially going down to zero, looking to clarify that. Does that mean that you’re simply not sending any cash to lose or I think that there is full financing already in place? So put differently, if we do see an aircraft delivered this year, should we assume that it is fully financed?

Ed Bastian — Chief Executive Officer

Hi, Jamie, it’s Ed.

Jamie Baker — JPMorgan — Analyst

Hi, Ed.

Ed Bastian — Chief Executive Officer

The — since the — the situation with Airbus is one that obviously we’ve got a great relationship, we’re having constructive dialog. But the reality is, as I’ve shared with Gil [Phonetic], he shares our paying. We’ve got 600 aircrafts on the ground. We don’t need anymore aircraft to be putting on the ground. And we’ll work through this issue, we don’t have any plans to expand 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, it’s an open question right now. But the reality is, is that they are good partners and they’re working with us on it.

Jamie Baker — JPMorgan — Analyst

I appreciate it. Thank you, both.

Operator

Our next question comes from Mike Linenberg with Deutsche Bank.

Mike Linenberg — Deutsche Bank — Analyst

Yeah, hey, Paul, I’m glad you never left. So two questions here, when we think about the Payroll Support Program and as you [Technical Issues], how are you going to account for that? How does that runs P&L? I understand the loan fees will show up as interest expense, that’d be like an extraordinary item.

Paul Jacobson — Executive Vice President and Chief Financial Officer

So Mike, good morning. The low — the grant piece, net of the loan will actually flow through as the contra expense item. Secondly, essentially offsetting the requirements that are in there for maintaining workforce etc. So it will show up as an offset to salaries and related or other 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 Linenberg — Deutsche Bank — Analyst

Okay. And then just to be clear then, just the $100 million going to $50 million, it’s not reflecting that as an offset coming P&L, right, or at least it’s impacting the cash, okay.

Paul Jacobson — Executive Vice President and Chief Financial Officer

No, it’s — it’s in all the cash numbers that we’ve talked about in terms of ending about $10 billion in June.

Mike Linenberg — Deutsche Bank — Analyst

Great.

Ed Bastian — Chief Executive Officer

We’re not using that as a great sort of cash burn. Mike, that would…

Mike Linenberg — Deutsche Bank — Analyst

Okay, great. And then just secondly as we think about the Amex program, we were at a number around $4 billion [Phonetic] on its way to, call it, $7 billion as we think about the components, rate doesn’t change, will probably be down in 2020 and maybe acquisition doesn’t grow much or moderate, is that a fair way to think about the trajectory in 2020?

Ed Bastian — Chief Executive Officer

I think so, Mike. I know Amex has their call later in the week on earnings and they’ll probably discuss how they’re doing, how are faring through the crisis. Clearly, given the fact that passenger demand is falling off, so dramatically, our card — our card spend is not falling off nearly as dramatically, but it’s down in the numbers in the short term. And it’s one of the things that’s enabling us to keep, we got a 10% revenue target in the current quarter compared to our current plan, that would, that’s one of the contributing factors is the — is the spend on the card.

Mike Linenberg — Deutsche Bank — Analyst

Okay. Very good. Thank you.

Ed Bastian — Chief Executive Officer

I think when you, when Amex talks on Friday, I think you will probably have some better. I don’t want to — I’m close to Steve, and I know their numbers. I don’t want to share anything, but I think when you hear their perspective, it will better answer your questions, than I can.

Mike Linenberg — Deutsche Bank — Analyst

Great. Thank you.

Operator

Our next question comes from Savi Syth with Raymond James.

Savi Syth — Raymond James — Analyst

Hey, good morning. I was wondering if you could help me add, bridge the liquidity kind of getting from $6 billion to $10 billion. It appears cash burn will be around $5.5 billion in the quarter. You have the kind of maybe most or all of the $5.4 billion in PSP [Phonetic]. And I think, based on the disclosures, you have the kind of sale leaseback of one to two [Phonetic] and the — and the aircraft mortgages and perhaps some term loans there. And I think that leaves a gap about $2 billion 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 — Executive Vice President and Chief Financial Officer

Savi, this is Paul, I would simply say that you’re good at math. That worked pretty well.

Savi Syth — Raymond James — Analyst

I guess that math degree worked out well for me. And so I’m just…

Paul Jacobson — Executive Vice President and Chief Financial Officer

You’re using it well.

Savi Syth — Raymond James — Analyst

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 like unencumbered assets, miles, equity or maybe even like doing something with Trainer. How would you prioritize kind of see, kind of the best fit for kind of financing going forward?

Paul Jacobson — Executive Vice President and Chief Financial Officer

Well, 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, SkyMiles, 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. And we would certainly put that at a higher priority than we would be thinking about equity down the road. So while the uncertainty means that we can’t rule anything out. We’re certainly prioritizing use of our unencumbered assets.

Ed Bastian — Chief Executive Officer

I would share — 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 wasn’t coming in the door, and 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. So that’s a meaningful statement of liquidity that will obviously continue to build off of.

Savi Syth — Raymond James — Analyst

Very good point. All right. Thank you.

Operator

Our next question comes from Brandon Oglenski with Barclays.

Brandon Oglenski — Barclays — Analyst

Hey, good morning, everyone and thanks for taking my question. So I guess just to follow up on that, in terms of equity funding, I guess, one up 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 Bastian — Chief Executive Officer

Brandon, you were real quick, is your question about a potential equity raise? Is that what you’re asking us?

Brandon Oglenski — Barclays — Analyst

Sorry, my phone is cutting out, Ed. The question is, I think, if you need equity financing in the future, it could be harder to get. I guess why not potentially be more aggressive on that part of the balance sheet right now?

Ed Bastian — Chief Executive Officer

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 we’re not — we’re not going to exclude any option going forward until we have a better view when the recovery is going to come.

Brandon Oglenski — Barclays — Analyst

Okay, I appreciate that. And then Paul on the unencumbered assets, I think around $13 billion to $14 billion you disclosed, how much of that is aircraft? And what should investors expect, you could get LTVs on that asset base?

Paul Jacobson — Executive Vice President and Chief Financial Officer

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 leasebacks on, we’ve been getting 100%, sometimes even marginally a little bit more than what we had appraised for. On that basis, some of the older airplanes as we are looking at that are going to have less sale leaseback content, more secured 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 Oglenski — Barclays — Analyst

Okay, thank you.

Operator

Our next question comes from David Vernon with Bernstein.

David Vernon — Bernstein — Analyst

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 mark downs to those assets as we go through the next couple of months here. Would you think about that asset as a potential source of liquidity on the way back up? Or would you think — continue to think that those investments are kind of strategic and core to the Delta in the future as well?

Ed Bastian — Chief Executive Officer

David, again, you broke up a bit on the phone, your question is about our investments in our international partners?

David Vernon — Bernstein — Analyst

Yeah, yeah.

Ed Bastian — Chief Executive Officer

Monetizing them.

David Vernon — Bernstein — Analyst

Well, on the way back up. Yeah, I’m just wondering if you maybe thinking about that strategy across differently.

Ed Bastian — Chief Executive Officer

Listen, we — those are all strategic partnerships and they will all go through and they are all going through a very similar situation, in fact, they are arguably even more, more stressed than the domestic, the US 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 will 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, and there is 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 — Bernstein — Analyst

All right. I appreciate that color. And then maybe just as a, maybe a longer-term question for Glen 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 volumes than we had in the past.

Ed Bastian — Chief Executive Officer

David, that’s a — that’s a really open-ended speculative question. I — how I’m looking at this from myself, and we’re all of 40 days into this right, is that, there is a — there is a big, there is a 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 for whatever time it takes. We’ve got the liquidity. We’ve got the balance sheet strength. We’ve got the resiliency of our people and our brand. We’ll get through this. It may take several years to get through it, but we will get through it. But 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 is a personal safety. Travel will continue. It may not continue in all of its current form. There will be some impact, may be telecommuting or some of things that everyone’s enjoying being on Xoom videos, I personally don’t, but maybe some people do, maybe that will change the nature of travel a bit.

But business is done face to face, people enjoy experiences, all the things we’ve seen over the last period of the year is actually has, in my opinion caused people to miss travel more than ever before in this lock down phase. And we’ll get back, weather, it means our margins are going to be at the same level. I would hope so, that’s certainly going to be our goal and will be a smaller industry, you’re coming through this. I have no doubt. And that there will be opportunities to be streamlined. And I think people will pay a premium for service excellence like never before.

David Vernon — Bernstein — Analyst

Those are my views in the question. Thank you.

Operator

The next question comes from Hunter Keay with Wolfe Research.

Hunter Keay — Wolfe Research — Analyst

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 that customer tomorrow place a higher premium on quality of service. You seem to emphasize that in the script. And I want to know what you mean by that? And how are you going to position Delta to capitalize on from a product perspective?

Ed Bastian — Chief Executive Officer

Well, I think it’s premature to be speculating on product per se, Hunter, but I firmly believe that, even when you ask people, what’s the most important thing to get them to start traveling in, it’s going to be confidence and their safety, their personal safety, not just their physical safety. We are, 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, the US 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 that, certain advisors that we are working with and we’ll continue to work with to help translate the return of business, 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. I — you think about or 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 the providing 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 Keay — Wolfe Research — Analyst

Right, right. That’s all fair, but I mean you were kind of there before too. So I — what I’m trying to parse out is, what you expect to actually change is one of those things, it’s ironic, I actually about lower load factors three months ago in this call is one of these things that maybe you think about running a lower load factor sort of permanently and having less variability in pricing. So, maybe it’s a 65%, 75% load factor you guys run all the time, so people feel bit more spaced out or the seats themselves are further apart, I mean, like, what kind of stuff are you talking about changing here, that’s different?

Ed Bastian — Chief Executive Officer

I think all those are fair observations, Hunter. I don’t know what the answer to that. 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 be — will have a chance to test as we move forward as we walk through. This recovery is going to take several years, it’s going to be a multi-phased, it’s going to be choppy along the way. We’ll have opportunities to test all those pieces 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 vaccine in two years on a widespread. I don’t know, but there is a host of ideas and options in all part of this that we are exploring and 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, so they certainly will be in the short to medium term, whether they eventually get back to 90%, who knows, but we’ll figure it out as we go.

The other thing — the only thing I do know is that there will be fewer airplanes flying in the skies for an extended period of time, and that’s going to be an opportunity for us to focus more on a more premium experience in getting paid for what we deliver.

Hunter Keay — Wolfe Research — Analyst

Ed, thank you.

Operator

Our next question comes from Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth — Evercore ISI — Analyst

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 Bastian — Chief Executive Officer

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 are talking about loans as compared to grants, and we were very successful and I give the US airline aviation industry some real kudo for getting out in front of this, working with A4A, working with all of the, with 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 it will be lot of loans. You might see some international airlines nationalized. I think there is going to be an array of — array of alternatives that you may, you will see some international airlines go away. You will see some international airlines, not on ours specifically, this would broadly go through administrative and bankruptcy processes. So I think as we — as we look at it to trajectory of the recovery, it’s going to be slower internationally than domestically. And as a result that 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.

Duane Pfennigwerth — Evercore ISI — Analyst

Thanks. And then just for my follow-up, had a couple of questions this morning on Trainer, you know, interesting times with negative crude prices, and is this something that’s — that you are in the process of winding down. And to the extent you are, is there any potential working capital tailwind if you were to wind Trainer down, and thanks for taking the questions.

Paul Jacobson — Executive Vice President and Chief Financial Officer

Sure, Duane. And before I answer that I want to go back to one thing that David had asked. And just to, just to clarify for the avoidance of any doubt that the partner investments that he asked about monetizing that Ed said, we were not interested are not included in our unencumbered asset calculation, just in case, there was down about that. And as we think about as we think about Trainer, Duane, obviously we’ve made some adjustments, both in terms of where the market sit, but also in terms of our own declines in jet fuel production. Our jet fuel consumption which have been significant.

We have — we have cut production at Trainer we’re operating about just a little over half of what — what we were and blending all that jet fuel into diesel. And Trainer is covering it’s 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 and as we think about Trainer, obviously we are thinking about, what does the airline look like afterwards and will assess all of that. It remains an important part of our overall fuel strategy, but that’s obviously somewhat muted in the current environment today.

Duane Pfennigwerth — Evercore ISI — Analyst

Would there be a working capital tailwind if you were to kind of wind it down?

Paul Jacobson — Executive Vice President and Chief Financial Officer

Nothing significant as we have a lot of that working capital already securitized and we managed to keep that relatively constant throughout all of the operation.

Duane Pfennigwerth — Evercore ISI — Analyst

Thank you.

Operator

Our next question comes from Helane Becker with Cowen.

Helane Becker — Cowen and Company — Analyst

Thanks very much, operator. Hi, everybody and thank you very much for the time. So 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? And second, Ed, you talked a lot about what you can do you know once people get on your planes and certainly at the gate there is a lot you can do, there’s probably a lot, you can do. In the check-in process, but what about in the airport, how, how do you — are you working with your airport — various airports about how you can ensure customer. I don’t know what the right word is, because it’s not safety, but and I really don’t know what word is. It makes you all so good.

Ed Bastian — Chief Executive Officer

It is safety, Helane. No, it is safety, it’s personal hygiene, it’s personal safety. And 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 reallocated a lot of our team members to ensuring the, not just the cleanliness and the hygiene on Board, 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 service them, but our cleanliness scores are through the ceiling, 3, 4x [Phonetic] times improvements on board to planes. And if you want to go check it out for yourself, I encourage you to travel on us, you can say that, but working through the airport, the facilities working with TSA.

Other things that we have to do to reduce touch points and allow customers, the same level of safety on boarder 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 classified as a demand. I mean, certainly I think demand will be there when it’s safe to travel. Once people feel confident that they, through both the medical progress we made to the medical community to government leadership when people indicate that it’s safe to travel.

And that’s when the recovery will take shape. I — this is very unlike anything we’ve ever encountered. We’ve encountered a lot of — a lot of crisis in our industry. This one, where people physically do not feel safe to venture out of their homes is unique to us and we got to inspire the confidence they have to start travelling again.

Helane Becker — Cowen and Company — Analyst

That’s very helpful. And if it helps, I’m pretty sick of paradise [Phonetic] present, I love my house, but I miss traveling.

Ed Bastian — Chief Executive Officer

Good. We miss seeing you Helane.

Helane Becker — Cowen and Company — Analyst

Have a good day. Thank you.

Ed Bastian — Chief Executive Officer

Thank you.

Operator

Our next question comes from Joseph DeNardi with Stifel.

Joseph DeNardi — Stifel — Analyst

Yeah, thanks, good morning. Just two straightforward questions for you Paul on the marketing company or the loyalty program. Is there a scenario where you do a presale with Amex and use it as collateral for government money, and then what is the value of that asset worth as 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 worth?

Paul Jacobson — Executive Vice President and Chief Financial Officer

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 anyway. And the asset base that we have and the permitted liens under our agreements, we think ultimately would make a pretty good package if we decided to take a government loans. I don’t think we need to look to loyalty for that. As for the opportunity to do a presale. I’m not going to get into any details. That’s obviously a conversation that we would have, and our — with American Express. And Ed speaks to them very regularly, and that’s borne out of the partnership mentality. It’s not anything that we would comment on here publicly.

Ed Bastian — Chief Executive Officer

Yeah, the only thing [Speech Overlap].

Joseph DeNardi — Stifel — Analyst

Do you have to do an equity issuance or presale in order to qualify for the government that money?

Ed Bastian — Chief Executive Officer

No. Joe, no, we don’t. I just wanted to add on to what Paul was saying about Amex. They are 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 — we’ll have good constructive conversations. But we are not having conversations unlike publicly reported documents that indicate we are, we are not, and, but we’re staying close to our good partners in that. And at some point we’re very well made, but not, there’s nothing, there’s nothing imminent to announce that yet.

Joseph DeNardi — Stifel — Analyst

Okay, that’s helpful. And then I don’t know, if Glen is on the call or Ed, you like to talk about it. Can you just talk about demand, what forward bookings look like and what maybe the mix of corporate versus user tells you at this point in terms of which is holding up, just any commentary that you feel comfortable talking about. Thank you.

Ed Bastian — Chief Executive Officer

So, it’s — I categorize this as we’re bumping along the bottom here and bookings are down, traffic is down about 95%. And there is, 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 who’s work goes on and it’s required for them to travel. And so it’s really people who are needing to travel, and I think as I’ve said before, as people perceive it as being safer, we’ll see the larger volumes come back, but with everybody having to 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.

Paul Jacobson — Executive Vice President and Chief Financial Officer

Yeah. It’s — the demand questions are hard to answer, because there’s not a lot of data right now. But one data point which has progressed is that, where cash levels are now starting to equal the refunds going out the door, right, so that wasn’t the case 30 days ago. We are being over overwhelmed by the amount of cash refunds relative to new cash sales coming in. So that’s going to take some time, we’re prepared for the — for the duration and we know we’ve got — we’ve got a good product and good service in the good brand that will be there when people will set to travel.

Joseph DeNardi — Stifel — Analyst

Thank you.

Operator

Our next question comes from Myles Walton with UBS.

Myles Walton — UBS — Analyst

Thank you [Phonetic] for the comments. First on the government assistance for payroll protection beyond September 30th, do you think, as you think about it, is that something you think is necessary for the industry — the industry would ask for?

Ed Bastian — Chief Executive Officer

Additional government support beyond September 30th, is that your question, Myles?

Myles Walton — UBS — Analyst

It is. Yeah.

Ed Bastian — Chief Executive Officer

I wouldn’t speculate. I — my sense is the appetite for additional relief beyond that will be challenging. And I think the combination of the PSP together with the loans should provide us the liquidity we need to get through this crisis that we might be.

Myles Walton — UBS — Analyst

Okay. And then secondarily kind of post-crisis. I know you said to take a few years, but just the business model to run an airlines, do you think that now airlines are effectively going to have to sit on, six months of cash expenses, in cash to satisfy whatever criteria there is to weather the next pandemic should come along?

Ed Bastian — Chief Executive Officer

I don’t know, that’s — that would be a difficult financial burden to carry. I don’t think we can build our business models to sustain 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 got plenty of time to ask those questions in the future, but for now, we’re very focused on weathering this — weathering the storm and getting through over the next several years, and then we’ll have time to think about that.

Myles Walton — UBS — Analyst

Okay, thank you.

Operator

Our next question comes from Catherine O’Brien with Goldman Sachs.

Catherine O’Brien — Goldman Sachs — Analyst

Good morning, everyone, thanks for the time. Hope you all are safe and healthy. So two fairly quick ones. If you are 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 from the sale leaseback transaction you disclosed today on aircraft already in your fleet. And then, if so, do you have any aircraft remaining in your fleet that might be attractive to put into future sale-leaseback deals?

Paul Jacobson — Executive Vice President and Chief Financial Officer

Good morning, Katie. So the answer to your first question is, absolutely, those are all sale leasebacks on the existing fleet. And I didn’t catch the second question, apologies.

Catherine O’Brien — Goldman Sachs — Analyst

It was — so I said, are there any other remaining aircraft still may be attractive to put into the future, leaseback deals that are currently in your fleet?

Paul Jacobson — Executive Vice President and Chief Financial Officer

Yeah. We still have some, as I mentioned in the — in my earlier comments about half of the remaining is aircraft, which includes some newer vintage models that are — that we think are good candidates for sale-leasebacks. And some older aircraft that, at the end of the day, probably or not that would be more in line for secured debt transaction. But we still have some, yes.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, got it. Appreciate that. And then maybe just for my follow-up, the rate of what you’ve been able to get cost 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 burns or are there any items where you’ve been granted deferrals in the short term that maybe come back online towards year end? Thanks.

Ed Bastian — Chief Executive Officer

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 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 into 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 teams on a massive effort, and I think you’re going to see that continue. There’s always been a lot of dialogue in our business as to what our true variable cost structure is. We’re seeing 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.

Catherine O’Brien — Goldman Sachs — Analyst

Okay. Thanks. Appreciate that.

Ed Bastian — Chief Executive Officer

Sure.

Jill Greer — Vice President of Investor Relations

Hey Lauren, we are going to do one more question from the analysts.

Operator

Thank you. Our next question comes from Stephen Trent with Citi.

Stephen Trent — Citigroup — Analyst

Thank you very much, everybody and appreciate you taking my question. Hope everybody and your families are okay. Quick ones from me. I was wondering if you could just give us a little color on how you might pivot a little to perhaps take opportunities more air cargo flow with passenger flow depressed at the moment.

Ed Bastian — Chief Executive Officer

Thanks, Stephen. 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 have mentioned 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 are — we have looked at and we’re taking some of the main deck seats off our — a few of our international planes to facilitate taking greater lift in the short term and we’ll continue to use those resources where it makes sense for, certainly for some time to come.

Team in cargo, Shawn Cole, 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. Really 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 and we continue to do some of those missions going forward.

Stephen Trent — Citigroup — Analyst

Very helpful and just one last follow-up, actually a follow-up to the gentleman from Stifel’s questions. When we think about the credit card side of the business, 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 Bastian — Chief Executive Officer

Absolutely. There’s nothing in this crisis that shows us that, any individual part of our business model. It 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 Express is incredibly strategic and important to us in the future.

Stephen Trent — Citigroup — Analyst

Thank you very much, everybody and be safe.

Ed Bastian — Chief Executive Officer

Thank you. You too.

Paul Jacobson — Executive Vice President and Chief Financial Officer

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 Mapes to address the media.

Tim Mapes — Senior Vice President and Chief Marketing & 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. 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 for that. Hold on just a minute.

Tim Mapes — Senior Vice President and Chief Marketing & Communications Officer

Again, thank you for your patience. We are going to follow up, the members of my team will follow up with each of the reporters that we know were in the queue today. We will get varying ways of following up on your questions, but I 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.

Jill Greer — Vice President of Investor Relations

Thanks, Lauren.

Operator

[Operator Closing Remarks]