United’s Mileage Plus is such an important economic engine that JP Morgan Chase, which issues United’s co-branded credit card, has been the largest funder of the airline’s bankruptcy. It’s BankOne unit put up hundreds of millions of dollars in debtor-in-possession financing and JP Morgan is putting up a chunk of United’s $3 billion in bankruptcy exit financing.

Now a deal to extend the co-branding relationship together with a large pre-purchase of airline miles is taking the place of hundreds of millions of dollars in reserves that United would have to post to its credit card processor (which is majority-owned by JP Morgan).

As part of a deal extending United’s co-branding relationship with J. P. Morgan Chase through 2012, the bank agreed to make a “substantial” advance purchase of miles from United, according to an Oct. 7 filing with a U.S. Bankruptcy Court. The bank buys frequent-flyer miles from United from time to time, which are later transferred to cardholders’ accounts as they make purchases with the bank’s Mileage Plus affinity card.



The cash provided from J. P. Morgan Chase’s splurge on miles will be used to initially fund the reserve required by Paymentech Inc., a credit-card processor that it controls. The deal’s terms were not disclosed.



“This is using the people who use the United credit card as a source of financing,” says turnaround expert William Brandt, CEO of Chicago’s Development Specialists Inc.

The article notes that Delta’s new credit card processing agreement will require reserves of $600 million to $850 million. Continental, meanwhile, may have to post an additional $370 million to its credit card processor if its credit rating slips.

United is putting up miles instead.