- JetBlue shares dropped as much as 18% to $2.16 on Monday, the lowest intraday level on record, one day before the airline reports third-quarter results. An 18% drop to $2.16 implies a prior close of about $2.63 (Lumida calculation).
- The selloff follows a report that a group of creditors, including holders of $2 billion of bonds due 2031 and a $742 million first-lien loan, met with restructuring advisers PJT Partners and Akin Gump Strauss Hauer & Feld on Oct. 23. Creditors of the junk-rated carrier were spooked last week after rival airlines slashed guidance and warned of a prolonged hit from soaring fuel costs.
- JetBlue carries roughly $9 billion of debt and faces elevated costs and intense competition. It burned through $389 million of free cash flow in the second quarter, including $155 million used in operations and $234 million of capital expenditures.
- Distressed-debt investors have watched JetBlue closely since budget carrier Spirit’s bankruptcy. United CEO Scott Kirby warned last week that some peers face deeper stress after Spirit’s collapse, without naming them, as United’s results showed jet fuel prices eating into profits.
What Happened?
JetBlue stock fell to a new record low Monday amid growing investor scrutiny over how the highly indebted airline will shore up its finances. The drop came after creditors organized and brought in restructuring advisers last week, according to reports cited by Bloomberg. Rival carriers cut their guidance last week and warned that high fuel costs could last. JetBlue is scheduled to report third-quarter results on Tuesday.
Why It Matters?
Creditors hiring restructuring advisers is an early sign that lenders are preparing for possible negotiations over the company’s debt, which raises the risk for shareholders. With about $9 billion of debt and continued cash burn, JetBlue has less room to absorb high fuel costs than larger rivals. Bloomberg Intelligence’s George Ferguson said that if fuel prices stay high, JetBlue may need to shrink from a cash-burning strategy to one that generates cash regularly. That could mean a smaller airline and slower growth.
What’s Next?
Tuesday’s earnings are the immediate test, with Wall Street focused on third-quarter free cash flow after the $389 million burn in the second quarter. Investors will look for any plan to cut capacity or spending, and for updates on liquidity and talks with creditors. Fuel prices remain the key outside factor for the whole sector. Further moves by the creditor group would signal how close the airline is to a formal restructuring process.
Affected Tickers and Coins: JBLU, UAL
Source: Bloomberg
