US repays government loan with AAdvantage funding


American Airlines has repaid its government loan. Released in the fall, the carrier leveraged its AAdvantage loyalty program in the private market to raise a whopping $ 10 billion in funding. The airline has touted this funding as one of the reasons it doesn’t need to seek cash – the $ 10 billion in new funding will go a long way in strengthening the airline’s liquidity position.

American Airlines repaid its government loan with funding backed by the AAdvantage loyalty program. Photo: Vincenzo Pace | Simple theft

American Airlines AAdvantage Financing

On March 14, two simultaneous events occurred. First, American Airlines completed its offering of $ 3.5 billion senior secured 5.5% notes due 2026. The airline also completed its $ 3 billion senior secured offering. guaranteed at 5.75% maturing in 2029. Another simultaneous transaction took place. American Airlines has entered into a $ 3.5 billion term loan facility.

Interest payments on the Notes will begin on July 20, 2021. The principal outstanding on the Notes maturing in 2026 will be repaid in quarterly installments of approximately $ 292 million on each payment date beginning July 20, 2023. The principal overdue Notes maturing in 2029 will be repaid in quarterly installments of $ 250 million on each payment date, commencing July 20, 2026.

Payments will be made quarterly, on January 20, April, July and October of each year starting this year. Interest will also be paid on these days.

American 787-9
The financing consists of two note issues, one at $ 3.5 billion and one at $ 3.0 billion, and a loan facility of $ 3.5 billion, for total financing of $ 10 billion. Photo: Vincenzo Pace | Simple theft

The $ 3.5 billion term loan facility will mature on April 20, 2028. Its interest rate is equal to the London Interbank Offered Rate (LIBOR) (with a minimum of 0.75% per annum) plus a margin of 4.75% per year. American will repay the outstanding principal on the loans in quarterly installments of $ 175 million on each payment date, which is synchronous with the payment dates listed above.

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The American repays his government loan

Along with this private market financing, American Airlines repaid its loan from the US government. In September of last year, the American borrowed $ 550 million a term loan facility provided under the CARES (Coronavirus Aid, Relief, and Economic Security) law adopted by the US government.

As part of the loan, the carrier had to issue warrants to the US Treasury Department to buy up to nearly 4.4 million shares at $ 12.51 per share. With the early repayment of the loan by American, the agreement was terminated.

The government loan had a total of $ 7.5 billion available to Americans. Photo: Vincenzo Pace | Simple theft

The total government loan amount made available to American Airlines $ 7.5 billion. However, the carrier had used its AAdvantage loyalty program as collateral for this total term loan facility. These loans were distinct from the payroll support that American Airlines received.

CEO Doug Parker said the following when repaying the loan:

“Americans could not have borrowed $ 7.5 billion against our AAdvantage program during the uncertainty of 2020, but the CARES Act provided the bridge that allowed us to effectively raise $ 10 billion in public markets over early this month. We wouldn’t be in the position we find ourselves in today without this bipartisan support, and it’s something we will never take for granted.

“We recognize that we have a responsibility to continue to safely meet our nation’s transportation needs, and we are pleased to have provided a solid return to taxpayers on this loan.” We are delighted to support the reopening of the economy as our citizens and neighbors around the world return to the skies.

Doug parker
American Airlines CEO Doug Parker. Photo: Getty Images

Why repaying the loan makes sense

American is joining with its other big competitors, United and Delta, in leveraging its loyalty program to raise cash. Delta Air Lines, in fact, raised $ 9 billion through the offer. Looking at this, as the American could only leverage his program to raise $ 7.5 billion from the government, the carrier saw an opportunity. American originally planned to raise $ 7.5 billion through AAdvantage funding but later that figure reached $ 10 billion.

Under the new financing, American Airlines has access to additional financing of $ 2.5 billion, and the overall financing is payable later, which means less debt obligations in 2025. The term loan facility Government guarantee would have matured and should have been paid in a single payment in 2025, compared to the spread of financial contributions over a period of time in this case.

American Airlines Chicago O'Hare
The American is still in rough times, but as a recovery begins to formulate, the airline is finally in a position where it isn’t going out and is specifically looking for more money. Photo: Getty Images

As American Airlines implements its “green flag plan” to get out of the crisis, this additional funding confidently led her team to say that they are not currently going out in search of more cash.

What impact will this have on AAdvantage members?

AAdvantage members are not expected to see an impact due to the new funding agreement. Members will still be able to keep their miles, some of which are subject to expiration dates, and use them as they see fit. The winning rates will not change due to the funding either, but American may adjust them as its partnerships are adjusted.

AA JEtblue
Passengers should still be able to earn and burn miles on American and its partners. Photo: Vincenzo Pace | Simple theft

Basically, the customer side of the loyalty program will not change as a result of this funding. American still has the option of adjusting parts of the program, as facilitating obtaining elite status or by adding new partners with which customers can earn and burn miles.

Do you think American’s private fundraising using the AAdvantage program was a good idea? Let us know in the comments!


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