United Airlines Promises $ 5 Billion Loan Loyalty Program

CHICAGO (Reuters) – United Airlines UAL.O said Monday that it is pledging its frequent flyer program, MileagePlus, for a new $ 5 billion loan that will continue to buffer its liquidity even as its cash burn rate slows thanks to steady improvement in demand.

So far, United continues to book more new tickets than cancellations for the second and third quarters, but it still expects annual demand to decline on October 1, when state airline payroll runs out.

The stock lost 7% in early trading on the Nasdaq.

The company would have total cash of $ 17 billion as of September 30.

That would be enough to weather a potential second or third wave of COVID-19, executives said.

Airlines have scrambled to raise cash and cut costs as the coronavirus pandemic hits air travel.

Chicago-based United said it expects to fly only about 25% of its normal flight schedule in July when revenue from ticket passengers fell 82% year-over-year to 88% but increased significantly from June .

The cash burn could almost break even by the end of the year, similar to that of its rivals American Airlines AAL.O and Delta Air Lines DAL.N They have forecasts based on how demand evolves, executives said.

For the third quarter, United expects the daily cash burn rate to slow from around $ 40 million in the second quarter to about $ 30 million per day.

United said it is in control of its $ 20 billion loyalty program, which has over 100 million members and $ 5.3 billion in cash flow from 2019 sales made by Goldman Sachs, Barclays Bank and Morgan Stanley Senior Funding structured deals is retained.

American Airlines has announced that it will use its loyalty program as collateral for a government loan.

Reporting by Tracy Rucinski; Edited by Steve Orlofsky and Jonathan Oatis

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