Delta Will Borrow $6.5 Billion Backed By Frequent Flyer Program
by Sarah HansenTOPLINE
As the coronavirus pandemic continues to ravage the airline industry, Delta announced Monday that it will borrow $6.5 billion in a new debt deal backed by its frequent flyer program, SkyMiles, rather than seek a government loan.
KEY FACTS
The SkyMiles program will lend the proceeds of the new debt offering to Delta, with a portion of those proceeds being deposited into a reserve account.
Delta said it intends to use the loan money for “general corporate purposes” and to shore up its liquidity.
Last week, Delta’s CFO said the company is losing $27 million in cash a day, the Wall Street Journal reported.
Delta isn’t the only airline with a cashflow problem: competitors American and United have also announced plans to draw down new loans backed by their own loyalty programs.
Delta’s stock gained 1.25% in premarket trading on Monday.
Key background
Under the CARES Act in March, the Trump administration agreed to a $25 billion bailout program for airlines that had seen business come to a standstill as a result of the pandemic. Ten carriers—Alaska Airlines Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines—were approved to accept federal money under certain strict conditions, including keeping 90% on staff on through September and suspending stock buybacks and dividends. The program also made another $25 billion in federal loan money available to airlines. With this new offering, Delta will not seek a loan from the federal government, Reuters reported.
Further reading
American Airlines Will Cut 19,000 Jobs In October As Coronavirus Decimates Travel Industry (Forbes)
United Airlines To Cut 16,000 Jobs When Federal Aid Dries Up This Fall (Forbes)