Wheels Up Experience (UP) Risk Analysis

SEC rules define a material weakness as a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a registrant's financial statements will not be prevented or detected on a timely basis. Wheels Up is required to annually provide management's attestation on internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). We are also required to disclose significant changes made to our internal controls procedures on a quarterly basis and any material weaknesses identified by our management in our internal controls over financial reporting during related assessments. In addition, our independent registered public accounting firm must attest to the effectiveness of our internal control over financial reporting under Sarbanes-Oxley. In connection with the audit of Wheels Up's consolidated financial statements for the year ended December 31, 2024, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. We identified a material weakness in our internal controls over financial reporting with respect to certain deficiencies in controls over information technology ("IT") for IT systems and applications that are relevant to the preparation of the consolidated financial statements, including (i) access management controls to ensure appropriate segregation of duties and restrict user access to financial applications, programs and data affecting underlying accounting records, and (ii) program change management controls affecting IT applications, key information and underlying accounting records, that ensure IT program and data changes are identified, tested, authorized and implemented properly. These deficiencies impact the effectiveness of application controls and manual IT-dependent controls, as well as the effectiveness of our controls around the periodic closing and preparation processes for our financial statements, which could result in future misstatement(s) of one or more account balances or disclosures, which in turn could result in a material misstatement to our annual or interim consolidated financial statements that could not be prevented or detected. As a result of the material weakness identified during the year ended December 31, 2024, our management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2024. See Part II, Item 9A "Controls and Procedures" in this Annual Report for more information about management's assessment of our internal control over financial reporting and disclosure controls and procedures as of December 31, 2024. Effective internal controls are necessary for us to provide reliable financial statements and prevent or detect fraud. The material weaknesses in internal control over financial reporting described above, any new deficiencies identified in our internal control over financial reporting or any deficiencies in our disclosure controls and procedures, if not timely remediated, could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements, or the failure to timely file required reports under the Exchange Act. We are in the process of implementing certain measures as part of a remediation plan to address the deficiencies underlying the material weakness identified during the year ended December 31, 2024. We can provide no assurance that the measures we have taken to-date and any actions that we may take in the future will be sufficient to remediate these control deficiencies, or that such remediation measures will be effective at preventing or avoiding any potential future significant deficiency or material weakness in our internal controls. If we identify any new deficiencies in the future or are not able to successfully remediate any material weaknesses, including any deficiencies in our disclosure controls and procedures, the accuracy and timing of our financial reporting may be adversely affected, stockholders, investors, members and customers may lose confidence in the accuracy and completeness of our financial reports, the trading prices for our Common Stock and the Warrants could decline, we could be subject to sanctions or investigations by the SEC, NYSE or other regulatory authorities, and we may not be able to source external financing for our capital needs on acceptable terms or at all. Each of the foregoing items could adversely affect our business, prospects, results of operations, financial condition and the market price and volatility of our Common Stock. In addition, we have expended, and expect to continue to expend, significant resources, including accounting-related costs and significant management oversight, in order to assess, implement, maintain, remediate and improve the effectiveness of our internal controls over financial reporting and our general control environment. In addition, as a result of reported material weaknesses in internal control over financial reporting described above, a past restatement of our financial statements and other matters raised or that may in the future be raised by the SEC, we are currently subject to, and face the potential for additional, litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the deficiencies in our internal control over financial reporting described above, the preparation of our financial statements and the restatement described above. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, prospects, results of operations and financial condition.

We have a history of net losses and have not consistently generated positive cash flow from operations, including during years ended December 31, 2024, 2023 and 2022. Given the significant operating and capital expenditures associated with our strategic business initiatives and financial goals, we anticipate continued variability in our net losses during the period of transition. If we do achieve profitability, we cannot be certain that we will be able to sustain or increase such profitability, which may require, among other things, broadening and stabilizing our sources of revenue, improving our margins, strategically controlling expenses and timely addressing changes in market dynamics. Accomplishing these objectives may require actions to optimize our asset base, make significant capital expenditures, including with respect to our fleet modernization strategy, enter into new markets, exit existing lines of business or implement additional changes to our member programs or charter offerings. There can be no assurance that we will be able to achieve these objectives, that the timing of any achievement will align with our predictions or that there will not be variability in our financial results during periods of transition. If we cannot achieve and sustain profitability or raise additional capital, our business could be materially and adversely affected, as we may not have sufficient liquidity or be able to meet our contractual obligations, including those arising under operating leases, debt obligations and obligations to customers to provide future services for which we have already received deferred revenue.

In accordance with applicable accounting standards, we are required to test our indefinite-lived intangible assets, including goodwill, for impairment on an annual basis, or more frequently where there is an indication of impairment. We are also required to test certain of our other assets for impairment where there is any indication that an asset may be impaired, such as our market capitalization being less than the book value of our equity. In recent years, we have realized non-cash, pre-tax impairment charges related to goodwill, including during each of the three months ended September 30, 2022, December 31, 2022, June 30, 2023, and September 30, 2023, for our WUP Legacy reporting unit (excluding Air Partner), as a result of, among other things, changes in our business plan and forecasts and fluctuations in the trading price per share of our Common Stock. In addition, in the first quarter of 2025, the Company expects to record a non-cash, pre-tax impairment charge related to a right of use asset associated with vacated corporate office space. Quantitative impairment assessments are sensitive to key assumptions, such as expected future cash flows, the degree of volatility in equity and debt markets, and our stock price. If the assumptions used in our assessments are not realized, or such assumptions change due to a change in business or market conditions impacting our forecasts, rises in interest rates that impact our estimate of weighted average cost of capital, or if the trading price of our Common Stock declines significantly from historical levels, it is possible that an additional impairment charge for tangible or intangible assets, including goodwill, may need to be recorded in the future, including as a result of the effects of factors outside our control on our business and operations. In addition, we may incur impairment charges related to certain assets as part of our strategic business initiatives, including cost control measures, or as a result of future acquisition or disposition activity. The value of our aircraft could also be impacted in future periods by changes in supply and demand for these aircraft, including as a result of the grounding of aircraft, which could adversely impact our business, prospects, results of operations and financial condition, and cause adverse impacts to us under the agreements governing our indebtedness obligations. See also "? The residual value of our owned aircraft may be less than estimated in our depreciation policies. " An impairment loss related to our tangible or intangible assets, including goodwill, could have a material adverse effect on our results of operations and financial condition. In addition, an impairment loss that is based on, among others, changes in business or market conditions impacting our forecasts, the weighted average cost of capital or the market price of our Common Stock, may adversely impact the perception of the Company held by stockholders, investors, members and customers, which in turn may adversely impact our business, prospects, results of operations, financial condition and the volatility and trading prices for our Common Stock. See , Summary of Significant Accounting Policies,, Goodwill and Intangible Assets, and , Subsequent Events in the Notes to Consolidated Financial Statements included in "Financial Statements and Supplementary Data" in this Annual Report for additional information about impairment and non-cash, pre-tax impairment charges realized during the years ended December 31, 2023 and 2022 or that are expected to be recorded in the first quarter of 2025.

Our financing agreements, including those in connection with the Revolving Equipment Notes, the Term Loan and Revolving Credit Facility, and related guarantees, and other financing agreements that we may enter into from time to time, contain certain affirmative, negative and financial covenants, and other customary events of default. For example, the governing documents for the Revolving Equipment Notes contain certain covenants and events of default, such as a covenant that limits the maximum loan to value ratio of all aircraft financed under the Revolving Equipment Notes Facility, a covenant that limits the maximum concentration of the outstanding aggregate principal amount for Revolving Equipment Notes for specified models of aircraft relative to the outstanding aggregate principal amount of all aircraft financed under the Revolving Equipment Notes Facility, and a requirement to maintain a liquidity reserve in the form of a cash amount or a letter of credit equal to six months of interest charges based on the aggregate principal amount of Revolving Equipment Notes outstanding on any regularly scheduled principal and interest payment date, in each case subject to certain cure rights of the Company. Each of these covenants may require us to make cash prepayments on the Revolving Equipment Notes or deposit additional sums for the benefit of the Revolving Equipment Note lenders in the event of non-compliance. In addition, the Credit Agreement contains separate events of default and covenants, such as limitations on: prepaying, redeeming, repurchasing, or issuing and selling new equity interests of the Company and its subsidiaries; paying dividends and making certain distributions; making certain investments and consummating certain acquisitions, mergers or disposals of assets; and replacing existing indebtedness and incurring new indebtedness and encumbrances. In addition, under the Investor Rights Agreement, we must obtain the approval of certain Lenders to, among other things, incur capital expenditures, consummate certain acquisitions of equity interests or assets in excess of certain amounts, issue equity interests, make material changes to the scope of our business, or enter into certain commercial arrangements with a Lender. Certain of the covenants in our financing agreements are subject to important exceptions, qualifications and cure rights, including, under limited circumstances, the requirement to provide additional collateral or prepay or redeem certain obligations and the ability to delay payments of interest and principal for limited periods of time. In addition, certain of our debt obligations are cross-collateralized, such that an event of default or acceleration of indebtedness under one agreement could result in an event of default under other financing agreements. If we fail to comply with such covenants, if any other events of default occur for which no amendment, consent or waiver is timely obtained, or if we are unable to timely refinance the debt obligations subject to such covenants or take other mitigating actions, the holders of our indebtedness could, among other things, declare all outstanding amounts and any premiums or penalties immediately due and payable and, subject to the terms of relevant financing agreements, repossess or foreclose on collateral, including our aircraft and other assets that are pledged as collateral under the Revolving Equipment Notes Facility and Credit Agreement, as applicable, the equity interests of the Company's subsidiaries or other assets used in our business. The acceleration of significant indebtedness or actions to repossess or foreclose on collateral may cause us to renegotiate, repay or refinance the affected obligations, and there is no assurance that such efforts would be on terms we deem attractive, available in amounts sufficient to satisfy such affected obligations, or at all, or that certain holders of our indebtedness may withhold their consent to such refinancing. We may also experience a downgrade in any credit ratings then assigned to us in such circumstances. Any default, event of default, acceleration of significant indebtedness, actions to repossess or foreclose on collateral, credit downgrade or failure to obtain additional financing on terms we deem attractive, or at all, could have a material adverse effect on our business, results of operations and financial condition. See also Part II, Item 7A "Quantitative and Qualitative Disclosures about Market Risk" in this Annual Report for information about interest rate risk associated with our Revolving Equipment Notes, which accrue interest at a variable rate.

In October 2024, we announced our current fleet modernization strategy, which we expect will result in the transition from the operation of four current private jet models - Cessna Citation CJ3, X, and Excel/XLS and Hawker 400XP aircraft - to two different private jet models - Embraer Phenom 300 series and Bombardier Challenger 300 series aircraft - while we continue to operate our Beechcraft King Air 350i turboprop aircraft. We expect that our fleet modernization strategy, or future iterations of such strategy, will take a period of years to complete due to the scale of the expected changes. To execute this strategy, we will need to, among other things, strategically acquire aircraft, whether by purchasing aircraft, entering into aircraft leases with third parties or acquiring the businesses of other private aviation operators, sell current owned aircraft and return current leased aircraft, hire new or re-train certain pilots, operations and maintenance personnel to support our new fleets and further tailor our Wheels Up Membership and Wheels Up Charter offerings to fully integrate the new aircraft types. This strategy is expected to be capital intensive and will require significant internal and external resources to achieve. During the period of transition, we may experience variability in, or adverse impacts to, our business and operating results, financial performance, asset base and liquidity, due to, among other things, changes in the market for purchases and sales of aircraft, increased costs associated with such strategy, the incurrence of additional indebtedness to finance the acquisition of assets or businesses, difficulty in hiring new or re-training pilots, operations and maintenance personnel to adequately support our aircraft fleets and our ability to timely scale and grow our service offerings alongside changes in our aircraft fleet. In addition, we may be unable to execute our current fleet modernization plan on the timeline that we currently anticipate, or at all, or may fail to realize the expected benefits from such strategy, which may adversely impact our business, prospects, results of operations and financial condition, or frustrate our ability to achieve our financial goals.

We frequently consider opportunities to acquire or merge with other entities, or acquire assets, products or technologies that may enhance our service offerings or operations, expand the breadth of our markets or customer base, advance our strategic business initiatives, help us achieve our financial goals or otherwise improve the long-term performance or value of the Company. We also evaluate divestitures, joint ventures and other strategic transactions in furtherance of these goals. Any such transaction could be material to our business, results of operations and financial condition, involve substantial execution risk and result in the payment or receipt of different types of consideration, such as cash, the issuance of additional dilutive equity securities or the assumption or issuance of indebtedness. If we elect to pursue any strategic transaction, our ability to successfully implement and realize benefits from such transaction would depend on a variety of factors, including the requirement to obtain third-party consents from our lenders, regulators or other constituencies, or the imposition of additional restrictive agreements or covenants that limit our operating flexibility or the ability to enter into future strategic transactions. As a result of the risks inherent in such transactions, we cannot guarantee that any future transaction will be completed or integrated successfully, or that it will ultimately result in the realization of our anticipated benefits. Such transactions, including the timing thereof, may also have a material adverse impact on our business, prospects, results of operations and financial condition. Certain of the Company's stockholders, including Delta, CK Wheels and CIH, collectively own a substantial majority of the outstanding shares of our Common Stock, have consent or approval rights as lenders under our Term Loan and Revolving Credit Facility, and have the contractual right to designate a total of nine of the twelve directors on our Board of Directors as of the date of this Annual Report. As a result, such stockholders may exhibit significant influence over the Company, including with respect to commercial and strategic transactions involving such stockholders and other strategic business initiatives. Such transactions may be in the form of commercial partnerships, joint ventures, the issuance of additional dilutive equity interests, the implementation of leasing structures or sale-leaseback arrangements, commercial understandings and licensing arrangements, or transactions that result in the Company's capital stock no longer being publicly traded. The announcement or consummation of any such strategic transaction may materially adversely impact our business, prospects, results of operations and financial condition, or may result in significant volatility in the market for, and trading price of, our Common Stock or the Warrants (as defined herein). See also "- Certain stockholders, which are also lenders to the Company, have significant influence over the Company. "