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WSJ Jan. $22,2024$ How One Debt$-$Laden Company Could Create a Storm for Private Jets

Based in Malta, privately owned VistaJet grew at breakneck speed after $2019$ to become the world$$s second$-$largest flier of private jets. But, through complex financial engineering involving its founder and owner, Swiss entrepreneur Thomas Flohr, it also accumulated big debts that could prove unsustainable. The company offers a kind of private$-$jet taxi service.

Investors are getting increasingly worried: A VistaJet bond issued last May, which was very oversubscribed, is now selling off. On Friday, its yield closed at $17\mathrm{.}23\%,$ the highest on record. This means a price of $77$ cents on the dollar and a spread over Treasury yields of $13\mathrm{.}18$ percentage points.

Disclosures related to VistaJet$$s bond showed the company$$s net loss rising to $$139\mathrm{.}5$ million in $2022,$ compared with $$50\mathrm{.}5$ million in $2021.$ Its net debt increased to an eye$-$watering $23\mathrm{.}5$ times equity, up from $7\mathrm{.}8$ times a year earlier. Auditor EY warned in April that $$a material uncertainty exists that may cast significant doubt on the Group$$s ability to continue as a going concern,$$ the Financial Times reported in May.

Delta Air Lines rescued one of VistaJet$$s peers, U$.$S$.-$based Wheels Up$,$ from a bankruptcy that would have brought $180$ planes to the market. VistaJet is bigger. During the pandemic, VistaJet owned fleet to $270$ jets, Export Development Canada$($EDC$),$ a public export credit agency, financed many of them, though VistaJet was on the hook for the money.

VistaJet$$s rapid growth was facilitated by state$-$backed guarantees. EDC$$s transactions with VistaJet amounted to at least $1\mathrm{.}7$ billion Canadian dollars between $2020$ and $2022$ alone, official data shows.

Perhaps the strategy could be made to work, but the firm$$s deep financial losses suggest that it spent too much on big aircraft. Flohr has said he is focused on improving earnings before interest, taxes, depreciation and amortization, but this isn$$t the most important metric for a capital$-$intensive business that must pay back hefty investments.

VistaJet left its high$-$growth phase behind in $2023,$ which will have improved its finances and freed up more cash to pay lenders. But there is only so much to go around: Operating cash flow in $2022$ amounted to just $16\%$ of the company$$s debts at the end of that year. Meanwhile, soaring bond yields will likely push up the cost of refinancing.

Were VistaJet to sell some of its Bombardier jets to reduce debt, it would put pressure on used prices. If$,$ in the worst case, the company suddenly collapsed, the impact on the market could be nearly unprecedented.

The operator has $94$ Challengers$$almost as many as the $109$ for sale in the entire secondhand market, data by broker Guardian Jet shows. Its $18$ Global $7500$s$,$ hard$-$to$-$move aircraft with a price tag of $$60$ million each, would overwhelm the eight currently available.

ANSWER THE QUESTION:

C$.$ Can you learn from the presented data $,$ the probability of VistaJet$$s default?