Wheels Up closes record $100 million King Air debt deal

Wheels Up King Air factory

A line of King Air 350is being built for Wheels Up in Beechcraft's factory.

Wheels Up has successfully closed $100 million in debt backed by Beechcraft King Air 350i aircraft, by far the largest ever financing of turboprops.
A line of King Air 350is being built for Wheels Up in Beechcraft's factory.

A line of King Air 350is being built for Wheels Up in Beechcraft’s factory.

Wheels Up has closed the largest ever turboprop debt financing, raising $100 million to finance its first 22 King Air 350i turboprop deliveries.

US investment bank Jefferies arranged the deal. Jefferies was also an investor as well as syndicating debt to two hedge funds.

“We approached traditional commercial aircraft finance banks but few understood the asset class or appreciated the strength of the King Air’s residual values,” says David Baxt, president of Wheels Up. “The truth is that King Airs are built like Sherman Tanks. Of the 7,000 that have been built in the last 50 years, some 6,300 are still flying. Until they met with us few people really understood how good the residuals were.”

The loan to value ratio was 75 per cent. Baxt said that they could have raised more money but believe that they will be able to raise cheaper funding when the business is more established.

Wheels Up now has 40 full time employees and has taken delivery of four aircraft. It has 19 revenue flights booked in the next three days and has already signed up more than 100 members.

By the end of the year, Baxt says they will have nine King Air 350i aircraft and 27 in total by the end of 2014. The company was only officially launched in August 2013 when it placed a firm order for 35 King Air 350i aircraft with options for another 70 King Airs. Baxt, who was formerly head of aerospace and defense at Jefferies, founded the company with Kenny Dichter, who invented fractional jet cards when he launched Marquis Jet in 2001.

By 2020, Wheels Up aims to have 10,000 members averaging around 20 flight hours a year, paying around $4000 an hour on turboprop flights. Wheels Up expects around 40 per cent of its revenue to come from turboprop flights, with the rest coming from selling jet flights operated by partner companies like VistaJet and JetSuite.

“Kenny and his team at Marquis Jet sold 10,000 unique memberships to Marquis Jet for $180,000, so we have to be able to sell that many at $15,000,” said Baxt.

As well as raising debt, Wheels Up has also signed up around 150 equity investors. Most of these are also expected to sign up as members as well. Dichter and Baxt managed the equity placement personally.

Although Wheels Up owns the aircraft, it is not an operator and has outsourced flying to Gama Aviation. “We ran a nationwide request for proposals for operators to compete to run our King Air fleet and selected Gama because they had a great approach to safety and ran a full-service business.” Beechcraft is also responsible for maintaining the aircraft through its Hawker Beechcraft services division.