NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND OPERATIONS
Wheels Up Experience Inc. (together with its consolidated subsidiaries, “Wheels Up”, the “Company”, “our”, “we”, and “us”) is a leading brand in private aviation that strives to deliver a total private aviation solution.
On July 13, 2021 (the “Closing Date”), we consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 1, 2021, as amended on May 6, 2021, by and among Aspirational Consumer Lifestyle Corp., a blank check company incorporated as a Cayman Islands exempted company (“Aspirational”), Wheels Up Partners Holdings LLC, a Delaware limited liability company (“WUP”), Kittyhawk Merger Sub LLC., a Delaware limited liability company 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). In connection with the closing of 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”).
On the Closing Date, (i) the Blockers simultaneously merged with and into the respective Blocker Merger Subs, with the Blockers surviving each merger as wholly owned subsidiaries of Wheels Up (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, with Wheels Up 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”) (See Note 3).
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The consolidated financial statements include the accounts of Wheels Up Experience Inc. and its wholly-owned subsidiaries. We consolidate Wheels Up Partners MIP LLC (“MIP LLC”) and record the profits interests held in MIP LLC that Wheels Up does not own as non-controlling interests (see Note 15). All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
Preparing the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19, and any evolutions thereof (“COVID-19”). The most significant estimates include, but are not limited to, the useful lives and residual values of purchased aircraft, the fair value of financial assets and liabilities, acquired intangible assets, goodwill, contingent consideration and other assets and liabilities, sales and use tax, the estimated life of member relationships, the determination of the allowance for credit losses, impairment assessments, the determination of the valuation allowance for deferred tax assets and the incremental borrowing rate for leases.
Fair Value Measurements
The carrying values of cash and cash equivalents, investments, accounts receivable, deferred revenue, accounts payable and long-term debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the long-term debt is based upon current market rates.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, an exit price, in an orderly transaction between unaffiliated willing market participants on the measurement date under current market conditions. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available and activity in the markets used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
| | | | | |
| Level 1 - | Quoted prices, unadjusted, in active markets for identical assets or liabilities that can be accessed at the measurement date. |
| |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| |
| Level 3 - | Unobservable inputs developed using our own estimates and assumptions, which reflect those that market participants would use in pricing the asset or liability. |
The determination of where an asset or liability falls in the hierarchy requires significant judgment. When developing fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, the estimated fair value of financial instruments is based on quoted prices in active markets that are available on the measurement date. If quoted prices in active markets are not available, the determination of estimated fair value is based on standard market valuation methodologies, giving priority to observable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities for which it is practicable to estimate fair value:
•Cash equivalents and investments — The carrying amount of money market funds approximates fair value and is classified within Level 1 because we determined the fair value through quoted market prices. The carrying amount of commercial paper approximates fair value and is classified within Level 2 because we utilized observable inputs in non-active markets to determine the fair value.
•Long-term debt — The carrying amount approximates fair value based on the interest rates currently available for debt with similar terms and remaining maturities. We utilized Level 2 inputs to determine the fair value.
•Warrant liability — Public Warrants are classified within Level 1 as these securities are traded on an active public market. Private Warrants are classified within Level 2. We utilized the value of the Public Warrants as an approximation of the value of the Private Warrants as they are substantially similar to the Public Warrants, but not directly traded or quoted on an active market.
Certain non-financial assets are measured at fair value on a non-recurring basis, including property and equipment, goodwill and intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment.
Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with initial maturities of three months or less, when purchased, to be cash equivalents.
Restricted Cash
Restricted cash is pledged as security for letters of credit and also includes cash and cash equivalents that are unavailable for immediate use due to contractual restrictions. We classify restricted cash as current or non-current based on the remaining term of the restriction.
Investments
Investments consist of highly liquid investment grade commercial paper issued by major corporations and financial institutions with initial maturities of greater than three months and remaining maturities of less than one year from the date of purchase. All investments are classified as “available-for-sale” and realized gains or losses are recorded using the specific identification method. We classify investments as available-for-sale securities as they represent investments available to support current operations and may be sold prior to their stated maturities for strategic or operational reasons. There were no unrealized gains or losses on available-for-sale securities for the years ended December 31, 2021, 2020 and 2019.
Changes in market value, excluding other-than-temporary impairments, are reported as a separate component of accumulated other comprehensive loss until realized. In determining whether an other-than-temporary impairment exists, we consider: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer of the securities; and (iii) the intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value. There were no other-than-temporary impairment losses identified for the years ended December 31, 2021, 2020 and 2019.
Accounts and Other Receivables
Accounts receivable, net, primarily consists of contractual amounts we expect to collect from members and customers related to membership subscriptions and flights, including amounts currently due from credit card companies. We record accounts receivable at the original invoiced amount. There is $0.2 million and $1.4 million of membership fees and prepaid flight time included in both accounts receivable and deferred revenue as of December 31, 2021 and 2020, respectively.
We monitor exposure for losses and maintain an allowance for credit losses for any receivables that may be uncollectible. Historically, we used an incurred loss model to calculate the allowance for credit losses. Upon the adoption of the new credit loss standard on January 1, 2020, we shifted to a current expected credit loss model. We estimate uncollectible receivables based on the receivable’s age, customer credit-worthiness, past transaction history with the customer, changes in payment terms and the condition of the general economy and the industry as a whole. When it is determined that the amounts are not recoverable, the receivable is written off against the allowance. As of December 31, 2021 and 2020, the allowance for credit losses was $5.9 million and $2.3 million, respectively. Other receivables primarily consist of tax credits for Federal Excise Tax paid on aircraft fuel.
Concentration of Credit Risk
Financial instruments that may potentially expose us to concentrations of credit risk primarily consist of cash, cash equivalents, restricted cash and receivables. We place cash and cash equivalents with multiple high credit quality financial institutions. Accounts are guaranteed by the Federal Deposit Insurance Corporation up to certain limits and although deposits are held with multiple financial institutions, deposits at times may exceed the federally insured limits. We have not experienced any losses in such accounts.
Accounts receivable are spread over many members and customers. We monitor credit quality on an ongoing basis and maintain reserves for estimated credit losses.
There were no customers that accounted for 10% or more of revenue for the years ended December 31, 2021, 2020 and 2019. There were no customers that accounted for 10% or more of accounts receivable as of December 31, 2021 and 2020.
Parts and Supplies Inventories
Inventories are used in operations and are generally not for sale. Inventories are comprised of spare aircraft parts, materials and supplies, which are valued at the lower of cost or net realizable value. Cost of inventories are determined using the specific identification method. We determine, based on the evidence that exists, whether or not it is appropriate to maintain a reserve for excess and obsolete inventory. The reserve is based on historical experience related to the disposal of inventory due to damage, physical deterioration, obsolescence or other causes. As of December 31, 2021 and 2020, the reserve was not material. Storage costs and indirect administrative overhead costs related to inventories are expensed as incurred.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include security deposits, which relate primarily to contractual prepayments to third-parties for future services, the current portion of capitalized costs related to sales commissions and referral fees, aircraft held for sale and insurance claims receivable.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization for all property and equipment are calculated using the straight-line method over the estimated useful lives of the related assets. Residual values estimated for aircraft are approximately 50% of the original purchase price. Expenditures that increase the value or productive capacity of assets are capitalized, and repairs and maintenance are expensed as incurred. The estimated useful lives of property and equipment are principally as follows: aircraft — seven years, furniture and fixtures — three years, vehicles — five years, building and improvements — 27 years, computer equipment — three years and tooling — ten years. Leasehold improvements are amortized over the shorter of either the estimated useful life of the asset or the remaining term of the lease (see Note 4).
Software Development Costs
We incur costs related to developing the Wheels Up website, mobile application, and other internal use software. In addition, we incur costs related to the development of our flight management software. The amounts capitalized include materials, employees’ payroll and payroll-related costs including equity-based compensation directly associated with the development activities, as well as external direct costs of services used in developing the software. We amortize capitalized costs using the straight-line method over the estimated useful life, which is currently three years, beginning when the software is ready for its intended use. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. We perform periodic reviews to ensure that unamortized software development costs remain recoverable from future revenue (see Note 4).
Leases
We determine if an arrangement is a lease at inception on an individual contract basis. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the consolidated balance sheets. Operating lease right-of-use assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. The interest rate implicit in our leases is not readily determinable to discount lease payments. As a result, for all leases we use an incremental borrowing rate that is based on the estimated rate of interest for a collateralized borrowing of a similar asset, using a similar term as the lease payments at the commencement date.
The operating lease right-of-use assets and operating lease liabilities include any lease payments made, including any variable amounts that are based on an index or rate, and exclude lease incentives. Variability that is not due to an index or rate, such as payments made based on hourly rates, are excluded from the lease liability. Lease terms may include options to extend or terminate the lease. Renewal option periods are included within the lease term and the associated payments are recognized in the measurement of the operating right-of-use asset and
operating lease liability when they are at our discretion and considered reasonably certain of being exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We have elected the practical expedient not to recognize leases with an initial term of 12 months or less on our consolidated balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease. For real estate leases, we have elected the practical expedient to account for both the lease and non-lease components as a single lease component and not allocate the consideration in the contract. Certain real estate leases contain fixed lease payments that include real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and are included in the operating lease right-of-use assets and operating lease liabilities. For non-real estate leases, including aircraft, we have separated the lease and non-lease components. The non-lease components of aircraft leases are typically for maintenance services and insurance that are expensed as incurred (see Note 12).
During a portion of 2020 and all of 2019, we were the sublessor of certain aircraft leases to Gama Aviation LLC prior to our acquisition of Gama Aviation LLC, due to government regulations. The underlying aircraft assets from these subleases are presented on the consolidated balance sheets. Sublease income is presented in cost of revenue net of the lease cost in the consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets consist of aircraft, including aircraft held for sale, 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 and circumstances indicate that the carrying value may not be recoverable based on the estimated undiscounted future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value of the asset or asset group, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset or asset group.
We determined the initial negative effect and uncertainty related to COVID-19 was a potential indicator that the carrying value of our long-lived assets may not be recoverable. As a result, we performed an undiscounted cash flow analysis of our long-lived assets for potential impairment as of April 30, 2020, and based on the analysis, it was determined that there was no impairment to our long-lived assets. In addition, there were no other indicators of impairment of long-lived assets identified after April 30, 2020 through December 31, 2020 and during the year ended 2019.
For the year ended December 31, 2021, we determined that because of a sustained decrease in our share price from the Closing Date, combined with a decline in our margins, we had potential indicators that the carrying value of our long-lived assets may not be recoverable. As a result, we performed an undiscounted cash flow analysis of our long-lived assets for potential impairment as of December 15, 2021, and based on the analysis, it was determined that there was no impairment to our long-lived assets.
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 on the acquisition date. For acquisitions meeting the definition of a business combination, 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 (see Note 3 and Note 6).
Goodwill
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 cannot conclude that it is more-likely-than-not that the fair value of the reporting unit exceeds its carrying value, or if we elect to skip the optional qualitative assessment approach, we proceed with performing the quantitative impairment assessment primarily using a discounted cash flow model, or income approach, to quantify the amount of impairment, if any (see Note 7).
Intangible Assets
Intangible assets other than goodwill consists of acquired finite-lived trade names, customer relationships and developed technology. At initial recognition, intangible assets 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 (see Note 7).
Other Current Liabilities
Other current liabilities consist of deposits from owners for managed aircraft. Deposits are collected at the inception of the contract with each owner and returned on the contract termination date, to the extent there are no outstanding payments due at such time.
Warrant Liability
We determine if warrants are equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether warrants meet all of the requirements for equity classification under ASC 815, including whether warrants are indexed to our common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, warrants are required to be recorded as a liability at their fair value on date of issuance and each balance sheet date thereafter. Changes in the estimated fair value of warrants are recognized as an unrealized gain or loss.
We recorded the Private Warrants and Public Warrants (each defined below and collectively the “Warrants”) assumed as part of the Business Combination (see Note 3 and Note 19) as liabilities.
Deferred Offering Costs
We capitalized certain legal, accounting and other direct third-party costs related to the Business Combination. Deferred offering costs were included as an asset on the consolidated balance sheets and were deferred until the Closing Date, at which time they were deducted from additional paid-in capital of the combined business.
Revenue
We determine revenue recognition through the following steps:
•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.
Revenue is derived from a variety of sources including, but not limited to, (i) memberships, (ii) flights, (iii) aircraft management and (iv) other.
Wheels Up membership agreements are signed by each member. Wheels Up membership agreements together with the terms and conditions in the flight services agreement govern the use of the Wheels Up membership. We account for a contract when both parties have approved and are committed to perform their obligations, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. In addition to retail flights, we also have flight service agreements to sell wholesale flights to customers that are non-members and do not pay annual dues or initiation fees.
Revenue is recorded net of discounts on standard pricing and incentive offerings including special pricing agreements and certain promotions.
Deferred revenue is an obligation to transfer services to a customer for which we have already received consideration. Upon receipt of a prepayment from a customer 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 to the customer at a future date.
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. Wheels Up directs third-party air carriers to provide an aircraft to a member or customer. Based on evaluation of the control model, it was determined that Wheels Up acts as the principal rather than the agent within all revenue arrangements, other than when acting as an intermediary ticketing agent for travel as part of the Commercial Cooperation Agreement (as amended, the “CCA”) with Delta Airlines, Inc. (“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. Members can use Prepaid Blocks (defined below) to purchase commercial flights on Delta. Wheels Up charges the member a ticketing fee to use their funds with Delta, which is recorded on a net basis in revenue at the time of booking. Wheels Up passes along the fulfillment of the performance obligation to Delta who actually provides the flight to the member. Owner charter revenue is recognized for flights where the owner of a managed aircraft sets the price for the trip. Wheels Up records owner charter revenue at the time of flight on a net basis for the margin we receive to operate the aircraft. If Wheels Up has 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.
(i) Memberships
New members are typically charged a one-time initiation fee at the commencement of their membership, which is generally non-refundable. In the first year of membership, a portion of the initiation fee is applied to their 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 estimated to be approximately 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, which is generally but not always 12 months. If a customer qualifies to earn SkyMiles (as defined below) as part of their membership, then a portion of the transaction price is allocated to this performance obligation at contract inception. The amount of the allocation is determined based on our contractual cost for SkyMiles purchases with Delta. If at any time the membership is terminated, any previously unrecognized amounts are recognized in the period of termination.
(ii) Flights
Flights and flight-related services, along with the related costs of the flights, are earned and recognized as revenue at the point in time in which the service is provided. For round trip flights, revenue is recognized upon arrival at the destination for each flight segment.
Members pay a fixed quoted amount for flights. The amount can be based on a contractual capped hourly rate or dynamically priced based on market demand at time of booking. Wholesale customers primarily pay a fixed rate for flights. In addition, flight costs can be paid by members through the purchase of Fund Programs (“Prepaid Blocks”), which are generally dollar-denominated credits for future spend with Wheels Up. Prepaid Blocks are deferred and recognized as revenue when the member completes a flight segment. Prepaid Blocks also can generally be used to purchase commercial flights on Delta. Wheels Up, acting in the capacity of an agent, charges the member a ticketing fee to use their commingled funds on a flight provided by Delta, which is recorded on a net basis at the time of booking.
Through our acquisition of Delta Private Jets, LLC now known as Wheels Up Private Jets LLC (“WUPJ”), we inherited the legacy WUPJ jet cards. WUPJ jet cards allow a customer to pre-purchase dollar-denominated credits at agreement inception that are redeemed for future flights on WUPJ, are refundable for a termination fee, and are generally effective for a term of 24 months. Customers are also able to reload funds on their jet card periodically throughout the term. The jet card values are purchased at tiered dollar amounts and entitle customers to fixed rate all-inclusive hourly pricing and guaranteed availability. During 2020, we began the process of converting WUPJ jet card holders to Wheels Up memberships and we generally do not offer new WUPJ jet cards.
In addition, Wheels Up continued and expanded a customary WUPJ business practice of providing Medallion Status (“Status”) in Delta’s SkyMiles Program (“SkyMiles”) for purchases of Prepaid Blocks and jet cards. A member is granted Status free of charge for use during the term of the contract and may assign the Status to any designated individual. A member can use their SkyMiles for purchases of Prepaid Blocks but they do not earn SkyMiles on Wheels Up flights. Any members that meet the designated spend thresholds for Prepaid Blocks and jet cards or the designated dollar-denominated flight spend thresholds during the year receive the same Status. Additionally, we do not owe Delta any consideration for the grant of each Status provided. Status is not a material right at contract inception and does not give rise to a separate performance obligation. The provided Status is not recognized as revenue, but instead is considered a marketing incentive related to future purchases on Delta.
The amount of flight breakage was not material for the years ended December 31, 2021, 2020 and 2019.
(iii) Aircraft Management
We manage aircraft for owners in exchange for a contractual fee. Revenue associated with the management of aircraft also includes the recovery of owner incurred expenses including maintenance coordination, cabin crew and pilots, as well as recharging of certain incurred aircraft operating costs and expenses such as maintenance, fuel, landing fees, parking and other related operating costs. We pass the recovery and recharge costs back to owners at either cost or a predetermined margin.
Aircraft management related revenue contains two performance obligations. One performance obligation is to provide management services over the contract period. Revenue earned from management services is recognized over the contractual term, on a monthly basis. The second performance obligation is the cost to operate and maintain the aircraft, which is recognized as revenue at the point in time such services are completed.
(iv) Other
Ground Services
Fixed-based operator (“FBO”) ground services are provided for aircraft customers that use our facility at Cincinnati/Northern Kentucky International Airport (“CVG”). FBO ground services are comprised of a single performance obligation for aircraft facility services such as fueling, parking, ground power and cleaning. FBO related revenue is recognized at the point in time each service is provided.
We also separately provide maintenance, repair and operations (“MRO”) ground services for aircraft owners and operators at certain of our facilities. MRO ground services are comprised of a single performance obligation for aircraft maintenance services such as modifications, repairs and inspections. MRO related revenue is recognized over time based on the cost of inventory consumed and labor hours worked for each service provided.
Flight-Related Services
As part of each flight, there is the option to request flight-related services such as catering or ground transportation for an additional charge. Flight-related services, which are passed through at either cost or a predetermined margin, were $3.3 million, $1.4 million and $1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Software Subscriptions
Subscription revenue consists of fees earned, typically monthly, from third-party operators and other businesses in the private aviation industry for web-based access to UP FMS, which is a collaborative suite of flight software tools that we offer through our acquisition of Avianis Systems LLC. Our subscription services provide users software licenses and related support and updates during the term of the arrangement to enable management of flight operations. Revenue is generally recognized from such subscription contracts on a straight-line basis over the contract period. Contracts for related professional services, such as customized training or implementation programs, are either on a time and materials or fixed fee basis. Professional services revenue is generally recognized at the point in time the services are performed.
Other revenue also consists of fees we may receive from third-party sponsorships and partnerships as part of lifestyle and event experience programs for members, whole aircraft acquisition and sales fees where we act as the broker and special missions including government, defense, emergency and medical transport, which are each recognized at the point in time the service is provided.
Aircraft Sales
We acquire aircraft from vendors and various other third-party sellers in the private aviation industry. On the acquisition date, we determine whether our intent is to sell the aircraft, generally within six to 12 months. If an aircraft is available to be used to service member or customer flights and our intent is either to sell and leaseback the aircraft or sell the aircraft to an aircraft management client, then we classify the purchase as an asset held for sale on the consolidated balance sheets, provided all of the six specified accounting criteria in ASC 360-10-45-9 are met. As of December 31, 2021 and 2020, respectively, aircraft purchases of $18.1 million and $0 were recorded as held for sale. Assets held for sale are reported at the lower of cost or fair value less costs to sell. The gain (loss) upon sale of such aircraft is recorded on a net basis as part of income (loss) from operations in the consolidated statements of operations. We recorded a gain on sale of $1.3 million, $0 and $0 for aircraft sale-leaseback transactions during the years ended December 31, 2021, 2020 and 2019, respectively.
If our intent is to sell to a third-party customer and we do not intend to use the aircraft to service member or customer flights prior to the sale then we classify the purchase as inventory on the consolidated balance sheets and
the sale is recorded on a gross basis within other revenue and cost of revenue in the consolidated statements of operations. As of December 31, 2021 and 2020 there were no aircraft purchases recorded in inventory. In addition, there was no revenue recorded for aircraft sales during the years ended December 31, 2021, 2020 and 2019.
Aircraft Maintenance and Repair
Regular maintenance for owned and leased aircraft is expensed as incurred unless covered by a third-party, long-term flight hour service agreement. We have separate service agreements in place covering scheduled and unscheduled repairs of certain aircraft components, as well as the engines for certain owned and leased aircraft in our fleet. Certain of these agreements, whose original terms generally range from ten to 15 years, require monthly payments at rates based either on the number of cycles each aircraft was operated during each month or the number of flight hours each engine was operated during each month, subject to annual escalations. These power-by-the-hour agreements transfer certain risks, including cost risks, to the third-party service providers. They generally fix the amount we pay per flight hour or number of cycles in exchange for maintenance and repairs under a predefined maintenance program, which are representative of the time and materials that would be consumed. These costs are expensed as the related flight hours or cycles are incurred.
Advertising Costs
We expense the cost of advertising and promoting our services as incurred. Such amounts are included in sales and marketing expense in the consolidated statements of operations and totaled $12.3 million, $7.2 million and $5.0 million, for the years ended December 31, 2021, 2020 and 2019, respectively.
Equity-Based Compensation
Prior to the Business Combination, we issued equity-based compensation awards to employees and consultants, including stock options, profits interests and restricted interests, under the WUP stock option plan and WUP management incentive plan. In connection with the Business Combination, we adopted and issued Restricted stock units (“RSUs”) and stock options under the Wheels Up Experience Inc. 2021 Long-Term Incentive Plan. Equity-based compensation awards are measured on the date of grant based on the estimated fair value of the respective award and the resulting compensation expense is recognized over the requisite service period of the respective award. We account for forfeitures of awards as they occur.
WUP restricted interests have a performance condition that provides for accelerated vesting upon the occurrence of a change in control or an initial public offering including consummation of a transaction with a special-purpose acquisition company. For performance-based awards such as WUP restricted interests, the grant date fair value of the award is expensed over the vesting period when the performance condition is considered probable of being achieved.
RSUs are measured based upon the fair value of a share of our Class A common stock on the date of grant. RSUs typically vest upon a service-based requirement, and we recognize compensation expense on a straight-line basis over the requisite service period.
Earnout Shares (as defined below) potentially issuable to holders of WUP profits interests and restricted interests as part of the Business Combination (see Note 3 and Note 14) are recorded as equity-based compensation. Earnout Shares contain market conditions for vesting. Compensation expense related to an award with a market condition is recognized on a tranche-by-tranche basis (accelerated attribution method) over the requisite service period and is not reversed if the market condition is not satisfied.
Income Taxes
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities reflect the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities as well as operating losses, capital losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to be in effect when these differences are anticipated to reverse. Management makes estimates, assumptions, and judgments to determine our provision for income taxes,
deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, we establish a valuation allowance.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to Wheels Up by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net income (loss) per share is computed based on the weighted average number of shares of Class A common stock outstanding plus the effect of dilutive potential shares of Class A common stock outstanding during the period. During the periods when there is a net loss, potentially dilutive shares of Class A common stock are excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.
Segment Reporting
We identify operating segments as components of Wheels Up for which discrete financial information is available and is regularly reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance assessment. The chief operating decision maker is the chief executive officer. We determined that Wheels Up operates in a single operating and reportable segment, private aviation services, as the chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenue, for purposes of making operating decisions, allocating resources, and assessing performance. Substantially all of our long-lived assets are located in the U.S. and revenue from private aviation services is substantially earned from flights throughout the U.S.
Correction of an Immaterial Error
During the fourth quarter of 2021, we identified an immaterial error related to the accounting for equity as part of the reverse recapitalization (see Note 3) that resulted in an understatement of our accumulated deficit and an overstatement of additional paid-in capital by $25.9 million as of January 1, 2019 and December 31, 2019 and $32.7 million as of December 31, 2020. The error had no impact on our total equity or our financial position, results of operations or cash flows.
We assessed the materiality of the error on our consolidated financial statements for prior periods and concluded that they were not material. We have corrected the error by adjusting the prior period consolidated financial statements.
Adopted Accounting Pronouncements
In December 2019, the FASB issued accounting standards update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes (ASC 740). This standard simplifies the accounting for income taxes by (i) eliminating certain exceptions within ASC 740 and (ii) clarifying and amending the existing guidance to enable consistent application of ASC 740. We adopted ASU 2019-12 on January 1, 2021. This adoption did not have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848). The FASB issued a subsequent amendment to the initial guidance in January 2021 with ASU 2021-01. This standard provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference
rates. The guidance was effective upon issuance and generally can be applied through December 31, 2022. This adoption did not have a material impact on our consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance: Disclosures by Business Entities about Government Assistance (ASC 832). This standard requires certain disclosures about the significant terms and conditions of material government assistance agreements in order to provide more consistent information to financial statement users. This new standard is effective for annual reporting periods in fiscal years beginning after December 15, 2021. Early adoption is permitted. We determined that our material government assistance is the payroll support program agreement under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and we adopted the new standard in 2021. See Note 8, where we reflect the requirements of this new standard as it relates to our payroll support program disclosures.
Accounting Pronouncements Issued but Not Yet Effective
In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASC 805). This standard simplifies the measurement and recognition of contract assets and contract liabilities from contracts with customers acquired in a business combination. This guidance will generally result in the recognition of contract assets and contract liabilities consistent with those reported by the acquiree immediately before the acquisition date. This new standard is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating but do not believe the adoption of ASU 2021-08 will have a material impact on our consolidated financial statements.
3.BUSINESS COMBINATION
The Business Combination was accounted for as a reverse recapitalization, where Aspirational was treated as the acquired company for financial reporting purposes. This accounting treatment is the equivalent of Wheels Up issuing stock for the net assets of Aspirational, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Accordingly, WUP is deemed the accounting predecessor of the combined business, and Wheels Up, as the parent company of the combined business, is the successor Securities and Exchange Commission (“SEC”) registrant, meaning that all historical financial information presented in the consolidated financial statements prior to the closing of the Business Combination represents the accounts of WUP.
Upon closing of the Business Combination, all outstanding WUP common interests and WUP preferred interests (including WUP restricted interests), as well as shares underlying WUP options, were converted into 190.0 million shares of Class A common stock and rolled over into the combined business. In addition, there were 29.0 million outstanding WUP profits interests recapitalized in connection with the Business Combination that can be exchanged on a value-for-value basis for Class A common stock subject to vesting.
Upon closing of the Business Combination, Aspirational and Aspirational’s public shareholders held 6.0 million and 10.6 million shares, respectively, of Class A common stock.
All references to numbers of common shares and per common share data prior to the Business Combination in these consolidated financial statements and related notes have been retroactively adjusted to account for the effect of the reverse recapitalization. The reported share and per share amounts, have been converted by applying the exchange ratio established in the Merger Agreement of 0.4604, which was based on the Wheels Up implied price per share prior to the Business Combination (the “Exchange Ratio”). On the Closing Date, we received approximately $656.3 million in gross proceeds. In connection with the Business Combination, we incurred $70.4 million of transaction costs, consisting of advisory, legal, share registration and other professional fees, which are recorded within additional paid-in capital as a reduction of proceeds.
PIPE Investment
In connection with the Business Combination, Aspirational entered into subscription agreements with certain investors (the “PIPE Investors”), whereby Aspirational issued 55,000,000 shares of common stock at a price of
$10.00 per share (the “PIPE Shares”) for an aggregate purchase price of $550 million (the “PIPE Investment”), which closed simultaneously with the consummation of the Business Combination. On the Closing Date, the PIPE Shares were automatically converted into shares of Class A common stock on a one-for-one basis.
Earnout Shares
Further, as part of the Business Combination, existing holders of WUP equity, including holders of profits interests and restricted interests, but excluding holders of stock options, have the right to receive 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 Class A common stock share price thresholds of $12.50, $15.00 and $17.50 for any 20 trading days within a period of 30 consecutive trading days within five years of the Closing Date, respectively (the “Earnout Shares”).
Public Warrants and Private Warrants
The Warrants assumed in the Business Combination include (i) 7,991,544 redeemable warrants sold by Aspirational as part of its initial public offering (the “Public Warrants”) of 23,974,362 units, consisting of one share of Class A common stock and one-third of one warrant exercisable for Class A common stock and (ii) 4,529,950 warrants privately sold by Aspirational at a price of $1.50 per warrant (the “Private Warrants”) to Aspirational Consumer Lifestyle Sponsor LLC (the “Sponsor”) simultaneously with the closing of the Aspirational initial public offering exercisable for Class A common stock. Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share. Each Private Warrant entitles the Sponsor to purchase one share of Class A common stock at a price of $11.50 per share.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
| | | | | | | | | | | |
| December 31,
2021 | | December 31, 2020 |
| Aircraft | $ | 482,848 | | | $ | 473,509 | |
| Software development costs | 35,818 | | | 22,414 | |
| Leasehold improvements | 12,584 | | | 9,560 | |
| Computer equipment | 2,147 | | | 1,846 | |
| Buildings and improvements | 1,424 | | | 1,424 | |
| Furniture and fixtures | 1,960 | | | 1,321 | |
| Tooling | 3,129 | | | 1,296 | |
| Vehicles | 1,142 | | | 597 | |
| 541,052 | | | 511,967 | |
| | | |
| Less: Accumulated depreciation and amortization | (223,216) | | | (188,877) | |
| Total | $ | 317,836 | | | $ | 323,090 | |
Depreciation and amortization expense of property and equipment was $34.3 million, $40.8 million and $38.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Capitalized costs related to the internal development of software were $13.4 million, $8.4 million and $3.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Amortization expense related to software development costs, included as part of depreciation and amortization expense of property and equipment, was $6.8 million, $4.8 million and $2.6 million for the years ended December 31, 2021, 2020 and 2019 respectively.
5. REVENUE
Disaggregation of Revenue
The following table disaggregates revenue by service type and the timing of when these services are provided to the member or customer (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Services transferred at a point in time: | | | | | |
| Flights, net of discounts and fees | $ | 873,724 | | | $ | 495,419 | | | $ | 334,263 | |
| Aircraft management | 215,368 | | | 124,881 | | | — | |
| Other | 20,910 | | | 9,392 | | | 4,781 | |
| | | | | |
| Services transferred over time: | | | | | |
| Memberships | 69,592 | | | 54,622 | | | 45,868 | |
| Aircraft management | 9,897 | | | 7,848 | | | — | |
| Other | 4,768 | | | 2,819 | | | — | |
| Total | $ | 1,194,259 | | | $ | 694,981 | | | $ | 384,912 | |
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct service to the customer and is the basis of revenue recognition. To determine the proper revenue recognition method for contracts, we used judgment 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 that require reallocation of the transaction price. The amount of reallocations was not material for the years ended December 31, 2021, 2020 and 2019.
Transaction Price
The transaction prices for each of our primary revenue streams are as follows:
•Flights — The fixed quoted amount including any flight credits.
•Memberships — The initiation fee, less any flight credits, when signing up and annual dues for all years thereafter.
•Aircraft management — The fixed monthly fee to manage the aircraft over the contractual term plus the recovery of owner-incurred expenses and recharge costs that are based on the expenses we incur to operate and maintain the aircraft; and,
•Other (FBO and MRO) — Time and materials incurred for the work performed or services rendered.
If there is a group of performance obligations bundled in a contract, the transaction price is allocated based upon the relative standalone selling prices of the promised services underlying each performance obligation.
Payment Terms
Under standard payment terms, the member or customer agrees to pay the full stated price in the contract and financing of the transaction is not provided. Revenue in the consolidated statements of operations is presented net of discounts and incentives of $17.0 million, $9.5 million and $11.3 million, for the years ended December 31, 2021, 2020 and 2019, respectively. We generally do not issue refunds for flights unless there is a failure to meet a service
obligation with respect to such flight. Refunded amounts for initiation fees and annual dues are granted to some customers that no longer wish to remain members following their first flight and were not material for the years ended December 31, 2021, 2020 and 2019.
Contract Balances
Receivables from member and customer contracts are included within accounts receivable, net on the consolidated balance sheets. As of December 31, 2021 and December 31, 2020, gross receivables from members and customers were $71.8 million and $38.6 million, respectively. As of December 31, 2021 and December 31, 2020, undeposited funds, included within accounts receivable, net, were $13.5 million and $14.1 million, respectively. As of December 31, 2021 and December 31, 2020, the allowance for expected credit losses was $5.9 million and $2.3 million, respectively.
Contract liabilities represent obligations to transfer services to a member or customer for which we have already received consideration. Purchases of flights, Prepaid Blocks, jet card deposits, initiation fees including flight credits and annual dues payments are received up front in advance of performance under the contract and initially deferred as a liability. Prepaid flights, Prepaid Blocks and flight credits are recognized as revenue and the deferred revenue liability is reduced at the point in time a flight segment is taken. The initiation fee is recognized upon acquisition of the contract on a straight-line basis over the estimated customer relationship period, which approximates three years. The initial annual dues are recognized upon acquisition of the contract on a straight-line basis for a specified length of time, usually 12 months. Any subsequent recurring contract renewals are recognized on a straight-line basis over an estimated period of 12 months from the date the contract is renewed.
The balance classified as current deferred revenue includes prepaid flights and flight credits, annual dues and initiation fees. Prepaid flights and flight credits are redeemable for flights at any time. The balance classified as non-current deferred revenue includes the portion of initiation fees that are estimated to be satisfied in service periods beyond 12 months following the balance sheet date.
Deferred revenue consists of the following (in thousands):
| | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Flights - Prepaid Blocks and jet cards | $ | 876,750 | | | $ | 609,490 | |
| Memberships - annual dues | 47,069 | | | 32,016 | |
| Memberships - initiation fees | 4,072 | | | 3,870 | |
| Flights - credits | 6,633 | | | 7,291 | |
| Other | 960 | | | 411 | |
| Deferred revenue - total | 935,484 | | | 653,078 | |
| | | |
| Less: Deferred revenue - current | (933,527) | | | (651,096) | |
| Deferred revenue - non-current | $ | 1,957 | | | $ | 1,982 | |
Changes in deferred revenue for the year ended December 31, 2021 were as follows (in thousands):
| | | | | |
| Deferred revenue - beginning balance | $ | 653,078 | |
| Amounts deferred during the period | 1,242,645 | |
| Revenue recognized from amounts included in the deferred revenue beginning balance | (457,202) | |
| Revenue from current period sales | (503,037) | |
| Deferred revenue - ending balance | $ | 935,484 | |
Revenue expected to be recognized in future periods for performance obligations that are unsatisfied, or partially unsatisfied, as of December 31, 2021 approximates $647.6 million, $144.0 million and $143.9 million for 2022, 2023 and 2024, respectively.
Costs to Obtain Contract
Commissions are granted to certain employees and consultants separately for the initial sales of memberships, additional subsequent contract renewals, flights or when a member purchases Prepaid Blocks on their account. Commissions are also granted for the execution of aircraft management agreements, additional subsequent contract renewals and performance over the contractual term. In addition, members are eligible to receive a credit if they refer a new customer who signs up for a membership in the Wheels Up program. The cost of commissions and referral fees are capitalized as an asset on the consolidated balance sheets as these are incremental amounts directly related to attaining a contract with a member. Capitalized costs related to sales commissions and referral fees were $13.2 million, $6.3 million and $9.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021 and December 31, 2020, capitalized sales commissions and referral fees of $8.6 million and $5.0 million, respectively, are in prepaid expenses and other current assets and $1.4 million and $0.8 million, respectively, are in other non-current assets on the consolidated balance sheets.
Amounts capitalized for certain costs incurred to obtain a contract are periodically reviewed for impairment and amortized on a straight-line basis concurrently over the same period of benefit in which the associated contract revenue is recognized. Amortization expense related to capitalized sales commissions and referral fees included in sales and marketing expense in the consolidated statements of operations was $9.1 million, $7.4 million and $7.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.
6. ACQUISITIONS
Mountain Aviation, LLC Acquisition
On January 5, 2021, we acquired all of the outstanding equity of Mountain Aviation, LLC (“Mountain Aviation”) for a total purchase price of $40.2 million, consisting of $30.2 million in WUP common interests and $10.0 million in cash. In addition, there is a potential incremental cash earn-out of up to $15.0 million based on achieving certain financial performance metrics related to certain special missions, which represents contingent consideration, and would be payable in the second quarter of 2023 to the extent achieved. The estimated fair value of the earn-out payment using a Monte Carlo simulation model as of the acquisition date was $0. As a result, we have not recorded a liability for the fair value of contingent consideration payable on the consolidated balance sheet as of December 31, 2021. The valuation of the earn-out is based on significant inputs that are not observable in the market; therefore, it is a Level 3 financial instrument. 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. Acquisition-related costs for Mountain Aviation of $2.0 million were included in general and administrative expense in the consolidated statements of operations for the year ended December 31, 2021. The acquisition of Mountain Aviation was determined to be a business combination.
As of the date of acquisition, the total preliminary purchase price allocated to the Mountain Aviation assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 32,667 | |
| Property and equipment | 741 | |
| Intangible assets | 5,040 | |
| Goodwill | 37,238 | |
| Other assets | 45,874 | |
| Total assets acquired | 121,560 | |
| Total liabilities assumed | (81,388) | |
| Net assets acquired | $ | 40,172 | |
Current assets of Mountain Aviation included $17.8 million of cash and $10.8 million of accounts receivable, including $1.5 million owed from Wheels Up that was eliminated in consolidation upon acquisition.
Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. The allocated value of goodwill primarily relates to anticipated synergies and economies of scale by combining the use of Mountain Aviation's aircraft, maintenance capabilities and existing business processes with our other acquisitions. The acquired goodwill is approximately 25.0% deductible for tax purposes.
The amounts allocated to acquired intangible assets and their associated weighted-average amortization periods, were determined based on the period the assets are expected to contribute directly or indirectly to our cash flows, consists of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Customer relationships - non-defense | $ | 3,400 | | | 7.0 |
| Customer relationships - defense | 1,200 | | | 4.0 |
| Trade name | 330 | | | 1.0 |
| Non-competition agreement | 110 | | | 1.0 |
| Total acquired intangible assets | $ | 5,040 | | | 5.8 |
The results of Mountain Aviation were included in the consolidated statement of operations from the date of acquisition. Revenue for Mountain Aviation was $100.9 million, net of intercompany eliminations, and income from operations was $18.0 million from the date of acquisition through December 31, 2021.
Gama Aviation LLC
On March 2, 2020, we acquired all the outstanding equity of Gama Aviation LLC (“Gama”) for a total purchase price of $73.9 million consisting of $5.1 million in WUP common interests, $41.3 million in cash and the issuance of promissory notes with an aggregate initial principal amount of $27.5 million payable to certain affiliated parties of Gama. Prior to the date of acquisition, Gama exclusively operated our Wheels Up branded aircraft as an independent third-party operator. We acquired Gama because it 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 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 Wheels Up to such entity. Acquisition-related costs for Gama of $2.4 million and $0.4 million were included in general and administrative expense in the consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively. The acquisition of Gama was determined to be a business combination.
As of the date of acquisition, the total purchase price allocated to the Gama assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 50,316 | |
| Property and equipment | 696 | |
| Intangible assets | 13,000 | |
| Goodwill | 54,757 | |
| Other assets | 5,866 | |
| Total assets acquired | 124,635 | |
| Total liabilities assumed | (50,705) | |
| Net assets acquired | $ | 73,930 | |
Current assets of Gama included $4.7 million of cash and $43.3 million of accounts receivable including $18.2 million owed from Wheels Up that was eliminated in consolidation upon acquisition.
Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. The allocated value of goodwill primarily relates to anticipated synergies from future growth using Gama’s aircraft under management and Gama’s existing business processes. The acquired goodwill is predominately deductible for tax purposes.
The amounts allocated to acquired intangible assets, and their associated weighted-average amortization periods, were determined based on the period the assets are expected to contribute directly or indirectly to our cash flows, consists of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Customer relationships | $ | 10,000 | | | 10.0 |
| Trade name | 3,000 | | | 2.0 |
| Total acquired intangible assets | $ | 13,000 | | | 8.2 |
The results of Gama were included in the consolidated statement of operations from the date of acquisition. Revenue for Gama was $122.1 million, net of intercompany eliminations, and income from operations was $39.8 million from the date of acquisition through December 31, 2020. Included in income from operations was $36.1 million related to the CARES Act grant (defined in Note 8).
Delta Private Jets, LLC Acquisition
On January 17, 2020, we acquired all the outstanding equity of Delta Private Jets, LLC, a wholly-owned subsidiary, of Delta for a total purchase price of $427.0 million, which was paid in WUP Class E preferred interests. In connection with the acquisition, Delta Private Jets, LLC was renamed Wheels Up Private Jets LLC. We acquired WUPJ because it provides 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. The CCA has an initial seven-year term and two subsequent renewal periods of three years. The Delta strategic relationship provides high value co-marketing products, features, and benefits to Wheels Up members and Delta customers. Acquisition-related costs for WUPJ of $2.8 million and $1.4 million were included in general and administrative expense in the consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively. The acquisition of WUPJ was determined to be a business combination.
As of the date of acquisition, the total purchase price allocated to the WUPJ assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 147,440 | |
| Property and equipment | 6,729 | |
| Intangible assets | 150,000 | |
| Goodwill | 341,671 | |
| Other assets | 17,608 | |
| Total assets acquired | 663,448 | |
| Total liabilities assumed | (236,441) | |
| Net assets acquired | $ | 427,007 | |
Current assets of WUPJ included $136.0 million of cash and $3.3 million of accounts receivable.
Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. The allocated value of goodwill primarily relates to anticipated benefits that will be generated from the launch of the Delta partnership, which will provide access to a large retail and corporate customer base of high-volume flyers. In addition, by combining the operations of WUPJ with our other acquisitions, we expect synergies and economies of scale that will result in reduced costs within the areas of aircraft management and maintenance. The acquired goodwill is not deductible for tax purposes.
The amounts allocated to acquired WUPJ intangible assets and liabilities, and their associated weighted-average amortization periods, were determined based on the period the assets and liabilities are expected to contribute directly or indirectly to our cash flows, consists of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Status | $ | 80,000 | | | 10.0 |
| Customer relationships | 60,000 | | | 10.0 |
| Trade name | 10,000 | | | 10.0 |
| Total acquired intangible assets | $ | 150,000 | | | 10.0 |
| | | |
| Total acquired intangible liabilities | $ | 20,000 | | | 10.0 |
The results of WUPJ were included in the consolidated statement of operations from the date of acquisition. Revenue for WUPJ was $136.4 million and loss from operations was $16.6 million from the date of acquisition through December 31, 2020. Included in loss from operations was income of $13.3 million related to the CARES Act grant.
Travel Management Company, LLC Acquisition
On May 31, 2019, we acquired all the outstanding equity of Travel Management Company, LLC (“TMC”) for a total purchase price of $29.8 million, which was paid in cash. We acquired TMC because it was the largest wholesale floating fleet operator of Light jets in North America. The Light jet is an aircraft that our customers demand and added to our overall product offering. Acquisition-related costs for TMC of $3.1 million were included in general and administrative expense in the consolidated statement of operations for the year ended December 31, 2019. The acquisition of TMC was determined to be a business combination.
As of the date of acquisition, the total purchase price allocated to the TMC assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 3,468 | |
| Property and equipment | 27,198 | |
| Intangible assets | 2,100 | |
| Goodwill | 3,732 | |
| Other assets | 3,774 | |
| Total assets acquired | 40,272 | |
| Total liabilities assumed | (10,492) | |
| Net assets acquired | $ | 29,780 | |
Current assets of TMC included $1.5 million of cash and $0.8 million of accounts receivable.
Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. The allocated value of goodwill primarily relates to anticipated synergies from future growth using TMC’s aircraft, technology and existing processes. The acquired goodwill is deductible for tax purposes.
The amounts allocated to acquired TMC intangible assets, and their associated weighted-average amortization periods, were determined based on the period the assets are expected to contribute directly or indirectly to our cash flows, consists of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Non-competition agreement | $ | 100 | | | 1.0 |
| Trade name | 900 | | | 5.0 |
| Developed technology | 500 | | | 5.0 |
| Leasehold interest - favorable | 600 | | | 27.0 |
| Total acquired intangible assets | $ | 2,100 | | | 11.1 |
The results of TMC were included in the consolidated statement of operations from the date of acquisition. Revenue for TMC was $30.4 million and loss from operations was $4.9 million from the date of acquisition through the year ended December 31, 2019.
Avianis Systems LLC Acquisition
On September 27, 2019, we entered into an asset purchase agreement to acquire substantially all of the assets and assume substantially all of the liabilities of Avianis Systems LLC (“Avianis”) for a total purchase price of $18.2 million, consisting of $3.8 million in WUP common interests and $14.4 million in cash. We acquired Avianis because it is a comprehensive cloud-based technology platform that allows for the management of aircraft operations and its software can also be used as a back-end flight aggregation tool for our Wheels Up mobile app as well as power third-party operators. The acquisition of Avianis did not meet the definition of a business combination and was accounted for as an asset acquisition. Acquisition-related costs for Avianis of $0.7 million were capitalized and included in the allocated purchase consideration.
As of the date of acquisition, the total purchase price allocated to the Avianis assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 99 | |
| Intangible assets | 18,947 | |
| Total assets acquired | 19,046 | |
| Total liabilities assumed | (802) | |
| Net assets acquired | $ | 18,244 | |
Current assets of Avianis included $0 of cash and $13 thousand of accounts receivable.
The amounts allocated to acquired Avianis intangible assets and their associated weighted-average amortization period, were determined based on the period the assets are expected to contribute directly or indirectly to our future cash flows, consists of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Developed technology | $ | 18,947 | | | 7.0 |
Unaudited Pro Forma Summary of Operations
The accompanying unaudited pro forma summary represents the consolidated results of operations as if the 2020 acquisitions of WUPJ and Gama had been completed as of January 1, 2019, and the 2021 acquisition of Mountain Aviation had been completed as of January 1, 2020. The unaudited pro forma financial results for 2021 reflect the results for the year ended December 31, 2021, as well as the effects of pro forma adjustments for the transaction in 2021. The unaudited pro forma financial results for 2020 reflect the results for the year ended December 31, 2020, as well as the effects of pro forma adjustments for the stated transaction in both 2021 and 2020. The unaudited pro forma financial information includes the accounting effects of the acquisitions, including adjustments to the amortization of intangible assets and professional fees associated with the transactions. The pro forma results were based on estimates and assumptions, which we believe are reasonable. The unaudited pro forma summary does not necessarily reflect the actual results that would have been achieved had the companies been combined during the periods presented, nor is it necessarily indicative of future consolidated results (in thousands, except per share data).
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| |
| Net revenue | $ | 1,196,373 | | | $ | 865,530 | | | $ | 825,749 | |
| Net loss | $ | (198,180) | | | $ | (96,679) | | | $ | (103,346) | |
| Net loss attributable to Wheels Up Experience Inc. | $ | (191,343) | | | $ | (89,022) | | | $ | (93,094) | |
| Net loss per share | $ | (0.93) | | | $ | (0.55) | | | $ | (0.90) | |
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The change in the carrying value of goodwill for the years ended December 31, 2021 and 2020, respectively, was as follows (in thousands):
| | | | | |
| Balance as of January 1, 2020 | $ | 3,732 | |
| Acquisition of WUPJ | 341,671 | |
| Acquisition of Gama | 54,757 | |
| Balance as of December 31, 2020 | 400,160 | |
| Acquisition of Mountain Aviation | 37,238 | |
| Balance as of December 31, 2021 | $ | 437,398 | |
Goodwill Impairment
On October 1, 2019, we performed a qualitative annual assessment of goodwill, and determined that there were no indicators of impairment. Our qualitative assessment included analyses and weighting of all relevant factors that impact the fair value of our goodwill.
During 2020, due to the initial negative effect of COVID-19 on overall travel demand and our business, as well as the uncertainty in anticipated versus actual rates of recovery, in addition to our annual goodwill impairment assessment on October 1st, we deemed it necessary to perform an interim quantitative impairment assessment of goodwill on April 30, 2020, using the estimated future discounted cash flows of our reporting unit, which did not result in impairment to goodwill. We performed a qualitative annual assessment on October 1, 2020, as the estimated fair value of our reporting unit significantly exceeded the carrying value on April 30, 2020. Our qualitative assessment did not result in an indication that the fair value of our reporting unit was less than the carrying value.
We performed a quantitative annual assessment on October 1, 2021. Our quantitative assessment, using a discounted cash flow approach did not result in an indication that the fair value of our reporting unit was less than the carrying value. During the fourth quarter of 2021, we determined that because of a sustained decrease in our share price from the Closing Date, combined with a decline in our margins, there was an indication a triggering event occurred. As such, we deemed it necessary to perform an interim quantitative impairment assessment of goodwill on December 15, 2021, using a discounted cash flow approach, which did not result in impairment to goodwill.
Intangible Assets
The gross carrying value, accumulated amortization and net carrying value of intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Status | $ | 80,000 | | | $ | 15,644 | | | $ | 64,356 | |
| Customer relationships | 74,600 | | | 14,443 | | | 60,157 | |
| Non-competition agreement | 210 | | | 209 | | | 1 | |
| Trade name | 14,230 | | | 5,493 | | | 8,737 | |
| Developed technology | 19,545 | | | 6,380 | | | 13,165 | |
| Leasehold interest - favorable | 600 | | | 57 | | | 543 | |
| Total | $ | 189,185 | | | $ | 42,226 | | | $ | 146,959 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Status | $ | 80,000 | | | $ | 7,645 | | | $ | 72,355 | |
| Customer relationships | 70,000 | | | 6,609 | | | 63,391 | |
| Non-competition agreement | 100 | | | 100 | | | — | |
| Trade name | 13,900 | | | 2,487 | | | 11,413 | |
| Developed technology | 19,545 | | | 3,559 | | | 15,986 | |
| Leasehold interest - favorable | 600 | | | 35 | | | 565 | |
| Total | $ | 184,145 | | | $ | 20,435 | | | $ | 163,710 | |
Amortization expense of intangible assets was $21.8 million, $19.5 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Intangible Liabilities
The gross carrying value, accumulated amortization and net carrying value of intangible liabilities consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Intangible liabilities | $ | 20,000 | | | $ | 3,917 | | | $ | 16,083 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Intangible liabilities | $ | 20,000 | | | $ | 1,917 | | | $ | 18,083 | |
Amortization of intangible liabilities, which reduces amortization expense was $2.0 million, $1.9 million and $0 for the years ended December 31, 2021, 2020 and 2019, respectively.
Future amortization expense of intangible assets and intangible liabilities held as of December 31, 2021 are as follows (in thousands):
| | | | | | | | | | | |
| Year ending December 31, | Intangible Assets | | Intangible Liabilities |
| 2022 | $ | 20,123 | | | $ | 2,000 | |
| 2023 | 19,864 | | | 2,000 | |
| 2024 | 19,701 | | | 2,000 | |
| 2025 | 19,288 | | | 2,000 | |
| 2026 | 18,604 | | | 2,000 | |
| Thereafter | 49,379 | | | 6,083 | |
| Total | $ | 146,959 | | | $ | 16,083 | |
8. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash Equivalents
Cash and cash equivalents consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair
Value | | Cash and Cash Equivalents |
| Cash | $ | 376,492 | | | $ | — | | | $ | — | | | $ | 376,492 | | | $ | 376,492 | |
| Money market funds | 408,082 | | | — | | | — | | | 408,082 | | | 408,082 | |
| Total | $ | 784,574 | | | $ | — | | | $ | — | | | $ | 784,574 | | | $ | 784,574 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair
Value | | Cash and Cash Equivalents |
| Cash | $ | 209,327 | | | $ | — | | | $ | — | | | $ | 209,327 | | | $ | 209,327 | |
| Money market funds | 103,472 | | | — | | | — | | | 103,472 | | | 103,472 | |
| Total | $ | 312,799 | | | $ | — | | | $ | — | | | $ | 312,799 | | | $ | 312,799 | |
Interest income from cash equivalents of $53 thousand, $0.6 million and $0.6 million was recorded in interest income in the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019, respectively.
Restricted Cash
As of December 31, 2021, restricted cash on the consolidated balance sheet represents amounts held by financial institutions to establish a standby letter of credit required by the lessor of certain corporate office space. The standby letter of credit expires at the end of the lease on December 31, 2033. As of December 31, 2020, restricted cash also included $10.0 million related to amounts held by third-party lenders to collateralize our November 2013 secured credit facility, as amended in August 2014 (See Note 10), which secured credit facility was paid off in 2021.
A reconciliation of cash and cash equivalents and restricted cash from the consolidated balance sheets to the consolidated statements of cash flows is shown below (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Cash and cash equivalents | $ | 784,574 | | | $ | 312,799 | |
| Restricted cash | 2,148 | | | 12,077 | |
| Total | $ | 786,722 | | | $ | 324,876 | |
Air Carrier Payroll Support Program
On March 27, 2020, the CARES Act was signed into law. 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 was to be used exclusively for employee salaries, wages, and benefits.
During 2020, Wheels Up applied for government assistance under the Payroll Support Program from the U.S. Department of the Treasury (the “Treasury”) as directed by the CARES Act. We were awarded a total grant of $76.4 million to support ongoing operations through payroll funding, which was all received by October 2020. We utilized all of the proceeds to offset payroll expenses incurred for the year ended December 31, 2020.
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 the Department of Transportation (“DOT”) and certain limitations on executive compensation. Based on the amount received, we were not required to provide financial protection 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. As of December 31, 2020, the total amount of deferred payments outstanding was $6.8 million. The amount paid as of December 31, 2021 is $3.8 million and the amount due December 31, 2022 of $3.0 million was recorded in other current liabilities on the consolidated balance sheet.
9. FAIR VALUE MEASUREMENTS
Financial instruments that are measured at fair value on a recurring basis and their corresponding placement in the fair value hierarchy consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Assets: | | | | | | | |
| Money market funds | $ | 408,082 | | | $ | — | | | $ | — | | | $ | 408,082 | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Warrant liability - Public Warrants | 6,553 | | | — | | | — | | | 6,553 | |
| Warrant liability - Private Warrants | — | | | 3,715 | | | — | | | 3,715 | |
| Total liabilities | $ | 6,553 | | | $ | 3,715 | | | $ | — | | | $ | 10,268 | |
| | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Assets: | | | | | | | |
| Money market funds | $ | 103,472 | | | $ | — | | | $ | — | | | $ | 103,472 | |
The carrying amount of money market funds approximates fair value and is classified within Level 1 because we determined the fair value through quoted market prices.
The Warrants were accounted for as a liability in accordance with ASC 815-40 (see Note 19). The warrant liability was measured at fair value upon assumption and on a recurring basis, with changes in fair value presented in the consolidated statements of operations.
As of the Closing Date and December 31, 2021, we valued the Warrants by applying the valuation technique of a Monte Carlo simulation model to reflect the redemption conditions. We used Level 1 inputs for the Public Warrants and Level 2 inputs for the Private Warrants. The Private Warrants are substantially similar to the Public Warrants, but not directly traded or quoted on an active market.
The following table presents the changes in the fair value of the warrant liability (in thousands):
| | | | | | | | | | | | | | | | | |
| Public Warrants | | Private Warrants | | Total
Warrant Liability |
| Fair value as of December 31, 2020 | $ | — | | | $ | — | | | $ | — | |
| Assumption of Warrants in Business Combination | 17,981 | | | 10,238 | | | 28,219 | |
| Change in fair value of Warrant liability | (11,428) | | | (6,523) | | | (17,951) | |
| Fair value as of December 31, 2021 | $ | 6,553 | | | $ | 3,715 | | | $ | 10,268 | |
10. LONG-TERM DEBT
On July 21, 2021, in connection with proceeds received from the Business Combination, we repaid substantially all of the outstanding principal of our long-term debt, together with all accrued and unpaid interest in the amount of $175.5 million.
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 under an Aircraft Purchase Agreement.
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.
Amended 1st Credit Facility
In August 2014, we increased the available capacity 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, 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 was 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 an additional $0.5 million per aircraft for a total of $17.5 million against the 35 total aircraft in the Amended 1st Facility.
The Amended 1st Facility contained customary restrictive covenants for facilities and transactions of this type, including, among others, 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. For all periods presented, we were in compliance with all covenants.
In April 2016, we obtained a waiver of the debt incurrence test under the Amended 1st Facility to incur additional indebtedness to finance additional King Air 350i aircraft under a 2nd Facility (as defined below). As part of obtaining this waiver, (i) we paid a fee to the consenting lenders of $0.4 million representing 0.25% of the outstanding principal amount of the consenting lenders’ loans as of April 1, 2016; and (ii) were required to deposit $10.0 million in cash in a restricted pledged securities collateral account. This account became unrestricted upon us repaying the outstanding principal on the Amended 1st Facility.
In June 2017, we obtained another waiver of the debt incurrence test 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, which was refinanced in December 2017, as described below. As part of obtaining this particular waiver, (i) we paid a fee to the consenting lenders of $0.3 million representing 0.25% of the outstanding principal amount of such lenders’ loans as of June 29, 2017; 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. The rationale was to move from a variable interest rate, which started at 12.75% plus LIBOR in 2014 stepping up by 1% per annum to a maximum of 18.00%, to a 12.00% fixed rate and upsize the debt to $20.0 million for additional liquidity of $6.4 million. As a result of a change in lenders, the refinancing was considered a debt extinguishment. There were no unamortized fees associated with the B and $0.5 million of fees related to the refinancing were capitalized and amortized over the term of the loan.
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.
The remaining 24 aircraft purchased with financing from the Amended 1st Facility served as collateral for the Amended 1st Facility.
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 (consisting of up to 18 aircraft delivered under the Second Firm Order and five aircraft delivered under the Additional Firm Order).
The 2nd Facility had 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 were required to be held in an owner trust. In our structure, WUL I was the special purpose entity, and it held 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 was the owner of the aircraft financed by the 2nd Facility and WUL I was the sole owner of the beneficial interest in the WUL I Trust. So long as no event of default 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 could direct the owner trustee to distribute the aircraft assets to another entity.
In June 2017, we obtained a waiver of the debt incurrence test 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. As part of obtaining this waiver, (i) we paid a fee to the certain consenting lenders of $0.2 million representing 0.25% of the outstanding principal amount of such lenders’ loans as of June 29, 2017; and certain other consenting lenders of $0.3 million representing 0.75% of the outstanding principal amount of such lenders’ loans as of June 29, 2017; 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.
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 had a Class A (the “3rd Facility A”) of lenders, which committed to lend up to $89.3.
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 was the owner of the aircraft financed by the 3rd Facility and WUL II was the sole owner of the beneficial interest in the WUL II Trust. So long as no event of default 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 could 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.
Principal and Interest Obligations
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 flew over a level of 1,200 hours per year on an annual cumulative basis. No aircraft flew over a level of 1,200 hours per year on an annual cumulative basis and we did not make any additional principal payments as a result.
Interest payments for all classes of the Amended 1st Facility (A-1, A-2, A-3 and B) were due on the fifteenth day of each calendar quarter, based on a stated rate (the “Spread”) in excess of 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 were 8.55%.
Interest payments for all classes of the 2nd Facility (2nd Facility A and 2nd Facility B) were due on the first day of each of the months of March, June, September and December, 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 for all classes of the 3rd Facility (3rd Facility A) were due on the first day of each of the months of March, June, September and December and based on LIBOR plus 7.10%.
Debt Discounts
On the date each additional aircraft was purchased, we were required to pay as a discount (i) 1.00% of the A-2, the A-3 and the B loans outstanding to the respective lenders for the Amended 1st Facility, (ii) pay 1.00% of the A loans to the respective lenders for the 2nd Facility and (iii) pay 1.00% of the A loans to the respective lenders for the 3rd Facility.
Debt discounts consist of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Amended 1st Credit Facility: | | | |
| Debt discount | $ | — | | | $ | 1,154 | |
| Less: Accumulated amortization | — | | | (1,091) | |
| — | | | 63 | |
2nd Credit Facility: | | | |
| Debt discount | — | | | 862 | |
| Less: Accumulated amortization | — | | | (629) | |
| — | | | 233 | |
3rd Credit Facility: | | | |
| Debt discount | — | | | 735 | |
| Less: Accumulated amortization | — | | | (416) | |
| — | | | 319 | |
| Total | $ | — | | | $ | 615 | |
Deferred Financing Costs
Deferred financing costs consist of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Amended 1st Credit Facility: | | | |
| Deferred financing costs | $ | — | | | $ | 4,540 | |
| Less: Accumulated amortization | — | | | (4,403) | |
| — | | | 137 | |
2nd Credit Facility: | | | |
| Deferred financing costs | — | | | 3,845 | |
| Less: Accumulated amortization | — | | | (2,770) | |
| — | | | 1,075 | |
3rd Credit Facility: | | | |
| Deferred financing costs | — | | | 2,622 | |
| Less: Accumulated amortization | — | | | (1,457) | |
| — | | | 1,165 | |
| Total | $ | — | | | $ | 2,377 | |
Debt discounts and deferred financing costs are recorded as a direct deduction from the carrying value of the debt. We record the amortization of debt discounts and deferred financing costs as a component of interest expense in the consolidated statements of operations over the life of each respective borrowed amount, using the effective interest method.
Amortization expense for debt discounts and deferred financing costs of $0.6 million, $1.6 million and $1.9 million were recorded in interest expense in the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 respectively. As a result of the early payoff of our long-term debt, we recorded a $2.4 million loss on extinguishment of debt for the year ended December 31, 2021, related to the write off of unamortized debt discounts and deferred financing costs.
The principal balances of all outstanding debt, unamortized debt discounts and unamortized deferred financing costs are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, |
| | Maturity Dates | | Interest Rate Per Annum | | 2021 | | 2020 |
Amended 1st Credit Facility: | | | | | | | |
| A-1 | 2020 to 2021 | | 10.92 | % | | $ | — | | | $ | 11,811 | |
| A-2 | 2020 to 2021 | | 10.92 | % | | — | | | 7,874 | |
| A-3 | 2021 to 2022 | | 10.92 | % | | — | | | 28,104 | |
| B | 2023 to 2024 | | 12.00 | % | | — | | | 8,119 | |
| | | | | | | |
2nd Credit Facility: | | | | | | | |
| A | 2023 to 2024 | | 8.15 | % | | — | | | 55,450 | |
| B | 2023 to 2024 | | 11.40 | % | | — | | | 24,510 | |
| | | | | | | |
3rd Credit Facility: | | | 9.54 | % | | | | |
| A | 2024 to 2025 | | 9.54 | % | | — | | | 53,334 | |
| | | | | | | |
| Promissory Notes | | | | | — | | | 24,879 | |
| | | | | | | |
| CARES Act Paycheck Protection Program Loan | | | | | — | | | — | |
| | | | | — | | | 214,081 | |
| Less: Unamortized debt discount | | | | | — | | | (615) | |
| Less: Unamortized deferred financing costs | | | | | — | | | (2,377) | |
| | | | | — | | | 211,089 | |
| Less: Current maturities of long-term debt | | | | | — | | | (62,678) | |
| Total | | | | | $ | — | | | $ | 148,411 | |
Promissory Notes
In March 2020, as part of the acquisition of Gama (see Note 6), we executed a promissory note to Gama Group Inc. and two promissory notes to Signature Flight Support, LLC (the “Notes”). The maturity dates of the Notes were March 2, 2024. The interest rates on the Notes were 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 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 is equal to the outstanding principal, together with all accrued and unpaid interest. As of December 31, 2020, the total amount outstanding on the Notes were $24.6 million, of which $7.3 million and $17.3 million were recorded in current maturities of long-term debt and long-term debt, respectively, on the consolidated balance sheet. Interest accrued and paid on the Notes of $0.5 million and $0.6 million were recorded in interest expense in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively.
CARES Act Paycheck Protection Program Loan
Mountain Aviation applied for a loan (the “PPP Loan”), which was approved and received prior to our acquisition of the company (see Note 6). Mountain Aviation received the PPP Loan on 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”) enacted as part of the CARES Act in the principal amount of $3.2 million. In connection with the acquisition, a portion of the purchase price 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. The seller of Mountain Aviation agreed to pay any amounts owed under the PPP Loan in excess of the amount in escrow and agreed to indemnify us for any obligations we incurred under the PPP Loan to the extent not satisfied from the escrow account. The PPP Loan was forgiven by the SBA on June 9, 2021 and the amount of sales proceeds held in escrow were released to the seller.
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are party to various legal actions arising in the normal course of business. While we do not expect that the ultimate resolution of any of these pending actions will have a material effect on our consolidated results of operations, financial position or cash flows, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which we currently believe to be immaterial, does not become material in the future.
Agreements with Operators
We lease certain of our owned and leased aircraft to Gama, a Federal Aviation Administration licensed and DOT registered air carrier, to operate our aircraft. Gama was a third-party independent operator through March 2, 2020, which is the date we executed a purchase agreement to acquire the business. The total amount of fees, net of lease payments from Gama, was $25.7 million and $160.1 million for the years ended December 31, 2020 and 2019, respectively, and are included in cost of revenue in the consolidated statements of operations.
Brand Ambassador Program
From time to time, we enter into various barter arrangements with third-parties in which there is an agreement to provide a specified amount of flight time, valued in either hours or dollars, in exchange for media advertising, marketing credits or other activities that promote brand awareness. We record these nonmonetary transactions at the estimated fair value of the flights provided using the stand-alone selling price.
As third-parties utilize flight time that we provide in barter arrangements, we recognize revenue in the period in which the flight services are provided. As we use the advertising or marketing credits in the arrangements, an expense is recognized in the period in which the credits are consumed. The difference between flight services to be provided and advertising or marketing credits to be consumed is recognized, on an agreement-by-agreement basis, as an asset or liability, as appropriate. If we consume the credits, prior to delivering the flight services to the member, a liability and an expense is recorded; and if we deliver the flight services to the member prior to receiving the credits, an asset and revenue is recorded. We assess the recoverability of barter credits periodically. Factors considered in evaluating the recoverability include management’s plans with respect to how the advertising or other marketing credits can be used. Any impairment losses are recorded in the consolidated statements of operations during the period in which it is determined. There were no impairments of barter credits identified for the years ended December 31, 2021, 2020 and 2019.
Revenue recognized as a result of nonmonetary transactions was $3.7 million, $2.9 million and $3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, while expenses included in sales and marketing in the consolidated statement of operations as a result of the same barter arrangements were $3.5 million, $2.8 million and $2.9 million, for the years ended December 31, 2021, 2020 and 2019 respectively. The balances for flight revenue and advertising or other marketing credits that have yet to be consumed are included in accrued expenses and prepaid expenses and other current assets on the consolidated balance sheets. As of December 31, 2021 and December 31, 2020, the accrued expenses associated with these barter transactions was $3.2 million and $3.5 million, respectively, and the prepaid expenses and other current assets was $0.
Sales and Use Tax Liability
We regularly provide services to members in various states within the continental U.S., which may create sales and use tax nexus via temporary presence, potentially requiring the payment of these taxes. We determined that there is uncertainty as to what constitutes nexus in respective states for a state to levy taxes, fees, and surcharges relating to our activity. As of December 31, 2021 and December 31, 2020, respectively, we estimate the potential exposure to such tax liability to be $8.5 million and $6.6 million, the expense for which is included in accrued expenses on the consolidated balance sheets and cost of revenue in the consolidated statements of operations.
12. LEASES
Leases primarily pertain to certain controlled aircraft, corporate headquarters and operational facilities, including aircraft hangars, which are all accounted for as operating leases. We sublease the corporate headquarters and aircraft hangar at CVG from Delta. Certain of these operating leases have renewal options to further extend for additional time periods at our discretion.
Our leases do not contain residual value guarantees, covenants or other associated restrictions. We have certain variable lease agreements with aircraft owners that contain payment terms based on an hourly lease rate multiplied by the number of flight hours during a month. Variable lease payments are not included in the right-of-use asset and lease liability balances but rather are expensed as incurred. Variable lease payments were $16.7 million, $9.5 million and $0 for the years ended December 31, 2021, 2020 and 2019, respectively.
The components of net lease cost are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Operating lease costs | $ | 36,079 | | | $ | 19,810 | | | $ | 8,078 | |
| Short-term lease costs | 25,334 | | | 17,217 | | | 1,853 | |
| Less: Sublease income | — | | | — | | | (375) | |
| Total lease costs | $ | 61,413 | | | $ | 37,027 | | | $ | 9,556 | |
Costs related to leased aircraft and operational facilities were $54.7 million, $24.1 million and $7.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in cost of revenue in the consolidated statements of operations. Costs related to leased corporate headquarters and other office space including expenses for non-lease components were $6.7 million, $6.5 million and $2.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in general and administrative expense in the consolidated statements of operations.
Supplemental cash flow information related to leases are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of operating lease liabilities: | | | | | |
| Operating cash flows paid for operating leases | $ | 38,080 | | | $ | 19,889 | | | $ | 9,734 | |
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 69,808 | | | $ | 68,152 | | | $ | 126 | |
Supplemental balance sheet information related to leases are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Weighted-average remaining lease term (in years): | | | |
| Operating leases | 6.4 | | 7.5 |
| Weighted-average discount rate: | | | |
| Operating leases | 9.5 | % | | 9.5 | % |
Maturities of lease liabilities, as of December 31, 2021, are as follows (in thousands):
| | | | | |
| Year ending December 31, | Operating Leases |
| 2022 | $ | 37,410 | |
| 2023 | 32,058 | |
| 2024 | 20,379 | |
| 2025 | 14,995 | |
| 2026 | 9,533 | |
| Thereafter | 42,187 | |
| Total lease payments | 156,562 | |
| Less: Imputed interest | (41,484) | |
| Total lease obligations | $ | 115,078 | |
13. EQUITY
Pursuant to the Wheels Up Experience Inc. certificate of incorporation, which was filed on June 23, 2021, we are authorized to issue 2,500,000,000 shares of Class A common stock, with a par value of $0.0001 per share, and 25,000,000 shares of preferred stock, par value $0.0001 per share. Holders of Class A common stock are entitled to one vote per each share.
In January 2021, WUP issued common interests that, following conversion in the Business Combination, represented 3,968,900 common shares issued at $7.60 per share as part of the acquisition of Mountain Aviation (see Note 6).
14. EQUITY-BASED COMPENSATION
Currently, we have the following nine equity-based compensation plans that were approved by the board of directors of WUP prior to the Business Combination, Wheels Up Partners Holdings LLC Equity Incentive Plan (“'MIP Plan”), Wheels Up Partners Holdings LLC Equity Incentive Plan II (“MIP Plan II”); Wheels Up Partners Holdings LLC Equity Incentive Plan III (“MIP Plan III”); Wheels Up Partners Holdings LLC Equity Incentive Plan IV (“MIP Plan IV”); and Wheels Up Partners Holdings LLC Equity Incentive Plan V (“MIP Plan V”); Wheels Up Partners Holdings LLC Equity Incentive Plan VI (“MIP Plan VI”); Wheels Up Partners Holdings LLC Equity Incentive Plan VII (“MIP Plan VII”) and Wheels Up Partners Holdings LLC Equity Incentive Plan VIII (“MIP Plan VIII”); which collectively constitute the management incentive plan and the Wheels Up Partners Holdings LLC Option Plan, which is the WUP stock option plan. Immediately following the closing of the Business Combination, no further grants could be made under the WUP management incentive plan or the WUP stock option plan.
In connection with the Business Combination, the board of directors (the “Board”) and stockholders of Wheels Up adopted the 2021 LTIP, for employees, consultants and other qualified persons. The 2021 LTIP provides for the grant of incentive options, nonstatutory options, restricted stock, RSUs, rights, dividend equivalents, other stock-based awards, performance awards, cash awards or any combination of the foregoing.
As of the Closing Date, in connection with the Business Combination, the Board granted accelerated vesting of approximately 18 months on all outstanding equity-based compensation awards granted under the WUP management incentive plan or WUP stock option plan. This modification to our awards resulted in the acceleration of all remaining compensation cost due to a shorter requisite service period as compared to the original award. There was no change to the fair value or incremental compensation cost incurred.
WUP Management Incentive Plan
In March 2014, the WUP management incentive plan was established, which provided for the issuance of WUP profits interests, restricted or unrestricted, to employees, consultants and other qualified persons.
WUP Profits Interests
As of December 31, 2021, an aggregate of 31.3 million profits interests have been authorized and issued under the WUP management incentive plan.
The following table summarizes the profits interests activity under the WUP management incentive plan as of December 31, 2021:
| | | | | | | | | | | |
| | Number of WUP
Profits Interests | | Weighted-Average Grant
Date Fair Value |
| | (In thousands) | | |
| Outstanding WUP profits interests as of January 1, 2021 | 29,111 | | | $ | 0.42 | |
| Granted | — | | | — | |
| Exchanged | (292) | | | 0.74 | |
| Expired/forfeited | — | | | — | |
| Outstanding WUP profits interests as of December 31, 2021 | 28,819 | | | $ | 0.42 | |
The weighted-average remaining contractual term as of December 31, 2021 for WUP profits interests outstanding was approximately 9.5 years.
The following table summarizes the status of non-vested WUP profits interests as of December 31, 2021:
| | | | | | | | | | | |
| | Number of WUP
Profits Interests | | Weighted-Average Grant
Date Fair Value |
| | (In thousands) | | |
| Non-vested WUP profits interests as of January 1, 2021 | 12,619 | | | $ | 0.29 | |
| Granted | — | | | — | |
| Vested | (7,886) | | | 0.25 | |
| Forfeited | — | | | — | |
| Non-vested WUP profits interests as of December 31, 2021 | 4,733 | | | $ | 0.35 | |
The total unrecognized compensation cost related to non-vested WUP profits interests was $1.4 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 1.1 years. The total fair value of vested WUP profits interests amounted to $2.0 million for the year ended December 31, 2021.
WUP Restricted Interests
As of December 31, 2021, under MIP Plan VII, 4.7 million WUP restricted interests have been authorized and issued to certain Wheels Up employees.
The following table summarizes the restricted interests activity under the WUP management incentive plan as of December 31, 2021:
| | | | | | | | | | | |
| Number of WUP
Restricted Interests | | Weighted-Average Grant
Date Fair Value |
| (In thousands) | | |
| Non-vested and outstanding WUP restricted interests as of January 1, 2021 | 4,662 | | | $ | 3.98 | |
| Granted | — | | | — | |
| Vested | — | | | — | |
| Expired/forfeited | — | | | — | |
| Non-vested and outstanding WUP restricted interests as of December 31, 2021 | 4,662 | | | $ | 3.98 | |
The weighted-average remaining contractual term as of December 31, 2021 for WUP restricted interests outstanding was approximately 8.0 years.
The total unrecognized compensation cost related to non-vested WUP restricted interests was $4.3 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 0.7 years. WUP restricted interests are time and performance-based awards that vest with a change in control or initial public offering. As a result, we started recording compensation cost for WUP restricted interests on the Closing Date.
The WUP restricted interests granted vest when both of the following conditions exist: (i) ratably over a four-year service period and (ii) upon the first to occur of (A) a change of control and (B) the later to occur of (1) six months after an initial public offering and (2) 30 days after the expiration of any applicable lock-up period in connection with an initial public offering. The WUP restricted interests lock-up period expired on February 8, 2022. As of this date, the holders of WUP restricted interests met the vesting conditions for the portion of their awards that did not require further service.
WUP Stock Option Plan
In December 2016, the WUP stock option plan was established, which provided for the issuance of stock options to purchase WUP common interests at an exercise price based on the fair market value of the interests on the date of grant. Generally, WUP stock options granted vest over a four-year service period and expire on the tenth anniversary of the grant date. As of December 31, 2021, the number of WUP stock options authorized and issued in aggregate under the WUP stock option plan was 17.5 million.
The following table summarizes the activity under the WUP stock option plan as of December 31, 2021:
| | | | | | | | | | | | | | | | | |
| Number of
WUP Stock Options | | Weighted-
Average Exercise
Price | | Weighted-Average Grant
Date Fair Value |
| (In thousands) | | | | |
| Outstanding WUP stock options as of January 1, 2021 | 16,284 | | | $ | 7.51 | | | $ | 1.17 | |
| Granted | — | | | — | | | — | |
| Exercised | (352) | | | 7.14 | | | 0.72 | |
| Forfeited | (60) | | | 7.20 | | | 0.68 | |
| Expired | (159) | | | 7.16 | | | 0.70 | |
| Outstanding WUP stock options as of December 31, 2021 | 15,713 | | | $ | 7.52 | | | $ | 1.19 | |
| Exercisable WUP stock options as of December 31, 2021 | 11,742 | | | $ | 7.40 | | | $ | 1.04 | |
The aggregate intrinsic value as of December 31, 2021 for WUP stock options that were outstanding and exercisable was $0.
The weighted-average remaining contractual term as of December 31, 2021 for WUP stock options that were outstanding and exercisable was approximately 7.8 years and 7.6 years, respectively.
The following table summarizes the status of non-vested WUP stock options as of December 31, 2021:
| | | | | | | | | | | |
| | Number of WUP Stock
Options | | Weighted-Average Grant
Date Fair Value |
| | (In thousands) | | |
| Non-vested WUP stock options as of January 1, 2021 | 10,987 | | | $ | 1.41 | |
| Granted | — | | | — | |
| Vested | (6,940) | | | 1.29 | |
| Expired | (23) | | | 1.16 | |
| Forfeited | (53) | | | 0.69 | |
| Non-vested WUP stock options as of December 31, 2021 | 3,971 | | | $ | 1.63 | |
The total unrecognized compensation cost related to non-vested WUP stock options was $6.3 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of WUP stock options vested approximated $8.9 million for the year ended December 31, 2021.
The WUP profits interests, WUP restricted interests, WUP stock options and Wheels Up stock options valuations were determined using Level 3 inputs. The expected seven-year term was estimated using the midpoint of the four-year service period and the ten-year contractual term of the awards. Expected volatility was estimated based on the historical volatilities of publicly traded companies within the airline industry and certain comparable travel technology companies. We used the published yields for zero-coupon Treasury notes to determine the risk-free interest rate. The expected dividend yield is zero as we have never paid and do not currently anticipate paying any cash dividends.
2021 LTIP
As of December 31, 2021, an aggregate of 27.3 million shares were authorized for issuance under the 2021 LTIP.
RSUs
Wheels Up RSUs granted under the 2021 LTIP vest quarterly or annually over a one to three-year service period. The following tables summarize the activity under the 2021 LTIP related to RSUs as of December 31, 2021:
| | | | | | | | | | | |
| Number of RSUs | | Weighted-Average Grant
Date Fair Value |
| (In thousands) | | |
| Non-vested and outstanding RSUs as of January 1, 2021 | — | | | $ | — | |
| Granted | 8,493 | | | 7.32 | |
| Vested | (77) | | | 7.48 | |
| Forfeited | (5) | | | 7.44 | |
| Non-vested and outstanding RSUs as of December 31, 2021 | 8,411 | | | $ | 7.32 | |
The total unrecognized compensation cost related to non-vested RSUs was $54.9 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 2.3 years.
Wheels Up Stock Options
Wheels Up stock options granted under the 2021 LTIP vest quarterly over a three-year service period and expire on the tenth anniversary of the grant date. The following table summarizes the activity under the 2021 LTIP related to Wheels Up stock options as of December 31, 2021:
| | | | | | | | | | | | | | | | | |
| Number of
Wheels Up
Stock Options | | Weighted-
Average Exercise
Price | | Weighted-Average Grant
Date Fair Value |
| (In thousands) | | | | |
| Outstanding Wheels Up stock options as of January 1, 2021 | — | | | $ | — | | | $ | — | |
| Granted | 921 | | | 10.00 | | | 4.75 | |
| Exercised | — | | | — | | | — | |
| Forfeited | — | | | — | | | — | |
| Expired | — | | | — | | | — | |
| Outstanding Wheels Up stock options as of December 31, 2021 | 921 | | | $ | 10.00 | | | $ | 4.75 | |
| Exercisable Wheels Up stock options as of December 31, 2021 | 153 | | | $ | 10.00 | | | $ | 4.75 | |
The aggregate intrinsic value as of December 31, 2021 for Wheels Up stock options that were outstanding and exercisable was $0.
The weighted-average remaining contractual term as of December 31, 2021 for Wheels Up stock options that were outstanding and exercisable was approximately 9.5 years and 9.5 years, respectively.
The following table summarizes the status of non-vested Wheels Up stock options as of December 31, 2021:
| | | | | | | | | | | |
| | Number of
Wheels Up
Stock Options | | Weighted-Average Grant
Date Fair Value |
| | (In thousands) | | |
| Non-vested Wheels Up stock options as of January 1, 2021 | — | | | $ | — | |
| Granted | 921 | | | 4.75 | |
| Vested | (153) | | | 4.75 | |
| Expired | — | | | — | |
| Forfeited | — | | | — | |
| Non-vested Wheels Up stock options as of December 31, 2021 | 768 | | | $ | 4.75 | |
The total unrecognized compensation cost related to non-vested Wheels Up stock options was $3.8 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of Wheels Up stock options vested approximated $0.7 million for the year ended December 31, 2021.
Fair Value Estimates
We estimated fair value to measure compensation cost of the WUP profits interests, WUP restricted interests, WUP stock options and Wheels Up stock options on the date of grant using techniques that are considered to be consistent with the objective of measuring fair value. In selecting the appropriate technique, management considered, among other factors, the nature of the instrument, the market risks that it embodies, and the expected means of settlement. We generally used the Black Scholes option-pricing model, that embodies all of the requisite assumptions, including expected trading volatility, expected term, risk-free interest rate and expected dividend yield, necessary to fair value an award.
Estimating fair values of the WUP profits interests, WUP restricted interests, WUP stock options and Wheels Up stock options requires the development of significant and subjective estimates that may, and are likely to, change
over the duration of the instrument with related changes in internal and external factors. In addition, option-pricing models are highly volatile and sensitive to changes.
The following table summarizes the significant assumptions used in the Black Scholes option-pricing model to estimate the fair value on the date of grant:
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Expected term (in years) | 7 | | 7 | | 7 |
| Expected volatility | 46 | % | | 44% - 47% | | 32%- 35% |
| Weighted-average volatility | 46 | % | | 46 | % | | 35 | % |
| Risk-free rate | 1.2 | % | | 0.4% - 0.7% | | 1.4% - 2.8% |
| Expected dividend rate | 0 | % | | 0 | % | | 0 | % |
Equity-Based Compensation Expense
Compensation expense for profits interests recognized in the consolidated statements of operations was $1.7 million, $1.1 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Compensation expense for restricted interests recognized in the consolidated statements of operations was $14.2 million, $0 and $0 for the years ended December 31, 2021, 2020 and 2019, respectively.
Compensation expense for WUP stock options and Wheels Up stock options recognized in the consolidated statements of operations was $8.5 million, $2.2 million and $1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Compensation expense for RSUs recognized in the consolidated statements of operations was $7.3 million, $0 and $0 for the years ended December 31, 2021, 2020 and 2019, respectively.
The following table summarizes equity-based compensation expense recognized by consolidated statement of operations line item (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cost of revenue | $ | 4,541 | | | $ | 293 | | | $ | 455 | |
| Technology and development | 1,340 | | | 445 | | | 449 | |
| Sales and marketing | 5,185 | | | 1,055 | | | 723 | |
| General and administrative | 38,607 | | | 1,549 | | | 255 | |
| Total equity-based compensation expense | $ | 49,673 | | | $ | 3,342 | | | $ | 1,882 | |
Earnout Shares
The 9,000,000 Earnout Shares vest with the achievement of separate market conditions. One-third of the Earnout Shares will meet the market condition when the closing Class A common stock price is greater than or equal to $12.50 for any 20 trading days within a period of 30 consecutive trading days within five years of the Closing Date. An additional one-third will vest when the Class A common stock is greater than or equal to $15.00 over the same measurement period. The final one-third will vest when the Class A common stock is greater than or equal to $17.50 over the same measurement period.
Earnout Shares that are attributable to profits interests and restricted interests require continued employment as of the date on which each of the Earnout Share market conditions are met. In the event such Earnout Shares are forfeited, the number of shares that could be issued will be redistributed on a pro-rata basis to all other holders of
Earnout Shares. Upon redistribution to any holder of profits interests or restricted interests, such awards will be recorded as new awards. There have been no forfeitures of Earnout Shares as of December 31, 2021.
The grant-date fair value of the Earnout Shares attributable to the holders of profits interests and restricted interests, using a Monte Carlo simulation model, was $57.9 million and will be recognized as compensation expense on a graded vesting basis over the derived service period or shorter if the Earnout Shares vest. The derived service period began on the Closing Date and is a weighted-average period of 1.7 years.
Based on the Class A common stock trading price the market conditions were not met and no Earnout Shares vested as of December 31, 2021. Compensation expense for Earnout Shares recognized in the consolidated statements of operations was $18.0 million for the year ended December 31, 2021. The total unrecognized compensation cost related to Earnout Shares was $39.9 million as of December 31, 2021 and is expected to be recognized over a weighted-average remaining period of 1.3 years.
15. NON-CONTROLLING INTERESTS
MIP LLC is a single purpose entity formed for the purpose of administering and effectuating the award of WUP profits interests to employees, consultants and other qualified persons. Wheels Up is the sole managing member of MIP LLC and, as a result, consolidates the financial results of MIP LLC. We record non-controlling interests representing the ownership interest in MIP LLC held by other members of MIP LLC. In connection with the Business Combination, the Seventh Amended and Restated LLC Agreement was adopted, allowing members of MIP LLC, subject to certain restrictions, to exchange their vested WUP profits interests for cash or a corresponding number of shares of Class A common stock, at the option of Wheels Up, based on the value of such WUP profits interests relative to their applicable participation threshold.
The decision of whether to exchange WUP profits interests for cash or Class A common stock is made solely at the discretion of Wheels Up. Accordingly, the WUP profits interests held by MIP LLC are treated as permanent equity and changes in the ownership interest of MIP LLC are accounted for as equity transactions. Future exchanges of WUP profits interests will reduce the amount recorded as non-controlling interests and increase additional paid-in-capital on the consolidated balance sheets.
The calculation of non-controlling interests is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Number of LLC common units held by Wheels Up(1) | 245,834,569 | | | 99.2 | % | | 169,717,147 | | | 91.1 | % |
Number of vested WUP profits interests attributable to non-controlling interests(2) | 2,045,995 | | | 0.8 | % | | 16,492,865 | | | 8.9 | % |
| Total LLC common units and vested WUP profits interests outstanding | 247,880,564 | | | 100.0 | % | | 186,210,012 | | | 100.0 | % |
(1) LLC common units represent an equivalent ownership of Class A common stock outstanding.
(2) Based on the closing price of Class A common stock on the last trading day of the period, there would be 4,069,136 LLC common units
issuable upon conversion of vested and unvested WUP profits interests outstanding as of December 31, 2021.
Weighted average ownership percentages are used to allocate net loss to Wheels Up and the non-controlling interest holders. The non-controlling interests weighted average ownership percentage was 3.5%, 7.9% and 9.9% for the years ended December 31, 2021, 2020 and 2019, respectively.
16. RELATED PARTIES
We engage in transactions with certain stockholders who are also members, ambassadors or customers. Such transactions primarily relate to their membership in the Wheels Up program, flights and flight-related services.
As of December 31, 2020, a stockholder held a portion of the debt outstanding under our credit facilities.
We incurred expenses of $4.9 million, $4.2 million and $0 for the years ended December 31, 2021, 2020 and 2019, respectively, from transactions related to the CCA with our stockholder Delta, of which $5.3 million and $3.0
million are included in accrued expenses on the consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively. In addition, we provided $2.9 million, $2.1 million and $0 of flights to certain persons currently and previously affiliated with Delta at a discount to our retail pricing for the years ended December 31, 2021, 2020 and 2019, respectively. Delta provided WUPJ pilots airfare for business travel at no cost during the periods presented. We incurred expenses of $0.5 million for the year ended December 31, 2021, for an aircraft leased from the company of a stockholder.
We recognized revenue of $2.5 million, $0.7 million and $0.9 million for flights and other services, including aircraft management, provided to Board members for the years ended December 31, 2021, 2020 and 2019, respectively. We incurred expenses of $0.1 million, $0.1 million and $0 for the years ended December 31, 2021, 2020 and 2019, respectively, with the company of a stockholder for consultation services on employee benefits. We incurred expenses of $0, $37 thousand and $0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, with a company in which a Wheels Up executive and a member of the Board holds an ownership interest. We incurred expenses of $0.1 million, $0.2 million and $0 for the years ended December 31, 2021, 2020 and 2019, respectively, for an immediate family member of a Wheels Up executive and a member of the Board who was a full-time employee. We incurred marketing expenses of $0.3 million, $0 and $0 for the years ended December 31, 2021, 2020 and 2019, respectively, with a company where a member of the Board is an executive.
Employee Loans Receivable
In January 2016, Kenny Dichter, Chief Executive Officer, borrowed $5.0 million from Wheels Up. The borrower executed an interest bearing secured promissory note with a maturity date of January 17, 2025. The interest rate on the loan is 1.8% per annum, which is payable upon the maturity date. Based on our anticipation that the Board was ultimately going to decide to forgive the loan, a full reserve was previously recorded on the amount outstanding. Prior to the effectiveness of the registration statement on Form S-4 filed by Aspirational, which the SEC declared effective on June 23, 2021, the Board forgave the loan. As of December 31, 2020, a Gama senior executive had borrowed $0.1 million that was fully repaid in January 2021.
17. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share data):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Numerator: | | | | | |
| Net loss attributable to Wheels Up Experience Inc. - basic and diluted | $ | (190,020) | | | $ | (78,641) | | | $ | (96,274) | |
| Denominator: | | | | | |
| Weighted-average shares of Class A common stock outstanding - basic and diluted | 204,780,896 | | | 162,505,231 | | | 103,803,383 | |
| Basic and diluted net loss per share of Class A common stock | $ | (0.93) | | | $ | (0.48) | | | $ | (0.93) | |
There were no dividends declared or paid for the years ended December 31, 2021, 2020 or 2019.
Basic and diluted net loss per share were computed using the two-class method. The two-class method is an allocation formula that determines earnings or loss per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings or losses. Shares of unvested restricted stock are considered participating securities because these awards contain a non-forfeitable right to participate equally in any dividends prior to forfeiture of the restricted stock, if any, irrespective of whether the awards ultimately vest. WUP restricted interests were converted into shares of restricted stock as of the Closing Date (see Note 3). All issued and outstanding shares of restricted stock, whether vested or unvested, are included in the weighted-average shares of Class A common stock outstanding beginning on the Closing Date.
WUP profits interests held by other members of MIP LLC, which comprise the non-controlling interests (see Note 15), are not subject to the net loss per share calculation until such time the vested WUP profits interests are actually exchanged for shares of Class A common stock.
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive, or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Warrants | 12,521,494 | | | — | | | — | |
| Earnout Shares | 9,000,000 | | | — | | | — | |
| RSUs | 8,411,251 | | | — | | | — | |
| Stock options | 16,633,852 | | | 16,283,779 | | | 9,769,252 | |
| Total anti-dilutive securities | 46,566,597 | | | 16,283,779 | | | 9,769,252 | |
18. INCOME TAXES
We are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income or loss of Wheels Up Partners Holdings LLC, as well as any standalone income or loss Wheels Up generates. Wheels Up Partners Holdings LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, any taxable income or loss generated by Wheels Up Partners Holdings LLC is passed through to and included in the taxable income or loss of its members, including Wheels Up.
Income Tax Expense
The components of income tax expense are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Current income taxes | | | | | |
| Federal | $ | — | | | $ | — | | | $ | — | |
| State and local | 75 | | | — | | | — | |
| Total current income taxes | 75 | | | — | | | — | |
| Deferred income taxes | | | | | |
| Federal | — | | | — | | | — | |
| State and local | (17) | | | — | | | — | |
| Total deferred income taxes | (17) | | | — | | | — | |
| Income tax expense | $ | 58 | | | $ | — | | | $ | — | |
A reconciliation from the statutory federal income tax rate to the effective income tax rate is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Expected federal income taxes at statutory rate | 21.0 | % | | — | % | | — | % |
| State and local income taxes | 1.9 | | | — | | | — | |
Permanent differences | — | | | — | | | — | |
Partnership earnings not subject to tax | (6.7) | | | — | | | — | |
Change in valuation allowance | (16.2) | | | — | | | — | |
| Effective income tax rate | — | % | | — | % | | — | % |
The effective tax rate was 0.0% for the years ended December 31, 2021, 2020 and 2019. Our effective tax rate for the years ended December 31, 2021, 2020 and 2019 differs from the federal statutory rate of 21% primarily due to a full valuation allowance against our net deferred tax assets where it is more likely than not that the deferred tax assets will not be realized. For the periods prior to the Business Combination, there is no income tax expense recorded as Wheels Up Partners Holdings LLC, as a partnership, is not subject to U.S. federal and most applicable state and local income taxes.
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Deferred tax assets | | | |
| Investment in partnership | $ | 116,053 | | | $ | — | |
Net operating loss carryforwards | 20,655 | | | — | |
| Transaction costs | 1,120 | | | — | |
| Tax credits | 559 | | | — | |
| Deferred revenue | 416 | | | — | |
| Equity-based compensation | 293 | | | — | |
Other | 181 | | | 800 | |
Total deferred tax assets | 139,277 | | | 800 | |
| Valuation allowance | (138,652) | | | (800) | |
Deferred tax assets, net | $ | 625 | | | $ | — | |
| | | |
| Deferred tax liabilities | | | |
Other | $ | (608) | | | $ | — | |
| Total deferred tax liabilities | $ | (608) | | | $ | — | |
| Net deferred tax assets | $ | 17 | | | $ | — | |
As of December 31, 2021, our federal and state net operating loss carryforwards for income tax purposes were $54.6 million and $43.6 million, respectively. Additionally, we acquired $28.3 million and $19.3 million of federal and state net operating loss carryforwards, respectively, through the Business Combination, which may be subject to a 382 limitation. Of our total federal net operating losses, $77.3 million can be carried forward indefinitely, and the remainder will expire in 2027. Our state net operating losses will begin to expire in 2022.
We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of our deferred tax assets may not be realized. In making such a
determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax-planning strategies. As of December 31, 2021 and December 31, 2020, we concluded, based on the weight of all available positive and negative evidence, that it is more likely than not that the majority of deferred tax assets will not be realized. Accordingly, a valuation allowance of $138.7 million has been established as of December 31, 2021. The $137.9 million increase in valuation allowance was the result of a charge to deferred tax expense of $37.3 million from operations and $100.6 million charge to additional paid in capital, primarily resulting from the Business Combination. If or when recognized, approximately $1.1 million of tax benefits related to the reversal of the valuation allowance on deferred tax assets as of December 31, 2021 will be credited directly to equity.
Uncertain Tax Positions
There were no reserves for uncertain tax positions as of December 31, 2021. Wheels Up Experience Inc. was formed in July 2021 and did not engage in any operations prior to the Business Combination. Additionally, although Wheels Up Partners Holdings LLC is treated as a partnership for federal and state income taxes purposes, it is still required to file annual federal, state and local income tax returns, which are subject to examination by the taxing authorities. The statute of limitations is generally open for years beginning after 2017 for U.S. federal and state jurisdictions for Wheels Up Partners Holdings LLC.
19. WARRANTS
Prior to the Business Combination, Aspirational issued 7,991,544 Public Warrants and 4,529,950 Private Warrants. Upon the Closing Date, Wheels Up assumed the Warrants. Each whole warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share. The Warrants become exercisable on the later of (i) 30 days after the completion of the Business Combination and (ii) 12 months from the closing of the Aspirational initial public offering on September 25, 2020 and expire five years from the completion of the Business Combination or earlier upon redemption or liquidation.
Redemption of Warrants when the price of Class A common stock equals or exceeds $18.00:
Once the Warrants become exercisable, Wheels Up may redeem the outstanding Warrants (except as described below with respect to the Private Warrants):
•in whole and not in part;
•at a price of $0.01 per Warrant;
•upon a minimum of 30 days’ prior written notice of redemption to each Warrant holder; and
•if, and only if, the last reported Class A common stock sales price for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which Wheels Up sends the notice of redemption to the Warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted).
Redemption of Warrants when the price of Class A common stock equals or exceeds $10.00:
Once the Warrants become exercisable, Wheels Up may redeem the outstanding Warrants:
•in whole and not in part;
•at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair market value of Class A common stock;
•if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted); and
•if the Reference Value is less than $18.00 per share (as adjusted), the Private Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants.
The exercise price and number of shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of shares at a price below its exercise price. Additionally, in no event will Wheels Up be required to net cash settle the Public Warrants.
The Private Warrants are identical to the Public Warrants underlying the units sold in the Aspirational Initial Public Offering, except that the Private Warrants and the Class A common stock issuable upon the exercise of the Private Warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by Wheels Up and exercisable by such holders on the same basis as the Public Warrants.
In connection with the Business Combination, we filed a Registration Statement on Form S-1 that was declared effective by the SEC on August 24, 2021. This Registration Statement relates to the issuance of an aggregate of 12,521,494 shares of Class A common stock underlying the Warrants. As of December 31, 2021, there have not been any Warrants exercised and 12,521,494 remain outstanding.
The warrant agreement governing the Warrants includes a provision that provides for potential changes to the settlement amounts dependent upon the characteristics of the holder of the Warrants. In addition, the warrant agreement includes a provision that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of ordinary shares, all holders of the Warrants would be entitled to receive cash for their Warrants (the “Tender Offer Provision”).
We evaluated the Warrants under ASC 815-40-15, which addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock. Under ASC 815-40-15, a warrant is not indexed to the issuer’s common stock if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the fair value of the warrant. We determined that the Private Warrants are not indexed to Class A common stock in the manner contemplated by ASC 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. In addition, we concluded the Tender Offer Provision included in the warrant agreement fails the classified as equity criteria as contemplated by ASC 815-40-25. As a result of the above, the Warrants are classified as derivative liabilities.
20. SUBSEQUENT EVENTS
On January 12, 2022, we entered into an agreement with Textron Financial Corporation to exercise our purchase option on 32 leased aircraft. The negotiated purchase price for all aircraft was $65.0 million and the sale was completed on February 22, 2022.
On January 27, 2022, we entered into an agreement to acquire Air Partner, a United Kingdom-based international aviation services group with operations in 18 locations across four continents. The all-cash transaction for Air Partner is valued at approximately $107.0 million. The deal is expected to close by the end of our first quarter 2022. The transaction has been approved by the boards of directors of both Wheels Up and Air Partner.
On February 4, 2022, we acquired Alante Air, a Scottsdale, Arizona based private jet charter business. The total purchase price for Alante Air was $14.6 million, which was paid in cash. The acquisition adds 12 Light jets to our controlled fleet. This acquisition will be accounted for as a business combination, and given the recent date of the acquisition, we have not finalized the determination of the fair value of the assets acquired and liabilities assumed.
On February 8, 2022 and February 16, 2022, respectively, we granted 1.9 million and 4.5 million RSUs that generally vest over a three-year service period.
