Kenny Dichter and Wheels Up doled out less than $100 million in cash to build the second-largest private jet operator with a $2 billion valuation
When Wheels Up’s acquired 5th-biggest Part 135 charter operator Mountain Aviation in January, it pushed the group past Directional Aviation’s Flexjet as the second-largest for-hire private aircraft operator in the U.S. For Wheels Up founder and CEO Kenny Dichter, it was a day at the beach compared to another cold New York winter morning in early 2019. At that point, Wheels Up didn’t operate a single aircraft. Founded in 2013, its owned and leased fleet was outsourced to Gama Aviation Signature. Wheels Up was a big brand. Yet, it was merely a marketing organization selling memberships onto what was then mainly a fleet of King Air 350i turboprops.
The battle to challenge NetJets
Back then, his two top adversaries in the chase to catch market leader NetJets, were both on the move.
Thomas Flohr, the founder of VistaJet, had closed the previous month on XOJET Aviation, one of the three largest operators in the United States. Dichter likely knew his rival from Europe was stalking JetSmarter, like Wheels Up, trying to democratize the market of private aviation users.
Kenn Ricci, the principal of Directional Aviation, which owns Flexjet, the second-largest fractional fleet operator behind NetJets, had bought two European operators and charter broker PrivateFly to go alongside Sentient Jet, a 2012 acquisition.
On January 31st in 2019 Dichter was in a familiar place – the set of CNBC’s Squawk Box. He told the hosts, “There’s a lot of subscale players in our space. If you can put some people together – the Amazon model – what Bezos did – that’s a big consolidation play.”
Dichter added, “Our consolidation play and our marketplace play is a really simple play. There are 1,000 (private charter jet) operators that matter in the world and about 5,000 airplanes in the world that can play in this charter market. It’s our job to be the Amazon box. Amazon ships books, but they also ship Samsung televisions.”
Prey or predator? It could have gone either way at that point. Now, on the eve of taking his company public via a SPAC valued at over $2 billion, for the first time, it can be revealed Wheels Up spent less than $100 million in cash to get there.
Travel Management Company, LLC
On May 31, 2019, Wheels Up purchased light jet operator Travel Management Company, LLC. The deal made the seller of private aviation memberships an operator for the first time. TMC had a fleet of 26 Hawker 400XP aircraft – the largest wholesale floating fleet operator of light jets in the U.S, according to the filing.
Wheels Up acquired all of the the outstanding equity of TMC for $29.8 million in cash.
- Cash: $29.8 million
Avianis Systems LLC
On September 27, 2019, Wheels Up acquired Avianis, a cloud-based flight management system.
The Avianis digital platform allows for the management of aircraft operations. Its software can also be used as a back-end flight aggregation tool for the Wheels Up App and third-party Part 135 operators. Avianis is being integrated with existing technology and will be the common platform that Wheels Up uses to manage its fleets across its four operating certificates.
The asset purchase agreement gave Wheels Up “substantially all” of the assets “substantially all” of the liabilities of Avianis for 2,011,495 common interests in Wheels Up and $14.4 million in cash.
- Cash: $14.4 million
- Stock: 2,011,495 common interests
Delta Private Jets, LLC
On January 17, 2020, Wheels Up closed on its acquisition of Delta Private Jets. It gained all the outstanding equity of the former wholly-owned subsidiary of Delta Air Lines, Inc.
DPJ provides management of aircraft on behalf of third-party owners and provides full service and in-house maintenance capabilities. As part of the acquisition, Wheels Up executed an exclusive long-term commercial cooperation agreement with Delta.
The price was 112,949,305 Class E preferred interests in Wheels Up, which constituted 26.1% of Wheels Up’s fully-diluted equity as of the time of issuance. In Delta’s 10-Q filing for the quarter ended Sept. 30, 2020, it noted, “This transaction resulted in a gain of $240 million which was recorded within the miscellaneous, net in our income statement in the March 2020 quarter.”
- Stock: 112,949,305 Class E preferred interests valued at $240 million
Gama Aviation LLC
On March 2, 2020, Wheels Up acquired all the outstanding equity of Gama Aviation Signature.
Before the acquisition, Gama operated the Wheels Up branded aircraft as an independent third-party operator. Gama provides flight operations and aircraft management services, including the management of aircraft on behalf of third-party owners.
The deal cost Wheels Up 1,724,138 common interests in it, $41.3 million in cash, and the issuance of two promissory notes with an aggregate initial principal amount of $27.5 million payable to certain affiliated parties of Gama. In connection with the closing of the Gama acquisition, Wheels Up also issued a promissory note to an affiliate of Signature Aviation in the initial principal amount of $0.8 million in satisfaction of certain pre-existing obligations owed by Wheels Up.
- Cash: $41.3 million
- Stock: 1,724,138 common interests
- Other: Three promissory notes with an initial principal amount of $28.3 million
On January 5, 2021, Wheels Up acquired all the outstanding equity of Mountain Aviation.
Mountain Aviation added the largest Citation X fleet in the U.S. It enabled Wheels Up to launch competitive coast-to-coast pricing against rival Vista Global’s XO and Directional Aviation’s Sentient Jet and FXAIR. The deal also provides full-service in-house maintenance capabilities, expands Wheels Up’s presence in the Western U.S., where number one NetJets has been expanding.
To get Mountain Aviation, Wheels Up paid 8,620,690 common interests in WUP and $10 million in cash. There is also a potential incremental cash earnout of up to $15 million based on achieving certain financial performance metrics in specified business lines, which would be payable in the second quarter of 2023 to the extent achieved.
- Cash: $10 million
- Stock: 8,620,690 common interests
- Other: Up to $15 million in incentives not due until 2023
Totaling up Wheels Up’s deals
To make its five acquisitions, by our count, Wheels Up shelled out just over $95 million in cash. There is $43 million in potential future cash obligations. If things go as planned, Wheels Up could be trading as “UP” on the NYSE at a value of more than $2 billion by the end of the month.
For Dichter, who started Marquis Jet Partners in 2001 before selling to NetJets in 2010, SPAC related filings show his 13,049,279 shares of common stock will represent between 5.1% and 5.4% of Wheels Up’s common stock after it goes public via its merger with Aspirational Lifestyle Corp.