Dépêches

Fitch Affirms JetBlue Airways at 'B-'; Outlook Stable

Dépèche transmise le 2 mars 2011 par Business Wire

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) for JetBlue Airways Corp. (JBLU) at 'B-' and the senior unsecured rating which applies to approximately $324 million of convertible notes, at 'CC' with a Recovery Rating of 'RR6'. The Rating Outlook for JBLU is Stable.

The affirmation of the 'B-' IDR and the Stable Outlook reflect JBLU's high lease-adjusted leverage, its weaker free cash flow (FCF) outlook for 2011, and continuing vulnerability to rapidly changing industry operating conditions as crude oil and jet fuel prices move materially higher. Despite management's focus on the need for positive FCF in its pursuit of a healthier balance sheet over time, Fitch's 2011 base case projections call for the airline to report negative FCF in excess of $100 million. At approximately $1 billion (25% of annual revenues), unrestricted liquidity is sufficient to guard against the negative cash flow impact of a sustained rise in energy costs, but JBLU will likely see debt levels rise modestly this year as it seeks to maintain stable liquidity in the face of a more challenging fuel price environment.

Relative to the rest of the U.S. industry, JBLU plans to add significantly more scheduled capacity in 2011. Current plans call for available seat miles (ASMs) to grow by between 7 and 9 percent this year, as the carrier continues to build its presence in Boston and the Caribbean. To support the higher growth rate, JBLU expects to take delivery of nine new aircraft (four Airbus A320s and five Embraer E190s). This will drive 2011 capital spending up to approximately $515 million, compared with about $300 million in 2010. As a result, JBLU's FCF outlook is weaker this year, assuming some degree of margin pressure in the face of higher average jet fuel prices of $2.90 per gallon or higher for all of 2011.

The rapid spike in energy prices during February has underscored the importance of industry capacity discipline and a continuation of the widely-shared industry view that fares must increase steadily this year to offset some of the fuel cost pressure. Year to date, at least five domestic fare hikes have succeeded, with all major carriers (including JBLU and Southwest Airlines) participating. This is an encouraging indication of the industry's ability to respond to the fuel spike, but all carriers will nevertheless face higher 2011 operating expenses and lower margins as a result.

JBLU's fuel hedge position is relatively strong, with approximately 32% of 2011 consumption hedged. Taken together, however, higher fares, new fuel surcharges and hedges should offset only part of the negative cash flow effects associated with higher average fuel prices. Each 10-cent change in the average price of jet fuel drives approximately $50 million of annual operating costs, excluding the cash-saving impact of hedges that are now largely in the money.

JBLU weathered the 2008-09 industry downturn well, and it is in a better position to cope with future operating stress than its legacy carrier competitors. In large part this reflects the low fare and largely domestic orientation of its route network, as well as management's proven ability to defer aircraft capital spending during periods of weak cash flow. In addition, JBLU faces relatively modest fixed cash obligations ($185 million in scheduled 2011 maturities) and no near-term labor cost risk, since its workforce remains non-union. Finally, while JBLU has seen non-fuel operating cost pressure of late, its cost structure is still highly competitive.

The outlook for passenger unit revenue growth in 2011 remains good, with no evidence as yet that industry fare actions are leading to significant demand destruction. Relatively slow domestic ASM growth this year should support better yields in the context of U.S. economic growth in the neighborhood of 3%. Passenger yield and unit revenue comparisons, however, will become more difficult later in the year. JBLU's 2011 revenue results should also benefit from stronger growth in ancillary fee-based revenue streams. In a fuel scenario where 2011 jet fuel prices average $2.90 per gallon (compared with an actual average price of $2.29 per gallon in 2010), high single-digit revenue per ASM growth this year would allow JBLU to report generally stable operating margins versus 2010. This in turn would support a generally stable liquidity outlook for the remainder of the year.

Debt levels are likely to rise modestly in 2011 as new financing commitments for aircraft deliveries offset the relatively small level of scheduled principal payments. Fitch expects lease-adjusted leverage (debt and leases relative to EBITDAR) to remain above 6x this year, absent a significant fuel price correction and associated margin expansion.

Any negative revision of JBLU's Rating Outlook would necessarily involve a deterioration of its liquidity position as a result of intense pressure in the industry operating environment and unrestricted cash and investments balances falling below $800 million. Absent an extreme and sustained fuel price shock accompanied by diminished industry pricing power, Fitch does not expect to revise the Stable Outlook during 2011.

The 'RR6' recovery rating for JBLU's convertible debentures reflects expected recoveries of less than 10% for holders in a default scenario. The carrier's debt structure is almost entirely secured, and virtually no unencumbered assets are available to support future secured borrowings.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--Corporate Finance Rating Criteria Hierarchy (Interactive Compendium of Criteria Reports) (Dec. 20, 2010);

--2011 Outlook: U.S. Airlines (Dec. 8, 2010);

--Evaluating Corporate Governance (Dec. 16, 2010);

--Corporate Rating Methodology (Aug. 13, 2010);

--Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers (Nov. 24, 2009).

Applicable Criteria and Related Research:

Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489006

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.