The US Treasury Department is in talks with some airlines about accepting their loyalty programs as collateral against government loans to help them weather the coronavirus crisis, Bloomberg reported.
Other assets are also in play, including some international flight routes, planes, engines, airport gates and spare parts, according to people familiar with the negotiations. Applications are due Friday for the US$25 billion (HK$195 billion) loan program, the second round of US funds made available to airlines. The people didn't name the airlines.
Passenger traffic in the United States has dropped to 5 percent of what it was a year earlier, and carriers have slashed flying capacity by 90 percent.
The Treasury already has doled out a separate US$25 billion in cash assistance and loans to help airlines pay employees. American Airlines chief executive Doug Parker said last Tuesday that the carrier would seek a US$4.75 billion loan from the Treasury. A Treasury spokeswoman declined to comment.
American, Delta Air Lines and United Airlines Holdings have the largest loyalty programs.
Airlines disclose very few financial details of their loyalty programs, including their primary source of revenue - selling miles to banks that then use them to reward customer credit card use. Delta last year received total cash proceeds of US$4.2 billion from such sales, including US$4 billion from American Express, its card issuer, according to Joe DeNardi, a Stifel analyst.
There is concern that if travel demand doesn't rebound, airlines will have very few unencumbered assets left, and that would restrict the availability of collateral for later financing down the road, one of the people said.
Airlines already have tapped banks for billions in new debt. They have parked thousands of aircraft, consolidated facilities, frozen hiring and delayed capital projects. At least 87,000 employees have taken leave, early retirement or reduced work hours at the three largest carriers alone.
The value of airline loyalty programs has swelled as firms including American Express and JPMorgan Chase & Co. agreed to credit-card deals that came with the promise of the lenders purchasing billions of dollars in miles each year.
Airlines have yet to execute deals similar to the one Hilton Worldwide Holdings reached with AmEx on Thursday. The hotel chain agreed to pre-sell US$1 billion worth of points tied to its loyalty program to raise cash.
In other news, Reuters reported that Cathay Pacific Airways (0293) will close its three cabin crew bases in the US, laying off 286 staff, after its passenger numbers fell by 90 percent in March.
The carrier only flew to Beijing, Los Angeles, Singapore, Sydney, Tokyo and Vancouver in April and May that represents just 3 percent of normal capacity.
