Good morning and welcome to the American Airlines Group first quarter 2020 earnings call. Today’s conference call is being recorded. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. To ask a question during this session, you will need to press star, one on your telephone. If you require any further assistance, please press star, zero. I would now like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens. Please go ahead, sir.

Thanks Cindy. Good morning everyone and welcome to the American Airlines Group first quarter 2020 earnings conference call. With us in the room this morning we have Doug Parker, our Chairman and CEO; Robert Isom, our President; and Derek Kerr, our Chief Financial Officer. Also on the call for our Q&A session are several of our senior execs, including Maya Liebman, Chief Information Officer; Steve Johnson, our EVP of Corporate Affairs, Don Casey, our Senior Vice President of Revenue Management; and Vasu Raja, our Senior VP of Network Planning. The focus of today’s call will be our response to COVID-19. Like we normally do, Doug will start the call with an overview of our quarter and the actions we’re taking. Robert will then follow with commentary about our team members, customers and network. Derek will then walk us through the details on our fleet, cost outlook and liquidity. Then after we hear from those comments, we’ll open the call for analyst questions and lastly questions from the media. To get in as many questions as possible, please limit yourself to one question and a follow-up. Before we begin, we must state that today’s call does contain forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity, fleet plans, and liquidity. These statements represent our predictions and expectations as to future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found on our earnings release that was issued this morning along with our Form 10-Q as of March 31, 2020. In addition, we will be discussing certain non-GAAP financial measures this morning which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings release, and that can be found on our website. The webcast of this call will also be archived on our website and the information that we’re giving you on the call is as of today’s date, and we undertake no obligation to update the information subsequently. Thanks again for joining us. At this point, I’ll turn the call over to our Chairman and CEO, Doug Parker.

Thanks Dan. Good morning everybody and thanks for joining us. Before I get into the numbers, I want to offer a few thoughts on the challenging times that we and our entire industry are facing. The spirit and efforts of the American Airlines team during this crisis have been nothing short of extraordinary. The human and economic toll of COVID-19 has been enormous, and like others, we’ve lost members of our own team and our hearts are heavy for their families, friends and coworkers. In the face of this great loss, the American team continues to rise to the challenge and meet the needs of our customers and the communities we serve. They’re putting on their uniforms every day and transporting first responders to where they’re most needed, and other Americans to where they feel most safe. Our team members are frontline heroes in this battle and they are what makes America great. On behalf of the entire leadership team, I want to thank our team for what they continue to do every day. Turning to this quarter’s results, by far the most important recent event for our industry’s long term viability has been the passage of the CARES Act, which provides up to $50 billion of much needed liquidity to U.S. airlines. This unprecedented assistance recognizes the value that commercial airlines provide to our country and is designed to keep our hard-working team members employed and ready to serve the flying public whenever we start moving again. I want to again thank the administration and Congress for their exceptional support of airlines and our employees. I think it’s important to note that this would not have been possible without a tremendous amount of work and advocacy on behalf of airlines and our team members, so I’d also like to…

Thanks Doug, and good morning everyone. As Doug said, the downturn in demand for air travel has been dramatic and unlike anything we’ve ever experienced. Across the industry, cancellations have rapidly outpaced new bookings. While we have faced dire circumstances in the past, the American team has always persevered and I’m confident we’ll do so again. The safety of our team members and customers is paramount. We are taking a proactive approach to ensure that our team is safe by reducing contact points, providing personal protective equipment like face masks and gloves, and provisioning sanitizer and wipes. These steps are critical to ensure our team feels safe and can instill that confidence in our customers as well. Like Doug, I’m humbled by our team’s spirit and proud to stand by them in these challenging times. American continues to provide critical air service to those who need to travel during the pandemic. From the outset, we have met or exceeded CDC guidelines and will continue to coordinate with public health officials on all health and safety requirements. To enhance our already thorough cleaning process, we have implemented additional safety measures to ensure aircraft cleanliness and to accommodate social distancing. Specifically, we are enhancing our cleaning procedures through expanded fogging on board and the use of EPA-approved disinfectant in high touch areas. On board, this includes everything from bins and galleys to tray tables, on racks, and seat belt buckles. In airports, it includes the gate areas, ticket counters, as well as other areas frequented by our customers and team members. We’ve also purchased face masks for frontline team members and made them required for flight attendants starting May 1. We have started distributing sanitizing wipes or gels and face masks to customers. This will expand on all flights as supplies and…

Thanks Robert, and good morning everyone. I too would like to thank our entire team for doing an amazing job during these uncertain times. Their dedication and determination to get through this crisis is inspiring for all of us. As you saw in our press release and Form 10-Q this morning, we reported a GAAP net loss of $2.2 billion or $5.26 per share. Excluding net special items, we reported a net loss of $1.1 billion or $2.65 per share. We began the quarter on track to exceed our guidance; however, the COVID-19 pandemic and unprecedented drop in demand during March radically changed our outlook. Given the unpredictable nature of this event, we suspended our guidance for all of 2020. In light of the current environment, our sole focus is to ensure we have sufficient liquidity. To withstand this crisis, we have driven efficiencies in our operations by accelerating our fleet simplification plan and aligning our cost structure to our significantly lower capacity levels. We will continue to match capacity with demand and optimize our costs to our level of flying and identify additional ways to improve our cash burn rate moving forward. As Doug mentioned, the significant fall-off in demand has given us an opportunity to accelerate our long-term fleet strategy. We have officially retired the Embraer 190 and Boeing 767 fleets, which were originally scheduled to exit by the end of 2020. We have also accelerated the retirement of our Boeing 757s and Airbus A330-300s. Both fleets were expected to retire over the next few years. In addition, we have removed a number of smaller regional aircraft from our fleet. By removing these fleet types, we avoid significant future maintenance expense, remove complexity from our operations, and bring forward the efficiencies associated with operating fewer aircraft types. These…

Thanks Derek. Operator, we are ready for questions.

[Operator instructions] Your first question comes from David Vernon from Bernstein. Go ahead, Mr. Vernon.

Sorry about that, guys - work from home fun. Derek, just to clarify, the $11 billion of liquidity at the end of the second quarter, that assumes the inflow from both portions of the CARES Act, the grant and the loan. Is that right?

Correct. There is a portion of--there’s 10% of the grant that does come in the second quarter, so there’s about $600 million of the grant that shows up in July. But for the most part, yes, it includes about $10 billion of the government grant and loan, and then $600 million of it comes in July.

Okay, and then as we think about the moving parts to get down to that $50 million burn rate, how much of the actions that would get you to 50 would be either temporary through voluntary time off arrangements? I’m just trying to get a sense for how much of an additional cut to the cash burn rate you guys are going to need to make in that September time frame as the CARES loans come off, because $50 million a day, $10 billion left, it gets you to the first part of next year, but it seems like there’s still some work to be done on the cost side there. Can you give us a sense for how much more you can get out of that $50 million a day?

Yes, I’ll tell you how we get there. The difference between where we are now and where we get to is there’s been a significant amount of refunds, so that has caused the number to be higher now than it has. As disbursements take hold, those take a little bit of time, so those are now starting to take hold and will stay in place as we go forward. The voluntary leaves and early outs, the early outs will be there forever, the voluntary leaves we have some three months, some six months, some nine months, and we believe if we need to do that in the future, we can do that again. The capex reductions are permanent and those are out throughout the whole time, and some of this is reductions in departures. The $50 billion assumes really very minimal receipts, so the difference, I think from a cost structure perspective, all of this is in place and can stay in place. The difference of that burn rate, as Doug talked about earlier, the issue with the industry right now is revenues, and to get that burn rate from a cost perspective, we have some more levers to go to bring it down, but the major difference in the burn rate is going to be receipts coming back and having some revenue coming in the door, versus refunds outpacing revenue and having no receipts come in the door.

And David, I would just add to what Derek said in his comments to your question, which is that $11 billion at quarter end does assume the government loan but it also assumes we’ve done other financing, so we expect to end the quarter still with a significant amount of unencumbered assets still in place. There would be more to do beyond that if we need to.

All right, thanks guys.

Thanks David.

Your next question comes from Mike Linenberg from Deutsche Bank.

Hey, good morning everyone. Just a couple questions here. When I look at your capex, I guess it was $3.3 billion coming in, and Derek, I think you indicated that $500 million of non-aircraft would be taken out, so I think it was 1.6, we’re looking at about $1.1 billion of non-aircraft capex, if you could just talk about what that $1.1 billion is. And then the $1.7 billion of aircraft capex you indicated that you’ve already--it’s already funded, presumably those aircraft deliveries are actually cash accretive. Can you talk about maybe how that’s structured? Thanks.

Yes, I’ll take the second one first. The answer is yes, they are cash accretive. They are 100% financed, if not more, so all of those--we do plan on taking all of those deliveries, and they are positive to the 2020 forecast. Most of the deliveries are in the back half because they’re Maxes that had been pushed out, but those are all cash accretive as we go forward. As far as the capex, we’re down to about 1.1. We’ve cut out everything that we can. The biggest project that’s in capex is our consolidating the fleets and making sure that the configuration on both of the fleets is the same. That project is going to continue and we are going to--you know, with the aircraft on the ground, we’ll have the ability to speed that up a little bit, so. We don’t plan on pulling back on that project because I think it’s very important for our operation, it’s very important for the team to get that one done, and that takes up at least 40% of that capex. The rest of it is just mandatory stuff we have to do with parts. There are some other IT projects that we’d still like to move forward with, and those are involved in that, but that’s kind of the gist of where we’re at. Anything that doesn’t have to be done, any type of facility things that don’t have to be done have all been taken out of the capital plan for the next two years.

Okay, great. My second question, just on the fleet, your 950 airplanes main line, I think you identified close to 100. That said, you have a relatively new fleet, so when we look at the next 850, fleet reductions become a bit more difficult since you have a lot of new airplanes. I’m curious, what would you target next, and just sort of a nuance there, the A330s, you’re pulling out the 300s but you have 15 200s, are those planes next or is it more about just the way that they’re financed and the lease agreements? Thanks for taking my questions.

No, I think there is two fleet types that we’ve looked at that, that it’s just a question of the timing of the return and do they come back, depending on where we are, so the flexibility--as you talked about, the 332s, there’s 15 of those, we have 737s, there’s 42 older aircraft that we’ve looked at, so those are a couple of the areas that we would go. We have lease expirations of 26 in 2021 and 21 in 2022, so those are out there, and we do have some older A320s that you could look at. But I think there is the levers to go down farther. The 332 is more fleet simplification for sure, if you went down that path, but as you said, they’re financed out a ways. But we’re looking at those are the fleet types that we’re looking at as we go forward and then maybe you have some lease expirations that you let go next year.

And Derek, 50 seizures, corresponding about 50 seizures as well.

Yes, okay. Good point. All right, thanks everyone.

Thanks Mike.

Your next question comes from Jamie Baker with JP Morgan.

Hey, good morning everybody. [Indiscernible] negotiations are going well or you wouldn’t have put the government loan in your liquidity build, but is there a Plan B in case the Treasury turns you down? As a follow-up, have we also confirmed with Treasury, and I may have just overlooked this, that 100% of the proceeds could be drawn all at once?

We’re having a--we’ve been working with Treasury. The government grant process went really well. We really appreciate everything they’ve done for this program. You know we’ve put in for the loans a week ago, a week and a half ago, so we’ve started to have some conversations, but our working with the Treasury team and the PJT team has been great. We’ve had constructive conversations as we move forward, and with the collateral we have, we believe that there is--we can get a deal done and that everything--that they’re going to be reasonable about it. So we’re moving down that path, we believe we’re going to get it done, and so that’s our number one goal as we move forward, to get that complete first. Then with the extra collateral we will have left in the end is to go down and look at other opportunities as we move forward, but I’m confident that working with the Treasury Department and the team that we can get the government loan put in place.

Jamie, it’s Doug, if you don’t mind. Just to--that gives me a nice opportunity to thank some people at Treasury as well. Look, you and I were amongst those that were around in 2001, and I was running an airline that needed help to get through that from the Treasury Department, and it was extraordinarily difficult. This feels dramatically different than that time. This Treasury Department is working night and day to do everything they can to get much needed liquidity into the U.S. economy, to make sure that the economy is able to get running again, so that includes how they are treating this airline support. It was clear with the payroll support program, I think how they handled that. They are doing what they have to do, of course, which is make sure that the U.S. taxpayer is paid back, so when it came to the payroll support program, that they could absolutely guarantee we’re getting paid back through things like unemployment savings and higher income taxes. Seventy percent of the grant was indeed a grant. That that wasn’t went into a loan, but a very low interest loan over 10 years. As it relates to the loan program itself, they have--at the time we talked about the payroll support plan, they were good enough to talk to all of us about the loan program itself and recognized again that they want to be sure that the taxpayers are repaid, but I think they know the best way to do that is ensure that airlines have liquidity to get through a liquidity crisis. Again, we still have to get through the work here in the next few weeks, but you’re right, we wouldn’t have talked about how we’re looking to that as our next source of most efficient capital if we didn’t feel confident that it would be the next source of efficient capital. But their view is five year loans, different rates for carriers based upon credit rating, as we were told. For us, it’s LIBOR plus 3.50. At today’s LIBOR, that’s a little over 4% on five-year money. That is the most efficient financing out there for American Airlines, and they’re looking for--it needs to be secured, but I think they’re willing to be more than reasonable about collateral, and also looking for appraisals that we have, that we feel very confident that we will be able to arrange that loan and still have significant unencumbered collateral after.

Got it. Doug, that perspective is actually really, really valuable, because you’re right - the United precedent with the ATSB was clearly on my mind, so I appreciate all of that commentary. A quick follow-up to your earlier comment, Doug, about resizing the franchise. It might have been sort of where Mike was going as well - my phone was cutting in and out. Not looking for a 2021 capacity guide, unless you want to give us one, but my question is how much could you shrink relative to the 2019 baseline if you only put down owned aircraft and allow leases to expire? I guess put differently, how much could you shrink before there begins to be a cost in terms of parking aircraft? Not thinking about facilities, not thinking about the toll on labor, just a specific aircraft question.

Additional airplanes above the 100 that we’ve already announced?

Well, you still have owned and fully depreciated aircraft, you have lease expirations coming up that I don’t have particularly good clarity, and if you allow those to expire and put down owned aircraft, there’s no real expense to that. My question is how much on a percentage basis could you shrink ASMs before contemplating putting down an airplane for which there is still an ownership cost or a lease expense? Is that 10% relative to 2019, is it 20%? And if you don’t have the figures, that’s fine - we’ve done some back of the envelope, I was just curious to hear your take.

Hey Jamie, this is Vasu. The figure’s a little bit different on an airplane basis versus an ASM basis, because our gauge will change, so on an ASM basis we estimate that number between 15% to 20%, depending on how you draw that time period. My number includes all jets - regionals, narrow bodies, wide bodies, so on an ASM basis, that number is probably more in the 10% to 15% because of course the things we would look to do are take out smaller jets like 50-seaters and keep more economical things like bigger 737s, 321s, things like that.

Perfect. That’s exactly what I was looking for. I’ll pass the mic to the next analyst. Thank you so much, gentlemen. Good luck.

Thank you Jamie.

Your next question comes from Joseph DeNardi from Stifel.

Yes, thanks. Good morning. Derek, can you just talk about the nature of the unencumbered assets that you have, realistically what sort of capital you could raise against that? Then what is the value of the loyalty program, since that’s kind of a pretty big note between--you know, that’s still out there for you? Thank you.

Yes, I think--you know, going to number two, you’re the one that has done the best work on the loyalty program by far, and your number is pretty good from where we have an appraisal of the program. I think the value of that program is high, and I think you have pointed that out, rightly so, and you are in the range of appraisals that we’ve gotten back for that. That has a very high value to us. Of the $10 billion, about $2 billion is aircraft spare parts, engines, those kinds of things. About $5 billion is slots, so that gets us to seven. We’ve got A/R about $1.8 billion and real estate about $1.2 billion, so there are different things we can do with different products. Of that $10 billion, 40% maybe loan to value on certain things, 40% to 50%, just in the fact that I think some can do more than others and gain more cash from an LTV basis than other collateral. But maybe I’d say 4 to 5. We also have in our slots, gates and routes the 364 deal that we have to refinance at some point in time. There is $4.4 billion of collateral in there which will be used at some point in time to refinance and probably do a bigger transaction as you combine that with other collateral that we have.

Okay, that’s helpful. Then maybe for Vasu, what is getting as much smaller as you think you might on the other side of this mean for the hub structure of the network? Thank you.

Yes, thanks for the question, which I’m going to interpret to mean, does this mean that we shrink hubs or eliminate ones, so let me be very direct about this. We have no plans to close any hubs, in fact far from it. As we see this--look, the core of our customer proposition is providing connectivity, and indeed that is something that we do not just versus all other airlines, but even all other network airlines. We are uniquely good at providing connections from customers in small cities across the Americas, North and South America, that connect them to the global marketplace. As dark and daunting as this crisis is, this is the moment for real clarity, and so this is not about dismantling our customer proposition but sharpening it and refocusing it. With that in mind, the way we are thinking about trying to get a lot of the same value that historically people tried to rein through hub closure, it’s first and foremost, as Derek and Doug mentioned, through fleet simplification, which is big. If we just take out fleet, of course you take our direct expense, so when we simplify away fleets, then you take out more intractable expenses like indirect costs of parts and tooling, fixed overhead, things like that. But importantly, that makes the airline a lot more lean and a lot more nimble, a lot more capable of being able to move fleets around markets, respond to a recovery when and if it comes, many of the things that have been difficult for us to do, frankly, over the last four or five years. Then two, the other thing that we look to do with that kind of agility is really put the capacity even more aggressively to where the demand is, and without going too far into it, I think I can very confidently say you won’t see us de-peaking DFW through this whole process - in fact, far from it. Then the third thing, which is really different from past crises for us, is really the power of our partnerships here, because now we have things such as our growing partnership with Alaska on the west coast, that in a lot of markets that are challenged, that growth is inhibited because of constraints on slots or dates or routes. What we’re now able to do is offer the customer a much larger network that can compete with bigger rivals in oftentimes unwinnable markets, so that means that we should be able to see that in higher quality revenues for American Airlines at a lower amount of investment. So we do not plan for mass scale hub closures; in fact, our hubs are a massive asset to us as we think about a really very focused customer proposition coming out of this.

Thank you.

Your next question comes from Duane Pfennigworth from Evercore.

Hey, thanks. Doug, good morning. Regarding your commentary about a multi-year recovery and what this looks like in the long term, just curious if you could share what the financial targets are that will shape your plans. As we think about the crisis here and now, burning over $6 billion in cash just this quarter, your exit rate implies about a $4.5 billion burn rate into 3Q, net debt on its way to perhaps $40 billion this year. What are the financial targets that will shape your 2021 plans - burn less cash?

Thanks Duane. At this point, we’re working, again as I think all of us are, at getting through the current liquidity crisis rather than building 2021 plans. But for certain as we come out of this--you know, prior to this, American had gotten to the point where we were happily through a large capex program and were moving aggressively toward using our free cash flow to de-lever the balance sheet. That will certainly be the case as we come out of this now as we do move to generating free cash flow in the future. The proceeds of that free cash flow will be going to pay down debt and to pay it down as aggressively as we can. That’s what you can expect to see when we get to that point, but nothing more concrete than that in terms of estimates or metrics for 2021 at this point.

Then just on the $11 billion liquidity target, what are you assuming for the working capital headwind related to the air traffic liability? We had a lot of questions around this for a number of airlines, not just American, but can you walk us through the mechanics of why the ATL did not decline in the March quarter and the outlook for that into the June quarter, considering things like cancellations, etc.? Thanks for taking the questions.

Yes, I think the ATL didn’t decline in the quarter because it was positive by about--our ATL for the quarter was positive 665. We had positive 785 in January, positive 487 in February, and negative 618 in March. That is the time when ATL does build for us, and if you--you know, this didn’t even really hit until middle of March, so those two happened. We did have refunds during the quarter of about $900 million, so we did have ATL grow, we had refunds of $900 million really driven by sales in the first two months of the time period. We do believe that ATL will decline in the second quarter. Our projections, I think April we had refunds--we haven’t finalized it yet, but we think it’s in the $600 million range, if not more, and we do project about $400 million in May and about $200 million more in June, so the quarter is going to be hit by some $1.2 billion to $1.3 billion worth of refunds, and that is built into the daily cash burn numbers that we gave you. That’s why we talked about receipts being really low in the $70 billion a day daily burn, so that is built in. We do have an ATL that we think is going to be negative, but in the first quarter it was positive really because as we entered March, things looked really good from where we were, and I think for all people that was pretty much the same picture. We just had the burn coming in, in March.

Very clear, thanks Derek.

Your next question comes from Hunter Kay from Wolfe Research.

Good morning. Thanks for getting me on. This is kind of a follow-on to the question. I know you don’t want to talk about ’21, but how do you plan on digging out of this debt pile here, Doug? Based on what Vasu said, it doesn’t seem like you guys are going to be really gutting costs, so pragmatically speaking, how do you dig out of this debt pile? How do you generate that free cash flow once you get through this crisis?

Through earnings. Again, we were nicely forecasting positive free cash flow prior to this. We need to get back to a point where we’re generating free cash flow in the future, and as we do that, like I say, we’ll be using that to pay down the debt over time. As Derek noted, while we do indeed come out of this with more debt than we would have liked, as it relates to the actual cash flow situation regarding the debt, we don’t have any major amortizations for the next couple years, and like I say, as we come out of this, like all carriers, and get to a point--we need to get to a point again where we’re generating positive cash flow, which we certainly will at some point, and when we do that, we’ll use that to pay down the debt as we go forward.

And Hunter, we are really good at--I mean, the work that’s been done to get the cost structure where it is right now is only beginning, so Vasu and his team are working through what the schedule is going to look like in 2021. The whole purpose of retiring fleets was to simplify things and to drive the cost structure to where it needs to be, and we’re still looking at other opportunities to do that. We will go through a comprehensive look at the expenses of the airline over the next few months here to right-size the expenses to where Vasu’s going from a network perspective.

Okay. Then of the 39,000 volunteers for early retirement and the like, how many of those 39,000 are permanently retired?

There’s 4,500 early outs.

Thank you Derek.

Your next question comes from Miles Walton from UBS.

Thanks, good morning. Doug, I just had a question for you on customer behavior, specifically as you alter some of the procedures for safety on board the plane. Something like blocking the middle seat, how long do you think something like that lasts if customers get used to it? Is it potentially that you’re putting it in there and it has to stay through vaccine development next year? How is that going to feed into your building of 4Q type of projections and scheduling?

A really good question. All of this is rapidly evolving, and today it’s not much of an issue, obviously. Over 80% of our flights I think are going out with lower than 25% load factor, so that constraint comes into play on a very, very rare basis. We think it’s the right thing at this point in time. Again, I can’t really answer your question other than to say it will continue to evolve over time. Today what we’re seeing is much more of a push toward facial coverings to give customers a level of comfort. We certainly are strongly encouraging that, and indeed as we said, we’ll soon - tomorrow - begin providing customers with masks to strongly encourage them to use them. Look, right now we think that’s an important part of the message to our customers, to know that we’re not going to have every seat on the airplane filled. There will be some seats available for those that require it, and we, as other airlines, right now think that’s an important part of the messaging. But again, we’ll see where that evolves over time. I don’t know that I can answer you any better than that.

No, that’s fine. It’s just a slippery slope when you start to put something in place and you don’t know exactly when to peel it back. Just wondering how you were thinking about it. Then maybe just a clarification on the CARES loan. How much of the unencumbered assets are you proposing to pledge against that, so we can know quarter end what your unencumbered assets are? Thanks.

We don’t know yet. We’re still working with the Treasury to finalize that. It hasn’t been determined and we’ll just continue to work with them on what the right collateral value is for the $4.75 billion loan.

Maybe I’ll just reiterate what we said - of the $10 billion plus the Advantage program that we have available today, we certainly expect that we will have ample collateral available for the Treasury Department to feel good about their $4.75 billion loan being secured, and still have significant unencumbered assets after that process.

All right, thank you.

Your next question is from Andrew Didora from Bank of America.

Hi, good morning everyone. Thanks for getting me in here at the end. Just wanted to go back to the CARES Act. I guess my understanding of the government loan program is that government appears to be a lender of last resort and you need to exhaust a lot of your other avenues of financing before accessing the program. Based on your explanation, I think it’s fair to assume--you know, would you agree that I’m maybe off on this interpretation? Then as a follow-up to Miles’ question, in your discussions with the Treasury, have they indicated the type of collateral that they would be willing to take? Just trying to get a sense of what you could have left if you need to go to the public markets. Thanks.

Sure Andrew. Let me start and then Derek can fill in with details. As to the lender of last resort point, I don’t have the legislation in front of me but it says something to the effect of [indiscernible] has to show they don’t have reasonable access to public markets, or something like that. Again, in discussions with them, and I can’t stress enough again how exceptionally reasonable and helpful they’re being to all of us, we proposed things, we mentioned things such as--you know, for example in February or sometime earlier this year, we were able to do a C-tranche on a EETC at--

We did it unsecured at 3.7.

We did an unsecured deal at 3.7, so we could do a C-tranche on an EETC at something lower than that. Today if we tried to do a C-tranche on an EETC, it’s some double digit number. They’re certainly not saying go do that. They view that as reasonable financing not being available at reasonable terms, so that’s--again, that’s for them to ascertain, but certainly their views seem to be not that you need to go raise--use all the collateral you have and turn to them only when there’s nothing else you can do, irrespective of the cost. So again, I think it is, one, the right thing to do for what they’re trying to accomplish, which is ensure the industry has liquidity it needs at reasonable rate, and what we’ve been told they’re going to do, so again I’d use this opportunity to thank them, not just Secretary Mnuchin, who we thank a lot, but Undersecretary Brent McIntosh, Deputy Secretary Justin Muzinich. The entire team has just been really very helpful about this. Then as to the collateral, again all I can say is that’s what we need to work though, and we have $10 million of unencumbered plus the Advantage program, which has appraised values that are, as Derek indicated, awfully high. Given all that, we feel good about what we have said, which is we will go raise the government loan and still have significant unencumbered assets outstanding. Let me use this opportunity for one more--to give credit where credit is due to Derek and the treasury team. These numbers we’re giving, $11 billion at year end--sorry, at quarter end, with the government loan has thus far the most expensive debt we will have raised, and in that analysis is this government loan, so not saying that we won’t need to do other things in the future, but we’ve been going about this, going to go to the most efficient source of financing throughout, and I think we’ve done really well. I feel good about that and we’ll continue to do that, and right now that’s the next most efficient tranche to go after, so that’s where we expect to go. To the extent beyond that we need to do other things, we obviously will do so. I think Gary Kelly on the Southwest call said this as well - there is asymmetrical risk right now for cash. Not having enough is really expensive; having too much may be somewhat expensive, but you’ll just use that to pay down the debt sooner. That’s certainly the way we view it, and we’re going about it in a way of raising that which is most efficient first and getting to those that are less efficient later.

Great, thank you for that, Doug. Lastly Derek, just a quick modeling question here. In the $50 million daily cash burn rate in June and beyond, what are you assuming--what is the EETC amortization assumptions in that number? Thanks.

The EETC amortization for 2020 is about $2.2 billion for the full year.

Great, thank you.

At this time, we will take questions from the media. If members of the media would like to ask a question, please press star, one. Your first question comes from Alison Sider from Wall Street Journal.

Hi, thanks so much. I was wondering if you could tell us anything about any supply chain issues you’re seeing for masks. Where are you getting all these masks for crew and for passengers, and is it getting easier to find them?

Ali, it’s Robert. I’ll give you what we know. Look - there’s a lot of planning that goes into provisioning masks and sanitizers, and when we contemplated making changes to our cleaning programs and also any type of amenities for our customers, things have changed rapidly in just two or three weeks. As we take a look forward, with sanitizer we see ample supplies. With masks, it is a logistical issue of getting inventories to the right place, but we have sufficient quantities for our team, and as our commitment to offer masks and sanitizer to customers in flight, you’ll see us rolling that out. Our supply chain, it will take a number of weeks, but it’s not an issue of months at this point. I can’t point you to the exact sources of supply, but I will say that things have certainly eased--constraints have certainly eased over the last few weeks, to the point that we are able to make commitments like we have to both our tam and our customers.

Got it, thanks. I know you can’t say exactly where, but we’ve heard of other airlines having to go to Asia, or to China in particular to get masks. Is that where some of the sourcing is?

We’re sourcing wherever we can get the quality product that meets our needs throughout the country, but I don’t have the specifics on what percentage comes from where.

Okay, thanks.

Your next question comes from Kyle Arnold from Dallas Morning News.

Hey, thanks for taking my call. You mentioned the 39,000 employees that took the early out leave and reduced hours. Can you talk a little bit about what your permanent workforce situation might look like after that CARES Act restrictions [indiscernible] and how you’re going to be looking at the needs and the size of the airline during the next few months?

Kyle, it’s Doug. Obviously hard to tell given the uncertainty around demand where we will be and how fast the consumer returns and how much we want to fly. But certainly given what we announced today with the retirement of all these aircraft, we will emerge from this in the fall with a smaller airline than we had anticipated prior to the virus, of course, and going into 2021 as a smaller airline. We will most certainly, irrespective of where demand is, go into the fall with more team members than we have work for, which is a challenge for certain. We hope to get through that the same way we’ve gotten to this point. The fact that we had 40,000--39,000 of our team members volunteer for leaves and early retirement, I think is an indication that we hopefully can be able to manage through that without having to do furloughs at that time. That’d certainly be our goal, to go through and make sure that we have the airline right-sized, properly sized, a good bit smaller than it is today, but do so in a way that takes care of our team, which has been front of mind through this entire process. We’ll look to do that, but those decisions are things we’re going to have to make when we get to that point, and that’s a goal at this point, one that I hope we can meet but not a certainty. Again, this is not unique to American. I think we’re all working through this at this point. As for right now, we’re working through the summer and through the terms and conditions on the CARES Act itself, and as we get into the fall, we’ll have to work--we will certainly be working productivity with our team to make sure we’re right-sized.

Your next question comes from Mary Schlangenstein from Bloomberg News.

Good morning. I wanted to ask, when you all have been mentioning the Advantage program as not being included in your unencumbered assets, can you talk about your willingness or your unwillingness to have to use that as collateral?

Derek, do you have an answer for Mary?

No, I think there is willingness to use all of our collateral that is necessary for us to increase the liquidity to where we need it to be.

We wouldn’t [indiscernible] the program, if that’s what you’re asking. [Indiscernible] as an asset that we can use to raise much needed liquidity in this time, obviously we’re absolutely willing to consider it.

Okay, and if I can also ask, on the worker leaves, do you have any information in terms of--you know, since there are 3-6-9s, what percentage of those folks would be coming back right around September 30, when the restrictions on CARES Act loans go away?

I don’t know that we have that information, Mary. I don’t think we have that.

Okay, just wondering if that’s going to complicate your decisions going forward on whether you need to have furloughs or not, if you’ve got a bunch of folks coming back off of leave at that time. If that becomes available and I could get that, I’d appreciate it.

Yes, well anyway--Elise, do you want to answer that?

Yes Mary, I can call you offline about that. I would tell you that some of these leaves, the 3-6-9 months, we’ll be going back out and looking at extending those wherever we can if needed.

Okay, thank you.

Your next question is from Leslie Josephs from CNBC.

Hi, good morning. Thanks for taking my question. On the open labor agreements, how does coronavirus and this need to be a smaller airline affect those, and as you think about furloughs, how do any of the existing labor contracts affect those discussions?

The existing labor negotiations, flight attendants and pilots we’re in negotiations with, those negotiations--obviously it has an impact on those as we all work on the pace of those negotiations, we’ll still continue to talk and work through those to the extent we can. But right now, all of our team is working to take care of our team members through this issue, so certainly nothing to report about those moving forward beyond where they were at this point. Again as it relates to the labor contracts, as I said, our goal is to get through this without furloughs to our team. I’m sure our unions would support that goal and we’ll work together to figure out hopefully ways that we can do that, so that we have the workforce right-sized but have those that want to avail themselves of leaves or early outs doing so, and those that need to be working doing that as well. We’ll work with them on that. I would note again--yes, go ahead?

On the leaves, do you have any sense of why so many people are taking those leaves? Is it childcare? Can’t go to another airline though, but--

Yes Leslie, it’s Elise. It’s a combination of things, from childcare needs to wanting to take the summer away from flying, so it’s a variety of needs. It all depends on the individual.

Thanks.

Your next question comes from Edward Russell, PPG.

Thanks for taking my question. Vasu, I was wondering if you could go a bit more into your statement on all the hubs coming back. Should we expect some hubs to come back faster or more robustly than others? I know you’ve been talking in the last few years about Charlotte, Dallas and Washington being the strongest hubs.

Hey Ned, thanks for the question. It remains to be seen, quite frankly. As Derek mentioned, we are just now starting kind of a clean sheet exercise for what 2021 might look like, and so I couldn’t tell you with a lot of clarity. But for right now as we look at our schedule, clearly we have our biggest connecting complexes that are out there, primarily so that we can serve the vast majority of communities under the CARES Act with a minimum of resource expenditure, so that’s all you kind of see in our existing schedule today. Everything beyond it remains to be seen yet.

Great, thank you. Then one point of clarification - Robert, you mentioned some older 737s that could be retired. How many were they - were they 42? I missed that number.

Yes, 42.

Great, thank you.

Operator, I think we’re done taking questions.

That is correct, sir. There are no further questions at this time.

Excellent. All right, well thanks everybody for your time and attention. I will close where I closed my comments, with obviously this is a difficult time for our industry and our country, but we couldn’t be more proud of how our team and our industry is managing through this. We will get through this, I’m certain of that. I know our industry will get through this. We’ll fight through this successfully, and I’m particularly confident that American Airlines will be among those leading the way. We’ll keep you apprised as we move forward. If you have any further questions, please either contact Investor Relations or Corporate Communications. Thanks a lot.

Ladies and gentlemen, this does conclude today’s conference. Thank you for participating. You may now disconnect.