Delta Air Lines and the United States Department of the Treasury have reached an agreement for additional funding. Payroll Support Program Extension Agreement (PSP Extension Agreement) gives Delta access to nearly $ 3 billion in funds, which can only be used for salaries, wages and benefits employees.
Delta Signs New PSP Extension Agreement
Delta Air Lines expects to receive $ 2.9 billion in payroll support payments. Subject to Delta’s agreement to maintain essential air service by United States Department of Transportation (DOT) guidelines until March 1, 2022, executive compensation limitations until October 1, 2022, and share buyback and dividend bans until March 31, 2022, the airline will receive the money to avoid involuntary layoffs or leave for US employees until March 31, 2021.
Relief payments are of two different types. First, there is $ 2.0 billion in grants and $ 830 million in 10-year unsecured loans. The first installment of $ 1.4 billion has already been paid to Delta on January 15. The remaining balance will be returned to the airline before the end of the first quarter.
The loan provided by Delta has an annual interest rate of 1.00% for the first five years, until January 15, 2026, and the guaranteed financing rate applicable overnight plus 2.00% over the past five years. Of the $ 1.4 billion already delivered to Delta, the airline has received 70% in the form of a grant and 30% in the form of an unsecured loan.
Pursuant to the terms of the loan, Delta issued to the Treasury a promissory note of approximately $ 400 million relating to the term loan. Delta also agreed to issue treasury bills to acquire approximately 2.1 million Delta common shares.
Delta has avoided holidays so far
While some other airlines have had to put thousands of employees on leave, Delta has been able to avoid any leave by implementing an aggressive leave without pay program. The long-term effect on the airline is not yet clear, but the carrier believes it will be able to operate a competitive and efficient operation in the future.
Still, while Delta apparently didn’t need the additional PSP funding, the carrier won’t say no to “free” money. At the end of 2020, the airline had $ 16.7 billion in cash. With that $ 2.9 billion, Delta has about $ 19.6 billion in cash, or even a few million.
The airline did not immediately seem risky about needing the extra time off. Still, the demand environment has not been materially approved, and until Delta hits the inflection point it expected, which it says will arrive this spring, the airline could use all cash she can get.
What to expect from Delta this year
Delta’s first quarter 2021 will resemble its fourth quarter 2020. Compared to the first quarter of 2019, the airline expects its planned capacity to be down 35%. However, its salable capacity compared to the same quarter will be down approximately 55% due to the airline policy of blocking seats on its planes.
The airline is forecasting a decline in revenue of around 60-65% while operating expenses will be down 35-40% from the first quarter of 2019. The carrier has worked aggressively on its cash consumption and is now looking at a daily average of $ 10-15 million. burn in the first quarter – down about 90% from the first days of the crisis in March.
Delta has also emerged from this structurally smaller crisis, with 227 planes withdrawn from service in 2020 and about 200 others expected until 2025. Delta will now take 34 new planes in 2021.
Basically, the airline was in a good position to move forward. He planned to turn a profit by the summer months and was hoping to break even this spring. This $ 2.9 billion will certainly help Delta after massive annual loss of $ 12.4 billion, although he didn’t need the money as much as some of his network peers.
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