JetBlue Airways Corporation — Q3 2020 Form 10-Q
Business context and reporting period. JetBlue provides air transportation in the United States, Caribbean and Latin America. This unaudited filing covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. Results were severely affected by COVID-19 and are not necessarily indicative of future periods.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $492 million | $2.086 billion | $2.295 billion | $6.063 billion |
| Operating income (loss) | $(516) million | $247 million | $(1.260) billion | $573 million |
| Net income (loss) | $(393) million | $187 million | $(981) million | $408 million |
| Diluted earnings (loss) per share | $(1.44) | $0.63 | $(3.58) | $1.35 |
| Operating margin | (104.9)% | 11.8% | (54.9)% | 9.4% |
- Q3 revenue fell 76.4% year over year; passenger revenue declined 77.8%. Capacity (available seat miles) was down 57.6%, passengers down 80.6%, and load factor fell to 42.6% from 85.5%.
- Q3 operating expense declined 45.2% to $1.008 billion, but operating expense per available seat mile rose 29.3% to 14.60 cents as capacity contracted. Fuel expense fell 78.4%; average fuel cost was $1.23 per gallon, down 40.4%.
- Reported Q3 special items included $332 million of CARES Act grant recognition as contra-expense, $58 million of separation costs, $56 million of E190 impairment and $106 million of sale-leaseback losses. Excluding special items, JetBlue reported a $628 million operating loss and $1.75 diluted loss per share; these are company-presented non-GAAP measures.
- For the first nine months, operating cash flow was negative $223 million versus positive $1.198 billion in 2019. Capital expenditures and aircraft deposits totaled $596 million; reported free cash flow was negative $819 million (non-GAAP).
- At September 30, cash and cash equivalents were $2.453 billion, short-term investments were $566 million, and working capital was positive $647 million, versus a $877 million working-capital deficit at year-end 2019. Management reported approximately $3.1 billion of cash, cash equivalents, short-term investments and short-term restricted cash.
- Long-term debt and finance lease obligations were $4.439 billion, with $400 million of current maturities; the comparable year-end balances were $1.990 billion long-term and $344 million current. Total debt and finance lease obligations were approximately $4.8 billion. Stockholders’ equity was $3.717 billion, down from $4.799 billion.
Material changes and management outlook
- COVID-19 drove a material decline in travel demand. Q3 revenue was 76% below the prior-year quarter; management said demand improved from Q2 but remained significantly depressed, with recovery timing uncertain and dependent in part on a widely available treatment or vaccine.
- Q3 capacity was down about 58% year over year. JetBlue expected Q4 capacity to be down at least 45% and daily cash burn to average $4 million–$6 million, compared with approximately $6 million per day in Q3. It had reduced daily cash burn from about $8 million at June’s end.
- Liquidity actions included government payroll support, new term loans, a draw on its $550 million revolving facility, aircraft-backed equipment-note offerings and sale-leasebacks. The company repaid its $1 billion 364-day loan during Q3. In November, after the reporting date, Treasury increased available CARES Act loan capacity to $1.95 billion.
- CARES Act support included $963 million in total payroll support funding, comprising grants and unsecured loans, and $115 million drawn under the separate secured loan program by September 30. The secured loan facility had collateral, liquidity and other covenants. Government assistance also entails restrictions, including limits on share repurchases, dividends and executive compensation, and required service levels.
- JetBlue deferred aircraft deliveries; an October amendment was expected to reduce aircraft capital expenditures by approximately $2.0 billion through 2022. It also planned new routes and a Los Angeles expansion; its proposed American Airlines alliance remained subject to governmental review and approval.
Risks, contingencies and unusual items
- Prolonged or renewed COVID-19 restrictions, weak travel demand, refunds, economic conditions and the company’s fixed costs and indebtedness could further pressure cash flow and liquidity. Management warned that additional financing might not be available on acceptable terms, or at all.
- The E190 fleet impairment was $258 million for the nine months. Future impairment charges remain possible if operating and cash-flow expectations or asset values deteriorate.
- Debt financing increased materially, and pledged collateral, covenants and potential cross-defaults may constrain financial flexibility. The filing states the company was in compliance with debt and lease covenants at September 30.
- Aircraft purchase commitments were approximately $7.8 billion at September 30 under the then-current schedule; aircraft tariffs could increase costs. The October delivery deferral modified timing, not the stated total order count.
- JetBlue disclosed ordinary-course legal matters; it said none had materially affected operations or financial condition to date, while noting outcomes could differ from estimates and a material loss is possible.
Important facts for investors to verify
- Whether passenger demand, load factor, capacity and cash burn developed in line with management’s Q4 expectations.
- Unrestricted liquidity and access to remaining CARES Act borrowing capacity, including compliance with collateral, liquidity and other covenants.
- Debt maturities, financing costs, aircraft commitments and the realized cash savings from delivery deferrals and cost-reduction actions.
- Whether travel-credit liabilities, refunds, further E190 impairments, sale-leaseback costs or other special items materially affect subsequent results.
- The final status and terms of the proposed American Airlines alliance and any additional restrictions, dilution or financing arising from government support and warrants.