Airlines give their crown jewels to the bond market

When the coronavirus pandemic brought travel to a standstill, airlines turned to every financing source they could find — even their previously untouched frequent-flier programs. Whether this is a positive development for the industry depends on who you ask. United, Delta and American Airlines have raised more than $25b through debt deals backed by their traveler loyalty programs. American’s $10b offering, a combination of bonds and loans, was the largest ever for an airline and reportedly drew $45b in orders from yield-hungry investors. The carrier used the proceeds to repay a pandemic loan from the US Treasury that carried more onerous terms. Spirit and Hawaiian raised an additional $2.05b backed in part by their loyalty programs. It’s all the more incredible because no airline had tried to monetize its frequent-flier program in this fashion until the pandemic. On the face of it, this looks like an incredible feat of Wall Street ingenuity. United pioneered the financing vehicle with the help of Goldman Sachs after a separate earlier debt deal backed by aging aircraft had to be scrapped because of investor concerns about the value of that collateral amid a potential glut of retired jets. Frequent-flier programs, on the other hand, throw off a lot of cash and in theory tend to be less volatile than airlines’ traditional ticket revenue or the value of the underlying fleet. All it takes is a quick glance at the yields on these bonds to see that investors think highly of loyalty programs. Story has more. <br/>