Surf Air falls 37% from debut price in direct listing

Surf Air Mobility Inc. began trading at $5 a share and fell 37% from there in the first significant direct listing in the US in almost two years.

Shares of the venture-backed regional air carrier with plans for electric planes closed at $3.15 Thursday in New York trading. At that price, the company has a market value of roughly $290 million based on the outstanding shares indicated in its filings with the US Securities and Exchange Commission.

“Now we can go out and get to work,” Stan Little, who is now Surf Air’s chief executive officer, said on the floor of the New York Stock Exchange. “We’ll build the stock price and I have no doubt we’ll eventually get to where we thought we would be, it just won’t be today.”

Despite widespread interest, direct listings have been used by only a handful of well-known companies, such as Spotify Technology SA, Slack Technologies Inc. and Coinbase Global Inc. Most recently, eyewear retailer Warby Parker Inc. went public via a direct listing in September 2021.

Surf Air launched its plan for a direct listing after the collapse last year of blank-check merger that would have taken the company public at a $1.42 billion valuation.

Someone’s ‘Speculation’

Before trading began, the exchange had assigned a reference price of $20. Unlike a traditional initial public offering in which shares are sold at the offer price before trading begins, the reference price in a direct listing is merely an estimate of their value, providing a price for trading to begin.

“Maybe that is one of the downsides of a direct listing is the reference price certainly wasn’t set by us, that’s someone else’s speculation,” Little said. “I’m glad that there are people out there that think that we are a $1 billion company.”

Surf Air, located at the Hawthorne Municipal Airport in the Los Angeles area, listed as IPOs are slowly rebounding from a slump that has lasted for more than a year. In listings on US exchanges this year, 97 companies have raised a combined total of $13.8 billion, compared with almost $19 billion at this point in 2022 and a record-setting $226 billion the previous year, according to data compiled by Bloomberg.

In a direct listing, companies typically don’t raise fresh capital and existing investors can usually begin selling shares on the first day of trading without the lockup period restrictions of an IPO. Because banks don’t underwrite shares as they do in an IPO, direct listings also can save on banking fees and the time spent on an investor roadshow.

Merger, Loss

Surf Air’s plans included merging with regional carrier Southern Airways Corp. immediately before the listing. With Southern Airways included, the combined business had a loss of $15.3 million on revenue of almost $28 million on a pro forma basis during the first quarter of this year, according to Surf Air’s filings with the US Securities and Exchange Commission.

Co-founder Liam Fayed was Surf Air’s largest shareholder at the time of the listing with an 7.7% stake, followed by co-founder Sudhin Shahani with 7.1%, according to the filings.

“Going public unlocks a lot of value for us and a lot of future value, of course it would’ve been nice if the price was higher no doubt, but the price wasn’t the main reason to get this done,” Shahani said. “We wanted to pick the fastest path to do and the most efficient path to do so and there’s a lot of room to grow from here.”

The company raised $99 million from dozens of venture and angel investors before going public, according to data provider PitchBook. Those firms include IVP, NEA and ff Venture Capital, in addition to individuals including Facebook and B Capital co-founder Eduardo Saverin.

Electric Planes

Surf Air is working to pioneer hybrid electric and fully electric powertrains in aircraft. It warns, though, that those plans could face difficulties or even fail.

“I was impressed by Sudhin’s vision of a greener and more sustainable way of flying and also how practical he was by focusing on regional commuter flights that have been de-prioritized by the big airlines,” said Arianna Huffington, an adviser to Surf Air.

Surf Air’s advisers in the listing include Morgan Stanley, as well as Canaccord Genuity LLC, Moelis & Co., Robert W. Baird & Co. and Sanford C. Bernstein & Co. The company’s shares are trading under the symbol SRFM.