How Delta’s stake in the private jet industry could be a lifeline for the airline
There's no doubt that airlines are struggling and recent earnings reports have only reaffirmed that. Many airlines are now leaning on ancillary businesses to help navigate through these challenging times.
While loyalty programs are a popular one, for Delta, its stake in the private jet industry might become another big revenue source.
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In January 2020, Delta sold its Private Jets division to Wheels Up. Terms were not disclosed at the time — all we knew was that the airline would retain an unspecified equity stake in the privately held company. However, as pointed out by Private Jet Card Comparisons, the airline released a number of details relating to the deal for the first time in its 10-Q filing for the quarter ended Sept. 30, 2020.
According to Delta CEO Ed Bastian, the private jet unit was "marginally profitable" before the acquisition. "We've never been able to leverage and garner the type of marketing power and brand that a Wheels Up will provide," he explained.
Delta's recent filing reveals that the airline received a 27% equity stake in Wheels Up. It was recorded as a gain of $240 million, inferring a $890 million value for the combined business.
This has since been adjusted to a 25% stake and carrying value of $234 million due to additional share issuances to Wheels Up employees. Still, this stake is worth nearly double its 9% holding in Air France-KLM, which is valued at $130 million. It's also more valuable than its stake in China Eastern, valued at $199 million.
Related: Flying private with Wheels Up as Delta Air Lines makes key change
The newly combined company, which has since also acquired Gama Aviation, now has a total fleet size of over 300 aircraft, ranging from the King Air 350i to large-cabin jets. Wheels Up is now the second-biggest private aviation company in the U.S.
And Delta's stake in the company is only going to get more valuable.
Private jet companies have seen an unprecedented surge in business in recent months amid coronavirus fears. "Wheels Up's individual demand, corporate demand, and interest in our program has gone up since the start of reporting on Corona," Kenny Dichter, CEO of Wheels Up, said in a statement to Yahoo Finance.
Related: Yes, you can fly private — here's the secret that will help you do it
As a part of the current partnership, Wheels Up members have the opportunity to fast-track Delta Medallion status, earn Delta SkyMiles, get discounts on select Delta fares and more. However, experts suggest that this partnership may grow and Delta may one day begin selling seats on shared Wheels Up flights on its own platforms. This could result in cheaper private jet flights.
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