-- 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.
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.
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
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
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,
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.
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
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.
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
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,
-- Methodology and Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Criteria For Rating The Airline Industry, Oct. 22,
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Ratings Affirmed; Outlook to Positive
JetBlue Airways Corp.
Corporate Credit Rating B-/Positive/-- B-/Stable/--
JetBlue Airways Corp.
Senior Unsecured CCC+ CCC
Recovery Rating 5 6
JetBlue Airways Corp.
Equipment Trust Certificates BBB-
Equipment Trust Certificates B
Equipment Trust Certificates BB+