MIAMI – Following its bailout requests to survive the current crisis, Delta Air Lines (DL) secures a $2.6bn credit facility while Sabre announces over US$200m in cost-saving actions.
As the impact of the COVID-19, now bigger than previously forecasted, companies in the industry are facing passenger demand losses and worldwide travel bans, with numerous operation cuts and salary reductions to stay afloat.
Delta’s credit facility
With the US$2.6bn secured credit facility, DL will improve its liquidity as the airline launches a package of measures that includes the reduction of international and domestic capacity, the grounding of 300 aircraft and the elimination of US$2bn capital expenditures.
“The growing need to protect Delta’s future has led to difficult decisions across our business that are impacting all of our stakeholders,” said DL CEO Ed Bastian.
Previously, the company suspended its capital return program, including the company’s stock repurchase program and the Board’s suspension of future dividend payments.
“Maintaining ample liquidity during this crisis is critical to the essential service that Delta provides in America’s transportation infrastructure as well as the jobs of more than 90,000 Delta people across the country,” added Bastian.
Sabre’s cost-saving measures
As part of the package of cost reductions to strengthen its financial position during the crisis, Sabre, the largest global distribution systems provider for air bookings in North America, announced cuts in salary and operations to its workforce, shareholders and vendors.
The credit agreement permits Sabre to suspend the financial covenant related to the maintenance of the leverage ratio if a “Material Travel Event Disruption” occurred, according to Sabre CFO, Doug Barnett.
“This is an unprecedented time. The global travel industry is facing challenges beyond what it has been experienced before. We believe Sabre is well-positioned to navigate this challenging environment,” said Sabre President and CEO, Sean Menke,
“We have identified and are in the process of removing over $200m in cash costs from the business in 2020,” added Menke.
The measures include a temporary reduction in base compensation pay for its US employees and by 25% for its CEO, adjusting the payment country-by-country for its international workforce. By now, Sabre offers voluntary options such as unpaid time off, severance and early retirement program.
Another program affected will be Sabre’s 401(k) match, temporarily suspended for US-based contributing employees. Also, members of its Board of Directors will have a reduction in cash retainer while payment to third-party contractors and vendors will be cut from discretionary spending, too.
On March 16, Sabre’s Board of Directors voted to suspend the payment of quarterly cash dividends on Sabre’s common stock and announced the suspension of its share repurchase program.
Due to the uncertainty of the current crisis, the company expects a proportional decline in its travel network incentive expense and a reduction in its approximately US$250m semi-variable technology hosting costs. the provider will continue to monitor travel activity and take additional steps.
“As it relates to our liquidity, we drew down our revolver in the amount of $375m, which adds to our existing cash balance of $436m as of 2019 year-end,” said Doug Barnett, CFO of Sabre.
“We also note that about two-thirds of our cost structure is adjustable in the near-term. We will continue to assess the travel environment and whether additional cost actions beyond the $200 million announced today are necessary,” concluded Barnett.