AAdvantage Miles to be government guarantee soon as American Airlines promises loyalty program for coronavirus loan
The world’s largest loyalty program will soon become a loan guarantee.
American Airlines intends to pledge its trusty AAdvantage program against a $ 4.75 billion loan under the CARES Act.
“The AAdvantage program is viewed as a guarantee of public debt,” CFO Derek Kerr told the Wolfe Global Transportation Conference.
AAdvantage can more than cover the loan.
“We have an estimated value of this program ranging from $ 18 billion to $ 30 billion,” Kerr said. After using AAdvantage for the government loan, American intends “to have the ability to do other things with it.”
The estimates potentially make AAdvantage, without tangible assets, more valuable than American Airlines. But it’s unclear how AAdvantage could work without the airline.
“A Heathrow slot machine is worth something if the American leaves. 737 MAX is worth something if American goes, ”asked Wolfe Research MD Hunter Keay. “If American leaves, what do you have in the loyalty program other than a list of names?”
The American will not “go,” Kerr replied at first. As for AAdvantage, “This program survives in everything you do.”
But the details are unclear.
“We didn’t understand the total structure,” Kerr said. “This is why we are working with the government. That’s why it’s not over yet. “
He expects to get the loan by the end of June, and said the government broadly “agreed” to using AAdvantage as collateral.
“We have slots, gates, and routes that we rent against,” Kerr said. “It’s just another asset.”
Besides America’s biggest asset, Advantage is also lagging behind in terms of available warranties.
Excluding loyalty programs, American had $ 10 billion in unencumbered assets at the end of March. Delta Air Lines had $ 13.5 billion while United Airlines had $ 10 billion using a stricter formula than the Americans. Delta intends to end June with more than $ 7 billion in unencumbered assets.
Valuing AAdvantage up to $ 30 billion contrasts with three years ago when an analyst asked CEO Doug Parker if he was surprised to learn that AAdvantage was worth between $ 30 billion and $ 40 billion in private valuations.
“I should say yes because that’s more than the total value of American Airlines as we sit here today,” Parker said. “I find it odd that just taking something that’s inside the airline today and putting it into a separate entity with exactly the same cash flow would sort of generate so much additional value. “
AAdvantage is considered the world’s leading loyalty program, but this is not the first time that a loyalty offer has been used as a guarantee.
Delta is part of a loan to former Brazilian partner GOL, which secured the loan with its stake in Smiles, GOL’s listed loyalty program.
The separation of the airline’s loyalty program has generally proved unfavorable. Air Canada and Virgin Australia have bought back their loyalty programs. Cathay Pacific and Qantas over the years have quickly rebutted investors’ demands if they wanted to sell their loyalty divisions.
United said last month it could use its program, MileagePlus, as loan collateral.
Using loyalty as a guarantee is different from program separation, but raises similar questions of value. Parker in 2017 was against the separation of AAdvantage.
“I never really saw it as a particularly good idea to develop,” he said, saying that Advantage “is an integral part of the airline and part of the airline’s management and management. stocks.”