Will JetBlue Continue to Reduce Its Debt in 2H16?



JetBlue’s Debt repayments

The airline industry is very capital-intensive, so airlines generally have huge debt numbers on their balance sheets. JetBlue is no exception! The airline ended the quarter with debt of $1.7 billion. During the second quarter, the airline repaid $36 million in regularly scheduled debt and capital lease obligations.

JetBlue has focused on reducing its debt burden. Its debt has reduced to $1.7 billion at the end of 3Q16 from $1.8 billion at the end of 3Q15.

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This reduction has helped the airline bring down its total debt to EBITDA ratio from 1.4x in 3Q15 to 0.98x at the end of 3Q16. Its net debt to EBITDA ratio has also fallen from 0.61x a year ago to a healthier 0.14x today. This change, in turn, has helped the company gain better-unsecured credit ratings.

At the end of 3Q16, United Continental’s (UAL) net debt-to-EBITDA ratio stands at 1.0x, Delta Air Lines’ (DAL) stands at 0.46x, American Airlines’ (AAL) at 2.3x, and Spirit Airlines (SAVE) at 0.27x. Southwest Airlines (LUV) and Allegiant Travel (ALGT) have yet to report their 3Q16 earnings. 

JBLU forms ~0.8% of the iShares S&P Mid-Cap 400 Growth ETF (IJK).

No impact from planned fleet growth

To support its growth plans, JBLU plans to add 30 new Airbus aircraft to its fleet. The delivery of 15 of these aircraft will occur in 2017–2019 while the remaining 15 will be delivered by 2020–2023. All of 2016’s remaining aircraft purchases will be done on cash while those delivered in 2017–2019 will be financed with a combination of debt and cash. However, JetBlue intends to keep its debt-to-capital ratio between 30% and 40% in this period.

Strong cash flows help

JetBlue Airways Corporation (JBLU) ended the third quarter of 2016 with $873 million in cash. The airline has been able to generate strong cash flows due to its exceptional operational performance. This strong cash flow generation should also help it reduce its debt in futurex.


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