Delta To Incur Up To $2.5B In Jet Retirement Charges In 3Q

Delta Air Lines has decided to retire its Boeing 717-200 aircraft and the remainder of its 767-300ER aircraft by Dec. 2025 and its CRJ-200 aircraft by Dec. 2023, earlier than previously scheduled.

Delta’s (DAL) decision is part of the company’s fleet simplification strategy, which aims to streamline and modernize its fleet, enhance the customer experience, and deliver cost savings.

Following the evaluation of the aircraft, the carrier expects to record non-cash impairment and other related pre-tax charges in the range of $2 billion and $2.5 billion in the third quarter. Delta indicated that it may consider additional early aircraft retirements in an effort to modernize and simplify its fleet.

Delta said it will also record a pre-tax charge of $2.7 billion to $3.3 billion in the third quarter in connection with its voluntary early retirement and separation programs. Meanwhile, the US airline expects its Sept. system capacity to drop to about 60% Y/Y, with the international capacity down 80% and domestic capacity down 50%. Due to dismal travel demand, the airline has parked about 40% of its mainline fleet, including the permanent retirement of certain aircraft.

Airlines have been under tremendous pressure as the COVID-19 pandemic has significantly hurt travel demand. Major airlines are facing significant cash burns as travel capacity has remained weak amid rising COVID-19 cases. Several air carriers are raising debt to maintain financial flexibility amid the aviation crisis. Delta recently raised $9 billion in debt backed by its SkyMiles loyalty program. (See DAL stock analysis on TipRanks)

In a positive note, Citigroup analyst Stephen Trent on Sept. 25 reiterated a Buy rating on the stock, saying that the airline looks the strongest among the legacy carriers and should break even by the end of 2020 on a cash operating basis.

Overall, the Street is cautiously optimistic on DAL. The Moderate Buy analyst consensus is based on 6 Buys, 4 Holds and no Sell ratings. Shares have plummeted 49% year-to-date, with the average analyst price target of $37.86 reflecting upside potential of 27% in the coming months.