Delta, Others Invest $500M in Wheels Up Bailout

Per a press release viewed by FLYING, the New York City-based company, which last week sought and received $15 million in emergency funding from the airline, will cede 95 percent ownership in exchange for a $500 million capital infusion from Delta, Knighthead Capital Management, Certares Management, and others.

The raise will save Wheels Up—plus the 11,639 active members who would have become unsecured creditors—from bankruptcy, which it said Monday it was considering as a “strategic alternative.” But the company’s survival, and potentially that of the industry, will come at the cost of equity.

"If a brand as important as Wheels Up were to fail, it would have had trickle-down impacts across private aviation," Lance Tweden, vice president of membership for private aviation firm Jet Agency, told FLYING. "Wheels Up's failure would have caused concern and anxiety among customers, whether they are with Wheels Up or not."

The nonbinding agreement comprises a $400 million term loan (including $150 million from Delta) coupled to a $100 million liquidity facility from the airline. Delta and other investors will in turn receive newly issued Wheels Up Class A common stock representing the lion’s share of the company.

Ironically, Delta once owned Wheels Up’s private jet management business in full—it sold its Private Jets unit to the startup in 2020 in exchange for a 20 percent stake. The business changed hands again last week, when Wheels Up sold it to Airshare for an undisclosed fee.

“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,” said Delta CEO Ed Bastian. “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.”

Wheels Up CFO Todd Smith will continue to serve as the firm’s interim CEO, while Delta CFO Dan Janki is replacing Wheels Up chairman Ravi Thakran.

“Over the past few months, we have been intensely focused on taking clear steps to improve our product offering and our operational delivery,” said Smith. “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.”

Similar to on-demand rideshare services such as Uber and Lyft, the private aviation business has struggled to reach profitability while burning through cash. Since filing for an initial public offering in 2021, it has consistently posted quarterly net losses. In the second quarter, that net loss widened to $160 million, a 73 percent increase year over year.

Wheels Up reported $152 million in cash on hand at the end of Q2, a fraction of the $586 million it had at the end of 2022 and even the $363 million reported in Q1. In that same period, adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) have held relatively flat.

The company’s woes could be in part because of its string of acquisitions over the past five years. Since 2019, it has added five different charter operators—Delta’s Private Jets, Mountain Aviation, Alante Air Charter, Gama Aviation Signature, and TMC Jets. But not all fly under the same certification, which limits its ability to reallocate crews across providers.

Wheels Up has also continued to add members and maintain certain policies—like its capped hourly rate—as its competitors have pulled back due to macroeconomic conditions. That’s driven more revenue for the company but at the expense of inflated operating costs.

For example, in the case of a mechanical issue, Wheels Up guarantees a replacement aircraft to the customer free of charge. That means if the charter rate rises between the time of booking and the mechanical issue, Wheels Up has to eat that cost. The issue can be exacerbated during stretches where demand is strong, as was the case with fractional jet ownership company Jet It, which folded in May.

The COVID-19 pandemic also had an impact on Wheels Up’s ability to crew flights. But on the flip side, the business likely would not be viable today had the pandemic not driven an uptick in private jet demand.

Luckily for new majority owner Delta, that volume is expected to be sticky. An eye-popping 93 percent of customers who began flying privately during the pandemic say they have continued to do so. The question now is what Delta and the other investors will do with that demand.

With the sale of its private jet management business, Wheels Up’s fleet is largely composed of King Air turboprops, Citation Xs and XLs, and Hawker 400 light business jets. Prior to the $500 million investment, the company was reportedly looking to grow its corporate business, its fastest-growing segment responsible for about one-quarter of all sales.

Currently, Wheels Up and Delta have an exclusive partnership through which customers can receive Delta benefits with a Wheels Up membership. Part of that arrangement focuses on business charter customers, which Delta could leverage to continue building out the more lucrative area of the business. However, Wheels Up's membership program may require an overhaul to eliminate the issues that landed the company in a cash-strapped position in the first place.

"It will be interesting to see how they change the structure of the membership program going forward," said Tweden. "There is no way it could be status quo."

The new management team may also shed some of Wheels Up’s previous acquisitions to build stronger synergies. And Certares, which owns Internova Travel Group—ranked as the 11th largest U.S. travel agency with more than 100,000 advisers—could open new sales channels.

"Delta will likely make a lot of these changes quickly, as another challenge will be trying to maintain [Wheels Up] members that may be just now becoming aware of the precarious place the company is in," said Tweden. "Despite this bailout, ultimately Wheels Up did fail, so how do they win that customer confidence back?"

Whether Delta is able to restore confidence in the Wheels Up brand or not, the latter's struggles could have wide implications for private aviation as a whole. Given its size and high profile, rivals will likely look to the company as a case study of the industry's challenges and how (or how not) to overcome them.