American Airlines Group Inc.

AAL -0.78%

said on Friday he planned to pledge his loyalty program as collateral for a $ 4.75 billion government loan as he sought to consolidate capital to handle the coronavirus pandemic.

American, which is the first to provide details of terms it is discussing with the government, expects second-quarter revenue to be down about 90%. While the demand for travel started to climb as parts of the country reopened, with more than 500,000 people passing through security checkpoints on Thursday – the highest since March – traffic is still down more than 80% from a year ago .

All major carriers, including US, received federal assistance pay workers this summer to avoid the massive layoffs they say would have been inevitable without government intervention. US airlines are eligible for $ 25 billion in loans under the Cares Act, a vast recovery program approved in March.

The Americans’ share of this funding was $ 5.8 billion. American on Friday said its loyalty program was worth between $ 19.5 billion and $ 31.5 billion and that it would pledge a significant portion as collateral.

The Treasury Department declined to comment.

Other airlines have said they are still deciding to take new government loans and have raised billions of dollars by selling bonds or issuing new shares.

US chief executive Doug Parker said government aid was the most effective way the airline could raise funds and that it would consider other options after securing the government loan.

Congress and the Federal Reserve are pumping trillions of dollars into the economy to combat the economic damage caused by the coronavirus. WSJ explains where all this raise money is coming from. Photographic illustration: Carlos Waters / WSJ

The investor community is divided on the value of loyalty programs. Some analysts have said the plans provide a rich source of cash by selling miles to credit card partners. Others wonder if they are worth anything if they are not compensated by actual theft, and what their value is in insolvency.

American said on Friday it still had more than $ 11 billion in assets to secure additional financing. American entered the crisis with heavier debt than many of its peers.

U.S. stocks rose 16% on Friday after the airline said it had stemmed its daily cash outflow from $ 100 million a day in April to $ 40 million a day by the end of the month. That’s $ 10 million less per day than the company’s previous forecast for June. The airline said it hopes to stop bleeding money altogether by the end of the year, as demand continues to improve and cost-cutting efforts gain traction.

The government loan is expected to be a five-year senior secured debt at the Libor rate plus 3.5%. The airline said it would issue warrants for the Treasury Department to buy 38 million U.S. stocks at an exercise price of $ 12.51.

Write to Alison Sider at [email protected]

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