Kenny Dichter, Founder and CEO, Wheels Up
Chris Goodney | Bloomberg | Getty Images
Private jet company Wheels Up announced Tuesday that the company’s founder and CEO Kenny Dichter is stepping down effective immediately as the company faces mounting losses and the prospect of bankruptcy.
The company said in a statement that board member Ravi Thakran will become executive chairman, while chief financial officer Todd Smith will serve as interim CEO. Wheels Up gave no reason for the executive changes, but thanked Ditcher for his “vision and work” for growing revenue to more than $1.5 billion in one year and membership to more than 12,000 customers.
Ditcher’s departure marks a dramatic decline for one of the private jet industry’s most high-profile startups. Wheels Up once promised to be the Uber or Airbnb of private jets. Dichter, who founded Marquis Jets in 2001 and later sold it to NetJets, launched Wheels Up in 2013, aiming to “democratize” private jets and make them more affordable and easier to book.
The lavish events, along with the company’s engaging marketing campaigns featuring sports personalities such as Tom Brady and Serena Williams as brand ambassadors and investors, helped the company rapidly grow its membership.
But its stock price, which used to trade at $10 a share after going public through a SPAC in 2021, is trading at about 40 cents after a 20% drop on Tuesday. Its valuation — once over $2 billion — has shrunk to about $100 million.
potential for bankruptcy
Like many private jet startups, Wheels Up was plagued by high costs and operational issues.
The company reported a loss of $555 million last year, even though revenue and membership grew. The company said it expected to turn profitable in 2024, but in its first-quarter earnings report released Tuesday, Wheels Up reported a loss of $101 million, about $12 million wider than it reported a year ago .
People familiar with the company’s dealings told CNBC that Wheels Up is consulting with bankruptcy advisers and attorneys about a possible capital raise or reorganization.
Wheels Up said in its earnings release Tuesday that it is making changes to its pricing plan and its product offerings to better serve customers and become more efficient. For example, it is moving away from less profitable markets in the west to focus more on the Northeast and other more active routes.
A traditional Individual Wheels Up membership has an initial fee of $17,500 and annual dues of $8,500, with passengers paying additional hourly costs depending on aircraft type.
Tom Brady uses the Wheels Up.
Source: Wheels Up
Industry experts say it will be difficult to turn Wheels Up.
“It’s the right move, they got to get out of unprofitable flights,” said Doug Golan, founder and editor of Private Jet Card Compare. “But it’s going to be a big challenge.”
There could also be questions about Dichter’s generous pay package. According to the SEC filing, Dichter will receive a base salary of $79,167 per month for two years, or $950,000 per year. He would also receive a $3 million lump sum “in lieu of a bonus” as well as hours of flight time on the Wheels Up aircraft.
And in the event of bankruptcy, Wheels Up members may wonder what will happen to their jet cards. Members and customers have purchased approximately $1 billion in flight hours on the card, some of which has not been used. Industry experts say it’s unclear whether or how those members would be paid back in a bankruptcy, but they would likely become junior creditors.
Warren Buffett, whose Berkshire Hathaway owns competitor NetJet, said this weekend that Wheels Up has “12,600 people who have given them over a billion dollars on prepaid cards … and I think there’s a good chance Some people are going to be disappointed later.”