On July 14, Delta Air Lines (NYSE:DAL) announced its June quarter results before the market opened, triggering a buying spree in DAL stock.
No doubt, the quarter’s numbers were terrible. Delta reported losing $3.9 billion, $4.43 per share fully adjusted, on revenue of $1.2 billion.
Sell, sell, sell, right? Nope. It was buy, buy, buy.
On July 15, the shares gained nearly 10%, investors gambling that air travelers will return, that Delta will survive. One genius suggested investors buy Delta and short JPMorganChase (NYSE:JPM). That hasn’t worked only because JPM is up.
The key figure for the rise is in the release. Delta ended the quarter with $15.7 billion of liquidity.
The only problem is that the loss is adjusted. The pre-tax loss under Generally Accepted Accounting Principles (GAAP) was $7 billion.
Delta is flying low. Will it clear the trees?
The Glass Is Half Full
It’s clear that, if the Federal Reserve and the Trump administration have anything to say about it, Delta’s coming back stronger than ever.
Delta took $5.4 billion on the CARES Act. It has burned through the $3.8 billion grant. It also took a $1.5 billion loan with warrants representing 1% of the equity, at $24.39 per share. Delta opens for trade July 16 at $27.75, so those warrants are in the money.
Delta has since gotten about 15,000 employees to take voluntary buyouts. This means it may avoid layoffs, which would take out the newest, lowest-paid workers first. Without the aid those workers, and more, would already be on unemployment.
In addition to paying employees to do nothing, Delta has also been using the last three months to upgrade its fleet. Its Boeing (NYSE:BA) 777s are being retired. But all of its Airbus (OTCMKTS:EADSY) A-350s are flying again on long-haul routes.
That’s another reason for optimism. While three passengers on its Endeavor Air subsidiary recently tested positive for the novel coronavirus while going from Albany, Georgia, to Atlanta, the rest of the world is recovering. This has become an American pandemic, which means international operations are slowly coming back.
The Glass Is Half Empty
On the other hand, most of Delta’s revenue still comes from the U.S., and most of its international flights are based out of U.S. airports. International gateways are no longer open to U.S. passengers. They likely won’t be until the pandemic is under control.
That means bookings at Delta have stalled again, after falling 88% in the second quarter. Management warned that business travel may never return to pre-pandemic levels thanks to companies like Zoom Video (NASDAQ:ZM).
Revenue for the September quarter may be down as much as 75% from a year ago. The cash “burn rate,” $27 million each day at the end of June, would represent another $2.4 billion loss if continued through September. Delta had hoped to add 1,000 flights per day to its August schedule. The rising death toll has cut that in half.
The Bottom Line on DAL Stock
Delta has become hostage to the Covid-19 pandemic.
Investors have known that for months. It’s why the stock’s price has been cut in half since the start of the year. It is why Delta took the CARES Act money.
But all that was predicated on things getting back to normal soon. Lockdowns succeeded in Europe and most of Asia. They weren’t pursued aggressively enough in the U.S., especially around Delta’s base in the southeast, to prevent disaster. Investors who are desperate for gains are throwing money at Delta assuming a fact that is not yet in evidence.
It is possible that citizens will take matters into their own hands. Recent surveys show that wearing masks to fight the spread is finally taking off, even among Republicans.
DAL stock investors hope the American people are finally getting smarter than their leaders.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
