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 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.