Delta Air Lines CFO Departs as Airline Industry Faces Coronavirus Impact
February 28 2020 - 4:58PM
Dow Jones News
By Nina Trentmann
Paul Jacobson, the Delta Air Lines Inc. executive who helped
reshape the finances of the air carrier after it emerged from
bankruptcy in 2007, plans to retire, a move that comes as the
airline industry faces the mounting challenge of the spreading
coronavirus.
Mr. Jacobson, who joined the Atlanta-based company in 1997 and
ascended to the role of chief financial officer in 2012, intends to
stay with Delta as it searches for a successor, a process that
could take several months, the airline said.
"He played a crucial role in Delta's bankruptcy process and the
strategy that led Delta to regain our investment-grade balance
sheet," Chief Executive Ed Bastian said in a memo sent to Delta
employees on Friday. Delta declined to comment beyond the memo.
His replacement will likely have to deal with the long-term
financial implications of the coronavirus outbreak, which is
disrupting air travel world-wide and could become a drag on
earnings and cash flow.
United Airlines Holdings Inc. this week scrapped its guidance
citing the uncertainty around the coronavirus spread. Germany's
Deutsche Lufthansa AG, meanwhile, announced a hiring freeze and
cuts to projects and spending for its main Lufthansa brand.
Delta, which has about 38,000 flights a week, ceased operations
in China and reduced connections to South Korea because of the
outbreak, resulting in about 55 flight cancellations a week, a
spokesman said.
The airline is forecast to take a bigger financial hit should
the virus spread in the U.S., which could result in additional
flight cancellations and a drop in bookings, said Philip Baggaley,
a managing director at S&P Global Inc.
The U.S. and Canada market is by far the company's biggest,
representing 72% of Delta's 2019 passenger revenue of about $42.3
billion, according to a filing with regulators. The Pacific region,
including China, by contrast only made up about 6% of passenger
revenue in 2019, Delta said.
"If the virus causes a lot of concern in the U.S. and bookings
fall off, there could be significant short-term damage to
earnings," Mr. Baggaley said in an interview.
A core focus for Delta's new CFO would be managing the company's
liquidity to compensate for a potential decline in bookings while
covering fixed expenses for staff, fuel and other items, Mr.
Baggaley said.
Delta had $8.4 billion in operating cash flow in 2019, up from
$7 billion in 2018, and expects to generate about $4 billion in
free cash flow this year. That would put the airline on track to
deliver a three-year cumulative free cash flow of more than $10
billion by the end of 2020, the company said in January.
"Delta has an extraordinarily strong balance sheet," said
Stephen Trent, a director at Citigroup Inc. Delta's total debt
stood at $18 billion at the end of December, compared with $33.4
billion at American Airlines Group Inc. and $20.5 billion at
United, according to S&P.
Delta said this month the continued spread of the coronavirus
and travel restrictions could have a significant adverse impact on
demand for air travel and its financial results. Operations also
could be affected should Delta employees be quarantined, the
company said. The company has around 90,000 employees globally.
"Given the fluidity of the coronavirus situation, any
preliminary estimates are likely suspect until there is more
clarity on the path of the virus (and the corresponding impact on
the global economy)," analysts at financial services firm Raymond
James Financial Inc. said in a note to clients Friday.
Before the outbreak, Delta was expecting another year of growth
in 2020. The airline doesn't have any Boeing Co. 737 MAX planes in
its fleet, meaning it isn't affected by the continued grounding
that has impacted other airlines.
Delta is expected to recruit a new CFO who would follow the
company's current financial strategy, including its focus on
retaining an investment-grade rating, generating free cash flow and
returning money to shareholders, Mr. Baggaley said.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
February 28, 2020 16:43 ET (21:43 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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