Hawthorne-based Surf Air Mobility Inc. experienced some turbulence in its recent debut on the New York Stock Exchange. The regional air travel company went public through a direct listing at a quarter of the reference valuation expected prior to trading.
The stock premiered on July 27 at $5 a share before tumbling to close at $3.15 on its opening day. After five days on the market, Surf Air’s stock was trading around 60% lower than its initial value.
Unlike an initial public offering, a direct listing does not involve the creation of new shares. Existing shareholders can sell their stock to the public without the help of underwriter or intermediaries.
Surf Air is the first direct listing completed in the U.S. in more than a year. Under pressure to finalize its special purpose acquisition company contract with Southern Airways Inc. – a deal contingent on Surf Air going public – the company opted for the direct listing route, a less expensive alternative to the more common initial public offering.
Its listing significantly cut the $1.2 billion valuation given by alternative asset manager GEM Global Yield LLC in a June funding agreement for the company. Surf Air’s merger with Southern Airways closed immediately prior to trading. According to Stan Little, the newly named chief executive of the combined companies, the goal was completing the deal, not high valuation.
According to its June filing with the Security Exchange Commission, Surf Air incurred a net loss of $20.6 million in the first three months of the year. Further, the company said it expects to incur significant expenses and raised “substantial doubt” about balancing both airline operator and developer businesses.
Surf Air’s long game is to electrify the industry by developing hybrid and fully-electric aircraft systems. The company merged with commuter air carrier Southern Airways to broaden its flight network, allowing for more brand recognition through direct ticket sales.
Jetstream Aviation Capital injected major financing into Surf Air last fall, but the $450 million was earmarked exclusively for aircraft acquisitions.
The direct listing comes almost two months after a Supreme Court ruling made it more difficult for investors to sue over false statements in direct-listing registrations with the Security Exchange Commission.
In a case involving Salesforce Inc. subsidiary Slack Technologies, the court ruled that investors must prove they purchased shares traceable to misleading registration, a difficult task, as direct listings don’t distinguish the registration status of shares.
