United Leverages MileagePlus Program for $5 Billion in Liquidity

United Airlines today announced that it plans on using its MileagePlus frequent flyer program as collateral to secure a $5-billion loan, which would enable the company to boast an expected $17 billion in total liquidity by the end of 2020’s third quarter.

This figure also factors in an anticipated $4.5 billion to be made available to the carrier through the U.S. government’s ‘Coronavirus Aid, Relief, and Economic Security Act’ (CARES Act) Loan Program, for which United, “believes it has sufficient slots, gates and routes collateral available to meet the collateral coverage that may be required,” according to today’s statement.

United said, “This $9.5 billion of additional liquidity will provide even more flexibility as the airline navigates the most disruptive financial crisis in the history of aviation.” Senior executives reportedly voiced that they expect this sum should be enough to see the airline through a potential second or third wave of COVID-19 infection.

Air carriers, including United, have been clambering to cut costs and raise funds wherever possible since the pandemic began.

United has thus far suspended raises, instituted a hiring freeze, established an unpaid time-off program for administrative staff and management, introduced voluntary leave and separation programs, reduced executive pay, and made a 100-percent cut to its CEO and President salaries, in addition to other measures for reducing costs and expenditures.

United currently continues to see more new bookings than cancellations for its second and third quarters but foresees demand diminishing in October when federal payroll aid for airline employees expires.

The Chicago-based carrier said that it expects to fly roughly 25 percent of its normal schedule for the month of July and that ticketed passenger revenues have fallen somewhere between 82 and 88 percent from this time last year, although those figures are an improvement over June.

Even as demand for passenger air travel slowly, steadily grows and airlines (hopefully) start hemorrhaging less money, overall losses are forecast to continue throughout 2020. United said it expects to burn through an average of around $40 million per day during 2020’s second quarter and aims to reduce that amount to $30 million daily during the third quarter.

Depending upon how the situation develops, cash-burn could slow by the end of the year to the point that carriers almost break even, according to executives. That prediction would align with those that have already been made by major U.S. competitors, American Airlines and Delta Air Lines, reported Reuters.

United will reportedly retain control over the MileagePlus program, which boasts over 100 million members, more than 100 program partners, and generated $5.3 billion in cash flow from sales in 2019.

The new, $5-billion term loan facility is expected to close by the end of July 2020 and will be structured by Goldman Sachs, Barclays Bank and Morgan Stanley Senior Funding.