The Economics of Resurrection

Delta Air Lines has enacted a bold strategy by which the airline intends to make Wheels Up, the embattled New York City-based provider of on-demand aircraft services, an integral facet of its product offerings.

Wheels Up CEO (née Delta board-member) George Mattson stated: “This investment represents both an important source of capital for Wheels Up to support our strategy for financial stability, future profitability, and long-term growth on behalf of our members and customers, as well a vote of confidence in our path forward from a group of investors with deep experience in the premium travel space.”

Mr. Mattson added: “We look forward to working closely with Delta and our other investors to deliver best-in-class operating performance and an exceptional customer experience, which, as we deepen our commercial partnership, will also enable us to provide a one-of-a-kind seamless connection between private and premium commercial travel.”

Mr. Mattson’s appointment to the station of Wheels Up CEO followed Delta CFO Dan Janki’s assumption of the mantle of chairman of Wheels Up’s board.

Mattson’s installation ensued a 15 August ownership agreement by which Wheels Up ceded a 95-percent ownership-interest in exchange for a $500-million bailout from Delta Air Lines, Knighthead Capital Management, Certares Management, and Cox Enterprises. Delta provided the beleaguered charter and fractional ownership concern an additional $15-million emergency cash-infusion.

The nonbinding bailout agreement comprised a $400-million term-loan—$150-million of which was provided by Delta—and a $100-million line of credit. The cash was intended to sustain Wheels Up’s operations as the company executed a new business plan described by former CEO/CFO Todd Smith as “focusing [scheduled] flights on the [U.S.] East and West Coasts, while running a charter model throughout the remainder of the nation.”

Per the described credit agreement, a new lender will provide a $50-million term loan after the closing date, as approved by Delta, Certares, Knighthead, and Cox.

It is anticipated the additional funding will close in the near term.

The lenders will initially receive newly issued Wheels Up common stock representing 80-percent of the company’s outstanding equity as of the closing of the credit facility on a fully diluted basis.

Upon Wheels Up stockholders’ approval of an amendment to the company’s certificate of incorporation, Wheels Up will issue the lenders additional new shares equaling 95-percent of the company’s outstanding equity.

Subsequent his being named Wheels Up CEO, Mr. Mattson set forth: “Delta sees this as an opportunity to expand and extend its offerings to its premium customers, both corporate and high-value, high-net-worth individuals. The opportunity that we see strategically together is something that hasn’t really been done in aviation before. It is the opportunity to seamlessly integrate for the customer, even though we’re separate companies in historically separate commercial and private aviation ecosystems.”

Mattson continued: “Ninety-percent or so of the people who can afford to fly private haven’t flown private. We still have a lot of people who haven’t adopted it yet. Premium travelers aren’t commercial premium or private premium. There are a lot of people who bounce back and forth trip by trip, need by need. We want to sit at that intersection and offer our customers collectively, both sides, more choices and integrated options. And so, at the customer level, that’s where Delta sees it.”

Delta and Wheels Up recently unveiled joint advertising on ESPN College GameDay, Monday Night Football, and the SEC on CBS.

Moreover, the airline is a sponsor of the Olympic games and retains a number of high-visibility platforms—such as Salt Lake City’s Delta Center, home of the Utah Jazz—by which to promote its private aviation venture.

Wheels Up contends Delta’s five-hundred-person salesforce will presently commence selling private flight solutions to the airline’s myriad corporate account-holders.

Delta CFO and Wheels Up Chairman Dan Janki remarked: “Wheels Up is an integral part of Delta’s portfolio of premium partners, and this deep relationship offers a significant opportunity to deliver compelling benefits to our customers that are unique in the travel space.”

Janki added: “This investment and new leadership puts Wheels Up on a strong path to future success.”

Wheels Up will presently function under the auspices of a new board of directors, four of whom will be appointed by Delta Air Lines. Certares and Knighthead will each appoint two directors. Cox will appoint a single director. One company executive will join the board. Finally, two independent directors, formerly members of the previous board, will retain their seats.

FMI: www.wheelsup.com