Deal analysis: Wheels Up buys Gama Aviation’s US flight business for $75m


Wheels Up has bought the air operations division of Gama Aviation Signature. The transaction means that Wheels Up will now operate its own fleet of King Air turboprops. Corporate Jet Investor estimates that the total paid was between $70m and $75m based on UK stock market filings.

Gama Aviation has operated King Air and Cessna Citation aircraft for Wheels Up since the launch of the membership company.

“This is a cornerstone investment. Wheels Up is on its way to being a leader in on-demand private aviation worldwide,” Kenny Dichter, founder of Wheels Up, told Corporate Jet Investor. Wheels Up – which was launched just over six years ago – now has a fleet of more than 300 aircraft and employs more than 1,000 pilots.

The deal was widely predicted when Wheels Up acquired Travel Management Company, another holder of a Part 135 Air Carrier Certificate in 2019.  It then acquired Delta Private Jets, another Part 135 operator, in early 2020.

“We are still very committed to operating aircraft – and will continue to do this around the world – but there are times when it makes sense to start businesses and times when it makes sense to sell them,” said Marwan Khalek, CEO of Gama Aviation, in a call with Corporate Jet Investor. “The US Air division is a great business with great people, and will continue to be one for Wheels Up, but this transaction is a win-win. It also simplifies our business for investors.”

Gama Aviation has a significant number of aircraft under management and Wheels Up hopes to grow this. “We are keen to grow aircraft management – Delta Private Jets is in the management business as well – it is a key part of our asset-light strategy to be the Airbnb of private aviation,” says Dichter.

Tom Connelly, president and CEO of Gama Aviation LLC, will join Wheels Up and is believed to have received some Wheels Up stock.

Gama Aviation will continue to operate maintenance facilities in 18 locations across the US. But it has agreed not to apply for an FAA Part 135 charter operation certificate for at least five years.

“This was a family deal. Gama Aviation has been a fantastic partner since we launched and we will continue to work with them in the future,” says Dichter. Khalek adds: “We have enjoyed being part of the Wheels Up story, wish them well and will continue to support them.”

Gama Aviation LLC was 51% owned by its founders; with Gama Aviation and Signature Aviation, part of BBA Aviation – two UK-listed companies – owning 24.5% each. The company traded as Gama Aviation Signature after the two UK companies merged their US flight businesses in 2017.

Gama Aviation will receive $33m for its 24.5% share. It will also get $23m for accelerated branding fees and other trading-related considerations (the US flight business paid a royalty for using the Gama Aviation brand). It has already received $13m in cash from Wheels Up.  The rest will be paid – with interest – in eight equal amounts every six-months for the next four years. Wheels Up will continue to use the Gama Aviation brand for two years.

Gama Aviation LLC had a complicated structure because of US laws restricting foreign ownership of airlines to less than 50% – and then, only if shareholders are in countries with an Open Sky agreement with the US. The EU and the US agreed an Open Sky agreement in 2007. However, even though the US has said it is keen to sign a similar formal agreement with the UK, this is not yet in place.

BBA Aviation needed to sell 51% of its shareholding in Landmark Aviation to US investors in order to comply with US airline-ownership rules so chose to form a joint venture with Gama.

What it means for Wheels Up
Wheels Up has transformed itself in the past 12 months by acquiring TMC, AVIANSIS (fleet management software), Delta Private Jets and, now, Gama Aviation. Launching with Gama Aviation as a partner made sense but as soon as it acquired a Part 135 certificate of its own, it just added complications.

It is worth looking at the scale of Wheels Up after this deal. With more than 300 aircraft – plus access to a wider fleet – it is right up there with NetJets, VistaGlobal and Directional Aviation. An amazing achievement for a company that only launched in August 2013. Six years ago, Dichter told Corporate Jet Investor that he wanted Wheels Up to be one of the biggest brands in aviation. He has achieved this.

What it means for Gama Aviation (GMAA.L)
Gama Aviation has just sold 24% of one of its subsidiaries for $13m in cash with more to come. Yet the company has a total market capitalisation of $36.2m.

The complicated ownership structure and brand licensing meant that Gama Aviation LLC (it called it US Air in its reports) was the most attractive air division by far (it had an earnings before interest and taxes (EBIT) margin of 97% in the first half of 2019 compared with 0% for Europe). But there is a lot more to Gama Aviation – including its more-stable and profitable ground division and its government contracts (it is a mistake to see it as just a company for high-net-worth individuals). Its share price seems too low.

What it means for Signature Aviation/BBA (BBA.L)
This sale is not material to BBA – a company with a $2.37bn market capitalisation – but it makes sense. Signature makes its money serving business jet operators, so owning a competitor was never popular with its customers.