John Owen, the Chief Financial Officer of JetBlue, is in charge of finding the best financing scheme for the company. Assuming a market rate of return 9 points higher than the risk-free return, we can use the WACC spreadsheet in order to estimate the financial structure of JetBlue that minimizes the WACC of the company: Appendix 1. With the large start-up … JetBlue's 2009 Annual Report on Form 10-K JetBlue's 2008 Annual Report on Form 10-K JetBlue's 2007 Annual Report on Form 10-K They should thus have a positive attitude towards high levels of debt. [7] However, operating income decreased 8.9% due to a 14.9% increase in operating expenses, leaving the operating margin lower by 150 basis points for this quarter. Why or why not? Thus, the alternatives that will be retained for the remaining of the analysis are the operating lease and secured debt for the aircraft acquisitions, and the equity issuance and the convertible private bonds for the acquisitions and the other investments. Any of the two options, either the convertible debt or the equity, will probably pull the financial structure from its current optimal position. The distribution costs of JetBlue are also low. JetBlue had a net income of $759 million in 2016, which was only 11.44% of their total revenue. This strategy helps the company capture market share in these segments. Although much of the language and information was industry specific and way above my expertise as a college senior, I was able to find out a few interesting points. $35.80 for a 2-page paper. From this point of view, JetBlue needs to secure its cash flows. JetBlue plans to purchase a new type of aircraft, the Embraer E190. Find out the revenue, expenses and profit or loss over the last fiscal year. All work is written to order. The coupon rate for those will however be higher than the 3.5% of the convertible bonds. JetBlue plans to increase its aircraft fleet from 45 to 252. The debentures will be a 30-year convertible debt with a coupon rate of 3.5%. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates included in our 2019 Form 10-K. 301 certified writers online. In terms of valuation ratios, PE is thirty-one. Financial Analysis. JetBlue is a profitable company, in comparison to peers, as stated in the following graph: JetBlue exhibits good levels of gross margin and operating margin. The company, as by July 2003, is seeing several opportunities to grow by adding new markets and new flights to existing destinations. Get the detailed quarterly/annual income statement for JetBlue Airways Corporation (JBLU). They should be able to deal with the opposite aspect (issuing more equity) as well. Registered Data Controller No: Z1821391. Analyst Opinion on JetBlue Airways (NASDAQ:JBLU) 15 Wall Street analysts have issued ratings and price targets for JetBlue Airways in the last 12 months. Those assets are principally composed by operating property and equipment, which are pledged under the operating leases and secured debt of the company. In addition, the debt will be convertible into shares of JetBlue at $63.75 per share, which represents a conversion rate of 15.6863 shares per $1,000 principal amount of notes. During the analysis we have compared the key financial ratios of the company with the average (median) values of those ratios calculated for the specific industry sector and for all industries. Company's financial ratios are compared with the median values of ratios of all companies and of companies First, the core resource of the company is its codesharing and interline agreements with other airlines instead of merging that would fully integrate them. However, many major US air carriers struggled between 2000 and 2003, and some of them filed for bankruptcy protection. The company will be more exposed to both the fuel price volatility and the growing cost of hedging it. Two other alternatives exist for JetBlue, for the aircraft acquisitions financing: The operating lease and the secured debt (each acquisition debt is secured by the acquired aircraft). The company operates only new airplanes, thus minimizing maintenance costs and offering a good “flying experience” to its customers. The case study analysis illustrates that JetBlue possesses some relevant internal resources and assets that are used to create a competitive advantage. 4. A substantial portion of the company’s assets, principally aircraft, are pledged under various loans and other obligations. The workforce of JetBlue is non-unionized and does not benefit from strict work regulations. We're here to answer any questions you have about our services. British airway, for example, is financing its aircraft acquisitions through debt, all of which being asset related. Info: 5267 words (21 pages) Dissertation Another alternative might be the issuance of simple corporate bonds. The company is clearly departing from its strategy, which has been the source of its strengths up to 2003. Those financing possibilities are still available for the company for additional aircraft purchase. Jet Blue decided to take a conservative financial strategy in which they maintained high liquid ratios relative to the other major airlines (Thompson et al., 2010). The EV/EBITDA NTM ratio of JetBlue Airways Corp. is significantly higher than its historical 5-year average: 6.5. Strengths: 1. The company will thus need a high capital expenditure to support those acquisitions, as well as several related investments. As the company will get bigger, with higher manpower, those might want to be unionized. The company will thus suffer relatively less from fuel shortages. Both RyanAir and EasyJet exhibit a capital structure that relies less on debt than the regular companies’ counterparts, as illustrated by the following table: It is important to mention that some small airline companies choose to issue bonds for their investments as well. This company has codeshare agreements with 21 airlines. The company has thus a very high operating leverage and is greatly exposed to the risk of cash flow projections’ errors in case it does not meet the projected revenues figures. within the same industry, and also with the quartiles of those ratios. With a short-term debt of $26,580 thousand and a long-term debt of $731,740 thousand as by June 2003, and equity of $480,594 thousand, the company’s leverage ratio is 157.8%, whereas the industry average is around 129.46% (Infinancials). The company is spending a considerable amount of money in hedging for fuel prices volatility. JetBlue Airways Corp. company facts, information and financial ratios from MarketWatch. JetBlue is an American low-cost airline and is headquartered in New York City. No plagiarism, guaranteed! A considerable weakness of JetBlue is its small size. This preferred stock option might however fail to attract investors. The purchase of the new 100-seat Embraer E190 aircraft would allow JetBlue to enter smaller markets while maintaining low operating costs, and increase flight frequency on existing routes. The (current) company valuation of JetBlue Airways Corp. is therefore way above its valuation average over the last five years. JetBlue Airways Corp JBLU Morningstar Rating Rating as of Jan 29, 2021. JetBlue stock has more than doubled, as opposed to only a 25% jump in the Dow Jones Airlines Index, since July of 2014. The loss was the airline's first since going public in 2002. All in all, airline companies are using both debt and equity (together with other financing means, including cash flows generated from operations) to raise money. Continued use of this website indicates you have read and understood our, ReadyRatios - financial reporting and statements analysis on-line, improved considerably (positive change of more than 1 point), improved (positive change of less than 1 point), unchanged (little or no change in score, no more than 0.11 points), deteriorated (the score has decreased by less than 1 point during the year), deteriorated considerably (the score has decreased by more than 1 point during the year). They are used to manage a highly leveraged and public company. We have conducted a comparative analysis of the balance sheet and the income statement of JetBlue Airways Corporation (hereafter – the "Company") for the year 2019 submitted to the U.S. Securities and Exchange Commission (SEC). The current ratio has declined from 1.05:1 to 0.94:1. With the rapid expansion of the company, the jet fuel expenses, as well as the cost of their hedging will grow rapidly. Financial analysis of JetBlue Airways (JBLU) During the fiscal year ending on Dec. 31, 2016, JetBlue Airways's revenue increased by 3.4% and reached $6,632 million. By the year 2003, the company is intending to support its growth through the acquisition of several new aircraft over the coming 13 years. Mini … Due to the fact that the average industry ratios are much better than those for all industries, 1 Reply. The same analysis can be done for the second alternative. An economic downturn or additional terrorist attacks might impact negatively JetBlue’s ability to finance its debt obligations. In order to compute an average interest rate for the company, data from 2002 are used: The interest expenses for this year equaled $10,370 thousand (exhibit 4), for a total long-term debt of $690,252 thousand (Exhibit 5a), thus an interest rate of 1,5%. JetBlue also faces one of the airline’s principal risks which is the rising fuel price. *You can also browse our support articles here >. Any variation in the estimated revenues, might lead the company to a position where it could not meet its financial obligations related to debt. In addition, the company has $5.2 billion of loans secured by 287 aircraft (Delta Airlines Annual Report 2010, p.72). The management of the company has also the expertise of leading a publicly held company, following the IPO in 2002. The lenders of the company seem on their side to have a positive attitude towards the company, which should be able to issue additional secured debt for its aircraft acquisitions with advantageous conditions. Efficient an… Indeed, the company can issue some preferred stock. Profitability refers to the business’s ability to manage earnings in contrast to its … Furthermore, the company’s return on sales, return on assets and return on equity are higher than industry averages and the company can be said to be quite profitable in comparison to company peers. The revenues of the company and its growth aspirations are subject to the economic conditions. The company also uses secured notes, equipment notes, pass-through certificates and multiple financings secured by certain aircraft spare parts, aircraft and spare engines (United Continental Holdings Annual Report 2010, p.55). View JBLU financial statements in full. The company is financing its existing aircraft through secured debt and operating leases, on favorable terms. Thus, JetBlue is a perceived as a solid and growing company by the investors. The financial structure of JetBlue will be as follows: Using the WACC spreadsheet, we can see the company’s financial position with regards to the optimal financial structure of JetBlue following the new cost of debt: Appendix2. Other investment needs are financed either through debt or equity, depending on the companies. As you can see, JetBlue is consistently below Southwest on the ratios. The revenues are forecasted to continue to grow up to a level of $1,796.9 million in 2005 (Exhibit 9). This high level of growth allows the company to rely on equity. It can be concluded, from a financial point of view, that the best alternative for the investments planned for 2003 is the equity issuance. At the same time the cost of revenue increased by 14.9% to $1,943 million. From this analysis, it can be noted that JetBlue will still have a financial position that minimizes the company’s weighted average cost of capital, thus maximizing the overall value of the company’s stock. The company has a successful business model and exhibits strong financial results, as well as strong revenue growth despite the downturn in the industry following the terrorist attacks of September 11, 2001. Any opinions, findings, conclusions, or recommendations expressed in this dissertation are those of the authors and do not necessarily reflect the views of UKDiss.com. The low fares offered by JetBlue would allow it to attract new passengers who might otherwise not fly. The company is also operating one type of aircraft, the Airbus A320, thus lowering maintenance and training costs and spare parts needs. The different financing alternatives available to the company are presented and studied in relation to the financial position of the company. The company is utilizing aircraft efficiently generating more revenue per plane. The weighted average cost of debt for JetBlue, if they issue such bonds, will be: [(3.5%*150,000)+(1.5%*731,740)]/(150,000+731,740), thus 1.84%. The fuel price is also an external factor due to its non-predictable volatility. The group is principally using finance leases and hire purchases contracts to acquire aircraft (British Airways Annual Report 2010, p.104). Learn More. The alternative of issuing public bonds has been eliminated as this one will incur higher costs for the company. From a mid to long-term point of view, he might as well negatively impact the internal stability of the company if he is not conservative enough to avoid any financial distress situation. The founding and managerial team of JetBlue is issued from the airline industry. "ReadyRatios Financial Analysis" Owen has also to review his hedging strategy of the fuel prices’ volatility: If the company chooses to hedge more of its fuel consumption, it will incur much higher hedging costs. As per the data from Exhibit 5a for June 2003, the financial structure of the company was as follows: From the Hamada’s formula, we can compute the unlevered beta of JetBlue as follows: With Beta(l)=0.69, T=0.42, Wd=61.21 and We=38.79. Twelve for the most recent month compared to an industry average of … The high price target for JBLU is $18.00 and the low price target for JBLU is $9.00. The low-cost airline companies seem to be, on their side, more conservative. Issuing private debt securities represent a threat for JetBlue as this might lock back the company to such private investors. During the analysis we have compared the key financial … If JetBlue chooses to finance its future aircraft acquisitions by debt, the acquired aircraft can be used to secure the corresponding debt. This stock might be considered as equity in accounting, to strengthen the balance sheet of the company, but will at the same time accommodate the board members’ concern about dilution. Each ratio value is given a score ranging from -2 and +2 depending on its position relative to the quartiles They can serve as useful tools to evaluate JetBlue Airways investment potential. Copyright © 2003 - 2021 - All Answers Ltd is a company registered in England and Wales. This provides JetBlue with independence regarding almost all issues, including … A non-financial analysis of the debt and equity options is conducted, in order to assess the relevance of each of those options with regards to all areas of the business other than finance. To draw a conclusion from the analysis the individual scores are weighted equally to get an overall score ranging from -2 and +2. In order to finance the acquisitions planned for the remaining part of 2003, JetBlue received two financial propositions from the investment banks. In addition, the company plans to invest in other domains such as spare parts, new engines, additional hangars and a flight training center. Looking at the table below one will notice that the liquidity position of the company is deteriorating. JetBlue, as any airline company, incurs very high fixed costs due to its high value operating property and equipment. JetBlue started with two (2) aircrafts that initial provided services at John F. Kennedy (JFK) airport in New York City and Ft. … The balance sheet of the company also needs to be strengthened. The private placement of convertible debt proposed by JetBlue’s investment bankers would provide sufficient capital at relatively low interest rates. The primary business activity of the company is Air Transportation, Scheduled (SIC code 4512). It is noted from Figure 1 given below that SG&A expenses … In a longer-term perspective, it is recommended to the company to use leases and secured debt for the upcoming aircraft acquisitions when favorable terms are available to the company, and to finance the remaining parts of the investments through cash generated from operations and through issuance of new equity, in order to compensate for the increasing financial and operational risks of the company. When looking at the vertical analysis, the first thing that stands out to me in the net income. JetBlue plans to be the launch customer for the new Embraer E190 aircraft. Owen has to think about the best capital structure for the company and thus the best financing strategy for JetBlue’s investments, including the aircraft acquisitions and the related investments. Understanding current and past JetBlue Airways Financials, including the trends in assets, liabilities, equity and income are directly related to making proper and timely investing decisions. The outcomes of those analyses are combined and a recommendation is issued to the Chief Financial Officer of JetBlue: It is recommended that the company issues common stock in order to finance the needed investments in the second half of 2003. So John Owen needs to finance the remaining part of this capital expenditure. If on the contrary the company chooses to reduce hedging costs, it will be more exposed to financial distress when the prices increase. JetBlue Airways Corporation is a low-fare, low-cost passenger airline company serving the US market. (-2 – below the first quartile; -1 – between the first and the second quartile; THE FIVE FORCE INDUSTRY COMPETITION• JetBlue has significantly outperformed the industry in most important financial ratios. Although this allowed probably the company to have a price discount, it is also a threat. This is again a departure from the company’s initial strategy which is to operate only one type of aircraft. - load the data into the program>>. Jetblue Airways Ipo Process Financial analysis is the assessment of the stability, viability as well as profitability of a sub-business, business or project. Indeed, for the period from July 1 to December 31, 2003, the company has committed to purchase 8 Airbus A320 aircraft, for a total amount of $305 million to be paid in 2003 (Exhibit 8). JetBlue has had a successful business model and strong financial results during that period, and performed well in comparison to other airline companies in the US during the period between 2000 and 2003. The fees and commissions of the bank for this proposal amount to $3,591,250 which represents a cost of 3.25%. Hire a subject expert to help you with JetBlue airways financial analysis. The debt offering will afford JetBlue less financial flexibility, especially due to the jet fuel prices. The notes will be unsecured obligations and will rank equal in right of payment with all other unsecured debt. Swot analysis; Competitive Analysis; Future of JetBlue; In February 2006, JetBlue announced its first ever quarterly loss. Second, John Owen needs to think about a long-term financing strategy. Delta Airlines, on its side, is using pass-through certificates to finance aircraft (Delta Airlines Annual Report 2010, p.34). Strong brand identity of JetBlue Airways Corporation. If you have a Facebook or Twitter account, you can use it to log in to ReadyRatios: You can log in if you are registered at one of these services: This website uses cookies. If fuel prices rise, this will incur less operating income and thus some difficulties to the company to meet its additional debt service payments. The company has thus the opportunity to raise additional equity. +1 – between the second and the third quartile; +2 – above the third quartile; The averages are calculated using the data from financial statements for the year 2019 submitted to the SEC through the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). Quote Stock Analysis News Price vs Fair Value Trailing Returns Financials … The second proposal from the investment banks is to issue $150 million in a private placement of convertible debentures. The following graph is an evaluation of JetBlue Airways and Southwest Airlines based on financial information found on the companies’ income statements, balance sheets, and cash flow statements: Jet Blue. The company is generating cash from its operating activities that amounted to $129,725 thousand for the first half of 2003, and already generated $238,989 thousand from financing activities (Exhibit 6). From exhibit 1, the JetBlue’s equity beta during the period from April 2002 to June 2003 is 0.69. Therefore, the company depends on its operating cash flow to finance its short-term and working capital obligations. The financial position of JetBlue Airways Corporation is better than that of most listed companies that submit financial statements to the U.S. Securities and Exchange Commission. The financial condition of JetBlue Airways Corporation in 2019 is worse than the financial condition of half of all companies engaged in the activity "Air Transportation, Scheduled". In addition, from exhibit 12, the Treasury bill interest rate as of June 30, 2003 is 1.09%, this will be used as the risk-free rate of return. Indeed, those need to be ranked by some ranking agencies and will have higher coupon rates (Exhibit 12). This will cover for part of this capital expenditure estimated at $570 million for 2003 (Exhibit 9). JetBlue does not have a line of credit, or short-term borrowing facility. Some other companies, smaller, chose to issue shares: SAS, Virgin Blue, AirAsia, Kingfisher, and Icelandair. Do any items in your vertical analysis stand out? The mid-sized market that JetBlue intends to enter will represent a new opportunity for growth to the company. Some background research has been performed in order to assess how other airline companies are financing their aircraft acquisitions and other investments, and in a broader aspect, study the specificities of their financial structures. The above is a comparative analysis of the financial position and performance of the company. As a result of the analysis of the key financial ratios of the company, we have established the following. The company is intending to grow heavily in the following years, and has plans to acquire 207 new aircraft for a total $6.86 billion up to 2011. There is a threat that they will not support John Owen, the CFO, if he recommends to raise new equity capital. Disclaimer: This dissertation has been written by a student and is not an example of our professional work, which you can see examples of here. The company holds 62 aircraft under operating leases and 8 aircraft under finance leases, out of 196 total aircraft, principally Airbus (EasyJet Annual Report 2010, p.87). The company also benefits from its reliable on-time performance, comfortable airplanes, and friendly flying personnel to attract and secure its customer base. Change during the year is calculated by comparing the resulting score of financial position within the industry with the last year's (quarter's) score. For a detailed financial analysis please use By comparing each of the eleven key metrics with the median value, we have made a generalized conclusion about the quality of the financial condition of the company. JetBlue Airways Corp. balance sheet, income statement, cash flow, earnings & estimates, ratio and margins. Such an investment will let the company more exposed to financial distress and raises the question of the management ability to cope with such a rapid expansion. Find the latest Financials data for JetBlue Airways Corporation Common Stock (JBLU) at Nasdaq.com. However, a common trend to low-cost companies seems to be their conservative financial structures, in comparison to bigger, regular airline companies. there is a positive result when compared with all companies. About JetBlue Financial Ratios Analysis JetBlue AirwaysFinancial ratios are relationships based on a company's financial information. From a short-term point of view, John Owen might lose the shareholders’ support if he goes for equity issuance. JetBlue Airlines Strategic Management Case Analysis Introduction to the Company History of the Firm JetBlue was established in 1999, and was the third airline start-up for founder and CEO David Neeleman. See JetBlue Airways Corporation (JBLU) stock analyst estimates, including earnings and revenue, EPS, upgrades and downgrades. JetBlue will thus be able to raise up to $110.5 million. Jetblue Financial Analysis. JetBlue’s liquidity ratios have decreased over the last three years and … JetBlue is a levered company. In addition, as the company is relatively consuming low volumes of fuel, it can suffer from significantly higher prices in case of fuel shortage. The company will also have to secure additional airport gates which will represent a threat for the company in case it cannot negotiate advantageous conditions as with underserved airports. The company serves densely populated cities in underserved airports, with high fares. The company has been performing well in the recent years. (TR0201-06) More recently, our pilots and inflight crewmembers have The market is also subject to big variations depending on several unpredictable factors, like political stability, weather conditions, natural disasters, terrorist attacks etc. United Continental Holdings has a high amount of obligations, including debt, aircraft leases and financings (United Continental Holdings Annual Report 2010, p.53). AMR used private lenders to borrow money. Costs and Expenses. Those two options are available for JetBlue at advantageous conditions. Published: 12th Dec 2019. This option will thus cost more for JetBlue than convertible bonds, especially before the company’s shares price eventually exceeds $63.75. According to these financial ratios JetBlue Airways Corp.'s valuation is way above the market valuation of its sector. As stated earlier, the company revenues knew a high growth for the precedent years and are expected to continue growing steadily. The reason for the company to go public was to wean off its dependence on the venture capital and private equity industries. Customers satisfaction in this brand is high. Financial Analysis 2010 Fourth Quarter Overview JetBlue reported a total fourth quarter revenue of $940 million, a 13.1% increase in revenue since year-ago fourth quarter. In April 2002 to June 2003 is performed also an external factor due to the economic.... For only $ 16.05 $ 11/page price eventually exceeds $ 63.75 to drop to about 326.7 in... An external factor due to its customers Dissertation Published: 12th Dec 2019 discount, it will be unsecured and! Low fares offered by JetBlue ’ s financial analysis specifically for you for only $ 16.05 11/page... Also reported a loss in revenue was blamed on the companies been eliminated as might! 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