‘High fuel prices are new norm’ as Delta to retire 148 aircraft

Source: Flightglobal.com
This story is sourced from Flightglobal.com

Delta announced the retirement of about 130 domestic aircraft over the next 18 months, including the Boeing DC9-50s and Saab turboprops. Another 60 aircraft will be 50-seat regional jets. In a conference call with anlaysts the Group also announced an incremental 20 aircraft to be retired, among them widebody aircraft operated in international markets.

The Group reduced its capacity plans for the second half of 2011, which resulted in a four points reduction in planned capacity. Delta is targeting reductions in markets where revenue improvements have not kept pace with rising fuel costs. Delta now expects system capacity for the post-Labor Day period to be down approximately 3% compared to the prior year period.

CEO Richard Anderson says: "High fuel prices are the new norm of the industry." Anderson adds that analysts expect the US carriers to be profitable this year with jet fuel prices at $135 a barrel. Delta says it expects to be profitable in the second quarter with 7-9% operating margins, 'despite $1 billion high fuel pressure'.

Delta expects to end the second quarter with $5.8 billion in unrestricted liquidity, $300 million more than at the end of the first quarter.

SVP & CFO Hank Halter says second quarter capital expenditure is planned at $300 million, while the Group should generate $800 million in free cash flow. Anderson says the Group has a $1.3 billion capital expenditure 'ceiling' over the next five years. "Any aircraft we are going to take in the fleet has to have a double digit rate of return in order to support our $1.3 billion capex," he adds.

Delta has scheduled debt maturities at $450 million for the June quarter. It paid $460 million of debt in the first quarter. And Halter admits Delta paid down 'more that it had planned'.

Richard Anderson says Delta will continue to make good progress to reduce net debt towards its $10 billion target.