TEXT - S&P revises JetBlue Airways outlook

Fri Dec 14, 2012 2:14pm EST

Overview
     -- JetBlue Airways Corp.'s financial profile has improved over the
past year because of stable operating performance and debt reduction.
     -- We are affirming our ratings, including the 'B-' corporate credit 
rating, and revising the outlook to positive from stable.  
     -- We are also raising our issue and recovery ratings on its senior 
convertible subordinated debt.  
     -- The positive outlook reflects our belief that the company's financial 
profile will continue to improve as a result of increased levels of cash flow 
generation and continued debt reduction.


Rating Action
On Dec. 14, 2012, Standard & Poor's Ratings Services affirmed its ratings, 
including its 'B-' corporate credit rating, on New York City-based airline 
JetBlue Airways Corp. (JetBlue). At the same time, we revised our outlook on 
the rating to positive from stable. We also raised our issue rating on the 
company's senior convertible debt to 'CCC+' from 'CCC' and revised our 
recovery rating on that debt to '5' from '6', indicating our expectation of 
modest (10%-30%) recovery in a default scenario.

Rationale
The outlook revision on JetBlue is based on the company's improved financial 
profile over the past year because of stable operating performance and debt 
reduction. For the 12 months ended Sept. 30, 2012, EBITDA interest coverage 
rose to 3x from 2.4x a year earlier, funds from operations (FFO) to debt rose 
to 15% from 11%, and debt to capital declined to 71% from 74%. We anticipate 
further improvement in these credit metrics, assuming fuel prices remain 
relatively stable, the economy grows modestly, and the company continues to 
reduce debt.

The corporate credit rating on JetBlue reflects its participation in the 
high-risk U.S. airline industry and a substantial debt burden. Competitive 
operating costs are a positive credit factor, in Standard & Poor's assessment. 
Under our criteria, we characterize JetBlue's business profile as "weak," its 
financial profile as "highly leveraged," and its liquidity as "adequate."

JetBlue is a midsize U.S. low-cost, low-fare airline that started operating in 
2000 from New York's JFK International Airport, which remains its principal 
hub. JetBlue's profitability has been more consistent than most other airlines 
since 2010. Still, the airline's financial profile remains highly leveraged. 
Assuming fuel prices remain relatively consistent, the economy grows modestly, 
and the company continues to reduce debt, we expect JetBlue's credit metrics 
to improve somewhat in 2013. We expect the company to finance its capital 
spending for new aircraft primarily through cash and cash generated from 
operations. Potential threats to this scenario include materially higher fuel 
prices and a significant slowdown in the already sluggish U.S. economic 
recovery. The company has substantial debt maturities and capital spending for 
new aircraft in 2013 and 2014. In 2013, debt maturities are $397 million and 
committed capital spending for new aircraft is $450 million; in 2014, debt 
maturities are $576 million and committed capital spending for new aircraft is 
$520 million. We anticipate the company will be able to refinance a 
significant portion of upcoming debt maturities and finance new aircraft 
deliveries from cash, cash generated from operations, and from various 
lenders.  

JetBlue serves destinations in the U.S., Puerto Rico, the Caribbean, and Latin 
America. Its primary hub is at JFK, with smaller focus cities of Boston; Fort 
Lauderdale, Fla.; Long Beach, Calif.; Orlando, Fla.; and San Juan, Puerto 
Rico. Although it is less diversified than larger airlines because of the 
substantial percentage of its operations at JFK, it does benefit from its 
operations at Boston, where it is the largest airline, as well as its many 
interline relationships with other airlines, including Hawaiian Airlines, Air 
Lingus, Lufthansa, and American Airlines.  JetBlue operates a relatively 
young, fuel-efficient fleet consisting of 123 Airbus 320s (a midsize 
narrowbody plane) and 52 Embraer 190s (a large regional jet) as of Sept. 30, 
2012. 

JetBlue's operating costs remain among the lowest in the U.S. airline 
industry, mostly because of the high productivity of its assets and labor. The 
airline's employees are not unionized (in contrast with those at Southwest 
Airlines Co., the largest low cost airline) but are well paid by industry 
standards, particularly following wage cuts at the legacy carriers.

JetBlue has taken on substantial debt and leases to finance its fleet growth. 
The company began its operations relatively well-capitalized (for a start-up), 
added to retained earnings in its first several years of operations, and 
undertook several offerings of common shares. Debt to capital was 71% as of 
Sept. 30, 2012--high but less than those of most U.S. airlines. JetBlue opened 
a new terminal at JFK Airport in October 2008, which it leases from the Port 
Authority of New York and New Jersey, but it is carried on JetBlue's balance 
sheet as "assets constructed for others," totaling $561 million as of Sept. 
30, 2012. The related liability is shown as "construction obligation" ($517 
million), which we include as debt. JetBlue has no defined-benefit pension 
plans or retiree medical liabilities.

Liquidity
We believe JetBlue's liquidity is adequate. Major sources of liquidity include 
internal cash flow and $1.1 billion of unrestricted cash and short-term 
investments as of Sept. 30, 2012 (equal to 22% of JetBlue's annualized 
revenues--in line with U.S. airlines, which typically average 20%-25%). In 
July 2012, JetBlue entered into a $100 million revolving credit facility 
secured by a portion of its investment securities. It also has a $125 million 
unsecured revolving credit facility with American Express, solely for the 
purchase of jet fuel, which matures in January 2015. 

Major uses of cash include maturities of debt and capital leases, and 
committed capital spending. We expect the company will be able to refinance a 
significant portion of upcoming debt maturities and finance new aircraft. 
Still, success in raising new financing will be important in maintaining or 
improving the company's liquidity. 

In accordance with our criteria, relevant aspects of JetBlue's liquidity, in 
our view, are as follows:
     -- Sources should cover uses in excess of 1.2x (the minimum for an 
adequate designation) through 2013.
     -- We expect that net sources would be positive even with a 15% decline 
in EBITDA, consistent with our criteria standard of 15%.
     -- We believe JetBlue likely will be able to absorb high-impact, 
low-probability events with limited refinancing.
     -- We see risk management practices as generally prudent, with a focus on 
cash liquidity and use of hedging to somewhat mitigate the risk of fuel price 
fluctuations.

In addition, JetBlue's credit card processing agreements contain no fixed 
financial covenants, although the processors may withhold cash in certain 
circumstances. The American Express facility has financial covenants, which 
include minimum cash and short-term investment levels and a minimum EBITDA 
margin. We believe that JetBlue would not be subject to withholding, if any, 
sufficient to cause pressure on liquidity or for the company to breach the 
American Express facility covenants, even with a 15% decline in EBITDA.

Recovery analysis
We raised our issue rating on JetBlue's convertible senior subordinated debt 
to 'CCC+' from 'CCC' (one notch above the corporate credit rating), and 
revised the recovery rating to '5', indicating our expectation of modest 
(10%-30%) recovery in a default scenario, from '6'. The company has paid down 
some debt over the past year, improving asset coverage. For the complete 
recovery analysis, see our recovery report on JetBlue to be published later on 
RatingsDirect.

Outlook
The outlook is positive. We expect JetBlue's credit metrics to improve 
somewhat as a result of increased cash flow generation and debt reduction, 
with EBITDA interest coverage increasing to the low-3x area from 3x for the 12 
months ended Sept. 30, 2012; FFO to debt increasing to the high-teens percent 
area from 15%; and debt  to capital declining to below 70% from 71%. We could 
raise ratings if the company's credit metrics continue to improve as we expect 
and it is successful in refinancing substantial upcoming debt maturities in 
2013 and 2014. We could revise the outlook to stable if reduced earnings and 
cash flow cause FFO to debt to remain in the low-teens percent area or if 
liquidity falls to less than 15% of annual revenues on a sustained basis.  

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Methodology and Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Criteria For Rating The Airline Industry, Oct. 22, 
2010
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008


Ratings List

Ratings Affirmed; Outlook to Positive
                                        To                 From
JetBlue Airways Corp.
 Corporate Credit Rating                B-/Positive/--     B-/Stable/--

Upgraded
                                        To                 From
JetBlue Airways Corp.
 Senior Unsecured                       CCC+               CCC
   Recovery Rating                      5                  6

Ratings Affirmed

JetBlue Airways Corp.
 Equipment Trust Certificates           BBB-               
 Equipment Trust Certificates           B                  
 Equipment Trust Certificates           BB+