December 1, 2024
Airlines use Chapter 11 to restructure, allowing customers who purchased tickets to fly and keep frequent flyer miles. What about jet cards?
Would bankruptcy work for jet card sellers as it does for the big airlines?
This morning, Spirit Airlines filed for bankruptcy, which is not unusual for Part 121 airlines since virtually all significant players except Southwest Airlines have been there.
Customers keep their miles or points. They can use tickets they have already purchased—deferred revenues, which is how jet card deposits are classified.
So, could jet card providers use Chapter 11 and continue?
Recently, I talked to former Wheels Up CFO Todd Smith, who served as interim CEO during the summer of 2023 when the company was facing reports of a possible bankruptcy filing.
I asked Smith, “Not speak about Wheels Up, but is there a role for bankruptcy as a solution for a programmatic private aviation flight provider?”
Smith told me, “The thing that made a scenario like that challenging is that typically, in a scenario where companies avail themselves of that type of restructuring, they do so to seek relief from their creditors.”
Smith continued, “Normally, their creditors are suppliers or lenders. In our situation, our largest creditors were our members who had a prepaid deposit balance with us that they had provided.”
Now the CFO of a division of CVS, Smith said, “In a restructuring scenario where you in any way damaged your customer base, it would be very difficult to come out on the other side with a sustainable business.”
Smith said, “That was certainly not an alternative that we were pursuing or felt was going to be a favorable scenario for the business.”
READ: How Delta Air Lines’ Ed Bastian Saved Private Jet Company Wheels Up
In 2020, JetSuite ground its fleet and filed for bankruptcy.
It reorganized and continued with a smaller fleet as a Part 135 operator.
However, it didn’t continue its Suite Key jet card program.
Its jet card members were offered a cents-on-the-dollar solution as unsecured creditors.
Some JetSuite clients found that even with the losses when they summed up the flights they had taken and the money lost, they still came out ahead.
READ: What happens to your jet card and private jet membership deposits?
Private jet provider failures don’t just impact jet card members.
When Zetta Jet filed for bankruptcy, on-demand charter customers who had paid for long-haul international flights were also unsecured creditors.
In some cases, operators close without filing for bankruptcy.
Several brokers say they lost money when Executive Airlink closed suddenly in June 2023.
Brokers will sometimes keep money on account with operators they use regularly.
When you book charters ad hoc, you also increase your exposure to cancelation fees and requotes, which most jet cards mitigate.
At the same time, owning your jet doesn’t protect you if your management company goes Chapter 11.
In this example, you have been paying your management company to pay vendors for services to your aircraft, including maintenance.
If the vendor wasn’t paid, they could put a lien on your jet.
Fractional share owners are not immune, either.
After Jet It shuttered – but didn’t file for bankruptcy – share owners had to scramble.
They could recoup some of their money by selling the aircraft they owned. However, they first had to pay money owed to vendors who serviced their tails.
READ: Jet It Lessons: What happens when your private jet provider fails?
Lawyers say that the Avantair bankruptcy was messy.
Since aircraft had been parted out, conflict occurred between owner groups whose airplanes were salable and those cannibalized.
It took years to settle.
More recently, Volato offered its jet card customers the option to transfer unused funds to FlyExclusive.
To date, 178 of 265 Insider jet card holders have done so, according to FlyExclusive.
In September, Volato told its customers, “While we understand you may have previously requested a refund or might wish to request one in the future, we cannot guarantee the ability to refund all or any portion of your balance.”
It continues to operate its Vaunt empty-leg program.
Volato recently told an Insider customer who had not taken a FlyExclusive transfer offer, “We are hoping to be able to begin paying unsecured creditors (including Insider refunds) sometime in 2025.”
One aviation attorney says there is a longshot chance that jet card holders could be whole if their provider files for bankruptcy.
In this scenario, a third party sees the value of those jet card customers to the company’s continuing business and possibly other businesses they own.
As part of investing in the reorganized company, secured creditors allow the new investor/owner to provide the jet card customers dollar-for-dollar use of their funds.
“It’s all numbers on a spreadsheet,” he says, adding, “Every situation is going to be a bit different.”
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