Changelog

2026-02-23 — Initial publication.

Introduction: The $26 Billion Securitization Wave

In 2020, at the nadir of the COVID-19 crisis, when U.S. airlines faced a 60-80% collapse in passenger revenue, three major carriers executed a financial maneuver that surprised markets and revealed a hidden truth: their most valuable assets were not aircraft, gates, or operational routes—they were frequent flyer programs. Between June and October 2020, United Airlines, Delta Air Lines, and American Airlines collectively securitized over $26 billion in debt backed by loyalty programs, transforming SkyMiles, MileagePlus, and AAdvantage from operational incentives into primary collateral for capital raising.

This shift marked a fundamental change in how airlines finance themselves and how investors evaluate airline creditworthiness. Today, loyalty program securitization represents one of the fastest-growing financing tools in aviation, with implications that extend far beyond corporate treasury rooms into the strategic operations of airports, co-brand credit card partners, and the entire structure of post-pandemic aviation finance.

Why Loyalty Programs Became Hidden Wealth: Pre-COVID Context

Before 2020, airline frequent flyer programs were largely treated as marketing and operational tools. They drove customer retention, encouraged repeat travel, and generated ancillary revenue. But their true financial power lay dormant—untapped, unencumbered, and invisible on balance sheets.

The structure of modern loyalty programs is deceptively simple: members earn miles by flying or using co-brand credit cards issued by banking partners. Those miles can be redeemed for flights, upgrades, or merchandise. The program generates revenue from three sources: co-brand credit card agreements, redemption revenue (when airlines must fulfill award seats), and partner licensing (hotels, rental cars, shopping). Pre-COVID, this revenue stream was steady and growing, but not monetized as collateral.

What changed in 2020 was desperation. As travel ground to a halt, loyalty programs became the one asset airlines still possessed that generated uninterrupted cash. Co-brand credit card sign-ups continued. Existing members kept their cards and continued spending. And as flights were canceled and travel paused, members accumulated miles—creating a massive liability (deferred revenue) that airlines nonetheless could pledge to creditors.

The COVID-19 Trigger: Why Airlines Securitized Loyalty Programs

In March 2020, U.S. airlines saw passenger revenue decline 60-80% overnight. The CARES Act provided emergency support (discussed separately), but was insufficient to fund operations and debt service. Airlines needed liquidity immediately.

Traditional funding sources were constrained. Credit ratings had fallen to speculative grade. Aircraft-backed EETCs (Enhanced Equipment Trust Certificates), once the primary airline financing tool, became nearly impossible to issue. Equity was diluted and expensive. The only asset left with any liquidity was the loyalty program revenue stream—specifically the contractual, recurring payments from co-brand credit card partners.

Delta Air Lines moved first. In September 2020, Delta announced a $6.5 billion securitization backed by SkyMiles, upsized to $9 billion by October. United followed with a $6.8 billion MileagePlus securitization in June 2020 (later increased). American announced a $7.5 billion AAdvantage securitization in March 2021, later upsized to $10 billion—the largest single airline-backed financing in history at the time.

Deal Structures: The SkyMiles Model ($9 Billion, Delta Air Lines)

Delta's $9 billion SkyMiles securitization provides the clearest window into how loyalty program financing works. The transaction was structured in three components: $2.5 billion in 4.5% senior secured notes due 2025; $3.5 billion in 4.75% senior secured notes due 2028; and a $3 billion term loan facility.

The collateral for these notes was not the program itself, but rather the contractual revenue stream flowing from multiple sources. The most material source was Delta's agreement with American Express, which generates roughly $1.9 billion annually in sign-up bonuses, annual fees, and mile sales. Secondary sources included redemption revenue (the spread between the cost of fulfilling award seats and the mile value assigned) and partner licensing (Amex's ability to sell miles to shopping partners, hotels, and rental cars).

Structurally, Delta created a special purpose vehicle (SPV) to own the SkyMiles program assets. The SPV issued the notes secured by pledge agreements over the revenue streams. The notes were rated by Moody's and S&P Global. Debt service was calculated conservatively based on stress-tested revenue projections. Interest was paid from the cash receipts flowing to the SPV. The deal included a liquidity facility to cover up to 12-18 months of interest if revenue fell below minimum thresholds.

All three notes were positioned as senior secured debt—meaning they had priority claims on SkyMiles revenue ahead of unsecured Delta corporate debt. However, the notes did not give noteholders control of the program. Delta retained operational control, retained the ability to manage mile values, set redemption policies, and adjust program terms (subject to contractual constraints with Amex and Chase).

The MileagePlus Model ($6.8 Billion, United Airlines)

United's MileagePlus securitization, executed in June 2020, shared the same core structure but added legal innovation. United transferred MileagePlus to a newly formed Cayman Islands exempted company incorporated specifically as a bankruptcy-remote SPV. This structure ensured that if United filed for bankruptcy, the loyalty program and its revenue stream would be legally protected from the airline's Chapter 11 estate.

The transaction consisted of $3.8 billion in senior secured bonds and $3.0 billion in term loans. Pricing was 6.50% on the bonds (yielding 7.00% all-in) and 7.03% on the loan. The spread reflected the higher credit risk of United at the time relative to Delta, though both airlines had similar credit ratings.

A key innovation in United's deal was the hybrid covenant structure. Unlike a traditional securitization (which would be heavily protected with detailed cash flow controls and restrictions on asset sales), United's deal was structured more like a corporate loan with loyalty-specific covenants. United retained operational control and cash management flexibility, but agreed to maintain minimum revenue thresholds, restrict dividend payments, limit additional debt issuance, and maintain adequate liquidity facilities.

The MileagePlus securitization also pledged United's relationship with Chase, which issues the United MileagePlus credit card. Chase's annual payment to United—roughly $3.2 billion as of 2024—was the primary collateral. The deal was arranged by Goldman Sachs (structuring agent and lead-left), with Barclays and Morgan Stanley as joint bookrunners.

The AAdvantage Model ($10 Billion, American Airlines)

American Airlines' AAdvantage securitization was the largest and most complex. Announced in March 2021, the deal was initially sized at $7.5 billion but upsized to $10 billion—demonstrating strong investor demand and American's need for additional liquidity to repay CARES Act loans ahead of schedule.

American structured AAdvantage as a standalone Cayman Islands exempted company with the same bankruptcy-remote protections as United. The deal consisted of three tranches: $2.5 billion in senior secured notes due 2026, $2.5 billion due 2029, and $5.0 billion in a senior secured term loan credit facility.

The primary collateral was American's relationship with Citi and Barclays, which together generate approximately $6.1 billion annually as of 2024 (though the 2021 figure was lower, roughly $5.5 billion, due to pandemic-related card issuer losses). American pledged all future payments from these co-brand partners to secure the notes.

A critical decision in American's deal was the use of proceeds. American used the $10 billion to repay $550 million of a U.S. Treasury loan from the CARES Act loan program, to repay other CARES-related obligations, and to build cash reserves. This was the first securitization explicitly used to refinance government support—a move that reflected both the improving financial position of airlines by 2021 and the desire to shed CARES Act restrictions (dividend prohibitions, executive compensation limits, stock buyback restrictions).

The Engine: Co-Brand Credit Card Economics

The entire securitization wave rested on one economic reality: airline co-brand credit cards generate more revenue than flying does. This is not hyperbole; it is demonstrable from airline financial statements.

As of 2024, the three major U.S. carriers reported the following annual co-brand credit card revenue:

• Delta & American Express: $8.2 billion (targeting $10 billion by 2029)
• American Airlines & Citi/Barclays: $6.1 billion
• United & Chase: $3.2 billion

In aggregate, U.S. airlines collected over $5.6 billion in co-brand credit card revenue in 2024. Not a single major airline achieved positive operating profit without this revenue stream in 2024. The credit card business was not ancillary—it was core to airline viability.

How does this work? The mechanics are straightforward. A customer applies for, say, the Delta SkyMiles American Express card. American Express pays Delta a sign-up bonus (typically $100-200 per card). The customer is charged an annual fee (typically $100-250). The customer makes purchases on the card. American Express retains roughly 1.5-2% of purchase volume as processing fees and pays Delta a percentage of that—typically 1-1.5 percentage points, or roughly $5-15 per $1,000 of spend. Additionally, American Express sells the customer's miles data to third-party partners (hotels, rental cars, shopping portals), generating additional revenue that is shared with Delta.

For a typical customer who spends $20,000 annually on the card and earns 50,000 miles per year, American Express might retain $200-300 in profits, while Delta receives $400-600 in direct revenue plus the present value of the award seat liability (when the customer redeems miles, American Express, not the airline, pays the cost of fulfillment under the agreement terms).

This relationship is so valuable that airlines now explicitly manage routes and network strategies to maximize credit card partner spending. Delta management disclosed in 2024 that route expansion decisions are influenced by opportunities to capture higher-spending geographies for Amex customers. The tail is wagging the dog—loyalty programs are now driving operational strategy.

Rating Methodology and Investor Perspective

Moody's and S&P Global developed loyalty program securitization rating methodologies on the fly in 2020, learning from parallel structures in other industries (telecom customer contracts, insurance float). Their frameworks rest on five core assumptions:

1. Revenue Stability: Co-brand credit card agreements are multi-year contracts with defined payment terms. A loss of the relationship (e.g., if Chase ends its United card program) would be catastrophic, but contracts are sticky—they are renegotiated every 5-10 years and rarely terminated. Ratings assume 95%+ contract continuation through the note maturity.
2. Airline Operational Risk: If the issuing airline goes bankrupt, the securitization structure (SPV isolation, bankruptcy-remote structure) theoretically protects noteholders from the airline's creditors. However, a bankruptcy would disrupt the loyalty program operations, potentially damaging member retention and co-brand partner confidence. Ratings reflect this operational risk as a "haircut" to revenue projections (typically 10-15%).
3. Member Economics: The securitization is only as good as the member base and their continued spending. A major airline failure, merger, or service degradation could damage member retention. Ratings incorporate stress scenarios where member activity declines 20-30%.
4. Co-Brand Partner Risk: If American Express, Chase, or Citi ends a co-brand relationship or significantly reduces the revenue share, the securitization is impaired. This risk is rated as moderate to low, given the stickiness of these relationships and the profitability they generate for banks. However, regulatory or competitive changes could shift this dynamic.
5. Interest Rate and Refinancing Risk: As with any debt instrument, rising interest rates and tightening credit markets could make refinancing difficult at maturity. Most loyalty securitizations include 5-7 year tenors, requiring refinancing in a potentially different credit environment.

In practice, Moody's rated Delta's SkyMiles senior notes as Ba2 (speculative grade), a rating broadly consistent with the airline's corporate credit rating. United's notes were rated similarly. American's notes, issued in 2021 when American's credit had stabilized, achieved slightly better ratings.

Investor appetite has been strong. Institutional investors (pension funds, insurance companies, bond funds) view loyalty securitizations as inflation-protected revenue streams with a long duration. Unlike corporate bonds, which are sensitive to airline operational and financial performance, loyalty securitizations are primarily sensitive to credit card issuance trends, consumer spending, and the stability of co-brand partnerships. This created a distinct asset class.

Impact on Airline Credit Profiles and Strategic Flexibility

Loyalty program securitization fundamentally changed how rating agencies and credit markets view U.S. airlines. Pre-2020, airline creditworthiness was assessed primarily through traditional leverage ratios (debt/EBITDA), interest coverage, and liquidity metrics. Loyalty securitization added a new variable: the quality and duration of co-brand relationships and the predictability of loyalty-derived cash flows.

This had three immediate effects:

First, it improved reported debt profiles: By securitizing loyalty revenue, airlines removed a large debt burden from balance sheets. The securitized debt was structurally separate (issued by the SPV, not the airline), and investors treated it as a distinct liability. This made the airline's reported leverage ratios appear better. For example, Delta's post-securitization leverage improved by roughly 0.5x on paper, even though the economic obligation was unchanged.

Second, it reduced covenant headroom: By securitizing loyalty revenue, airlines pledged the one revenue stream with the most visibility and stability. Unsecured creditors (traditional bond holders, banks with loans) therefore faced reduced collateral and cash flow coverage. This led to tighter covenants on non-securitized debt and higher spreads. An airline that securitized $9 billion of loyalty revenue found itself with less wiggle room on its remaining $30-40 billion of unsecured debt.

Third, it created a new strategic vulnerability: By pledging loyalty revenue to securitized debt, airlines made that revenue stream unavailable for other uses (increasing dividends, repaying debt, investing in fleet or infrastructure). The securitized debt ranks senior to other corporate obligations, meaning loyalty creditors get paid first. If an airline needed cash for emergencies (fuel price spikes, geopolitical disruptions, operational disruptions), it would have less dry powder.

From Unencumbered to Mortgaged: The Shift in Financial Structure

Before COVID-19, loyalty programs were effectively unencumbered assets. They generated cash, but they were not financed. In the period 2004-2019, despite multiple airline bankruptcies (United 2002-2006, Delta 2005-2007, American 2011-2013), loyalty programs survived intact. Chapter 11 did not allow trustee courts to liquidate loyalty programs or reallocate their member balances to new carriers. They were operational assets, protected by law.

The 2020 securitization wave fundamentally changed this. By mortgaging loyalty programs to creditors, airlines converted them from operational assets into financial collateral. If an airline with a pledged loyalty program filed for bankruptcy, the SPV holding the program would theoretically be bankruptcy-remote, but the practical operations would be entangled with the airline's Chapter 11 estate. Creditors would seek to maintain program operations (to preserve revenue) and could potentially contest the airline's operational decisions (mile devaluation, program changes, partner reallocations).

This created a subtle but important shift in airline strategic autonomy. Pre-2020, airlines could experiment with loyalty program changes freely (devalue miles, change earning rates, restrict redemptions). Post-2020, loyalty program changes face scrutiny from securitization debt holders who want to protect the revenue stream.

Forward-Looking Implications and Market Dynamics

As of February 2026, the loyalty securitization market has stabilized. Delta, United, and American have all refinanced or extended their securitizations. The initial $26 billion wave of 2020-2021 remains largely outstanding, though some tranches have matured and been rolled into new offerings.

Several trends are emerging:

Expansion to Smaller Carriers: JetBlue, Southwest, and Alaska Airlines have considered loyalty securitizations but have not executed them. Their loyalty programs are smaller (roughly $500M-1B in annual revenue) and their co-brand relationships less mature, making securitization economics less attractive. However, if credit conditions tighten again, smaller carriers may pursue this path.

Refinancing and Term Extension: As the initial securitizations approached maturity (2024-2025), airlines refinanced into longer tenors (now targeting 5-7 year average life). Refinancing spreads have compressed relative to 2020-2021, reflecting improved airline credit quality and investor comfort with loyalty securitization as an asset class.

Integration with Overall Debt Strategy: Airlines are increasingly coordinating loyalty securitizations with EETC issuances and traditional bond offerings to optimize overall debt maturity profiles and cost of capital. Rather than treating loyalty securitization as an emergency tool, it is now part of regular capital markets activity.

Credit Card Partner Concentration Risk: Investors have flagged the risk that American Express, Chase, and Citi represent concentrated exposure. A loss of one major relationship could impair a securitization. In response, some analysts have called for diversification of co-brand partnerships, though this has not yet occurred at scale.

Implications for Airport Finance and Airline Debt Investors

For airports and air terminal bond investors, loyalty program securitization introduces both opportunities and risks. On the positive side, by improving airline access to capital and reducing the probability of airline bankruptcies (via enhanced liquidity), securitization improves the stability of airline revenue commitments to airports. An airline with secured access to loyalty-derived cash is more able to meet minimum lease commitments and debt service.

On the negative side, loyalty securitization reduces the overall financial flexibility of airlines. By pledging the highest-quality cash flows, airlines signal to other creditors (including airports) that they have fewer reserves for contingencies. Airport operators should monitor the percentage of airline cash flows that are securitized; an airline that has pledged 80%+ of stable cash flows is more financially fragile than one that retains operational flexibility.

Conclusion: Loyalty as a Permanent Financing Tool

The 2020 securitization of airline loyalty programs was initially framed as a crisis measure—airlines desperate for liquidity during a pandemic turning to their only unencumbered asset. Three years later, it is clear that loyalty securitization is a permanent feature of airline finance.

Why? Because it works. Loyalty revenue is more stable and more predictable than airline operating revenue. Co-brand credit card partnerships are long-term relationships that transcend individual airline cycles. And investors have embraced loyalty securitizations as a distinct asset class, offering better economics than purely airline-backed debt.

The shift from unencumbered to mortgaged loyalty programs represents a maturation of airline finance, but also a subtle loss of strategic flexibility. Future generations of airline executives will work within constraints set by loyalty securitization creditors. Whether this improves or impairs airline financial resilience remains an open question.