American Uses Loyalty Program to Raise $10 Billion

American Airlines is leveraging its loyalty program to raise $10 billion for near-term cash needs, the respected financial publication The Motley Fool is reporting.

Like other airlines, specifically Delta, American is separating its loyalty program as a new subsidiary and using it as collateral against the loan. The Motley Fool noted that the move allowed American to receive an upgraded rating from Moody’s to just two notches below ‘invest status,’ calling it “an impressive achievement, considering the weak state of the carrier’s balance sheet.”

Indeed, unlike other airlines, specifically Delta, American has more debt. The Texas-based carrier has $21.7 billion of debt maturing between 2021 and 2025 and it won’t generate nearly enough free cash flow to repay all of those maturities.

Delta ended 2020 with $14.1 billion of unrestricted cash and investments on its balance sheet. It also had $2.6 billion of borrowing capacity on its revolving credit lines. And it has only $15.7 billion of debt maturing over the next five years compared to American’s $21.7 billion.

The Motley Fool said American should be able to refinance much of that debt, but might face unfavorable terms for debt that is unsecured or backed by subpar collateral.

American also expects an average daily cash burn of $30 million for the rest of the first quarter; Delta is burning about half of that.

However, buoyed by an increase in travel this month for spring break, and an expected boost for summer travel thanks to the vaccinations and lowered positive tests for the COVID-19 virus, all airlines should benefit from increased travel demand.