JetBlue Airways Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. The filing attributes the sharp deterioration to the COVID-19 pandemic and related travel restrictions.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $215 | $2,105 | $1,803 | $3,977 |
| Operating income (loss) | $(410) | $250 | $(744) | $325 |
| Net income (loss) | $(320) | $179 | $(588) | $221 |
| Diluted EPS | $(1.18) | $0.59 | $(2.14) | $0.73 |
| Operating margin | (190.8)% | 11.9% | (41.3)% | 8.2% |
- Q2 operating revenue fell 89.8% year over year; passenger revenue declined 91.6%. Capacity fell 84.9%, passenger count 94.4%, and load factor was 33.8%, down 52.2 percentage points.
- Q2 operating expense declined 66.3% to $625 million, but operating expense per available seat mile rose 123.7% to 25.90 cents as flying contracted sharply. Fuel expense fell 94.0%; salaries, wages and benefits fell 17.1%.
- Management’s non-GAAP adjusted Q2 net loss was $548 million and adjusted diluted loss per share was $2.02, excluding special items. The filing cautions that non-GAAP measures supplement, not replace, GAAP results.
- Six-month operating cash flow was $223 million, versus $968 million a year earlier. Capital expenditures and aircraft pre-delivery deposits totaled $434 million; company-defined free cash flow was negative $211 million.
- At June 30, cash and cash equivalents were $2.561 billion; current investment securities were $340 million. The company reported approximately $3.4 billion of cash, cash equivalents, short-term investments and short-term restricted cash. This includes CARES Act funds restricted for payroll use.
- Balance-sheet debt and finance lease amounts included $984 million of short-term borrowings, $362 million of current maturities, and $3.430 billion of long-term debt and finance lease obligations. Working capital deficit was $208 million.
- Six-month financing included substantial new borrowing: a $997 million Morgan Stanley delayed-draw loan, a $550 million Citibank revolver draw and a $717 million Barclays term loan, among other financing. The company also received $936 million under the CARES Act, comprising $685 million in grants and a $251 million loan.
Material changes versus prior year
- Q2 shifted from $179 million net income to a $320 million net loss; first-half results shifted from $221 million net income to a $588 million net loss.
- Q2 passenger traffic and capacity contracted drastically. Lower fuel and operating costs did not offset the revenue collapse; fixed and other costs per unit of capacity rose materially.
- Cash and liquidity increased substantially from year-end, supported by new debt, government assistance, a $150 million TrueBlue points pre-purchase arrangement and asset financing. Debt and finance obligations also increased.
- JetBlue recorded a $202 million first-quarter impairment related to its Embraer E190 fleet. Q2 included $304 million of CARES Act payroll grant recognition as a contra-expense. These items materially affect reported comparisons.
Outlook, commentary and risks
- Management anticipated a modest demand recovery in Q3 but said its timing and pace were uncertain. Q3 capacity was expected to be down at least 45% year over year; approximately 30% of the fleet was temporarily parked at quarter-end.
- Management reported reducing daily cash burn from an average of $18 million in the second half of March to about $8 million by the end of June, and expected average Q3 cash burn of $7–$9 million per day. The filing provides no clear full-year earnings or revenue forecast.
- Cost and liquidity actions included a hiring freeze, officer salary reductions, voluntary crew separation programs, reduced capital spending, aircraft delivery deferrals expected to lower aircraft capital expenditures by $1.1 billion through 2022, and suspended share repurchases. July 2020 sale-leasebacks of $267 million were disclosed as subsequent events.
- JetBlue had not decided whether to accept some or all of a potential CARES Act Loan Program loan of up to approximately $1.1 billion. Such aid could bring additional debt, warrants and operating restrictions. Existing CARES Act terms include limits on furloughs and pay reductions through September 30, 2020, service requirements through March 1, 2022, and restrictions on buybacks, dividends and executive compensation.
- Key uncertainties include the duration and severity of COVID-19-related travel weakness, liquidity and refinancing needs, substantial fixed obligations and aircraft commitments, customer refunds and possible credit-card processor collateral requirements, potential future asset impairments, fuel and interest-rate volatility, and aircraft tariffs. A 15% U.S. tariff on certain imported Airbus aircraft and parts could increase costs.
- Management said disclosure controls were effective as of June 30, 2020 and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track demand, capacity, load factor, revenue recovery and the pace of fleet reactivation against management’s Q3 expectations.
- Reconcile reported liquidity with restricted CARES Act cash, debt maturities, borrowing availability and actual daily cash burn.
- Monitor use and recognition of the remaining CARES Act payroll support, compliance restrictions, and any decision on the prospective Treasury loan.
- Review the effect of added debt, collateral pledges, sale-leasebacks and aircraft delivery deferrals on future interest costs, liquidity and capital commitments.
- Assess whether further impairments, customer refunds, credit-card processor reserves or aircraft tariffs could materially affect cash flow and financial position.