American Airways plans $5 billion bond sale backed by frequent flyer program


American Airlines Flight 718, the first commercial flight of the US Boeing 737 MAX since regulators lifted a 20-month primer in November, will take off from Miami, Florida, USA on December 29, 2020.

Marco Bello | Reuters

American Airlines announced Monday it would issue $ 5 billion in bonds and apply for a $ 2.5 billion loan backed by the frequent flyer program. These funds are intended to repay part of the debt that was used to deal with the coronavirus pandemic.

American and major competitors Delta Air Lines and United Airlines have pledged their frequent flyer programs to deal with a drop in revenue after last year’s pandemic. In September, Delta raised a record $ 9 billion in debt through its SkyMiles loyalty program.

Airlines make money on their frequent flyer programs by selling miles to banks that customers earn on their credit cards. Last year, American announced that the AAdvantage program was valued at between $ 19.5 billion and $ 31.5 billion.

The American sale includes five-year bonds worth $ 2.5 billion and eight-year bonds worth $ 2.5 billion. The proceeds will be used to repay federal loans that Congress passed last year to help the troubled aviation industry, other debt, or other uses, the company said.

American received approximately $ 5 billion under this program with the possibility of increasing it to $ 7.5 billion. However, by the end of 2020, the airline had only drawn $ 550 million of that amount. The loan has an interest rate of around 4%.

The Fort Worth, Texas-based American had total debt of $ 41 billion at the end of 2020, up nearly 23% from the year before the pandemic.