The private aviation company saw an 8% increase in flight service revenue to $163.6m, offset by declines in other areas such as membership and aircraft management.

“Since the strategic investment, we have made strong progress on a number of key fronts. Revenues have stabilised after a long period of time as we continue to make changes across the board,” said George Mattson, the company’s CEO while talking to Corporate Jet Investor.

CEO George Mattson emphasised the company’s focus on rebuilding sales and improving overall performance.

“We made significant progress over the past quarter to improve our business for a sustainable future,” said Todd Smith, Wheels Up CFO.

“We are continuing to optimise our cost structure and fleet to focus on profitability. With improving liquidity in the fourth quarter and our partnership with Delta, we believe we are well positioned to continue to invest in our business for the long term.”

Operational losses narrowed from $82.6m in Q1 to $79m in Q2, driven by belt tightening in the form of reduced general and administrative expenses. The company’s contribution margin also improved significantly, reaching 7.8% compared to 1% in the previous quarter.

Wheels Up’s cash burn decreased substantially to $27m in Q2 from $73.8m in Q1, with cash reserves standing at $141m as of June 30.

The company expressed confidence in its ability to invest in future growth, supported by improved liquidity and its partnership with Delta.

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Brian Foley, the well-respected business aviation consultant, this week published a piece saying that Wheels Up needs to speed up getting to a profit to help Delta Air Lines, its largest investor. Delta’s profit fell 29% in the last quarter (it was not the only airline having a disappointing six months) and Foley says that Wheels Up needs to change quickly.

But, on paper at least, Delta’s investment in Wheels Up has not been a disaster. It is one of the few early investors who can say this. 

The airline was given 21% of Wheels Up in return for merging its business jet subsidiary Delta Private Jets with the membership company in 2020. In December 2022, according to its quarterly reports, Delta valued its stake at $257m. At the end of June 2023, when Wheels Up looked like it could file for bankruptcy protection, Delta cut this to $6m.

You know what happened next. In return for 95% of the company Delta, Certares, Knighthead and Cox lent the company $350m in September 2023. Delta also arranged an extra $100m loan. Before they invested, Wheels Up’s market capitalisation (number of shares multiplied by stock price) was just $69m.

This was a long way from when it went public in June 2021 at $2.83bn. On August 11, 2023 – when a Chapter 7 bankruptcy was possible – it hit $28.2m. Wheels Up’s market capitalisation today is $1.6bn.

On June 30 2024 Delta valued its 38% stake at $498m.

There are a few disclaimers here. Only 5% of the stock is still trading and if you were an early investor you are still very much in the red. But, so far at least, it has turned out to be a decent investment for Delta – especially compared to so many airline deals. It has been a fantastic one for Certares, Knighthead and Cox.

Like any financial investors, Certares, Knighthead and Cox are likely to want to exit one day. Delta is the obvious future buyer of their stakes. If Wheels Up does get to profit soon – and we will find out more next week – Ed Bastian, Delta’s CEO, may actually regret not buying more of the company in 2023.

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This week, when George Mattson (who has now been CEO for five months) announced the company’s first-quarter results, there was none of this excitement.

Sales were down 44% and it posted another loss, but this is not a surprise. The company is still restructuring. Mattson stressed that everything was in line with the plan.

“Wheels Up was great at the offensive, but its defence was weak,” says one member of its founding team looking back. “It was becoming the Amazon of business aviation but the warehouses and delivery team could not keep up.”

Much of the past year has been about building this defence. In an analyst call, Mattson and Todd Smith, Wheels Up’s chief financial officer, stressed how they are focusing on operations and turning around the company. They said that they have added more than 250 years of operational experience to its Atlanta Member Operation Center (we don’t know how many people this is). It had on-time performance of 87% and a flight completion rate of 98%. It is also cutting its fleet and cutting costs.

At $197m, sales for the first quarter were down 44% compared with last year. But half of this came from the sale of its aircraft management business to Airshare and lower aircraft sales (the company’s aircraft sales team have also since left). Charter – mainly run through Air Partner – was up 20%.

The number of active members fell by 25% to 9,155. Some of these were members in the centre of the US that Wheels Up no longer wants to serve with its King Air fleet (but it is very happy to arrange charter for them). Active users fell to 10,218, a 23% YoY drop from 13,336 users in the same quarter last year.

The results also show how long it can take to change a membership company. Wheels Up stopped selling its guaranteed nationwide programme in June 2023. So it still has customers on this programme – although it is now less than 20% of its peak.

Wheels Up is saying that it is on track to produce positive adjusted EBITDA by the end of the year. It had an adjusted EBITDA loss of $49m in the quarter; similar to the same quarter last year. 

The biggest change in the past 12 months is that it has added $490m in new investment – particularly the cash and support that has come from Delta Air Lines. At a members’ event at the Masters golf tournament, Ed Bastian, Delta’s CEO, stressed that the airline is committed to Wheels Up.

Mattson and Smith still have a way to go to get Wheels Up to profit. The company had a net loss of $487m for 2023 financial year, down from $555m in 2022. It got through $6,765m of cash last year. But they have a plan and will quietly keep working on it.

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“This is an industry that creates absolutely gigantic amounts of emissions per person and it delivers essentially zero public benefit,” said Alethea Warrington, senior campaigner at environment charity Possible. “It is simply not viable for a small group of ultra-wealthy people to keep flying around on almost empty private jets, producing a huge amount of emissions, particularly given that these flights are virtually tax-free.”

All three of the speakers said that they were opposed to the inequality of business aviation as well as the environmental effects. “Ultimately, when mayors all across the world and politicians are asking people to change their habits,” said Zack Polanski, deputy leader of the Green Party of England and Wales. “How possibly can elected politicians do this when at the same time people are flying and soaring through the skies in private jets literally mocking those in poverty beneath them?”

“There’s no environmental justice without social, racial, economic justice too”

Polanski was asked if the inequality is more important than the environmental impact. “There’s no environmental justice without social, racial, economic justice too. All these things are inextricably linked. The environmental reason is clearly a top high priority because we’re talking about ecological collapse. Fundamentally, private jets are the pinnacle of climate justice because this is where super-rich get to do something that is disproportionately polluting, disproportionately noisy,” he said. “The problem is for the climate, but actually it’s inequality, too, because those are two sides of a cent coin.”

Todd Smith, a former airline pilot and founder of Safe Landing, stressed his love of flying but said it is no longer able to work in aviation. “I believe corporate jets have played a pivotal role in connecting our world in a way which was previously unimaginable. That said, I had a realisation that the climate is breaking down rapidly, and ultimately, my conscience will no longer allow me to be a part of the aviation sector.”

Kurt Edwards, director general, International Business Aviation Council, said that there is still much misunderstanding about business aviation. “When I’m traveling visiting my associations around the world, I can see they are keen to grow the industry because they don’t have the connectivity that a lot of places do, and they need it for their own businesses,” he said. “They need it for their livelihood. Think of the medevac, think of humanitarian lift that comes with these aircraft as well. It’s an exciting time for the business and we see a lot of young folks coming in because of the commitment we have made in terms of the environmental sustainability going forward. The business aviation community along with the rest of the global aviation community has committed to net zero carbon emissions by 2050.”

Safe Landing’s Smith could not believe he was invited to speak after protesting at London Farnborough Airport with Swedish activist Greta Thunberg the week before.

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George Mattson, the new Wheels Up head, plans to be based at the company’s Atlanta Operations Center, rather than the New York City offices. Todd Smith, who has been interim CEO since founder Kenny Dichter stepped down in May, will return to his role of chief financial officer (CFO).  

With Delta investing more in Wheels Up (it has already lent $60m before the restructuring programme is agreed upon) it is no surprise that Mattson, a former Goldman Sachs banker, has a strong connection with the airline. He has been on the board of Delta Air Lines since 2012 and knows Delta CEO Ed Bastian well.  

“George is an exceptional business leader whose background will be instrumental to the continued success of Wheels Up,” said Bastian. “With new leadership in place, Wheels Up is well-positioned to drive strategic, operational and financial improvements for its customers and stakeholders in the months and years ahead.” 

Mattson should understand Wheels Up well. He was on Delta’s board when it agreed to merge with Delta Private Jets in 2019 (in return for a 27% stake). He is also the chair and largest investor in Tropic Ocean Airways, a seaplane operator. Wheels Up invested in Tropic Ocean Airways in March 2022 as part of a partnership agreement.   

“George is an exceptional choice to lead the company through this important time.  He will serve customers, employees, and stakeholders consistent with the elevated experiences that have always defined Wheels Up,” said Dichter. “I am very enthusiastic about the future of Wheels Up.” 

Wheels Up says that Mattson has 25 years of aviation experience – it says that he oversaw transportation and airlines when he was co-head of the Global Industrials Group. Mattson also led two SPACS. One merged with Virgin Orbit, a small satellite launch company, which filed for Chapter 11 this year. The other acquired electric trucking company Xos. 

He is due to start working for Wheels Up in early October. His decision to be based in Atlanta is significant. Wheels Up opened the 34,000sqft Member Operations Center earlier this year. It has been led by Dave Holtz, chairman of Operations at Wheels Up, who spent 43 years at Delta.  

Flexjet last week opened its $50m stunning new headquarter global operations centre (pictured) in Cleveland. The 51,453sqft it adds brings Flexjet’s Cleveland campus to 243,000sqft.  

The star shaped building hosted more than 1,200 guests and even had a static display of all the operator’s aircraft. The senior manufacturers in attendance are also a sign that you can expect at least one order from Flexjet at NBAA BACE. 

Inside the star-shaped building, Flexjet has installed the largest seamless LED screen in the US. It is 176ft (53.6m) wide by 19ft high with 1,572 individual panels. Although it would be great for playing video games, the screen displays every Flexjet, Sentient Jet, and FXAir flight around the world in real time. 

“If anyone sets foot into the Global Headquarters, they instantly realise how serious we are about building a global company,” says Andrew Collins, co-CEO, Flexjet. 

“I was over in Europe when everyone started moving in and I was blown away when I came back. It is beyond expectation. It has injected so much energy into the company,” says Collins. “You can tell, as soon as you walk in, that it has also been designed from a workflow standpoint to absolutely service a customised product set.” 

Flexjet now employs more than 4,000 people around the world. Some 670 of them are based in Cleveland. Ricci, its founder, is also passionate about design and architecture. In the control room there is a table made from the fuselage of the first Gulfstream G4. Coincidently, Ricci has flown the aircraft.

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Certares and Knighthead are providing $400m with Delta using its previously announced $100m revolving credit facility. The private equity investors took Hertz Global Holdings out of bankruptcy in 2021.

Under the non-binding agreement, Delta will provide Wheels Up with $150m in new money term loans and a $100m revolving credit facility noted above. An additional $150m term loan will be provided by CK Opportunities under that facility. As will a further $50m in term loans from other investors. The additional $50m will be allocated as and when approved by Delta, Certares and Knighthead.

Wheels Up was advised by Jefferies and Kirkland & Ellis.

The company released financial results earlier today.

Wheels Up had an enterprise valuation of $2.1bn when it announced its merger with the Aspirational Consumer Lifestyle II SPAC in February 2021. It listed with a $10 share price in July 2021. Its shares closed at $1.33 yesterday.

Today Wheels Up announced that its second quarter revenue fell by $90m to $335m. The company’s net loss increased by $161m but $70m of this was a non-cash impairment. Wheels Up made a loss of $40m in the quarter.

“We are continuing to engage with strategic and financial partners around the path forward and look forward to sharing more information in the days ahead,” said Todd Smith, chief financial officer and interim CEO. “Meanwhile, we are continuing to provide exceptional service and experiences to our customers, who are reaping the benefits of our continued focus on operations.”

It had $151m of cash at cash equivalents on June 30th.

“The actions we have taken to improve our operations are translating to a better experience for our customers and an improved financial performance for the company,” said Smith. “Our on-time performance and reliability are showing marked improvement while our Adjusted Contribution margin and Adjusted EBITDA are at the best levels in almost two years, reflecting our focus on our network strengths as well as significant cost reductions and process improvements. We still have more work to do, but I am extremely encouraged by this quarter’s performance.”

Ed Bastian, Delta CEO said: “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.

“I would like to extend my sincere gratitude to Kenny Dichter,” Bastian added. “For building the Wheels Up brand into a powerhouse in private aviation. We have great appreciation for his steadfast devotion to the members, customers and employees and his role in elevating the private aviation experience which will undoubtedly guide the industry’s path forward. We’re grateful he will continue as Wheels Up’s strategic advisor.”

Greg O’Hara, founder and senior MD, Certares, said the partnership with Wheels Up is a “natural extension” of its focus and experience in travel and tourism. “This transaction extends upon our longtime partnership with Delta across many of our portfolio companies.  We’re looking forward to joining Delta, Knighthead and others in driving the company’s ongoing transformation as it elevates private aviation as an industry leader,” said O’Hara. 

Wheels Up also revealed today that Delta chief financial officer Dan Janki will join the board as chairman. 

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Both active members and live flight legs fell during the quarter, according to the company’s results. . Active members dropped 1% to 12,285 in total, while live flight legs decreased 13% year-on-year (yoy) to 15,389.

The company’s adjusted EBITDA remained flat at a loss of $49m, while revenue was up $26m yoy to $352m. Wheels Up attributed the rise in revenue to an increase in aircraft sales and the acquisition of Air Partner.

The public firm said it has $363m cash in hand and a total of $1.7bn in assets, while owing $1.5bn in liabilities.

Wheels Up is evaluating the disposal of “certain non-strategic assets” to focus on its core charter business, said the company. The firm also announced programme changes, including a new programme with Delta Air Lines that will give volume-based preferential rates on Wheels Up flights to its corporate customers.

Earlier today, Wheels Up revealed  Kenny Dichter, who founded the business, is stepping down as CEO. Todd Smith, chief financial officer, has been appointed interim CEO.

Smith said: “Our revised product offering will improve Wheels Up’s competitiveness and service delivery, as well as the flight experience for members and customers. These changes are positive steps for Wheels Up and we are committed to making the decisions necessary to improve this business for our customers, employees and shareholders.”

Meanwhile, read more about Dichter’s decision to step down here.

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Dichter founded the company in 2013 and took it public in 2021. He will continue to be a member of the board of directors but will hand over to chief financial officer Todd Smith who will act as interim CEO. Wheels Up has retained an outside recruitment firm to find a permanent CEO.

The company also announced current board member Ravi Thakran will serve as executive chairman.

The reshuffle comes as the company announced its first quarter (Q1) results today. Wheels Up which reported net losses increased $12m year-over-year (yoy) to $101m, while adjusted EBITDA remained flat yoy with a loss of $49m.

Todd Smith, interim CEO, Wheels Up said: “As we position Wheels Up for future success, we expect the programme changes we announced today will allow us to continue to scale and evolve our product offering to deliver world-class service profitably.”

Dichter thanked the Wheels Up customers and team.  “As we continue our path to profitability, this is the right time to take on a new role where I will support Ravi and Todd and the business,” he said. “I am looking forward to supporting Wheels Up as a shareholder, member of the board, founder and a strong advocate for our brand and mission.”

Meanwhile, read more about Wheels UP’s Q1 results here.

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The company had $586m in cash at the end of 2022 – compared with $785m in cash at the end of 2021 and $286m at the end of September 2022. The rise was boosted by strong fourth quarter block sales and the $270m aircraft-backed bond it issued in October. The fourth quarter is typically its strongest one for block sales.

Wheels Up had already announced a $30m cost cutting programme last week involving job losses. “The cost action was difficult but it is the right step in our plan to get the company profitable in 2024,” Kenny Dichter, chair and CEO, Wheels Up told Corporate Jet Investor just after the results were announced. “People are rallying on the path to profitability.”

This goodwill impairment charge related to acquisitions. It was purely an accounting adjustment partly because of the fall in Wheel Up’s share price and higher interest rates since it bought companies.

Wheels Up had 13,846 members and customers at the end of 2022 up 10% from 12,543 at the end of 2021. This was boosted by buying charter broker Air Partner. Mark Briffa, the former CEO of Air Partner, has been made chief commercial officer for Wheels Up.

It flew 19,308 live flight legs, down from 20,296 in the last three months of 2021.

“We have seen some moderation in demand but sales are still strong and we are forecasting a flatter year in 2023 for demand but one where we can improve margins,” Todd Smith, CFO, Wheels Up told Corporate Jet Investor.

“We spent nine plus years building the brand, memberships, customer service and partnerships,” said Dichter, “and we are now on the flight path to profitability. Where growth meets profitability. We are very satisfied with where we are now and the future is in our hands. We are on the glidepath to profitability.”

CJI Take: The Wheels Up sales and marketing machine is clearly still working with revenues up 18% in the fourth quarter and active members up 5% for the year. But the company’s focus is very much on becoming profitable next year.

Unless you are an accountant, the $132m goodwill impairment is irrelevant. Much more important is the $586m in cash that Wheels Up had at the end of the year. This should give it the runway it needs to reach profitability. It also means any more large acquisitions are unlikely this year.

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The company’s subsidiary, Wheels Up Partners applied equipment notes worth $270m through an Enhanced Equipment Trust Certificates (EETC) loan structure. The EETC provides approximately $259m of net proceeds for Wheels Up.

The equipment notes are secured by a primary lien on several of the fleet and have a maturity of up to seven years.

“These proceeds give us additional financial flexibility to invest in our business as we pursue our goal for positive adjusted EBITDA in 2024,” said Todd Smith, chief financial officer, Wheels Up. “We believe we are in a strong competitive position to use the technology we’re deploying and our improving operational capability to provide an unparalleled customer experience in private aviation.”

Following the announcement, the company’s share price climbed 13%, according to The Motley Fool. Wheels Up became the first private aviation company to go public in July last year, listing on the New York Stock Exchange after being taken on by the special purpose acquisition company (SPAC) Aspirational Consumer Lifestyle Corp.

When Wheels Up announced its strong second quarter sales growth back in August, it pledged to become profitable by 2024 or sooner. Wheels Up’s third quarter results are expected to be announced on November 9th.

Last week, the founder of Directional Aviation, Kenn Ricci, announced his plans to take fractional company Flexjet public through the Horizon Acquisition Corporation II SPAC. The sale is expected to close in the second quarter of 2023.

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