Wheels Up sues FlyExclusive in multi-million dollar dispute

Wheels Up alleges FlyExclusive wrongfully terminated an agreement to fly its members on the Friday evening before the busy July 4th holiday.

By Doug Gollan, July 5, 2023

Wheels Up alleges FlyExclusive wrongfully terminated a contract to fly its members on the Friday evening before the busy July 4th holiday weekend

In a lawsuit filed this morning, Wheels Up alleges FlyExclusive caused serious harm, warranting compensatory damages.

The action, filed in the United States District Court Southern District of New York, pits the third-largest U.S. private jet flight provider based on charter and fractional hours against the fifth-largest player.

A $124 million relationship

While the two charter and jet membership providers compete in the jet card and membership space, since November 2021, Wheels Up had contracted with FlyExclusive to provide flights for its members under a Guaranteed Rate Program, or GRP.

The relationship, at least until recently, had apparently worked well.

FlyExclusive only launched its membership program in 2020, so it had more airplanes than it needed to fly members.

Conversely, Wheels Up had over 12,000 members, and despite having its own fleet of over 200 airplanes, it needed even more capacity.

Members are guaranteed flights so long as they book a specified number of hours before departure.

FlyExclusive terminated our agreement with Wheels Up because they are in default. This litigation is a result of our termination

– FlyExclusive in a written statement to Private Jet Card Comparisons

From its Investors Day presentation last month, FlyExclusive showed GRPs made up 10% of its revenues in 2021, growing to 39% last year, around $124 million.

While GRPs for 2023 are only forecast to be 24% of its revenues, that still implies $88 million based on current projections of $367 million in company revenues.

From its proxy statement filed ahead of its planned IPO later this year, at one point, the Kinston, North Carolina-based operator had 30 of its 90 aircraft dedicated to flying Wheels Up’s customers.

Relationship sours

According to Wheels Up’s lawsuit, “Without any prior notice, on the eve of the Fourth of July holiday weekend, one of the busiest private flying weekends of the year, FlyExclusive wrongfully terminated the agreement and baselessly demanded hundreds of thousands of dollars to charter flights it was already contractually obligated to complete–despite the fact that FlyExclusive retained millions of dollars in deposits provided by Wheels Up under the agreement.”

According to FlyExclusive’s financial filings, Wheels Up initially paid $37.5 million in deposits to secure the aircraft.

The Wheels Up filing reports the term of the agreement was to last through March 1, 2024, including an initial 18 months and then a 10-month draw-down period.

After the first 18 months, which ended May 1, 2023, Wheels Up states, “[T]he term will continue and the draw-down period will be postponed unless or until either party gives the other party a 30-day written notice of termination, in which case the draw-down period will begin on the 30th day after the notice was given.”

Holiday weekend Friday night email

However, the New York-based provider claims at 8:41 pm on Friday, June 30, 2023, FlyExclusive’s CEO, Jim Segrave, emailed a Notice of Termination “effective immediately despite the fact that FlyExclusive had no basis to do so.”

With more than 75 passengers due to be flown on Saturday by FlyExclusive, Wheels Up said it agreed to make a $300,000 prepayment, which it says was not required by the terms of the agreement.

The filing goes on to allege, “Less than 24 hours later, FlyExclusive demanded an additional $300,000 as prepayment for two Sunday flights, despite the fact the total cost of Saturday’s flights had eroded less than 65% of the prepayment already paid, leaving ample prepaid funds to cover Sunday’s flights.”

The second time, Wheels Up instead rebooked its customers with other operators for the remainder of the holiday weekend.

Lack of details

While Wheels Up says the termination notice cited failure to pay bills owed from May and June, it asserts there were no details related to delinquent payments, and there had been no previous notice, which would have given it 10 business days to cure the breach.

It adds, “Over the course of the parties’ relationship, Wheels Up typically received invoices on Tuesday for the prior week’s flights and paid on Friday, resulting in typical payments being made within three days of receipt of invoice (even though it had 10 days to pay under the Agreement).”

The plaintiff also states that the termination notice “counterfactually” asserted “Wheels Up’s current state of insolvency constitutes a termination event under (the agreement).”

The filing notes, “This was demonstrably false. Wheels Up was not the subject of bankruptcy or receivership proceedings, nor had it committed an act of insolvency as required for termination.”

Wheels Up goes on to allege, “FlyExclusive has failed to fulfill its own contractual commitments, instead seeking to wrongfully appropriate millions of dollars of Wheels Up deposits and demand prepayment for already-chartered flights after repudiating the agreement. This conduct is a material breach of the agreement. The timing of the notice of termination was plainly calculated in bad faith to inflict the greatest amount of harm and impose as much pressure as possible on Wheels Up, with complete disregard for Wheels Up’s customers.”

However, in a written statement, the defendant responds, “FlyExclusive terminated our agreement with Wheels Up because they are in default. This litigation is a result of our termination.”

Updated July 7 @ 11:23 am – FlyExclusive adds that the litigation is “unjustified” and adds, “We remain willing to fly for Wheels Up if they pay us in advance.”

In addition to expenses and having its deposits returned, Wheels Up is seeking compensatory damages to be determined at trial.

Wheels Up vs. FlyExclusive

The lawsuit comes after Wheels Up reported a net loss of $101 million in Q1 on $352 million in revenues while seeing its cash drop from $586 million to $363 million.

Wheels Up had been the subject of bankruptcy rumors twice since May after CNBC and The Wall Street Journal reports.

However, in a presentation last month, CFO and Interim CEO Todd Smith told an audience of investors that liquidity was not an issue.

Smith has promised profitability on an Adjusted EBITDA basis in 2024.

Wheels Up recently cut back on the areas in the U.S. it offers capped hourly rates, mainly in the Midwest and Pacific Northwest.

It believes the change, which will mean lower prices for members in the remaining zones, will also result in fewer and shorter repositioning flights, reduced maintenance expenses, and the end of red ink.

In addition to an IPO, FlyExclusive is adding a fractional share program. Last month, it revamped its Jet Club jet card, offering discounts for cross-country flights and flights on off-peak days.

View Wheels Up Partners LLC v. Exclusive Jets, LLC below.

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