Wheels Up Experience (NYSE: UP) hasn't done all that well recently. Well, except for a couple of weeks back when the UP stock price jumped 1,000% in a day. But then that was a reverse stock split and that's a sign of Wheels Up not doing very well rather than a sign of strength. As we said back then the base business line UP is in has its merits, Warren Buffett seems to be able to make money in that sector. It's just that Wheels Up seems unable to make money in that sector of jet hire:
“ The business of Wheels Up is: “ membership programs, charter, aircraft management, whole aircraft sales, and commercial travel services. It also provides freight, safety, and security solutions, as well as managed services.” and OK. NetJets does this well enough that Warren Buffett bought into that company. However, if we're reading the accounts right Wheels Up doesn't do it that well. Our reading tells us that while they're doing the turnover - $350 million a quarter - that's also the base cost of providing the services. All the other costs of being in business - the overheads, staff, research etc - are simply losses. Being unfair of course but stockholders would be better off if that layer of the company didn't in fact exist.”
So, not doing well, consistent losses, the stock price sinks as a result. This then bumps up against the $1 minimum bid price to keep the NYSE quotation, the reverse stock split then happens. 10 for 1, the price rises 1,000%.
Wheels Up Experience stock price from NASDAQ
However, technical moves like a share consolidation are never enough on their own. There also needs to be that sorting out of the actual business itself - something Wheels Up were having problems with. At which point we get this: “we are working with a number of advisors and industry participants around securing new strategic investments, raising capital, and executing previously disclosed strategic divestitures."” Ah, yes, restructuring advisors. Raising capital - also known as diluting the current shareholder base - or at least most likely doing so. Or even Chapter 11: “Wheels Up's chief financial officer and interim CEO, Todd Smith, said in a recent interview that he is confident the company can fix its problems without resorting to chapter 11.” Never believe it until they've denied it is very cynical indeed but worth considering in financial markets.
The real lesson we're getting here is that a reverse share consolidation isn't enough - for it's a purely technical move that doesn't, in fact, solve any of the problems with an underlying business.
