In my policy paper on airline bailouts (co-written with Veronnique deRugy, summarized here and shared broadly on Capitol Hill and inside the Executive Branch) I point out that airlines have had little difficulty accessing liquidity markets. They’ve been loading up with cash, the government didn’t need to step in because private markets were shut to them.
And I pointed out that there were still significant assets that the airlines held, which they could use to get more cash. One of those is the airline frequent flyer program. When Air Canada was in difficult straits in 2005 they sold off their Aeroplan program, eventually buying it back.
[US airlines] also earn billions of dollars from the sale of frequent-flyer miles to banks.
Even without selling these lucrative assets, airlines have turned to their co-brand credit-card-issuing partners for liquidity during past challenges. American, United, and Delta have each presold between $500 million and $1 billion worth of frequent-flyer miles, including during the financial crisis of 2008.
Airlines should be expected to use their substantial assets, which include their multibillion-dollar credit card deals with banks that include JPMorgan Chase, American Express, and Citibank, before entering bankruptcy.
Airlines, several Senators, and labor unions are urging Treasury not to ask for much from airlines in exchange for bailout cash. However Treasury has learned about the hidden assets airlines have in their loyalty programs.
In fact, the Treasury Department is reportedly asking airlines eight questions about potential collateral. Four of them are about their loyalty programs.
– Overview of loyalty program
– Details on whether the loyalty program is encumbered or unencumbered
– Estimated value of the loyalty program
– Historical cash flow of the loyalty program
– An overview of all unencumbered aircraft, engines and spare parts
– The estimated value of the unencumbered assets broken down by asset class
Airlines are going to have to open up the books on their frequent flyer programs, it seems, if they want that sweet sweet taxpayer cash.
If airlines are going to receive a bailout, taxpayers should receive some assurance of recovering the funds when times are good. And any deal should be structured to incentivize airlines to get out from under partial nationalization as quickly as possible.