Dépêches

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

Dépèche transmise le 28 février 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms JetBlue Airways Corp.'s (JBLU) Issuer Default Rating (IDR) at 'B-', and upgrades the senior unsecured rating, which applies to approximately $285 million of convertible notes, to 'CCC/RR5' from 'CC/RR6'. The Rating Outlook for JBLU remains Stable.

The 'B-' IDR reflects JBLU's high lease-adjusted leverage, earnings vulnerability to higher fuel prices and the inherent risks of the airline industry, balanced by the carrier's competitive cost structure, industry leading revenue performance, improving cash flow profile and healthy liquidity position. JBLU generated $90 million in free cash flow (FCF) in 2011 despite a 49% year-over-year increase in fuel costs and higher capital expenditure. Fitch acknowledges that the carrier has generated positive FCF for three consecutive years reflecting management's focus on cash flow metrics and ROIC. The carrier has a solid liquidity position of $1.2 billion of unrestricted cash and short-term investments which represents 27% of latest 12 months (LTM) revenues as of year-end 2011. Fitch expects debt levels to remain stable as the company plans to use cash to purchase several of its A320 deliveries in 2012.

The rapid spike in oil and jet fuel prices during February remains the biggest concern for JBLU and underscores the importance of industry capacity discipline, and the ability and willingness of carriers to raise fares. To that end, the industry has initiated three broad-based fare increases year-to-date, with most major carriers including JBLU participating, but execution and ultimate success of these initiatives is key. JBLU also maintains a conservative fuel-hedging program and has locked in 27% of its 2012 fuel consumption, which will provide some protection if spot prices continue to move higher this year. The carrier also anticipates higher maintenance costs in 2012 as JBLU's fleet gets older and several aircraft purchased during the mid 2000s are now due for engine restoration, and more extensive maintenance checks.

JBLU planned capacity growth of 5.5%-7.5% is significantly higher than the rest of the industry, where most U.S. carriers are keeping capacity flat or have announced 2%-3% reductions. However, JBLU's recent traffic trends and unit revenue performance support this growth. The airline plans to expand mainly in its key Boston and Caribbean markets which thus far, have been good investments for the airline as legacy carriers have retrenched from these markets. Specifically in Boston, JBLU is looking to increase its mix of business customers who typically yield $35-$40 more in average fares and are expected to drive ancillary revenue streams like Even More service offerings. JBLU's growth through partnerships such as Hawaiian and Japan Airlines announced recently, is a prudent way to expand and enhance its network offerings.

JBLU's aggressive growth plans still pose a risk given the surge in jet fuel and anticipated cost headwinds in the second half of the year. Fitch's base case which incorporates the current forward curve for jet fuel projects slightly negative FCF for 2012 and higher aircraft capital expenditure as the carrier resumes delivery of aircraft deferred during the downturn. Scheduled deliveries for 2012 include seven Airbus A320s, and four Embraer E190s. Other cash obligations are modest with $198 million in scheduled debt maturities. JBLU enhanced its liquidity position in September 2011 by entering into a three-year $125 million unsecured revolving credit facility with American Express, exclusively for the purchase of jet fuel. This facility introduces financial covenants which include minimum cash and short-term investment levels and EBITDA margin. Fitch expects JBLU to be compliant with all its covenants in 2012.

Higher fares, along with healthy liquidity and management's conservative stance are expected to mitigate the impact of rising fuel prices. JBLU weathered the 2008-2009 industry downturn well and is better positioned to cope with potential operating stresses than many of its peers due to its competitive cost structure and network focus on niche markets. Fitch expects lease-adjusted leverage (debt and leases relative to EBITDAR) to approximate 6.0 times (x) this year, absent a fuel price correction and associated margin expansion.

The current Outlook for JBLU remains Stable in light of surging fuel prices, but the carrier is positioned well for a Positive Outlook revision if it continues to generate FCF through the course of the year, despite fuel and maintenance cost headwinds. Fitch does not anticipate any negative revision absent an extreme and sustained fuel price shock accompanied by diminished industry pricing power.

The Recovery Ratings and notching in the debt structure reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes. The upgrade of the senior unsecured recovery rating to 'RR5' from 'RR6' reflects revised estimates for liquidation valuations of JBLU's assets, which modestly increased the potential recovery for the senior unsecured debt. The 'RR5' reflects expected recoveries between 11%-30% in a distressed scenario.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (May 12, 2011).

Applicable Criteria and Related Research:

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628489

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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