Court documents from the bankruptcy proceedings of Superior Air Charter, LLC, better known as JetSuite, show a company that was burning through cash since at least 2016.
During that time both JetBlue Airways and Qatar Airways made investments into the parent company JetSuiteX, Inc. Additionally, JetSuite used $50 million in unredeemed deposits from jet card customers towards operations, something its contracts permitted. The company, like other key players in the market, did not offer an escrow account.
The documents rebuff claims by members of its SuiteKey program that their monies were used to fuel the expansion of JSX. The sister company still operates scheduled flights, mainly in the Western U.S., using regional jets in a corporate shuttle configuration.
“The net result of these transactions (between related companies) was in excess of $50 million in favor of the Debtor, not the opposite. The Debtor was funded for years at a loss by the Non-Debtor Affiliates in the hopes that it might finally turn a profit, and these payments (as with the SuiteKey payments) were used solely to fund the Debtor’s operations,” the filing claimed.
According to the court documents, since 2016, JetSuite received $57,695,876 from affiliates. During that same period, Superior Air Charter, LLC, its corporate name, transferred a total of $2,457,793 to affiliates. In other words, it took in $55 million more from related companies that it sent out.
It also received about $50 million in deposits from members of the SuiteKey membership program that had not been redeemed for private jet charters when the company suddenly grounded its fleet in mid-April.
The combined member deposits with the transfers from affiliates infer JetSuite burned through over $105 million in cash. At the time of its bankruptcy filing, JetSuite had under $1 million in cash on hand.
In 2016 and 2017, JetSuite received $9.5 million from affiliates while sending out $2 million. In 2018, Jet Suite received $14.3 million, while sending related companies $391,360.
During 2019 and 2020, JetSuite did not transfer any money to affiliates. Last year, it received $19.8 million. In just over the first three months of 2020, the light jet operator received $14 million that was gone by the time of its Chapter 11 filing in late April.
The filing also states, “Despite the overall popularity and safety of the Debtor’s brand, the industry itself is one with extraordinarily thin margins. In light of that, the Debtor was never able to generate sufficient revenue to do more than cover its operating expenses, with nothing left to cover its monthly fixed expenses.”
In 2018, the readers of Business Jet Traveler ranked JetSuite second in Overall Satisfaction in its annual awards.
The court filing noted, “Although the Debtor remained confident that profitability was never far from reach, it never realized that critical threshold.”
The documents blame the cash drain on its “unsuccessful attempt to expand its operations into the highly competitive East Coast market.”
JetSuite at its origins created a niche along the West Coast and Southwest. It initially used a combination of Cessna Citation CJ3s and Embraer Phenom 100s.
The company laid the blame in part on one of its aircraft providers. “This (East Coast expansion) effort was beset by problems from the start, as the supposedly reputable planes the Debtor acquired for servicing this market were riddled with technical defects that rendered them virtually unusable at worst, unreliable at best.”
A 2018 lawsuit by JetSuite said an agent of Textron Aviation, which makes the CJ3, “acting on behalf of Cessna Aircraft and Cessna Finance —fraudulently induced JS and Jetsuite into purchasing the aircraft by failing to disclose certain defects common to the aircraft.”
Of its ambitions to become a nationwide provider, the bankruptcy court documents released yesterday said, “This costly venture ended with the Debtor’s return of all the defective planes to their lessors, forced abandonment of the East Coast market, and led to an overall retrenchment back to a service area based around the West Coast.”
It’s also expensive to run a private jet charter operation.
A story just published by Bloomberg provides a first-person look by a reporter who had been embedded at JetSuite. He wrote, “Something as simple as fixing a coffee maker requires grounding the plane—and a whopping $30,000. Monthly Wi-Fi charges (which JetSuite includes free) run into the deep five figures. And outfitting an aircraft with silverware, bedding, and electronics exceeds $100,000. Much of it gets stolen.”
Donald J. Trump also gets some blame. “The president’s chronic tardiness—far worse than other heads of state—is the third-worst hindrance to on-time departures, with Air Force One shutting down massive swaths of airspace for long stretches,” Bloomberg noted.
In 2019, JetSuite had been named to a list of Dallas’s fastest-growing privately held companies. However, the retrenchment in 2020 resulted in “the loss of valuable salespeople for the Debtor’s operations, which only further strained its revenue.”
Yet it appears the current COVID-19 pandemic that proved the final straw. “Every state within the Debtor’s primary service area was placed under a ‘stay at home’ order or a variant of the same.”
In early April, “the Debtor realized it would not have sufficient cash to fund operations, including its payroll obligations due and payable on and after April 30, 2020.”
The filing noted JetSuite wasn’t able to obtain any CARES Act funds. It isn’t clear if the company ever formally applied for the support. JSX received $8.9 million. The court documents claim neither JetSuite’s parent or affiliates, including JSX, gained any benefits from intra-company cost-sharing arrangements.
Despite its high profile brand, blue-chip investors, and good reputation, the filing said the Part 135 operator couldn’t overcome “race to the bottom” pricing.
JetSuite survived the turmoil of the 2008 financial crisis with a no-frills approach. This time, the company, known for the red stripe down the center of its jets, missed the sudden updraft that has since propelled the industry to near pre-COVID-19 flight levels.
Ironically, NetJets, known as one of the industry’s pricier options, said May was its best month for new customer acquisitions since 2007. This week it announced it will take delivery of 60 new private jets by the end of 2021 that it had deferred back in April.
Directional Aviation’s Sentient Jet, another upmarket provider, also reported a big bounce. Earlier this week it launched FXAIR, describing it as a premium charter broker.
Pan Am, Eastern Airlines, People Express, and even Midway. Aviation entrepreneurs like to recycle names of dead airlines or create a 2.0 of some sort.
One element of the reorganization plan that gives unsecured creditors 2.3 to 15% of their claims, or tickets on JSX, may offer a clue to the future. The documents call for the parent company to retain ownership of Superior Air Charter’s Part 135 operating certificate and the JetSuite brand with associated trademarks, perhaps foreshadowing future plans to re-enter the charter market at some point.
Deadline for Creditors to vote on the plan is Aug. 27, with a hearing scheduled for Wilmington, Delaware on Sept. 3.