JetSmarter tried to be the Uber of the sky. Now it faces lawsuits, questions and losses.

JetSmarter tried to be the Uber of the sky. Now it faces lawsuits, questions and losses.

- in Business
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By Robert Frank, Scott Zamost, Hannah Kliot and Jasmine Wu, CNBC

Last spring, Leonardo Galvez got an offer from JetSmarter that seemed too good to pass up.

The private-jet start-up was offering Galvez its top-of-the-line “sophisticated membership,” which included unlimited, free private-jet flights and the chance to bring a guest. The membership usually cost $50,000 a year, but JetSmarter told Galvez that if he acted now, he could get three years for $97,500, which he accepted.

Weeks later, Galvez was stunned when he tried to book a JetSmarter flight. Rather than flying for free as promised, he was told he would have to pay 75 percent of the cost of his flights. The guest pass and other benefits also disappeared, he said.

“My heart dropped,” Galvez said. “My membership meant nothing anymore. It was the easiest money I ever lost in my life.”

Galvez filed a lawsuit against JetSmarter and its salesperson for a refund and damages. JetSmarter declined to comment on any specific lawsuits but said in a statement that “changes to our member services and benefits were within the rights of our membership agreement,” which states that the company can “change, suspend or terminate” services or benefits at any time. The company also said members still have access to certain benefits.

But Galvez’s story is shared by many JetSmarter customers interviewed by CNBC. More than five years after taking the industry by storm with an app that promised to become the Uber of private jets, JetSmarter has left a trail of angry customers, at least 13 lawsuits and concerns over security. While some customers are satisfied, others now call it a “fraud,” a “high-tech shell game” and an “unlawful bait-and-switch,” according to lawsuits filed against the company.

CNBC interviewed dozens of JetSmarter members, more than 20 former employees and a wide range of industry executives, vendors and partners of the company. It also obtained internal documents and communications, as well as member lists, investor presentations, and video and photos from JetSmarter passengers and crew.

What emerges is a picture of a high-flying start-up that claimed to be revolutionizing jet travel but was actually losing millions of dollars a month and failing to deliver on promises to customers and investors. With celebrity customers like Kim Kardashian and DJ Khaled, and an ambitious young CEO, JetSmarter became the first “flying unicorn,” touting a valuation of over $1 billion. Now, the company is worth less than one-fifth that amount, based on its latest investment.

Behind its elite image, JetSmarter has used legal threats and lawsuits to silence critics, customers and the media. JetSmarter sent a letter demanding that CNBC “cease and desist” from contacting current and former employees who it said were bound by nondisclosure agreements.

JetSmarter CEO Sergey PetrossovCNBC

In a statement, JetSmarter said it “adamantly rejects any allegations of fraud or ‘bait-and-switch’ tactics.” It said that like any start-up, it is going through a business transition and is “more positive about the health of our business than ever.” It acknowledged “a number of members are unhappy with certain changes,” but said the “vast majority of our core customers understand the necessity of these decisions to ensure the long-term viability of JetSmarter.”

Yet after the company abandoned its original business plan, its path to profitability remains uncertain. It faces unknown costs from the customer lawsuits and refunds,as well as a class-action lawsuit that has gone into arbitration in Florida.

It also faces questions from two federal agencies — the Federal Aviation Administration and the FBI. The nature and extent of the inquiries is unclear, but one person interviewed by the FBI about JetSmarter said the agency asked about its financials and business practices. JetSmarter said it “is not itself the subject of an FBI investigation.”

Whatever its future, JetSmarter has given up on the controversial business model that made it famous and attracted thousands of customers — all-you-can-fly private-jet memberships.

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