Case Alleges Wrongful Termination of Key Contract

Wheels Up, the New York City-based provider of on-demand aircraft services, has filed a lawsuit in the United States District Court Southern District of New York alleging flyExclusive, the North Carolina-based aircraft charter operator, wrongfully terminated a contract to fly the plaintiff’s members on the Friday preceding the busy July-Fourth holiday weekend.

Wheels Up contends flyExclusive’s failure to meet its contractual obligation caused the former “serious harm, warranting compensatory damages.”

The action pits the U.S.’s third-largest private jet flight provider (based on the metric of charter and fractional hours) against the nation’s fifth-largest such concern.

While the two companies compete in the same market sector, Wheels Up, since November 2021, has contracted flyExclusive to provide flights for its members under a Guaranteed Rate Program (GRP).

The relationship between the two air-charter giants has, for the most part, been amicable and mutually beneficial—until now.

flyExclusive launched its membership program in 2020, ergo, the company’s aircraft fleet significantly exceeded the needs of its members.

Wheels Up, conversely, struggled with a surplus of members, some 12,000 of them, and required additional aircraft to adequately service the throng.

The provisions of the two companies’ GRP stipulate Wheels Up members are guaranteed travel aboard flyExclusive’s aircraft, provided they book their flights a specified number of hours in advance of departure.

Wheels Up’s lawsuit sets forth: “Without any prior notice, on the eve of the Fourth of July holiday weekend, one of the busiest private flying weekends of the year, flyExclusive wrongfully terminated the [GRP] agreement and baselessly demanded hundreds of thousands of dollars to charter flights it was already contractually obligated to complete–despite the fact that FlyExclusive retained millions of dollars in deposits provided by Wheels Up under the agreement.”

According to flyExclusive’s financial filings, Wheels Up initially paid $37.5-million in deposits to secure the defendant’s aircraft.

Wheels Up’s filing reports the term of the agreement was to last through 01 March 2024, including an initial 18-month and subsequent ten-month draw-down period. Wheels Up’s filing further states that at the conclusion of the first 18-month interval, which ended 01 May 2023, “The term will continue and the draw-down period will be postponed unless or until either party gives the other party a thirty-day written notice of termination, in which case the draw-down period will begin on the thirtieth day after the notice was given.”

Wheels Up’s suit claims flyExclusive CEO Jim Segrave, at 20:41 EDT on Friday, 30 June 2023, emailed a Notice of Termination “effective immediately despite the fact that flyExclusive had no basis to do so.”

Seeking to meet its obligation to upwards of 75 passengers slated to fly aboard flyExclusive aircraft on Saturday, 01 July, Wheels Up made a $300,000 prepayment—monies not required by the terms of its GRP agreement with flyExclusive.

Wheels Up’s filing continues: “Less than 24-hours later, flyExclusive demanded an additional $300,000 as prepayment for two Sunday flights, despite the fact the total cost of Saturday’s flights had eroded less than 65-percent of the prepayment already paid, leaving ample prepaid funds to cover Sunday’s flights.”

For the duration of the holiday weekend, Wheels Up rebooked its customers with other charter operators.

While Wheels Up concedes the termination notice tendered by flyExclusive cited failure to pay bills owed from May and June 2023, the embattled New York charter operator asserted it was provided no details pertaining to the allegedly delinquent payments. What’s more, Wheels Up contends it received no previous notice of delinquent payments. Such a notice would have afforded ten business days to remit owed monies.

Wheels Up’s filing continues: “Over the course of the parties’ relationship, Wheels Up typically received invoices on Tuesday for the prior week’s flights and paid on Friday, resulting in typical payments being made within three days of receipt of invoice—even though it had 10 days to pay under the agreement.”

The plaintiff states, also, that the termination notice “counterfactually” asserted “Wheels Up’s current state of insolvency constitutes a termination event under [the agreement].”

Wheels Up’s filing notes, “This was demonstrably false. Wheels Up was not the subject of bankruptcy or receivership proceedings, nor had it committed an act of insolvency as required for termination.”

Wheels Up goes on to allege, “flyExclusive has failed to fulfill its own contractual commitments, instead seeking to wrongfully appropriate millions of dollars of Wheels Up deposits and demand prepayment for already-chartered flights after repudiating the agreement. This conduct is a material breach of the agreement. The timing of the notice of termination was plainly calculated in bad faith to inflict the greatest amount of harm and impose as much pressure as possible on Wheels Up, with complete disregard for Wheels Up’s customers.”

In addition to expenses and having its deposits returned, Wheels Up is seeking compensatory damages to be determined at trial.

In a written statement, the defendant responded: “flyExclusive terminated our agreement with Wheels Up because they are in default. This litigation is a result of our termination.”

FMI: www.nysd.uscourts.gov