November 22, 2024
Executives of VistaJet and XO parent Vista Global say a Wall Street Journal article about its finances was wrong on multiple fronts.
A failure by Vista Global, parent of private jet flight providers VistaJet and XO, could roil the market for used private jets, according to an article from The Wall Street Journal published yesterday.
However, Vista officials say a fundamental fact and other story elements were wrong.
The Wall Street Journal article, titled “How One Debt-Laden Company Could Create a Storm for Private Jets,” followed an analysis by the Financial Times of Vista’s finances from May 2023.
The FT report was based on the private jet company’s $500 million bond offering, which was oversubscribed and sold out in several hours.
On Monday, WSJ Heard on the Street columnist Jon Sindreu wrote, “Investors are getting increasingly worried: A VistaJet bond issued last May, which was very oversubscribed, is now selling off. On Friday, its yield closed at 17.23%, the highest on record. This means a price of 77 cents on the dollar and a spread over Treasury yields of 13.18 percentage points.”
He continued, “Ratings companies haven’t downgraded the bonds, which have a B-minus sub-investment grade. But only 9% of securities in that category trade at spreads above 10 percentage points, the typical threshold for distress, S&P Global Market Intelligence data shows.”
Beyond the risk to customers who have sent funds to VistaJet and XO for future flights in their jet card programs, the WSJ analysis noted, “VistaJet’s debt load is also an underappreciated risk for Canada’s publicly listed Bombardier, its key plane supplier, and the whole market for secondhand private jets.”
READ: What happens to your jet card and private jet membership deposits?
However, officials from Vista Global say a key premise of the WSJ article was wrong.
The article states, “A $150 million bond matures this June.”
During an exclusive interview with Vista CFO Charlotte Colhoun this morning, she tells Private Jet Card Comparisons, “We have three bonds, a billion-dollar note that matures in 2030, two $500 million bonds that mature in 2027 and 2028. Therefore, for all intents and purposes, we do not need to access the unsecured bond markets until earliest 2026.”
Regarding the specific bond referred to by The Wall Street Journal, Colhoun adds, “It was refinanced in January 2022 with a new instrument. It was packaged up with an existing instrument and now matures in 2030 in a better coupon. If you reduce the 10.5% note to 6.375%, a highly favorable transaction for us, and push out our single biggest debt instrument for eight years – I did it prior to rates starting to rise – actually, I am pretty proud of my achievements there.”
Vista officials disagreed with other elements of the WSJ story as well.
Sindreu noted, “Last year, Delta Air Lines rescued one of VistaJet’s peers, U.S.-based Wheels Up, from a bankruptcy that would have brought 180 planes to the market. VistaJet is bigger. During the pandemic, it acquired rivals such as Air Hamburg and Jet Edge and tripled its owned fleet to 270 jets, including many top-of-the-line Bombardier Globals with a range of 6,000 miles or more.”
Chief Commercial Officer Ian Moore debated the comparison to Wheels Up in the article.
He says, “We always seem to be put next to Wheels Up. Despite being a global business (whereas Wheels Up is mainly focused on the domestic U.S.), having a different risk, having a 20-year track record, (and) despite having positive EBITDA, we seem to always be put into that category. We fundamentally disagree.”
Wheels Up has been losing money on both a net and EBITDA basis.
Vista founder Thomas Flohr previously argued the company’s net losses were based on how it depreciates aircraft.
Last year, Flohr defended his company against the FT piece on CNBC, saying, “The adjusted EBITDA was over $800 million in 2022. We never focus below the EBITDA line. The company has a very conservative depreciation policy where over 13 years, we depreciate our aircraft to zero. That’s, as a private company, a choice we are making as a conservative policy we have in place.”
Colhoun added about the WSJ article, “[F]undamentally our fleet, it didn’t triple. It doubled in the period during the pandemic.”
Moore believes Vista is well positioned.
He says VistaJet has a similar backlog of demand to the orders OEMs like Bombardier currently hold.
“We have a backlog of orders too, that is, individual flights. It’s called the Program, and they’re multi-year,” he said.
VistaJet’s Program jet card entails a three-year commitment.
Customers pay annually or quarterly, and there are penalties for exiting the contract early.
In return, they can book and cancel long-haul international flights without penalty with as little as 48 hours’ notice.
Each trip often costs in the hundreds of thousands of dollars.
However, Moore joined new Wheels Up CEO George Mattson, calling for others to offer more details about their finances.
Mattson told an audience of industry executives during Corporate Jet Investor last November, “I invite my private aviation brothers and sisters to open up your books too because we all know it’s a challenging industry.”
“We are getting attacked by a lot of competitors now who haven’t put a single number in the marketplace. If we’re going to open our kimonos, let’s all do it. I’m happy to do that, happy to do our performance, happy to do our results, and let’s all do it,” Moore says.
So far, it doesn’t appear that the negative press is impacting buyers, according to Moore.
He says that since the FT article, there hasn’t been a noticeable change in the number of its members wanting to pay quarterly.
And while Program members buying 100 hours per year are paying between $1.5 million and $2.5 million per year to fly based on the aircraft type, those amounts appear insignificant regarding many customers’ bank accounts.
Moore says that the profile of VistaJet’s Program members continues to be similar to a 2018 analysis by WealthX.
That showed it mainly serves large multinationals, governments, and UHNWs whose average net worth is $1.16 billion.
Probably its strongest point is that for several key segments of flyers, including those who need to fly intercontinental and need to book and cancel on short notice, VistaJet has little and sometimes no other jet card competition.
Alternatives would mean buying your own jet, a fractional share, or chartering trip-by-trip, which come with their own set of issues.
READ: Jet It Lessons: What happens when your private jet provider fails?
What if Vista did fail?
One industry analyst who has covered the space for over a decade believes VistaJet’s fleet of late-model Globals and Challenger 350s would quickly find a new home.
“Fundamentally, there is a business there. What we saw with Delta and Wheels Up, there was a strategic buyer,” he says, adding, “It would turnkey for a large fleet operator or somebody outside the industry who wants to jump in.”
The analyst points to the market of potential buyers as current fractional operators, various sovereign funds, and others outside the industry.
For example, Bernard Arnault, who controls luxury conglomerate LVMH, which owns Louis Vuitton, Dior, Tiffany, Dom Perignon, and Hublot, among other high-end brands, has been expanding in luxury hospitality.
He paid $3.2 billion to acquire Belmond in 2018, a company Skift noted had “struggled financially.”
Recently, LVMH launched a Dior spa on the Royal Scotsman, a luxury train acquired via Belmond.
The Pinault family owns Gucci, Saint Laurent, and Bottega Veneta through Kering.
In 2015, they bought the luxury expedition cruise line Ponant 2015. In 2019, it added Paul Gaugin Cruises.
WSJ’s Sindreu did not respond to an email request for comment.
However, after we published the story, Sindreu reached out to tell us, “It looks like my data provider FactSet (and a second source I asked just in case) got that wrong; I’ll correct it now.”
The WSJ story now carries the following note, “A $150 million VistaJet bond mentioned in a previous version of this article has already been refinanced. The earlier version of this article incorrectly said the bond would mature this June.”
The Canadian OEM also got back to us after publication.
A spokesperson says, “Bombardier underscores that The Wall Street Journal column offers little insight into fundamental metrics within the business jet industry and, as such, is highly speculative.”
He continues, “Healthy and sustained demand for private jet charter and fractional services, a massive influx of new customers, and high utilization rates all must be considered.”
The WSJ had claimed the OEM was more vulnerable to fleet operator failure as it doesn’t have a wide range of other businesses to fall back on.
Gulfstream is a unit of General Dynamics; Embraer has military and commercial lines, while Cessna is part of Textron.
However, the spokesperson says, “Bombardier’s stellar performance over the last three years has been underscored by a diversified mix of activities, including new aircraft sales, services, and its growing Defense group.”
He adds, “VistaJet is a valued business partner, and we are proud they have built a worldwide brand flying the most advanced jets in the world.”
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