Delta Estimates Jet-Retirement Charges of Up to $2.5B in Q3

Delta Air Lines Inc DAL plans to retire some of its aircraft earlier than scheduled as part of its fleet-simplification strategy, aimed at modernizing the carrier’s fleet, enhancing customer experience as well as generating cost savings. To this end, the airline has decided to retire its Boeing 717-200 aircraft and the remainder of its 767-300ER aircraft by December 2025. It also plans to retire its CRJ-200 aircraft by December 2023.

Consequently, Delta expects to record non-cash impairment charges between $2 billion and $2.5 billion, before tax in the third quarter of 2020, associated with the retirement of these aircraft. The carrier may continue to consider such early aircraft-retirement opportunities to streamline its fleet.

Apart from the charges associated with retirement of aircraft, the carrier expects to record a charge of $2.7-$3.3 billion, before tax, in the third quarter, in connection with its voluntary early retirement and separation programs. Amid coronavirus-induced weak air-travel demand, the carrier has warned of several pilot furloughs post Sep 30, 2020, i.e, when the federal aid to cover airlines’ payroll expenses expires. However, to reduce the number of furloughs, the airline offered its employees voluntary early retirement and separation options. In fact, Delta expects to be able to avoid involuntary furloughs for its frontline employees, except for pilots, on Oct 1, thanks to a large number of employees opting for voluntary-separation programs.

Delta Air Lines, Inc. Price

Delta Air Lines, Inc. Price

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Zacks Rank & Key Picks

Delta carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are JB Hunt Transport Services Inc JBHT, Knight-Swift Transportation Holdings Inc KNX and Expeditors International of Washington Inc EXPD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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