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Dec 12, 2019

Delta to exit 'marginally profitable' luxury-jet flight business

How Delta Came Back From Bankruptcy and Repaid Its Employees

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Delta Air Lines Inc. will leave the private-jet charter business after 20 years, selling the struggling operation to Wheels Up Partners in a deal expected to close early next year.

The airline will retain an unspecified equity stake in closely-held Wheels Up, Delta said in a statement Thursday. Financial terms weren’t disclosed. Wheels Up Chief Executive Officer Kenny Dichter will continue leading the combined company, which is based in New York.

The transaction allows Delta to get out of the luxury jet charter business that has been “marginally profitable” and hasn’t grown as the carrier had hoped, Chief Executive Officer Ed Bastian said in an interview. The combination will give Wheels Up a fleet of more than 190 private aircraft and over 8,000 members and customers.

“We’ve never been able to leverage and garner the type of marketing power and brand that a Wheels Up will provide,” he said ahead of an investor conference in Atlanta. “It got lost under Delta’s umbrella somewhat and was never able to attract the type of sales and marketing dollars needed to create a separate platform.”

Wheels Up is “committed to providing ongoing career opportunities for Delta Private Jets employees,” the Atlanta-based airline said. The agreement is subject to customary closing conditions and governmental and regulatory approvals.

Wheels Up is an on-demand aviation company with about 6,000 members. In August, it raised US$128 million for future growth, a fundraising round that it said valued the company at US$1.1 billion, CNBC reported. Dichter founded one of the first fractional-ownership card programs, Marquis Jet, and sold that company to NetJets Inc. in late 2010.

Delta acquired its Hebron, Kentucky-based private-jet company in 1999 with the acquisition of Comair Inc., the former regional airline that began the charter business in the 1980s. Buyers of jet cards that start at US$150,000 get locked-in rates for two years and diamond medallion status in Delta’s frequent flier program.

Separately at the investor event, Delta said it expects 2020 adjusted earnings of US$6.75 to US$7.75 a share, which compares with an average estimate of US$7.06 from analysts, on continued strong travel demand. Top-line revenue will grow four per cent to six per cent, the company said, and Delta expects to generate US$4 billion of free cash flow.

The carrier maintained its outlook for two per cent to three per cent growth in non-fuel costs for each seat flown a mile, a measure of efficiency. The outlook has rankled some investors because it’s as much as a percentage point above Delta’s long-term goal of holding the growth of such costs at two per cent or less each year.

--With assistance from Justin Bachman.