Delta still up on Wheels Up

opinion

by Alasdair Whyte

August 5, 2024

Wheels Up celebrated its 11th Birthday this week. It is hoping to make a profit before it turns 12. It really needs to do this. George Mattson, Wheels Up’s CEO, has said this since he joined the company last year. Todd Smith, its CFO, stated it when he joined two years ago. It is why so many Delta operations managers have been brought in to work on finding efficiencies. On Thursday we will see how it is doing when Wheels Up announces its second-quarter results.

Brian Foley, the well-respected business aviation consultant, this week published a piece saying that Wheels Up needs to speed up getting to a profit to help Delta Air Lines, its largest investor. Delta’s profit fell 29% in the last quarter (it was not the only airline having a disappointing six months) and Foley says that Wheels Up needs to change quickly.

But, on paper at least, Delta’s investment in Wheels Up has not been a disaster. It is one of the few early investors who can say this.

The airline was given 21% of Wheels Up in return for merging its business jet subsidiary Delta Private Jets with the membership company in 2020. In December 2022, according to its quarterly reports, Delta valued its stake at $257m. At the end of June 2023, when Wheels Up looked like it could file for bankruptcy protection, Delta cut this to $6m.

You know what happened next. In return for 95% of the company Delta, Certares, Knighthead and Cox lent the company $350m in September 2023. Delta also arranged an extra $100m loan. Before they invested, Wheels Up’s market capitalisation (number of shares multiplied by stock price) was just $69m.

This was a long way from when it went public in June 2021 at $2.83bn. On August 11, 2023 – when a Chapter 7 bankruptcy was possible – it hit $28.2m. Wheels Up’s market capitalisation today is $1.6bn.

On June 30 2024 Delta valued its 38% stake at $498m.

There are a few disclaimers here. Only 5% of the stock is still trading and if you were an early investor you are still very much in the red. But, so far at least, it has turned out to be a decent investment for Delta – especially compared to so many airline deals. It has been a fantastic one for Certares, Knighthead and Cox.

Like any financial investors, Certares, Knighthead and Cox are likely to want to exit one day. Delta is the obvious future buyer of their stakes. If Wheels Up does get to profit soon – and we will find out more next week – Ed Bastian, Delta’s CEO, may actually regret not buying more of the company in 2023.