The air carrier said it was going to get a $2.5 billion term loan using its rewards program, AAdvantage, as collateral for the financing. American is also planning to issue $5 billion in bonds.
The airline indicated that it would use the funds raised to pay back a $7.5 billion secured loan borrowed under the COVID-19 pandemic’s CARES Act. American Airlines said in January that it had used $550 million under that loan, per the WSJ.
Airlines’ use of loyalty programs has been a common method of backing loans during the pandemic, as the industry has been particularly hard-hit as travel stalled amid worldwide lockdowns. United expressed its intent in June to borrow $6.8 billion using its frequent flier program, and Delta indicated in September that it would raise $9 billion backed by its loyalty initiative SkyMiles, the WSJ reported.
Airlines sell miles to banks and merchants that shoppers can then earn when using a particular credit card. Last year, American said its AAdvantage program was worth $19.5 billion to $31.5 billion, per CNBC.
As people largely stopped flying, airlines started replacing seats with cargo space to meet the needs brought by the pandemic. The market served by cargo-only planes has been increasing since April. When American Airlines started offering cargo-only flights early in the pandemic, they were the first that the airline offered without passengers since 1984.
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American Airlines said in October 2020 that its cash burn rate dropped to about $44 million daily in the third quarter, an improvement from the second quarter’s $58 million per day. The airline also upped its cargo-only flights by over two times between August and September 2020.
