American Airlines is considering selling debt to the public backed by its frequent flyer program as soon as March. You’ll be able to own a piece of the income flow from AAdvantage. They’d do this in order to refinance their government CARES Act loan against which they’d pledged the loyalty program.
Goldman is in talks with investors for a $7 billion to $9 billion refinancing in the coming months for the Fort Worth, Texas-based company, the people said. Discussions included the potential for a yield of 6% to 7%.
The three largest U.S. airlines all mortgaged their frequent flyer programs for a combined $23 billion. Frequent flyer miles are literally the only reason United and American haven’t filed for bankruptcy.
- American Airlines 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.)
- 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.
American Airlines is alone is pledging their frequent flyer program to the federal government. The Treasury Department now 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.
Would you buy American Airlines debt backed by AAdvantage?