Delta Air Lines' (NYSE:DAL) first-quarter results were, as expected, terrible, and management expressed confidence that the second quarter will be even worse.

But for airlines right now it isn't about gaudy numbers; it's about survival. And despite the losses, Delta made a strong case that the airline can remain airborne through the turbulence.

Here's a close look at the quarter, and what Delta management expects in the months to come.

The results

Before markets opened Wednesday, Delta reported a first-quarter loss of $0.51 per share on revenue of $8.6 billion, compared to analyst expectations for a $0.70 per share loss on sales of $8.9 billion. Revenue was off 18% year over year.

"The first quarter of 2020 has truly been like no other in our history," CEO Ed Bastian said on a post-earnings call with investors. "These are truly unprecedented times and the path to recovery is uncertain and will likely be choppy."

A Delta A321 coming in for landing.

Image source: Delta Air Lines.

With demand nearly nonexistent, Delta has been scrambling to raise cash and buy itself time for travel to normalize. The company said it has raised $5.4 billion since early March, including a $3 billion secured term loan and $1.2 billion in aircraft sale/leaseback deals. Delta also drew down $3 billion under existing revolving credit facilities and secured a separate $5.4 billion in payroll support from the U.S. government in the form of loans and grants.

The airline said it expects to end the second quarter with about $10 billion in liquidity, up from $6 billion at the end of the first quarter. That would imply additional fundraising efforts are on the horizon.

Earlier in the week, United Airlines Holdings demonstrated it's possible to raise equity funding in this environment. But given that Delta shares are off 61% year to date, it seems more likely management will try to use some of its $13 billion in unencumbered assets as collateral to raise additional funds, or potentially try to do more sale/leaseback deals.

The outlook

Delta is also making progress on the cost side, forecasting total expenses in the second quarter will be down about 50% due to reduced flying and subsequent fuel savings, as well as consolidating airport facilities and temporarily closing airport lounges. It is also benefiting from 37,000 employees opting to take short-term unpaid leave, and from executive pay reductions.

Delta has cut April capacity by 80% and is expecting to fly about 85% less in the entire second quarter of 2020 compared to the same three months of 2019. International travel, which in normal times is some of the more lucrative flying airlines do, is expected to be down 90% year over year.

After burning through about $100 million per day in March, the airline hopes to have that burn rate down to about $50 million per day by the end of June. On the call, Bastian said Delta is preparing for an extended downturn, saying it could take years before travel recovers:

While we all wish we could predict the pace of the recovery, the truth is, our recovery will be dictated by our customers feeling safe, both physically and financially to begin to travel at scale. Given the combined effects of the pandemic and associated financial impact on the global economy, we believe that it could be up to three years before we see a sustainable recovery. And to succeed throughout that environment, we will likely need to resize our business in the near term to protect it in the long term. And while the resizing of our business over the short term is painful, it will also be an opportunity to accelerate strategies to streamline our company, simplify our fleet and reduce our fixed cost base in ways not possible in the past.

Bastian and CFO Paul Jacobson, who has rescinded his retirement plans and will instead stay on to help navigate through the recovery, lead one of the top management teams in the industry. In the months to come they will have some tough decisions to make about aircraft retirements, fleet resizing, and what they want Delta to look like post-pandemic.

Delta is a (speculative) buy

Delta's focus is on survival, and management so far has done an admirable job positioning the airline to be able to fly through this difficult period.

Of course, if travel demand does not return in the months to come, no amount of cutting will be enough. I'm optimistic that we will see demand rebound to more typical recessionary levels by the end of summer, but airlines have struggled during recessions in the past. As Bastian notes, it will likely take years for the industry to recover to anything approaching pre-pandemic levels.

Delta today trades at three times earnings and 0.3 times sales. In any scenario other than the worst-case, where traffic remains at current levels through the third quarter and beyond, the shares are almost certainly undervalued.

Even in the best of scenarios, investors buying in today are likely in for a long wait and will probably see other sectors recover well before the airlines. But given how far shares of Delta have fallen, the opportunity for an oversized return is substantial. Given the combination of the quality of the business and how far the stock has fallen, Delta is the top airline stock I'd recommend to investors willing to brave buying into the industry right now.

Just be forewarned -- the journey ahead is likely long and could include significant turbulence.