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Private jet company Wheels Up announced Tuesday that its founder and CEO, Kenny Dichter, is stepping down from his post immediately as the company faces mounting losses and the potential for bankruptcy.
Board member Ravi Thakran will become executive chairman, while Chief Financial Officer Todd Smith will serve as interim CEO, the company said in a statement. Wheels Up didn’t give a reason for the executive changes, but thanked Dichter for his “vision and work” in growing revenue to over $1.5 billion a year and membership to over 12,000 customers.
Dichter’s departure caps a dramatic fall for one of the private jet industry’s most high-profile startups. Wheels Up once promised to become 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 company’s flashy marketing campaigns, featuring sports celebrities like Tom Brady and Serena Williams as brand ambassadors and investors, as well as lavish events helped the company grow membership quickly.
But its stock price, which traded over $10 a share after it went public via SPAC in 2021, is now trading at roughly 40 cents after a 20% decline Tuesday. Its valuation — once over $2 billion — has dwindled to roughly $100 million.
Potential for bankruptcy
Like many private jet startups, Wheels Up was dogged by high costs and operating issues.
The company reported losses of $555 million last year, even as revenue and memberships increased. The company said it hoped to be 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 its reported loss a year ago.
Wheels Up has been consulting with bankruptcy advisors and attorneys about possible capital raises or a restructuring, people familiar with the company’s dealings told CNBC.
Wheels Up said in its earnings release Tuesday that it is changing its pricing plan and its product offering to better serve customers and become more efficient. For instance, it’s 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 initiation fee of $17,500 and annual dues of $8,500, with passengers paying additional hourly costs depending on the type of aircraft.
Industry experts say turning around Wheels Up will be difficult.
“It’s the right move, they had to get out of unprofitable flights” said the Doug Gollan, founder and editor of Private Jet Card Comparisons. “But it’s going to be a big challenge.”
There may also be questions about Dichter’s generous pay package. According to an SEC filing, Dichter will receive his base salary of $79,167 a month, or $950,000 a year, for two years. He will also receive $3 million as a lump sum “in lieu of a bonus” as well as flight hours on Wheels Up planes.
And in the event of a bankruptcy, Wheels Up’s members may wonder what happens to their jet cards. Members and customers have purchased roughly $1 billion in flight hours on cards, some of which have not been used. Industry experts say that it’s unclear how or whether those members would be paid back in any bankruptcy but they would likely become junior creditors.
Warren Buffett, whose Berkshire Hathaway owns competitor NetJets, 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 on.”