Delta Air Lines Inc. will use its frequent-flyer program as collateral in a $6.5 billion debt sale, mirroring other U.S. carriers that have tapped the valuable assets to build cash as the coronavirus pandemic and travel restrictions suppress demand.
The Atlanta-based airline and SkyMiles IP Ltd., a new subsidiary named for the loyalty plan, will be co-issuers of the senior secured notes and co-borrowers under the credit facility, Delta said in a statement Monday. Sale of the bonds isn’t contingent on closing the term loan, Delta said.
United Airlines Holdings Inc. and Spirit Airlines Inc. have also tapped loyalty programs to back debt, signaling that financial pressure on carriers isn’t easing as demand for domestic travel remains about 70% below a year ago and international service is almost nonexistent. A bid to extend federal payroll aid for carriers remains bogged down in Congress, and airlines continue to burn through tens of millions of dollars daily.
Delta rose 2.6% to $32.53 at 9:47 a.m. in New York. The stock had slumped 46% this year through Sept. 11, in line with a Standard & Poor’s index of the country’s five biggest airlines.
Delta is raising $4 billion in bonds in two equal portions maturing in five and eight years, with early pricing discussions around 5% and 5.375%, respectively, people with knowledge of the matter said. Goldman Sachs Group Inc., Barclays Plc, JPMorgan Chase & Co. and Morgan Stanley are lead managers on the offering, the people said, asking not to be identified as the details are private.
The airline and its bankers will market the bonds through Sept. 17 and pricing will follow, one of the people said. Delta is raising $2.5 billion in term loans in a deal led by Barclays.
United Airlines sold $6.8 billion of debt in June backed by its MileagePlus frequent-flyer program, and Spirit raised $850 million in a junk-bond sale backed by its plan. American Airlines Group Inc. and Alaska Air Group Inc. also are working to use aspects of their mileage plans as collateral for additional federal loans.
Airlines have disclosed few details of the programs that earn billions in revenue for the largest carriers by selling miles to banks that then use them to reward customer credit-card use.
Delta has declined to disclose the value of SkyMiles but said Monday that travel among loyalty plan members has declined along with overall demand. Total miles redeemed in the first half declined by 78%, reducing revenue from loyalty travel awards by 59%, the carrier said in a regulatory filing. Over the same period, cash from miles sales to American Express Co. fell less than 5% from a year earlier to $1.9 billion from the use of co-branded credit cards.
The agreement on the debt offering means Delta won’t pursue a second loan from the U.S. Treasury. The carrier had been eligible for about $5.4 billion, an increase from its initial allocation of $4.6 billion. Southwest Airlines Co. also opted not to seek a second government loan, and other carriers have until Sept. 30 to decide. American Airlines hopes to close its U.S. loan for at least $4.75 billion by the end of this month.
Delta’s flying capacity this quarter will be reduced 60% from a year earlier, including an 80% drop in international flights and a 50% cut in domestic, the carrier said. It has parked 40% of its aircraft because of the fall in travel demand.
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