United announced a $5 billion financing secured by its MileagePlus loyalty program, which later grew to $6.8 billion.
Now Delta is expected to follow suit, raising money against the SkyMiles program after the Labor Day weekend.
The airline is set to market new loans and bonds secured by its SkyMiles loyalty program after the U.S. Labor Day holiday on Sept. 7, according to people with knowledge of the matter. The size of the deal and terms, including yield, are still being finalized and could change, said one of the people, asking not to be identified discussing a private matter.
American Airlines is using its loyalty program as collateral for a subsidized federal CARES Act loan. United still had assets to use for a government loan, even borrowing against MileagePlus in the marketplace. American for its part thought they couldn’t manage something like United’s deal quickly because AAdvantage isn’t a separate corporate entity. The details on how Delta managed to pull this off should be fascinating once they’re available.
Whereas past advance sales of large blocks of miles to credit card partners have on balance probably been good for members, borrowing against the program may not be although it’s far from a foregone conclusion.
You’d expect lenders to want a strong program to secure future member interest and an ongoing revenue stream yet in practice that’s not how things usually work out. Still, while Delta has a strong elite program, there’s really not much left to devalue on the earn-and-burn side.
They are all going to file for bankruptcy in October/November. At this point I can’t see any other way out of this for them.
This makes no sense. The Miles that Delta will mortgage are a liability. The program itself is an asset but if Delta defaults and the loan originator hold the bag of miles, they have serious liabilities to allow passengers the ability to redeem those miles.
Right now they’re SkyPesos. Whats less than a Peso?
Based on today’s rate, 1 Mexican Peso = 1,356,801,096,670.73 Venezuelan Bolivar.
So there is a long way to go before they become “SkyBolivars” 🙂
@JJ Comment of the year. Love that. So true.
@Stuart will all that sweet sweet government cash? No large U.S. airline files for bankruptcy in 2020.
@Mike – Factoring your
Account Payables for cash flow
– “What a country, America what a country – I love it”.
https://youtu.be/OzZHrtAuCm8
I think it actually falls under “good will and brand loyalty recognition”.
Kinda of like how “Craftsman” and “Kenmore” were valuable brand names with trust/value behind them about 15-20 years ago. Even “Hertz” name could be sold for similar reasons.
You are not factoring an accounts payable. Instead you are turning a contingent liability into a long term liability. Keeps it on the same side of the balance sheet.
Since not too many people flying now, Delta should temporarily raise the Skymiles value like 6 months for assets assessment then they can get more cash.