Private jet company Wheels Up is reportedly on the verge of bankruptcy. It’s also on the verge of being de-listed from the New York Stock Exchange, with a share price that’s gone from high flyer to penny stock since going public and trading at over $11 a share two years ago.
The company lost $555 million in 2022 on approximately $1.5 billion in revenue from 12,000 customers. It reported a first quarter loss of $101 million, even larger than in 2022. Just before the pandemic Delta took a stake in Wheels Up, combining its own private jet resources and marketing the service.
Their CEO is out. And now the question is,
- Will Delta put more money in or cut their losses?
- Can they turn the business around, or will they file for bankruptcy and then…liquidate?
- And what happens to the billion dollars in flight credits sitting on their books?
Those with prepaid flight credits could be left holding the proverbial bag,
Wheels Up’s members may wonder what happens to their jet cards. Members and customers have purchased roughly $1 billion in flight hours on cards, some of which have not been used. Industry experts say that it’s unclear how or whether those members would be paid back in any bankruptcy but they would likely become junior creditors.
Warren Buffett, whose Berkshire Hathaway owns competitor NetJets, said this weekend that Wheels Up “has 12,600 people who have given them over a billion dollars on prepaid cards…and I think there’s a good chance some people are going to be disappointed later on.”
Handling of tickets in bankruptcy is beyond my area of expertise and I would welcome readers to weigh in on strategies they’d use to hedge against bankruptcy risk if any at all.
Wheels Up allows use of funds to purchase Delta tickets. So there are a couple of thoughts here.
- Can you buy Delta tickets now, and rely on Delta’s continued operation to make use of your Wheels Up funds?
- And can you essentially move your Wheels Up credits into Delta credits this way, with future dated travel that you treat as flight credits for trips you need later on?
I hope there’s no problem using future-dated travel on Delta if paid for in Wheels Up credit. My general understanding (again, outside of my area) is that accredited agency tickets have to be honored in an agency bankruptcy even if the airline doesn’t get paid.
I’m not familiar with how these tickets are issued – if they’re issued by Delta (in which case they’d have a hard time cancelling) or via an agency, where it seems like travel should be honored.
However I am not certain the extent to which a member would be able to exercise fare rules to their fullest extent if Delta has not been paid. Refund is usually to original form of payment. They may use that as an out. And while they may have to honor the originally-booked travel I am not certain if they would have to honor use of a flight credit they weren’t paid for to book different travel.
Since Delta promotes Wheels Up there would be real damage to their brand in trying to dishonor purchases made through their partner in any case.
Gary,
Wheels Up customers buy Delta tickets directly from a Wheels Up dedicated Delta agent by telephone. This agent has access to customers’ Wheels Up accounts to make sure the customer has enough credit to purchase the intended flight and to ID the caller. Discounts of 20% are offered for full fare first class tickets.
Wheels up members are also given elite status all the way up to Diamond depending on how much they fund their account.
Easy answer – they are unsecured creditors and likely will get nothing back. You have to assumed secured creditors and debt holders (who are ahead of them in priority) will take a haircut and that leaves nothing for unsecured creditors and shareholders.
No way to “hedge” it. You bet and lost. Bankruptcy law is very clear. I’m sure an ambulance chaser will try and file a class action suit based on negligence but courts have given wife discretion to executive mgmt and a bankruptcy judge and trustee likely won’t be sympathetic
Brand equity? Delta?
C’mon.
Also, this will politically be handled as a “soak the rich, they lost their private jets, sucks to be them” . . . unless enough members of Congress are holding credits, in which case they will “be made whole”.
They’re managing to go bankrupt with a cash upfront, prepaid model…goodness
they are a horrible company. used them once. $20K one-way FL to NY. Complete failure. Deserve BK, and CEO deserves to lose everything
The question is whether the flight credits would (in part) be considered a “consumer deposit”, and thus constitute an administrative priority under Section 507(a)(7) of the Bankruptcy Code. This is not a settled area of law. If they are, they are limited to $3,300 per claimant under 87 Fed. Reg. 6625 (Feb. 4, 2022). In any event, they must be an expense for personal, family or household purposes to be a priority. Most cards purchased for business travel is unsecured and would not qualify. Anything above $3300 per claimant is unsecured.
At least one case, In re City Sports, 2016 WL 4190090 (Bkr. D.Del. Aug 4, 2016) held that gift cards were not a priority claim when the Commonwealth of Massachusetts sued on behalf of its residents.
If the credits are a priority, they are paid in the order set forth in Section 507(a), which means they are paid just before certain taxing authorities and after wages and commissions due employee and contractors.
If they are not a priority, they would be paid pro rata with all other general unsecured creditors (last, if anything is left).
Of course, another issue is whether conversion of the flight credits to Delta miles would constitute a voidable preference. Bankruptcy has a 90 day clawback provision under certain circumstances.
At this moment in time, the only viable hedging strategy appears to be “buy as many flexible DL tickets as you can” to utilize your Wheels Up credit
If you can’t make money in private aviation right now – you’re in the wrong business.
Good bye WU.
It’s too bad that folks that run the place are going to cost people their jobs.
Not much sympathy for the customers that are going to lose out. They tried to save money and went with WU. They made the wrong choice.
Mark, think before you speak. Between maintenance, pilots, crew, customer support, and others there are over 2,000 good and honest folks working for Wheels Up that could loose their jobs if the company enters bankruptcy. I’m sorry you had a bad experience but one such instance shouldn’t mar the whole company. By the way, 20k from FL to NY on a private flight is not an unreasonable cost.
Re: ‘My general understanding (again, outside of my area) is that accredited agency tickets have to be honored in an agency bankruptcy even if the airline doesn’t get paid’.
My anecdotal personal experience. But in a lawless state so not totally comparable. A big travel agency from Venezuela made a ponzi scheme like model, they were in the top 10 consolidators for LASER Airlines (which circumvents the US law prohibiting Venezuelan based airlines to fly to US by creating a company in Dominican Republic, Red Air, not even saving face buying other equipment, but using planes from their own fleet a flagging them for Red Air) so I guess they enjoyed a huge line of credit with LASER.
In peak travel season in Venezuela some years ago (Holy Week) they stopped paying and left their employees for themselves in all their branches (they had a couple branches in Venezuela, one in Panamá and 1 in Dominican Republic).
LASER had the nerve to not honor many tickets, ALREADY ticketed, from that travel agency, some of them even from a good time before. Even when the logical thing is that they unpaid status was a administrative issue between the Airline with the Agency, not fault of the customers. Never bothered to check what the law dictates in Venezuela (because it would mean nothing anyway), but a good bunch of travelers were left stranded in that era were LASER flew to a few more destinations than today.
They were so shameless that they even tried that move in Miami. I advised many friends and relatives to tell them they had a valid ticket and in the US, were there’s still the rule of law, that they will contact the DOT for IDB. The staff in charge suddenly changer their mind and let them fly.. but I have no doubt that many clueless Venezuelans and other clients who didn’t stood their ground lost their money.
The loss to Wheels Up’s customers is similar to the loss to Delta’s customers every time Delta devalues Skymiles.
@Retired Lawyer,
The voidable preference is an interesting point but seems unlikely. Litigants usually go after any unusual transactions- receivables paid off before their due date, asset swaps for liabilities, etc. In this case, you are using your prepaid deposit for one of its documented uses. You might have purchased the Wheel’s Up credit for the primary purpose of using it to purchase Delta 1st Class tickets to take advantage of the 20% discount. Seems unlikely that there’s anything to claw back here, particularly since Delta may not have been paid for the ticket anyway!
So the right hedging strategy is to transfer as much of your credits into Delta tickets, hopefully for dates where you won’t have to make ticket changes. Time for that 1st Class around the world trip!
Wheels Up may be the ultimate fraud or just sheer incompetence. Buying up your competitors to stake out a position on the low end of private jet travel proved a losing strategy for Kenny Dichter. He liked to call it democratizing air travel but could not integrate all those different companies operating certificates.
Failure is failure. A lot of good people were duped. Good work Kenny. An incredible legacy.