Delta will use frequent-flyer program to back $6.5 billion in debt

Key Points
  • Delta joins American and United with plans to use its frequent-flyer program to back new debt.
  • Atlanta-based Delta plans to borrow $6.5 billion more to help weather the coronavirus pandemic.
  • Airlines have scrambled to shore up liquidity as bookings tumbled because of the virus.
Delta Air Lines passenger planes are seen parked due to flight reductions made to slow the spread of coronavirus disease (COVID-19), at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, March 25, 2020.
Elijah Nouvelage | Reuters

Delta Air Lines said Monday that it will borrow $6.5 billion backed by its frequent-flyer program, the third airline to tap its loyalty platform to shore up liquidity during the coronavirus crisis.

The airline plans to sell senior secured notes and enter into a new term loan, both backed by its SkyMiles program. SkyMiles will lend the net proceeds of the bond offering to Delta, although a portion will go to a reserve account. Delta said last week that it had about $16 billion in cash at the end of June and that it was burning around $27 million a day.

United Airlines announced plans in June to use its frequent-flyer program, MileagePlus, to back a $5 billion loan. American Airlines has said it also plans to use its program to as collateral for a nearly $5 billion federal loan.

Airlines have turned to these programs as they view them as more resilient: customers may not be flying during the pandemic but they could generate revenue when they use co-branded credit cards. Delta said cash from the sale of miles to its credit card partner American Express fell by less than 5% to $1.9 billion in the first half of the year. Total miles redeemed, meanwhile, fell by 78% in the first half of the year.

The partnership with American Express generated $4.1 billion for Delta last year, up from $1.2 billion a decade ago, the airline said.

The Atlanta-based airline and its rivals have scrambled to shore up liquidity as the coronavirus pandemic devastated travel demand this year. The $2 trillion CARES Act in March set aside $25 billion in airline payroll support that prohibits job cuts until Oct. 1 and made available another $25 billion in federal loans. Delta said it doesn't plan to pursue the loan, joining Southwest Airlines in sticking with other sources of liquidity.

Despite a slight uptick in summer, air travel demand has hovered at around 30% of last year's levels, forcing airlines to trim capacity.

Delta said Monday it expects its capacity to be down 60% in September compared with the same month last year, with harder-hit international flying down 80% and domestic off 50%.

Delta shares gained 3.5% to end Monday at $32.82.

Delta leverages frequent-flyer program to borrow $6.5 billion