American Airlines plans $5 billion bond sale backed by frequent flyer program to pay back other debt

American Airlines flight 718, the primary U.S. Boeing 737 MAX business flight since regulators lifted a 20-month grounding in November, takes off from Miami, Florida, U.S. December 29, 2020.

Marco Bello | Reuters

American Airlines stated Monday it’s planning to subject $5 billion in bonds and search a $2.5 billion mortgage backed by its frequent flyer program, funds it intends to use to pay back a few of its debt used to assist climate the coronavirus pandemic.

American and huge rivals Delta Air Lines and United Airlines have mortgaged their frequent flyer applications to assist address a plunge in income after the pandemic struck final 12 months. In September, Delta raised a report $9 billion in debt backed by its SkyMiles loyalty program.

Airlines earn a living from their frequent flyer applications by promoting miles to banks, which prospects earn by utilizing their bank cards.

American’s sale consists of $2.5 billion in five-year bonds and one other $2.5 billion in eight-year bonds. The proceeds shall be used to pay back federal loans that Congress handed final 12 months to assist the struggling airline business, other debt or normal functions, the service stated. American was granted about $5 billion underneath that program with the opportunity of upsizing it to $7.5 billion, however as of the top of 2020, the airline had solely drawn on $550 million of that quantity. The mortgage has an rate of interest of about 4%.

Fort Worth, Texas-based American had complete debt of $41 billion on the finish of 2020 up almost 23% from the 12 months earlier, earlier than the pandemic hit.

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