Two weeks after a 10-1 reverse split pushed Wheels Up stock to over $3, share prices plunged more than 60 percent on Thursday after reports surfaced that the company was in talks with a law firm, Kirkland & Ellis, that specializes in bankruptcy restructuring. Trading in the shares was briefly halted, and Wheels Up took the extraordinary measure of issuing a press release to address the situation.
In it, the company said, "Wheels Up Experience continues to progress with redesigned programs to better serve its members and customers in support of our path to profitability. As we execute our vision and the associated strategic plans, we are working with a number of advisors and industry participants around securing new strategic investments, raising capital, and executing previously disclosed strategic divestitures."
The price of Wheels Up shares dropped from $3.13 to $1.24 Thursday afternoon. Wheels Up has gone from a market cap of just over $2.8 billion in 2021 to barely $30 million now. And despite verbal encouragement from Delta Air Lines CEO Ed Bastian during a Wings Club event in May, the airline did not appear to be making any moves to provide Wheels Up with fresh capital. Should Delta assume control of Wheels Up before any bankruptcy filing, it would be on the hook for its debts, which include nearly $1 billion in pre-paid flight hours. Delta owns an estimated 20 percent of Wheels Up via the merger of Delta Private Jets with Wheels Up in 2020. Wheels Up is moving its operations center to Atlanta, the same city where Delta is headquartered, and retired Delta executive Dave Holtz, the airline’s former v-p of operations, has been tapped to run it.
Wheels Up has lost nearly $1 billion over the last nine quarters, including $555 million last year alone. It is on track to lose close to another $100 million this quarter. In the first quarter of 2023, the company burned through $222 million of its cash reserves, leaving $363 million on hand despite being engaged in a $30 million cost-cutting campaign. If its cash position falls below $125 million, it will be in violation of financing covenants in place on a substantial part of its owned aircraft fleet that was mortgaged last year at an interest rate of 12 percent.
Shortly after his appointment as interim CEO last month, Todd Smith denied that Wheels Up was considering bankruptcy, telling AIN, “We don’t have any specific plans right now to go back into the market and raise more liquidity; however, we have a number of things available to us. First and foremost we're going to continue to focus on our profitability efforts,” which he said he hopes translates into better service and more block-hour sales. “And we do have additional capacity under our current debt arrangement to put some additional debt on, [and] we could do so,” he said.