Having taken an aggressive acquisition strategy since going public, private aviation service provider Wheels Up will ask shareholders to approve a number of business moves at its May 31 stockholder meeting, including a proposed “reverse stock split.” With shares currently valued at less than a dollar, the proposed move is a common strategy among businesses facing financial headwinds.
According to Investopia, “A reverse stock split is also known as a stock consolidation, stock merge, or share rollback and is the opposite of a stock split, where a share is divided (split) into multiple parts. A reverse stock split consolidates the number of existing shares of stock held by shareholders into fewer shares.
“A reverse stock split does not directly impact a company’s value (only its stock price). It can signal a company in distress since it raises the value of otherwise low-priced shares. Remaining relevant and avoiding being delisted are the most common reasons for corporations to pursue this strategy.”
Wheels Up, which went public on the New York Stock Exchange in February 2021, restated its reported losses for 2022 last week, now increasing its net loss for the year to $555 million. The company lost $197 million in 2021. Still, management reports its cash on hand at the end of the year remained $586 million. Also, using an adjusted EBIDTA (earnings before interest, taxes, depreciation, and amortization) criteria, 2022 losses were just $185 million. Wheels Up is projecting losses to diminish this year to $110 million to $130 million and predicts EBITDA will be in the black for 2024.
With a reported membership of 12,000 customers, last month Wheels Up launched a new program east of the Mississippi River involving Beechcraft King Air turboprop twins. The program is designed to minimize losses incurred on empty legs.
Their stock price is not the problem.