United Airlines Holdings Inc (NASDAQ:UAL) has announced plans to borrow $5 billion against its frequent-flyer program. The airline intends to use the loan facility together with available Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) Loan Program funding to boost liquidity amid the Covid-19 pandemic. United will also access up to $4.5 billion from the CARE Act.
In a statement, the airline said it is in talks with Barclays PLC (NYSE: BCS), Goldman Sachs Group Inc (NYSE: GS), and Morgan Stanley (NYSE: MS) to provide the financing and arrange syndication. The deal will be sealed by the end of July and will offer the airline financing while maintaining its MileagePlus customer loyalty program. The loyalty program allows the carrier to operate, evolve, and grow.
United seeking to its available liquidity
The loan facility is expected to raise United’s available liquidity of approximately $17 billion at the end of the 3Q 2020. The company says it has enough slots, gates and routes collateral to offer collateral needed for the full $4.5 billion available to the company under the Loan Program. The $9.5 billion additional liquidity will offer more flexibility to ward off the economic impact caused by the COVID-19 pandemic.
Jose Caiado, an analyst at Credit Suisse Group AG, in a note to clients, said the update is intended to “put to rest any solvency concerns that investors may have had about United.” He added that the airline will now shift its focus on the potential rebound in demand and earnings.
Due to the COVID-19 crisis, many airlines are scurried for money to remain afloat. Many are turning to loyalty programs and even going to extremes of mortgaging key properties. Because of this, airlines are now disclosing crucial details that were previously opaque like valuation.
Due to the pandemic, the Chicago-based airline only expects to operate around 25% of its normal schedule in July and expects passenger revenue to drop by 82% to 88% from a year ago. United says it expects its daily cash burn rate to slow to around $30 million per day in 3Q from the $40 million in 2Q.