United Airlines Explores MileagePlus Minority-Stake Sale

(Bloomberg) -- United Airlines Holdings Inc. is exploring a potential sale of a minority stake in its frequent-flier program MileagePlus, according to people familiar with the matter.

United is working with financial advisers who have begun contacting potential investors including private equity firms, the people said, asking not to be identified because the matter is private.

Any minority stake in the MileagePlus subsidiary is expected to represent less than 15% of the portfolio, one of the people said. Discussions are early and United could ultimately decide not to proceed with a sale.

A representative for United declined to comment.

United is the first major U.S. airline to explore selling off a chunk of its frequent-flier program, a move that most airlines have resisted despite investor pressure going back more than a decade to capitalize on their latent value. Instead, most carriers have leveraged them by using the richly valued programs as collateral to issue debt.

Shares advanced 0.4% to $44.12 at 4 p.m. in New York trading. Earlier, they rose nearly 2% on news of the sale talks.

Unlocking Value

United, which like many airlines has been hard hit by the pandemic, is pursuing the sale to highlight the loyalty of its mileage portfolio, some of the people said.

One key reason for the sale is to enhance the program's financial performance by using the new partner's expertise to help better monetize data from the business, according to one person familiar with the company's thinking. A sale would bolster the company's balance sheet without the issuance of new debt or equity.

The Chicago-based company valued MileagePlus -- which has more than 100 million members -- at nearly $22 billion in 2020 when it tapped the program for one of the largest debt sales in the history of the aviation industry. The loyalty scheme backstopped $6.8 billion in bonds and loans that United sold to help it weather the pandemic.

In 2019, MileagePlus had earnings of nearly $2 billion on sales of $5.3 billion, United said as part of its pitch to bond investors.

A partial sale comes as United's chief executive officer, Scott Kirby, is seeking to expand his company's share of a slowly recovering market for air travel globally. Funds from the sale of a stake also address investor concerns about Kirby's large capital spending plans to renew United's jet fleet.

Limited Cash Flow

United has more than 500 new Boeing Co. and Airbus SE aircraft arriving through 2026. Those new planes come at a time when United's free cash flow appears to be severely limited through 2024, said analyst Savanthi Syth with Raymond James & Associates.

“Maybe what it does is it gives them that dry powder to remove investor anxiety,” Syth said, referring to large financial commitments. “The ratings agencies will look at things better.”

United had about $18.4 billion in cash and equivalents as of Dec. 31, which is viewed by many analysts and investors as ample liquidity. United's chief financial officer, Gerry Laderman, told analysts on a call last month the company is in “a strong cash position to continue to navigate the remainder of the crisis.”