Delta takes a ‘mortgage’ on SkyMiles flying continuously for $ 6.5B


Delta Airlines, which fought to stay afloat during air travel during the Coronavirus epidemic, is turning to its popular frequent flight program to tap into financial options.

Essentially, the Atlanta-based airline plans to mortgage its SkyMiles loyalty program to $ 6.5 billion. Frequent flyer programs are lucrative assets for airlines to sell billions of flyer miles per year to credit-card partners, offering miles as a reward for spending. American Express, for example, paid Delta $ 4.1 billion for miles in 2019, according to filings with the Securities and Exchange Commission.

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The private financing deal comes as the Atlanta-based carrier is losing $ 27 million a day in cash amid an unprecedented drop in air travel due to COVID-19. Delta will have $ 15.7 billion in cash and used to pursue short-term investments at the end of June.

In a press release, Delta said it was forming a new company, SkyMills IP Ltd, which would be based in the Cayman Islands to facilitate new financing. The Atlanta Journal-Constitution reported that as a result of this new action, Delta would have a new loan from the CARES Act of the federal government.

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The move will provide immediate and much-needed relief as the airline continues to burn $ 27 million in cash per day as travel demand remains weak due to the coronovirus epidemic.

In an 8-K filing on Monday, Delta reported a 78% drop in miles in the first half of the year, resulting in a 60% drop in passenger revenue. However, frequent fliers continued to use their Delta SkyMiles credit cards, and cash from sales to American Express dropped only 5% year-over-year to $ 1.9 billion.

The anchor Security The last Change Change %
lentils DELTA AIR LINES INC. 34.57 1.06 + 3.16%
AXP American Express Company 105.98 -0.70 -0.66%

According to an investor presentation, Delta will purchase Miles from the new SkyMiles subsidiary to issue frequent fliers, and the subsidiary will purchase seats from Delta when frequent flyers use miles to book their seats. Meanwhile, American Express and other SkyMills partners will purchase miles from subsidiaries to issue to credit card holders.

Delta received $ 5.4 billion through the CARES Act payroll support program, which was paid back in installments through July. The airline signed a letter of intent to substitute for an additional $ 4.6 billion loan through the federal aid program.

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Delta is not alone in tapping into its frequent flight schedule. In June, United Airlines was the first to mortgage a mileageplus program of up to $ 5 billion in debt.

While the move may boost Delta, it should not affect the redemption of benefits for Sky Miles members or flights.

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