Are you looking to own part of an airline? The aviation industry is still trying to recover and some airlines need a cash infusion. With a slow recovery in the travel industry, United Airlines and British Airways may be looking to trade some assets for cash.
I’ll start with British Airways first because its owner, International Airlines Group (IGA) not only owns British but also owns:
- Aer Lingus,
- Level and
British Airways operates 533 aircraft to 279 destinations. British Airways is trying to grow the business back after flying 118 million passengers the year before the pandemic hit. Travel restrictions, people not willing to fly at this time coupled with an annual winter downturn in business has impacted its cash flow.
While British, Aer Lingus and Iberia are full-service airlines, Level and Vueling are IGA’s airlines in the budget sector. At this time, IAG is only looking at the assets of British Airways to bolster their balance sheet. Players that could buy assets would be investment funds and other large players already in the industry. Other alternatives would be into looking at partnerships and joint ventures. The UK and other countries have reduced travel restrictions along with an increase in vaccinated travelers will help the airline increase revenue. Will it be enough?
With the process being in the early stages, the airline may be looking at raising funds from selling stakes in:
- Frequent-fly programs and
- Cargo operations.
United Airlines is also in the hunt for cash. In addition to the same problems facing British Airways and its parent IAG, United also has more than 500 new aircraft on order. United’s CEO Scott Kirby was highly ambitious in ordering so many aircraft without a huge source of capital during the travel recovery.
A needed infusion of cash could come from selling a stake in the United Airlines MileagePlus program. The sale of their frequent-flyer program would have the least impact on the airline. Selling some of MileagePlus could raise a huge amount of cash without issuing new debt (loans and bonds) or equity from increasing the number of United shares. United Airlines valued the MileagePlus program at almost $22 billion in 2020. Selling a stake in MileagePlus, since it is an ancillary division could bring in cash without yielding direction of the management or mainline operations unlike the sale of hard assets may have.
United could be the first U. S. carrier to sell a stake in a frequent-flyer program. In evaluating the sale of a stake of MileagePlus, up to 15% of the program could go up for sale. Discussions are in the early stages and United could end up deciding against the sale.
Airline Profit Centers
Major airlines have multiple profit centers besides the obvious transporting of passengers from point A to point B. These other profit centers typically include:
- Air cargo operations,
- Charter flights,
- Vacation packages,
- Frequent-flyer programs and
- Contract services for aircrew training and aircraft servicing.
Frequent-flyer programs are a huge cash cow for airlines. They can operate these programs with minimal expense and they can partner with other travel vendors, financial institutions, branded credit cards, shopping portals and more. For an airline, this would be the least painful asset to sell.
The financial recovery for the travel industry has been slow and hard-fought. It may take another two years for airlines to get back to some semblance of normal. The sale of any stake of a frequent-flyer program could gain large amounts of badly needed cash without giving up management control or issuing new debt. These airlines are at the beginning of discussions, we’ll have to see what develops over the coming months.