Calculating the Impact of Wheels Up’s Bumpy Ride

Whether you’re a program member, a regular charter consumer, or simply a follower of the business aviation field, you’re probably pondering the implications of recent news from on-demand flight provider Wheels Up. The company reported record revenues this year but also rising losses, and it mortgaged its fleet of aircraft to obtain $259 million in operating capital amid an exodus of top executives. 

Wheels Up—which in 2021 became the first bizav company to be listed on a stock exchange (NYSE, UP)—may not be a bellwether. Still, the scale of its operations and its role as a self-styled democratizer of private aviation make it a force that affects many other providers (contracting supplemental lift, for example), in addition to its more than 12,000 customers. What might its news mean for members, charter users, and the access space? 

To recap its history: Wheels Up launched in 2013 with a fleet of new Beechcraft King Air 350i turboprops and a novel membership-based access model, and via acquisitions that began in 2017 (including Travel Management Company, Delta Private Jets, and GAMA Aviation) became the world’s largest charter company by hours flown; its 82,000-plus flight hours in the first half of this year were more than double those of No. 2 Jet Aviation, according to Argus International.

Though arguably the most aggressively growing private-lift provider, Wheels Up has been far from alone in expanding through acquisitions or, like Flexjet and VistaJet, having global ambitions. (Berkshire Hathaway–owned NetJets, the largest bizav fleet operator, has expressed no interest in acquiring competitors or expanding beyond its fractional-ownership offering.)

With its big fleet, Wheels Up never suspended membership sales during the unprecedented post-COVID surge in lift demand, as some other major providers did to ensure consistency of service for existing customers. But pilot shortages, mechanical delays, and other supply issues hurt the company’s bottom line, according to its quarterly filings, causing flight delays, cancellations, and deferred bookings. 

Asked about those impacts during an interview with BJT on the day in October that Wheels Up announced its recent financing agreement, founder and CEO Kenny Dichter said customers accept such inconveniences as long as they “feel like they’re priority No. 1."

“They see the supply chains in many businesses, and their own are challenged,” Dichter said. “They understand the macro environment that we're in. It requires a little bit more flexibility on all our behalves.”

A Loan Funds Growth

Meanwhile, with deficits projected to continue through next year, Wheels Up’s $259 million loan has “created some runway” for the company, Dichter said. Some of the money will fund a new operations center in Atlanta that Wheels Up says will produce significant economies.

The seven-year loan, which carries a 12 percent interest rate, is collateralized by 134 of the company’s aircraft. Just over half of them are King Airs and the remainder are Cessna Citations and Hawker light jets. 

The stock market has been rough on SPAC-structured IPOs over the past year, and Wheels Up is no exception, but Dichter believes shareholders have patience. “If we have an opportunity to become 10 or 20 or 50 times bigger than we are today…that's really what our investors are looking for,” he said last year, as losses were mounting. 

But can Wheels Up, which appears to have far more members than any other provider, get that much bigger? In the first quarter of 2021, the number of active members increased 56 percent from the same time the prior year to 9,896, but the increase has declined in every subsequent quarter. In the third quarter of this year, only 21 new members signed up, and year-over-year growth for the period was 12 percent (to 12,686 members).

After debuting in July 2021 and hitting a high of $15 on opening day, Wheels Up stock steadily declined to a low of $0.99 this October; but it has rebounded since the refinancing announcement, reaching more than $1.80 per share.

Offering stock options is part of Wheels Up’s strategy for addressing its pilot shortage, however, and the falling share price couldn’t have furthered that effort. Executive turnover couldn’t have helped, either. Year-to-date, Wheels Up has replaced its CFO and COO, eliminated the president’s position, and added a chairman of operations, executive vice president of fleet operations, and chief people officer.

Sitting Tight and Predicting Gains

Wheels Up forecasts that it will achieve positive adjusted EBITDA in 2024. In the interim, it plans to cut costs in concert with its efficiency campaign as it continues efforts to improve service. Industry observers note that service lapses have been a hallmark of the post-COVID charter market, owing to unprecedented demand for lift.

Wheels Up investors appear to be sitting tight. Delta Air Lines is the largest shareholder with about 21 percent of the stock and other institutions own 35 percent; company insiders have 32 percent and retail investors hold just 12 percent.

Meanwhile, consolidation is expected to continue, and industry insiders don’t appear to view Wheels Up’s recent news as a cautionary tale. Kenn Ricci, chairman of fractional ownership program Flexjet, says the rollups help operators reach economies of scale and compete better with airlines to attract and retain pilots. Flexjet will use proceeds from its planned public listing next year “as a launch pad to accelerate our growth into the next chapter,” says Ricci, whose other brands include jet card giant Sentient Jet and charter brokerage PrivateFly.

Likewise, North Carolina–based FlyExclusive, which operates membership, on-demand, and fractional ownership access programs and is at present wholly owned by chairman and CEO Jim Segrave, will use the $310 million in proceeds anticipated from a 2023 public listing “to continue its growth, better serve customers, and execute its strategic plan to become the nation’s first fully vertically integrated private aviation company,” the company said.

The industry and investment community clearly believe big demand for private aviation access is here to stay. And turbulence is always a possibility somewhere along the route on a long flight.