United will tap its frequent flyer program for cash as the pandemic continues to slam its revenue

• United Airlines said it had secured up to $9.5 billion in new liquidity, crucial funding as the coronavirus pandemic continues to cause the world's airlines to burn cash at unprecedented rates.
• The funds will consist of a $5 billion loan against the airline's MileagePlus frequent flyer program, and up to $4.5 billion in loans through the federal CARES Act.
• United said it expects $17 billion in liquidity by the end of the year. It normally targets just $5-6 billion.

United Airlines said on Monday it has secured up to $9.5 billion in new liquidity, bringing its expected liquidity holdings to $17 billion by the end of the year, triple the airline's normal cash target.

The airline said it had had secured a $5 billion private loan against its MileagePlus frequent flyer program in an arrangement that senior executives described as "innovative" during a background media briefing.

In a filing with the Securities and Exchanges Commission, the airline also confirmed that it had agreed to collateral with the federal government for up to $4.5 billion in low interest loans through the federal CARES Act.

The loan against the MileagePlus would offer the frequent flyer program as collateral. The program is structured in a wholly owned subsidiary, MileagePlus Holdings. The entirety of the program, which United said has a valuation of about $20 billion, will be offered as the collateral.

In exchange, United will maintain full strategic and operational control over the frequent flyer program, according to senior executives from the airline. In similar loan arrangements in the past, airlines have ceded some amount of decision-making to the financial institutions backing the loans.

The airline said the loans would have no impact on the program, or on members with United miles.

The arrangement represents a degree of relief for United, which, like other airlines around the world, has sought to build cash reserves as travel demand has collapsed globally during the coronavirus pandemic.

Notably, the move also allows United to leverage its frequent flyer program without pre-selling miles to its credit card partner, JPMorgan Chase. Pre-sales of miles, while an easy way for airlines to raise cash, typically come with steep discounts for the purchasing banks, impeding airlines' future cash flow.

According to a senior executive, the airline will offer slots, gates, and routes as collateral to the Treasury Department if it chooses to draw on the $4.5 billion CARES Act loan. Airlines have until September 30 to decide whether or not to take the offered loans.

Airlines receiving CARES Act funds must also provide warrants to the Treasury, which would dilute the airlines' equity.