JBLU

JetBlue Airways Corp. 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for JetBlue Airways Corporation for the period ended September 30, 2008. The airline operates primarily in the United States with a significant presence in the New York metropolitan area. The reporting period coincides with a severe global credit and liquidity crisis and record-high fuel prices, which significantly impacted the airline industry.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: The company reported a net loss of $4 million for the quarter and $19 million for the nine months ended September 30, 2008, compared to net income of $23 million and $22 million, respectively, in the same periods of 2007.
• Fuel Costs: Aircraft fuel expense increased 59% ($145 million) for the quarter and 61% ($407 million) for the nine months. The average fuel cost per gallon rose to $3.42 in Q3 2008 from $2.13 in Q3 2007.
• Revenue Growth: Total operating revenues increased 18% for the quarter and 23% for the nine months, driven by a 13% increase in yield (average fare) despite a 2% decrease in capacity for the quarter.
• Liquidity Position: Cash and cash equivalents increased significantly from $190 million at year-end 2007 to $565 million at September 30, 2008, bolstered by a $301 million equity offering to Lufthansa and debt refinancing activities.
• Asset Write-offs: An $8 million asset write-off was recorded related to the temporary terminal building at JFK Airport following the opening of the new Terminal 5.

Guidance, Outlook, and Risks

• Full-Year 2008 Outlook: Management expects full-year operating capacity to increase 0% to 2% over 2007. Operating margin is projected to be between 2% and 4%, with a pre-tax margin between negative 1% and 1%.
• Fleet Strategy: JetBlue is moderating growth, selling five A320 aircraft in 2008 (with two more expected by year-end) and leasing/selling Embraer 190s to preserve liquidity. The operating fleet is expected to consist of 107 A320s and 35 Embraer 190s by year-end.
• Terminal 5: The new 26-gate terminal at JFK opened on October 22, 2008. The project is accounted for as a financing obligation on the balance sheet.
• Key Risks:
  • Fuel Hedging: Due to the rapid decline in oil prices in Q4 2008, the company faces significant margin calls on fuel derivatives. As of late October, an additional $112 million in cash collateral was deposited.
  • Auction Rate Securities (ARS): $305 million of ARS are classified as long-term assets due to market illiquidity. While collateralized by government-guaranteed student loans, the inability to liquidate these assets impacts working capital.
  • Regulatory: A new DOT congestion management rule may force an auction of 10% of slots at JFK and Newark, potentially reducing JetBlue's operating capacity.

Investor Verification Checklist

• Collateral Requirements: Verify the total cash collateral posted for fuel hedges and the potential for further margin calls given volatile oil prices.
• ARS Liquidity: Monitor the status of the $305 million in auction rate securities and any potential settlements with broker-dealers to repurchase at par.
• Debt Covenants: Confirm compliance with the $300 million cash and cash equivalents covenant required by the $110 million line of credit.
• Aircraft Sales: Track the execution of planned aircraft sales (A320s and Embraer 190s) to ensure they materialize as a source of liquidity.
• Terminal 5 Performance: Assess the operational efficiency and cost implications of the new JFK Terminal 5 in the upcoming quarters.