Today, United Airlines announced that it would have total liquidity of about $17 billion by the third quarter of 2020. $5 billion of this will come from financing made possible using the airline's loyalty program, MileagePlus. United has been working hard in recent months to reduce its cash burn and secure financing to continue operations, as revenues have dropped sharply due to coronavirus restrictions.

"This [$17 billion] reflects committed financing of $5 billion to be secured by the airline's loyalty program, MileagePlus, that allows the airline to continue to operate, evolve, and grow the program..." - United Airlines

How MileagePlus secures $5 billion

In essence, United's loyalty program, MileagePlus, is being used to secure a loan to the value of $5 billion. Put another way, the loyalty program is used as collateral in the event that the airline is unable to repay the loan.

According to the airline's press release, three parties are providing this funding:

  • Goldman Sachs Lending Partners LLC,
  • Barclays Bank PLC
  • and Morgan Stanley Senior Funding, Inc.

The groups have "committed to provide, and have agreed to arrange the syndication of, the MileagePlus financing through a term loan facility, which is expected to close, subject to standard conditions precedent, by the end of July 2020."

Goldman Sachs Lending Partners LLC is to act as the sole structuring agent and lead left arranger (also known as lead underwriter) for the transaction.

MileagePlus has more than 100 million members. Photo: United Airlines

United MileagePlus miles never expire

United Airlines says that its MileagePlus program has more than 100 million members as well as over 100 program partners.

"The program has historically generated material and stable revenues and free cash flows, drives customer retention, and increases customer lifetime value," the airline said in a statement.

In 2019, United announced that MileagePlus miles would never expire. This is hugely beneficial to its MileagePlus members- and will remove a lot of pressure for those sitting on large amounts of miles, unable to use them during this period of reduced air travel. Consequently, this one move will give customer service representatives working with MileagePlus one less thing to deal with.

United Airlines 787
United Airlines MileagePlus miles won't expire. Photo: United Airlines

For many loyalty programs, accrued reward points and mileages have a set expiry date, which is usually two to five years from when the points were first earned. Other programs are structured differently, and points will not expire as long as accounts are kept active with earning or spending taking place at least once per year (as an example).

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Other United financing

As United looks to increase its liquidity and secure funds to endure the coronavirus crisis, it has secured funding from other sources as well. $4.5 billion expected to come from the US Government's Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") Loan Program.

"The company believes it has sufficient slots, gates and routes collateral available to meet the collateral coverage that may be required for the full $4.5 billion available to the company under the Loan Program," United says.

United has also tried to improve its financial situation by "aggressively and proactively cutting costs" in recent months. Actions include but are not limited to:

  • Reductions in planned capital expenditures and operating and vendor expenditures,
  • A suspension in raises
  • The implementation of an unpaid time off program for management and administrative employees
  • A hiring freeze
  • Introduced voluntary leave and separation programs,
  • Reduced pay for all executives and cut its CEO and President's base salaries by 100%

United expects an average cash burn of approximately $40 million per day in the second quarter of 2020 and to reduce its average cash burn to roughly $30 million per day in the third quarter of 2020.