Brian Foley – ‘Wheels off at Wheels Up’
Wheels Up was to have been the follow up story to its founder’s previous successful foray into private aircraft charter. Instead, he just stepped down as CEO as losses mount and its stock sinks to pennies on the dollar.
Over the past decade the company steadily increased its revenues to an impressive $1.58bn in 2022 but has not yet turned the corner on losses, which totalled a staggering $555m. While year-over-year revenues increased during the first quarter of 2023, so did net losses as the number of members waned.
The company has said it can stem these losses next year but Wall Street has already cast its vote, with the New York Stock Exchange-registered stock falling from its initial offering price of around $10 in July, 2021 to just 28 cents at last check. A plan was recently proposed for a reverse stock split to avoid being delisted by the Exchange.
After mortgaging the planes it owned, Wheels Up built a cash war chest of $585m by the end of 2022, which shrunk to $363m by the end of this March. Continuing at this burn rate cash might only last until the end of this summer, a situation the company is proactively trying to improve by optimising its operations while considering the sale of non-core assets.
In the event this proves not to be enough, other options could potentially include additional investment from partner and largest shareholder Delta Airlines, returning to the private sector and fundraising, or combining with a strategic. Reorganising through bankruptcy is another possibility, and if private equity or other acquirer ever became involved, would presumably be a prerequisite.
Wheels Up has a substantial fleet of private business aircraft. Should some or all of them ever be divested and hit the used plane market there would be industry ramifications.
Many were manufactured by Textron’s Aircraft Division, which makes the Cessna and Beechcraft line of aircraft that Wheels Up primarily uses. Any suddenly large selection of King Air and Citation models on the preowned market would negatively impact the demand for more expensive new ones.
Other impacts would be lower resale and residual values for these models of aircraft as supply exceeds demand on the preowned market, affecting both owners and lenders/lessors with skin in the game.
The departure of the CEO just days before the next scheduled board meeting would seem a bad omen. However Wheels Up is not alone amongst young aviation companies who are more susceptible to the new environment of high interest rates and cooling investment capital flow, all of which stress tests their business model sustainability.
As Warren Buffett so eloquently quoted: “Only when the tide goes out do you learn who has been swimming naked.”