Wheels Up Left With Few Options To Fly Out Of Financial Turbulence

Without any evidence of ever making a profit, private aircraft travel company Wheels Up (UP) now warns of substantial doubt about its ability to continue operations. The journey to its current predicament has been telegraphed for months through sequential, disappointing earnings reports, the exit of its CEO and the mortgaging of its own airplanes to make ends meet. It was surely hastened by vendors demanding cash only, a marked reduction in overall U.S. charter activity, employee departures and loan covenants begin tripped on their financed aircraft fleet.

Wheels Up management has been scrambling to right the ship and create a path to reduce losses and seek the ever-elusive profitability. These initial tactics included right-sizing the flight network to focus on higher margin regions and offering deals to capture and retain customers. In addition, divestiture of non-core assets, which are remnants of a spending binge to vertically integrate, have been ongoing such as the recent sale of its aircraft management division.

Other than these types of strategies, there are few other places to look to remain a going concern. A full-scale acquisition of the company is unlikely as their business model of using relatively small aircraft, such as Textron Aviation Beechcraft King Air turboprops, have traditionally delivered lower margins in charter operation than larger business jets which have less price sensitive clients. As such, a life ring from long-time private jet fleet operators such as Netjets or Flexjet seems highly unlikely.

Shareholder Delta Air Lines
DAL
provided short-term funding with a promissory note to allow Wheels Up to continue pursuing strategic partnerships. While it’s unlikely that Delta ever expects the loan to be repaid, it may have been seen as an expenditure to better manage the unwinding of the company to lessen its overall investment losses. Should they ever take the path, filing for bankruptcy incurs significant expenses as well, which this cash injection could provide.

A previous article outlined the potential shockwaves a sudden fleet divestiture would have on the overall business aviation industry, which now seems closer to reality. This includes a flood of used aircraft coming on market – depressing values and affecting new aircraft sales, a hit to pre-paid customers, investor losses, as well as an impact to employees, aircraft lenders and unpaid vendors. Previously healthy companies that Wheels Up acquired in the recent past would also become unsettled, and their principals who were paid in part with Wheels Up stock have surely come to regret their decision.

In the coming weeks its conceivable that once flourishing holdings such as Air Hamburg and Mountain Aviation could be sold, but it may take a full-fledged bankruptcy to entice others once the low-hanging fruit is gone.