Delta Private Jets and Wheels Up will have over 190 private aircraft

The deal is expected to close in early 2020, subject to closing conditions and required governmental and regulatory approvals

Delta will take an equity stake in Wheels Up becoming its largest shareholder

Financial terms of the transaction are not being disclosed

The transaction sets up a three-horse race with Directional Aviation and Vista Global as they battle market leader NetJets

Wheels Up’s busy 2019 included raising more money, acquiring light jet operator TMC Jets, tech platform Avianis, expanding its jet sharing membership, plus launching fixed-rate programs for light and super-midsize jets

Last week it announced a major revamp of its own jet membership programs

Is Wheels Up now poised for international expansion?

Wheels Up and Delta Air Lines this morning are announcing they have reached a definitive agreement to combine their private jet businesses.

“This groundbreaking partnership will democratize private aviation – making the convenience of private jet travel accessible to more consumers,” said Delta CEO Ed Bastian.

He added, “Wheels Up’s lifestyle experiences and innovative digital platform, combined with the scale and service of Delta Private Jets, helps further Delta’s mission of connecting people and communities worldwide through travel.”

He said, “This agreement is the latest step in Delta’s ongoing effort to build partnerships that extend Delta’s brand beyond its core business.”

Delta will hold an undisclosed equity stake in Wheels Up when the deal closes.

Speaking on CNBC’s Squawk Box, Bastian said Delta will be an active investor.

Delta Air Lines CEO Ed Bastian: “This groundbreaking partnership will democratize private aviation – making the convenience of private jet travel accessible to more consumers,”

“Bringing together our complementary businesses, which represent the best consumer brands in private and commercial aviation, is transformative and a first for the industry,” said Wheels Up’s founder and CEO, Kenny Dichter.

He added, “The combination of Wheels Up and Delta Private Jets, along with the partnership commitments between Delta and Wheels Up, aligns with our growth objectives and vision of building a platform that will make private flying and the private flying lifestyle accessible to significantly more individuals and businesses in the U.S. and around the world.”

The companies are promising “an array of new products and valuable features for existing and prospective customers of Wheels Up, Delta Private Jets and Delta to make private aviation travel more accessible to all.”

Details will be announced when the transaction closes. On Squawk Box, Dichter said Delta will become the largest shareholder in Wheels Up.

Wheels Up’s 3rd M&A deal of 2019

In August, Wheels Up completed a Class D equity capital raise of $128. The move followed its June deal for light jet operator TMC Jets, bringing 24 owned Hawker 400XPs to its fleet of King Air 350i, Citation Excel/XLS, Citation Xs, currently operated by Gama Aviation.

During Revolution.aero in October, Wheels Up announced it had bought technology platform Avianis.

It has also launched expanded jet sharing through Wheels Up Connect and fixed rated programs for light jets and capped rates for super-midsize aircraft.

Private jet management

Unlike the current Wheels Up and TMC fleets that are owned or leased, Delta Private Jets brings managed private jets into the company.

Delta Air Lines is merging its Delta Private Jets subsidiary with Wheels Up. It will become the largest shareholder in the New York-based start-up when the deal closes.

Management companies don’t own the planes. They instead manage them for owners, generally wealthy individuals and companies that don’t want to run their own flight departments.

According to the Delta Private Jets website, there are currently:

16 light jets,

28 midsize jets,

11 super-midsize jets, and

9 large-cabin aircraft.

The Wheels Up fleet had been dominated by an estimated 80 King Air 350is.

It will now have around 40 light jets, 50 midsize aircraft, 17 super-midsize aircraft, 10 of which are speedy Citation Xs. Wheels Up previously had no large-cabin aircraft.

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Altogether, the combo will now have a fleet of around 190 aircraft it can deploy for members and the on-demand charter market.

The Wheels Up branded fleet is currently operated by Gama Aviation, like Delta Private Jets IS-BAO Stage 3, Argus Platinum, and Wyvern Wingman, the highest ratings from the third party agencies.

Delta brings a jet card program, providing guaranteed availability and fixed one-way rates using its fleet and third party operators with deposits starting at $150,000.

It also offers an empty leg program under the banner Sky Access. Members pay a $2,500 initiation and $6,000 annual fee and fly unlimited empty legs.

The Wheels Up story

Wheels Up is Dichter’s second entry into business aviation. In 2001, he helped birth the jet card market by launching Marquis Jet Partners via an exclusive arrangement with NetJets.

Sentient Jet, owned by Directional Aviation since 2012, invented the jet card in 1999, however, Dichter’s prolific marketing acumen is widely credited for bringing attention to the then-nascent product.

Wheels Up CEO and founder Kenny Dichter has used high-profile sponsorships and endorsers to build brand awareness.

After NetJets’ owner, Berkshire Hathaway bought Marquis Jet in 2010, Dichter exited then jumped back into the game in 2013 launching Wheels Up.

Always taking a different angle, he popularized pay-as-you-go. Clients pay a joining fee, plus annual membership, and like traditional cards get fixed rates and guaranteed availability.

Instead of depositing funds, they pay on a flight-by-flight basis, although Wheels Up also offers deposit programs, something it has been expanding.

Until this year, the core of its fleet was the King Air 350i. The twin-engine turboprops seat eight and are ideal for shorter flights, typically under 500 miles.

Teaming up with Tom Brady, Russell Wilson, Serena Williams, ESPN GameDay

In his new venture, Dichter never took a backseat to established competitors. He enlisted high-profile endorsers such as NFL All-Stars Tom Brady and Russell Wilson, and tennis champion Serena Williams. Wheels Up also sponsors ESPN’s popular college football pregame show GameDay.

Wheels Up endorsers include six-time Super Bowl champion Tom Brady.

An opportunistic marketer, Dichter jumped on sponsorships of American Pharoah in 2015 and Justify in 2018 for the Belmont Stakes. In both cases, he rode them to worldwide visibility reaching over 30 million viewers as they completed runs to the Triple Crown.

In five years Wheels Up has challenged NetJets as the most searched private aviation company on Google.

His aggressive marketing helped Wheels Up generate brand awareness in the private aviation space only matched by NetJets, the industry’s largest player. NetJets and Wheels Up are the two most searched private jet providers, according to Google.

A 3-way battle to challenge NetJets

In a space where success for start-ups is anything but guaranteed, Dichter has outmaneuvered a number of high-profile wannabes.

This spring one-time unicorn JetSmarter was sold to Thomas Flohr’s Vista Global Holdings, parent of VistaJet. He promptly merged it with XOJET and rebranded the new entity as XO.

Dichter joins Directional’s Kenn Ricci (left) and VistaJet’s Thomas Flohr in a three-way battle to challenge industry leader NetJets.

The DPJ deal now squares off Dichter with the backing of Delta against Flohr and Kenn Ricci’s Directional Aviation, owner of Flexjet, Sentient, and PrivateFly. All want to challenge market leader NetJets.

Why Delta Air Lines combined Delta Private Jets with Wheels Up

Delta’s decision to combine Delta Private Jets with Wheels Up is not a surprise. It had been rumored for several weeks, although the expectation was it was going to be an outright sale, a move that would have taken it out of the space entirely.

It now seems to follow the template of other deals Bastian has made.

Last year, Delta spun off its wholly-owned Delta Global Services to Argenbright Holdings I, LLC. Under the DGS name, it maintains a 49% equity interest. It also received $40 million in cash, according to financial filings.

It has been widely reported Delta wants a similar exit from its refinery business, although a deal hasn’t taken place.

Worldwide partnerships

At the same time, Bastian has been adding and solidifying the reach of his core scheduled airline business using his checkbook.

In September, Delta Air Lines struck a deal to buy 20% of South America’s largest airline LATAM for $1.9 billion. The move also meant rival American Airlines’ largest partner in the region switched teams.

That followed a June announcement Delta had acquired 4.3% of partner Korean Air with the goal of moving to 10%. Korean Air has long had a private aviation division, including a Boeing Business Jet, Global Express XRS, and Gulfstream G650.

The Atlanta-based airline has been ramping up its fight against American, and European partner IAG, parent of British Airways, Iberia, and Aer Lingus.

Delta is a 49% owner in Virgin Atlantic Airways, which earlier this year led a group that bought Flybe, a U.K. domestic airline. That carrier is being rebranded as Virgin Connect.

One of Bastian’s first moves after being elevated to CEO in 2016 was to add $360 million to Delta’s stake in Aeromexico. In June, Aeromexico launched a jet card program with Aerolineas Ejecutivas.

There is also a joint venture with Canada’s WestJet, where there are no private jet membership programs currently, although AirSprint offers fractional ownership and leases.

In most countries, including the EU, foreign companies are restricted to minority ownership of airlines, including private aviation operators, hence minority investments.

DPJ and Delta Air Lines

Executives previously have said Delta Private Jets helps to woo the C-Suite of corporate accounts for the airline. The transaction structure appears to enable Delta to continue offering a private jet service option to corporate customers.

There were several signs its business jet business was on the block. It had been common for Delta to rotate executives through the corner office of DPJ.

Most recently, when Jeff Mihalic returned to the parent company, it didn’t replace him. Instead, it added the president’s title to longtime CFO Rex Bevis. There was no external announcement to mark the move.

The Wheels Up IPO

Dichter is usually asked at industry events when will Wheels Up go for an IPO?

During Corporate Jet Investor in mid-November, Dichter indicated that it is still part of the future plan.

Wheels Up is estimated to have annual revenues of around $400 million.

Delta does not break out sales figures for Delta Private Jets, but last year the company had over $44 billion in sales and an adjusted pre-tax income of $5.1 billion.

In its 2018 Annual Report, Delta stated that its private jet subsidiary, Delta TechOps, and Delta Vacations had combined revenues of “approximately $1 billion.”

It’s also possible there could make more acquisitions. M&A chatter suggests more consolidation.

In 2018 Vista Global acquired XOJet with a fleet of more than 40 super-midsize jets. Foreign ownership laws mandated aircraft operations be spun off to a subsidiary. Sales and marketing remain 100% owned by the Dubai-based holding company.

Assuming the deal closes, questions remain about the structure of the new entity, branding, and existing programs. So far, Wheels Up has kept TMC Jets and Avianis separate. In fact, there is no mention of Wheels Up’s ownership on either’s website.

Wheels Up in Europe?

Wheels Up has said it wants to expand in Europe, where VistaJet is based, and NetJets has a large presence. Flexjet has been recruiting pilots in advance of a full-scale launch.

In addition to its stake in Virgin Atlantic, Delta has a minority investment and alliance with Air France-KLM. Either could help support a Wheels Up launch across the pond.

In fact, Delta’s various partners around-the-world could provide a foothold for the Wheels Up to create a global footprint, something to date only VistaJet has truly achieved in the private aviation space.

Flohr has said he will bring XO, for now only a U.S. brand, to Europe in 2020.

Air France currently has a partnership with financially troubled Wijet, making Wheels Up an ideal replacement.

Back home, Delta is not the only U.S. passenger airline involved in the private jet business. JetBlue has made two investments in Dallas-based JetSuite, its latest just last year.

It’s possible that Delta’s equity alliance with Wheels Up might spark more interest from rivals.

Both United Airlines and American Airlines often follow the moves of their Southern counterpart. Each also has a history in private aviation.

United Airlines planned to enter the market in 2001. It formed a company, Avolar, but pulled back after the September 11 terrorist attacks.

American Airlines owned a chain of private jet terminals until 1998. They are now part of the Signature Flight Support FBO network.