United Can Borrow Up To $7.5bn If It Pledges Boeing 777-300ERs

United Airlines has amended its agreement with the United States Department of Treasury. The airline’s original nearly $5.2 billion loan has now been increased to a maximum aggregate amount of $7.5 billion. However, to get to that number, United Airlines would need to pledge certain Boeing 777-300ERs and other equipment.

United Airlines Boeing 777-300ER
United Airlines and the US Department of Treasury have amended an agreement to borrow up to $7.5bn if United pledges some 777-300ERs. Photo: Vincenzo Pace | JFKJets.com

United could access up to $7.5bn

Back in late September, United Airlines and the Department of Treasury inked an agreement for a term loan facility worth $5.17 billion. However, at the time, the Treasury Department advised United that, with other airlines backing out of the loan program, there would be additional funds available for the carrier to the tune of over $2 billion, meaning United’s total aggregate amount under the loan facility would reach $7.5 billion.

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On November 6th, United and the Treasury Department officially agreed to the terms of that facility increase, as announced in a securities filing. The term facility is initially extended to $7.16 billion in the aggregate, which is $1.99 billion more than the initial term loan facility commitment. This $7.16 billion is secured by certain route authorities, some slots and gate leaseholds, and other assets.

United Boeing 777-300ERs
Pledging the 777-300ERs and other assets will net the airline a $340 million increase in available borrowing capacity. Photo: United Airlines

However, the modified agreement also provides for an additional $340 million if United Airlines pledges certain Boeing 777-300ER aircraft and certain flight simulators and satisfies certain other conditions not explicitly named before December 4th, 2020. This can deadline can be extended at the Treasury’s discretion.

If United does pledge the planes and other assets, the total term loan facility will reach $7.5 billion. Already, United Airlines has borrowed $520 million under the loan facility. Loans borrowed under this facility mature on September 28th, 2025, and bear interest at a variable rate equivalent to the London interbank offering rate (LIBOR) plus a margin of 3% per year.

United also had to issue warrants to the Treasury to purchase up to 22.73 million shares, which increases to 23.81 million shares if United borrows the entire $7.5 billion.

Pledging the Boeing 777s

Pledging aircraft as collateral for a loan is not new in the industry. Airlines do routinely use aircraft to raise money in a variety of different ways. Aside from pledging it for a loan, aircraft are also used as collateral for notes offerings or can be involved in sale-and-leaseback transactions.

United 777-300ER
United’s 777-300ERs are quite new. Here is one sitting at Boeing’s Paine Field in January, awaiting delivery. Photo: Jay Singh – Simple Flying

Almost every airline has used its aircraft to secure funding in some way, shape, or form. A recent loan for Mesa Airlines from the United States Department of Treasury was collateralized by certain aircraft, among other assets. Other airlines, like Thai Airways, are trying to sell their excess aircraft outright.

United Airlines has not yet pledged the aircraft in exchange for the loan. The airline does still have a few weeks to go before it has to definitively decide if it wants to increase its term loan facility further, assuming the Treasury Department does not grant an extension.

The Boeing 777-300ERs

The Boeing 777-300ERs are some of United’s newest aircraft. Onboard, these planes have room for up to 350 passengers. This includes 60 in Polaris business class, 24 in Premium Plus (premium economy), another 62 in extra-legroom economy, and finally 204 in standard economy. United has 22 Boeing 777-300ERs, and the first of these aircraft only arrived about three years ago.

Polaris United
The Boeing 777-300ERs all contain the airline’s latest Polaris business class cabin. Photo: United Airlines

These planes operate United’s robust long-haul flights. This includes operations from San Francisco to Shanghai, Newark to Tel Aviv, San Francisco to Hong Kong, Newark to Mumbai, and more.

Do you think United Airlines should pledge the aircraft in exchange for increasing its term loan facility to $7.5 billion? Let us know in the comments!