American Airlines plans to sell $ 5 billion bonds backed by frequent flyer program

American Airlines said on Monday that it plans to issue $ 5 billion in bonds and seek a $ 2.5 billion loan backed by its frequent flyer program, funds it intends to use to repay part of its debt used to help resist the coronavirus pandemic.

The American and major rivals Delta Air Lines and United Airlines have mortgaged their frequent flyer programs to help deal with the drop in revenues after last year’s pandemic. In September, Delta raised a record $ 9 billion debt backed by its SkyMiles loyalty program.

Airlines make money from their frequent flyer programs by selling miles to banks, which customers earn using their credit cards.

American’s sale includes $ 2.5 billion in five-year bonds and another $ 2.5 billion in eight-year bonds. The proceeds will be used to repay federal loans that Congress approved last year to help the struggling airline industry, other debts or general purposes, the carrier said. American received about US $ 5 billion in this program with the possibility of increasing it to US $ 7.5 billion, but by the end of 2020, the airline had withdrawn only US $ 550 million of that amount. The loan has an interest rate of around 4%.

American based in Fort Worth, Texas, had a total debt of $ 41 billion at the end of 2020, an increase of almost 23% over the previous year, before the pandemic.