JetBlue Airways has announced plans to raise more than $3 billion in debt, with most of it being secured by its loyalty program, TrueBlue. This move comes as the airline seeks to refinance its existing debt and improve its cash flow. However, the decision has had immediate negative financial repercussions, as seen in the significant drop in the company’s share price.
Rating agencies S&P and Moody’s have previously downgraded other airlines during challenging financial times, such as during the COVID-19 pandemic when Delta Air and United Airlines leveraged their loyalty programs for liquidity. Unlike JetBlue, these airlines managed to maintain a relatively stable financial outlook despite leveraging substantial debt. JetBlue’s current downgrades highlight the heightened financial risks and the uncertain path to recovery. The airline’s previous attempts to control costs, including deferring new jet deliveries from Airbus, have not been enough to stabilize its financial standing.
Debt-Raising Strategy
JetBlue plans to generate $1.5 billion through a private offering of senior secured notes and an additional $1.25 billion via a term loan, both backed by its TrueBlue loyalty program. The airline also intends to raise $400 million through a convertible notes offering to refinance existing debt. This extensive borrowing strategy is aimed at improving the company’s liquidity and addressing its financial challenges.
S&P downgraded JetBlue’s rating from “B” to “B-“, expressing concerns about the airline’s financial health.
Financial Outlook and Downgrades
Moody’s has downgraded JetBlue’s corporate family rating from “B2” to “B3”, predicting that the company will need several years to restore its operating profit and cash flow to stronger levels. The agency forecasts that JetBlue will burn $2.2 billion in cash in 2024 and $1.4 billion in 2025. Additionally, S&P expects JetBlue’s funds from operations to debt ratio to stay in the low single digits through 2025, with negative net cash flow from business operations.
Moody’s stated that restoring the company’s operating profit and cash flow would require several years.
Fitch Ratings has maintained JetBlue’s rating at “B” with a stable outlook, citing “healthy” liquidity and manageable near-term debt maturities. However, it added that a failure to improve profitability and cash flow could lead to negative rating actions. JetBlue has been attempting to control costs by deferring the delivery of 44 new jets from Airbus, reducing its planned capital expenditure by about $3 billion between 2025 and 2029. However, operational challenges like the issues with Pratt & Whitney’s Geared Turbofan engines have further complicated the situation.
JetBlue’s move to raise significant debt, secured by its TrueBlue loyalty program, highlights the airline’s need for immediate liquidity during challenging financial times. Both S&P and Moody’s downgrades reflect concerns about JetBlue’s financial health and long-term recovery prospects. JetBlue’s strategy to refinance existing debt and control costs, while dealing with operational challenges, will be critical in determining its future financial stability.
