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The Impact of COVID-19 on the Balance Sheet of the US Airlines and Others with Intangible Assets

The COVID-19 Impact on US airlines created a cash need that had CFOs and bankers looking for assets to borrow/lend against. A meeting of old and new provided a solution – lend against of the revenue generated from the big data of their frequent flyer programs.

The frequent flyer programs are significant money makers for the airlines. As they say – “You are the product.” The main source of their revenue is sharing the members’ personal data and preferences to marketing firms. That helps the marketing firms’ clients serve up goods and services to the members.

In 2020, American Airlines, United and Delta have pledged their data to get the funding they need to maintain operations during this period low revenue due to the pandemic. These cash infusions have been essential to improving the airlines’ balance sheets as they deal with the cash burn of keeping their fleet and employees ready for improved travel demand as a COVID-19 vaccine is released. Looking at the most recent TSA data available, the 7-day average for TSA checkpoint travel numbers is 784,968 – down 66% from a year ago average of 2,297,164. There is a long way to go but an improvement over May levels that were below 300,000.

In May, American used its AAdvantage Miles program as collateral against a $4.75 Billion CARES Act loan. Their CFO Derek Kerr stated, “We have an appraised value of that program anywhere from $18 billion to $30 Billion.” Even with the recent rally in airline stocks that would be at least 2.8x the current market cap of the company.

In June, United pledged its MileagePlus program for $5 Billion loan to improve liquidity. United retained control of its $20 Billion loyalty program having 100+ million members. Revenue from the program topped $5 Billion in 2019.

In September, Delta used its SkyMiles program for funding of up to $9 Billion bank lending and corporate bonds to provide liquidity during the pandemic. SkyMiles has an extensive network of longstanding partner relationships. SkyMiles brought in $6.1 Billion in revenue and $2.4 Billion in expenses in 2019. The largest contributor to the revenue was American at $3.9 Billion.

As the pandemic has motivated firms to change how they do business, it has also forced companies to change how they look at their finances. Intangible assets such as data, software, brands, and intellectual property account for most of the value at many modern companies. Traditionally, accounting standards and financial institutions has hesitated from using these assets as collateral for securitizations or other forms of lending. The airlines industry has been the first to use these assets out of necessity. Other industries will follow as they review their borrowing needs versus the value on the balance sheet. Opportunities for the use of these structures are coming as well as the technology needed to manage ownership and periodic revenues.

Paul Mangione

Fort Schuyler Advisors


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