Delta pledges loyalty program to raise US$6.5 billion

Delta pledges loyalty program to raise US$6.5 billion

Delta Air Lines said on Monday it is seeking to raise US$6.5 billion through new bonds and loans backed by its SkyMiles loyalty program, further bolstering liquidity to weather a drastic downturn in travel demand due to the COVID-19 pandemic.

FILE PHOTO: Delta Air Lines passenger planes parked in Birmingham
FILE PHOTO: Delta Air Lines passenger planes are seen parked due to flight reductions made to slow the spread of coronavirus disease (COVID-19), at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, U.S. March 25, 2020. REUTERS/Elijah Nouvelage

CHICAGO: Delta Air Lines said on Monday it is seeking to raise US$6.5 billion through new bonds and loans backed by its SkyMiles loyalty program, further bolstering liquidity to weather a drastic downturn in travel demand due to the COVID-19 pandemic.

Atlanta-based Delta said it has parked about 40per cent of its fleet and cut its capacity by about 60per cent in the September quarter from last year as it continues to burn through US$27 million in cash each day.

U.S. airlines have cut costs and raised debt to survive what they call an unprecedented industry crisis. Travel demand is hovering around 30per cent of last year's levels and the situation is not expected to improve until there is a meaningful recovery in demand.

With its latest financing deal, Delta said it will not pursue a US$4.6 billion federal loan available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, although it continues to lobby for a second round of federal payroll grants.

Delta is among U.S. airlines to have tapped funds under a US$25 billion made available primarily in grants under the CARES Act to cover employees' payroll through September, but not a separate US$25 billion package in secured loans.

The loan program has attractive financing terms but restricts executive compensation and share buybacks.

The airline has said it could furlough nearly 2,000 pilots in October without more federal aid, but believes it can avoid any flight attendant furloughs through the winter thanks to strong demand for voluntary departures or leaves.

Delta had US$15.7 billion in liquidity at the end of June, which it said equaled about 19 months of financial runway at a daily burn rate of US$27 million.

It still has unencumbered assets worth US$6 billion to US$7 billion, primarily in the form of spare aircraft parts and engines, if needed, officials said.

Delta did not disclose the value of the loyalty program, or the terms of the new financing, which mirrors a debt deal by United Airlines in June backed by its US$20 billion MileagePlus program.

Delta's shares, which have lost about 46per cent this year, closed at US$31.70 on Friday.

(Reporting by Tracy Rucinski; Editing by Ana Nicolaci da Costa and Nick Zieminski)

Source: Reuters

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