Why Delta Air Lines Might Later Regret Its Bailout Of Wheels Up

A relatively short time after private aircraft ride provider Wheels Up issued a warning on its ability to continue as a going concern, a consortium led by shareholder Delta Air Lines
DAL
came to the rescue. Offering a $500 million facility, Delta and its partners would now control 95 percent of the company. While welcome news for Wheels Up, Delta’s upside is far less clear should the tentative deal close.

Private aviation is outside of Delta’s core business of flying the masses. The presumed business case for resuscitating Wheels Up would be to keep high margin, premium airline passengers within the fold as a one-stop provider of commercial and private air travel.

Acquiring control instantly provides a fully operational program with built-in clientele and an established brand. In theory this affords Delta the ability to keep their first class passengers, such as when flying internationally in first class on their mainline airliner and later transferring to a small, private aircraft for the last U.S. domestic leg of their journey.

While that concept may look good on paper, there are other issues to consider, the least of which is that the current Wheels Up business model has never made money. Losses totaled $555 million in 2022 alone, and the most recent second quarter 2023 report showed another $161 million loss. Collectively, there has been a cumulative loss of around $1 billion reported in just the last couple of years.

Given that burn rate, cash on hand has been dwindling, with significant debt and over $800 million in flights owed to customers who already prepaid for them. Although the deal has yet to be signed, Delta has already had to advance $35 million over 2 payments to float the operation. This suggests that the bleed won’t be stopped overnight, and that another $500 million might not last that long without significant changes.

For the moment, Delta stockholders might be forgiving of these outgoing subsidies given that the airline just reported its highest revenue and profitability ever. Although a new management team is diligently working to implement a Wheels Up turnaround plan, a future downturn in the cyclical airline sector could later draw the ire of investors.

Even if the ship gets turned around, ALPA, the mainline’s pilots union, may take umbrage to non-unionized Wheels Up crewmembers. This movie was seen over 20 years ago with United’s attempted foray into private jets with its Avolar division, which was summarily shuttered before it even began due in part to not having the mainline’s pilot union blessing and participation.

Airline pilot schedules and job description flexibility would also be out of synch with those demanded by unpredictable private aviation flights, where loading ice bags for in-flight catering and assisting passengers with their luggage is always a possibility.

Although they cut their teeth in business aviation with a previous venture called Delta Private Jets (since absorbed by Wheels Up), running a private aircraft charter company takes a completely different skill set and attitude than an airline. While up for the challenge, executing and becoming profitable will be a whole different league.