Wheels Up founder abruptly steps down as losses mount, bankruptcy looms

private jet company wheel up Founder and CEO Kenny Dichter will step down with immediate effect as the company faces mounting losses and the possibility of bankruptcy, it announced Tuesday.

Board member Ravi Thakran will serve as executive chairman, while chief financial officer Todd Smith will serve as interim CEO of the company said in a statement. Wheels Up did not give a reason for the executive change, but thanked Dichter for his “vision and work” in growing revenue to more than $1.5 billion a year and more than 12,000 customers.

Dichter’s departure marks a sharp downturn for one of the private jet industry’s most high-profile startups. Wheels Up once promised to be uber or Airbnb private jet. Dichter, who founded Marquis Jets in 2001 and later sold it to NetJets, launched Wheels Up in 2013 to “democratize” private jets and make them more affordable and easier to book.

The company’s flamboyant marketing campaign, which included sports personalities such as Tom Brady and Serena Williams as brand ambassadors and investors, and lavish events helped the company rapidly grow its membership.

But its shares, which are trading above $10 a share following a 2021 SPAC listing, are now trading around 40 cents after falling 20% ​​on Tuesday. Its valuation — once more than $2 billion — has shrunk to about $100 million.

The company reported a loss of $555 million last year, despite an increase in revenue and membership.The company said it wanted to be profitable by 2024, but in its First quarter financial report Wheels Up reported a loss of $101 million on Tuesday, about $12 million more than it reported a year ago.

Wheels Up has been consulting with bankruptcy advisors and lawyers about possible financing or restructuring, people familiar with the company’s dealings told CNBC.

Wheels Up said in its earnings report Tuesday that it is changing its pricing plans and product offerings to better serve customers and improve efficiency. For example, it is shifting away from less profitable markets in the West and focusing more on the Northeast and other more active routes.

Traditional individual Wheels Up membership has an initiation fee of $17,500 and an annual fee of $8,500, with passengers paying additional hours depending on aircraft type.

Industry experts say turning Wheels Up around will be difficult.

“It’s the right move, they’re having to drop unprofitable flights,” said Doug Gollan, founder and editor of Private Jet Card Comparisons. “But it’s going to be a huge challenge.”

There may also be questions about Dichter’s generous compensation package.according to SEC filing, Dichter’s base salary is $79,167 per month, or $950,000 per year for two years. He will also receive a one-time $3 million “in lieu bonus” and flight hours on the Wheels Up aircraft.

In the event of bankruptcy, the members of Wheels Up may be wondering what will happen to their Jets cards. Members and customers have purchased approximately $1 billion in flight hours with cards, some of which has not yet been used. Industry experts said it was unclear how or if those members would be repaid in any bankruptcy, but they would likely become subordinated creditors.

Warren Buffett, whose Berkshire Hathaway owns rival NetJets, said this weekend that Wheels Up “has 12,600 people paying them more than $1 billion on prepaid cards … I think there’s a good chance some people will be disappointed later. “