American Airlines is alone in pledging their frequent flyer program to the federal government as collateral for a subsidized CARES Act loan.

They had initially planned to raise $5.5 billion from the government backed by the AAdvantage program, but when several other airlines skipped tapping subsidized financing they raised it to $7.5 billion at a rate just under 4%. (The AAdvantage program was appraised at $18 – $30 billion.)

In contrast,

• United raised $6.5 billion against Mileage plus valuing the program at $21.9 billion.

• Delta raised $9 billion backed by the SkyMiles program at an average rate of 4.75%.

• Southwest Airlines didn’t mortgage its Rapid Rewards program, but did get Chase to frontload the purchase of points for 2021 to the tune of $600 million.

Since American took out a mortgage on AAdvantage with the government, the Treasury Department has a “first priority security interest on American’s rights under U.S. co-branded credit card agreements [with Citibank and Barclays] and certain other loyalty program partner participation agreements…books and records and intellectual property related to American’s AAdvantage® frequent flyer program (the “Loyalty Program”).” That means even your member data gets nationalized if American were to default.

Now, however, American Airlines – like so many other Americans – is refinancing its mortgage. They have formed a Cayman Islands company AAdvantage Loyalty IP Ltd that will:

• Offer $2.5 billion in senior secured notes due in 2026
  
• $2.5 billion in senior secured notes due in 2029
  
• Take out a $2.5 billion senior secured term loan credit facility
  
• Lend the $7.5 billion to American to pay back the federal government

The net effect of this will be to refinance the AAdvantage mortgage in the private mortgage. However American remains partly-nationalized, with the Treasury Department having issued loans and taken warrants as part of the CARES Act Payroll Support Program (bailout #1) and the Payroll Support Program extension (bailout #2). U.S. Airlines are expected to receive another $14 billion from the American Recovery Act which passed the Senate over the weekend (bailout #3).