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Delta takes out a ‘mortgage’ on frequent flyer SkyMiles for $ 6.5 billion



Delta Airlines, which is struggling to stay afloat during the fall in air travel during the coronavirus pandemic, is turning to its popular frequent flyer program to take advantage of economic opportunities.

In essence, the Atlanta-based airline plans to pledge its SkyMiles loyalty program for up to $ 6.5 billion. Frequent pilot programs are lucrative assets for airlines, earning billions a year, by selling frequent flyer miles to credit card partners, offering miles as a reward for expenses. American Express, for example, paid Delta $ 4.1

billion for miles in 2019, according to filing with the Securities and Exchange Commission.

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The private financing deal comes as the Atlanta-based carrier continues to lose as much as $ 27 million a day in cash amid an unprecedented drop in air travel due to COVID-19. The proceeds will be used to bolster $ 15.7 billion in cash and short-term investments that Delta had at the end of June.

In a press release, Delta said it was in the process of forming a new company, SkyMiles IP Ltd., which will be based in the Cayman Islands to facilitate the new financing. The Atlanta Journal-Constitution reported that Delta, as a result of this new action, would provide a new loan from the Federal Government’s CARES Act.

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The move will provide immediate and much-needed relief as the airline continues to burn through $ 27 million in cash a day as travel needs remain weak due to the coronavirus pandemic.

In an 8-K application on Monday, Delta reported a 78% drop in miles redeemed in the first half of the year, resulting in a 60% drop in passenger revenue. However, frequent flyers continued to use their Delta SkyMiles credit cards, and cash from sales to American Express fell only 5% year-over-year to $ 1.9 billion.

Ticker Security Last Change Change %
FROM DELTA AIR LINES INC. 34.57 +1.06 + 3.16%
AXP AMERICAN EXPRESS COMPANY 105.98 -0.70 -0.66%

According to an investor presentation, Delta will purchase miles from the new SkyMiles subsidiary to issue to frequent flyers, and the subsidiary will purchase seats from Delta when frequent flyers use miles to reserve their seats. Meanwhile, American Express and other SkyMiles partners will buy miles from the subsidiary to issue to credit card holders.

Delta received $ 5.4 billion through the CARES Act payroll program, which was repaid in installments through July. The airline also signed a letter of intent allowing for an additional $ 4.6 billion loan through the federal assistance program.

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Delta is not alone in leveraging its frequent flyer program. In June, United Airlines was the first to pledge up to $ 5 billion in its MileagePlus program. In debt.

While the move should give Delta a boost, it should not affect members of Sky Miles or their redemption of mileage for flights.

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