#184 2020 · United Airlines · Aviationlegibility
United mortgaged its frequent-flyer miles for $6.8B while its planes sat grounded
the problem
Zero revenue, bills still due
background
By spring 2020, COVID-19 had grounded most of the global fleet: United was flying a fraction of its 2019 capacity, cash was burning fast, and revenue had collapsed toward zero even as fuel leases, payroll, and debt service kept coming due. Airlines across the industry were racing to raise emergency liquidity before reserves ran out.
Conventional financing routes were either shut or punishing: equity issuance would have diluted shareholders into a stock that had already lost most of its value, unsecured debt markets were pricing airline risk close to distressed levels, and United's physical collateral — aircraft, slots, routes — was already heavily encumbered or hard to value with planes parked and travel demand uncertain.
the move
United moved its MileagePlus loyalty program into a new, bankruptcy-remote subsidiary and used it as collateral to raise $6.8B — $3.8B in senior secured notes at 6.5% and a $3.0B term loan at LIBOR+5.25% — while keeping full ownership and operational control of the program, closing July 2, 2020.
the payoff
United disclosed MileagePlus was worth close to $22B, roughly 12x program EBITDA — several times United's own market capitalization, which had fallen to around $5-6B during the pandemic collapse. Two months later Delta ran the same play on SkyMiles, upsizing a planned $6.5B deal to $9B on strong investor demand.
what came after
United's deal became the template: Delta ($9B, September 2020) and later American Airlines (~$10B) securitized their own loyalty programs the same way, and analysts began treating airline loyalty programs as standalone financial assets that could be valued, rated, and financed independently of the flying business underneath them.
filed under
references
- [1]Kirkland Represents United Airlines on $6.8 Billion Financing Secured by MileagePlus ProgramKirkland & Ellis LLP, 2020kirkland.com
- [2]What's Behind the Billions That Airlines Raised via Frequent Flier Programs? You're the CollateralWolf Street, 2020wolfstreet.com