Selling Everything Profitable... US Aviation Industry on the Brink

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] On the 15th (local time), United Airlines in the U.S. decided to use mileage as collateral to secure a total loan of $5 billion (approximately 6 trillion KRW) from Goldman Sachs, Barclays, Morgan Stanley, and others. This is the first time since the 9/11 attacks in 2001 and the 2008 financial crisis, when airline demand plummeted, that U.S. airlines have taken out loans using mileage as collateral.

According to CNBC and others on the 15th (local time), United Airlines plans to secure a total liquidity of $17 billion (approximately 20.66 trillion KRW) by the end of September, including this loan. In addition, United Airlines announced that it will provide landing rights, gates, and routes as collateral to receive an additional $4.5 billion in low-interest loans from the government. If this additional loan is realized, the government will hold 6.5% of United Airlines' shares.

United also plans to raise up to $966.04 million by selling 28 million shares at the highest price of $34.30 per share.

United Airlines stated, "This is the worst crisis in history, and to overcome it, it is necessary to secure as much liquidity as possible." Considering that air travel demand is unlikely to recover quickly due to the impact of the novel coronavirus infection (COVID-19), the company intends to build up ample reserves.

United Airlines is making every effort to prevent cash outflow through voluntary retirement and other measures, but it is insufficient. As of the end of June, United Airlines' average daily cash outflow was estimated at $40 million. Second-quarter revenue is expected to decrease by 88% compared to the same period last year.

American Airlines, Delta Air Lines, and others are in similar situations. American Airlines also announced plans to use mileage as collateral for government loans. Delta Air Lines is reportedly discussing a plan to pre-sell airline mileage at a discounted price to credit card companies and others to raise cash.

Analyst Samantha Sis of U.S. investment bank Raymond James said, "From the airlines' perspective, it is better to take out loans using mileage as collateral than to sell mileage at a discount," adding, "The fact that airlines have come to the point of selling customers' loyalty program mileage is evidence of how desperate the situation is."

This content was produced with the assistance of AI translation services.