No Airline Recovery Soon, Delta Reports Multibillion-Dollar Loss, US Loses WTO Subsidy Case

U.S. airline troubles came into sharp relief Tuesday as Delta Air Lines reported nearly $2.6 billion in adjusted third quarter losses and canceled $5 billion in new aircraft orders through 2022 amid a coronavirus pandemic that has ravaged air travel.

Delta’s earnings came as the World Trade Organization OK’d $4 billion in tariffs against U.S. products in a dispute filed by the European Union over tax breaks to Boeing, itself reeling from the aftereffects of the grounding of the 737 MAX in the wake of two fatal crashes. The tariffs could raise the price of Boeing aircraft beyond some airlines' budgets if they go into effect.

The International Air Travel Association estimates that, worldwide, the airline industry has lost $84.3 billion this year, with demand down 52% and revenue off by half, with no end in sight through 2021. In the second quarter alone, U.S. airlines reported $11 billion in losses, down from $15.8 billion in profits in the year ago quarter, the Bureau of Transportation statistics reported.

“We expect the industry to burn through $77 billion in cash during the second half of 2020. This corresponds to $13 billion/month, lower than the rate of $17 billion/month in 2Q20. Nevertheless, the slow recovery in air travel will extend into 2021, resulting in the airline industry burning through cash, but at a lower rate, around $5 [billion] to $6 billion/month in 2021,” IATA said in an economic analysis.

“A public company can’t survive that kind of cash flow loss for even two years. And it might never get back to normal,” Hubert Horan, an independent transportation economist, told Forbes, adding it may be five years before the industry recovers, and even then it may be too crippled to spool up rapidly.

U.S. airlines began laying off as many as 50,000 employees Oct. 1 as the next round of coronavirus relief talks languished in Washington. Forbes predicted as many as three carriers could be forced into bankruptcy or the situation could trigger a series of mergers.

Horan said a lot of the demand destruction caused by the pandemic is likely to be permanent as businesses decide teleconferencing is more cost-effective.

Southwest CEO Gary Kelly said in August business would need to double to get his airline back to break-even.

Delta CEO Ed Bastian said Tuesday it’s necessary for his airline to reposition itself to “accelerate into a post-COVID recovery.” Revenue was down 79% while capacity fell 63%. If operating expenses related to the COVID-19 pandemic are included, losses approached $7 billion, Delta said.

Delta President Glen Hauenstein said it may be “two years or more until we see a normalized revenue environment.”

Delta, which buys planes from both Airbus and Boeing, said it would trim aircraft purchase commitments by $2 billion this year and $5 billion through 2022, as well as accelerate retirements of nearly 400 planes by 2025, half of them this year.

That’s not good news for Boeing, which still is awaiting permission from aviation regulators around the world to return the 737 MAX to service after the plane was grounded more than 18 months ago following the fatal crashes of two planes that killed 346 people.

The pandemic and the ensuing airline losses have strangled new aircraft orders. About half of the world’s 26,000 commercial aircraft are estimated to be out of service, putting a damper not only on new sales but on Boeing’s parts business.

Moody’s Investor Service has estimated Boeing will lose $30 billion this year, pushing its debt to $60 billion, about four times what it carried in 2018.