聯合航空 (UAL) 2020 Q1 法說會逐字稿

Good morning, and welcome to United Airlines Holdings' Earnings Conference Call for the First Quarter 2020.

My name's Brandon, and I'll be your conference facilitator today.

(Operator Instructions)

This call is being recorded and is copyrighted.

Please note that no portion of the call may be recorded, transcribed or rebroadcast without the company's permission.

Your participation implies your consent to our recording of this call.

If you do not agree with these terms, simply drop off the line.

I will now turn the presentation over to your host for today's call, Michael Leskinen, Vice President of Corporate Development and Investor Relations.

Please go ahead, sir.

Thank you, Brandon.

Good morning, everyone, and welcome to United's First Quarter 2020 Earnings Conference Call.

Yesterday, we issued our earnings release, which is available on our website at ir.united.com.

Information in yesterday's release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance.

All forward-looking statements are based upon information currently available to the company.

A number of factors could cause actual results to differ materially from our current expectations.

Please refer to our earnings release, Form 10-K and other reports filed with the SEC by United Airlines Holdings and United Airlines for a more thorough description of these factors.

Also, during the course of our call, we will discuss several non-GAAP financial measures.

For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to the tables at the end of our earnings release, which is available on our website.

Joining us on the call today to discuss our results and outlook, our Chief Executive Officer, Oscar Munoz; President, Scott Kirby; and Executive Vice President and Chief Financial Officer, Gerry Laderman.

In addition, we have other members of the executive team on the line available to assist with Q&A.

And now, I'd like to turn the call over to Oscar.

Thanks, Mike, and my thanks to all of you for joining us today.

While somewhat unorthodox, I think this events of our days have forced us to do this, but appreciate you joining us.

As the outbreak in response to the COVID-19 crisis that has clearly impacted, not only every company, but every sector of our economy and certainly, nearly every aspect of our daily life.

And while in that regard, United is no exception, I do believe -- firmly believe that our team's response has proven exceptional.

That's true of our management team who put United in the vanguard of responding to this crisis, taking early and aggressive action to mitigate the financial impact to our business, to protect the health of our customers and employees and to help accelerate a consensus amongst policymakers in D.C. or what you saw labeled as the CARES Act.

I also believe the actions of our employees, the grace under extraordinary pressure has been nothing less than exceptional.

They have taken care of our customers and kept us flying and importantly, flying safe.

They've also been out in front, working to use the incredible capabilities of our airline to support the communities we serve in the fight against COVID-19.

Though our service is somewhat curtailed, our commitment to being of service is in full view.

Some examples, we've operated more than 130 repatriation flights, bringing in more than 18,500 Americans home who were stranded abroad.

We've also flown over more than 800 cargo-only flights worldwide, bringing more than 28 million pounds of a variety of cargo goods, such as food, healthcare-related items and supplies to destinations worldwide.

You can see why we're also proud to be part of this United family.

Unfortunately, during this time, we are all facing uncertainty.

Still, there are 2 things of which we are certain.

First, it is certain that demand will return.

Unfortunately, we just don't know when.

No one does.

But there's no question that at some point in time, people will be ready to travel again.

Second, and I'm somewhat biased here, there is no group of people in the world that I would rather be in the trenches with and to tackle the most disruptive crisis in the history of the aviation business than the men and women of United Airlines.

Not just the members of the management team who you all know, who have been literally working around the clock to mobilize United's early, aggressive and, in many cases, industry-leading response, but also our frontline employees, who have been out daily, taking care of our customers and taking care of each other.

Now Scott and Gerry will go into great detail about the many actions we have taken, from raising liquidity, to slashing our capital expenditures and operating costs, to working to ensure our teams and customers have effective cleaning and safety procedures in place every day.

The team is addressing every issue and looking at the long term, building scenario plans for whatever difficult decisions may be ahead.

But before we take you through those points, let me close on a personal note.

As you know, as many of you know on this call, this will be the final time I speak with all of you as CEO of United.

I want to thank all of you in the investor community, not only the analysts and voices that are often here on these calls, but our shareholders and all our stakeholders, everyone we serve who counts on us.

The United team has built an incredible foundation together in the nearly past 5 years.

And I never -- or we never could have expected where we would all be tested as we're being tested now by this crisis.

But with every action our employees take to share and shoulder in the furnace, they provide more proof that the fundamentals of what we built together remain strong.

And ultimately, I believe that's our greatest asset, and that's what I'm so proud to leave to my incredibly capable successor, Scott Kirby, who will be taking over the reins here at the end of the month.

And so to go into further detail on these actions we're taking, I want to hand it over to our future CEO, Scott Kirby.

Thank you, Oscar, and thank you to the amazing people of United Airlines for the incredible job they're doing despite the unprecedented challenges we're facing.

We're proud to be serving the nation right now as an essential service.

Many of the people we're carrying are traveling for critical reasons.

Over the last several weeks, as a country, we've come to better appreciate how much we rely on farmworkers, grocery store workers, delivery drivers and, of course, healthcare workers.

I'm proud the country now also better understands just how important our customer service agents, technicians, store clerks, routers, load planners, ramp workers, flight attendants, caterers, dispatchers and pilots are to our economy and our customers.

While in May, we're flying 90% fewer flights than we expected, and flying at very low load factors, without the commitment and professionalism of our people in these extraordinary circumstances, we couldn't fly the people who need to travel now.

For example, we've flown, free of charge, hundreds of medical professionals who have volunteered to travel to communities struggling to treat an influx of COVID-19 patients.

In other cases, it's simply a customer urgently trying to get home to see a critically ill loved one.

In a normal environment, we're proud to say that we are about uniting people and connecting the world in a world of social distancing that may seem less relevant.

But it's actually even more important because most of the people who are traveling now need to travel.

Before I begin, I also want to say a huge thank you to Oscar.

He came to United in a difficult time and brought together the employees to show what being united together really means.

Under his leadership, we saw strong operational performance, a renewed focus on the customer and a return to growth of the airline and financial success, all brought to us by the people of United Airlines.

He did an amazing job turning that around and preparing us to address the current coronavirus as a team.

Personally, Oscar has been a friend and a true mentor to me during our time together.

I've always been able to count on Oscar for effective and constructive feedback.

I'm certain that I'll be a much better CEO for having had the honor of working for Oscar these last 4 years and look forward to continuing that relationship as he moves on to be our Executive Chairman.

Sheltering from home and doing conference calls from multiple locations is not the kind of send off we had planned for Oscar.

I know that I speak for the entire United family when I say that we'll look forward to a time when we can all get together in person and give Oscar the in-person thank yous and celebration that he so richly deserves.

Turning back to our response to the crisis.

Safety and cleanliness have always been important, but now they're even more critical as we seek to minimize the potential spread of the virus.

United is an industry leader in this regard.

But I'd also say safety has been the top priority at all U.S. airlines for decades.

The safety protocol, the systems we've built to use data to find even the smallest risk and then work to engineer it out of the system, will serve us well as we collectively find ways to ensure that the travel experience is safe.

None of us have all the answers yet, but there's no industry in the world that has the kind of track record on safety that airlines have.

It's literally in our DNA.

I'm proud of the leadership role that we're taking at United, but the one consistent thing all airline executives I've ever known agree on, is that we don't compete on safety.

We share best practices and learning.

And while we compete aggressively for customers, we work together to make this the safest industry in the world.

Thus far, however, at United, in airports, we've modified our boarding process to have customers scan their own tickets prior to boarding to help with social distancing.

We're boarding fewer customers at a time and boarding from back to front.

We're providing masks to customers, if they don't already have them and plan to require all customers to wear masks soon.

We're testing touch kiosks for printing checked bag tags, which will eliminate the need to touch the screen by scanning your boarding pass.

We're installing plexiglass panels at our gate and ticket counters for the personal safety of our people as they assist customers.

We're utilizing temperature checks for airport employees and flight attendants prior to beginning work at multiple airports, and we're expanding this to other locations.

We've enhanced our cleaning protocols and have reallocated manpower to increase cleaning function.

We're promoting a 6-foot distancing rule, with a combination of signage and floor tape marking and rearranging employee break rooms to promote social distancing.

Onboard the aircraft, we've enhanced aircraft cleaning protocols that we are now using on all terms.

We're utilizing electrostatic spraying to disinfect aircraft interiors.

We're currently spraying all inbound international flights and all aircraft at least once per day.

We expect to be spraying every single flight by mid-June.

We've implemented streamlined meals and beverage service to minimize personal contact and remove common use material from the seat back.

We've brought middle seats to promote social distancing on board and adjusted flight attendant jump seat locations so our crew members feel safe and have more space in between each other.

So we've added onboard announcements to encourage customers to do their part in safe guarding themselves and the health of others.

We're the first major U.S. airline to require all flight attendants to wear masks on board, and we added flight deck cleaning kits for our pilots, which include gloves and PURELL wipes.

Turning to our financial situation.

I'll once again emphasize that hope is not a strategy.

Nobody knows when this will end and life will begin to return to normal.

Since the very beginning of the crisis, we've reacted proactively and aggressively.

You can count on that continuing.

We plan to continue to react nimbly as the situation evolves and won't hesitate to make hard decisions, like our decision to raise equity when those decisions are prudent.

Since late February, the decline in demand for air travel has proven to be worse than anything anyone was publicly projecting.

While we were more bearish than anyone, in hindsight, even our expectations weren't nearly as bearish enough as to both the depth and duration of this crisis.

Accepting this new reality early, however, allowed us to get at least a little bit ahead of the tsunami and prepared us to survive what we believe to be the most challenging period in the history of aviation.

Over the weekend of February 22, we began to read the news that the virus had spread to Italy.

At that point, we hadn't really seen any impact on European or domestic demand but we concluded that the virus was likely to spread worldwide, and over that weekend in the following days, we became the first U.S. airline to respond to the coronavirus by planning for a 20% capacity cut, drastically reducing CapEx for 2020, beginning work to reduce OpEx in line with our capacity reductions, suspended the share repurchase program and beginning a large and accelerated capital raise.

All of that gave us a head start as the demand environment rapidly deteriorated well beyond even our direst scenario.

Net new bookings are now down essentially 100%.

So yes, that does mean that it's bottomed, but we aren't seeing any signs of meaningful recovery and near-term demand yet.

But as we look longer term, we see some evidence of pent-up demand.

For example, searches for 2021 spring break travel on our website are actually higher this year than they were at this time last year.

But we don't expect many of those to turn into real bookings or travel until the virus is sufficiently contained and the rhythms of daily life become routine again.

For the first few months of this crisis and even with demand at approximately zero, we've been able to avoid involuntary furloughs and pay cuts for our people.

The CARES Act helps with that, but only temporarily and only partially.

The grant portion of the CARES Act only covered $3.5 billion of our $6.5 billion in eligible expenses, which consists of salaries and benefits of United employees.

We've been able to rely on voluntary programs and a reduction in hours, thus far, to further reduce near-term payroll expenses.

We've also done everything in our power to reduce the impact on United employees, such as eliminating contracted work at the airport and using our own people for previously outsourced task.

But even with the CARES Act, our people are already sacrificing, with over 20,000 people on voluntary leave programs and tens of thousands having large reductions in the number of hours and therefore, take-home pay that they are working.

And in the days and months ahead, unfortunately, more of our employees will start to feel the direct financial impact of this crisis.

And that's not something that anyone on our management team takes lightly.

Our schedule is down 90%.

And we plan for it to stay at that level until we begin to see demand recover.

We made a promise to our people and to American taxpayers to avoid involuntary furloughs or cuts to pay rates for U.S. employees until the end of September, and that's a promise we'll keep.

But if demand remains significantly diminished on October 1, we simply won't be able to endure this crisis as a company without implementing some of the more difficult and painful actions.

These include decisions on involuntary furloughs, further reductions in hours, as well as other actions that will have an immediate impact on our people and their livelihood.

We care deeply about the families who rely on the paycheck that United provides and these are decisions that we will not take lightly.

But our overriding goal is focused on the long term.

We have to ensure that United is here to rebound once the virus is contained and demand is recovered.

We simply cannot and will not risk the long-term future of United and the jobs the airline supports just because the short-term decisions are really hard.

Turning to the balance sheet.

Thank you to Gerry and the finance team for the amazing job they've done raising liquidity as we've raised over $4 billion, including aircraft financing in March and April.

Additionally, I'd like to thank the administration, the House and the Senate on both sides of the aisle for the support they quickly made available to airlines and to the economy in general.

We believe that bipartisan CARES Act has been and will continue to be critical to the ability for the country to rebound when the virus is defeated.

As we entered the second quarter, we reduced our cash burn to about $50 million per day.

We currently expect to have the cash burn down to about $40 million to $45 million on average per day in the second quarter, even with essentially zero net passenger revenue.

We've taken an axe to all nonemployee expenses.

Gerry will describe some of these actions in more detail.

But we've been able to reduce our cash burn by implementing huge reductions in all expense categories, except employee wages.

The following is not a forecast because it would be a naive to believe we, or anyone for that matter, can accurately predict the course of this crisis or the recovery.

When we say plan for the worst and hope for the best, however, we really mean it.

And we're therefore planning for the environment to possibly continue at essentially zero net passenger revenue for the rest of the year and into 2021.

We are projecting that and certainly hope it's better than that.

But we are planning for the possibility.

We're starting May with approximately $9.6 million in available liquidity.

During 2Q, we expect to receive most of the remaining $2.5 billion of the first phase of the CARES Act grant and loan, not counting any additional liquidity raises.

This would mean we expect to exit Q2 with about the same level of liquidity that we have today.

For 3Q, we forecast that, even if we continue with essentially zero passenger revenue and assuming no additional financings, we can get our cash burn rate below $40 million per day, and would therefore expect to end 3Q with approximately $6 billion in liquidity.

And at a minimum and a continuing zero net revenue environment, which we hope won't be the case, we expect to have the option to avail ourselves of a $4.5 billion CARES Act loan, which we project would take our liquidity to over $10 billion heading into the fall.

Beyond that, we still have unencumbered assets with the loyalty program being the largest, which could be used for additional financing if the zero-demand environment lasts even longer.

All the numbers I've just shared with you are based on a scenario where there's no recovery and passenger demand remains essentially zero.

I'll just emphasize that we aren't forecasting zero-demand, but we are preparing for that as a possibility.

If the demand environment is better than that, of course, we plan to adjust it accordingly.

In closing, this has been the most challenging time of my professional career, not just because of the unprecedented financial cost of this crisis, which is the subject of today's call, COVID-19 has, of course, also taken a profound human toll.

Every day, I correspond with United employees, many of whom I've never met, who reached out to me and tell me that they're passionate about serving our customers, but they're scared about their health and the financial hardships their families are already facing.

I want to once again, thank those employees for their bravery in an environment that continues to change every day.

All of this does bring to mind the Winston Churchill quote, "When you're going through hell, keep going." We are going through hell right now, but we know this virus will ultimately be defeated, and we will get to the other side.

We can't control or know when or how fast that may happen, but the people of United are doing everything within their power to control what we can, to take care of each other and our customers and to get through hell as quickly as possible.

As a management team, we have 2 clear objectives that guide every decision we make, from scheduled changes to the new cleaning procedures for our aircraft, and even painful decisions like conducting furloughs.

But we believe these objectives reflect the best collective interest of all stakeholders, including our employees, our customers, the communities we serve, and yes, our shareholders.

In the near term, we're working to position United to bounce back quickly when demand starts to return.

And we're focused on strengthening United over the long term to withstand the crisis so that the airline and the high-quality jobs it supports are here when demand is fully returned.

And with that, I'll turn it over to Gerry.

Thanks, Scott, and thanks to all of you on the line today.

For the first quarter of 2020, we reported a net loss of $1.7 billion, a net loss of $639 million on an adjusted basis.

For those of you keeping track, this was the first quarterly loss of United since the first quarter of 2014.

What began as a strong quarter, quickly deteriorated as the spread of COVID-19 disrupted travel as well as the lives of everyone around the world.

As a result, my comments today will not be typical for an earnings call.

There will come a day when metrics like EPS and margin growth or year-over-year unit revenue and cost comparisons will matter.

Such metrics simply aren't relevant today.

While many of us have worked through significant financial shocks and downturns in our industry, and for some of us multiple times, this is truly unprecedented.

We saw revenues precipitously decline, starting in Asia in February and then declining across the rest of the world.

By April, revenue was down 95% as compared to our expectations at the start of the year.

Therefore, in the near term, and until the recovery really kicks in, maintaining sufficient liquidity and minimizing cash burn are the financial measures that matter most.

We believe our ability to weather this storm will be measured by how nimbly and aggressively we cut costs and preserve cash.

Addressing liquidity, we ended the first quarter with approximately $7.2 billion in liquidity.

And as we start the month of May, we have about $9.6 billion in liquidity, including $2 billion available under our revolver.

Our focus on liquidity started early.

As Scott mentioned, as soon as it became apparent that we would be facing a worldwide spread of this virus, we took quick action to cut flying across the network.

We also began the effort to look at every part of our business and started to take decisive action to minimize both our operating expenses and capital spend.

We eliminated all discretionary spending, had over 20,000 employees take voluntary unpaid leaves and reductions in hours, and stopped all projects deemed noncritical to the business.

In addition, we reduced our planned adjusted capital expenditures for the year by approximately $2.5 billion to a projected total below $4.5 billion.

Some specific actions we have taken include stopping over 200 real estate projects that are underway.

Today, you can count on one hand the number of such projects we are continuing in this environment.

For example, we stopped work on United Club projects at O'Hare, Newark and Dulles, saving an estimated $60 million.

We also reduced spending on more than 300 technology-enabled initiatives, driving over $300 million in projected savings.

We simplified our onboard product offering, which drives an expected $30 million in savings.

In addition to volume-related vendor spend decreasing, we identified approximately $45 million of estimated airport vendor service efficiencies from the elimination of certain services, reducing hours and having United employees temporarily take on work usually performed by vendors.

We also reduced promotional spend, which results in about $60 million of expected savings.

These are just a few of the examples of the thoughtful process we are going through to leave no stone unturned in our efforts to reduce expense and minimize cash burn.

We expect these actions, together with lower fuel prices and reduced flying, to drive over $5.5 billion in lower operating expenses in the second quarter and an over 50% reduction in capital expenditures in the quarter versus our original plan.

Importantly, we expect our daily cash burn to average between $40 million and $45 million for the second quarter.

This cash burn number excludes the benefit of the government payroll support program and capital raising activity that is not related to new aircraft financing.

At this level of cash burn, and assuming we receive another $2 billion that we expect to receive by the end of June under the payroll support program, we expect to end the second quarter at a similar level of liquidity that we have today.

Turning to our liquidity enhancement activities.

We started that process in late February and closed our first transaction in early March.

Since the beginning of March, we have secured over $4 billion of additional funding, including approximately $3 billion through 3 secured term loan facilities and new aircraft financings.

Also $1.1 billion from our recent common stock offering, which includes $100 million from the exercise of the underwriters' overallotment option that closed yesterday.

Additionally, we entered into an agreement with a subsidiary of BOC Aviation, a major aircraft leasing company, to provide lease financing for 22 aircraft scheduled to be delivered to us from Boeing this year, including two 787-9 aircraft that were delivered in April.

With respect to our new aircraft commitments, if the 737 MAX is ungrounded later this year, we expect to take delivery of 16 MAX aircraft this year, all of which are subject to the committed lease financing I mentioned, as well as another 24 MAX aircraft next year.

These 40 MAX aircraft are less than half of the number of MAX aircraft originally scheduled for delivery by the end of 2021.

We also expect to take delivery of 8 more 787-9 aircraft for the remainder of this year as well as eight 787-10 aircraft next year.

Production on all of these aircraft had basically started before the crisis, so it would have been financially impractical to reschedule.

However, since we will not take delivery of any of these aircraft unless fully financed, these deliveries will not be a cash drain for us.

Looking beyond next year, we have no additional 787 aircraft on order.

Assuming we take the 40 MAX aircraft I just described, we would have an additional 131 MAX aircraft scheduled for delivery in 2022 and beyond.

We are discussing the timing of these deliveries with Boeing.

However, one thing is certain, I do not anticipate taking any of those aircraft unless and until we need them.

Shifting gears, I want to thank the United States Treasury Department for the quick implementation of the payroll support program.

We will receive about $5 billion under this program in the form of a $3.5 billion grant and a $1.5 billion low interest loan, which together will only partially cover the cost of our U.S. employees' salaries and benefits, but allow us to keep our commitment to avoid involuntary furloughs before September 30.

As compensation to the government, a, the U.S. Treasury Department will be receiving warrants to purchase 4.6 million shares of United common stock at a purchase price of $31.50 per share.

In April, we did receive about $1.8 billion of the grant and $700 million of the loan.

And in connection with the receipt of those funds, we did issue warrants to the U.S. Treasury to purchase up to approximately 2.3 million shares of United common stock.

As previously mentioned, United has submitted an application under the government loan program, which makes us eligible to receive a loan up to $4.5 billion.

We expect this loan will be a 5-year senior secured term loan, with interest at LIBOR plus 300 basis points and prepayable at any time.

If we draw down on the loan, we expect to issue warrants on the same terms as the warrants issued under the payroll support program.

If the full $4.5 billion is borrowed, we would expect to issue warrants to purchase 14.2 million shares of United common stock.

We expect to have until September 30 to decide whether to borrow under the loan program.

Looking ahead, while no one has a clear line of sight to when the recovery will occur at United, we have and plan to continue to make quick and hard decisions, preserve cash and, above all, take steps to make sure our employees and customers are safe.

I want to give a special thanks to my entire finance organization who have worked countless hours on the cash conservation and liquidity building initiatives, and a big thank you to the entire United family for their tireless efforts every day in this challenging environment.

Before we begin the question-and-answer session, I want to echo Scott's comments about Oscar and thank Oscar for what he has done for United and its people over the last 5 years.

The leadership Oscar has brought to United has resulted in a change in the culture and fortunes of United that is truly remarkable.

On a personal note, I want to thank Oscar for the mentorship he provides me and the opportunity he gave me.

Oscar proves to me that you can teach an old dog new tricks and for that, I am forever grateful.

Finally, I want to thank everyone for listening this morning.

And with that, I will pass it back to Mike to start the Q&A.

Thank you, Gerry.

We will now take questions from the analyst community.

(Operator Instructions) Brandon, please describe the procedure to ask a question.

(Operator Instructions) And from JPMorgan, we have Jamie Baker.

First question for Gerry.

Early March, the unencumbered asset pool was around $20 billion.

And that included loyalty, though, I'm not sure in what form.

Can you give us an update on the size of the pool today and its composition?

Sure, Jamie.

And actually, I think what I said back in March was over $20 billion.

So look at it this way, there are different ways to look at collateral and the way we look at it may not be apples-to-apples with the way others have looked at it.

But having said that, and excluding MileagePlus, which we all know is a valuable asset, we have at least $10 billion in other available collateral value that we can use to continue to raise secured debt.

This includes at least $8 billion in aircraft, spare engines, parts, simulators and equipment, and around $2 billion in routes that I would describe as sort of routes to slot.

Constrained airports does not include those slots and gates and racks for less restricted airports that could be, actually, another source of additional liquidity.

And a quick follow-up before my second question.

On the government loan negotiations, and I recognize you haven't decided whether you'll draw the loan, if you're approved.

But have you decided yet what you would pledge as collateral?

Or is that also still under discussion?

Jamie, I expect those discussions would begin shortly.

And so I'm going to be limited in my comments about collateral because, clearly, there will be some portion of the collateral that I described and some of this value that we will put aside in case we want to take that loan.

But I expect those discussions to start shortly.

Okay.

Got it.

And Scott, as it stands in terms of planning for the worst, some investors were disappointed when one of your competitors insisted that they're wed to their current hub structure.

And look, I get it.

It's a touchy subject.

Nobody ever comes out and says, yes, we're going to close Memphis.

But you said you're not going to jeopardize the airline by avoiding tough decisions.

So isn't it reasonable for me to ask if there's at least a potential that United's post-crisis network looks different than it is today?

Well, Jamie, I'll try to answer the question even more broadly.

I think, for sure, when we emerge from this, that United Airlines is going -- and the airline industry, is going to look different.

And whether you talk about what you do for safety, the actions taken to reduce the spread of the virus.

One of the things that is going to be different, I'm confident United is -- we're going to really change how the airline works in terms of efficiency and we're going to engineer costs permanently out of the system.

And Linda Jojo is leading, as we go through this, one of the things we are still doing and investing in is technology efforts so that when we emerge, we're more efficient.

We say to each other every day on our daily executive team call, that everything is on the table, about what we look like.

We -- maybe differences in premium travel or maybe there won't be.

But every single thing is on the table.

And while we don't have any plans to close hubs, when you say everything is on the table, we mean everything.

There are no sacred cows.

Our responsibility to our employees, our customers and our shareholders is to make sure that United is here for the long haul and provides as many good jobs as possible to our people.

That is my #1 and overriding objective for everything that we do.

And the decisions that we're going to make in the near term about employee pay are much harder than decisions we would have to make about hub structures and route networks later in the future.

And we will make the hard decisions that are required to make sure United survives, is successful and has the most good jobs possible for our people.

From Evercore, we have Duane Pfennigwerth.

Just with respect to the cash burn in the 2Q, the $40 million to $45 million, how low do you think you can take that into October and beyond?

And what are the steps you're taking to get there?

So thanks, Duane.

If we get to October, what I'm about to describe, I hope and pray, we won't have to do.

But we already have a plan on the shelf for -- if we get to October, we know what we are going to do -- approximately, what we're going to do to get our cash burn at a worst case, down $20 million -- down to $20 million per day.

So we will go from the something south of $40 million in the third quarter to something around $20 million in the fourth quarter.

And that again, assumes a continuing zero-revenue environment.

I hope that we don't have to do that.

I hope that everyone that's forecasting a recovery is right, and we don't have to do that.

Because doing that will be extremely painful for our people and our employees.

Most of the difference between where we are in the third quarter and where we would go to in the fourth quarter is employees because we have already -- all nonemployee expenses have already been cut beyond to the bone.

And the difference between that third quarter number and that fourth quarter number is really about employees.

And it will be agony to make those decisions, and it will be incredibly painful for our people.

But we won't agonize over making the decisions because as I've said before, and I'll keep repeating, our responsibility is to make sure we have a strong future here at United.

And the way I look at it is 3 years from now, 5 years from now, how do we have a secure future for United and have the most great jobs available for people.

And if we have to make short-term sacrifices, and if we get to the fourth quarter and demand is zero, we will have to make short-term sacrifices.

We will do that, and we will get our cash burn down to $20 million per day, which obviously gives us an extremely long runway to make sure that we come out on the other side and emerge a great United Airlines, together.

And just for a follow-up, Gerry, you gave us some of the pieces, but can you tell us where 2021 capital spending stands today, relative to the less than $4.5 billion this year?

That's an area we're still working on.

But I can tell you that the exercise we've gone through this year to reduce capital spend continues into next year.

So we are not going to be increasing capital spend to any degree from where we're going to get to as we hit our numbers for everything we've reduced this year.

From UBS, we have Myles Walton.

Oscar or Scott, I was hoping you could get to your perspective on the customer safety perception and something like blocking the middle seat or spacing departures in the terminal for purposes of creating space and waiting lounges and the like.

How impactful do you think that will be to your business' recovery in, say, the fourth quarter and into next year?

I know, Scott, you're sharing a realistic scenario or a pessimistic potential scenario.

But in a more baseline recovery scenario, are these safety measures you're putting in place?

Do you think they'll still be in place at the end of this year and beginning of next?

And how impactful will that be to your recovery?

Well, Myles, this is Oscar.

Let me take a first shot at, and Scott has some views on that as well.

I think the safety procedures that we're all following, first and foremost, will be followed by the entire industry.

We've proven that we can do that together and proven to be safe.

How long they last, will be a determinant of the situation and the general sort of trust that people have in flying.

But it goes well beyond all the things that we're going to be doing.

I think Scott has an interesting -- a good perspective on how demand will come.

So maybe, Scott, I'll give that over to you.

Sure, Oscar.

Look, I think it's too early to know specifically what will happen.

I think it's almost certain that our, not just airlines, but our society will be different.

A month ago, we were afraid if we saw somebody walking down the streets here in the United States with a mask on.

Now we're afraid if they're not.

And I don't know how permanent all those changes will be.

But things will be different, even once we recover and we start to return to normality.

While I don't yet know exactly what that means for airlines.

What I am confident of is airlines are, I think, actually the leading industry in the world when it comes to safety.

I alluded to this in my opening remarks, airlines will get this part right on safety.

And we're already taking the lead and doing incredible things, not just at United.

I'm proud of what we're doing at United.

But I'm also encouraged to see what other airlines are doing.

And so we will make sure it is safe to travel on aircraft.

The real issue for us about demand, however, is going to be that people feel safe and have some freedom to travel.

Disney World needs to be open.

Taking my kids to Disneyland is something I do every year and love it.

But Disneyland needs to be open.

And cafes and museums in Paris need to be open before people are going to go back.

And conventions need to be open and running.

So it's not just about airlines.

I'm confident that airlines will get our portion of the safety correct, and we'll do that effectively.

But we're going to need a broader confidence across the whole range of society before demand can return to normal.

And just one clarification for Gerry, do you have the retirements that you're planning in order to rationalize the fleet this year, next?

No.

We -- as you know, we have a lot of parked aircraft.

Those are, in our view, right now, temporarily parked.

And until we see what's needed to run the operation, we're not going to make any firm decisions on those.

From Wolfe Research, we have Hunter Keay.

A couple of questions for Scott.

I know the focus here is on the near term, obviously, but what's the primary driver of the plan to dig out of this debt pile after things stabilize?

Is it zero CapEx?

Is it a cost play?

I just basically want to hear your pitch for what you would say to long-term investors who care about the balance sheet.

Yes.

That's a good question, Hunter.

And first, I'd start with -- while we keep acknowledging that we don't know when the crisis will end and then we can begin the recovery.

What we do know is we can minimize the depth of the hole.

We can keep from digging the debt hole.

We can keep it as shallow as possible.

And that is about minimizing cash burn.

So right now, we are focused on minimizing the cash burn.

If you just look at our numbers with where we are today, we're clearly leading the industry.

You look at where we think we can be, even in a zero-demand environment, again, we hope there's not a zero-demand environment.

But even in a zero-demand environment, in the fourth quarter and into 2021, I think we'll be leading the industry at minimizing the depth of that hole.

Once the recovery starts, however, we'll also -- we are going to be cautious about putting capacity back and beginning the recovery because there is certainly the possibility that there will be false starts, there's a second wave.

We're not going to jump in with both feet once we see the first green shoots.

We're going to be cautious.

And we're going to work really hard to get back to cash flow breakeven, to get our cash burn down to zero as the first step and continue to be cautious.

Our priorities, I think, will be -- we're clearly going to want to have more liquidity available, more cash than we had coming into the crisis.

Next, will be to pay down our high cost -- it'll be to pay down our debt and those will be ahead of any -- both come #1 or #2, before we start reinvesting in capital and then shareholder returns are kind of going to be at the back of that.

We don't know when that'll happen.

But the biggest thing we can do right now is minimize how deep the hole is, and that gives us the best chance to dig out the most quickly, once the recovery ultimately begins.

And look, one thing we can all be confident about is there will be a recovery.

This is something -- the virus will be defeated.

There will be recovery.

We just don't know when.

And so we're taking the actions we can to minimize cash burn today, which will set us up better for a recovery when it begins.

Great.

And then I realize that this issue -- the credit card holdback issue doesn't matter with bookings down 100%.

But what kind of conversations are you having with your processors now about when bookings start-up again, but with people booking travel way out in the future with a sort of a potentially shaky recovery.

I'm curious about how you're mitigating that holdback risk and how the conversations you're having with the processors going about how you're going to handle that.

Hunter, it's Gerry.

So as we've disclosed for years, the holdbacks are based on our liquidity tests.

And actually, if you look back on any of our disclosures for years, with our liquidity in the $5 billion to $6 billion range where it had been, even at that level, we've said that's significantly above the threshold before holdbacks kick in.

And so as liquidity levels even above that, we're even further away from those thresholds where we have an issue.

From Vertical Research Partners, we have Darryl Genovesi.

Could you guys provide some color on working capital?

It looks like the air traffic liability grew about $500 million in the quarter, which was an upside surprise.

And so I guess I was wondering, a, if you could provide kind of a cadence of how things went intra-quarter by month or any way that you think makes sense.

And then also where you're trending relative to your zero net bookings assumption for Q2?

Sure.

It's Gerry.

Keep in mind, ATL, for us, typically, builds through the first 5 months of the year.

So January, February, March, you would have expected it to continue to build.

In fact, in January and February, we saw that build.

Rough numbers, January was a little over $600 million.

February, around $500 million.

But then March, which should have continued that flip and was negative by about $650 million.

So we ended March, while we were up because it didn't offset all of February -- January and February, where we should have been in a normal year in March was, I don't know, $1.5 billion higher than where we ended up.

So when you look at it that way, you can understand why there was a small increase, a lot smaller than we thought.

And April, we don't have a precise number for April yet, but it's significantly smaller than March.

And the way to look at second quarter, based on kind of our assumption on kind of zero net bookings, a couple of hundred million a month sort of burn off in ATL would be the way to look at second quarter.

Great.

And then also, thanks for the color on the delivery expectations.

Can you help us understand the quarterly CapEx or delivery gains for the rest of the year as it relates to what you gave us by aircraft?

And then what you're kind of assuming for aircraft financing inflows in that $40 million to $45 million number?

So let me start with your last question first.

So that $40 million to $45 million includes some inflows from the aircraft financing.

Can't give you too much detail because then you could back into some numbers we don't like to share, like what we pay for aircraft.

But keep in mind, with the sale-leaseback transaction we have, and you net out deposits and credits and whatnot.

That does provide cash for us.

All we have in the second and third quarter, well, probably all we have with the 787s.

It's anybody's guess when the MAXs start.

All those MAXs this year, if they do start, are also lease finance.

So on sale leaseback, they are a little bit cash positive as well.

So as I said in my comments, the delivery of the aircraft is not a cash drain for us.

And then in terms of CapEx, generally, we have probably about $600 million of non-aircraft CapEx for the rest of the year, split pretty evenly through the year.

At least that's, I think, what you should use for your models.

And that's where we are.

From Stifel, we have Joseph DeNardi.

Scott, I appreciate the tone of your prepared remarks.

A couple of questions for Gerry.

How are you approaching valuing the MileagePlus asset?

Is it EBITDA, free cash flow?

Just how are you doing that?

What do you think the programs were, ballpark?

And how do you think the government is viewing it in terms of asset quality as collateral?

Joe, we're just going to rely on you for that.

You're one of the experts on tackling Mileage programs, aren't you?

Look, there's tremendous value there.

A number of different ways to value it.

To the extent that serves as a source of liquidity for the government loan or any other transaction, you will take a look at it in different ways.

And there are different ways also to extract value on the asset as well.

And the best way to look at that, you have loans against the business, you have prepaid miles and you have other ways.

There is probably an aggregate cap for all that.

And to the extent we choose to do it in more than one way, think of it as several buckets.

And the more we have in one bucket, the less we have in another bucket.

But together, we think there's significant liquidity we can extract from the program.

Okay.

That's helpful.

And then maybe just a question for Luc, if he's on the call.

I don't know if maybe, Gerry, does a smaller fleet, a smaller United Airlines necessarily correspond with a smaller co-brand portfolio and lower spend on the other side of this?

I'm just trying to understand, maybe, how Chase is looking at that dynamic, you guys getting smaller relative to kind of their willingness to stand behind you and what they might be willing from a presale standpoint.

It's Andrew talking.

Having done this for a long, long time and growing airlines and shrinking airlines, I have found that, historically, that whether it be a 1- or 2- or 3-year reduction in size, which I've seen before, did not have a material impact on the size of the co-brand in my experience.

So I expect that going forward, too.

Obviously, there's a new set of conditions out there in the world, but I'm pretty optimistic, based on my previous experience, that it will not have an impact in the short to medium term.

From Raymond James, we have Savi Syth.

Just a quick -- one question and one follow-up for me.

On the question side, could you talk a little bit about -- once we kind of get beyond the survival mode and demand recovers, are there kind of strategic opportunities that you would have liked to pursue previously, but kind of given elevated demand or congestion in airports and things like that, that you couldn't implement, that you might be looking to implement?

Savi, look, I think there probably will be opportunities.

I mean, certainly, there's going to be opportunity on restructuring the business.

I alluded to some of the work that Linda and her team are already helping lead us through on what the business looks like.

As to your question, it's certain that there are going to be possibilities, depending on how long this lasts and how long -- what the recovery looks like and what others do.

At the moment, we are a little more focused on the near term -- a lot more focused on the near term.

We'll look forward to the day where we can actually spend brainpower thinking about those opportunities.

But we're a lot more focused on the near term at the moment, to be honest with you.

We have no further questions at this time.

We'll now turn it back to our speakers for closing.

Thanks to all for joining the call today.

Please contact Investor Relations if you have any further questions, and we look forward to talking to you next quarter.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you for joining.

You may now disconnect.