Delta Air Lines Upsizes Loyalty-Backed Debt Sale To $9B

Delta Air Lines
Credit: Delta Air Lines

Delta Air Lines will seek to raise $9 billion in debt backed by its SkyMiles frequent-flier program, amounting to a nearly 40% increase from previous plans to raise $6.5 billion.

Under its revised proposal, announced Sept. 17, Atlanta-based Delta will raise $6 billion from two separate private-notes offerings, and $3 billion from a new credit facility, all backed by its SkyMiles loyalty program. 

Addressing the Morgan Stanley Laguna Conference virtually on Sept. 17, Delta CFO Paul Jacobson said the debt sale would remove the need to pursue a government loan from the CARES Act secured loan program. By pledging its frequent-flier program as collateral for the notes offering and new credit facility, Delta was able to double the $4.5 billion it could have otherwise received from the U.S. Treasury Department program. 

“As long as the markets were open to us, we didn’t feel like we needed the government loan or we wanted to do it,” Jacobson said. “We found a more efficient use of that collateral in the private markets.”

Delta’s stepped-up fundraising effort comes as it continues to burn through roughly $750 million per month, or around $25-27 million daily. With more than $16 billion in liquidity as of June 30, however, the airline has ample cash on hand to ride out an extended demand slump. Prior to the latest debt sale, Raymond James analyst Savi Syth estimated Delta could survive until September 2021 at the current cash burn rate.

“While we’ve issued a lot of debt, we’re carrying a lot of cash, and the hope is that we can control the burn rate,” Jacobson said. “I feel very good about the liquidity position we’re in, and it allows the company to enter into the next phase of planning the recovery and thinking about life after that.”

Delta recently cut its overall schedule for October to 41% below its 2019 level, according to data from Bloomberg Intelligence, marking a slight increase in flying from August and September, which were down 48% and 44%, respectively. Unlike American Airlines and United Airlines, Delta has committed to blocking off most middle seats on its narrowbody aircraft through Jan. 6, 2021, which effectively reduces its actual capacity below published levels. 

Delta received some rare good news on the international front on Sept. 17, when Brazil’s competition authority granted regulatory approval to its trans-American joint venture (JV) with Chile’s LATAM Airlines Group, marking the first governmental approval for the JV since it was signed by the two airlines in May.

LATAM was one of the earliest airline casualties during the COVID-19 crisis, having formally entered Chapter 11 bankruptcy proceedings in the U.S. District Court for the Southern District of New York in May. The Chilean airline group recently proposed a revised $2.45 billion financing proposal that secured additional private equity backing, following a rejection by the judge overseeing its reorganization of an earlier proposal deemed to be too favorable to existing shareholders, including the Cueto family and Qatar Airlines.

Ben Goldstein

Based in Boston, Ben covers advanced air mobility and is managing editor of Aviation Week Network’s AAM Report.