S-1 1 tm2123802-1_s1.htm S-1 tm2123802-1_s1 - none - 59.7190819s
As filed with the U.S. Securities and Exchange Commission on August 3, 2021
Registration No. 333-      
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WHEELS UP EXPERIENCE INC.
(Exact name of registrant as specified in our charter)
Delaware
4522
98-1557048
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
601 West 26th Street
New York, NY 10001
(212) 257-5252
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Laura Heltebran, Esq.
Chief Legal Officer
601 West 26th Street
New York, NY 10001
(212) 257-5252
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Christopher Peterson, Esq.
Thomas Yadlon, Esq.
John Geelan, Esq.
Arnold & Porter
250 West 55th Street
New York, New York 10019
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 under the Securities Exchange Act of 1934:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be
Registered(1)
Proposed Maximum
Offering Price Per
Security
Proposed Maximum
Aggregate Offering
Price
Amount of
Registration Fee
Class A common stock, par value $0.0001 per
share (“Class A common stock”)
193,195,497(2)(3) $ 7.45(5) $ 1,439,306,452.65(5) $ 157,028.33
Warrants to purchase Class A common stock 
4,529,950(2) $ (6) $ (6) $ (6)
Class A common stock
12,521,494(2)(4) $ 11.50(7) $ 143,997,181.00(7) $ 15,710.09
Total
$ 1,583,303,633.65 $ 172,738.43
(1)
Immediately prior to the consummation of the mergers described in the prospectus forming part of this registration statement, Aspirational Consumer Lifestyle Corp., a Cayman Islands exempted company (“Aspirational”), effected a deregistration under the Cayman Islands Companies Law (2020 Revision) and a domestication under Section 388 of the Delaware General Corporation Law, pursuant to which Aspirational’s’ jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware (the “Domestication”), and was renamed “Wheels Up Experience Inc.” ​(“Wheels Up”), as further described in the prospectus. All securities being registered were or will be issued by Wheels Up.
(2)
Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the “Securities Act”), an indeterminable number of additional securities that may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions are also being registered.
(3)
The number of shares of Class A common stock being registered represents the sum of (a) 138,195,497 shares of Class A common stock issued in connection with the Mergers (as defined herein) as described in the prospectus; and (b) 55,000,000 shares of Class A common stock issued in the PIPE Investment (as defined herein) as described in the prospectus.
(4)
The number of shares of Class A common stock being registered represents the sum (a) 4,529,950 shares of Class A common stock that are issuable by us upon the exercise of the private placement warrants (as defined herein); and (b) 7,991,544 shares of Class A common stock that are issuable by us upon the exercise of 7,991,544 public warrants (as defined herein).
(5)
Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of the Class A common stock on the New York Stock Exchange (“NYSE”) on July 28, 2021 (such date being within five business days of the date that this registration statement was first filed with the SEC). This calculation is in accordance with Rule 457(c) of the Securities Act.
(6)
No separate fee due in accordance with Rule 457(g).
(7)
Calculated pursuant to Rule 457(g) under the Securities Act, based on the exercise price of $11.50 of the warrants.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling securityholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 3, 2021
PRELIMINARY PROSPECTUS
[MISSING IMAGE: lg_wheelsup-4c.jpg]
Wheels Up Experience Inc.
193,195,497 Shares Class A Common Stock
4,529,950 Warrants to Purchase Class A Common Stock
12,521,494 Shares of Class A Common Stock Underlying Warrants
This prospectus relates to (i) the resale of up to 138,195,497 shares of Class A common stock, par value $0.0001 per share (“Class A common stock”) issued in connection with the Mergers (as defined below) by certain of the selling securityholders named in this prospectus (each a “selling securityholder” and collectively, the “selling securityholders”); (ii) the resale of up to 55,000,000 shares of Class A common stock (the “PIPE shares”) issued in the PIPE Investment (as defined below) by certain of the selling securityholders; and (iii) the resale of up to 4,529,950 warrants (the “private placement warrants”) to purchase shares of Class A common stock originally issued to Aspirational Consumer Lifestyle Sponsor LLC, a Cayman Islands limited liability company (the “Sponsor”) in a private placement.
This prospectus also relates to the issuance by us of up to (i) 4,529,950 shares of Class A common stock that are issuable by us upon the exercise of the private placement warrants; and (ii) 7,991,544 shares of Class A common stock that are issuable by us upon the exercise of 7,991,544 warrants that were previously registered by the holders thereof (the “public warrants” and together with the private warrants, the “warrants”).
On July 13, 2021, we consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of February 1, 2021, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of May 6, 2021 (the “Merger Agreement”), by and among Aspirational Consumer Lifestyle Corp. (“Aspirational” and, after the Domestication as described below, “Wheels Up Experience Inc.” or “Wheels Up”), Wheels Up Partners Holdings LLC, a Delaware limited liability company (“WUP”), KittyHawk Merger Sub LLC, a Delaware limited liability corporation and a direct wholly owned subsidiary of Aspirational (“Merger Sub”), Wheels Up Blocker Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Aspirational (“Blocker Sub”), the Blocker Merger Subs (as defined in the Merger Agreement) and the Blockers (as defined in the Merger Agreement). As contemplated by the Merger Agreement, Aspirational filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which Aspirational was domesticated and continues as a Delaware corporation, changing its name to “Wheels Up Experience Inc.” ​(the “Domestication”). Further, on July 13, 2021 following the Domestication, as contemplated by the Merger Agreement, we consummated the merger transactions contemplated by the Merger Agreement, whereby (i) the Blockers simultaneously merged with and into the respective Blocker Merger Subs, with the Blockers surviving each merger as wholly owned subsidiaries of Aspirational (the “First Step Blocker Mergers”), (ii) thereafter, the surviving Blockers simultaneously merged with and into Blocker Sub, with Blocker Sub surviving each merger (the “Second Step Blocker Mergers”), and (iii) thereafter, Merger Sub merged with and into WUP, with WUP surviving the merger and Aspirational as its managing member (the “Company Merger” and collectively with the First Step Blocker Mergers and the Second Step Blocker Mergers, the “Mergers” and, together with the Domestication, the “Business Combination”).
We are registering the resale of shares of Class A common stock and warrants as required by (i) an amended and restated registration rights agreement, dated as of July 13, 2021 (the “Registration Rights Agreement”), entered into by and among Wheels Up, the Sponsor, certain equityholders of WUP, Leo Austin, Neil Jacobs, Frank Newman and the other parties thereto; (ii) the subscription agreements (collectively, the “PIPE Subscription Agreements”) entered into with certain investors (collectively, the “PIPE Investors”) pursuant to which the PIPE Investors agreed to purchase, in the aggregate, 55,000,000 shares of Class A common stock at $10.00 per share for an aggregate commitment amount of $550,000,000 (the “PIPE Investment”) and which was consummated substantially concurrently with the Closing; and (iii) the warrant agreement, dated as of September 25, 2020 (the “warrant agreement”), entered into between Aspirational and Continental Stock Transfer & Trust Company, as warrant agent (“Continental”).
The selling securityholders may offer, sell or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales, but we will receive the proceeds from the exercise of the warrants. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The selling securityholders will bear all commissions and discounts, if any, attributable to their sale of any of the securities. See “Plan of Distribution”.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and are subject to reduced public company reporting requirements.
Our Class A common stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “UP.” Our public warrants are traded on the NYSE under the symbol “UP WS” and, after resale, the private placement warrants will also trade under the same ticker symbol as the public warrants. On August 2, 2021, the last reported sale price of our Class A common stock was $7.89 per share and the last reported sale price of our public warrants was $1.78 per warrant.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 27 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is           , 2021

 
TABLE OF CONTENTS
1
2
3
4
6
10
27
51
51
52
78
109
121
132
141
157
161
174
186
187
189
189
189
F-1
You should rely only on the information contained in this prospectus, any supplement to this prospectus or in any free writing prospectus, filed with the Securities and Exchange Commission. Neither we nor the selling securityholders have authorized anyone to provide you with additional information or information different from that contained in this prospectus filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the selling securityholders are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: neither we nor the selling securityholders, have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United States.
To the extent there is a conflict between the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference filed with the Securities and Exchange Commission before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent with a statement in another document incorporated by reference having a later date, the statement in the document having the later date modifies or supersedes the earlier statement.
 
i

 
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the selling securityholders may, from time to time, sell or otherwise distribute the securities offered by them as described in the section titled “Plan of Distribution” in this prospectus. We will not receive any proceeds from the sale by such selling securityholders of the securities offered by them described in this prospectus. This prospectus also relates to the issuance by us of the shares of Class A common stock issuable upon the exercise of any warrants. We will receive proceeds from any exercise of the warrants for cash.
Neither we nor the selling securityholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the selling securityholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the selling securityholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information.”
Unless the context otherwise requires, references in this prospectus to the “Company,” “WUP,” “Wheels Up,” “we,” “us” or “our” refers to Wheels Up Partners Holdings LLC, a Delaware limited liability company (“WUP”), and its consolidated subsidiaries prior to the consummation of the Business Combination (the “Closing,” and such date of the consummation of the Business Combination, the “Closing Date”) and to Wheels Up and its consolidated subsidiaries following the Business Combination. References to “Aspirational” refer to our predecessor company prior to the consummation of the Business Combination.
 
1

 
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
This prospectus contains some of our trademarks, service marks and trade names, including, among others, Wheels Up. Each one of these trademarks, service marks or trade names is either (1) our registered trademark, (2) a trademark for which we have a pending application, or (3) a trade name or service mark for which we claim common law rights. All other trademarks, trade names or service marks of any other company appearing in this prospectus belong to their respective owners. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are presented without the TM, SM and ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our respective rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
 
2

 
MARKET, INDUSTRY AND OTHER DATA
This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our services and products, which are based on publicly available information (such as Google Analytics), industry publications and surveys, reports from government agencies (such as the FAA), reports by market participants and research firms and the independent sources listed below, as well as our own estimates, forecasts and projections based on our management’s knowledge of and experience in the market sector in which we compete. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.”
We calculate comparative fleet and program size within the private aviation industry based on (i) flight hour data for calendar year 2020 as reported by ARGUS TRAQPak and (ii) aircraft registration by operator as of April 29, 2021 as reported by ARGUS, AMSTAT and the FAA. We calculate the number of operators in the United States and their share of the private aviation market based on general aviation, Part 135 operator and Part 91 operator aircraft data released by the FAA.
Certain statistical data, estimates and forecasts contained in this prospectus are based on the following independent industry publications or reports:

Allied Market Research, Luxury Travel Market by Type of Traveler (Absolute Luxury, Aspiring Luxury, and Accessible Luxury), Age Group (Millennial, Generation X, Baby Boomers, and Silver Hair), and Type of Tour (Customized & Private Vacations, Adventure & Safari, Cruise/Ship Expedition, Small Group Journey, Celebration & Special Events, and Culinary Travel & Shopping): Global Opportunity Analysis and Industry Forecast, 2019 – 2026, September 2019.

Capgemini Research Institute, Financial Services, World Wealth Report 2020.

Citi Research, Private Jet Market Set for Take-off, June 1, 2020.

Euromonitor Passport, Number of High Net Worth Individuals by Country (2005  –  2040), December 23, 2020.

General Aviation Manufacturers Association (GAMA), 2019 Databook.

Global Economy and Development at Brookings (Homi Kharas), The Unprecedented Expansion of the Global Middle Class: An Update, February 2017.

Goldman Sachs, Economics Research, Pent-Up Savings and Post-Pandemic Spending, February 15, 2021.

IBISWorld, US Industry (NAICS) Report 48121, Charter Flights in the US, September 2020.

Magna Intelligence, North American Business Jet Market Databank, Market Size Estimates and Forecasts, 2019-2029.

McKinsey & Company, What’s next for Business Aviation in Light of COVID-19, May 15, 2020.

Wells Fargo Securities, LLC, Equity Research, What’s In Your Wallet: 3rd Annual Consumer Wallet Share Deep-Dive, April 23, 2019.
Certain information regarding members contained in this prospectus is based on internal surveys and studies we conduct and has not been verified by a third party.
Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
 
3

 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

our ability to successfully implement our growth strategies;

our ability to expand existing products and service offerings or launch new products and service offerings;

our ability to achieve or maintain profitability in the future;

geopolitical events and general economic conditions;

our ability to grow complementary products and service offerings;

our ability to adequately integrate past and future acquisitions into our business;

our ability to respond to decreases in demand for private aviation services and changes in customer preferences;

our ability to operate in a competitive market;

the impact of the COVID-19 pandemic on our business and financial condition;

our ability to retain or attract key employees or other highly qualified personnel;

our ability to obtain or maintain adequate insurance coverage;

our ability to build and maintain strong brand identity for our products and services and expand our customer base;

our ability to respond to a failure in our technology to operate our business;

our ability to obtain financing or access capital markets in the future;

our ability to respond to regional downturns or severe weather or catastrophic occurrences or other disruptions or events;

our ability to respond to losses and adverse publicity stemming from accidents involving our aircraft;

our ability to respond to existing or new adverse regulations or interpretations thereof;

our ability to successfully defend litigation or investigations;

the impact of changes in U.S. tax laws;

our ability to recognize the anticipated benefits of the Business Combination;

our public securities’ potential liquidity and trading; and
 
4

 

other factors detailed under the section entitled “Risk Factors”.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
 
5

 
CERTAIN DEFINED TERMS
Unless otherwise stated in this prospectus or the context otherwise requires, references to:

“2021 Plan” are to the Wheels Up Experience Inc. 2021 Long-Term Incentive Plan;

“Active Members” are to the number of Connect, Core and Business membership accounts that generated membership revenue in a given period and are active as of the reporting period;

“Active Users” are to Active Members and legacy WUPJ jet card holders as of the reporting date plus unique non-member consumers who completed a revenue generating flight at least once in a given period and excluding wholesale flight activity;

“Aspirational” are to Aspirational Consumer Lifestyle Corp. prior to its domestication as a corporation in the State of Delaware;

“Aspirational Class A ordinary shares” are to Aspirational’s Class A ordinary shares, par value $0.0001 per share;

“Aspirational Class B ordinary shares” are to Aspirational’s Class B ordinary shares, par value $0.0001 per share;

“Aspirational units” and “units” are to the units of Aspirational, each unit representing one Aspirational Class A ordinary share and one-third of one redeemable warrant to acquire one Aspirational Class A ordinary share, that were offered and sold by Aspirational in its initial public offering and registered pursuant to the IPO Registration Statement (less the number of units that have been separated into the underlying public shares and underlying warrants upon the request of the holder thereof);

“ATO Funds” are to “Air Transportation Only Funds” purchased during the CARES Act Federal Excise Tax exemption period from March 28, 2020 through December 31, 2020. ATO Funds may only be applied against air transportation costs, and are not available as a method of payment for any ancillary or additional flight costs;

“Avianis” are to Avianis Systems LLC, a Delaware limited liability company and subsidiary of Wheels Up;

“Blocker Sub” are to Wheels Up Blocker Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Aspirational;

“Board” are to the board of directors of Wheels Up;

“Business Combination” are to the Domestication together with the Mergers;

“Bylaws” are to the bylaws of Wheels Up;

“CARES Act” are to the Coronavirus Aid, Relief, and Economic Security Act;

“Cayman Constitutional Documents” are to Aspirational’s Amended and Restated Memorandum and Articles of Association (as amended from time to time);

“Cayman Islands Companies Act” are to the Cayman Islands Companies Act (As Revised);

“Certificate of Incorporation” are to the certificate of incorporation of Wheels Up;

“Closing” are to the closing of the Business Combination;

“Citizen of the United States” or “U.S. Citizen” are to the meanings of such terms set forth in Title 49, U.S. Code, Section 40102 and administrative interpretations thereof issued by the Department of Transportation or its predecessor or successors, or as the same may be from time to time amended;

“Class A common stock” are to shares of our Class A common stock, par value $0.0001 per share, which are entitled to one vote per share;

“Closing Date” are to the date on which the Closing occurred, or July 13, 2021;

“Code” are to the U.S. Internal Revenue Code of 1986, as amended;
 
6

 

“Company,” “we,” “us” and “our” are to Aspirational prior to its domestication as a corporation in the State of Delaware and to Wheels Up after its domestication as a corporation incorporated in the State of Delaware, unless otherwise indicated in this prospectus;

“Company Merger” are to the merger of Merger Sub with and into WUP, with WUP surviving the merger with Aspirational as its managing member;

“Connect Funds” are to prepaid dollar denominated account credits purchased by Connect members that can be used to pay for flight services on any aircraft available through the Wheels Up program (and/or incidental or extraordinary costs incurred in connection therewith);

“Continental” are to Continental Stock Transfer & Trust Company;

“COVID-19” are to SARS-CoV-2 or COVID-19, and any evolutions thereof;

“Credit Facilities” are to the 1st Amended Facility, the 2nd Facility and the 3rd Facility, collectively;

“Delta” are to Delta Air Lines, Inc.;

“Delta Investor Rights Letter” are to the letter agreement, dated as of February 1, 2021, by and among WUP, Aspirational and Delta;

“DGCL” are to the General Corporation Law of the State of Delaware;

“Domestication” are to the domestication of Aspirational Consumer Lifestyle Corp. as a corporation incorporated in the State of Delaware;

“DPJ” are to Delta Private Jets, LLC (now known as Wheels Up Private Jets LLC) prior to its acquisition by WUP on January 17, 2020;

“DTC” are to The Depository Trust Company;

“Earnout Shares” are to shares of Class A common stock that former WUP equityholders will have the right to receive, including profits interests holders and restricted interest holders, but excluding option holders, through the issuance of Wheels Up EO Units (as defined in the Merger Agreement) that upon vesting may become exchangeable for, up to an aggregate of 9,000,000 additional shares of Class A common stock in three equal tranches which are issuable upon the achievement of share price thresholds for Class A common stock of $12.50, $15.00 and $17.50, respectively.

“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

“FAA” are to the Federal Aviation Administration;

“FBO” are to fixed based operators or operations, as the context requires;

“First Step Blocker Mergers” are to the simultaneous mergers of the Blockers with and into the respective Blocker Merger Subs, with the Blockers surviving each merger as wholly owned subsidiaries of Aspirational;

“founder shares” are to the Aspirational Class B ordinary shares purchased by the Sponsor in a private placement prior to the initial public offering, and the Aspirational Class A ordinary shares that were issued upon the conversion thereof;

“FTC” are to the Federal Trade Commission;

“Fund Programs” are pre-purchased amounts of dollar-denominated credits that can be applied to future costs incurred by members, including flight services, annual dues, and other incidental costs such as catering and ground transportation;

“GAAP” are to accounting principles generally accepted in the United States;

“Gama” are to Gama Aviation LLC, a Delaware limited liability company and subsidiary of Wheels Up;

“HSR Act” are to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

“initial public offering” are to Aspirational’s initial public offering that was consummated on September 25, 2020;
 
7

 

“IPO Registration Statement” are to the Registration Statement on Form S-1 (333-248592) filed by Aspirational in connection with its initial public offering, which became effective on September 22, 2020;

“IRS” are to the U.S. Internal Revenue Service;

“JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;

“Live Flight Legs” are to the number of complete one-way revenue generating flight legs in a given period, excluding empty repositioning legs and owner legs related to aircraft under management;

“Merger Agreement” are to the Agreement and Plan of Merger, dated as of February 1, 2021, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of May 6, 2021, by and among Aspirational, WUP, Merger Sub, Blocker Sub, the Blocker Merger Subs (as defined in the Merger Agreement) and the Blockers (as defined in the Merger Agreement);

“Merger Sub” are to KittyHawk Merger Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Aspirational;

“Mergers” are to the First Step Blocker Mergers, the Second Step Blocker Mergers and the Company Merger, collectively;

“Mountain Aviation” are to Mountain Aviation, LLC, a Colorado limited liability company and subsidiary of Wheels Up;

“MRO” are to maintenance, repair and overhaul operations;

“Net Promoter Score” are to the percentage of customers rating their likelihood to recommend a product or service to a friend or colleague as 9 or 10, referred to as promoters, minus the percentage rating this at 6 or below, called detractors, on a scale from 0 to 10. As specifically utilized herein, Wheels Up includes within a post-flight survey sent to members following every flight, the question “How likely are you to recommend Wheels Up to a friend or colleague?” Respondents can respond by checking numbers between 0 and 10, with the bottom of the scale identified as “Not at all Likely” and the top of the scale identified as “Extremely Likely.” The Net Promoter Score is then calculated as (Promoters — Detractors)/Total Respondents;

“NYSE” are to the New York Stock Exchange;

“ordinary shares” are to the Aspirational Class A ordinary shares and the Aspirational Class B ordinary shares, collectively;

“Organizational Documents” are to the Certificate of Incorporation and the Bylaws;

“Person” are to any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or instrumentality or other entity of any kind;

“PFIC” are to “passive foreign investment company”;

“PIPE Investment” are to the purchase of shares of our Class A common stock pursuant to the PIPE Subscription Agreements;

“PIPE Investment Amount” are to the aggregate gross purchase price received by Aspirational prior to or substantially concurrently with Closing for the shares in the PIPE Investment;

“PIPE Investors” are to those certain investors participating in the PIPE Investment pursuant to the PIPE Subscription Agreements;

“PIPE Subscription Agreements” are to the subscription agreements pursuant to which the PIPE Investment was consummated;

“Prepaid Blocks” are to Fund Programs, ATO Funds and/or Connect Funds;

“private placement warrants” are to the Aspirational private placement warrants outstanding as of the date of this prospectus and the warrants of Wheels Up issued as a matter of law upon the conversion thereof at the time of the Domestication;
 
8

 

“pro forma” are to giving pro forma effect to the Business Combination;

“public shareholders” are to holders of public shares, whether acquired in Aspirational’s initial public offering or acquired in the secondary market;

“public shares” are to the Aspirational Class A ordinary shares (including those that underlie the units) that were offered and sold by Aspirational in its initial public offering and registered pursuant to the IPO Registration Statement or the shares of our Class A common stock issued as a matter of law upon the conversion thereof at the time of the Domestication, as context requires;

“public warrants” are to the redeemable warrants (including those that underlie the units) that were offered and sold by Aspirational in its initial public offering and registered pursuant to the IPO Registration Statement or the redeemable warrants of Wheels Up issued as a matter of law upon the conversion thereof at the time of the Domestication, as context requires;

“redemption” are to each redemption of public shares for cash pursuant to the Cayman Constitutional Documents and the Organizational Documents;

“Registration Rights Agreement” are to the Amended and Restated Registration Rights Agreement dated as of July 13, 2021, by and among Wheels Up, the Sponsor, certain former equityholders of WUP and the other parties thereto;

“Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002;

“SEC” are to the U.S. Securities and Exchange Commission;

“Second Step Blocker Mergers” are to the mergers of the surviving Blockers with and into Blocker Sub, with Blocker Sub surviving each Merger;

“Securities Act” are to the Securities Act of 1933, as amended;

“special missions” are to our government, defense and emergency and medical transport businesses;

“Sponsor” are to Aspirational Consumer Lifestyle Sponsor LLC, a Cayman Islands limited liability company;

“TAM” are to the total addressable market and is calculated as the total market demand for private aviation measured in estimated annual revenue;

“TMC” are to Travel Management Company, LLC, an Indiana limited liability company and subsidiary of Wheels Up;

“U.S.” or “United States” are to the United States of America;

“warrants” are to the public warrants and the private placement warrants;

“Wheels Up” are to Aspirational after the Domestication and/or the Business Combination, including after its name change from Aspirational Consumer Lifestyle Corp. to “Wheels Up Experience Inc.,” as applicable, and inclusive of its consolidated subsidiaries;

“Wheels Up App” are to the Wheels Up mobile app, available on iOS and Android;

“WUP” are to Wheels Up Partners Holdings LLC and its consolidated subsidiaries prior to the Business Combination; and

“WUPJ” are to Wheels Up Private Jets LLC (formerly known as Delta Private Jets, LLC), a Kentucky limited liability company, following its acquisition by WUP on January 17, 2020.
 
9

 
PROSPECTUS SUMMARY
The following summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including the consolidated financial statements and the related notes included in this prospectus and the information set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our Mission
We connect flyers to private aircraft — and one another — to deliver exceptional, personalized experiences.
Our Opportunity
Private aviation, though a large industry with a growing addressable market, continues to be challenged by the difficulties endemic to pre-digital legacy industries.

Fragmentation of supply.

Outdated technology.

Opaque pricing and inaccessibility.

Underutilized assets.

Inefficient matching of supply with demand.
These challenges present an opportunity, one that is enhanced by tailwinds driving growth across the private aviation industry.

Acceleration in the growth of high-net-worth population.

Latent demand within an under-penetrated market.

Favorable consumer trends, including emergence of shared and experience economies.

Pandemic-driven shifts in priorities and behavior.
Our Solution
[MISSING IMAGE: tm2123802d1-pht_connect4clr.jpg]
We are building an innovative marketplace, powered by data, technology and operational expertise, to connect flyers to private aircraft, at scale.
We Are a Market Leader
Wheels Up is the leading provider of “on demand” private aviation in the United States and one of the largest private aviation companies in the world. We are pioneering data and technology-driven solutions that connect consumers to safety-vetted and verified private aircraft. Our comprehensive platform and proprietary technology are designed to bring efficiency and transparency to an industry that previously has been largely inefficient and opaque, making private aviation accessible to millions of flyers.
 
10

 
Our offerings consist of a suite of products and services, that include multi-tiered membership programs, on-demand flights across all private aircraft cabin categories, aircraft management, retail and wholesale charter, whole aircraft acquisitions and sales, corporate flight solutions, special missions, signature events and experiences, and commercial travel benefits through our strategic partnership with Delta. We believe our diversified marketplace platform offers a solution for all market participants, from aircraft owners and operators to individual and corporate flyers across a wide range of flight needs.

In just over seven years, we have become a recognized market leader with a track record of growth and innovation. We generated $695.0 million in revenue in 2020.

Our fleet exceeds 1,500 owned, leased, managed and third-party aircraft, making it among the largest fleets in private aviation.

For 2020, we had over 9,200 Active Members, over 11,300 Active Users and flew more than 150,000 passengers on approximately 45,000 flights, making us the largest provider of on-demand aviation in the United States

For calendar year 2020, we achieved a Net Promoter Score of 87 with customers completing our post-flight survey, which is issued after every flight.

We were awarded the 2020 Top Flight Award for Charter / Fractional / Jet Card Innovation category by Aviation International News.
We will continue to innovate and evolve our business to remain a market leader. The next phase of our growth involves two transformational steps to further our founding mission to simplify private air travel and make it more accessible.

We will continue to digitize and automate the matching of supply and demand within our marketplace.

We will make our offering more accessible, opening our platform to non-members, and creating a significantly larger TAM.
Our Revenue
While we offer numerous products and services to our customers and industry partners, we generate revenue within four main categories:

Membership Revenue — We generate membership revenue from initiation and annual renewal fees across our Connect, Core and Business membership tiers. We believe this membership revenue is highly visible and largely recurring in nature.

Flight Revenue — Flight revenue is generated by both member and non-member usage. Non-members include wholesale and Jet Card customers, special missions clients and users of the Wheels Up App.

Aircraft Management Revenue — Aircraft management revenue consists of monthly management fees charged to aircraft owners, recovery of owner incurred expenses including maintenance coordination, cabin crew and pilots, and recharging of certain incurred aircraft operating costs such as maintenance, fuel, landing fees and parking. We pass recovery and recharge amounts back to owners at either cost or a predetermined margin.

Other Revenue — Other revenue consists of Avianis software subscription fees, third-party MRO revenue, FBO revenue, whole aircraft acquisitions and sales related revenue and fees from sponsorships and partnerships.
Our Marketplace Strategy
In recent years, digitally enabled marketplaces have driven a seismic shift across many industries, and travel in particular, by facilitating efficient matching of supply and demand. Whether Airbnb for lodging, Uber for mobility or booking.com for hotels, each of these companies has introduced a revolutionary platform that connects consumers to providers at scale, fundamentally changing consumer behavior and driving significant addressable market expansion. These shifts, characterized by increased accessibility, pricing
 
11

 
transparency and improved asset utilization, have yet to occur in our industry. For much of the private aviation market today, the process of discovering and booking a private flight remains complex, time consuming, opaque and primarily offline. We believe this leaves consumers dissatisfied and inhibits demand. On the supply side, aircraft owners and operators, reliant on brokers or agents to drive customer utilization, suffer from scheduling inefficiencies and challenged economics.
With the investments we have made and continue to make in our platform, including through our recent acquisitions, we have aggregated a large and growing pool of demand that we are connecting to one of the world’s largest and most diverse fleets of first- and third-party aircraft. Leveraging our industry-leading data and technology platform, our operational expertise, and the scale and density of our network, we believe we are best positioned to connect aircraft supply with flight demand bringing simplicity, efficiencies and market expansion that benefit the entire private aviation ecosystem of flyers, owners and operators of aircraft.
Benefits to Flyers:

Access and Ease of Use:   A simple digital interface offering real-time price discovery and instant booking capabilities based on real-time availability and feasibility.

More Options:   Expansive network of safety-vetted and verified-available aircraft.

Transparent and Dynamic Pricing:   Advanced algorithms, machine learning and predictive analytics drive real-time trustworthy market-driven trip-by-trip pricing.

Reduced Cost of Flying:   Network efficiencies, scale and productization of empty repositioning legs and shared flight options that together drive lower costs to consumers.

Coordination with Commercial Travel:   Access to commercial travel benefits through strategic relationship with Delta, including Delta Medallion® status, Delta SkyMiles® loyalty rewards and first- and last-mile connections into Delta’s commercial network.
Benefits to Aircraft Owners and Third-Party Operators:

Increased Asset Utilization:   More flight opportunities driven by one of the largest pools of consistent, premium demand.

Leading Flight Management Software:   Access to a leading cloud-based solution to efficiently manage all aspects of daily operations (i.e., billing, passenger manifests, crew, ground, etc.).

Fleet Optimization:   Capability to optimize fleet within a scaled visible demand network, reducing empty repositioning legs and generating incremental flight revenue.

Future Profitability:   Reduce reliance on inefficient and often costly third-party broker or sales model.

Reduced Cost of Ownership:   Access to Wheels Up charter demand drives shared revenue that defrays cost of ownership.
History of Innovation and Market Expansion
Wheels Up was founded in 2013 by industry pioneer Kenny Dichter to provide a cost-efficient, accessible and transparent option that addressed the needs of the modern private flyer.
Wheels Up introduced the industry’s first membership-based private aviation offering, providing access to an owned and leased fleet of premium aircraft for a reasonable initiation fee, annual dues and a pay-as-you-fly model. With this new model, Wheels Up reduced the entry cost of private aviation and expanded the universe of potential flyers. To service this offering, we invested in a fleet of new King Air 350i aircraft, an aircraft that most cost effectively addresses the majority of typical private flights in the United States: those under two hours. This investment enabled us to secure initial fleet format exclusivity from the OEM, Textron Aviation, creating a differentiated product that gave us a strong foothold in a competitive market. We also focused on building a best-in-class team, a reliable and customer-centric experience supported by innovative technology and a trusted lifestyle brand.
 
12

 
The rapid market adoption and loyal customer base that followed supported expansion of our fleet offering to include a supplemental charter product to capture demand not satisfied by the aircraft types in our owned and leased fleet. Relying on a growing third-party operator fleet allowed us to capture additional demand and rapidly scale the business without significant additional investment in new fixed assets. Transitioning to an “asset right” business model began the transformation of Wheels Up into a full-service private aviation solution with capabilities to serve all customer demand, regardless of asset class and trip requirements.
Recent Transactions Have Accelerated Our Strategy
In the past two years, we completed six transformative strategic transactions to accelerate our marketplace strategy, each of which is identified by name and date of completion below.
[MISSING IMAGE: tm2123802d1-pht_namedt4clr.jpg]
Scaling our “Asset-Right” Fleet of Aircraft — We expanded the breadth and depth of our fleet with the addition of more than 240 aircraft across all cabin class categories, including 170 managed aircraft and the largest floating fleets of Light jets and Citation Xs in North America.
Broadening and Streamlining our Capabilities — We acquired direct control over our owned and leased fleet operations, added in-house maintenance capabilities, including heavy maintenance, with a nationwide footprint and diversified our operations with the addition of aircraft management, wholesale flight operations and special mission capabilities.
Driving Additional Customer Demand — We added thousands of flyers to our platform, including retail, corporate and wholesale customers. Additionally, our strategic relationship with Delta provides exposure to high-value Delta individual and corporate customers through co-marketing products, features and benefits.
Adding Advanced Proprietary Technology — The Avianis cloud-based flight management system is currently utilized by approximately 100 aircraft owners/operators, with close to 2,000 aircraft on the system. As the system begins to facilitate fleet optimization and provides access to Wheels Up demand, we expect Avianis to attract more owners/operators, and thus aircraft, to our marketplace.
Industry and Market Opportunity
The U.S. Private Aviation Industry Is Large and Growing
The private aviation industry has historically served high-net-worth individuals and corporate customers, allowing flyers to maximize productivity and minimize overall travel time. We believe the private aviation market in the United States represents a massive market opportunity, with an estimated $31 billion of annual spending on passenger charter flights and whole and fractional aircraft. We believe our addressable market is considerably greater, just north of $50 billion today. We calculate this market opportunity on a bottom-up basis based on our addressable population, which is comprised of individuals with net worth greater than $1 million and corporations with annual revenue greater than $20 million (see chart below). Based on expected growth in global high-net-worth populations and assuming a minor increase in the weighted average penetration rate across the relevant demographics driven by digitization, optimization of supply and demand and simplification of a complex environment, we believe the addressable market can grow to $80 billion by
 
13

 
2025. The charts below demonstrate the size of the current private aviation market in the United States as measured in estimated annual revenue, as well as our view of the current and potential addressable market sizes, accompanied by demographic data and market penetration assumptions that underly a bottoms up analysis that supports such market sizing.
[MISSING IMAGE: tm2123802d1-bc_wheel4clr.jpg]
Significant Tailwinds Are Driving Growth Across the Industry

Growth in High-Net-Worth/Ultra High-Net-Worth Populations and Corporate Earnings — Capgemini Financial Services estimates that the number of high-net-worth individuals in North America has grown at an average of 7.9% annually from 2012 through 2018, a trend that is expected to continue. Corporate earnings, which have historically correlated closely to the utilization of private aircraft, also continue to achieve new all-time highs.

Favorable Consumer Trends — Market research indicates that experiences currently account for over 65% of discretionary spending. In addition, we believe the COVID-19 global pandemic has led to a shift in consumer prioritization of wellness and safety, with private aviation viewed increasingly by those in the addressable market as a health-conscious decision rather than a discretionary luxury.

Significant Latent Demand — According to a 2019 study from McKinsey & Company, only 10% of individuals that can afford to fly privately (measured as net worth in excess of $10 million) currently do so. According to a Goldman Sachs February 2021 study, consumers who have foregone spending opportunities have amassed “excess” savings of $1.5 trillion that will further fuel post-pandemic spending. Additionally, COVID-19 related stay-at-home and travel quarantine orders have temporarily suppressed corporate travel and spending, which is expected to return over time and further fuel post-pandemic spending.

Underutilized Assets, Growth of the Shared Economy and Impact of Technology — Industry data regarding annual flight hours across all private aircraft indicates the average private aircraft generally sits idle approximately 97% of the time. We believe that private aviation is among the last of the industries characterized by such latent and underutilized supply. The growing shared economy culture and mindset, most often incorporating data and technology driven platforms, has proven to be a global catalyst for increased asset utilization across numerous industries.
Private Aviation Has Challenges Endemic to Pre-digital Legacy Industries

Highly Fragmented Supply —  Private aviation is highly fragmented with respect to both retail customers and owners and operators of aircraft. The top ten operators in the United States control only 8% of the industry’s capacity. More than 1,800 operators control fewer than 10 aircraft each.
 
14

 

Complex Operations — Customer demand is geographically spread out, unscheduled and often last-minute. Capacity is constrained due to asset availability, crew duty time limitations, unpredictable weather conditions, stringent regulatory requirements and scheduled and unscheduled maintenance.

Slow Adoption of New Technology — We believe the lack of investment in technology has left the industry reliant upon outdated technology and means of communication. These technological and communications challenges, exacerbated by industry fragmentation, have created a disconnect between the consumer and operator, with no ability to track and match demand based on real-time location and availability of aircraft.

High Customer Frustration Driven by Opaque Pricing — Pricing methodologies are inconsistent and unpredictable, with no clear indication of the variety of factors that drive total cost to consumers. The prevalence of manual quote-and-response models creates delays between flight request and price confirmation. Further, a lack of transparency at the time of booking regarding the true cost of a flight results in surprise surcharges and additional costs after the booking process is completed, and often after the flight.
Our Competitive Strengths
Difficult to Replicate Platform
[MISSING IMAGE: tm2123802d1-fc_wheel4clr.jpg]
The investments we have made since our inception in our brand, fleet, service and technology, including through our recent acquisitions, have resulted in a comprehensive, integrated platform that we believe is unmatched and would take years and significant investment of capital to replicate in its scale and breadth of offering. We believe the comprehensiveness of our platform will enable us to effectively address the industry’s historical challenges, in particular through the continued development of our marketplace, as well as capitalize on future opportunities that may arise through commercialization of emerging and sustainable technologies, such as eVTOL and other electric aircraft or aerial ridesharing innovations.
 
15

 
Aspirational Lifestyle Brand
[MISSING IMAGE: tm2123802d1-pht_life4clr.jpg]
The above images provide examples of Wheels Up brand activations through exclusive events and experiences, paid sponsorships and Ambassador partnerships, each of which is more fully described below. In most circumstances, including for those pictured above, Wheels Up Ambassadors pay for their Wheels Up memberships and when they purchase flight time, receive bonus flight credits in consideration for their Ambassador activities, which may include attendance at Wheels Up events, photo and video shoots, and/or postings on social media, among other activities.
We have built an industry-leading trusted brand that creates broad consumer awareness, attracts new customers and allows us to generate deep engagement with our current members and non-member flyers. We believe one of the most important attributes of our brand is trust. Each and every day, our passengers trust us with their lives, and it is paramount that we consistently reinforce this trust with our actions and words. This begins with our uncompromising commitment to safety as our number one priority.
We have fostered member engagement through unique media and brand activations and through our philanthropy platform, “Wheels Up Cares,” which supports multiple causes like Feeding America, the American Heart Association and TAPS, among others. Our brand is enhanced through partnerships with over 100 brand ambassadors, including Tom Brady, Serena Williams and Russell Wilson, among many others, whom we engage for member experiences and marketing opportunities. We reinforce our brand positioning and membership offerings through exclusive experiences at iconic destinations such as the Super Bowl®, The Masters® and Art Basel®, and with strategic partnerships through leading lifestyle brands, such as Four HundredTM and Inspirato®. We believe these benefits are important for driving member loyalty and retention and serve to further differentiate the Wheels Up brand.
Membership Model
We provide private aviation services through our innovative membership program, offering three membership tiers — Connect, Core and Business. Each program requires members to pay an initiation fee and annual dues and provides access to one of the world’s largest combined fleets of owned, leased, managed and third-party aircraft.
Multi-Tier Offering Drives Deeper Penetration and Expansion of Our TAM — We launched Wheels Up with our Core and Business memberships which provided guaranteed aircraft availability and fixed rate pricing. In 2019, we added our lower-priced Connect membership, introducing a solution tailored to the prospect or member with less frequent flight needs and more flexibility in their schedule. In 2020, this multi-tiered structure, addressing a broad spectrum of private aviation needs, drove 59% year-over-year growth in Active Members.
Outstanding Service, Product Innovations and Lifestyle-Enhancements Drive Customer Loyalty and Engagement — We are continually evolving and adding value to our programs and services, including
 
16

 
expansion of our flight offering to meet all travel mission profiles, the addition of new value-add digitally enabled features, the introduction of dynamic pricing, and expansion of our Wheels Down lifestyle program to include more events, experiences and partnership benefits. We believe this focus on enhancing the value of our memberships has driven our high member engagement and retention. For 2020, we experienced a retention rate of 89.6% for members whose annual flight spend exceeded $25,000, and over 90% for our highest spending members.
Growing Membership and Purchase Behavior Provides Predictable Revenue and Demand —  Since 2014, the number of our Active Members has grown at a compounded average rate of 44%, and our Core and Business members on average spend between $70,000 to $75,000 annually. Approximately 45% of our Core and Business members prepay their forward flying each year through purchases of Prepaid Blocks in increments generally between $50,000 and $400,000. During 2020 and 2019, our members pre-purchased $532 million and $250 million of Prepaid Blocks, respectively. The combination of recurring membership fees, consistent per member spend and purchases of Prepaid Blocks provides us with strong visibility into forward revenue and predictability of future demand, while the Prepaid Blocks contribute to strong cash flow from operations.
“Asset-Right” Network of Aircraft
[MISSING IMAGE: tm2123802d1-org_aircft4clr.jpg]
Through targeted capital investments, cultivation of third-party operator relationships and recent strategic transformative transactions, we have aggregated one of the industry’s largest and most diverse fleets of owned, leased, managed and third-party operator aircraft.
Managed and Third-Party Fleets Support Rapid, Capital-Efficient Scaling —  We are transitioning from a focus on our owned and leased aircraft to an “asset right” balance with increased utilization of our managed and third-party network fleet, as illustrated in the pie charts below.
[MISSING IMAGE: tm2123802d1-pc_asset4clr.jpg]
We believe this strategy provides increased flexibility to quickly scale our business with limited direct and ongoing capital investment. Additionally, we believe we will be able to benefit from economies of scale
 
17

 
as our fleet grows, creating the potential to obtain better pricing from key vendors including fuel providers, FBOs and third-party maintenance, training and other providers.
Expanded Fleet Drives Increased Demand and Flight Spend —  We believe greater breadth and diversity of our fleet will increase wallet share from our existing members and appeal to a broader audience of members and non-members, driving significantly more demand through our marketplace and strengthening our member retention. In addition to supporting the extension of our offering from a focus on shorter flight segments to one capable of addressing all typical private aviation missions, our fleet scale and diversity has enabled us to innovate with new offerings, such as our recently introduced transcontinental pricing supported by our newly expanded Citation X Super-Midsize fleet.
King Air Fleet Provides Differentiated Flight Option —  Though we have since expanded our offerings to address all flight missions and profiles, the size and scale of our King Air fleet and the head start afforded to us by our initial fleet-format exclusivity with this asset allows us to continue to provide a differentiated option as among the “greenest” aircraft available based on its comparatively low fuel burn and the most cost-efficient option for the majority of private flights in the United States: those under two hours.
Fleet Flexibility Drives Network Efficiencies and Customer Benefits —  In most circumstances, we maintain the flexibility to place customers on any of the owned and leased, managed or third-party assets available to us. The flexibility to optimize across a scaled nationwide network enables us to utilize the right aircraft, in the right place, at the right time. Over time, we believe this optionality will allow us to offer lower pricing and better experiences for our customers, maximize efficiency across a larger overall network and to drive future profitability.
Proprietary Technology, Algorithms and Data Ecosystem
We have invested significantly in extending our technology platform to support a growing end-to-end aviation marketplace. Our marketplace platform comprises three main elements: intuitive digital front — end interfaces, a middle tier supported by data-driven optimization and pricing algorithms, and a back-end featuring a comprehensive flight operations platform, with connectivity to a network of third-party operators, supported by our Avianis flight management system. Each of the elements of our marketplace platform relies upon and fuels a powerful data ecosystem containing data generated from within our systems, as well as from external industry sources.
Our Consumer-Facing Digital Products Support “Search, Book and Fly” Experience
[MISSING IMAGE: tm2123802d1-pht_dglpr4clr.jpg]
Screenshots from the flight booking process in the Wheels Up App on iOS.
Our front-end consumer facing applications include our highly-rated mobile app on iOS and Android, a website for our members, and, shortly, APIs for third-party partner plug-ins to our marketplace. The core functionality of each of these solutions is our “Single Search” interface, which delivers dynamically priced
 
18

 
flight options across multiple aircraft categories, in near real-time, available for instant booking. Our proprietary mobile app can distinguish all member and non-member criteria and retain personal preferences to ensure an elevated personalized travel experience. We believe the simplicity of the Wheels Up App, with transparent pricing and instant booking capabilities, provides a frictionless experience enabling us to expand our offering to non-members.
An Advanced Pricing Engine, with Matching and Optimization Algorithms, Drive Efficiency and Higher Utilization
The middle tier of our differentiated marketplace platform comprises a suite of proprietary technologies and data science capabilities that price trips, match aircraft to missions, and optimize aircraft and crew schedules. Currently, our revenue management and flight operations groups work inter-dependently to align available supply on the network with flight demand utilizing real-time booking data and predictive analytics. With algorithms that forecast demand by asset class and at a regional or local level, we can drive pricing that favors trips based on a variety of variables that bring efficiency to the network, such as improving asset utilization by shifting demand to lower volume days. With our proprietary optimization software, we are able to optimize our daily schedule across our full network to reduce repositioning costs, drive network efficiency and maximize asset utilization. We believe these technologies, and our proprietary pricing and optimization algorithms in particular, provide a competitive advantage relative to other competitors, many of whom rely on pricing and scheduling functions that are highly analog and manual.
Avianis FMS Provides Integrated Fleet Management and Will Connect Supply to our Marketplace
Avianis is a cloud-based SaaS subscription FMS that enables aircraft owners/operators to run critical elements of their day-to-day business (e.g., fleet scheduling, inventory management, flight planning, crew and maintenance scheduling, etc.) with integrations to third party trip service providers (e.g., ground transportation, catering, lodging, etc.). Approximately 100 aircraft owners/operators, with close to 2,000 aircraft currently manage their fleet operations on the Avianis FMS, including several of our largest third-party operators. Certain of our owned, leased and managed fleets are already operating the Avianis FMS, and we expect to convert our remaining fleets by the end of 2021.
Beyond its core functionality with respect to day-to-day operations, we view Avianis as an essential element to unlocking the power of the marketplace to drive network effects at scale. We are extending the capabilities of the Avianis FMS to include our pricing and optimization technology, and to offer owners and operators the ability to opt-in to sharing real-time pricing and availability and obtain access to our high-fidelity data and consistent demand. We believe that as our marketplace scales and these new integrations and features come online, we will see many owners and operators, including those that are subscale with limited resources and no previous access to consistent and optimized demand, adopt Avianis as their core FMS to reap the benefits from our integrated platform, in turn bringing greater supply to the marketplace.
Data Science Powers our Pricing and Optimization Technology
Our proprietary technology, machine learning, and data analytics models optimize our supply, sourcing and logistics models, calibrate our pricing, streamline our processes and enable the acceleration of our overall flight revenue velocity. We generate and aggregate a significant amount of data across three categories that we believe are essential to, and collectively drive, the network effects that will benefit all marketplace participants: demand data (e.g., customer and transactional data), supply data (e.g., aircraft and scheduling data) and marketplace data (e.g., pricing and itinerary data). This aggregation and cross-section of data continuously inform and update our machine learning algorithms. And the value of the platform for participants is continuously enhanced, and greater amounts of data are generated, as more constituents are connected in our network.
Strategic Relationship with Delta
In January 2020, in connection with our purchase of DPJ, we entered into a long-term commercial cooperation agreement with Delta. We expect this relationship will drive significant value through certain strategic initiatives, co-marketing efforts and the creation of an array of new products and valuable features for existing and prospective customers of both Wheels Up and Delta, which includes or will include:
 
19

 

Delta SkyMiles® and Delta Medallion® status:   Provision of miles within the Delta SkyMiles® Program to new and renewing Wheels Up members and Delta Medallion® status to Wheels Up members based on flight spend, as well as the ability for Delta customers to redeem miles for Wheels Up products and services.

Product Trials for Delta Customers:   Introduction of exclusive Wheels Up partner benefits and product offerings to Delta’s 360, Diamond and Platinum Medallion members.

Co-Marketing Efforts:   Marketing our products and services to our respective member and customer bases, including Delta’s large roster of corporate account relationships.

Platform Integrations:   Targeted integrations of our respective technology platforms to streamline and drive cross-program engagement.

Flexible Funds:   Ability for Wheels Up customers to utilize their Blocks to purchase Delta commercial flights.
Delta is also a significant minority shareholder in Wheels Up and Delta has the right to designate, and at Closing will continue to have the right to designate, two members of our Board. We believe the participation of Delta’s designees on our Board adds tremendous strength and breadth of experience, and industry expertise, to our leadership team.
Innovative Founder Supported by Passionate and Experienced Team
Kenny Dichter, our founder and Chief Executive Officer, has been a recognized leader in our industry for more than 20 years. The leadership team supporting Mr. Dichter is comprised of seasoned executives with prior experience at best-in-brand companies like Amazon, Airbnb, Dealertrack and Cox Automotive, Bloomberg, Hilton, Patron and Coca Cola, among other industry leaders. Through this vast experience, the team has a demonstrated track record of scaling businesses, transitioning industries from analog to digital, driving adoption of marketplace solutions, capturing brand value and achieving profitable growth. The Wheels Up team includes, and is supported by, a deep bench of industry experts across all functional areas of the organization.
Our Growth Opportunities
Expand TAM with Introduction of Digitally Enabled Non-Member Access
We are at an important phase of our evolution as we aim to make private aviation more accessible and significantly expand our total addressable market. For the first time since our inception, we are opening our marketplace to include non-members using the Wheels Up App. We believe a user-friendly, transparent “search, book and fly” digital experience will remove friction points for new entrants to private aviation as well as appeal to those who currently use more analog and opaque competitive options. We also believe that many of these customers, once exposed to the Wheels Up experience and brand ecosystem, will, over time, become an important part of our member community. Our members will always be a critical component of our business and brand and we remain committed to continuing to deliver for them on our promise of value, service and experience. We believe the additional demand driven by non-members should provide benefits to our members that include improved pricing driven by broader network effects and more flight sharing options, among others.
 
20

 
Fuel the Marketplace Flywheel
[MISSING IMAGE: tm2123802d1-pc_up4clr.jpg]
We believe we are only just beginning to reap the benefits of our foundational investments in the business. With our network of aircraft, the power of our marketplace platform and our trusted and aspirational lifestyle brand, we see many exciting opportunities for future growth. The above chart demonstrates the flywheel effect that we have experienced and expect to continue to experience as a result of our prior and ongoing investments in our platform.
Continue to Grow Our Connect, Core and Business Memberships — We believe that we have only just begun to penetrate the existing addressable market with our membership programs. In 2020, which was our first year selling an expanded, guaranteed cabin class offering, we had our strongest year of new Core and Business membership sales in our history. Our recently introduced lower-priced Connect membership also gained significant traction in 2020, achieving 275% year over year growth in active Connect members, and now representing over 25% of our total Active Members as of December 31, 2020.
Increase Customer Flight Spend — According to our 2018 member survey, our members were spending, on average, approximately 45% of their private aviation wallet share with Wheels Up, due in large part to our early focus on shorter duration flights. As we have expanded our fleet offerings to service a broader spectrum of flight needs, we believe we have multiple opportunities to increase our share of our customers’ overall private aviation spend through existing and new products and features (e.g., our recently introduced transcontinental product). We believe adoption of our comprehensive cabin class offering, introduced only one year ago, will accelerate as customer travel spend returns to pre-pandemic levels over time. We believe that as the COVID-19 pandemic subsides, we will see increased flight activity in our member base as vacation flying and business travel recover to pre-pandemic levels over time.
Improve Unit Economics — We expect our flight unit economics will continue to improve over time. On our owned and leased fleet, we expect to enjoy significant cost savings from insourcing our maintenance operations and improving the efficiency and utility of our fleet. On our managed and third-party fleet, cost savings will be driven primarily by optimizing when and how we use those aircraft. We believe that as we grow our marketplace scale, this will become increasingly efficient over time. By optimizing the utilization of aircraft across our entire network, including our owned and leased, managed and third-party fleets through our developing proprietary technology, we believe we can enhance overall efficiency and achieve profitability.
Grow Aircraft Management, Maintenance and Other Existing Revenue Streams — We believe there are opportunities to further grow and monetize additional areas of our business. We expect our aircraft management business to grow as we continue to integrate our acquired companies and as the benefits of our large network become even more valuable and apparent to prospective managed clients. We believe the investment we are making in our in-house maintenance capabilities, including the expansion of our geographic footprint, allows the opportunity to also provide these products and services to third-party aircraft owners and operators. We have also invested in whole aircraft acquisitions and sales and special missions, all of which we believe could become more meaningful contributors to revenue.
Expand into New Geographies
We believe we are well-positioned to build on our market leadership in the United States by selectively expanding into other geographies, namely Europe, the Middle East, South America and the Asia-Pacific
 
21

 
region, that have a significant number of high-net-worth consumers that we believe are currently underserved by private aviation offerings. We may pursue global expansion through acquisitions or strategic relationships with existing aircraft owners, operators or other industry participants in those regions and the roll-out of the marketplace app in new markets and/or through potential franchise or licensing opportunities. We believe any international efforts will be enhanced through our relationship with the Aspirational sponsors, given their vast experience in the global consumer luxury and lifestyle sectors and their network of relationships worldwide.
Extend into Platform Adjacencies
We believe that with the power of our brand, our engaged and highly valued customer base and our new relationship with the Aspirational sponsors, we can expand our platform into complementary luxury and lifestyle offerings, which could include lodging and yacht rentals, additional experiential offerings, co-branded credit cards and collaborations, as well as partnerships with brands that are affiliated with the Aspirational sponsors and other luxury brands. We believe our brand, technology and network position us to explore opportunities across the luxury travel market, which according to a September 2019 report by Global Luxury Travel Market, Allied Market Research, exceeds $1 trillion globally.
Explore Opportunistic Consolidation and Accretive Acquisitions
As a result of the Business Combination with Aspirational and the concurrent capital investment in our business, we will have unrestricted cash and cash equivalents on our consolidated balance sheet, affording us the flexibility to add scale and/or other capabilities to our network through opportunistic acquisitions and partnerships over time. We may explore opportunities in a number of areas that strengthen, complement or accelerate our business strategy, which could include complementary technology platforms, retail and wholesale charter providers, private aviation brokerage businesses, aircraft management companies or companies with functionality that complements or supports our other business operations, e.g., maintenance or special missions. We expect to be in the enviable position of being able to explore and execute on such opportunities based on our track record of acquisition successes.
Leverage Our Platform to Support Emerging Aircraft Technologies
In recent months there has been an acceleration of investment in the development of eVTOL, electric engine aircraft and similar sustainable aerial technologies. With the breadth of our platform across our customer base, brand, service, and technology, we believe we are uniquely positioned to support the commercialization of these aircraft. Our participation in the development, introduction and scaling of these new technologies could occur through acquisitions, partnerships, joint ventures or other commercial relationships with manufacturers, operators and/or those building out the networks and related infrastructure.
Expand Flight Sharing Opportunities that Reduce Costs and Expand TAM
We believe that we can meaningfully lower the cost of flying privately through the expansion of our digitally enabled shared-flight opportunities, allowing us to bring new flyers to the industry and capture greater wallet share from an expanding addressable market. The ability to crowd-source and split the cost of a flight with like-minded travelers to a shared destination (e.g., a college football game, reunion, special event or a weekend trip), can reduce the cost of flying privately by 50% or more. We believe the continued growth of our member and customer base, including through the eventual introduction of sharing flight features through our publicly available non-member access, will significantly increase the pool of potential shared participants, which in turn will drive more shared flight opportunities. We are also able to bring down the cost of private flying by offering select by-the-seat opportunities on pre-determined and popular routes, such as New York to Nantucket, and to popular annual events, such as the Super Bowl® or The Masters®.
Emerging Growth Company
Aspirational is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,
 
22

 
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in Aspirational’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. Aspirational has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, Aspirational, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of Aspirational’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (A) following the fifth anniversary of the closing of Aspirational’s initial public offering, (B) in which we have total annual gross revenue of at least $1.07 billion or (C) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.
Corporate Information
Aspirational was incorporated on July 7, 2020 as a special purpose acquisition company and a Cayman Islands exempted company under the name Aspirational Consumer Lifestyle Corp. On September 25, 2020, Aspirational completed its initial public offering. On July 13, 2021, Aspirational consummated the Business Combination with WUP pursuant to the Merger Agreement. In connection with the Business Combination, Aspirational changed its name to Wheels Up Experience Inc.
Wheels Up’s principal executive offices are located at 601 West 26th Street, Suite 900, New York, New York 10001. Our telephone number is 1-855-359-8760. Our internet address is www.wheelsup.com. The information on, or that can be accessed through, our website is not part of this prospectus. The website address is included as an inactive textual reference only.
 
23

 
The Offering
Issuer
Wheels Up Experience Inc. (formerly known as Aspirational Consumer Lifestyle Corp.)
Issuance of Class A common stock
Shares of Class A common stock offered by Wheels Up
12,521,494 shares, consisting of:

4,529,950 shares that are issuable by us upon the exercise of the private placement warrants; and

7,991,544 shares that are issuable by us upon the exercise of the public warrants.
Shares of Class A common stock outstanding prior to exercise of all warrants
245,287,754 shares (as of July 13, 2021)
Exercise price of warrants
$11.50 per share, subject to adjustments as described herein
Use of proceeds
We will receive up to an aggregate of approximately $144.0 million from the exercise of the warrants, assuming the exercise in full of all of the warrants for cash. We expect to use any net proceeds from the exercise of the warrants for general corporate purposes, which may include acquisitions and other business opportunities, capital expenditures and working capital. See “Use of Proceeds.”
Resale of Class A common stock and private placement warrants
Shares of Class A common stock offered by the selling securityholders
193,195,497 shares, consisting of:

138,195,497 shares issued in connection with the Mergers; and

55,000,000 PIPE shares.
Warrants offered by the selling securityholders
4,529,950 private placement warrants
Terms of the offering
The selling securityholders will determine when and how they will dispose of the shares of Class A common stock and warrants registered under this prospectus for resale.
Use of proceeds
We will not receive any proceeds from the sale of shares of Class A common stock or private placement warrants by the selling securityholders.
Lock-Up restrictions
Certain of our stockholders are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See “— Lock-Up Restrictions” for further discussion.
Risk factors
See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before investing in our securities.
Market for Class A common stock and warrants
Our Class A common stock is traded on the NYSE under the symbol “UP.” Our public warrants are quoted on the NYSE under the symbol “UP WS” and, after resale, the private placement warrants will also trade under the same ticker symbol as the public warrants.
 
24

 
Risk Factor Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors,” that represent challenges that we face in connection with the successful implementation of our strategy and growth of our business. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination with other events or circumstances, may adversely affect our business, financial condition, results of operations, and prospects. Such risks include, but are not limited to:

We may not be able to successfully implement our growth strategies.

We have a limited operating history and history of net losses, and we anticipate that we will experience net losses for the foreseeable future.

Our operating results are expected to be difficult to predict based on a number of factors that also will affect our long-term performance.

We may not be able to grow our complementary products and service offerings through opportunistic acquisitions or otherwise as part of our growth strategy. Any failure to adequately integrate past and future acquisitions into our business could have a material adverse effect on us.

We are exposed to the risk of a decrease in demand for private aviation services.

The outbreak and global spread of COVID-19 has adversely impacted certain aspects of our business. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity.

We are subject to certain restrictions on our business as a result of our participation in governmental programs under the CARES Act.

Delta may have the right to terminate its commercial agreements with us.

The supply of pilots to the airline industry is limited and may negatively affect our operations and financial condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may adversely affect our business, results of operations and financial condition.

We may be subject to unionization, work stoppages, slowdowns or increased labor costs and the unionization of our pilots and inflight crewmembers could result in increased labor costs.

Significant increases in fuel costs could have a material adverse effect on our business, financial condition and results of operations.

Some of our business is dependent on our third-party operators to provide flights for our customers. If such third-party operators do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.

If our efforts to continue to build our strong brand identity and improve member satisfaction and loyalty are not successful, we may not be able to attract or retain members, and our operating results may be adversely affected.

Any failure to offer high-quality customer support may harm our relationships with our customers and could adversely affect our reputation, brand, business, financial condition and results of operations.

If we are unable to adequately protect our intellectual property interests or are found to be infringing on intellectual property interests of others, we may incur significant expense and our business may be adversely affected.

A delay or failure to identify and devise, invest in and implement certain important technology, business, and other initiatives could have a material impact on our business, financial condition and results of operations.
 
25

 

A failure in our technology or breaches of the security of our information technology infrastructure may adversely affect our business and financial condition and disrupt our customers’ businesses.

Our obligations in connection with our contractual obligations could impair our liquidity and thereby harm our business, results of operations and financial condition.

Our ability to obtain financing or access capital markets may be limited.

We could suffer losses and adverse publicity stemming from any accident involving aircraft models operated by us or third parties.

Terrorist activities or warnings have dramatically impacted the aviation industry and will likely continue to do so.

We are subject to significant governmental regulation.

We are subject to various environmental and noise laws and regulations, which could have a material adverse effect on our business, results of operations and financial condition.

Our Organizational Documents include provisions limiting voting by non-U.S. Citizens.
 
26

 
RISK FACTORS
Investing in our securities involves risks. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before deciding whether to purchase any of our securities. Our business, reputation, brand, financial condition, results of operations, and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur or are more material than we expect, our business, reputation, brand, financial condition, results of operations, and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In such event, the market price of our securities could decline, and you could lose all or part of your investment.
Risks Relating to Our Business and Industry
We may not be able to successfully implement our growth strategies.
Our growth strategies include, among other things, expanding our addressable market by opening up private aviation to non-members through our marketplace, expanding into new domestic and international markets and developing adjacent businesses. We face numerous challenges in implementing our growth strategies, including our ability to execute on market, business, product/service and geographic expansions. Our strategies for growth are dependent on, among other things, our ability to expand existing products and service offerings and launch new products and service offerings. Although we devote significant financial and other resources to the expansion of our products and service offerings, our efforts may not be commercially successful or achieve the desired results. Our financial results and our ability to maintain or improve our competitive position will depend on our ability to effectively gauge the direction of our key marketplaces and successfully identify, develop, market and sell new or improved products and services in these changing marketplaces. Our inability to successfully implement our growth strategies could have a material adverse effect on our business, financial condition and results of operations and any assumptions underlying estimates of expected cost savings or expected revenues may be inaccurate.
We have a limited operating history and history of net losses, and we anticipate that we will experience net losses for the foreseeable future.
You should consider our business and prospects in light of the risks, expenses and difficulties encountered by companies in their early stage of development. We were formed as a Delaware limited liability company and launched our business on July 1, 2013. Accordingly, we have limited operating history upon which to base an evaluation of our business and prospects.
We have experienced significant net losses since our inception and, given the significant operating and capital expenditures associated with our business plan, we anticipate continuing net losses for the foreseeable future. If we do achieve profitability, we cannot be certain that we will be able to sustain or increase such profitability. We incurred a net loss of approximately $32.2 million and $85.4 million for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. We have not consistently generated positive cash flow from operations, and we cannot be certain that we will be able to generate positive cash flow from operations in the future. To achieve and sustain profitability, we must accomplish numerous objectives, including broadening and stabilizing our sources of revenue and increasing the number of paying members to our service. Accomplishing these objectives may require significant capital investments. We cannot be assured that we will be able to achieve these objectives.
Our operating results are expected to be difficult to predict based on a number of factors that also will affect our long-term performance.
We expect our operating results to fluctuate significantly in the future based on a variety of factors, many of which are outside our control and difficult to predict. As a result, period-to-period comparisons of our operating results may not be a good indicator of our future or long-term performance. The following factors may affect us from period-to-period and may affect our long-term performance:
 
27

 

we may fail to successfully execute our business, marketing and other strategies;

our ability to grow complementary products and service offerings may be limited, which could negatively impact our growth rate and financial performance;

we may be unable to attract new customers and/or retain existing customers;

we may require additional capital to finance strategic investments and operations, pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and we cannot be sure that additional financing will be available;

our historical growth rates may not be reflective of our future growth;

our business and operating results may be significantly impacted by general economic conditions, the health of the U.S. aviation industry and risks associated with our aviation assets;

litigation or investigations involving us could result in material settlements, fines or penalties and may adversely affect our business, financial condition and results of operations;

existing or new adverse regulations or interpretations thereof applicable to our industry may restrict our ability to expand or to operate our business as we wish and may expose us to fines and other penalties;

the occurrence of geopolitical events such as war, terrorism, civil unrest, political instability, environmental or climatic factors, natural disaster, pandemic or epidemic outbreak, public health crisis and general economic conditions may have an adverse effect on our business;

some of our potential losses may not be covered by insurance, and we may be unable to obtain or maintain adequate insurance coverage; and

we are potentially subject to taxation-related risks in multiple jurisdictions, and changes in tax laws could have a material adverse effect on our business, cash flow, results of operations or financial condition.
We may not be able to grow our complementary products and service offerings through opportunistic acquisitions or otherwise as part of our growth strategy. Any failure to adequately integrate past and future acquisitions into our business could have a material adverse effect on us.
From time to time, we may consider opportunities to acquire other companies, products or technologies that may enhance our products and service offerings or technology, expand the breadth of our markets or customer base, or advance our business strategies. Any such transaction could be material to our business and could take any number of forms, including mergers, joint ventures and the purchase of equity interests. The consideration for such transactions may include, among other things, cash, common stock or our equity interests, and in conjunction with a transaction we might incur additional indebtedness. If we elect to pursue an acquisition, our ability to successfully implement this transaction would depend on a variety of factors, including obtaining financing on acceptable terms and compliance with the restrictions contained in our debt agreements. If we need to obtain any lenders’ or third parties’ consent prior to an acquisition, they may refuse to provide such consent or condition their consent on our compliance with additional restrictive covenants that limit our operating flexibility.

Acquisition transactions involve risks, including, but not limited to:

insufficient revenue to offset liabilities assumed;

inadequate return of capital;

regulatory or compliance issues, including securing and maintaining regulatory approvals;

unidentified issues not discovered in due diligence;

those associated with integrating the operations or (as applicable) separately maintaining the operations;

financial reporting;
 
28

 

managing geographically dispersed operations;

the diversion of management’s attention from current operations;

potential unknown risks associated with an acquisition;

unanticipated expenses related to acquired businesses or technologies and their integration into our existing business or technology;

the potential loss of key employees, customers or partners of an acquired business; or

the tax effects of any such acquisitions.
We may not successfully integrate our past acquisitions, including the recent acquisitions of Mountain Aviation, Gama, DPJ, Avianis and TMC, or future acquisitions and may not achieve anticipated revenue and cost benefits relating to any such transactions. Realizing the benefits of acquisitions depends in part on the integration of operations and personnel. If we do not complete an announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated, and in certain circumstances an acquisition could harm our financial position. In addition, strategic transactions may be expensive, time consuming and may strain our resources. Such transactions may not be accretive to our earnings and may negatively impact our results of operations as a result of, among other things, the incurrence of debt, or the impairment or write-off of goodwill and intangible assets. Furthermore, strategic transactions that we may pursue could result in dilutive issuances of equity securities. As a result of the risks inherent in such transactions, we cannot guarantee that any future transaction will be completed successfully or that it will ultimately result in the realization of our anticipated benefits or that it will not have a material adverse impact on our business, financial condition and results of operations. If we were to complete such an acquisition, investment or other strategic transaction, we may require additional debt financing that could result in a significant increase in our amount of debt and our debt service obligations.
We are exposed to the risk of a decrease in demand for private aviation services.
Historically, we have generally provided private aviation services through a membership-only program business model. Our membership program requires members to generally pay an up-front initiation fee and recurring annual dues. If demand for private aviation services were to decrease, this could result in slower new member growth, members declining to renew their memberships and/or reducing their aggregate flight utilization and spend, all of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, we have historically relied on the purchase of memberships and Prepaid Blocks by members as a source of capital to fund our ongoing operations. Changes in demand for our products and services by our members could result in a significant decrease in such Prepaid Blocks or an increase in the rate at which our members utilize their Prepaid Blocks. Such changes could unexpectedly accelerate our liquidity needs and require us to seek alternate sources of capital, including additional financings, which may not be available.
In addition, our customers may consider private air travel through our products and services to be a luxury item, especially when compared to commercial air travel. As a result, any general downturn in economic, business and financial conditions which has an adverse effect on our customers’ spending habits could cause them to travel less frequently and, to the extent they travel, to travel using commercial air carriers or other means considered to be more economical than our products and services. In addition, in cases where sufficient hours of private flight are needed, many of the companies and high-net-worth individuals to whom we provide products and services have the financial ability to purchase their own jets or operate their own corporate flight department should they elect to do so.
The private aviation industry is subject to competition.
Many of the markets in which we operate are competitive as a result of the expansion of existing private aircraft operators, expanding private aircraft ownership and alternatives such as luxury commercial airline service. We compete against a number of private aviation operators with different business models, and local and regional private charter operators. Factors that affect competition in our industry include price,
 
29

 
reliability, safety, regulations, professional reputation, aircraft availability, equipment and quality, consistency and ease of service, willingness and ability to serve specific airports or regions, and investment requirements. There can be no assurance that our competitors will not be successful in capturing a share of our present or potential customer base. The materialization of any of these risks could adversely affect our business, financial condition and results of operations.
The outbreak and global spread of COVID-19 has adversely impacted certain aspects of our business. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity.
The COVID-19 outbreak, along with the measures governments and private organizations worldwide have implemented in an attempt to contain the spread of this pandemic, resulted in an overall decline in demand for air travel, which decline was severe in late spring and early summer of 2020, and has continued to negatively impact demand for certain types of private air travel, including business travel, vacations and air travel associated with attendance at sporting and other live and in-person events. In addition, the initiatives and measures put in place to limit the spread of COVID-19 have added material costs to our business, including additional costs in connection with the implementation of our Wheels Up Safe Passage™ program of enhanced safety, cleanliness and health protocols and guidelines introduced in response to the outbreak of COVID-19. We anticipate that it may be necessary to continue to incur such costs, including supporting our pilots in receiving vaccinations, for the foreseeable future. In addition, while there has been a recovery in demand, driven in part by an influx of new flyers to the industry, certain types of travel that have historically been a material driver of flight revenue, including business, personal and family vacation and event-driven travel, have yet to return to pre-pandemic levels.
The spread of COVID-19 has also prevented us from offering members access to in-person “Wheels Down” experiential events, a key lifestyle component of our membership and a significant contributor to customer loyalty and retention. For example, we were forced to cancel all Wheels Down in-person events and experiences scheduled to occur from and after mid-March 2020, including our popular annual events held in Augusta, Georgia during the week of The Masters® golf tournament, our pop-up celebration in Miami, Florida during the week of Art Basel® and our Super Saturday Tailgate event prior to the Super Bowl®. We anticipate that we will be limited in our ability to provide such experiences for our members for the foreseeable future, which may impact our member retention, particularly with respect to our less frequent flyer members.
In response to the sharp decline in private air travel during late spring and early summer 2020, we availed ourselves of a government assistance grant in an aggregate amount of $76.4 million under the CARES Act Payroll Support Program administered by the U.S. Department of the Treasury (“Treasury”) and implemented certain cost saving initiatives, including offering voluntary furloughs to our employees, implementing a mandatory reduction in all work schedules and delaying certain previously planned initiatives and internal investments. Such cost saving measures were largely discontinued in the fourth quarter of 2020, although certain general and administrative expenditures, such as travel and entertainment, and capital expenditures reductions related to our New York City headquarters’ office are expected to continue for the pendency of the COVID-19 pandemic. While the severity, magnitude and duration of the COVID-19 pandemic remain uncertain, there can be no assurance that these actions will be sufficient and that other similar measures may not be required during the pendency of the COVID-19 pandemic.
In response to the COVID-19 pandemic, federal, state, and local government authorities implemented directives, orders, and regulations intended to mitigate the spread of COVID-19, and in response, we have modified our practices, policies, and procedures, as appropriate. For example, on January 12, 2021, the Centers for Disease Control and Prevention (the “CDC”) issued an order effective January 26, 2021 requiring that all passengers (2 years of age or older) traveling by air to the United States from a foreign country (i) obtain a COVID-19 test no more than three days before their flight departs and (ii) provide proof of a negative result (or documentation of having recovered from COVID-19) prior to boarding the flight. The CDC and the Transportation Security Administration (“U.S. TSA”) also issued orders effective February 1, 2021, mandating the wearing of face masks on flights, subject to certain limited exceptions. Such health requirements or standards, whether mandated by government agencies or voluntarily adopted by us, related to COVID-19
 
30

 
or otherwise intended to mitigate the spread of communicable diseases, may directly impact demand for air travel. In addition, COVID-19 and related restrictions may have a material and adverse impact on other aspects of our business, including enhanced risk of delays or defaults in payments by customers, delays and difficulties in completing maintenance work on certain aircraft, and delays or shortages in our supply chain.
The full extent of the ongoing impact of COVID-19 on our future operational and financial performance will depend on future developments, many of which are outside our control, including the severity, magnitude, duration and spread of COVID-19, including any recurrence of the pandemic, and related travel advisories, restrictions and future government action, all of which are highly uncertain and cannot be predicted. At this time we are also not able to predict whether the COVID-19 pandemic will result in long-term changes to business practices and consumer behavior, with such changes including but not limited to a long-term reduction in travel as a result of increased usage of “virtual” and “teleconferencing” products or a general reluctance to travel by consumers.
In addition, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could adversely impact our business, financial condition and operating results. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.
We are subject to certain restrictions on our business as a result of our participation in governmental programs under the CARES Act.
We applied for government assistance under the Payroll Support Program maintained and administered by the Treasury as directed by the CARES Act and were awarded a total of $76.4 million to support ongoing operations, all of which has been received. In addition, Mountain Aviation had separately applied for assistance under the Payroll Support Program, and was awarded an aggregate of $2.4 million, all of which it received prior to our acquisition of such business in January 2021. Both awards are governed by the terms and conditions of the CARES Act and a separate payroll support agreement (“PSA”) with the Treasury. Neither we, nor Mountain Aviation, were required to issue equity or other form of security to the Treasury in connection with such awards.
As a recipient of such awards and pursuant to the terms of the CARES Act and the applicable PSAs, we are subject to certain restrictions and other requirements upon which the awards were conditioned, including a prohibition on us and our affiliates conducting any stock repurchase or paying any dividends through September 30, 2021, certain restrictions on executive and other employee compensation through March 24, 2022 and certain ongoing reporting obligations through March 24, 2022. The limits on executive and other compensation may negatively impact us and our ability to retain senior management and attract other key employees.
While we believe that we are fully compliant with all requirements of the CARES Act and the PSAs, including the requirement to use the awards only for payment of certain employment costs, if we were found to be not in compliance with such requirements, the Treasury has broad discretion to select potential remedies, including to require repayment of the awards. The imposition of any such remedy could have a material and adverse effect on our financial condition.
Mountain Aviation also received a loan (the “PPP Loan”), dated as of April 14, 2020, from Zions Bancorporation N.A. dba Vectra Bank (“Vectra”) under the U.S. Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”). The PPP Loan is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act, which is subject to revisions and changes by the SBA and Congress. Given that Mountain Aviation received more than $2.0 million under its PPP Loan, we will be subject to an audit by the SBA. We believe that we satisfied all eligibility criteria for the PPP Loan, and that Mountain Aviation’s receipt of the PPP Loan was consistent with the broad objectives of the PPP of the CARES Act. The certification regarding necessity described above did not at the time contain any objective criteria and continues to be subject to interpretation. If, despite our good-faith belief that Mountain Aviation satisfied all eligibility requirements for the PPP Loan, Mountain Aviation is later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan
 
31

 
or it is otherwise determined that Mountain Aviation was ineligible to receive the PPP Loan, we could be subject to civil, criminal and administrative penalties or adverse publicity. Any such events could consume significant financial and management resources and could have a material adverse effect on our business, results of operations and financial condition.
Delta may have the right to terminate its commercial agreements with us.
Our Commercial Cooperation Agreement (as amended) (the “CCA”) with Delta contemplates that we will work together with Delta each year to develop an annual joint marketing and communications plan that focuses on revenue and brand goals, influence/ambassador partnerships and co-branded event opportunities, and that Delta and we will provide certain benefits to the other’s customers and share certain data.
The CCA also contemplates that we will provide certain in-kind benefits to Delta, measured on an annual basis. Examples of such in-kind benefits include our members’ purchasing Delta products and services above a certain level and access for certain Delta customers to Wheels Down marketing activities, events and member experiences. We are required to use our commercially reasonable efforts to provide an unspecified amount of such benefits during 2021, and Delta is required to cooperate with such efforts. We have agreed with Delta that, by December 31, 2021, we will use reasonable best efforts to mutually agree upon minimum amounts of in-kind benefits that we are required to provide starting in 2022. Such minimum levels will be established taking into account the impact, if any, of the COVID-19 pandemic on travel demand and in-person gatherings and the pace of industry recovery therefrom, measured against minimum levels that Delta and we agreed to prior to the COVID-19 pandemic. If we are not able to provide the revised minimum amounts of in-kind benefits to Delta in any year starting in 2022, subject to any cure rights that we may agree with Delta, Delta will have the right to terminate the CCA and the other commercial agreements, which would have a material adverse effect on our business, results of operations and cash flows.
The loss of key personnel upon whom we depend on to operate our business or the inability to attract additional qualified personnel could adversely affect our business.
We believe that our future success will depend in large part on our ability to retain or attract highly qualified management, technical and other personnel, particularly our founder and Chief Executive Officer, Kenny Dichter. We may not be successful in retaining key personnel or in attracting other highly qualified personnel. Any inability to retain or attract significant numbers of qualified management and other personnel would have a material adverse effect on our business, results of operations and financial condition.
The supply of pilots to the airline industry is limited and may negatively affect our operations and financial condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may adversely affect our business, results of operations and financial condition.
Our pilots are subject to stringent pilot qualification and crew member flight training standards (“FAA Qualification Standards”), which among other things require minimum flight time for pilots and mandate strict rules to minimize pilot fatigue. The existence of such requirements effectively limits the supply of qualified pilot candidates and increases pilot salaries and related labor costs. A shortage of pilots would require us to further increase our labor costs, which would result in a material reduction in our earnings. Such requirements also impact pilot scheduling, work hours and the number of pilots required to be employed for our operations.
In addition, our operations and financial condition may be negatively impacted if we are unable to train pilots in a timely manner. Due to an industry-wide shortage of qualified pilots, driven by the flight hours requirements under the FAA Qualification Standards and attrition resulting from the hiring needs of other industry participants, pilot training timelines have significantly increased and stressed the availability of flight simulators, instructors and related training equipment. As a result, the training of our pilots may not be accomplished in a cost-efficient manner or in a manner timely enough to support our operational needs.
 
32

 
Pilot attrition may negatively affect our operations and financial condition.
In recent years, we have experienced significant volatility in our attrition as a result of pilot wage and bonus increases at other industry participants, the growth of cargo, low-cost and ultra-low-cost airlines. In prior periods, these factors, at times, caused our pilot attrition rates to be higher than our ability to hire and retain replacement pilots. If our attrition rates are higher than our ability to hire and retain replacement pilots, our operations and financial results could be materially and adversely affected.
We may be subject to unionization, work stoppages, slowdowns or increased labor costs and the unionization of our pilots, maintenance workers and inflight crewmembers could result in increased labor costs.
Our business is labor intensive and while our employees, particularly our pilots and our maintenance workers, are not currently represented by labor unions, we may, in the future, experience union organizing activities of our pilots, maintenance workers or other crewmembers. Such union organization activities could lead to work slowdowns or stoppages, which could result in loss of business. In addition, union activity could result in demands that may increase our operating expenses and adversely affect our business, financial condition, results of operations and competitive position. Any of the different crafts or classes of our crewmembers could unionize at any time, which would require us to negotiate in good faith with the crewmember group’s certified representative concerning a collective bargaining agreement. In addition, we may be subject to disruptions by unions protesting the non-union status of our other crewmembers. Any of these events would be disruptive to our operations and could harm our business.
The residual value of our owned aircraft may be less than estimated in our depreciation policies.
As of March 31, 2021, we had approximately $319.7 million of property and equipment and related assets, net of accumulated depreciation, of which $295.7 million relates to owned aircraft. In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long lived assets and operating cash flow losses associated with the use of the long-lived assets. In the event the estimated residual value of any of our aircraft types is determined to be lower than the residual value assumptions used in our depreciation policies, the applicable aircraft type in our fleet may be impaired and may result in a material reduction in the book value of applicable aircraft types we operate or we may need to prospectively modify our depreciation policies. An impairment on any of the aircraft types we operate or an increased level of depreciation expense resulting from a change to our depreciation policies could result in a material negative impact to our financial results.
Significant reliance on Textron aircraft and spare parts poses risks to our business and prospects.
As part of our business strategy, we have historically flown primarily Textron aircraft. A majority of the aircraft we currently operate are the product of that single manufacturer. We have negotiated preferred rates with Textron for line maintenance services, certain component repair services and to purchase and exchange parts. Parts and services from Textron are subject to their product and workmanship warranties. If Textron fails to adequately fulfill its obligations towards us or experiences interruptions or disruptions in production or provision of services due to, for example, bankruptcy, natural disasters, labor strikes or disruption of its supply chain, we may experience a significant delay in the delivery of or fail to receive previously ordered aircraft and parts, which would adversely affect our revenue and results of operations and could jeopardize our ability to meet the demands of our program participants. Although we could choose to operate aircraft of other manufacturers or increase our reliance on third-party operators, such a change would involve substantial expense to us and could disrupt our business activities.
Significant reliance on Pratt and Whitney and Rolls Royce aircraft engines poses risks to our owned and leased aircraft.
As part of our business strategy, we have historically relied on Pratt and Whitney and Rolls Royce aircraft engines to power our owned and leased aircraft. If either Pratt and Whitney or Rolls Royce fail to adequately fulfill their obligations towards us or experience interruptions or disruptions in production or
 
33

 
provision of services due to, for example, bankruptcy, natural disasters, labor strikes or disruption of its supply chain, we may experience a significant delay in the delivery of or fail to receive previously ordered aircraft engines and parts, which would adversely affect our revenue and profitability and could jeopardize our ability to meet the demands of our program participants.
We may incur substantial maintenance costs as part of our leased aircraft return obligations.
Our aircraft lease agreements may contain provisions that require us to return aircraft airframes and engines to the lessor in a specified condition or pay an amount to the lessor based on the actual return condition of the equipment. These lease return costs are recorded in the period in which they are incurred. We estimate the cost of maintenance lease return obligations and accrue such costs over the remaining lease term when the expense is probable and can be reasonably estimated. Any unexpected increase in maintenance return costs may negatively impact our financial position and results of operations.
We are exposed to operational disruptions due to maintenance.
Our fleet requires regular maintenance work, which may cause operational disruption. Our inability to perform timely maintenance and repairs can result in our aircraft being underutilized which could have an adverse impact on our business, financial condition and results of operations. On occasion, airframe manufacturers and/or regulatory authorities require mandatory or recommended modifications to be made across a particular fleet which may mean having to ground a particular type of aircraft. This may cause operational disruption to and impose significant costs on us. Furthermore, our operations in remote locations, where delivery of components and parts could take a significant period of time, could result in delays in our ability to maintain and repair our aircraft. Any such delays may pose a risk to our business, financial condition and results of operations. Moreover, as our aircraft base increases, our maintenance costs could potentially increase.
Our transition to in-house maintenance, repair and overhaul activities could prove unsuccessful or impact key relationships.
We have recently acquired MRO facilities through our acquisitions of TMC, DPJ and Mountain Aviation, and our business strategy contemplates that certain of the MRO activities for which we have historically relied on third parties to perform would instead be handled at our facilities. We may be unsuccessful in such efforts, which could have an adverse effect on our future business and results of operations.
The successful execution of our MRO strategy could adversely affect our relationships with vendors historically providing MRO services to us, from whom we expect to continue to require maintenance and other services. In addition, performing such services in-house would internalize the risks and potential liability for the performance of such services. If maintenance is not performed properly this may lead to significant damage to aircraft, loss of life, negative publicity and legal claims against us.
Significant increases in fuel costs could have a material adverse effect on our business, financial condition and results of operations.
Fuel is essential to the operation of our aircraft and to our ability to carry out our transport services. Fuel costs are a key component of our operating expenses. A significant increase in fuel costs may negatively impact our revenue, margins, operating expenses and results of operations. Pursuant to our membership agreements, we are able to add a limited fuel surcharge to our guaranteed capped rates with specified prior notice, and to our members and customers without capped rate pricing directly by adjusting our pricing when needed. Given our contractual ability to pass on increased fuel costs, in whole or in part, to certain of our customers and mitigate the risk with others, we do not maintain hedging arrangements for the price of fuel. However, increased fuel surcharges may affect our revenue and retention if a prolonged period of high fuel costs occurs. To the extent there is a significant increase in fuel costs that affects the amount our customers choose to fly with us, it may have a material adverse effect on our business, financial condition and results of operations.
 
34

 
If we face problems with any of our third-party service providers, our operations could be adversely affected.
Our reliance upon others to provide essential services on behalf of our operations may limit our ability to control the efficiency and timeliness of contract services. We have entered into agreements with OEMs and third-party contractors to provide various facilities and services required for our operations, including aircraft maintenance, ground facilities and IT services, and expect to enter into additional similar agreements in the future. In particular, we rely on OEMs, Textron and Hartzell Propeller, and third-party providers for procurement of replacement parts or to provide component exchange or repair services for our aircraft fleet. We also rely on Pratt & Whitney Canada and Rolls Royce to provide engine maintenance for their respective engine products. Our agreements with such OEMs, and other service providers, are subject to termination after notice. If our third-party service providers terminate their contracts with us, or do not provide timely or consistently high-quality service, we may not be able to replace them in a cost-efficient manner or in a manner timely enough to support our operational needs, which could have a material adverse effect on our business, financial condition and results of operations. In addition, our operations could be materially and adversely affected by the failure or inability of OEMs to provide sufficient parts or related maintenance and support services to us in a timely manner.
Some of our business is dependent on our third-party operators to provide flights for our customers. If such third-party operators do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.
While we operate a significant portion of the flights for our customers, the transition to increased utilization of third-party operators is a key element of our go-forward, “asset right” fleet strategy. For the year ended December 31, 2020, approximately 25% of our flights were fulfilled by third-party aircraft operators on our behalf, a substantial majority of which were with our ten most frequently used partners. We face the risk that any of our third-party operators may not fulfill their contracts and deliver their services on a timely basis, or at all. The ability of our third-party operators to effectively satisfy our requirements could also be impacted by any such third-party operators’ financial difficulty or damage to their operations caused by fire, terrorist attack, natural disaster, pandemic, such as the current COVID-19 outbreak, or other events. The failure of any third-party operators to perform to our expectations could result in delayed or cancelled flights and harm the applicable portion of our business. Our reliance on third-party operators and our inability to fully control any operational difficulties with our third-party operators could have a material adverse effect on the portion of our business where we use third-party operators, financial condition and results of operations.
In addition, due to our reliance on third parties to supplement our capabilities, we are subject to the risk of disruptions to their operations, which has in the past and may in the future result from many of the same risk factors disclosed in this “Risk Factors” section, such as the impact of adverse economic conditions and the inability of third parties to hire or retain skilled personnel, including pilots and mechanics. Several of these third-party operators provide significant capacity that we would be unable to replace in a short period of time should that operator fail to perform its obligations to us. Disruptions to capital markets, shortages of skilled personnel and adverse economic conditions in general, such as conditions resulting from the COVID-19 pandemic, have subjected certain of these third-party operators to significant financial and operational pressures, which have in the past and could result in future temporary or permanent cessation of their operations.
Although we do not believe that any of our significant third-party aircraft operators are currently experiencing workforce disruptions, we cannot predict the future actions of their workforce. Union strikes among airport workers or certain pilots of third-party aircraft operators may result in disruptions of our operations and thus could have a material adverse effect on some of our business, financial condition and results of operations. Any significant disruption to our operations as a result of problems with any of our third-party aircraft operators would have an adverse effect on our business, results of operations and financial condition.
In addition, we have entered into agreements with contractors to provide various facilities and services required for our operations. Because we rely on others to provide such services, our ability to control the efficiency and timeliness of such services is limited. Similar agreements may be entered into in any new markets we decide to serve. We are also at risk should one of these service providers cease operations, and
 
35

 
there is no guarantee that we could replace these providers on a timely basis with comparably priced providers, or at all. Any material problems with the efficiency and timeliness of contract services, resulting from financial hardships or otherwise, could have a material adverse effect on our business, results of operations and financial condition.
In addition, in the event potential competitors establish cooperative or strategic relationships with third-party aircraft operators in the markets we serve, offer to pay third-party aircraft operators more attractive rates or guarantee a higher volume of flights than we have historically offered, we may not have access to the necessary number of aircraft to achieve our planned growth. If our third-party aircraft operators are unable or unwilling to support our growth, or we are unable to add new operators, some of our business and results of operations could be adversely affected. As the private aviation market grows, we expect competition for third-party aircraft operators to increase. Further, we expect that as competition in the private aviation market grows, the use of exclusive contractual arrangements with third-party aircraft operators, sometimes requiring volume guarantees, may increase. This may require us to purchase or lease additional aircraft that may not be available or require us to incur significant capital or operating expenditures.
Our insurance may become too difficult or expensive to obtain. If we are unable to maintain sufficient insurance coverage, it may materially and adversely impact our results of operations and financial position.
Hazards are inherent in the aviation industry and may result in loss of life and property, potentially exposing us to substantial liability claims arising from the operation of aircraft. We carry insurance for aviation hull, aviation liability, premises, hangarkeepers, product, war risk, general liability, workers compensation, directors and officers, cyber and other insurance customary in the industry in which we operate. Insurance underwriters are required by various federal and state regulations to maintain minimum levels of reserves for known and expected claims. However, there can be no assurance that underwriters have established adequate reserves to fund existing and future claims. The number of accidents, as well as the number of insured losses within the aviation and aerospace industries, and the impact of general economic conditions on underwriters may result in increases in premiums above the rate of inflation. To the extent that our existing insurance carriers are unable or unwilling to provide us with sufficient insurance coverage, and if insurance coverage is not available from another source (for example, a government entity), our insurance costs may increase and may result in our being in breach of regulatory requirements or contractual arrangements requiring that specific insurance be maintained, which may have a material adverse effect on our business, financial condition and results of operations.
In addition, incidents related to aircraft operation with respect to the portion of our business where we use third-party operators are covered by our third-party operators’ insurance. If our third-party aircraft operators’ insurance costs increase, such operators are likely to pass the increased costs to us, which could cause us to increase the prices paid by our customers. Such cost increases could adversely affect demand for our products and services and harm our business.
Our self-insurance programs may expose us to significant and unexpected costs and losses.
As of January 1, 2021, we maintain employee health insurance coverage on a self-insured basis. We do maintain stop loss coverage which sets a limit on our liability for both individual and aggregate claim costs. Prior to January 1, 2021, we maintained such coverage on a fully insured basis. We will record a liability for our estimated cost of claims incurred and unpaid as of each future balance sheet date. Our estimated liability will be recorded on an undiscounted basis and include a number of significant assumptions and factors, including historical trends, expected costs per claim, actuarial assumptions, and current economic conditions. Our history of claims activity for all lines of coverage has been and will be closely monitored, and liabilities will be adjusted as warranted based on changing circumstances. It is possible, however, that our actual liabilities may exceed our estimates of loss. We may also experience an unexpectedly large number of claims that result in costs or liabilities in excess of our projections, and therefore we may be required to record additional expenses. For these and other reasons, our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance. If a successful claim is made against us and is not covered by our insurance or exceeds our policy limits, our business may be negatively and materially impacted.
 
36

 
If our efforts to continue to build our strong brand identity and improve member satisfaction and loyalty are not successful, we may not be able to attract or retain members, and our operating results may be adversely affected.
We must continue to build and maintain strong brand identity for our products and services, which have expanded over time. We believe that strong brand identity will continue to be important in attracting members. If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract members and other customers may be adversely affected. From time to time, our members and other customers may express dissatisfaction with our products and service offerings, in part due to factors that could be outside of our control, such as the timing and availability of aircraft and service interruptions driven by prevailing political, regulatory, or natural conditions. To the extent dissatisfaction with our products and services is widespread or not adequately addressed, our brand may be adversely impacted and our ability to attract and retain members may be adversely affected. With respect to our planned expansion into additional markets, we will also need to establish our brand and to the extent we are not successful, our business in new markets would be adversely impacted.
Any failure to offer high-quality customer support may harm our relationships with our customers and could adversely affect our reputation, brand, business, financial condition and results of operations.
Through our marketing, advertising, and communications with our customers, we set the tone for our brand as aspirational but also within reach. We strive to create high levels of customer satisfaction through the experience provided by our team and representatives. The ease and reliability of our offerings, including our ability to provide high-quality customer support, helps us attract and retain customers. Customers depend on our Account Managers and Member Services team to resolve any issues relating to our products and services, such as scheduling changes and other updates to trip details and assistance with certain billing matters. Our ability to provide effective and timely support is largely dependent on our ability to attract and retain skilled employees who can support our customers and are sufficiently knowledgeable about our product and services. As we continue to grow our business and improve our platform, we will face challenges related to providing quality support at an increased scale. Any failure to provide efficient customer support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, brand, business, financial condition and results of operations.
If we are unable to adequately protect our intellectual property interests or are found to be infringing on intellectual property interests of others, we may incur significant expense and our business may be adversely affected.
Our intellectual property includes our trademarks, domain names, website, mobile and web applications, software (including our proprietary algorithms and data analytics engines), copyrights, trade secrets, and inventions (whether or not patentable). We believe that our intellectual property plays an important role in protecting our brand and the competitiveness of our business. If we do not adequately protect our intellectual property, our brand and reputation may be adversely affected and our ability to compete effectively may be impaired.
We protect our intellectual property through a combination of trademark, copyright, and trade secret laws, contracts, and policies. Our efforts may not be sufficient or effective. For example, we do not have any issued patents and have not registered any of our copyrights. Moreover, we have registered our trademarks and domain names that we currently use in certain countries, but we may not be able to register them in other territories in which we may operate now or in the future. Further, we may be unable to prevent competitors from acquiring trademarks or domain names that are similar to or diminish the value of our intellectual property. In addition, it may be possible for other parties to copy or reverse engineer our applications or other technology offerings. Moreover, our proprietary algorithms, data analytics engines, or other software or trade secrets may be compromised by third parties or our employees, which could cause us to lose any competitive advantage we may have from them.
In addition, our business is subject to the risk of third parties infringing our intellectual property. We may not always be successful in securing protection for, or identifying or stopping infringements of, our intellectual property and we may need to resort to litigation in the future to enforce our rights in this regard.
 
37

 
Any such litigation could result in significant costs and a diversion of resources. Further, such enforcement efforts may result in a ruling that our intellectual property rights are unenforceable.
Moreover, companies in the aviation and technology industries are frequently subject to litigation based on allegations of intellectual property infringement, misappropriation, or other violations. As we expand and raise our profile, the likelihood of intellectual property claims being asserted against us grows. Further, we may acquire or introduce new technology offerings, which may increase our exposure to patent and other intellectual property claims. Any intellectual property claims asserted against us, whether or not having any merit, could be time-consuming and expensive to settle or litigate. If we are unsuccessful in defending such a claim, we may be required to pay substantial damages or could be subject to an injunction or agree to a settlement that may prevent us from using our intellectual property or making our offerings available to customers. Some intellectual property claims may require us to seek a license to continue our operations, and those licenses may not be available on commercially reasonable terms or may significantly increase our operating expenses. If we are unable to procure a license, we may be required to develop non-infringing technological alternatives, which could require significant time and expense. Any of these events could adversely affect our business, financial condition, or operations.
A delay or failure to identify and devise, invest in and implement certain important technology, business, and other initiatives could have a material impact on our business, financial condition and results of operations.
In order to operate our business, achieve our goals, and remain competitive, we continuously seek to identify and devise, invest in, implement and pursue technology, business and other important initiatives, such as those relating to aircraft fleet structuring, business processes, information technology, initiatives seeking to ensure high quality service experience, and others.
Our business and the aircraft we operate are characterized by changing technology, introductions and enhancements of models of aircraft and services and shifting customer demands, including technology preferences. Our future growth and financial performance will depend in part upon our ability to develop, market and integrate new services and to accommodate the latest technological advances and customer preferences. In addition, the introduction of new technologies or services that compete with our product and services could result in our revenues decreasing over time. If we are unable to upgrade our operations or fleet with the latest technological advances in a timely manner, or at all, our business, financial condition and results of operations could suffer.
A failure in our technology or breaches of the security of our information technology infrastructure may adversely affect our business and financial condition and disrupt our customers’ businesses.
The performance and reliability of the technology that we and our third-party operators use is critical to our ability to compete effectively. A significant internal technological error or failure or large-scale external interruption in the technological infrastructures on which we and our third-party operators depend, such as power, telecommunications or the Internet, may disrupt our internal network. Any substantial, sustained or repeated failure of the technology that we or our third-party operators use could impact our ability to conduct our business, lower the utilization of our aircraft, and result in increased costs. Our and our third-party operators’ technological systems and related data may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.
In addition, as a part of our ordinary business operations, we collect and store sensitive data, including personally identifiable information of our employees and customers. Our information systems are subject to an increasing threat of continually evolving cybersecurity risks, as evidenced by a recent incident in which a cloud-based data storage system we maintain for customers was accessed by an intruder. On December 6, 2020, an unauthorized actor located outside of the United States gained access to certain files in the cloud-based storage system where certain of our flight management system customers (aircraft owners/operators) upload documents related to flights. Some of those documents contained personally identifiable information regarding flight passengers. We responded immediately to the incident by implementing our incident response plan, remediating the vulnerability that enabled the data security breach, and engaging both internal resources as well as outside experts for ongoing mitigation of any adverse impact. Nevertheless, it is possible that individuals whose personal information was included in the
 
38

 
documents involved could be subject to identity theft if their information is misused, which could trigger complaints and potential liability, including through class action litigation.
Methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time. We may not be able to prevent future data security breaches or unauthorized uses of data. A compromise of the technology systems we use resulting in the loss, disclosure, misappropriation of, or access to, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personally identifiable information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business and financial condition.
We rely on third-party Internet, mobile, and other products and services to deliver our mobile and web applications and flight management system offerings to our customers, and any disruption of, or interference with, our use of those services could adversely affect our business, financial condition, results of operations, and customers.
Our platform’s continuing and uninterrupted performance is critical to our success. That platform is dependent on the performance and reliability of Internet, mobile, and other infrastructure services that are not under our control. For example, we currently host our platform, including our mobile and web-based applications and the Avianis flight management system, and support our operations using a third-party provider of cloud infrastructure services. While we have engaged reputable vendors to provide these products or services, we do not have control over the operations of the facilities or systems used by our third-party providers. These facilities and systems may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, human error, terrorist attacks, power outages, pandemics, and similar events or acts of misconduct. In addition, any changes in one of our third-party service provider’s service levels may adversely affect our ability to meet the requirements of our customers. While we believe we have implemented reasonable backup and disaster recovery plans, we have experienced, and expect that in the future we will experience, interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions, capacity constraints, or external factors beyond our control. Sustained or repeated system failures would reduce the attractiveness of our offerings and could disrupt our customers’ businesses. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as we expand our products and service offerings. Any negative publicity or user dissatisfaction arising from these disruptions could harm our reputation and brand, may adversely affect the usage of our offerings, and could harm our business, financial condition and results of operation.
We rely on third parties maintaining open marketplaces to distribute our mobile and web applications and to provide the software we use in certain of our products and offerings, including the provision of our flight management system. If such third parties interfere with the distribution of our products or offerings, with our use of such software, or with the interoperability of our platform with such software, our business would be adversely affected.
Our platform’s mobile applications rely on third parties maintaining open marketplaces, including the Apple App Store and Google Play, which make applications available for download. We cannot be assured that the marketplaces through which we distribute our applications will maintain their current structures or that such marketplaces will not charge us fees to list our applications for download.
We rely upon certain third-party software and integrations with certain third-party applications, including Salesforce.com, Amazon, Microsoft, Oracle and others, to provide our platform and products and service offerings. As our offerings expand and evolve, we may use additional third-party software or have an increasing number of integrations with other third-party applications, software, products and services. Third-party applications, software, products and services are constantly evolving, and we may not be able to maintain or modify our platform, including our mobile and web-based applications and the Avianis flight management system, to ensure its compatibility with third-party offerings following development changes. Moreover, some of our competitors or technology partners may take actions which disrupt the interoperability of our offerings with their own products or services, or exert strong business influence on our ability to, and the terms on which we, operate our platform and provide our products and service offerings to customers.
 
39

 
In addition, if any of our third-party providers cease to provide access to the third-party software that we use, do not provide access to such software on terms that we believe to be attractive or reasonable, do not provide us with the most current version of such software, modify their products, standards or terms of use in a manner that degrades the functionality or performance of our platform or is otherwise unsatisfactory to us or gives preferential treatment to competitive products or services, we may be required to seek comparable software from other sources, which may be more expensive or inferior, or may not be available at all. Any of these events could adversely affect business, financial condition and results of operations.
Because our software could be used to collect and store personal information, privacy concerns in the territories in which we operate could result in additional costs and liabilities to us or inhibit sales of our software.
The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, storage and disclosure of personal information and breach notification procedures. We are also required to comply with laws, rules and regulations relating to data security. Interpretation of these laws, rules and regulations and their application to our software and professional services in applicable jurisdictions is ongoing and cannot be fully determined at this time.
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the California Consumer Privacy Act of 2018 (the “CCPA”) and other state and federal laws relating to privacy and data security. By way of example, the CCPA requires covered businesses to provide new disclosures to California residents, provide them new ways to opt-out of certain disclosures of personal information, and allows for a new cause of action for data breaches. It includes a framework that includes potential statutory damages and private rights of action. There is some uncertainty as to how the CCPA, and similar privacy laws emerging in other states, could impact our business as it depends on how such laws will be interpreted. As we expand our operations, compliance with privacy laws may increase our operating costs.
Our obligations in connection with our contractual obligations could impair our liquidity and thereby harm our business, results of operations and financial condition.
We have significant long-term lease obligations primarily relating to our aircraft fleet. On March 31, 2021, we had 89 aircraft under operating leases, with an average remaining lease term of approximately 4.6 years. As of March 31, 2021, future minimum lease payments due under all long-term operating leases were approximately $142.4 million.
Our non-investment grade credit ratings and the availability of our assets as collateral for future loans or other indebtedness, which available collateral would be reduced under other future liquidity-raising transactions, may make it difficult for us to raise additional capital if we are required to meet our liquidity needs on acceptable terms, or at all.
Although our cash flows from operations and our available capital, including the proceeds from financing transactions, have been sufficient to meet our obligations and commitments to date, our liquidity has been, and may in the future be, negatively affected by the risk factors discussed in this prospectus. If our liquidity is materially diminished, our cash flow available to fund working capital requirements, capital expenditures and business development efforts may be materially and adversely affected.
We cannot be assured that our operations will generate sufficient cash flow to make any required payments, or that we will be able to obtain financing to make capital expenditures that we believe are necessary to fulfill our strategic directives. Our ability to pay our contractual obligations will depend on our operating performance, cash flow and our ability to secure adequate financing, which will in turn depend on, among other things, the success of our current business strategy, U.S. and global economic conditions, the availability and cost of financing, as well as general economic and political conditions and other factors that are, to some extent, beyond our control. The amount of our fixed obligations could have a material adverse effect on our business, results of operations and financial condition. The degree to which we are leveraged could have important consequences to holders of our securities, including the following:
 
40

 

we must dedicate a substantial portion of cash flow from operations to the payment of principal and interest on future applicable indebtedness, which, in turn, reduces funds available for operations and capital expenditures;

our flexibility in planning for, or reacting to, changes in the markets in which we compete may be limited;

we may be at a competitive disadvantage relative to our competitors with less indebtedness;

we are rendered more vulnerable to general adverse economic and industry conditions;

we are exposed to increased interest rate risk given that a portion of our indebtedness obligations may be at variable interest rates; and

our credit ratings may be reduced and our debt and equity securities may significantly decrease in market value.
Our ability to obtain financing or access capital markets may be limited.
There are a number of factors that may limit our ability to raise financing or access capital markets in the future, including future debt and future contractual obligations, our liquidity and credit status, our operating cash flows, the market conditions in the aviation industry, U.S. and global economic conditions, the general state of the capital markets and the financial position of the major providers of aircraft and other aviation industry financing. We also may not, without the consent of Delta, issue any equity or equity-linked securities to certain domestic commercial air carriers. See the section entitled “— Delta Investor Rights Letter” for additional information. We cannot assure you that we will be able to source external financing for our capital needs, and if we are unable to source financing on acceptable terms, or unable to source financing at all, our business could be materially adversely affected. To the extent we finance our activities with debt, we may become subject to financial and other covenants that may restrict our ability to pursue our business strategy or otherwise constrain our growth and operations.
We face a concentration of credit risk.
We maintain our cash and cash equivalent balances at financial or other intermediary institutions. The combined account balances at each institution typically exceed FDIC insurance coverage of $250,000 per depositor, and, as a result, we face a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. As of March 31, 2021, substantially all of our cash and cash equivalent balances held at financial institutions exceeded FDIC insured limits. Any event that would cause a material portion of our cash and cash equivalents at financial institutions to be uninsured by the FDIC could have a material adverse effect on our financial condition and results of operations.
Aviation businesses are often affected by factors beyond their control including: air traffic congestion at airports; airport slot restrictions; air traffic control inefficiencies; natural disasters; adverse weather conditions, such as hurricanes or blizzards; increased and changing security measures; changing regulatory and governmental requirements; new or changing travel-related taxes; or the outbreak of disease; any of which could have a material adverse effect on our business, results of operations and financial condition.
Like other aviation companies, our business is affected by factors beyond our control, including air traffic congestion at airports, airport slot restrictions, air traffic control inefficiencies, natural disasters, adverse weather conditions, increased and changing security measures, changing regulatory and governmental requirements, new or changing travel-related taxes, or the outbreak of disease. Factors that cause flight delays frustrate passengers and increase operating costs and decrease revenues, which in turn could adversely affect profitability. In the United States, the federal government singularly controls all U.S. airspace, and aviation operators are completely dependent on the FAA to operate that airspace in a safe, efficient and affordable manner. The future expansion of our business into international markets would result in a greater degree of interaction with the regulatory authorities of the foreign countries in which we may operate. The air traffic control system, which is operated by the FAA, faces challenges in managing the growing demand for U.S. air travel. U.S. and foreign air-traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel aviation operators to fly inefficient, indirect routes resulting in delays and
 
41

 
increased operational cost. In addition, there are currently proposals before Congress that could potentially lead to the privatization of the United States’ air traffic control system, which could adversely affect our business. Further, implementation of the Next Generation Air Transport System by the FAA would result in changes to aircraft routings and flight paths that could lead to increased noise complaints and lawsuits, resulting in increased costs.
Adverse weather conditions and natural disasters, such as hurricanes, winter snowstorms or earthquakes, can cause flight cancellations or significant delays. Cancellations or delays due to adverse weather conditions or natural disasters, air traffic control problems or inefficiencies, breaches in security or other factors may affect us to a greater degree than our competitors who may be able to recover more quickly from these events, and therefore could have a material adverse effect on our business, results of operations and financial condition to a greater degree than other air carriers. Any general reduction in passenger traffic could have a material adverse effect on our business, results of operations and financial condition.
Our business is primarily focused on certain targeted geographic regions making us vulnerable to risks associated with having geographically concentrated operations.
Our customer base is primarily concentrated in certain geographic regions of the United States, including the northeast, southeast, southwestern and western regions. As a result, our business, financial condition and results of operations are susceptible to regional economic downturns and other regional factors, including state regulations and budget constraints and severe weather conditions, catastrophic events or other disruptions. As we seek to expand in our existing markets, opportunities for growth within these regions will become more limited and the geographic concentration of our business may increase.
The operation of aircraft is subject to various risks, and failure to maintain an acceptable safety record may have an adverse impact on our ability to obtain and retain customers.
The operation of aircraft is subject to various risks, including catastrophic disasters, crashes, mechanical failures and collisions, which may result in loss of life, personal injury and/or damage to property and equipment. We may experience accidents in the future. These risks could endanger the safety of our customers, our personnel, third parties, equipment, cargo and other property (both ours and that of third parties), as well as the environment. If any of these events were to occur, we could experience loss of revenue, termination of customer contracts, higher insurance rates, litigation, regulatory investigations and enforcement actions (including potential grounding of our fleet and suspension or revocation of our operating authorities) and damage to our reputation and customer relationships. In addition, to the extent an accident occurs with an aircraft we operate or charter, we could be held liable for resulting damages, which may involve claims from injured passengers and survivors of deceased passengers. There can be no assurance that the amount of our insurance coverage available in the event of such losses would be adequate to cover such losses, or that we would not be forced to bear substantial losses from such events, regardless of our insurance cover. Moreover, any aircraft accident or incident, even if fully insured, and whether involving us or other private aircraft operators, could create a public perception that we are less safe or reliable than other private aircraft operators, which could cause our customers to lose confidence in us and switch to other private aircraft operators or other means of transportation. In addition, any aircraft accident or incident, whether involving us or other private aircraft operators, could also affect the public’s view of industry safety, which may reduce the amount of trust by our customers.
We incur considerable costs to maintain the quality of (i) our safety program, (ii) our training programs and (iii) our fleet of aircraft. We cannot guarantee that these costs will not increase. Likewise, we cannot guarantee that our efforts will provide an adequate level of safety or an acceptable safety record. If we are unable to maintain an acceptable safety record, we may not be able to retain existing customers or attract new customers, which could have a material adverse effect on our business, financial condition and results of operations. Failure to comply with regulatory requirements related to the maintenance of our aircraft and associated operations may result in enforcement actions, including revocation or suspension of our operating authorities in the United States and potentially other countries.
We could suffer losses and adverse publicity stemming from any accident involving our aircraft models operated by third parties.
Certain aircraft models that we operate have experienced accidents while operated by third parties. If other operators experience accidents with aircraft models that we operate, obligating us to take such aircraft
 
42

 
out of service until the cause of the accident is determined and rectified, we might lose revenues and might lose customers. It is also possible that the FAA or other regulatory body in another country could ground the aircraft and restrict it from flying. In addition, safety issues experienced by a particular model of aircraft could result in customers refusing to use that particular aircraft model or a regulatory body grounding that particular aircraft model. The value of the aircraft model might also be permanently reduced in the secondary market if the model were to be considered less desirable for future service. Such accidents or safety issues related to aircraft models that we operate could have a material adverse effect on our business, financial condition and results of operations.
Terrorist activities or warnings have dramatically impacted the aviation industry and will likely continue to do so.
The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the aviation business in general. If additional terrorist attacks are launched against the aviation industry, there will be lasting consequences of the attacks, which may include loss of life, property damage, increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security. We cannot provide any assurance that these events will not harm the aviation industry generally or our operations or financial condition in particular.
Legal and Regulatory Risks Relating to Our Business
We are subject to significant governmental regulation.
All interstate air carriers, including us, are subject to regulation by the Department of Transportation (the “DOT”), the FAA and other governmental agencies, including the Department of Homeland Security (“DHS”), the U.S. TSA, Customs and Border Protection (“CBP”) and others, as described in the section entitled “— Government Regulation.” We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations.
In addition, as described in the section entitled “— Delaware law and our Organizational Documents contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable,” we are also subject to restrictions imposed by federal law on foreign ownership of U.S. airlines and oversight by the DOT in maintaining our status as a U.S. Citizen, as that term is defined herein. A failure to comply with or changes to these restrictions may materially adversely affect our business.
Revocation of licenses and permits.
Our business also requires a variety of national, state and local permits and licenses. Our business depends on the maintenance of such permits and licenses, which may be prohibited or restricted. Our business is subject to regulations and permit requirements and may be adversely affected if we are unable to comply with existing regulations or requirements or if changes in applicable regulations or requirements occur.
We are subject to various environmental and noise laws and regulations, which could have a material adverse effect on our business, results of operations and financial condition.
We are subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise, including those relating to emissions to the air, discharges (including storm water discharges) to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. We are or may be subject to new or proposed laws and regulations that may have a direct effect (or indirect effect through our third-party specialists or airport facilities at which we operate) on our operations. In addition, U.S. airport authorities are exploring ways to limit de-icing fluid discharges. Any such existing,
 
43

 
future, new or potential laws and regulations could have an adverse impact on our business, results of operations and financial condition.
Similarly, we are subject to environmental laws and regulations that require us to investigate and remediate soil or groundwater to meet certain remediation standards. Under certain laws, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of wastes directly attributable to us.
The issuance of operating restrictions applicable to one of the fleet types we operate could have a material adverse effect on our business, results of operations and financial condition.
Our owned and leased fleet is comprised of a limited number of aircraft types, including the King Air 350i, Hawker 400XP, Citation Excel/XLS and Citation X aircraft. The issuance of FAA or manufacturer directives restricting or prohibiting the use of any one or more of the aircraft types we operate could have a material adverse effect on our business, results of operations and financial condition.
We may become involved in litigation that may materially adversely affect us.
From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including employment, commercial, product liability, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management attention and resources, cause us to incur significant expenses or liability and/or require us to change our business practices. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, results of operations and financial condition.
Risks Relating to Ownership of Our Securities and Being a Public Company
Our warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the warrant agreement governing our warrants. As a result of the SEC Statement, prior to the Business Combination, Aspirational reevaluated the accounting treatment of its 7,991,544 public warrants and 4,529,950 private placement warrants, and determined to classify the warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.
As a result, included on Aspirational’s balance sheets as of March 31, 2021 and December 31, 2020 contained elsewhere in this prospectus are derivative liabilities related to embedded features contained within our warrants. Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period and that the amount of such gains or losses could be material.
 
44

 
Prior to the Business Combination, Aspirational identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations in the event the business combination is not consummated.
The SEC rules define a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a registrant’s financial statements will not be prevented, or detected and corrected on a timely basis. In connection with an audit of Aspirational’s financial statements prior to the consummation of the Business Combination for the year ended December 31, 2020, Aspirational identified a defined material weakness in its internal control over financial reporting due to a lack of controls to identify and record expenses that require accrual to ensure liabilities in the financial statements are reported completely and accurately. Following the issuance of the SEC Statement, on May 4, 2021, after consultation with Aspirational’s independent registered public accounting firm, Aspirational’s management and Aspirational’s audit committee concluded that, in light of the SEC Statement, it was appropriate to restate (i) certain items on Aspirational’s previously issued audited balance sheet as of September 25, 2020, which was related to Aspirational’s initial public offering, (ii) Aspirational’s unaudited quarterly financial statements as of September 30, 2020 and for the period from July 7, 2020 (inception) through September 30, 2020 and (iii) Aspirational’s audited financial statements as of December 31, 2020 and for the period from July 7, 2020 (inception) through December 31, 2020 (collectively, the “Restatement”). See “— Our warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.” Due solely to the events that led to the Restatement, Aspirational concluded that it had a material weakness in its internal controls over financial reporting.
We continue to evaluate steps to enhance our internal controls over financial reporting and to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that we will be successful in remediating the material weaknesses.
Effective internal controls are necessary for us to provide reliable financial statements and prevent fraud. If we identify any new material weakness in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
In addition, as a result of such material weakness, the Restatement, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, we face the potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and material weaknesses in our internal control over financial reporting and the preparation of our financial statements. As of the date of this prospectus, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business or results of operations and financial condition.
Certain of our shareholders will experience immediate dilution as a consequence of future issuances of Class A common stock pursuant to the 2021 Plan, as part of the Earnout Shares, due to the cash exercise WUP Options and due to the exchange of any WUP Profits Interests for shares of Class A common stock at a level above the intrinsic value of the profits interests immediately after Closing.
Immediately after giving effect to the Business Combination, (1) Aspirational’s public shareholders owned approximately 6.8% of the outstanding Class A common stock, (2) WUP equityholders (without taking into account any public shares held by WUP equityholders prior to the consummation of the Business Combination or participation in the PIPE Investment) owned approximately 70.8% of the outstanding Class A common stock, (3) the Sponsor and related parties (including the independent directors of Aspirational) collectively owned approximately 2.4% of the outstanding Class A common stock and (4) the PIPE Investors owned approximately 22.4% of the outstanding Class A common stock. Such percentages
 
45

 
exclude the possible future issuance of any Class A common stock as Earnout Shares and in connection with the exercise of any warrants. If the actual facts are different from these assumptions, including if Wheels Up Options are cash exercised, or if due to appreciation of Class A common stock, WUP Profits Interests become exchangeable for a greater amount of shares of Class A common stock, the percentage ownership held WUP’s existing shareholders in Wheels Up will be different. Assuming that all Wheels Up Options are cash exercised and assuming that all WUP Profits Interests were exchanged for shares of Class A common stock without regard to any hurdle amounts, an additional 30,496,210 shares of Class A common stock could be issued. Certain WUP equityholders are also PIPE Investors. Our non-WUP equityholders will be diluted relative to the WUP equityholders upon the issuance of any Earnout Shares.
In addition, our employees and consultants hold and are expected to be granted, equity awards under the 2021 Plan. You will experience additional dilution when those equity awards and purchase rights become vested and settled or exercisable, as applicable, for shares of Class A common stock.
The issuance of additional Class A common stock may adversely affect prevailing market prices for our shares of Class A common stock and warrants.
The price of our Class A common stock and warrants may be volatile.
The price of our Class A common stock as well as our warrants may fluctuate due to a variety of factors, including:

changes in the industries in which we and our customers operate;

developments involving our competitors;

changes in laws and regulations affecting our business;

variations in our operating performance and the performance of our competitors in general;

actual or anticipated fluctuations in our quarterly or annual operating results;

publication of research reports by securities analysts about us or our competitors or our industry;

the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

actions by stockholders, including the sale by the PIPE Investors of any of their shares of our common stock;

additions and departures of key personnel;

commencement of, or involvement in, litigation involving our company;

changes in our capital structure, such as future issuances of securities or the incurrence of debt;

the volume of shares of our Class A common stock available for public sale; and

general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
These market and industry factors may materially reduce the market price of our Class A common stock and our warrants regardless of our operating performance.
We do not intend to pay cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our Board deems relevant.
 
46

 
If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.
The trading market for our Class A common stock will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our Class A common stock would likely decline. If few analysts cover is, demand for our Class A common stock could decrease and our Class A common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our Class A common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business.
Future resales of common stock may cause the market price of our securities to drop significantly, even if our business is doing well.
Pursuant to the Registration Rights Agreement, the Sponsor, Aspirational’s independent directors and certain WUP equityholders are contractually restricted from selling or transferring any of their shares of our Class A common stock (and any equity securities convertible into or exercisable or exchangeable for shares of our Class A common stock) held by the Sponsor and the applicable former WUP equityholders immediately following the Closing and the Earnout Shares and Wheels Up EO Units (but not including shares purchased in the public market or in the PIPE Investment) (the “Lock-up Shares”), in each case until the earlier of (i) the date that is 180 days after the Closing Date and (ii) (a) for 33.33% of the Lock-up Shares held by each of the parties thereto (and their respective permitted transferees), the date which the VWAP (as defined in the Merger Agreement) of our Class A common stock equals or exceeds $12.50 per share (subject to adjustment) for any 20 trading days within any 30-trading day period commencing at least 30 days after the Closing Date and (b) for an additional 50% of the Lock-up Shares held by each of the parties thereto (and their respective permitted transferees), the date which the VWAP of our Class A common stock equals or exceeds $15.00 per share (subject to adjustment) for any 20 trading days within any 30-trading day period commencing at least 30 days after the Closing Date.
However, following the expiration of such lock-up, the Sponsor, Aspirational’s independent directors and the applicable WUP equityholders will not be restricted from selling the Lock-Up Shares held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A common stock. Upon the Closing, the Sponsor’s transferees and the applicable WUP equityholders that are subject to lock-up restrictions collectively owned approximately 45.4% of the outstanding shares of our Class A common stock, exclusive of any shares of Class A common stock acquired as part of the PIPE Investment.
The shares held by Sponsor, Aspirational’s independent directors and the WUP equityholders that are subject to lock-up restrictions may be sold after the expiration of the applicable lock-up period under the Registration Rights Agreement. As restrictions on resale end and registration statements (to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in our Class A common stock price or the market price of our Class A common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from our business operations.
As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with
 
47

 
respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur. Our entire management team and many of our other employees will need to devote substantial time to compliance and may not effectively or efficiently manage our transition into a public company.
These rules and regulations will result in us incurring substantial legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for us to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for us to attract and retain qualified people to serve on our Board, its committees or as executive officers.
We are currently an emerging growth company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are currently an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
If we cease to be an emerging growth company, we will no longer be able to take advantage of certain exemptions from reporting, and, absent other exemptions or relief available from the SEC, we will also be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote additional time and effort to implement and comply with such requirements.
Delaware law and our Organizational Documents contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our Organizational Documents and the DGCL contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These
 
48

 
provisions could also limit the price that investors might be willing to pay for shares of our Class A common stock, and therefore depress the trading price of our Class A common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of our Board or taking other corporate actions, including effecting changes in our management. Among other things, our Organizational Documents include provisions regarding:

providing for a classified board of directors with staggered, three-year terms;

the ability of our Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

our Certificate of Incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the limitation of the liability of, and the indemnification of, our directors and officers;

the ability of our Board to amend our Bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our Bylaws to facilitate an unsolicited takeover attempt; and

advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management.
The provisions of our Certificate of Incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware for certain types of lawsuits may have the effect of discouraging certain lawsuits, including derivative lawsuits and lawsuits against our directors and officers, by limiting plaintiffs’ ability to bring a claim in a judicial forum that they find favorable.
Our Certificate of Incorporation provides that, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that such court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) will be the sole and exclusive forum for any claims made by any stockholder (including a beneficial owner) for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the DGCL or our Bylaws or our Certificate of Incorporation (as either may be amended from time to time), (iv) any action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine or (v) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. Notwithstanding the foregoing, our Certificate of Incorporation provides that the general exclusive forum provision will not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act. Instead, our Certificate of Incorporation provides that federal district courts will be the sole and exclusive forum for claims under the Securities Act. In addition, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
These provisions may have the effect of discouraging certain lawsuits, including derivative lawsuits and lawsuits against our directors and officers, by limiting plaintiffs’ ability to bring a claim in a judicial forum that they find favorable. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Certificate of Incorporation to be inapplicable or unenforceable in such action.
 
49

 
Our Organizational Documents include provisions limiting voting by non-U.S. Citizens.
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our Certificate of Incorporation and our Bylaws restrict voting of shares of our capital stock by non-U.S. Citizens. The restrictions imposed by federal law currently require that no more than 25% of our stock be voted, directly or indirectly, by persons who are not U.S. Citizens, and that our chief executive officer, president, at least two-thirds of our officers and at least two-thirds of the members of the our Board be U.S. Citizens. Our Bylaws provide that if the number of shares of our capital stock owned or controlled by non-U.S. Citizens exceed 25% of the voting power of our capital stock (the “Ownership Threshold”), the voting rights of the capital stock owned or controlled by non-U.S. Citizens and not registered on a separate stock record (the “Foreign Stock Record”) at the time of any vote or action will be suspended. The suspension of voting power will be terminated upon the earlier of (i) the shares are transferred to a U.S. Citizen and (ii) the registration of the shares on the Foreign Stock Record.
The Foreign Stock Record is maintained by our transfer agent. It is the duty of each stockholder that is not a U.S. Citizen to register his, her or its shares of capital stock as a non-U.S. Citizen. We and our transfer agent will not permit the number of shares entered on the Foreign Stock Exchange to exceed the Ownership Threshold. If the number of shares on the Foreign Stock Record exceeds the Ownership Threshold, each stockholder with capital stock registered on the Foreign Stock Record will have their voting rights suspended on a pro rata basis such that the voting rights afforded to the stock registered on the Foreign Stock Record is equal to the Ownership Threshold. The voting rights will be reinstated once the voting rights of the capital stock registered on the Foreign Stock Record does not exceed the Ownership Threshold, not taking into consideration the pro rata reduction.
 
50

 
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the underlying shares of our Class A common stock by the selling securityholders.
Each warrant entitles the holder thereof to purchase upon exercise one share of our Class A common stock for $11.50 per share and is exercisable until 5:00 p.m., New York City time, on July 13, 2026. We would receive approximately $144.0 million in proceeds assuming the exercise of all of the warrants. The private placement warrants may be exercised on a “cashless basis” so long as they are held by their initial purchasers or their permitted transferees. We expect to use any net proceeds from the exercise of the warrants for general corporate purposes, which may include acquisitions and other business opportunities, capital expenditures and working capital. Our management will have broad discretion over the use of proceeds from the exercise of the warrants. There is no assurance that the holders of warrants will elect to exercise any or all of the warrants. To the extent that the private placement warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.
MARKET INFORMATION AND DIVIDEND POLICY
Our Class A common stock and public warrants are currently listed on the NYSE under the symbols “UP” and “UP WS,” respectively. Prior to the Closing, our Class A ordinary shares and public warrants were listed on the NYSE under the symbols “ASPL” and “ASPL WS,” respectively. On August 2, 2021, the closing sale price of our Class A common stock was $7.89 per share and the closing price of the public warrants was $1.78 per warrant. As of August 2, 2021, there were 311 holders of record of our Class A common stock and 7 holders of record of the public warrants. Such numbers do not include beneficial owners holding our securities through nominee names.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our Class A common stock will be at the discretion of our Board and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our Board may deem relevant.
 
51

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations has been prepared by our management and should be read in conjunction with our condensed consolidated financial statements and the related notes and our audited consolidated financial statements. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in “Risk Factors” and elsewhere in this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of Wheels Up and its consolidated subsidiaries.
Overview of Our Business
Our mission is to democratize private aviation by delivering innovative, accessible, travel through cutting edge and simple-to-use proprietary technology and mobile applications. We have become a recognized market leader and are redefining private flying by leveraging our unique digital platform. We connect flyers to private aircraft, and to one another, creating memorable lifestyle experiences.
We have a diversified and evolving business model generating revenue through flights, membership fees, management of aircraft, and other services. We operate under one reportable segment, which is private aviation services.
Flight revenue includes both retail and wholesale charter. We have one of the largest and most diverse mix of available aircraft in the industry. We have nearly 100 Wheels Up branded aircraft in our fleet of owned and leased aircraft, which includes Turboprops, Light jets, Midsize jets, and Super-Midsize jets. We also have a managed fleet across all cabin classes of approximately 170 aircraft and an extensive network of third-party operators available in our program fleet where we can access over 1,200 additional safety vetted and verified partner aircraft.
Members pay a fixed quoted amount for flights plus certain incidental or additional costs, if applicable. The quoted amount can be based on a contractual capped hourly rate or dynamically priced based on a number of variables at time of booking. Wholesale customers, such as charter flight brokers and third-party operators, primarily pay a fixed rate for flights. Members are also able to purchase Prepaid Blocks, which are dollar-denominated credits that can be applied to future costs incurred by members, including annual dues, flight services, and other incidental costs such as catering and ground transportation. Prepaid Block sales allow us to have a certain amount of revenue visibility into future flight and travel demand. Members who elect not to purchase a Prepaid Block “pay as they fly” by paying for their flights at the time of booking or after their flights.
Membership revenue is generated from initiation and annual renewal fees across three different annual subscription tiers — Connect, Core and Business — each of which is designed to provide the varying services required across a range of existing and potential private flyers. Core membership is ideal for the more frequent individual private flyer who wants guaranteed availability, high-touch account management and values ultimate convenience and flexibility. The Business membership is best suited for companies of any size that want a broader group of individuals in their organization to be able to book and fly, while also requiring maximum flexibility to meet their business needs. Our Business customers include companies that fully-outsource their private travel solution to us, including but not necessarily managing their privately-owned aircraft, and those that use Wheels Up to serve or supplement their in-house flight desks. We have offered Core and Business memberships with guaranteed aircraft availability and fixed rate pricing since our inception. During 2019, we launched Connect, our introductory membership tier. The Connect membership offers variable rate pricing on a per trip basis and is designed for the consumer with less frequent flight needs or who has more flexibility in their schedule. All membership options provide access through the Wheels Up App to on-demand charter flights, dynamic pricing, a variety of Shared Flights, empty-leg Hot Flights, Shuttles, and The Community, an online platform of members-only forums to facilitate flight sharing, enabling members to reduce their cost of flying private.
 
52

 
We have recently added a non-membership offering to tap into a larger addressable market and expand flyer participation in our marketplace. Non-member customers now have access to a full-scale marketplace of private aircraft through the Wheels Up App where they can view the real-time dynamic pricing for available aircraft classes, making it possible to instantaneously search, book and fly. These flyers are not required to purchase a membership but may pay additional transaction fees not applicable to members and do not receive membership benefits. In addition, non-member flyers do not have aircraft availability guarantees as do members and flights are priced dynamically at rates that are not capped.
In our aircraft management business, we manage aircraft for owners in exchange for a recurring contractual fee. Under the terms of many of our management agreements, in addition to owners utilizing their own aircraft, the managed aircraft may be used by us to fulfill member and non-member flights on a revenue sharing arrangement with the owner. Revenue associated with the management of aircraft also includes the recovery of owner incurred expenses as well as recharging of certain incurred aircraft operating costs.
In addition, we earn revenue from FBO and MRO ground services, flight management software subscriptions, sponsorship and partnership fees, and aircraft sales.
We have continued to make significant investments to support our mission and business, both organically by continuing to invest in pricing and scheduling optimization technology and in our people, and through highly strategic and complementary acquisitions. See “— Acquisitions” below for information on our recent operational and technological acquisitions that include further revenue streams and partnerships.
Financial highlights for 2020 include:

We generated revenue of $695.0 million, representing 81% year-over-year growth, including growth resulting from acquisitions consummated during 2020;

As of December 31, 2020, we had 9,212 Active Members and 11,345 Active Users, representing 59.0% and 96.0% year-over-year growth;

We had 44,579 Live Flight Legs, representing 16.2%, year-over-year growth;

We incurred a net loss of $85.4 million; and

Our Adjusted EBITDA was $(52.4) million.
Financial highlights for the first quarter of 2021 include:

Revenue increased 68% year-over-year to $261.7 million

Active Members grew 56% year-over-year to 9,896

Adjusted EBITDA improved by $8.4 million year-over-year to ($8.7) million

Net loss improved by $12.3 million year-over-year to ($32.2) million
See “— Non-GAAP Financial Measures” below for a definition of Adjusted EBITDA, information regarding our use of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA. In addition, see “— Key Operating Metrics” for definitions of Active Members, Active Users and Live Flight Legs.
Recent Developments
Completion of Business Combination
On July 13, 2021, we completed the Business Combination. We received approximately $656.1 million in gross proceeds in connection with the transaction, which includes $550 million in gross proceeds from the PIPE Investment. After the payment of fees and expenses associated with the Business Combination as well as the repayment of the entire outstanding principal and interest of the Credit Facilities and Note (as defined below) discussed below, we had approximately $536.6 million of cash on hand as of August 2, 2021.
 
53

 
Payoff of Credit Facilities and Notes
Shortly following the Closing, we repaid the entire outstanding principal of the Credit Facilities and Note, together with all accrued and unpaid interest in the amount of approximately $175.5 million.
Key Factors Affecting Results of Operations
We believe that the following factors have affected our financial condition and results of operations and are expected to continue to have a significant effect:
Market Competition
We compete for market share in the private aviation industry, which consists of a highly fragmented group of companies providing varying types of services. The industry is customer driven, and highly competitive. Our ability to retain members is a key factor in our ability to generate revenue. We are impacted by current trends in both how technology is used to book charter trips and how new business models are expanding the types and variety of flight services offered. Options include a mix of whole aircraft ownership, fractional ownership, jet card ownership, membership models and other forms of access. We believe our business model differentiates us within the industry by striving to reduce the upfront cost of flying private while also providing more flexibility and availability compared to traditional competitive private aviation programs.
Costs and Expense Management
Our operating results are impacted by our ability to manage costs and expenses and achieving a balance between investing in appropriate resources to grow revenue with a focus on driving decreased losses and eventual profitability. We are working on finding opportunities to enhance profit margins and operate more efficiently, including bringing routine airframe, engine maintenance and periodic inspections in-house and away from third-party vendors to help reduce costs. We believe this will increase the availability of our aircraft and lower the cost of providing our services. In addition, we have invested significant time and resources into developing sophisticated pricing and scheduling algorithms and data optimization engines to help optimize the utility and efficiency of our fleet. Our operations, data science and revenue management teams collectively use data and technology to focus on pricing accuracy, as well as to manage our flight costs to help drive our financial results.
Economic Conditions
The private aviation industry is volatile and affected by economic cycles and trends. On-demand flying is typically discretionary for members and customers and may be affected by negative trends in the economy. Consumer confidence, fluctuations in fuel prices, changes in governmental regulations, safety concerns, and other factors all could negatively impact our business. Typically, the larger cabin classes of aircraft are more sensitive to and affected by economic cycles.
Pilot Availability and Attrition
In recent years, we have experienced increased competition for qualified pilots that are eligible for hire due to our more stringent pilot qualifications and flight training standards. If the supply of qualified pilots is reduced or our actual pilot attrition rates are materially different than our projections, our operations and financial results could be adversely affected.
Acquisitions
Travel Management Company, LLC
On May 31, 2019, we invested in the expansion of our Light jet offering with the targeted acquisition of TMC, which has a fleet of 26 Hawker 400XP aircraft and is the largest wholesale floating fleet operator of Light jets in the United States. We acquired all the outstanding equity of TMC for $29.8 million in cash.
 
54

 
Avianis Systems LLC
On September 27, 2019, we acquired Avianis, the leading comprehensive and cloud-based flight management system. We entered into an asset purchase agreement to acquire substantially all of the assets and assume substantially all of the liabilities of Avianis for 2,011,495 common interests in WUP and $14.4 million in cash. The Avianis digital platform allows for the management of aircraft operations and its software can also be used as a back-end flight aggregation tool for the Wheels Up App as well as power third-party operators. Avianis is being integrated with our existing technology and will be the common platform that we use to manage our fleets across our operating certificates.
Delta Private Jets, LLC
On January 17, 2020, we acquired all the outstanding equity of DPJ, a former wholly-owned subsidiary of Delta, for 112,949,305 Class E preferred interests in WUP, which constituted 26.1% of the fully-diluted equity of WUP as of the time of issuance. DPJ provided management of aircraft on behalf of third-party owners and provides full service and in-house maintenance capabilities. As part of the acquisition, we also executed an exclusive long-term commercial cooperation agreement with Delta, which we believe was the first strategic partnership agreement of its kind in the private aviation industry. The Delta strategic relationship provides high value co-marketing products, features and benefits to WUP members and Delta customers.
Gama Aviation LLC
On March 2, 2020, we acquired all the outstanding equity of Gama for 1,724,138 common interests in WUP, $41.3 million in cash and the issuance of two promissory notes with an aggregate initial principal amount of $27.5 million payable to certain affiliated parties of Gama. Prior to the acquisition date, Gama exclusively operated our Wheels Up branded aircraft as an independent third-party operator. Gama provides flight operations and aircraft management services, which includes the management of aircraft on behalf of third-party owners. In connection with the closing of the Gama acquisition, we also issued a promissory note to an affiliate of Signature Aviation in the initial principal amount of $0.8 million in satisfaction of certain pre-existing obligations owed by WUP to such entity.
Mountain Aviation, LLC
On January 5, 2021, we acquired all the outstanding equity of Mountain Aviation for 8,620,690 common interests in WUP and $10.0 million in cash. In addition, there is a potential incremental cash earnout of up to $15.0 million based on achieving certain financial performance metrics related to certain special missions, which would be payable in the second quarter of 2023 to the extent achieved. Mountain Aviation adds to our Super-Midsize jet fleet and operations, provides full-service in-house maintenance capabilities, expands our presence in the Western U.S. and enhances our on-demand transcontinental charter flight capabilities.
Business Impact of COVID-19
On March 11, 2020, the World Health Organization officially declared COVID-19 a pandemic. The unprecedented and rapid spread of COVID-19 led to economic and business uncertainties resulting from governmental restrictions on air travel, cancellation of large public events, businesses suspending in-person meetings and the closure of popular tourist destinations. The uncertainty, restrictions and risks arising from the COVID-19 pandemic led to reduced demand for domestic passenger air travel — including a decrease in our private flight operations particularly in the second quarter and to a lesser extent in the third quarter of 2020, before returning to normal operating levels in the fourth quarter of 2020.
The future effects of COVID-19 on our business, financial condition and results of operations are still uncertain and will depend on a number of factors outside of our control. For the foreseeable future, we plan to continue the Wheels Up Safe Passage™ program introduced in response to the outbreak of COVID-19. During the year ended December 31, 2020, we incurred $1.2 million of costs for COVID-19 health and safety response initiatives and have forecasted a similar level of expense on a go-forward basis. We have not
 
55

 
had and do not expect any material COVID-19 related contingencies, impairments, concessions, credit losses or other expenses in future periods.
Moving forward, we believe the COVID-19 global pandemic has led to a shift in consumer prioritization of wellness and safety, with private aviation viewed increasingly by those in the addressable market as a health-conscious decision rather than a discretionary luxury. We believe this will translate into an increase in flight demand over time. We have not experienced and do not anticipate any material resource constraints that would impact our ability to provide our services in the event of such an increase in demand.
See the sections entitled “Risk Factors” and “— Impact of the COVID-19 Pandemic” for more information related to COVID-19.
Air Carrier Payroll Support Program
On March 27, 2020, the CARES Act was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy. The CARES Act provides aid in the form of loans, grants, tax credits and other forms of government assistance. Specifically, the CARES Act provided the airline industry with up to $25.0 billion in grants with assurances the support is to be used exclusively for employee salaries, wages and benefits. The CARES Act also provided for up to $25.0 billion in secured loans to the airline industry.
WUP applied for government assistance under the Payroll Support Program from the Treasury as directed by the CARES Act. We were awarded a total of $74.2 million to support ongoing operations through payroll funding, which was fully received by September 30, 2020. In September 2020, we were notified that, based on funding availability, recipients that were currently in compliance with signed Payroll Support Program agreements would receive an approximate 3% increase in their award amount. As a result, we were granted an additional $2.2 million for a total grant of $76.4 million, which was received in October 2020. We utilized all of these proceeds to offset payroll expenses incurred for the year ended December 31, 2020. In August 2020, we were deemed eligible by the Treasury for a secured loan under the CARES Act, but elected not to apply for such funds. In December 2020, Congress authorized an additional $15.0 billion in financial assistance for the aviation industry as part of a $900.0 billion COVID-19 relief stimulus package included within the Consolidated Appropriations Act, 2021. Given the recovery in our business in the fourth quarter of 2020 compared to the second and third quarters following the onset of COVID-19, we did not apply for a second round of funding.
The support payments were conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020. Other conditions include continuing essential air service as directed by DOT, a prohibition on conducting any stock repurchase or paying any dividends through September 30, 2021, certain restrictions on executive and other employee compensation through March 24, 2022 and certain ongoing reporting obligations through March 24, 2022. Based on the amount received, we were not required to provide financial protection, such as issuing a warrant, other equity interest or debt instrument, to the Treasury in conjunction with the payroll support obtained.
The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. This provided us with approximately $6.8 million of additional liquidity.
Our recently acquired Mountain Aviation subsidiary also applied for and received a grant under the CARES Act Payroll Support Program, which was received prior to our acquisition of the company in January 2021. The terms and conditions applicable to such grant were identical to the terms and condition of the WUP grant. Mountain Aviation also received the PPP Loan on April 14, 2020 from Zions Bancorporation N.A. dba Vectra Bank (“Vectra”) under the SBA’s PPP enacted as part of the CARES Act in the principal amount of $3.2 million. In connection with this acquisition, a portion of the purchase price otherwise payable by us to Mountain Aviation’s former equity owner in an amount equal to the principal and interest then outstanding on this loan was placed in an escrow account at Vectra, to be paid to Vectra if and to the extent the PPP Loan were not to be forgiven by the SBA under the PPP. Mountain Aviation’s former equity owner has agreed to pay any amounts owing under the PPP Loan in excess of the amount in
 
56

 
escrow and has agreed to indemnify us for any obligations we incur under the PPP Loan to the extent not satisfied from the escrow account.
Seasonality
Our results of operations for any specific period are not necessarily indicative of those for an entire year since the private aviation industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased utilization of our aircraft in the summer months. Also, in 2020, we were negatively affected in the second and third quarters of the year by the impact of COVID-19.
Non-GAAP Financial Measures
In addition to our results of operations below, we report certain key financial measures that are not required by, or presented in accordance with, GAAP.
These non-GAAP financial measures are an addition, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to any performance measures derived in accordance with GAAP. We believe that these non-GAAP financial measures of financial results provide useful supplemental information to investors, about us. However, there are a number of limitations related to the use of these non-GAAP financial measures and their nearest GAAP equivalents, including that they exclude significant expenses that are required by GAAP to be recorded in our financial measures. In addition, other companies may calculate non-GAAP financial measures differently or may use other measures to calculate their financial performance, and therefore, our non-GAAP financial measures may not be directly comparable to similarly titled measures of other companies.
Adjusted EBITDA
We calculate Adjusted EBITDA as net loss adjusted for (i) interest income (expense), (ii) depreciation and amortization, (iii) equity-based compensation expense, (iv) acquisition, integration, and capital raise related expenses, (v) public company readiness related expenses and (vi) other items not indicative of our ongoing operating performance, including the CARES Act grant and COVID-19 response initiatives for 2020. We include Adjusted EBITDA as a supplemental measure for assessing operating performance and for the following:

Used in conjunction with bonus program target achievement determinations, strategic internal planning, annual budgeting, allocating resources and making operating decisions; and,

Provides useful information for historical period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and variable amounts.
The following table reconciles Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure (in thousands):
Three Months Ended March 31,
Year Ended December 31,
2021
2020
2020
2019
2018
Net loss
$ (32,213) $ (44,474) $ (85,405) $ (106,873) $ (83,237)
Add back (deduct)
Interest expense
4,557 6,411 22,989 29,360 31,691
Interest income
(12) (417) (550) (615) (935)
Depreciation and amortization
13,831 14,194 58,529 39,352 35,226
Equity-based compensation expense
1,414 584 3,342 1,882 2,289
Public company readiness expense(1)
473 158 1,801 1,628
Acquisition, integration, and capital raise expenses(2)
3,257 6,191 14,575 14,298 483
CARES Act grant
(76,376)
 
57

 
Three Months Ended March 31,
Year Ended December 31,
2021
2020
2020
2019
2018
COVID-19 response initiatives(3)
1,192
Credit loss on employee loan(4)
5,448
Corporate headquarters relocation expense(5)
31 298 2,092
Adjusted EBITDA
$ (8,662) $ (17,055) $ (52,363) $ (20,968) $ (14,483)
(1)
Includes costs primarily associated with compliance, updated systems and consulting in advance of transitioning to a public company.
(2)
Consists mainly of system conversions, merging of operating certificates, re-branding costs and fees paid to external advisors in connection with strategic transactions.
(3)
Includes expenses for the development of enhanced cleaning and operation protocols for our Safe Passage™ program due to COVID-19.
(4)
Reflects a full reserve on an outstanding loan to a senior executive, which was forgiven by WUP’s board of directors prior to the effectiveness of the registration statement on Form S-4 filed by Aspirational (the “S-4”), which the SEC declared effective on June 23, 2021.
(5)
Represents expenditures related to the build out and move to our new corporate headquarters in New York.
Contribution and Contribution Margin
We define Contribution as revenue less cost of revenue. Contribution Margin is calculated by dividing contribution by total revenue. We include Contribution and Contribution Margin as supplemental measures for assessing operating performance and for the following:

Used to understand our ability to achieve profitability over time through scale and leveraging costs; and,

Provides useful information for historical period-to-period comparisons of our business and to identify trends.
The following table reconciles Contribution to gross profit (loss), which is the most directly comparable GAAP measure (in thousands, except percentages):
Three Months Ended March 31,
Year Ended December 31,
2021
2020
2020
2019
2018
Revenue
$ 261,657 $ 156,096 $ 694,981 $ 384,912 $ 332,144
Less: Cost of revenue
(234,508) (147,958) (634,775) (340,673) (283,231)
Less: Depreciation and amortization
(13,831) (14,194) (58,529) (39,352) (35,226)
Gross profit (loss)
13,318 (6,056) $ 1,677 $ 4,887 $ 13,687
Gross margin
5.1% (3.9)% 0.2% 1.3% 4.1%
Add back:
Depreciation and amortization
13,831 14,194 58,529 39,352 35,226
Contribution
$ 27,149 $ 8,138 $ 60,206 $ 44,239 $ 48,913
Contribution margin
10.4% 5.2% 8.7% 11.5% 14.7%
Key Operating Metrics
In addition to financial measures, we regularly review certain key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business.
 
58

 
The following table summarizes our key operating metrics:
As of March 31,
As of December 31,
2021
2020
% Change
2020
2019
2018
Active Members
9,896 6,324 56% 9,212 5,787 4,667
Active Users
10,742 8,149 32% 11,345 5,787 4,667
Three Months Ended March 31,
Year Ended of December 31,
2021
2020
% Change
2020
2019
2018
Live Flight Legs
15,278 11,770 30% 44,579 38,363 33,333
Active Members
We define Active Members as the number of Connect, Core and Business membership accounts that generated membership revenue in a given period and are active as of the reporting period. We use Active Members to assess the adoption of our premium offerings which is a key factor in our penetration of the market in which we operate and a key driver of membership and flight revenue.
Active Users
We define Active Users as Active Members and legacy WUPJ jet card holders as of the reporting date plus unique non-member consumers who completed a revenue generating flight at least once in a given period and excluding wholesale flight activity. While a unique consumer can complete multiple revenue generating flights on our platform in a given period, that unique user is counted as only one Active User. We use Active Users to assess the adoption of our platform and frequency of transactions, which are key factors in our penetration of the market in which we operate and our growth in revenue.
Live Flight Legs
We define Live Flight Legs as the number of completed one-way revenue generating flight legs in a given period. The metric excludes empty repositioning legs and owner legs related to aircraft under management. We believe Live Flight Legs are a useful metric to measure the scale and usage of our platform, and our growth in flight revenue.
Component of Results of Our Operations
The key components of our results of operations include:
Revenue
Revenue is derived from flight, membership, aircraft management, and other services.
Flight revenue consists of retail, wholesale and special mission flights. Members can either pay as they fly or prepay for flights when they purchase a Prepaid Block.
Membership revenue is comprised of a one-time initiation fee paid at the commencement of a membership and recurring annual dues. In the first year of membership, a portion of the initiation fee is applied to annual dues. The remainder of the initiation fee, less any flight credits, is deferred and recognized on a straight-line basis over the estimated duration of the customer relationship period, which is currently estimated to be three years. Members are charged recurring annual dues to maintain their membership. Revenue related to the annual dues are deferred and recognized on a straight-line basis over the related contractual period. If a customer qualifies to earn Delta miles in the SkyMiles Program as part of their membership, then a portion of the membership fee is allocated at contract inception.
Aircraft management revenue consists of contractual monthly management fees charged to aircraft owners, recovery of owner incurred expenses including maintenance coordination, cabin crew and pilots, and recharging of certain incurred aircraft operating costs such as maintenance, fuel, landing fees and parking. We pass recovery and recharge amounts back to owners at either cost or at a predetermined margin.
 
59

 
Other revenue primarily consists of (i) ground services derived from aircraft customers that use our FBO and MRO facilities, and (ii) flight-related services. In addition, other revenue includes subscription fees from third-party operators for access to the Avianis flight software, fees we may receive from third-party sponsorships and partnerships, and whole aircraft sales.
Costs and Expenses
Costs and expenses, consist of the following components:
Cost of Revenue
Cost of revenue primarily consists of direct expenses incurred to provide flight services and facilitate operations, including aircraft lease costs, fuel, crew travel, maintenance and third-party flight costs. Cost of revenue also consists of compensation expenses, including equity-based compensation and related benefits for employees that directly facilitate flight operations. In addition, cost of revenue includes aircraft owner expenses incurred such as maintenance coordination, cabin crew and pilots, and certain aircraft operating costs such as maintenance, fuel, landing fees and parking.
Other Operating Expenses
Technology and Development
Technology and development expense primarily consists of compensation expenses for engineering, product development and design employees, including equity-based compensation, expenses associated with ongoing improvements to, and maintenance of, our platform offerings and other technology. Technology and development expense also includes software expenses and technology consulting fees.
Sales and Marketing
Sales and marketing expense primarily consists of compensation expenses in support of sales and marketing such as commissions, salaries, equity-based compensation and related benefits. Sales and marketing expense also includes expenses associated with advertising, promotions of our services, member experience, account management and brand-building.
General and Administrative
General and administrative expense primarily consists of compensation expenses, including equity-based compensation and related benefits for our executive, finance, human resources, legal and other personnel performing administrative functions. General and administrative expense also includes corporate office rent expense, third-party professional fees, acquisition and integration related expenses, public company readiness expenses and any other cost or expense incurred not deemed to be related to cost of revenue, sales and marketing expense or technology and development expense.
Depreciation and Amortization
Depreciation and amortization expense primarily consists of depreciation of capitalized aircraft. Depreciation and amortization expense also includes amortization of capitalized software development costs and acquired finite-lived intangible assets.
We allocate overhead such as facility costs and telecommunications charges, based on department headcount, as we believe this to be the most accurate measure. As a result, a portion of general overhead expenses are reflected in each operating expense category.
Interest Income
Interest income primarily consists of interest earned on cash equivalents in money market funds and investments in commercial paper.
 
60

 
Interest Expense
Interest expense primarily consists of interest paid or payable and the amortization of debt discounts and deferred financing costs on our credit facilities.
Results of Operations
Results of Our Operations for the Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
The following table sets forth our results of operations for the three months ended March 31, 2021 and 2020 (in thousands, except percentages):
Three Months Ended March 31,
Change in
2021
2020
$
%
Revenue
$ 261,657 $ 156,096 $ 105,561 68%
Costs and expenses
Cost of revenue
234,508 147,958 86,550 58%
Technology and development
7,024 4,852 2,172 45%
Sales and marketing
15,794 13,651 2,143 16%
General and administrative
18,168 13,921 4,247 31%
Depreciation and amortization
13,831 14,194 (363) (3)%
Total cost and expenses
289,325 194,576 94,749 49%
Loss from operations
(27,668) (38,480) 10,812 (28)%
Interest income
12 417 (405) (97)%
Interest expense
(4,557) (6,411) 1,854 (29)%
Net loss
$ (32,213) $ (44,474) $ 12,261 (28)%
Revenue
Revenue increased by $105.6 million, or 68%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase in revenue was primarily attributable to the following changes in flight revenue, membership revenue, aircraft management revenue and other revenue (in thousands, except percentages):
Three Months Ended March 31,
Change in
2021
2020
$
%
Flight
$ 190,474 $ 119,636 $ 70,838 59%
Membership
14,974 13,319 1,655 12%
Aircraft management
50,880 20,788 30,092 145%
Other
5,329 2,353 2,976 126%
Total
$ 261,657 $ 156,096 $ 105,561 68%
Flight revenue growth was primarily driven by a 30% increase in Live Flight Legs, which resulted in $35.6 million of growth, and a 23% increase in revenue per Live Flight Leg, which drove $35.2 million of year over year improvement. The increase in Live Flight Legs was primarily attributable to an increase in flying by Active Members and the acquisition of Mountain Aviation.
Growth in membership revenue was driven entirely by a 56% increase in Active Members but was impacted by an increased mix of Connect members, which are at a lower price point, the conversion of legacy WUPJ Jet Cards to Core members at promotional rates.
The increase in aircraft management revenue and other revenue was primarily attributable to our acquisitions of WUPJ on January 17, 2020 and Gama on March 2, 2020. As such, the results of WUPJ and Gama were only included for a portion of the three months ended March 31, 2020.
 
61

 
Costs and Expenses
Cost of Revenue
Cost of revenue increased by $86.6 million, or 58%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase in cost of revenue is primarily attributable to increased Live Flight Legs and cost of revenue associated with aircraft management, which is in line with the increase in revenue.
Contribution Margin increased 520 basis points for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, largely due to improvement in controlled fleet fulfillment. Contribution margin was also impacted by the integration of the Travel Management Company, LLC and WUPJ operating certificates which resulted in a $3.0 million reduction in Contribution due to lower aircraft availability. See “— Non-GAAP Financial Measures” above for a definition of Contribution Margin, information regarding our use of Contribution Margin and a reconciliation of gross margin to Contribution Margin.
Other Operating Expenses
Technology and Development
Technology and development expenses increased by $2.2 million, or 45%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase in technology and development expenses was primarily attributable to an increase of $1.6 million in employee compensation costs and $0.3 in costs associated with technology. Third-party consultant fees also increased $1.0 million, which was offset by a $1.0 million increase in capitalized costs related to internal use software.
Sales and Marketing
Sales and marketing expenses increased by $2.1 million, or 16%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase in sales and marketing was primarily attributable to a $1.4 million increase in sales commissions from growth in memberships and flight revenue. In addition, headcount and related compensation costs increased $2.9 million as a result of our acquisition of Mountain Aviation in 2021, as well as WUPJ and Gama that were included in our consolidated results for the full three months ended March 31, 2021 as opposed to only a partial quarter in 2020. These costs were partially offset by a $2.2 million decrease in event spending due to COVID-19 restrictions.
General and Administrative
General and administrative expenses increased by $4.2 million, or 31%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase in general and administrative expenses was primarily attributable to a $4.8 million increase in personnel expenses, including equity-based compensation, due to headcount growth as a result of our acquisitions. In addition, rent and related office costs increased $1.3 million, due to our acquisition of Mountain Aviation. The increase was partially offset by a $2.0 million decrease in third-party professional fees including services associated with acquisitions.
Depreciation and Amortization
Depreciation and amortization expenses decreased by $0.4 million, or 3%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease in depreciation and amortization expenses was primarily attributable to a $0.9 million decrease in depreciation expense for our owned aircraft as certain aircraft became fully depreciable subsequent to March 31, 2020. The decrease was partially offset by a $0.5 million increase in amortization of software development costs.
Interest Income
Interest income decreased by $0.4 million, or 97%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease in interest income was primarily
 
62

 
attributable to our depositing cash into money market funds during the period and not to investments in commercial paper that have a higher rate of interest.
Interest Expense
Interest expense decreased by $1.9 million, or 29%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease in interest expense was primarily attributable to a reduction in principal outstanding on our credit facilities due to scheduled payments of $12.3 million, which resulted in a $1.4 million decrease, and a reduction in the comparative average LIBOR rate on our variable rate credit facilities that resulted in an additional $0.5 million decrease.
Results of Our Operations for the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
The following table sets forth our results of operations for the year ended December 31, 2020 and 2019 (in thousands, except percentages):
Year Ended December 31,
Change in
2020
2019
$
%
Revenue:
Revenue
$ 694,981 $ 384,912 $ 310,069 81%
Costs and expenses:
Cost of revenue
634,775 340,673 294,102 86%
Technology and development
21,010 13,965 7,045 50%
Sales and marketing
55,124 40,624 14,500 36%
General and administrative
64,885 28,426 36,459 128%
Depreciation and amortization
58,529 39,352 19,177 49%
CARES Act grant
(76,376) (76,376) N/A
Total costs and expenses
757,947 463,040 294,907 64%
Loss from operations
(62,966) (78,128) 15,162 (19)%
Interest income
550 615 (65) (11)%
Interest expense
(22,989) (29,360) 6,371 (22)%
Net loss
$ (85,405) $ (106,873) $ 21,468 (20)%
Revenue
Revenue increased by $310.1 million, or 81%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in revenue was primarily attributable to the following changes in flight revenue, membership revenue, aircraft management revenue and other revenue (in thousands, except percentages):
Year Ended December 31,
Change in
2020
2019
$
%
Flight
$ 495,419 $ 334,263 $ 161,156 48%
Membership
54,622 45,868 8,754 19%
Aircraft management
132,729 132,729 N/A
Other
12,211 4,781 7,430 155%
Total
$ 694,981 $ 384,912 $ 310,069 81%
Flight revenue growth was primarily driven by a 16% increase in Live Flight Legs, which resulted in $54.2 million of growth and a 28% increase in revenue per Live Flight Leg, which drove $106.9 million of year-over-year improvement. Growth in membership revenue was driven entirely by a 59% increase in Active
 
63

 
Members. The increase in aircraft management revenue and other revenue was largely a result of a full quarter of results from WUPJ and Gama, which were acquired during the first quarter of 2020.
Costs and Expenses
Cost of Revenue
Cost of revenue increased by $294.1 million, or 86%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in cost of revenue is primarily attributable to a 16% increase in Live Flight Legs and cost of revenue associated with aircraft management, which is in line with the increase in revenue.
Contribution Margin decreased 2.8% compared to the prior year, largely due to the impact of COVID-19, particularly during the second quarter and to a lesser extent in the third quarter of 2020. See “— Non-GAAP Financial Measures” above for a definition of Contribution Margin, information regarding our use of Contribution Margin and a reconciliation of gross margin to Contribution Margin.
Other Operating Expenses
Technology and Development Expense
Technology and development expenses increased by $7.0 million, or 50%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in technology and development expenses was primarily attributable to a $2.7 million increase in costs associated with technology equipment and a $3.5 million increase in employee compensation related to headcount growth as a result of our acquisitions. In addition, software expenses increased $2.1 million as we continue to invest in building out our marketplace and related technology capabilities. Third-party consultant fees also increased $3.2 million. These costs were partially offset by a $4.5 million increase in capitalized costs related to internal use software.
Sales and Marketing
Sales and marketing expenses increased by $14.5 million, or 36%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in sales and marketing was primarily attributable to increases of $10.7 million and $4.4 million in sales commissions and headcount and related compensation, respectively. These increases were due to growth in memberships and flight revenue as well as our acquisitions of WUPJ and Gama. Additionally, advertising and sponsorship expense increased by $1.2 million, which was partially offset by a $1.8 million decrease in event spending.
General and Administrative
General and administrative expenses increased by $36.5 million, or 128%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in general and administrative expenses was primarily attributable to increases of $17.1 million and $3.8 million in personnel expenses, including equity-based compensation, and overhead costs, respectively, due to headcount growth as a result of our acquisitions. During 2020, we also incurred a credit loss of $5.4 million on an outstanding loan to a senior executive that was forgiven prior to the effectiveness of the S-4. In addition, third-party professional fees including services associated with acquisitions and for public company readiness increased $6.3 million, and rent and related office costs increased $3.6 million. We changed our corporate headquarters in New York during 2020, taking on additional space and incurring overlapping costs with our prior office space primarily during the first half of the year. Lastly, travel expense related to acquisitions and other business travel included within general and administrative expenses increased by $0.3 million.
Depreciation and Amortization
Depreciation and amortization expenses increased by $19.2 million, or 49%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase in depreciation and amortization expenses was primarily attributable to a $16.7 million increase in intangible amortization
 
64

 
expense related to acquisitions. Additionally, amortization of software development costs increased $2.2 million and depreciation of property and equipment $0.3 million.
CARES Act Grant
Reflects government assistance received under the Payroll Support Program as directed by the CARES Act. During 2020, as a result of the negative impact of COVID-19, we were awarded a total grant of $76.4 million from the Treasury to support ongoing operations through payroll funding. Due to the improving performance of our business in the latter half of 2020, we elected to not participate in the second round of funding for the Payroll Support Program.
Interest Income
Interest income decreased by $0.1 million, or 11%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease in interest income was primarily attributable to our depositing cash into money market funds during the period and not to investments in commercial paper that have a higher rate of interest. In addition, while our cash and cash equivalents balance is higher than prior year most of the amount held as of December 31, 2020 can be attributed primarily to Prepaid Blocks received in the fourth quarter of the year, with approximately $218.9 million in Prepaid Blocks received in December 2020 alone.
Interest Expense
Interest expense decreased by $6.4 million, or 22%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease in interest expense was primarily attributable to a reduction in principal outstanding on our credit facilities due in part to a prepayment of $20.5 million and scheduled payments of $43.0 million, which resulted in a $4.8 million benefit, and a reduction in the comparative average LIBOR rate on our variable rate credit facilities that resulted in a $2.2 million benefit. Additionally, as a result of the Gama acquisition, we assumed additional long-term debt, which increased interest expense by $0.6 million.
Results of Our Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
The following table sets forth our results of operations for the year ended December 31, 2019 and 2018 (in thousands, except percentages):
Year Ended December 31,
Change in
2019
2018
$
%
Revenue:
Revenue
$ 384,912 $ 332,144 $ 52,768 16%
Costs and expenses:
Cost of revenue
340,673 283,231 $ 57,442 20%
Technology and development
13,965 8,203 $ 5,762 70%
Sales and marketing
40,624 42,048 $ (1,424) (3)%
General and administrative
28,426 15,917 $ 12,509 79%
Depreciation and amortization
39,352 35,226 $ 4,126 12%
Total costs and expenses
463,040 384,625 78,415 20%
Loss from operations
(78,128) (52,481) $ (25,647) 49%
Interest income
615 935 $ (320) (34)%
Interest expense
(29,360) (31,691) $ 2,331 (7)%
Net loss
$ (106,873) $ (83,237) $ (23,636) 28%
 
65

 
Revenue
Revenue increased by $52.8 million, or 16%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in revenue was primarily attributable to the following changes in flight revenue, membership revenue, and other revenue (in thousands, except percentages):
Year Ended December 31,
Change in
2019
2018
$
%
Flight
334,263 284,660 49,603 17%
Membership
45,868 43,043 2,825 7%
Other
4,781 4,441 340 8%
Total
384,912 332,144 52,768 16%
The increase in flight revenue was driven by a 15% increase in Live Flight Legs. The increase in membership revenue was driven by a 24% increase in Active Members.
Costs and Expenses
Cost of Revenue
Cost of revenue increased by $57.4 million, or 20%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in cost of revenue was primarily attributable to increased Live Flight Legs and is in line with the increase in revenue.
Contribution Margin decreased 3.2% compared to the prior year, due largely to increased third-party maintenance costs on our owned and leased fleet. See “— Non-GAAP Financial Measures” above for a definition of Contribution Margin, information regarding our use of Contribution Margin and a reconciliation of gross margin to Contribution Margin.
Other Operating Expenses
Technology and Development Expense
Technology and development expenses increased by $5.8 million, or 70%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in technology and development expenses was primarily attributable to increases of $4.3 million and $1.5 million related to employee compensation and software and equipment costs, respectively due to headcount growth and the acquisition of Avianis as we invested in building our marketplace and related technology capabilities.
Sales and Marketing
Sales and marketing expenses decreased by $1.4 million, or 3%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The decrease in sales and marketing was primarily attributable to a $2.3 million decrease in event costs related to the Wheels Down lifestyle program and a $1.2 million decrease in sponsorship expense. These were partially offset by an increase in compensation related costs of $2.1 million.
General and Administrative
General and administrative expenses increased by $12.5 million, or 79%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in general and administrative expenses was primarily attributable to a $5.2 million increase in personnel expenses, including equity-based compensation, due to headcount growth as a result of the acquisition of TMC and a $7.0 million increase in third-party professional fees, primarily related to acquisitions, as well as public company readiness expenses. Additionally, costs related to member benefits increased by $0.3 million driven by an increase in Active Members.
 
66

 
Depreciation and Amortization
Depreciation and amortization expenses increased by $4.1 million, or 12%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in depreciation and amortization expenses was primarily attributable to a $3.5 million increase in depreciation of property and equipment and a $0.6 million increase in amortization of software development costs.
Interest Income
Interest income decreased by $0.3 million, or 34%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This decrease in interest income was primarily attributable to depositing a higher percentage of cash into money market funds during the period rather than investments in commercial paper that have a higher rate of interest.
Interest Expense
Interest expense decreased by $2.3 million. or 7%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. This decrease in interest expense was primarily attributable to a $35.8 million decrease in the outstanding principal balance of long-term debt.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity have historically consisted of financing activities, including proceeds from the issuance of preferred interests and borrowings under our credit facilities, and operating activities, primarily from the increase in deferred revenue associated with Prepaid Blocks. As of March 31, 2021, we had $215.0 million of cash and cash equivalents, which were primarily invested in money market funds, $15.3 million of restricted cash and no amounts available for future borrowings under our credit facilities.
Since inception, we have consistently maintained a working capital deficit, in which our current liabilities exceed our current assets. This is common within the private aviation industry and is due to the nature of our deferred revenue, primarily related to members unused Prepaid Blocks, which are performance obligations generally for future flights. Our primary needs for liquidity are to fund working capital, acquisitions, lease and purchase obligations, capital expenditures, and for general corporate purposes. Our cash needs vary from period to period primarily based on the timing and costs of aircraft engine overhauls, repairs, and maintenance and the timing of any acquisitions and any aircraft purchases.
We believe factors that could affect our liquidity include our rate of revenue growth, changes in demand for our services, competitive pricing pressures, the timing and extent of spending on software development and other growth initiatives, our ability to achieve further reductions in operating expenses, and overall economic conditions. To the extent that our current liquidity is insufficient to fund future activities, we may need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through debt financing arrangements. If we raise additional funds by issuing equity securities, the ownership of existing shareholders will be diluted. The incurrence of debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. In the event that additional funds are required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
We have incurred negative cash flows from operating activities and significant losses from operations in the past. We believe our cash and cash equivalents on hand, will be sufficient to meet our projected working capital and capital expenditure requirements for a period of at least the next 12 months.
 
67

 
Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2021, and 2020 and the years ended December 31, 2020, 2019 and 2018 (in thousands):
Three Months Ended March 31,
Year Ended December 31,
2021
2020
2020
2019
2018
Net cash (used in) provided by operating activities
$ (84,720) $ (47,487) $ 209,644 $ (24,879) $ (3,302)
Net cash provided by (used in) investing activities
$ 2,919 $ 94,230 $ 81,580 $ (41,316) $ (21,562)
Net cash (used in) provided by financing activities
$ (12,786) $ (9,269) $ (62,788) $ 87,383 $ (33,230)
Net increase (decrease) in cash and cash equivalents
$ (94,587) $ 37,474 $ 228,436 $ 21,188 $ (58,094)
Cash Flow from Operating Activities
Net cash used in operating activities for the three months ended March 31, 2021 was $84.7 million. In 2021, the cash outflow from operating activities consisted of our net loss, net of non-cash items of $16.4 million and a decrease in net operating assets and liabilities, primarily as a result of a $65.7 million decrease in deferred revenue attributable to a significant increase in flying. In addition, during the three months ended March 31, 2021 we sold $69.0 million of Prepaid Blocks compared to $86.7 million for the three months ended March 31, 2020. The decrease in Prepaid Block purchases was primarily attributable to the expiration of the CARES Act tax holiday as of December 31, 2020, which drove accelerated purchases in the fourth quarter of 2020 that may otherwise have been purchased during the three months ended March 31, 2021.
Net cash used in operating activities for the three months ended March 31, 2020 was $47.5 million. In 2020, the cash outflow from operating activities consisted of our net loss, net of non-cash items of $29.3 million and an increase in net operating assets and liabilities, primarily as a result of a $17.2 million decrease in accounts payable and a $19.8 million decrease in accrued expenses. The decrease was partially offset by a $20.0 million increase in accounts receivable.
Net cash provided by operating activities for the year ended December 31, 2020 was $209.6 million. In 2020, the cash inflow from operating activities consisted of our net loss including recognition of CARES Act payroll funding, net of non-cash items of $14.8 million and an increase in net operating assets and liabilities, primarily as a result of a $202.6 million increase in deferred revenue.
Net cash used in operating activities for the year ended December 31, 2019 was $24.9 million. In 2019, the cash outflow from operating activities consists of our net loss, net of non-cash items of $63.2 million and an increase in net operating assets and liabilities, primarily as a result of $30.1 million, $6.7 million and $6.4 million increases in deferred revenue, accounts payable and accrued expenses, respectively.
Net cash used in operating activities for the year ended December 31, 2018 was $3.3 million. In 2018, the cash outflow from operating activities consists of our net loss, net of non-cash items of $43.3 million and an increase in net operating assets and liabilities, primarily as a result of a $24.0 million increase in deferred revenue and a $6.4 million decrease in accounts receivable.
Cash Flow from Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2021 was $2.9 million. In 2021, the cash outflow from investing activities was primarily attributable to $4.9 million for capital expenditures, including software development costs. In addition, the cash inflow from investing activities was primarily attributable to $7.8 million from the acquisition of Mountain Aviation including cash acquired. The purchase price of Mountain Aviation was primarily non-cash consideration for common interests issued.
 
68

 
Net cash provided by investing activities for the three months ended March 31, 2020 was $94.2 million. In 2020, the cash inflow from investing activities was primarily attributable to $98.1 million from the acquisitions of WUPJ and Gama including cash acquired. In addition, we used $3.9 million for capital expenditures, including software development costs.
Net cash provided by investing activities for the year ended December 31, 2020 was $81.6 million. In 2020, the cash inflow from investing activities was primarily attributable to $97.1 million from the acquisitions of WUPJ and Gama including cash acquired. In addition, we used $15.5 million for capital expenditures, including software development costs.
Net cash used in investing activities for December 31, 2019 was $41.3 million. In 2019, the cash outflow from investing activities was primarily attributable to the acquisitions of TMC for $28.3 million and the cash portion of Avianis for $14.4 million. In addition, we used $8.1 million for capital expenditures, including software development costs. Investing cash flows also reflect a net inflow of $9.5 million for sales and maturities, net of purchases, of investments.
Net cash used in investing activities for December 31, 2018 was $21.6 million. In 2018, the cash outflow from investing activities was primarily attributable to $12.1 million for capital expenditures, including software development costs. Investing cash flows also reflects an outflow of $9.4 million for purchases of investments.
Cash Flow from Financing Activities
Net cash used in financing activities for three months ended March 31, 2021 was $12.8 million. In 2021, the cash outflow from financing activities was primarily attributable to $12.4 million for repayments of our credit facilities and $0.4 million of payments made towards deferred offering costs.
Net cash used in financing activities for the three months ended March 31, 2020 was $9.3 million. In 2020, the cash outflow from financing activities was primarily attributable to $10.0 million for repayments of our credit facilities.
Net cash used in financing activities for December 31, 2020 was $62.8 million. In 2020, the cash outflow from financing activities was primarily attributable to $63.5 million for repayments of our credit facilities including a $20.5 million prepayment of certain principal outstanding under the Amended 1st Facility (as defined below).
Net cash provided by financing activities for December 31, 2019 was $87.4 million. In 2019, the cash inflow from financing activities was primarily attributable to $125.2 million in net proceeds from the issuance of Class D preferred interests and $37.7 million for repayments of our credit facilities.
Net cash used in financing activities for December 31, 2018 was $33.2 million. In 2018, the cash outflow from financing activities was primarily attributable to $33.1 million for repayments of our credit facilities.
Sources of Liquidity
To date, we have financed our operations primarily through issuance of preferred interests, cash from operations, borrowings of long-term debt, and promissory notes.
Credit Facilities
1st Credit Facility
In November 2013, we entered into a secured credit facility (the “1st Facility”) that provided up to $100.0 million of financing from various lenders to acquire up to 22 King Air 350i aircraft. The 1st Facility initially had an A-1 class (the “A-1”) consisting of $60.0 million of borrowing capacity and an A-2 class (the “A-2”) consisting of $40.0 million of borrowing capacity, which were borrowed ratably as aircraft were purchased.
 
69

 
Amended 1st Credit Facility
In August 2014, we increased the availability under the 1st Facility to a total of $175.4 million by entering into an amended and restated secured credit agreement (the “Amended 1st Facility”). The Amended 1st Facility (i) afforded the ability to finance the acquisition of an additional 13 aircraft under the First Firm Order, and (ii) increased the amount available to be borrowed against each aircraft through a second lien applied on a retroactive basis against already purchased aircraft and on a prospective basis as each additional aircraft is purchased.
In addition to the A-1 and the A-2, the Amended 1st Facility added an A-3 class (the “A-3”) in an amount up to $57.9 million. The second lien referenced above, the B class (the “B”), was also added to allow us to borrow a total of $17.5 million against the 35 total aircraft in the Amended 1st Facility.
In April 2016, we obtained a waiver under the Amended 1st Facility to incur an additional indebtedness to finance additional King Air 350i aircraft under a 2nd Facility (as defined below). As part of obtaining this waiver, we (i) paid a fee to the consenting lenders and (ii) were required to deposit $10.0 million in cash in a restricted account.
In June 2017, we obtained another waiver under the Amended 1st Facility to (a) incur additional indebtedness to finance additional King Air 350i aircraft under a 3rd Facility (as defined below) and (b) refinance or prepay the B in the future. As part of obtaining this particular waiver, (i) we paid a fee to the consenting lenders and (ii) Wheels Up Partners Holdings LLC was required to contribute $70.0 million in cash to Wheels Up Partners LLC to incur the new indebtedness.
In December 2017, we amended the Amended 1st Facility to refinance the B and borrow an additional $6.4 million in B loans for a total of $20.0 million in B loans against the 35 aircraft financed by the Amended 1st Facility.
In September 2020, we made a $20.5 million prepayment of the principal outstanding on the Amended 1st Facility, which released 11 purchased aircraft from the Amended 1st Facility.
As of December 31, 2020, there are 24 aircraft purchased with financing from the Amended 1st Facility that serve as collateral for the Amended 1st Facility.
Shortly following the Closing, we repaid the entire outstanding principal of the Amended 1st Facility, together with all accrued and unpaid interest.
2nd Credit Facility
In May 2016, we formed WU Leasing I LLC (“WUL I”), a wholly-owned subsidiary, to enter into a second secured credit facility (the “2nd Facility”) with various lenders, which provided up to $120.8 million to finance up to 23 King Air 350i aircraft. The 2nd Facility has an A class (the “2nd Facility A”) of lenders, which committed to lend $86.3 million, and a B class (the “2nd Facility B”) of lenders, which committed to lend $34.5 million.
The 2nd Facility was structured as a bankruptcy-remote financing structure, which is a common financing structure designed to offer lenders added protection by using a special purpose entity to hold assets financed by a loan. A special purpose entity is a subsidiary company with an asset and liability structure that makes its obligations secure even if the parent company experiences a bankruptcy event. As part of the bankruptcy-remote financing structure, the aircraft assets are required to be held in an owner trust. In our structure, WUL I is the special purpose entity, and it holds the aircraft assets through an owner trust (the “WUL I Trust”), which was established by WUL I pursuant to a trust agreement (the “2nd Facility Trust Agreement”) dated May 27, 2016, between WUL I, as trustor, and Bank of Utah, as owner trustee. The WUL I Trust is the owner of the aircraft financed by the 2nd Facility and WUL I is the sole owner of the beneficial interest in the WUL I Trust. So long as no event of default had occurred, WUL I had access to the 2nd Facility aircraft through the 2nd Facility Trust Agreement. Once all payments were made under the 2nd Facility, WUL I was able to direct the owner trustee to distribute the aircraft assets to another entity.
In June 2017, we obtained a waiver under the 2nd Facility in order to (a) incur an additional indebtedness to finance additional King Air 350i aircraft under a 3rd Facility and (b) refinance or prepay the B in the future.
 
70

 
As part of obtaining this waiver, (i) we paid a fee to certain consenting lenders and (ii) Wheels Up Partners Holdings LLC was required to contribute $70.0 million in cash to Wheels Up Partners LLC in order to incur the new indebtedness. All 23 aircraft purchased with financing from the 2nd Facility served as collateral for the 2nd Facility.
Shortly following the Closing, we repaid the entire outstanding principal of the 2nd Facility, together with all accrued and unpaid interest.
3rd Credit Facility
In June 2017, we formed WU Leasing II LLC (“WUL II”), a wholly-owned subsidiary, to enter into a third secured credit facility (the “3rd Facility”) with various lenders, which provided up to $89.3 million to finance up to 17 King Air 350i aircraft. The 3rd Facility only has a Class A (the “3rd Facility A”) of lenders, which committed to lend up to $89.3 million.
The 3rd Facility was also structured as a bankruptcy-remote financing structure identical to the 2nd Facility structure. In this 3rd Facility structure, the aircraft assets were held in an owner trust (the “WUL II Trust”) established by WUL II pursuant to a trust agreement (the “3rd Facility Trust Agreement”) dated June 30, 2017, between WUL II, as trustor, and Bank of Utah, as owner trustee. The WUL II Trust is the owner of the aircraft financed by the 3rd Facility and WUL II is the sole owner of the beneficial interest in the WUL II Trust. So long as no event of default had occurred, WUL II had access to the 3rd Facility aircraft through the 3rd Facility Trust Agreement. Once all payments were made under the 3rd Facility, WUL II was able to direct the owner trustee to distribute the aircraft assets to another entity. All 14 aircraft purchased with financing from the 3rd Facility served as collateral for the 3rd Facility.
Shortly following the Closing, we repaid the entire outstanding principal of the 3rd Facility, together with all accrued and unpaid interest.
The Amended 1st Facility, 2nd Facility and 3rd Facility required principal and interest payments on a quarterly basis based on a fixed amortization schedule per aircraft over 28 quarters from each aircraft’s acquisition date, with a balloon payment due in the 28th quarter. The Amended 1st Facility, 2nd Facility and 3rd Facility also required additional principal payments of $300 dollars per hour if an aircraft was flown over a level of 1,200 hours per year on an annual cumulative basis. As of December 31, 2020, no aircraft has flown over a level of 1,200 hours per year on an annual cumulative basis and we did not made any additional principal payments as a result.
Interest payments were due quarterly for all classes of the Amended 1st Facility (A-1, A-2, A-3, B) and were based on a stated rate (the “Spread”) in excess of the London Interbank Offered Rate (“LIBOR”), with a LIBOR floor of 1.00%, except in the case of the B, which following the December 2017 refinancing, had a fixed rate of 12.00%. The Spreads on the A-1, the A-2, and the A-3 are 8.55%.
Interest payments were due quarterly for all classes of the 2nd Facility (2nd Facility A, 2nd Facility B) and were based on the Spread plus LIBOR, with a LIBOR floor of 1.00%. The Spreads for the 2nd Facility A and 2nd Facility B were 6.50% and 8.50%, respectively.
Interest payments were due quarterly for all classes of the 3rd Facility (3rd Facility A) and were based on LIBOR plus 7.10%.
As of December 31, 2020, there were no amounts available for future borrowings under any of our credit facilities.
The credit facilities contained customary restrictive covenants including, certain limitations on: incurrence of additional debt and guarantees of indebtedness; creation of liens; mergers, consolidations or sales of substantially all of our assets; sales or other dispositions of assets other than in the normal course of business; distributions or dividends and repurchases of common stock; restricted payments, including without limitation, certain restricted investments; engaging in transactions with affiliates; and, sale and leaseback transactions. The credit facilities also contained certain financial covenants that if not met would be considered an event of default that could result in acceleration of the obligations under the agreement.
 
71

 
Promissory Notes
On March 2, 2020, as part of the acquisition of Gama, we executed (i) a promissory note to Gama Group Inc. (the “Gama Note”), (ii) a promissory note to Signature Flight Support, LLC (the “Signature Flight Support Note”), and (iii) a settlement note to Signature Flight Support, LLC (the “Settlement Note”, and together with the Signature Flight Support Note and Gama Note, the “Notes”). The maturity date of the Notes is March 2, 2024. The interest rates on the Notes are 4.26% per annum through March 2, 2022, 7.50% per annum through March 2, 2023 and 8.50% per annum through March 2, 2024, which was due and payable quarterly. In addition, we were required to make a mandatory prepayment on the Notes following the consummation of a capital raise. The prepayment amount was equal to the outstanding principal, together with all accrued and unpaid interest.
Shortly following the Closing, we repaid the entire outstanding principal of the Note, together with all accrued and unpaid interest.
For further information on the credit facilities and promissory notes, see Note 9 “Long-term debt” of the accompanying Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Contractual Obligations and Commitments
Our principal commitments consist of contractual cash obligations under our credit facilities, the promissory notes and operating leases for certain controlled aircraft, corporate headquarters, and operational facilities, including aircraft hangars. Our obligations under our credit facilities and the promissory notes are described in Note 9 “Long-Term Debt” and for further information on our leases, see Note 12 “Leases” of the accompanying consolidated financial statements included elsewhere in this prospectus.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of our operations is based on our consolidated financial statements and accompanying notes, which have been prepared in accordance with GAAP. Certain amounts included in or affecting the consolidated financial statements presented in this prospectus and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the company. A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
Revenue Recognition
We determine revenue recognition through the following steps in accordance with ASC Topic 606, Revenue from Contracts with Customers:

Identification of the contract, or contracts, with a customer.

Identification of the performance obligations in the contract.

Determination of the transaction price.

Allocation of the transaction price to the performance obligations in the contract; and,

Recognition of revenue when, or as, a performance obligation is satisfied.
A performance obligation is a promise in a contract to transfer a distinct service to the customer and is the basis of revenue recognition. We have elected to apply the portfolio approach to contracts with similar performance obligations. To determine the proper revenue recognition method for contracts, we used judgment
 
72

 
to evaluate whether two or more contracts should be combined and accounted for as a portfolio and whether the combined or single contract should be accounted for as more than one performance obligation.
There are some contracts which have additional performance obligations, such as allowing upgrades to a different aircraft or providing discounts on prepaid flights. For contracts that include additional performance obligations, we account for individual performance obligations if they are distinct. If there is a group of performance obligations bundled in a contract, the transaction price is required to be allocated based upon the relative standalone selling prices of the promised services underlying each performance obligation. We generally determine the standalone selling price based on the prices charged to customers. If there are services included in the transaction price for which the standalone selling price is not directly observable, then we would first apply the standalone selling price for those services that are known, such as the flight hourly rate, and then allocate the total consideration proportionately to the other performance obligations in the contract.
Revenue is recognized when control of the promised service is transferred to our member or the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Our revenue is reported net of discounts and incentives. We generally do not issue refunds for flights unless there is a failure to meet our service obligations. Refunded amounts for initiation fees and annual dues are granted to some customers that no longer wish to remain members following their first flight. We generally do not have contracts that include variable terms.
Deferred revenue is an obligation to transfer services for which we have already received consideration. Upon receipt of a prepayment for all or a portion of the transaction price, we initially recognize a contract liability. The contract liability is settled, and revenue is recognized, when we satisfy our performance obligation at a future date. Deferred revenue primarily consists of flights, Prepaid Blocks, jet card deposits, initiation fees including credits, and annual dues payments received in advance for future spend with Wheels Up.
We utilize registered independent third-party air carriers in the performance of a portion of our flights. We evaluate whether there is a promise to transfer services to the customer, as the principal, or to arrange for services to be provided by another party, as the agent, using a control model. The nature of the flight services we provide to members is similar regardless of which third-party air carrier is involved. We direct third-party air carriers to provide an aircraft to a member or customer. Based on evaluation of the control model, it was determined that we act as the principal rather than the agent within all revenue arrangements, other than when acting as an intermediary ticketing agent for travel on Delta and when managed aircraft owners charter their own aircraft, as we have the authority to direct the key components of the service on behalf of the member or customer regardless of which third-party is used. If we have primary responsibility to fulfill the obligation, then the revenue and the associated costs are reported on a gross basis in the consolidated statements of operations.
Business Combinations and Asset Acquisitions
We account for business combinations and asset acquisitions using the acquisition method of accounting, which requires allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. For acquisitions meeting the definition of a business combination in ASC Topic 805, Business Combinations, the excess of the purchase price over the amounts recognized for assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed in a business combination with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred for business combinations. For acquisitions meeting the definition of an asset acquisition, the fair value of the consideration transferred, including transaction costs, is allocated to the assets acquired and liabilities assumed based on their relative fair values. No goodwill is recognized in an asset acquisition. All of our acquisitions to date have met the definition of a business combination, excluding Avianis, which was accounted for as an asset acquisition.
 
73

 
The acquisition method of accounting requires us to exercise judgment and make estimates and assumptions regarding fair values using the information available as of the date of acquisition. We may also refine these estimates over a one-year measurement period, to reflect any new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair value of assets and liabilities in connection with an acquisition, these adjustments could materially impact our financial position and results of operations. Assumptions that we make in estimating the fair value of acquired developed technology, trade names, customer relationships and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the useful lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the useful lives change, depreciation or amortization expense could be accelerated or slowed, which could materially impact our results of operations.
Goodwill and Intangibles
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. The carrying value of goodwill is tested for impairment on an annual basis or on an interim basis if events or changes in circumstances indicate that an impairment loss may have occurred (i.e., a triggering event). Our annual goodwill impairment testing date is October 1st. We are required to test goodwill on a reporting unit basis. We determined private aviation services is our one reporting unit to which the entire amount of goodwill is allocated.
Goodwill impairment is the amount by which our reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. We use both qualitative and quantitative approaches when testing goodwill for impairment. Our qualitative approach evaluates various events including, but not limited to, macroeconomic conditions, changes in the business environment in which we operate and other specific facts and circumstances. If, after assessing qualitative factors, we determine that it is more-likely-than-not that the fair value of our reporting unit is greater than the carrying value, then performing a quantitative impairment assessment is unnecessary and our goodwill is not considered to be impaired. However, if based on the qualitative assessment we conclude that it is more-likely-than-not that the fair value of the reporting unit is less than the carrying value, or if we elect to skip the optional qualitative assessment approach, we proceed with performing the quantitative impairment assessment, to quantify the amount of impairment, if any.
We primarily determine the fair value of our reporting unit using a discounted cash flow model, or income approach. The completion of the discounted cash flow model requires that we make a number of significant estimates and assumptions, which include projections of future revenue, costs and expenses, capital expenditures and working capital changes, as well as assumptions about the estimated weighted average cost of capital and other relevant variables. We base our estimates and assumptions on our recent performance, our expectations of future performance, economic or market conditions and other assumptions we believe to be reasonable. Actual future results may differ from those estimates.
Intangible assets, other than goodwill, acquired in a business combination are recognized at their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment losses, if any, and are amortized on a straight-line basis over the estimated useful life of the asset, which was determined based on management’s estimate of the period over which the asset will contribute to our future cash flows. We periodically reassess the useful lives of our definite-lived intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate.
Impairment of Long-Lived Assets
Long-lived assets include aircraft, property and equipment, finite-lived intangible assets, and operating lease right-of-use assets. We review the carrying value of long-lived assets for impairment when events or circumstances indicate that the carrying value may not be recoverable based on the estimated undiscounted
 
74