The Giving Hand

In an 8-k filing submitted to the U.S. Security and Exchange Commission (SEC), Wheels Up, the New York City-based provider of on-demand aircraft services set forth: “On September 6, 2023, the Company [Wheels Up] and Delta [Air Lines] entered into the Third Amendment to Secured Promissory Note to increase the aggregate principal amount of the Note by up to an additional $15-million, of which the additional $15-million was received by the Company on September 6, 2023.”

The filing continues: “The Note Third Amendment brought the total principal amount under the Amended Note up to $60-million.”

Per the filing: “The Third Amendment does not contain any additional material covenants or terms or amend any material covenants or terms set forth in the Note.”

On 14 August 2023, Wheels Up reported additional losses, declining revenues, and dwindling cash reserves. The disclosure occasioned renewed whisperings of bankruptcy’s imminence and the dissolution of the world’s third-largest private aviation concern.

The morning of 15 August brought an announcement of a wholly-different tenor from Delta Air Lines, which set forth its intention to lead a major investment initiative by which Wheels Up, of which Delta presently holds a significant stake, may yet manage a worryingly-overdue course-correction.

Wheels Up, which last week accepted a $15-million emergency cash-infusion from Delta, will cede a 95-percent ownership-interest in exchange for a $500-million bailout from Delta, Knighthead Capital Management, Certares Management, and others benefactors.

The nonbinding bailout agreement comprises a new $400-million term-loan—$150-million of which will be provided by Delta—and a $100-million line of credit. The cash will sustain Wheels Up’s operations as the company executes a new business plan described by interim 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.”

Formerly, Delta owned the entirety of Wheels Up’s aircraft management business. In 2020, however, the airline sold its private jet unit to Wheels Up founder Kenny Dichter and his cohorts in exchange for a twenty-percent stake in the then-nascent Wheels Up enterprise. On 09 August 2023, Wheels Up’s aircraft management business changed hands yet again, this time via the signing of a Letter Of Intent (LOI) with Lenexa, Kansas-based private aviation concern Airshare. The deal is expected to close in 2023’s third-quarter.

Speaking to the subject of the newly-announced bailout agreement, Delta CEO Ed Bastain remarked: “The partnership will create new opportunities for Wheels Up to drive strategic, operational, and financial improvements for its customers in the months and years ahead. Delta’s unmatched expertise in premium travel, customer loyalty, corporate sales, operational reliability, and aircraft maintenance, combined with Certares’ and Knighthead’s experience and global reach, are expected to speed Wheels Up on its path to profitability.”

Todd Smith will maintain his role as Wheels Up CEO/CFO. Chairman Ravi Thakran, however, will lose his place on Wheels Up’s board to current Delta CFO Dan Janki.

Mr. Smith stated: “Over the past few months, we have been intensely focused on taking clear steps to improve our product offering and our operational delivery. Those actions are already showing results, and we look forward to continuing and accelerating that progress with the support of our new partners. Our continued close work with the Delta team will enable us to further integrate our digital experiences, member benefits, and our operations.”

Founded in 2013 by the aforementioned Kenny Dichter, Wheels Up is among the world’s largest private aviation concerns and functions by dint of a membership/on-demand business model which allows members to book private aircraft via a mobile application.

Wheels Up’s fleet comprises King Air 350i, Citation Excel/XLS, Citation X, Citation Encore+, Citation CJ3, Hawker 400XP, Falcon 2000, Challenger 604, Gulfstream GIV-SP, and Gulfstream G450 aircraft. Members may book private flights operated by either Wheels Up’s fleet of aircraft owned and operated by third-party certificate holders.

Between 2014 and 2021, Wheels up sold thousands of private and company memberships, purchased hundreds of aircraft, sponsored a Triple Crown-winning racehorse, and acquired numerous air carriers the likes of TMC Jets, Delta Private Jets, Mountain Aviation, and Air Partner PLC, as well as travel management companies such as Avianis and Gama Aviation—in so doing becoming the U.S.’s second-largest private aircraft operator behind only NetJets.

On 14 July 2021, Wheels Up became the first private aviation company to be publicly traded on the New York Stock Exchange.

Regrettably, the company’s trajectory proved unsustainable, changing thereafter from one of perpetual ascent to that of San Francisco's Biden-era tourism numbers.

In 2022, Wheels Up racked up a staggering $555-million loss against revenues of $1.58-billion. Dragged downward by spooked investors, the company’s stock fell from its initial 2021 offering price of $10-per-share to an abysmal 28-cents. The precipitousness of the plunge compelled Wheels Up’s management to propose a reverse split by the company would be spared the indignity of having its stock delisted by the New York Stock Exchange.

By the end of 2022, after mortgaging its aircraft fleet, Wheels Up amassed cash reserves of $585-million. By March 2023, however, those reserves had shrunk to $363-million. Acutely aware of the distressing fact its war-chest would likely last only through the end of summer, Wheels Up endeavored to optimize the efficiency and profitability of its operations while considering the sale of non-core assets.

On 09 May 2023, Wheels Up founder and CEO, Kenny Dichter resigned in the face of his company’s mounting losses and potential bankruptcy. Board member Ravi Thakran was subsequently named Wheels Up’s executive chairman and Chief Financial Officer Todd Smith was elevated to the station of interim CEO. The company's value, at that time, had fallen from $2-billion to $100-million. Wheels Up’s 2023 first-quarter earnings report, also released 09 May, indicated a Q1 loss of $101-million—$12-million more than the company reported lost in the first quarter of 2022.

Dichter's departure arrangements—as revealed by a 09 May 2023 Securities and Exchange Commission Form 8-K filing—were widely impugned insomuch as they included a $3-million lump-sum payment, a two-year continuation of his $950,000 annual salary, a prorated annual bonus based on the duration of his tenure with Wheel’s Up, the indefinite extension of company health insurance coverage, and a yearly travel allowance of two-hundred hours aboard company aircraft. Dichter also retained a director position on Wheels Up’s board.

In July 2023, reports emerged that Ravi Thakran’s elevation to Wheels Up executive chairman had brought with it a compensation package including base pay of $665,000, fifty-hours’ annual use of the company’s King Air 350 fleet (a $250,000 value), 160,000 restricted stock units, and eligibility for additional bonus pay of up to $665,000. Additionally, Thakran was authorized to spend up to $800-per-night on hotels when he traveled from Asia to visit Wheels Up’s New York City headquarters.

Similarly fortunate, Todd Smith had his annual pay increased by a staggering $150,000—notwithstanding the interim designation of his tenure as Wheels Up CEO.

The news was disclosed in a 03 July 8-K filing which alleged the stratospheric increase in Smith’s earnings was awarded “in recognition of his expanded duties.”

All told, Smith’s monthly salary increased by $12,500 for the duration of his stint as Wheels Up’s interim CEO. What’s more, his bonus target was lowered from 150-percent to one-hundred-percent of his annual base salary. Finally, Smith was promised a one-time equity award of 140,171 restricted stock units vesting on 03 January 2024.

In early August 2023, an aviation industry insider likened Wheels Up to a Ponzi scheme, alleging senior leadership had perpetrated fraud in taking the company public.

“Wheels Up is over,” the insider asserted, adding: “Civil action will commence as class action attorneys smell blood in the water.”

“How did this go on for so long?” the insider challenged; “Endorsements,” he declared. “Wheels Up gave away millions in free or discounted memberships in exchange for endorsements: professional athletes, actors, newscasters…” 

Wheels Up and Delta are bound by an exclusive partnership by dint of which Wheels Up members are eligible to receive Delta benefits. The arrangement focuses, in part, on business jet charter customers, which Delta could, conceivably, leverage for purpose of contemporaneously broadening profits across the business’s Part 91, 121, and 135 operations. Moreover, Certares, which owns Internova Travel Group—the U.S.’s 11th-largest travel agency—is well-positioned to supplement Wheels Up membership recruitment.

FMI: www.wheelsup.com