NetJets announces 1,500 Textron jet deal just as Wheels Up gets $500m
It is a proven fact that 100% of people who do not understand the difference between causation and correlation will die.
But is there a link between big events at Wheels Up and NetJets announcing aircraft options?
NetJets announced a deal with Embraer for 250 Praetor 500 options in May, two days after Kenny Dichter stepped down as CEO of Wheels Up. This week it signed options for 1,500 Textron Aviation aircraft, releasing this news hours before Wheels Up announced it had closed a $500m financing.
The 15-year agreement covers Cessna Citation Ascend, Citation Latitude and Citation Longitude aircraft. NetJets will also be fleet launch customer for the Citation Ascend, when it enters service after 2025.
It is worth stressing that these are options not orders. Warren Buffett, chair of NetJets parent Berkshire Hathaway, once said: “It is impossible to un-sign a contract, so do all your thinking before you sign,” and NetJets takes this to heart.
But even though they are not firm orders, these options should be taken seriously. Analysts at Jefferies say that Textron has taken between 19% and 30% of all Textron jet deliveries over the past five years. The investment bank says that the options may be worth $30bn to Textron.
In June 2012 NetJets placed options for up to 150 Citation Latitudes. Four years later it added another 50 options. Since then, it has taken delivery of almost 200, more than half of all Latitudes that have been built.
As well as giving Textron production certainty and introducing the aircraft to new customers, these large orders should not worry other Textron customers. NetJets does not have a habit of dumping large numbers of aircraft on the market – in fact its whole business model makes this unlikely. You can expect the fractional operator to keep its Latitudes for 15-20 years.
As well as QS Partners, its in-house sales broker, NetJets also has options for disposing of older aircraft. Amber Aviation spoke about its innovative Chinese AmberNet fractional lease product at Corporate Jet Investor Asia this week. NetJets has a small stake in AmberNet and has moved older Gulfstreams to the company. Hopefully we may eventually see it take some Textron aircraft from NetJets into China.
The closing of the Wheels Up credit facility is not a surprise but is good news for the company. Delta Air Lines, Certares Management and Knighthead Capital Management have successfully closed the $500m investment in Wheels Up that was announced in August. Cox Enterprises, the family-owned media and communications company has also joined as an investor. Perhaps, coincidently, Wheels Up’s former chief financial officer and its first chief technology officer were both former Cox employees.
Delta, CK Wheels (a new Certares and Knighthead fund) and Cox have agreed a $350m term loan. The airline has also agreed to a $100m revolving credit facility.
It is unclear what secures the debt. Two market sources believe that collateral includes broker Air Partner, the few aircraft not included in Wheels Up’s aircraft EETC or aircraft-backed bond, all the company’s intellectual property including the brand, and all other assets. In return for closing the loans, the lenders have received 80% of Wheels Up’s stock. This is expected to get to 95% if investors agree to new shares being issued. Wheels Up’s advisers – Jefferies and PJT Partners – are also in talks to add another $50m lender.
This cash is designed to get Wheels Up to profit by late 2024. “This investment represents both an important source of capital for Wheels Up to support our strategy for financial stability, future profitability and long-term growth on behalf of our members and customers, as well as a vote of confidence in our path forward from a group of investors with deep experience in the premium travel space,” said George Mattson, Wheel Up’s new CEO.
The new lenders will also dominate Wheels Up’s new board. Delta will have four directors, Certares and Knighthead two each, and Cox one. There will be a seat for one company executive and two places for independent directors from the old board.
Obviously negotiating aircraft deals takes many months and NetJets will no doubt say its announcements are coincidental. The fractional operator is not going to announce any more options in the next few months so we can not prove it.
This is a shame. As Ian Fleming, the creator of 007, wrote, “Mr Bond, they have a saying in Chicago: ‘Once is happenstance. Twice is coincidence. The third time it’s enemy action’.”
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