JetBlue Airways Corporation — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. JetBlue is a U.S. airline serving 98 destinations in the United States, Caribbean, and Latin America, with a predominantly point-to-point network centered on New York, Boston, Fort Lauderdale, Orlando, Los Angeles, and San Juan. COVID-19 sharply reduced air travel demand and drove substantial capacity cuts.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $2.957 billion | $8.094 billion |
| Operating income (loss) | $(1.714) billion | $800 million |
| Net income (loss) | $(1.354) billion | $569 million |
| Operating margin | (58.0)% | 9.9% |
| Net cash from operating activities | $(683) million | $1.449 billion |
| Cash and cash equivalents | $1.918 billion | $959 million |
| Short-term investment securities | $1.135 billion | $369 million |
| Debt and finance lease obligations | $4.863 billion | $2.334 billion |
| Stockholders’ equity | $3.951 billion | $4.799 billion |
Passenger revenue fell 64.9% to $2.733 billion; other revenue declined 27.3% to $224 million. Capacity, measured in available seat miles, fell 48.8%, while revenue passengers declined 66.6% and load factor dropped to 56.9% from 84.0%. Operating revenue per available seat mile fell 28.7% to 9.04 cents. Average fare increased 5.0% to $191.42, but the lower passenger volume drove the overall revenue decline.
Operating expenses decreased 36.0% to $4.671 billion, less than the revenue decline. Fuel expense decreased 65.9% to $631 million, reflecting lower flying and a lower average fuel price. Despite lower total expense, operating expense per available seat mile rose 25.1% to 14.29 cents as capacity contracted. Management’s non-GAAP CASM ex-fuel measure increased 55.4% to 13.12 cents.
Fourth quarter: Revenue was $661 million; operating loss was $454 million, net loss was $373 million, and loss per share was $1.31. JetBlue reported average daily cash burn of approximately $6.7 million for the quarter, down from approximately $18 million per day at the end of March 2020.
Material changes and liquidity
- COVID-19 cut 2020 operating revenue by 63.5% year over year and materially weakened operating cash flow. JetBlue reduced schedules, parked aircraft, consolidated some airport operations, froze hiring, reduced some salaries and work hours, and offered voluntary time-off and separation programs.
- Liquidity at year-end included approximately $3.1 billion of cash, cash equivalents, and short-term investments. Working capital was positive $671 million, versus a deficit of $877 million at year-end 2019. Management said it believed liquidity was sufficient to meet cash requirements for at least 12 months.
- Financing activity materially increased leverage. JetBlue raised funds through term loans, a fully drawn $550 million revolving facility, aircraft equipment notes, sale-leasebacks, CARES Act support, and a December share offering that generated $583 million net proceeds. It also repaid a $1.0 billion delayed-draw loan during the third quarter.
- Debt and finance lease obligations totaled $4.863 billion; adjusted debt to capitalization was 57%, compared with 34% in 2019. The filing states approximately 34% of debt had floating interest rates. Credit ratings were downgraded during 2020 and carried negative outlooks: Fitch BB-, Moody’s Ba2, and S&P B+.
- Contractual obligations totaled $17.4 billion, including $5.8 billion of debt and finance lease payments, $7.8 billion of flight-equipment purchase obligations, and $1.2 billion of operating lease obligations. JetBlue had 141 aircraft on order through 2027; estimated 2021 capital expenditures were approximately $1.0 billion.
- Operating cash flow was negative $683 million and free cash flow was negative $1.474 billion. Capital expenditures were $715 million, in addition to $76 million of aircraft pre-delivery deposits.
Unusual items, outlook, and risks
Reported 2020 results included $283 million of net special-item contra-expense. Items included $685 million of CARES Act payroll-support grant recognition and $36 million of employee-retention credits, partly offset by a $273 million E190 fleet impairment, $106 million in losses on qualifying sale-leasebacks, and $59 million of voluntary-separation costs. Excluding special items, JetBlue reported an adjusted operating loss of $1.997 billion and adjusted net loss of $1.568 billion; these are non-GAAP measures. The E190 impairment relied on valuation estimates, and management said additional fleet assessments could follow as demand conditions evolve.
Management expected demand weakness to continue into 2021 and said the timing and pace of recovery were uncertain. It forecast first-quarter 2021 capacity at least 40% below first-quarter 2019, but provided no full-year earnings or revenue guidance in the supplied filing text. Management planned to adjust its network to demand and reported approximately $1.0 billion of anticipated 2021 capital expenditures. It also described planned LAX growth and new routes, and intended to launch London service in 2021.
JetBlue’s proposed Northeast Alliance with American Airlines had received DOT clearance subject to commitments, including growth commitments, slot divestitures, and antitrust safeguards. Investigations by the U.S. Department of Justice and state and local authorities remained ongoing. The company also highlighted risks from prolonged or renewed pandemic disruption, continued cash burn and additional financing needs, debt and lease burdens, fuel-price volatility, labor negotiations, aircraft delivery commitments and tariffs, operational concentration in congested Northeast markets, and possible further asset impairments. CARES Act assistance imposed restrictions, including limits on share repurchases and dividends and minimum service obligations. Share repurchases were suspended from March 31, 2020.
After year-end, JetBlue received approximately $252 million under the second federal Payroll Support Program on January 15, 2021, comprising a grant and an unsecured loan; the filing states this had no effect on the 2020 financial statements. It also noted that approximately $1.8 billion of CARES Act loan capacity remained available at year-end, with access extended through May 28, 2021.
Investor facts to verify
- Whether demand recovery, capacity deployment, load factors, and daily cash burn develop as management anticipated.
- Liquidity after ongoing operating cash outflows, required debt service, aircraft spending, and any collateral or covenant requirements; also verify the terms and availability of additional financing.
- Whether CARES Act and subsequent support restrictions, including required service levels and limits on capital returns, affect operating and financing decisions.
- The status and financial effect of the American Airlines alliance investigations and implementation commitments.
- Whether further E190 or other fleet impairments, aircraft delivery changes, or tariffs alter asset values and capital requirements.
- Progress in inflight labor negotiations and any resulting labor-cost or operational impacts.
The independent auditor issued an unqualified opinion on the consolidated financial statements and on internal control over financial reporting. The auditor identified loyalty-program breakage estimates and the E190 fleet impairment as critical audit matters.