Monthly Archives: July 2020

United Airlines plans to resume service on more than 25 international routes in September

United Airlines today announced it plans to resume service on nearly 30 international routes in September, including flights to Asia, India, Australia, Israel and Latin America and to continue to add ways to visit popular vacation destinations in the Caribbean, Hawaii and Mexico. The airline intends to fly 37% of its overall schedule in September as compared to the same period last year and is a 4% increase in capacity compared to what is planned for August 2020. United is also extending its waiver of change fees and award redeposit fees for reservations through August 31.

“We continue to be realistic in our approach to building back our international and domestic schedules by closely monitoring customer demand and flying where people want to go,” said Patrick Quayle, United’s vice president of International Network and Alliances. “In September, we’re adding even more options for leisure travelers or those who want to visit friends and relatives, whether that’s within the United States or around the world.”

Domestically, United intends to fly 40% of its schedule. The airline plans to add more than 40 daily flights on 48 routes to locations including Austin, Texas; Colorado Springs, Colorado; and Santa Barbara, California. Additionally, United plans to resume service between the U.S. mainland and Hilo and Kauai and increase flying to Honolulu, Kona and Maui in the Hawaiian Islands.

Internationally, United intends to fly 30% of its schedule as compared to September 2019, which is a 5-point increase compared to August. The airline expects to resume service on 20 routes in Latin America and the Caribbean, including to popular vacation destinations like Cabo San Lucas and Puerto Vallarta in Mexico and to San Jose and Liberia in Costa Rica. United intends to begin new nonstop service between Chicago and Tel Aviv and resume eight routes in the Atlantic and Pacific, including the return of European service from Houston with flights to Amsterdam and Frankfurt.

U.S. Domestic

Travelers in search of more socially distant vacation options like beach, mountain and national park destinations will continue to see opportunities for leisure travel including:

  • Increasing opportunities to connect to more than 800 flights from United’s mid-continental hubs in Chicago, Denver and Houston.
  • Adding more than 40 daily flights on more than 48 routes across the United States.
  • Resuming service between the U.S. mainland and Hilo and Kauai in Hawaii
  • Increasing service between the U.S. mainland and Honolulu, Kona and Maui.

Atlantic

Internationally, United is scheduled to fly 30% of its schedule in September compared to the same period in 2019. Across the Atlantic, United plans to offer customers more opportunities to get to Europe and beyond from Chicago, Houston, New York/Newark, and San Francisco. Highlights include:

  • Launching brand-new service between Chicago and Tel Aviv (subject to government approval)
  • Resuming service between Chicago and Amsterdam.
  • Resuming service between Houston and Amsterdam and Frankfurt.
  • Resuming service between San Francisco and Munich.
  • Increasing to daily service between Chicago and Frankfurt, and between San Francisco and London.
  • Continuing service between the United States and Delhi and Mumbai (subject to government approval).

Pacific

Across the Pacific in September, United plans to re-start three-times-weekly service between Los Angeles and Sydney and passenger service between Chicago and Hong Kong (subject to government approval).

Latin America/Caribbean

Throughout Latin America and the Caribbean, United is expanding across each region by adding 20 new routes for September. Highlights of United’s schedule include:

  • Starting new service between San Juan, Puerto Rico and Chicago and Washington-Dulles.
  • Resuming service from Houston to Aguascalientes, Tampico and Veracruz in Mexico.
  • Starting new service between New York/Newark and St. Thomas.
  • Resuming service between Costa Rica and Houston and New York/Newark.
  • Adding more ways to get to Puerto Vallarta, Mexico, including resuming service from Chicago, Denver and Los Angeles.
  • Resuming service between Denver and Cabo San Lucas.
  • Increasing the number of flights between Houston and Quito, Ecuador.

Reuters: United drops its relationship with ExpressJet Airlines

On July 30, 2020, it was announced that United decided to drop its contract with ExpressJet Airlines and consolidate all its United Express ERJ 145 routes with CommutAir.

From Reuters:

“United Airlines said on Thursday it has decided to drop its contract with ExpressJet, and consolidate all of its outsourced flying on 50-seat planes with regional rival CommutAir.

The decision could be a fatal blow to ExpressJet, which will begin to wind down its operations, according to a memo from Chief Executive Subodh Karnik to employees seen by Reuters.

Reuters reported United’s choice between the two carriers on Monday, after it saw a union letter to ExpressJet pilots warning that the choice could have a “dramatic impact” on the future of ExpressJet.

In a statement on Thursday, United said CommutAir will become its sole operator of Embraer SA ERJ 145 50-seat planes, under a transition that will take a number of months.

Chicago-based United has minority stakes in both ExpressJet and CommutAir, which bring passengers from smaller markets to destinations that United itself serves on larger jets.

United was ExpressJet’s sole client, which like other global airlines is suffering from the coronavirus pandemic that has decimated air travel demand.”

Route Map:

Korean Air maintains the highest quality of cabin air with HEPA filters and air circulation systems

Korean Air has made this announcement:

Korean Air launched a special inspection on HEPA (high efficiency particulate air) filters on its aircraft in efforts to maintain safety and cleanliness of cabin air.

According to Korean Air, the airline completed a special inspection on HEPA filters and air circulation systems on its aircraft. Korean Air performed checks on the state of HEPA filters installed in air circulation systems, and changed the HEPA filters that needed replacement. The airline also checked the overall performance of air circulation systems by testing the operation of recirculation fans.

Korean Air has been actively reassuring passengers of a safe in-flight environment during the COVID-19 pandemic. Korean Air maintains the quality of cabin air with HEPA filters and air circulation systems that minimize the spread of viruses.

Airbus also stressed the safety of in-flight environment. According to the leading aircraft manufacturer, aircraft are designed in compliance with all Airworthiness Regulations to provide the highest level of cabin air quality.

In-flight HEPA filters remove 99.97% of any viruses and bacteria

HEPA filters installed in aircraft effectively remove nearly 100% of any particulate matter that may be present in the air. Particles larger than 0.3 μm (micrometer) cannot penetrate the close-knit fibers within the filters. Even particles smaller than 0.3 μm are filtered as they stick to the fibers, its process varying with the air flow or velocity. These filters meet the standards set for hospital operating rooms or medical laboratories, filtering nearly all of the microscopic bacteria or viruses in the cabin.

Droplets, known as the medium through which COVID-19 viruses spread, are 5㎛ in size, and aerosol particles are about 1㎛ in size. HEPA filters effectively remove droplets, aerosol particles and COVID-19 viruses that may be present onboard.

Korean Air regularly exchanges HEPA filters in its aircraft to ensure effective performance. In 2019, the airline spent one billion Korean won (nearly 840,000 U.S. dollars) on exchanging HEPA filters.


Air circulation system up and running during flight

Air circulation systems start operating when the airplane is on the ground, when APU (Auxiliary Power Unit) is activated for power supply.

The air circulation system continues to operate during the flight. Aircraft cabin is supplied with a mix of outside air and filtered air, combined with a ratio of 50 to 50.

Outside air at a cruising height is 50 degrees Celsius, with a humidity level below one percent. When fresh air enters the airplane through engines, it is compressed at a high temperature. Next, the air goes through the ozone converter, which removes harmful ozone components. Then the heat exchanger adjusts the air temperature.

The fresh air is then mixed with the HEPA-filtered air before entering the cabin. This process makes it an inhospitable environment for viruses and bacteria to survive.


Cabin air flows from the top down, preventing the spread of contaminants

The direction of air flow also plays a crucial role in preventing spread of COVID-19 onboard.

The sterilized air enters the cabin from the vents in the ceiling and exits through the floor, creating a top to bottom flow. Even if virus-containing droplets are ejected into air, they would fall to the floor, instead of onto surrounding seats. This leads to lower probability of virus transmission in the cabin.

Moreover, the air is exchanged every two to three minutes. Generally, the air is exchanged every ten minutes in case of hospitals and every twenty minutes in offices.

Korean Air is committed to preventing the spread of COVID-19 by carrying out regular and special disinfection on all of its aircraft. In addition, the airline implements zone boarding to minimize contact, and requires passengers to wear masks on all flights.

KLM reports an operating loss of €768 million in the first half, will cut upwards of 5,000 positions

KLM issued this financial statement:

The dramatic consequences of the COVID-19 outbreak for the airline industry are more pronounced in KLM’s figures for the second quarter as opposed to the first quarter. Cargo business is performing well, but passenger operations have yet to display any form of structural recovery despite the fact that KLM gradually and carefully expands its network.

Passenger numbers fell by 95% in the second quarter of 2020, from over 9 million to less than half a million. Operating income amounted to a loss of €493 million. During the same period in 2019, we earned €270 million in profit.

The figures for the first half-year reflect a marginally more favourable picture, because KLM performed well in January and February before the outbreak of the COVID-19 virus. Nonetheless, KLM’s turnover almost halved to a figure of €2.8 billion in the first six months of 2020 in comparison with the same period in 2019.

Operating income amounted to a loss of €768 million for the first half-year, compared to a profit of €223 million for the same period in 2019. A decline of almost €1 billion.

Capacity fell by more than 50%, coupled with a decline in passenger numbers of more than 60% to a figure of 8.1 million for the KLM Group as whole. Of this figure, KLM transported 6.7 million passengers and Transavia 1.4 million. Cargo performed relatively well: cargo volume amounted to 229,550 tonnes, representing a 22.3% decline. Despite reduced (belly) capacity, flights to a range of destinations only carried cargo instead of passengers. Cargo was also carried in the cabins of passenger aircraft.

“These financial results serve to highlight the huge impact of this unprecedented crisis for the airline industry and KLM in particular. A loss of €800 million for the first six months of the year is the worst financial setback ever experienced in KLM’s history.
In the months ahead, KLM will continue to expand its European and intercontinental network. This is an important step towards recovery, albeit both limited and cautious. The road to recovery will be long and fraught with uncertainty. Even though we have already done a lot, further far-reaching measures will unfortunately be unavoidable.
And, despite this unbelievably difficult period and equally challenging circumstances, KLM’s employees are still doing everything possible to serve our customers. I appreciate this greatly and have enormous respect for everyone’s efforts.”
KLM President & CEO Pieter Elbers

 

KLM is in the throes of a crisis of unprecedented magnitude. Since the outbreak of the COVID-19 virus at the start of 2020, numerous measures have already been taken to deal with the current circumstances. Expectations are that the road to recovery will be long and fraught with uncertainty. This means that KLM’s structure and size must be rigorously adjusted even further in the years ahead.

Consequently, a total of 4,500 to 5,000 positions in the entire KLM Group (expressed in FTEs) will cease to exist.

In the wake of the coronavirus outbreak, KLM gradually began reducing the size of its network in February to operate less than 10% of its original number of flights by the start of April. In the second quarter, only 15% of the original number of flights were operated. In July, 30% of the original flights were operated and load factors are lagging behind. As a result, while the network is again being gradually and carefully expanded, revenues are lagging far behind.

Prospects for the airline industry – and KLM in particular – are uncertain. Different countries are now beginning to tighten their more relaxed travel restrictions. This is making customers more cautious when it comes to booking a ticket. In all scenarios, demand is only expected to recover by 2023 or 2024 at the earliest. The degree and speed of recovery will depend on a number of factors including the development of the virus, economic recovery and customer travel behaviour.

Adjusting to the new reality

Government support in the form of a direct state loan and guaranteed bank credit facilities amounting to a maximum of €3.4 billion will enable KLM to navigate the crisis in the forthcoming period. KLM is extremely grateful for this support provided by means of the loan. In order to guarantee KLM’s existence in the longer term, the airline must adapt its size to the new reality. KLM therefore finds itself compelled to reduce its workforce down to the number needed for the planned operation in 2021/2022. Of the current total of 33,000 FTEs in the entire KLM Group, the workforce must be reduced by 4,500 to 5,000 FTEs to 28,000 FTEs in the course of 2021.

KLM’s size is already becoming smaller – and will continue to be reduced – based on the current measures, which include the non-renewal of temporary contracts (1,500 FTEs) and the Voluntarily Departure Scheme (2,000 FTEs). Additionally, natural attrition (500 FTEs) through retirement and the like in 2020 and 2021 will also contribute to the reduction needed.

Hence, despite the measures already taken, even fewer people will be needed at KLM in the years ahead. Additionally, for positions on the ground we also need to deal with some mismatch in functional skills and capabilities.

Unfortunately, for this reason and taking into account the mismatch, alternative solutions will have to be found for ca. 1,500 positions. This relates to up to 500 ground positions, 300 cabin crew positions and 300 cockpit positions and approximately 400 positions at KLM subsidiaries and Air France-KLM group functions.

Given the high level of uncertainty, KLM keeps open the possibility of further reductions in case the production levels will be revised further down for 2021/2022 than the -20% planned now.

Trade unions and Works Council

KLM’s reorganisation plans tie in with organisation-wide changes at Air France KLM. In the forthcoming period, KLM will be cooperating closely with the trade unions to draft a social plan for each collective labour agreement domain and subsidiary, as well as maintaining close consultation with the Works Council about further defining the reorganisation. This will include a more detailed specification of the conditions set by the Dutch government on issuing the financing package. Expectations are that this will be finished in its entirety in the course of October.

Air Canada loses $1.5 billion in the second quarter

Air Canada has issued this financial statement:

  • Total revenue decline of 89 percent over second quarter of 2019 due to COVID-19 and government-imposed travel restrictions; cargo revenue up in the quarter
  • Total passengers carried decline of 96 percent compared to the second quarter of 2019
  • Liquidity of $9.120 billion at June 30, 2020
  • Operating loss of $1.555 billion

Air Canada today reported unrestricted liquidity of $9.120 billion at June 30, 2020, in line with Air Canada’s expectations, compared to unrestricted liquidity of $7.380 billion at December 31, 2019. Total revenues fell from $4.738 billion in the second quarter of 2019 to $527 million in the second quarter this year, a decline of $4.211 billion or 89 per cent. Cargo revenue increased 52 per cent to $269 million.  The airline reported second quarter 2020 negative EBITDA(1) (excluding special items) or (earnings before interest, taxes, depreciation and amortization) of $832 million compared to second quarter 2019 EBITDA of $916 million.  Air Canada reported an operating loss of $1.555 billion in the second quarter of 2020 compared to operating income of $422 million in the second quarter of 2019.

“As with many other major airlines worldwide, Air Canada’s second quarter results confirm the devastating and unprecedented effects of the COVID-19 pandemic and government-imposed travel and border restrictions and quarantine requirements. Canada’s federal and inter-provincial restrictions have been among the most severe in the world, effectively shutting down most commercial aviation in our country, which, together with otherwise fragile demand, resulted in Air Canada carrying less than four per cent of the passengers carried during last year’s second quarter. In the face of such an impossible operating environment, I am extremely proud of the outstanding efforts our team is making, doing everything possible to successfully navigate this crisis, leveraging our strong balance sheet and the many other assets we developed or acquired over the last decade,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada.

“Since mid-March, we have raised $5.5 billion in new equity, debt and aircraft financings in the capital markets, providing us with over $9 billion in liquidity as of June 30th to help weather the COVID-19 crisis. In addition, we have taken decisive action to cut spending and preserve liquidity – including a major management and front-line workforce reduction, a $1.3 billion reduction of our fixed costs and capital investments, the permanent retirement of 79 aircraft (representing more than 30 per cent of our combined mainline and Air Canada Rouge fleet), the indefinite suspension of certain domestic routes and station closures, and a reduction in our network seat capacity of 92 per cent in the quarter. These were some of the painful but necessary steps we have taken to stabilize our airline and preserve cash in these uncertain times. We will now look to the future using this unprecedented challenge as an equally unprecedented opportunity to rebuild a smaller but even more nimble airline, with a simplified and younger fleet and a lower cost structure coming out of the crisis.

“Above all, today’s reported declines in revenue of nearly 90 per cent and in passengers of over 96 per cent, should reinforce the tremendous urgency for governments in Canada to take reasonable steps to safely reopen our country and restore economic activity. Other jurisdictions globally are showing it is possible to safely and responsibly manage the complementary priorities of public health, economic recovery and job preservation and creation. This is why Air Canada recently added its voice to that of many business and union leaders, including more than 140 major Canadian corporations and travel and tourism companies, employing nearly three million Canadians, in calling on the Government of Canada to take prudent steps to replace current blanket travel restrictions and quarantines with targeted evidence-based measures that reflect current circumstances.

“For our part, Air Canada is laser-focused on business continuity and in positioning ourselves to emerge competitively as the pandemic recedes. To promote customer safety and confidence, we introduced Air Canada CleanCare+, a comprehensive, multi-layered approach to biosafety at all phases of the journey. As well, we have slowly begun to rebuild our network, recalling a small number of employees and selectively restoring the award-winning services that have placed Air Canada among the world’s great airlines. For this I thank our employees for all of their incredible efforts and dedication and together we look forward to greeting our returning customers,” said Mr. Rovinescu.

Air Canada has taken or will take the following measures in response to the COVID-19 pandemic:

Customer Service and Safety

  • Air Canada makes safety its first consideration in all that it does and has been continually updating its health and safety policies and procedures for travellers and employees in all workplaces, airports, and onboard aircraft to account for new information about COVID-19 as it becomes available. This now includes a requirement for customers to wear a protective face covering, as well as enhanced protective personal equipment for airport agents and crews, the reinforcement of safe practices such as frequent hand-washing and collaborating with the Canadian federal government to screen passengers to help determine fitness for flying. For more details on preventative measures and policies, please see:https://www.aircanada.com/covid19updates
  • To underscore its commitment to customer and employee safety, Air Canada introduced Air Canada CleanCare+. The new program is designed to reduce the risk of exposure to COVID-19 through such measures as enhanced aircraft grooming, mandatory preflight customer temperature checks in addition to required health questionnaires and providing all customers with care kits for hand cleaning and hygiene.
  • Air Canada has undertaken several medical collaborations to continue advancing biosafety across its business, including with Cleveland Clinic Canada in Toronto, a renowned global healthcare leader to provide additional science-based evidence in our ongoing COVID-19 response; with Ottawa-based Spartan Bioscience to explore rapid COVID-19 testing in an aviation environment; and, since last year, with Toronto-based BlueDot, a company that monitors infectious diseases globally in real time to give us accurate, relevant information to make business and safety decisions quickly.
  • To assist with global requirements of goods and personal protective equipment during the pandemic, Air Canada operated more than 2,000 all-cargo international flights since March 22, 2020, and plans to operate up to 100 all-cargo flights per week in the third quarter using a combination of Boeing 787 and Boeing 777 aircraft as well as four recently converted Boeing 777 and three converted Airbus A330 aircraft where it has doubled available cargo space by removing seats from the passenger cabin.
  • Air Canada announced special benefits and accommodations for Aeroplan and Altitude members in light of COVID-19. These include pausing mileage expiration, grandfathering mileage-earned status, waiving certain change and redeposit fees, and launching new promotions so that members can earn additional Aeroplan Miles without leaving home.

Capacity

  • Air Canada reduced second quarter 2020 capacity by 92 per cent compared to the second quarter of 2019 and plans to reduce its third quarter 2020 capacity by approximately 80 per cent compared to the third quarter of 2019. This compares to a prior estimated reduction of 75 per cent, the larger reduction resulting from the continued extension of blanket travel restrictions in Canada. The airline will continue to dynamically adjust capacity and take other measures as required to adjust for demand including as a result of health warnings, travel restrictions, border closures and passenger demand.
  • Air Canada suspended service indefinitely on 30 domestic regional routes and closed eight stations at regional airports in Canada.

Financing and Liquidity

  • In March 2020, Air Canada drew down its US$600 million and $200 million revolving credit facilities for aggregate net proceeds of $1.027 billion.
  • In April 2020, Air Canada concluded a 364-day term loan in the amount of US$600 million, secured by aircraft and spare engines, for net proceeds of $829 million.
  • In April 2020, Air Canada concluded a bridge financing of $788 million for 18 Airbus A220 aircraft which Air Canada expects to replace with longer-term secured financing arrangements later in 2020. The longer-term financing is expected to be secured by the 18 Airbus A220 aircraft.
  • In June 2020, Air Canada concluded an underwritten marketed public offering of 35,420,000 Class A variable voting shares and/or Class B voting shares of the company at a price to the public of $16.25 per share, for aggregate proceeds of $576 million, and a concurrent marketed private placement of convertible senior unsecured notes due 2025 for aggregate proceeds of US$748 million ($1.011 billion).
  • In June 2020, Air Canada completed a private offering of $840 million aggregate principal amount of 9.00 per cent Second Lien Secured Notes due 2024 (the “2024 Notes”), which were sold at 98 per cent of par. The 2024 Notes are secured obligations of Air Canada, secured on a second lien basis by certain real estate interests, ground service equipment, certain airport slots and gate leaseholds, and certain routes and the airport slots and gate leaseholds utilized in connection with those routes.
  • In June 2020, Air Canada completed a private offering of one tranche of Class C EETCs with a combined aggregate face amount of approximately US$315 million ($426 million), which were sold at 95.002 per cent of par. The Class C tranche ranks junior to the previously issued Series 2015-1, Series 2015-2, and Series 2017-1 EETCs, and is secured by liens on the 27 aircraft financed under the Series 2015-1, Series 2015-2, and Series 2017-1 EETCs. The Class C EETCs have an interest rate of 10.500 per cent per annum, and a final expected distribution date of July 15, 2026.
  • As a result of the above financing activities, unrestricted liquidity amounted to $9.120 billion and excess cash amounted to $6.820 billion as at June 30, 2020. Air Canada updated its definition of excess cash in the second quarter of 2020 to better reflect the current operating environment. Air Canada was previously using 20 per cent of trailing 12 months operating revenue as its estimate of the minimum cash required to support ongoing business operations. The minimum cash estimate has now been updated to a fixed amount of $2.4 billion. This minimum cash estimate considers Air Canada’s various financial covenants, provides adequate coverage for advance ticket sales, and supports Air Canada’s liquidity needs.
  • Air Canada’s unencumbered asset pool (excluding the value of Aeroplan and Air Canada Vacations) amounted to approximately $2.5 billion as at June 30, 2020. As part of Air Canada’s ongoing efforts to increase liquidity levels, additional financing arrangements continue to be assessed.
  • Air Canada suspended share purchases under its Normal Course Issuer Bid in early March 2020 and did not renew its issuer bid upon its expiry in the second quarter of 2020.

Cost Reduction and Capital Reduction and Deferral Program 

  • Air Canada initiated a company-wide cost reduction and capital reduction and deferral program as a result of COVID-19, which has now reached approximately $1.3 billion, increased from an initial target of $500 million. Excluding depreciation, amortization, and special items, second quarter 2020 operating expenses decreased $2.462 billion or 64 per cent from the same quarter in 2019. Air Canada continues to seek additional opportunities for cash preservation.
  • Air Canada announced a workforce reduction of approximately 20,000 employees, representing more than 50 per cent of its workforce. This was achieved through layoffs, terminations of employment, voluntary separations, early retirements, and special leaves.
  • Air Canada adopted the Canada Emergency Wage Subsidy (CEWS) for most of its workforce effective March 15, 2020. On July 17, 2020, the Government of Canada announced that the program would be redesigned and extended to December 2020. Air Canada intends to continue its participation in the CEWS program, subject to meeting the eligibility requirements.
  • Air Canada is retiring 79 older aircraft from its fleet – consisting of Boeing 767, Airbus A319 and Embraer 190 aircraft. Their retirement will simplify the airline’s overall fleet, reduce its cost structure, and lower its carbon footprint.

Second Quarter Summary

Air Canada recorded a net loss of $1.752 billion or $6.44 per diluted share, compared to net income of $343 millionor $1.26 per diluted share in the second quarter of 2019.

At June 30, 2020, net debt of $4.564 billion increased $1.723 billion from December 31, 2019, reflecting the impact of net cash used for operating and investing activities in the first six months of 2020.  The unfavourable impact of a weaker Canadian dollar, as at June 30, 2020 compared to December 31, 2019, increased foreign currency denominated debt (mainly U.S. dollars) by $350 million.

In the second quarter of 2020, net cash flows used in operating activities of $1.251 billion deteriorated by $2.341 billion from the same quarter in 2019 on lower operating results and lower cash from working capital as a result of lower advance ticket sales, reflecting the severe impact of the COVID-19 pandemic.  In the second quarter of 2020, net cash inflows from financing activities amounted to $4.089 billion, an increase of $4.470 billion from the second quarter of 2019.

Net proceeds from debt and equity financings of $4.358 billion in the second quarter of 2020 reflected the impact of the financings discussed above.

Outlook and Major Assumptions

As indicated above, Air Canada plans to reduce its third quarter 2020 capacity by approximately 80 per cent from the same quarter in 2019.  The airline will continue to dynamically adjust capacity and take other measures as required to account for health warnings, travel restrictions, border closures globally and passenger demand.

Air Canada projects a net cash burn(1) of between $1.35 billion and $1.6 billion (or between $15 million and $17 million per day, on average) in the third quarter of 2020.  This net cash burn projection includes $4 million per day in capital expenditures and $5 million per day in lease and debt service costs.  This compares to a net cash burn of $1.724 billion (or approximately $19 million per day, on average) in the second quarter of 2020.  The projected improvement in net cash burn in the third quarter of 2020 reflects the significant measures taken to reduce cash burn (as discussed above) and a modestly improving demand environment, partially offset by higher capital expenditures, including aircraft deliveries.  The projected net cash burn for the third quarter of 2020 assumes that certain international borders will be reopened, that travel restrictions in a number of markets will be lifted and that passenger demand will continue to improve.

(1) Non-GAAP Measures

Below is a description of certain non-GAAP financial measures used by Air Canada to provide readers with additional information on its financial and operating performance. Such measures are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for, or superior to, GAAP results.  Readers are advised to review the section entitled Non-GAAP Financial Measures in Air Canada’s Second Quarter 2020 MD&A for a further discussion of such non-GAAP measures and a reconciliation of such measures to Canadian GAAP.

  • EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used in the airline industry and is used by Air Canada as a means to view operating results before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets. Air Canada excludes special items from EBITDA as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.
  • Net cash burn is commonly used in the airline industry and is used by Air Canada as a measure of cash used to maintain operations, support capital expenditures, and settle normal debt repayments, all before the net impact of new financing proceeds. Net cash burn is defined as net cash flows from operating, financing, and investing activities, and excludes proceeds from new financings, a lump sum debt maturity made in March 2020 of $255 million and any future lump sum debt maturities where the Corporation has refinanced or replaced the amount. Net cash burn also excludes movements between cash and short and long-term investments.

Air Canada aircraft photo gallery:

Air Canada aircraft slide show:

https://airlinersgallery.smugmug.com/frame/slideshow?key=D9nVfQ&speed=3&transition=fade&autoStart=1&captions=0&navigation=0&playButton=0&randomize=0&transitionSpeed=2

British Airways retires the Airbus A318, Iberia to retire the A340-600 as IAG reports first half results

Iberia Airbus A340-642 EC-JPU (msn 744) KBP (Robbie Shaw). Image: 950772.

International Consolidated Airlines (IAG) today (July 31, 2020) presented Group consolidated results for the six months to June 30, 2020.

The results for the six months were significantly impacted by the outbreak of COVID-19, which has had a devastating impact on the global airline and travel sectors, particularly from late February 2020 onwards.

COVID-19 situation and management actions:

  •   Most Group aircraft grounded in quarter 2, with small programme of passenger flights for essential travel and repatriation
  •   1,875 additional cargo flights operated in quarter 2 to transport critical equipment and essential supplies
  •   Additional operating procedures implemented to protect customers and staff including facemask use and additional cleaning
  •   Liquidity boosted by actions including accessing Spain’s Instituto de Crédito Oficial (ICO) facility and UK’s Coronavirus Corporate Finance Facility (CCFF). Also, British Airways’ Revolving Credit Facility extended and additional one-year bridge aircraft financing facilities agreed and implemented in quarter 2
  •   Multi-year renewal signed with American Express on July 24, including €830 million payment, a significant part of which is Avios pre-purchase
  •   Cash operating costs for quarter 2 reduced to €205 million per week, with April and May slightly lower than previously estimated at €195 million per week, despite additional cost of operating cargo-only flights
  •   Current capacity planning scenario for an increase through quarter 3 and quarter 4, to -74 percent and -46 percent versus 2019 respectively, but plans highly uncertain and subject to easing lockdowns and travel restrictions
  •   Based on our current capacity planning scenario, IAG would reach breakeven in terms of Net cash flows from operating activities during quarter 4 2020
  •   Government wage support schemes accessed in main employee bases and other measures agreed to reduce employee costs due to much-reduced flying program
  •   Capital spending for 2020 reduced by €1.5 billion, against the original plan, with 2020 fleet capital expenditure covered by committed financing
  •   Deliveries of 68 new aircraft due in 2020 to 2022 deferred and certain legacy aircraft retired early, including 32 Boeing 747s and 15 Airbus A340-600s
  •   IAG expects it will take until at least 2023 for passenger demand to recover to 2019 levels and is restructuring its cost-base to reduce each airline’s size, with consultations being undertaken locally as required
  •   Active discussions remain ongoing with Globalia regarding a potential restructuring of the Air Europa acquisition, taking into account the impact of the COVID-19 pandemic. Any agreed transaction would remain subject to regulatory clearances IAG period highlights on results:
  •   Passenger capacity operated in quarter 2 down 95.3 per cent on 2019 and for the six months down 56.2 percent on 2019
  •   Second quarter operating loss €1,365 million before exceptional items (2019 operating profit: €960 million) Note: Iberia is currently operating 3 A340-600s to Latin America: EC-IZY, ECJLE and EC-JNQ.
  •   Operating loss before exceptional items for the half year €1,900 million (2019 operating profit: €1,095 million)
  •   Exceptional charge in the half year of €2,137 million on derecognition of fuel and foreign exchange hedges for 2020 and impairment of fleet
  •   Loss after tax before exceptional items for the half year €1,965 million, and 2020 statutory loss after tax and exceptional items: €3,806 million (2019 profit: €806 million)
  •   Cash of €6,016 million at June 30, 2020 down €667 million on December 31, 2019. Committed and undrawn general and aircraft facilities were €2.1 billion, bringing total liquidity to €8.1 billionProposed capital increase:

 Proposed capital increase of up to €2.75 billion, to be supported by irrevocable commitment from largest shareholder and underwritten, subject to approval at General Shareholders’ Meeting in September

For definitions refer to the Alternative performance measures section.
1 The 2019 results include a reclassification of the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the period to June 30, 2019 was €63 million. Further information is given in note 1.
2 The prior year comparative is December 31, 2019.

Willie Walsh, IAG Chief Executive Officer, said:

“In quarter 2 we’re reporting a record operating loss of €1,365 million before exceptional items compared to an operating profit of €960 million last year. Total operating losses including exceptional items relating to the early retirement of British Airways’ Boeing 747s and Iberia’s Airbus A340s came to €2,177 million.

“We operated 1,875 cargo-only flights using passenger aircraft in quarter 2 which was an important cash contributor to the Group.

“All IAG airlines made substantial losses. As a result of government travel restrictions, quarter 2 passenger traffic fell by 98.4 per cent on a capacity reduction in the quarter of 95.3 per cent. We have seen evidence that demand recovers when government restrictions are lifted. Our airlines have put in place measures to provide additional reassurance to their customers and employees on board and at the airport.

“We continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels. Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets not just to get through this crisis but to ensure they remain competitive in a structurally changed industry.

“IAG continues to take action to strengthen its balance sheet and liquidity position including more than halving its operating cash costs and significantly reducing its capital spending. At the end of June liquidity stood at €8.1 billion. Based on our current capacity planning scenario, we would reach breakeven in terms of Net cash flows from operating activities during quarter 4 2020.

“Subject to shareholder approval at our AGM on September 8, IAG will undertake a capital increase of up to €2.75 billion which will enhance the Group’s resilience, balance sheet and liquidity position. We’re delighted that our largest shareholder, Qatar Airways, has already committed to support the proposed capital raising. This will best position IAG to continue executing its strategic objectives and capitalise on its existing market leading position and future growth and consolidation opportunities.”

In other news, British Airways has decided to drop the London (City) – New York Airbus A318 business route. The 32-seat A318s will be retired immediately. The unique route was last revenue flight was operated on March 18, 2020 (BA2 JFK-LCY with G-EUNA).

Video:

Top Copyright Photo: Iberia Airbus A340-642 EC-JPU (msn 744) KBP (Robbie Shaw). Image: 950772.

Iberia aircraft slide show:

 

Airbus reports a EBIT €1.6 billion loss in the second quarter

Airbus issued this second quarter financial report:

  • Industrial system adjusted to new production levels, cash containment and business resizing on track
  • H1 financials reflect COVID-19 impact mitigated by adaptation measures 
  • Revenues € 18.9 billion; EBIT Adjusted € -0.9 billion, including € -0.9 billion COVID-19 related charges
  • EBIT (reported) € -1.6 billion; loss per share (reported) € -2.45
  • Free cash flow before M&A and customer financing € -12.4 billion, € -4.4 billion in Q2
  • Strong liquidity underpins business resilience and flexibility

 

Airbus SE reported consolidated financial results for the Half-Year (H1) ended June 30, 2020.

“The impact of the COVID-19 pandemic on our financials is now very visible in the second quarter, with H1 commercial aircraft deliveries halving compared to a year ago,” said Airbus Chief Executive Officer Guillaume Faury. “We have calibrated the business to face the new market environment on an industrial basis and the supply chain is now working in line with the new plan. It is our ambition to not consume cash before M&A and customer financing in H2 2020. We face a difficult situation with uncertainty ahead, but with the decisions we have taken, we believe we are adequately positioned to navigate these challenging times in our industry.”

Net commercial aircraft orders totalled 298 (H1 2019: 88 aircraft), including 8 aircraft in Q2, with the order backlog comprising 7,584 commercial aircraft as of 30 June 2020. Airbus Helicopters booked 75 net orders (H1 2019: 123 units), including 3 H145s, 1 Super Puma and 1 H160 during the second quarter alone. Airbus Defence and Space’s order intake increased to € 5.6 billion.

Consolidated revenues decreased to € 18.9 billion (H1 2019: € 30.9 billion), driven by the difficult market environment impacting the commercial aircraft business with around 50% fewer deliveries year-on-year. This was partly offset by more favourable foreign exchange rates. A total of 196 commercial aircraft were delivered (H1 2019: 389 aircraft), comprising 11 A220s, 157 A320 Family, 5 A330s and 23 A350s. Airbus Helicopters reported stable revenues, reflecting lower deliveries of 104 units (H1 2019: 143 units) partially compensated by higher services. Revenues at Airbus Defence and Space were impacted by lower volume and mix, in particular at Space Systems, as well as delays in some programmes caused by the COVID-19 situation.

Consolidated EBIT Adjusted – an alternative performance measure and key indicator capturing the underlying business margin by excluding material charges or profits caused by movements in provisions related to programmes, restructuring or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – totalled € -945 million (H1 2019: € 2,529 million).

Airbus’ EBIT Adjusted of € -1,307 million (H1 2019: € 2,193 million(1)) mainly reflected the reduced commercial aircraft deliveries and lower cost efficiency. Steps have been taken to adapt the cost structure to the new levels of production, the benefits of which are materialising as the plan is executed. Also included in the EBIT Adjusted is € -0.9 billion of COVID-19 related charges.

Commercial aircraft are now being produced at rates in accordance with the new production plan announced in April 2020, in response to the COVID-19 situation. The current market situation has led to a slight adjustment in the A350 rate from 6 to 5 aircraft a month for now. On the A220, the Final Assembly Line (FAL) in Mirabel, Canada, is expected to progressively return to pre-COVID levels at rate 4 while the new FAL in Mobile, US, opened as planned in May. At the end of June, around 145 commercial aircraft could not be delivered due to COVID-19.

Airbus Helicopters’ EBIT Adjusted increased to € 152 million (H1 2019: € 125 million), reflecting a favourable mix, mainly in military, and higher services partially offset by the lower deliveries. The five-bladed H145 and H160 helicopters were recently certified by the European Union Aviation Safety Agency.

EBIT Adjusted at Airbus Defence and Space decreased to € 186 million (H1 2019: € 233 million), reflecting the COVID-19 impact, mainly in Space Systems, partly offset by cost reduction measures. The Division’s restructuring plan was updated to also reflect the impact of the coronavirus pandemic.

Three A400M transport aircraft were delivered in H1 2020. The certification of automatic low-level flight capability and simultaneous paratrooper dispatch were achieved in H1 2020, marking major milestones towards the aircraft’s full development. A400M retrofit activities are progressing in close alignment with customers.

Consolidated self-financed R&D expenses totalled € 1,396 million (H1 2019: € 1,423 million).

Consolidated EBIT (reported) was € -1,559 million (H1 2019: € 2,093 million), including Adjustments totalling a net € -614 million. These Adjustments comprised:

  • € -332 million related to A380 programme cost, of which € -299 million was in Q2;
  • € -165 million related to the dollar pre-delivery payment mismatch and balance sheet  valuation, of which € -31 million was in Q2;
  • € -117 million of other costs, including compliance, of which € -82 million was in Q2.

The consolidated reported loss per share of € -2.45 (H1 2019 earnings per share: € 1.54) includes the financial result of € -429 million (H1 2019: € -215 million). The financial result reflects a net € -212 million related to Dassault Aviation as well as the impairment of a loan to OneWeb, recorded in Q1 2020 for an amount of € -136 million. The consolidated net loss(2) was € -1,919 million (H1 2019 net income: € 1,197 million).

Consolidated free cash flow before M&A and customer financing amounted to € -12,440 million (H1 2019: € -3,981 million) of which € -4.4 billion was in Q2. The corresponding figure for Q1 2020 excluding the penalty payments – related to January’s compliance settlement with the authorities – was also at € -4.4 billion, demonstrating that cash containment measures including the adjustment of incoming supply started to become effective. These measures partially compensated for the reduced cash inflow from the low number of commercial aircraft deliveries in Q2.

Capital expenditure in H1 was stable year-on-year at around € 0.9 billion with Full-Year 2020 capex still expected to be around € 1.9 billion.  Consolidated free cash flowwas € -12,876 million (H1 2019: € -4,116 million). The consolidated net debt position was € -586 million on 30 June 2020 (year-end 2019 net cash position: € 12.5 billion) with a gross cash position of € 17.5 billion (year-end 2019: € 22.7 billion).

The Company’s Full-Year 2020 guidance was withdrawn in March. The impact of COVID-19 on the business continues to be assessed and given the limited visibility, in particular with respect to the delivery situation, no new guidance is issued.

 

Key post-closing events
In the frame of COVID-19, discussions are progressing with social partners. A restructuring provision is expected to be recognised once the necessary conditions are fulfilled. The amount is expected to be between € 1.2 billion and  € 1.6 billion.

The UK Serious Fraud Office (SFO) has requisitioned GPT Special Project Management Ltd (GPT) to appear in court for prosecution on a single corruption-related charge. GPT is a UK company that operated in Saudi Arabia which was acquired by Airbus in 2007 and ceased operations in April 2020. The SFO’s investigation related to contractual arrangements originating prior to GPT’s acquisition and continuing thereafter. A resolution of GPT, whatever its form, will not affect the 31 January 2020 UK Deferred Prosecution Agreement and a value has been provisioned in the Airbus accounts(3).

On 24 July 2020, the Company announced it had agreed with the governments of France and Spain to make amendments to the A350 Repayable Launch Investment (RLI) contracts to end the long-standing World Trade Organisation (WTO) dispute and remove any justification for US tariffs. After 16 years of litigation at the WTO, this final step removes the last contentious point by amending the French and Spanish contracts to what the WTO considers the appropriate interest rate and risk assessment benchmarks(3).

 

Note to editors: Live Webcast of the Analyst Conference Call
At 08:15 CEST on 30 July 2020, you can listen to the H1 2020 Results Analyst Conference Call with Chief Executive Officer Guillaume Faury and Chief Financial Officer Dominik Asam via the Airbus website. The analyst call presentation can also be found on the company website. A recording will be made available in due course. For a reconciliation of Airbus’ KPIs to “reported IFRS” please refer to the analyst presentation.

 

Airbus Consolidated – Half-Year (H1) Results 2020

(Amounts in Euro)

Consolidated Airbus H1 2020 H1 2019 Change
Revenues, in millions

thereof defence, in millions

18,948

4,092

30,866

4,085

-39%

0%

EBIT Adjusted, in millions -945 2,529
EBIT (reported), in millions -1,559 2,093
Research & Development expenses, in millions 1,396 1,423 -2%
Net Income/Loss(2), in millions -1,919 1,197
Earnings/Loss Per Share  -2.45 1.54
Free Cash Flow (FCF), in millions -12,876 -4,116
Free Cash Flow before M&A, in millions -12,373 -3,998
Free Cash Flow before M&A and Customer Financing, in millions -12,440 -3,981
Consolidated Airbus 30 June 2020 31 Dec 2019 Change
Net Cash/Debt position, in millions -586 12,534
Employees 135,154 134,931 0%
By Business Segment Revenues EBIT (reported)
(Amounts in millions of Euro) H1 2020 H1 2019 (1) Change H1 2020 H1 2019 (1) Change
Airbus 12,533 24,043 -48% -1,808 2,006
Airbus Helicopters 2,333 2,371 -2% 152 124 +23%
Airbus Defence and Space 4,551 5,015 -9% 73 -15
Eliminations -469 -563 24 -22
Total 18,948 30,866 -39% -1,559 2,093
By Business Segment EBIT Adjusted
(Amounts in millions of Euro) H1 2020 H1 2019 (1) Change
Airbus -1,307 2,193
Airbus Helicopters 152 125 +22%
Airbus Defence and Space 186 233 -20%
Eliminations 24 -22
Total -945 2,529
By Business Segment Order Intake (net) Order Book
H1 2020 H1 2019 Change 30 June 2020 30 June 2019 Change
Airbus, in units 298 88 +239% 7,584 7,276 +4%
Airbus Helicopters, in units 75 123 -39% 666 697 -4%
Airbus Defence and Space, in millions of Euro 5,588 4,220 +32% N/A N/A N/A
Airbus Consolidated – Second Quarter (Q2) Results 2020

(Amounts in Euro)

Consolidated Airbus Q2 2020 Q2 2019 Change
Revenues, in millions 8,317 18,317 -55%
EBIT Adjusted, in millions -1,226 1,980
EBIT (reported), in millions -1,638 1,912
Net Income/Loss(2), in millions -1,438 1,157
Earnings/Loss Per Share (EPS) -1.84 1.49
By Business Segment Revenues EBIT (reported)
(Amounts in millions of Euro) Q2 2020 Q2 2019 (1) Change Q2 2020 Q2 2019 (1) Change
Airbus 4,964 14,346 -65% -1,865 1,687
Airbus Helicopters 1,131 1,364 -17% 99 115 -14%
Airbus Defence and Space 2,440 2,903 -16% 126 102 +24%
Eliminations -218 -296 2 8 -75%
Total 8,317 18,317 -55% -1,638 1,912
By Business Segment EBIT Adjusted
(Amounts in millions of Euro) Q2 2020 Q2 2019 (1) Change
Airbus -1,498 1,730
Airbus Helicopters 99 110 -10%
Airbus Defence and Space 171 132 +30%
Eliminations 2 8 -75%
Total -1,226 1,980

Q2 2020 revenues decreased by 55%, mainly driven by lower deliveries at Airbus and Airbus Helicopters, and lower revenues at Airbus Defence and Space.

Q2 2020 EBIT Adjusted of € -1,226 million reflected low commercial aircraft deliveries and COVID-19 related charges.

Q2 2020 EBIT (reported) of € -1,638 million included net Adjustments of € -412 million. Net Adjustments in the second quarter of 2019 amounted to € -68 million.

Q2 2020 Net Loss of € -1,438 million mainly reflected EBIT (reported) and the low effective tax rate.

 

 

EBIT (reported) / EBIT Adjusted Reconciliation

The table below reconciles EBIT (reported) with EBIT Adjusted.

Consolidated Airbus (Amounts in millions of Euro) H1 2020
EBIT (reported) -1,559
thereof:
A380 programme cost -332
$ PDP mismatch/balance sheet revaluation -165
Others -117
EBIT Adjusted -945

Boeing CEO updates employees on quarterly results and market realities

Boeing President and CEO Dave Calhoun issued the following letter to employees today addressing aerospace market realities:

Team,

These past few months have been unlike anything we’ve seen. The pandemic’s effect on our communities and industry is ongoing. And the challenges we face as a company are still unfolding.

As cases continue to rise in areas around the globe, health and safety remain a top priority. My thanks go to everyone who is supporting our safety efforts, wearing face coverings and upholding our shared accountability for keeping one another safe. All those affected directly by COVID-19 also have my sympathies.

The reality is the pandemic’s impact on the aviation sector continues to be severe. Though some fliers are returning slowly to the air, their numbers remain far lower than 2019, with airline revenues likewise reduced. This pressure on our commercial customers means they are delaying jet purchases, slowing deliveries, deferring elective maintenance, retiring older aircraft and reducing spend — all of which affects our business and, ultimately, our bottom line. While there have been some encouraging signs, we estimate it will take around three years to return to 2019 passenger levels.

That’s why we’ve been taking decisive actions. To bolster our near-term liquidity, we suspended our dividend, terminated our share repurchasing program, reduced discretionary spending and overhead costs, and issued $25 billion in new debt.

While these steps help us navigate the pandemic, they don’t change the fact that the commercial marketplace is different, and we must change with it. To align to a smaller market, we lowered commercial production rates and took tough workforce actions throughout the quarter.

Unfortunately, it’s become clear that we need to make further adjustments based on the prolonged impact of COVID-19.

The changes include further lowering our commercial airplane production rates:

– We will have a slower ramp-up in 737 production than previously planned, with a gradual increase to 31 per month by the beginning of 2022.

– We will reduce the combined 777/777X production rate to two per month in 2021, which is one unit lower per month than we announced last quarter.

– We will further reduce 787 production to six per month in 2021. This is an adjustment down from the reduction we announced last quarter to 10 per month currently and seven per month by 2022. With this lower rate profile, we will also need to evaluate the most efficient way to produce the 787, including studying the feasibility of consolidating production in one location. We will share more with you following our study.

– While our 767 and 747 rates remain unchanged, in light of the current market dynamics and outlook, we’ll complete production of the iconic 747 in 2022. Our customer commitment does not end at delivery, and we’ll continue to support 747 operations and sustainment well into the future.

The work you’ve done on these programs has been tremendous. I have been impressed during every visit to our production facilities. These production rate changes are not a reflection on your work or our capability. The market simply won’t support higher output levels at this time, and we need to adapt accordingly.

As you know, we previously announced a net 10% workforce reduction in 2020 through a combination of voluntary layoffs, attrition and involuntary layoffs (ILOs) to align to a smaller market. The first wave of associates affected by ILOs received notification in May, and we continue to conduct smaller, phased workforce reductions to reach this target. Managers are communicating the latest wave of those reductions beginning today.

Regretfully, the prolonged impact of COVID-19 causing further reductions in our production rates and lower demand for commercial services means we’ll have to further assess the size of our workforce. This is difficult news, and I know it adds uncertainty during an already challenging time. We will try to limit the impact on our people as much as possible going forward. And as always, we will communicate openly, honestly and transparently with you.

The diversity of our portfolio and our government services, defense and space programs provide some stability in the near term as we take these tough but necessary steps. And we’ll continue working to meet our commitments and deliver on our priorities.

As we look to the future, we also are focused on not just adapting and recovering but also emerging stronger and more resilient. That includes proactively reviewing every aspect of our company to identify opportunities to improve, align to our new market and strengthen our culture. We are looking holistically at our infrastructure footprint, our overhead and organizational structure, our portfolio and investments, our supply chain health and stability, and our ability to drive operational excellence and a keen focus on safety in everything we do.

And while we’re facing challenges, it’s important to remember the good work and innovation underway across our company. This is absolutely necessary for our future. Aerospace has always proven to be resilient — and so has Boeing.

Thank you for facing these challenges with me. I could not ask for a better team.

Dave

Boeing reports a large second quarter loss

Boeing released this second quarter statement:

  • Financial results continue to be significantly impacted by COVID-19 and the 737 MAX grounding
  • Revenue of $11.8 billion, GAAP loss per share of ($4.20) and core (non-GAAP)* loss per share of ($4.79)
  • Operating cash flow of ($5.3) billion; cash and marketable securities of $32.4 billion
  • Total backlog of $409 billion, including more than 4,500 commercial airplanes

 

Table 1. Summary Financial Results

Second Quarter

First Half

(Dollars in Millions, except per share data)

2020

2019

Change

2020

2019

Change

Revenues

$11,807

$15,751

(25)%

$28,715

$38,668

(26)%

GAAP

Loss From Operations

($2,964)

($3,380)

NM

($4,317)

($1,030)

NM

Operating Margin

(25.1)%

(21.5)%

NM

(15.0)%

(2.7)%

NM

Net Loss

($2,395)

($2,942)

NM

($3,036)

($793)

NM

Loss Per Share

($4.20)

($5.21)

NM

($5.31)

($1.40)

NM

Operating Cash Flow

($5,280)

($590)

NM

($9,582)

$2,198

NM

Non-GAAP*

Core Operating Loss

($3,319)

($3,745)

NM

($5,019)

($1,759)

NM

Core Operating Margin

(28.1)%

(23.8)%

NM

(17.5)%

(4.5)%

NM

Core Loss Per Share

($4.79)

($5.82)

NM

($6.49)

($2.60)

NM

*Non-GAAP measure; complete definitions of Boeing’s non-GAAP measures are on page 6, “Non-GAAP Measures Disclosures.”    

The Boeing Company reported second-quarter revenue of $11.8 billion, GAAP loss per share of ($4.20) and core loss per share (non-GAAP)* of ($4.79), primarily reflecting the impacts of COVID-19 and the 737 MAX grounding (Table 1). Boeing recorded operating cash flow of ($5.3) billion.

“We remained focused on the health of our employees and communities while proactively taking action to navigate the unprecedented commercial market impacts from the COVID-19 pandemic,” said Boeing President and Chief Executive Officer Dave Calhoun. “We’re working closely with our customers, suppliers and global partners to manage the challenges to our industry, bridge to recovery and rebuild to be stronger on the other side.”

In the second quarter, Boeing restarted production operations across key sites following temporary pauses to protect its workforce and introduce rigorous new health and safety procedures. Despite the challenges, Boeing continued to deliver across key commercial, defense, space and services programs. The company also resumed early stages of production on the 737 program with a focus on safety, quality and operational excellence. Following the lead of global regulators, Boeing made steady progress toward the safe return to service of the 737, including completion of FAA certification flight tests.

To align to the sharp reduction in commercial market demand in light of COVID-19, the company is taking several actions including further adjusting commercial airplane production rates and reducing employment levels.

“The diversity of our balanced portfolio and our government services, defense and space programs provide some critical stability for us in the near-term as we take tough but necessary steps to adapt for new market realities,” Calhoun said. “We are taking the right action to ensure we’re well positioned for the future by strengthening our culture, improving transparency, rebuilding trust and transforming our business to become a better, more sustainable Boeing. Air travel has always proven to be resilient – and so has Boeing.”

Table 2. Cash Flow

Second Quarter

First Half

(Millions)

2020

2019

2020

2019

Operating Cash Flow

($5,280)

($590)

($9,582)

$2,198

Less Additions to Property, Plant & Equipment

($348)

($421)

($776)

($922)

Free Cash Flow*

($5,628)

($1,011)

($10,358)

$1,276

*Non-GAAP measure; complete definitions of Boeing’s non-GAAP measures are on page 6, “Non-GAAP Measures Disclosures.”    

Operating cash flow was ($5.3) billion in the quarter, primarily reflecting lower commercial deliveries and services volume due to COVID-19 and the 737 MAX grounding, as well as timing of receipts and expenditures (Table 2).

Table 3. Cash, Marketable Securities and Debt Balances

Quarter-End

(Billions)

Q2 20

Q1 20

Cash

$20.0

$15.0

Marketable Securities1

$12.4

$0.5

Total

$32.4

$15.5

Debt Balances:

The Boeing Company, net of intercompany loans to BCC

$59.5

$36.9

Boeing Capital, including intercompany loans

$1.9

$2.0

Total Consolidated Debt

$61.4

$38.9

1 Marketable securities consists primarily of time deposits due within one year classified as “short-term investments.”

Cash and investments in marketable securities increased to $32.4 billion, compared to $15.5 billion at the beginning of the quarter, driven by the issuance of new debt (Table 3). Debt was $61.4 billion, up from $38.9 billion at the beginning of the quarter due to the issuance of new debt, partially offset by repayment of maturing debt.

Total company backlog at quarter-end was $409 billion.

Segment Results

Commercial Airplanes

Table 4. Commercial Airplanes

Second Quarter

First Half

(Dollars in Millions)

2020

2019

Change

2020

2019

Change

Commercial Airplanes Deliveries

20

90

(78)%

70

239

(71)%

Revenues

$1,633

$4,722

(65)%

$7,838

$16,544

(53)%

Loss from Operations

($2,762)

($4,946)

NM

($4,830)

($3,773)

NM

Operating Margin

(169.1)%

(104.7)%

NM

(61.6)%

(22.8)%

NM

Commercial Airplanes second-quarter revenue and operating margin decreased reflecting lower delivery volume, partially offset by a lower 737 MAX customer consideration charge of $551 million in the quarter compared to a $5.6 billion charge in the same period last year. Second-quarter operating margin was also negatively impacted by $712 million of abnormal production costs related to the 737 program, $468 million of severance expense and $133 million of abnormal production costs from the temporary suspension of operations in response to COVID-19.

The 737 program resumed early stages of production in May and expects to continue to produce at low rates for the remainder of 2020. The COVID-19 pandemic has significantly impacted air travel and reduced near-term demand, resulting in lower production and delivery rate assumptions. Commercial Airplanes expects to gradually increase the 737 production rate to 31 per month by the beginning of 2022, with further gradual increases to correspond with market demand. Estimated potential concessions and other considerations to customers related to the 737 MAX grounding increased by $551 million in the quarter. There was no material change to estimated abnormal production costs.

Commercial Airplanes has further updated its production rate assumptions this quarter to reflect impacts of COVID-19 on its demand outlook, and will continue to assess them on an ongoing basis. The 787 production rate will be reduced to 6 per month in 2021. The 777/777X combined production rate will be gradually reduced to 2 per month in 2021, with 777X first delivery targeted for 2022. At this time, production rate assumptions have not changed on the 767 and 747 programs.

Commercial Airplanes delivered 20 airplanes during the quarter, and backlog included over 4,500 airplanes valued at $326 billion.

Defense, Space & Security

Table 5. Defense, Space & Security

Second Quarter

First Half

(Dollars in Millions)

2020

2019

Change

2020

2019

Change

Revenues

$6,588

$6,579

$12,630

$13,166

(4)%

Earnings from Operations

$600

$975

(38)%

$409

$1,827

(78)%

Operating Margin

9.1%

14.8%

(5.7) Pts

3.2%

13.9%

(10.7) Pts

Defense, Space & Security second-quarter revenue was $6.6 billion, reflecting COVID-19 impact on derivative aircraft programs, partially offset by higher volume across the remainder of the portfolio (Table 5). Second-quarter operating margin decreased to 9.1 percent primarily due to a gain on sale of property in the second quarter of 2019 and a $151 million KC-46A Tanker charge primarily driven by additional fixed cost allocation resulting from lower commercial airplane production volume due to COVID-19.

During the quarter, Defense, Space & Security received an award for three additional MQ-25 unmanned aerial refueling aircraft for the U.S. Navy, as well as contracts for Cruise Missile Systems for the U.S. Navy and a contract for 24 AH-64E Apache helicopters for the Kingdom of Morocco. Defense, Space & Security completed Critical Design Review for the T-7A advanced trainer, achieved first flight and delivery of the F/A-18 U.S. Navy Block III Super Hornet, and achieved first flight of the F-15 Qatar Advanced aircraft. Defense, Space & Security also delivered the 100th U.S. Navy P-8A Poseidon, the 400th V-22 Osprey, and the 2,500th AH-64 Apache.

Backlog at Defense, Space & Security was $64 billion, of which 31 percent represents orders from customers outside the U.S.

Global Services

Table 6. Global Services

Second Quarter

First Half

(Dollars in Millions)

2020

2019

Change

2020

2019

Change

Revenues

$3,488

$4,543

(23)%

$8,116

$9,162

(11)%

(Loss)/Earnings from Operations

($672)

$687

NM

$36

$1,340

NM

Operating Margin

(19.3)%

15.1%

NM

0.4%

14.6%

NM

Global Services second-quarter revenue decreased to $3.5 billion, driven by lower commercial services volume due to COVID-19, partially offset by higher government services volume (Table 6). Second-quarter operating margin decreased to (19.3) percent primarily due to lower commercial services volume, less favorable mix of products and services, and $923 million of charges related to asset impairments and severance costs as a result of the COVID-19 market environment.

During the quarter, Global Services was awarded a contract modification for P-8A integrated logistics support for the U.S. Navy. Global Services captured an order for four 767-300 freighter conversions for DHL and was awarded a contract for F-15 pre-delivery training support for the Qatar Emiri Air Force. Global Services also delivered the first F/A-18 Super Hornet test aircraft modified for the U.S. Navy Blue Angels.

Additional Financial Information

Table 7. Additional Financial Information

Second Quarter

First Half

(Dollars in Millions)

2020

2019

2020

2019

Revenues

Boeing Capital

$69

$75

$134

$141

Unallocated items, eliminations and other

$29

($168)

($3)

($345)

Earnings from Operations

Boeing Capital

($7)

$37

$17

$57

FAS/CAS service cost adjustment

$355

$365

$702

$729

Other unallocated items and eliminations

($478)

($498)

($651)

($1,210)

Other income, net

$94

$107

$206

$213

Interest and debt expense

($553)

($154)

($815)

($277)

Effective tax rate

30.0%

14.2%

38.4%

27.5%

At quarter-end, Boeing Capital’s net portfolio balance was $2.1 billion. Revenue from other unallocated items and eliminations increased primarily due to reserves related to cost accounting litigation recorded in the second quarter of 2019. Interest and debt expense increased due to higher debt balances. The second quarter effective tax rate reflects tax benefits related to the 5 year net operating loss carryback provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act as well as the impact of pre-tax losses.

JetBlue deploys Honeywell’s ultraviolet cleaning system for aircraft interiors

Honeywell’s new UV Cabin System has been put in service as part of a pilot by JetBlue Airways, marking the first time a U.S. airline has implemented the Honeywell technology. In clinical studies, ultraviolet light has been found to be capable of significantly reducing certain viruses and bacteria when properly applied at prescribed levels. The Honeywell UV Cabin System can traverse an aircraft cabin in less than 10 minutes, and JetBlue will be gauging the system’s place in its operation, while continuing other cleaning methods.

“With the safety of our crewmembers and customers our first priority, JetBlue’s Safety from the Ground Up initiative is maintaining a layered approach to safety by ensuring healthy crewmembers, providing flexibility, adding space, reducing touchpoints, and keeping surfaces clean and sanitized,” said Joanna Geraghty, JetBlue’s president and chief operating officer. “As we look to add additional layers of protection by utilizing cutting-edge technology, we have identified the Honeywell UV Cabin System as a potential game changer when it comes to efficiently assisting in our efforts to sanitize surfaces onboard.”

Honeywell has delivered eight of the devices to JetBlue, and the devices are now being put into service as part of JetBlue’s Safety from the Ground Up program at two of the airline’s focus cities, John F. Kennedy International Airport in New York and Fort Lauderdale-Hollywood International Airport. These two locations kicked off a 90-day pilot program for JetBlue to evaluate the Honeywell solution.

“JetBlue took an immediate interest in this new product when we demonstrated it for them just a few weeks ago, and now JetBlue is receiving our first systems,” said Mike Madsen, Honeywell Aerospace president and CEO. “We’ve ramped up production quickly on the UV Cabin System, and our company is working on a range of solutions to help make passengers more comfortable about flying.”

The Honeywell UV Cabin System is roughly the size of an aircraft beverage cart and has UV-C light arms that extend over the top of seats and sweep the cabin to treat aircraft surfaces. Properly applied, UV-C lights can deliver doses that clinical studies have found to be capable of reducing various viruses and bacteria, including SARS-CoV and MERS-CoV. Results vary based on UV dosage and application.*

For SARS-CoV-2, the virus that causes COVID-19, there are multiple medical studies underway involving UV-C light. Preliminary results from studies performed by Boston University and a consortium of Italian medical and academic professionals report that UV-C light can inactivate the virus at prescribed dosages in the lab. Additional studies are underway for other environments.*