Delta's stake in Wheels Up soars to $520 million

Delta Air Lines’ decision to sell Delta Private Jets has yielded a huge gain on paper. It’s up over 100% just since the fourth quarter. In its latest 10-Q filing, the Atlanta-based airline increased the carrying value of its 24% interest in Wheels Up to $520 million. That makes the New York-based private aviation company its largest equity ownership stake.

Behind Wheels Up is Delta’s 13% stake in Hanjin-Korean Air. That dropped quarter to quarter from $512 million to $447 million.

The value of Delta’s stake in Wheels Up now dwarfs its interest in Air France-KLM, valued at $225 million. Delta’s shares of China Eastern are pegged at $219 million.

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.

[You Can Buy Wheels Up At Costco, But Should You?]

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 sale price was 112,949,305 Class E preferred interests in Wheels Up. At the time, it constituted 26.1% of Wheels Up’s fully-diluted equity.

Delta’s 10-Q filing for the quarter ended Sept. 30, 2020, pegged the value at $240 million. After slipping in the final quarter, it has now rebounded. The numbers match up with Wheels Up’s planned SPAC merger, valued at $2.1 billion.

At the time of the sale, Delta Air Lines’ CEO Ed Bastian said he believed giving up control of the private jet provider would unlock growth opportunities and value.

Wheels Up’s deals up

The acquisition of DPJ was a string of major deals for Wheels Up’s founder and CEO Kenny Dichter leading up to the proposed merger with Aspirational Consumer Lifestyle. Since June 2019, he acquired tech platform Avianis and operators Travel Management Company, GAMA Aviation Signature, and Mountain Aviation.

In its first analyst’s day presentation, Wheels Up said it hopes to expand the number of millionaires with a net worth under $5 million who fly privately by 40%. It’s part of Dichter’s push to democratize private aviation. There are 17.9 million to target.

The entry-level millionaires currently spend an average of $11,000 annually, mainly on flights by the seat flight, jet sharing, and empty legs. Wheels Up’s commercial arrangement with Delta gives it marketing access to the airline’s customers. Before the pandemic, in 2019, Delta Air Lines boarded 162.3 million passengers. By contrast, Wheels Up flew 150,000 passengers in 2020.

Spending by entry-level flyers could grow by as much as $14 billion by 2025. That compares to $3.6 billion in anticipated growth of private flights from the100,000 individuals with a net worth of over $50 billion.

The merger with Aspirational is expected to close by the end of this quarter. Wheels Up would trade under the symbol UP on the NYSE.