Delta to Retire Boeing 777 Fleet to Cut Costs Amid Coronavirus

By Alison Sider and Dave Sebastian 

Delta Air Lines Inc. said it would remove Boeing Co. 777 aircraft from its fleet by the end of the year, a sign the airline believes international travel will recover slowly from the coronavirus pandemic.

Retiring the fleet will help "stop the bleeding" as the airline looks to conserve cash, Chief Executive Ed Bastian wrote in a letter to employees on Thursday. Delta is burning $50 million a day, Mr. Bastian said, a rate the airline wants to reduce to zero by the end of the year.

U.S. air travel has dropped over 90% from a year ago as fear of contagion, travel restrictions, and orders that people stay home as much as possible have chilled demand.

Airline executives have said they believe domestic travel will be first to resume, as people may feel ready to visit friends and relatives or take relatively short flights before they will venture abroad.

In addition to the 777, one of its largest planes, Delta is also accelerating its retirement plan for the smaller McDonnell Douglas MD-88 and MD-90s, which will exit the fleet in June, and has parked more than 650 jets, Mr. Bastian wrote.

That means Delta has more pilots than it needs. John Laughter, senior vice president of flight operations, told employees in a separate memo that the airline will likely be overstaffed by 7,000 pilots this fall.

"I recognize that is an alarming number so it's important to know that our intent is to align staffing for what we need over the long term," he said, adding that by the third quarter of 2021, Delta will have between 2,500 and 3,500 more pilots than needed to fly its schedule.

Any staffing cuts would be a few months away. Airlines are barred from furloughing or laying off employees through the end of September under the terms of a federal aid package they received. But several -- including Delta -- have indicated they expect to have to shrink.

First Officer Chris Riggins, a spokesman for the union that represents Delta's pilots, said retiring the 777 and shrinking the airline's fleet will hinder its ability to benefit when demand for travel eventually recovers.

The 777 helped transform Delta into a global airline. In 1999, when it entered the fleet, the plane was uniquely positioned to operate long-haul international routes, opening up new nonstop flights connecting Atlanta and Johannesburg and Los Angeles and Sydney, Chief Operating Officer Gil West said.

Delta has 18 of the aircraft in its fleet and had recently spent $100 million to refurbish their cabins -- a sign it had planned to continue flying the planes for years.

But many airlines and industry observers believe it could be years before travel fully recovers, particularly for long flights. Delta said its more fuel-efficient Airbus A330 and A350-900 can handle the job when demand returns. Delta said the A350-900 burns 21% less fuel per seat than the 777s it will replace.

American Airlines Group Inc. told pilots last week that it will put its Airbus A330-200 planes into long-term storage until at least 2022, citing the "depressed forecast for international demand."

Delta said it expects to book impairment charges related to aircraft retirement of $1.4 billion to $1.7 billion before tax for the second quarter as a result of the retirements.

Mr. Bastian said the airline has refunded more than $1.2 billion to customers since the pandemic started, including $160 million so far this month.

More than 41,000 Delta employees have taken voluntary leaves of absence, Mr. Bastian said.

Write to Alison Sider at [e-mail] and Dave Sebastian at [e-mail]

(END) Dow Jones Newswires

May 14, 2020 13:35 ET (17:35 GMT)

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