Delta Air Favors New Debt Over Equity After United’s Fire Sale

Delta Air Lines Inc. is looking to extend a borrowing binge to survive the collapse in travel demand from the coronavirus pandemic, favoring new debt over an equity offering after rival United Airlines Holdings Inc. sold shares at a historically low price.

Options for Delta include borrowing against $13.5 billion in unencumbered assets, or selling planes and leasing them back from the buyers, said Chief Financial Officer Paul Jacobson. Delta has also applied for $4.6 billion in U.S. government loans. If tapped, that would complement the $5.4 billion in emergency U.S. payroll support that Delta has already lined up.

“While the uncertainty means that we can’t rule anything out, we’re certainly prioritizing use of our unencumbered assets,” Jacobson said Wednesday on a call to discuss financial results. “We still feel pretty good about what’s available to us in the market.”

Delta signaled it may increase borrowing a day after United sold more than $1 billion in stock at $26.50 a share -- 70% less than the closing price at the end of 2019, before the virus outbreak plunged airlines into their worst-ever crisis. Delta Chief Executive Officer Ed Bastian said the industry faces a long, uncertain recovery that will take as long as three years, dashing any lingering investor hopes for a speedy rebound.

“This is a case of expectations meeting reality,” said Christopher Stathoulopoulos, an analyst at Susquehanna Financial Group. “This was the first up-close and personal look at operating results for an industry that has been front and center with Covid. It was the first real look at results in a near zero demand world and saying it would be a few years until things get back to normal.”