Jblu

[Jeff G]

Jeff G

It is alright, all these pilots are now self professed airline business model anaylists. It is funny to read how so many know the best course of action each airline should take. I also get emotional when I read gossip about AMR. I did a little research, let me know if I am right.

Hi. Well, I can try. I honestly don't know much of the ins and outs of aircraft financing, mostly just enough to debunk or confirm the more common rumors. And only then either because I read the prospectus or because I've just walked up to someone knowledgeable and asked them outright.

JBLU leased the first 8 or 9 aircraft. (white tails).David is a smart cookie. He leases the first 8 to 9 aircraft to show he has a good business model that works.

That seems pretty close. Looking at the fleet registry (see www.landings.com), the first four were leased. The next four were purchased. Then the following eight were leased. Just about every plane afterwards was purchased.

He then paid for the next batch with cash from Soros and Chase. Once the IPO comes out his bond rating is excellent, so he refinaces the aircraft he paid for in cash.

He uses the new capital (from the IPO and refinance) to purchase the next batch of aircraft and then repays Soros and Chase.

This is the part I'm unsure of, but I can speculate. I think (don't quote me) that most of the leased aircraft were leasebacks. IOW, many of the leased aircraft were actually purchased as part of the first order from Airbus, and were paid for at the fleet rate. That negotiated fleet rate is obviously something less than book, but I don't know how much less. Probably the first plane or two was paid for in cash from original capital. Then the planes, worth something closer to book to a leasing company that didn't negotiate a large order, were bought by the leasing company at a profit to JetBlue and leased back to JetBlue to operate. This generated cash. This cash is then used as seed money to make deposits for future deliveries, which are also leased back. Repeat for all leased aircraft. Pretty soon, you have what amounts to a "free aircraft", perhaps giving rise to innumerable rumors. That doesn't mean the aircraft were "given" to JetBlue, just that the aircraft were worth more to a third party than what JetBlue paid for them, and JetBlue raised enough cash to cover the cost of another aircraft. After a few cycles, the cash is flowing smoothly enough to ensure delivery payments are made, the delivery slots are ensured, and the next phase starts.

That phase is to buy aircraft under JetBlue's own name. As you say, after building up a credit history of sorts, mortgage lenders are able to offer good rates on additional aircraft. I don't know the terms on these mortgages at all, but it wouldn't surprise me if there were variable rates, payment changes, and refinances being negotiated all the time. Each aircraft is worth tens of millions, so a little paperwork shuffling pays off big here. No doubt every airline is doing the same with their agreements.

I don't think any cash was raised to "repay Soros and Chase", since they are not money lenders, but venture capitalists. They gave up cash for stock. Their repayment happens when they sell their stock.

How's that sound for plausibility? I wasn't a finance major, but this scenario seems to fit the established facts. No doubt any number of people more knowledgeable than I can poke holes all through it, though.

His stock recently went down beacuse some the employees options became exercisable and SOME took the money and ran.

I'm not sure that's the case either. Options vest almost continuously, dependent on date of hire, mostly, not on the same day. Even the most senior pilot/mechanic/dispatcher is only vested in a fraction of his shares. That's not nearly enough to cause a price crash even if every pilot/mechanic/dispatcher dumped everything he had on the same day. And I don't think there are enough non-insider management types with enough vested shares to make an impact. I could be wrong.

The second reason is the economy, he recently backed off his attempt at a second IPO. David needs the stock prices higher to finance his future.

The official version is that the secondary offering was supposed to be a vehicle for unloading the original venture capital shares. Supposedly the insiders weren't interested. There may have been other reasons for exploring another offering, but that was the reason publicized. We'll know for sure in a few days what the cash situation was for 3Q, but it was very adequate in 2Q. It probably wasn't worth diluting the current shares to raise more cash now. More speculation on my part.

He just anounced the JBLU will offer a 3:2 spilt. He is hoping to get the price down and move more shares.

Yes. This is also a move taken directly from LUV's financial playbook. For a number of years, every time LUV's stock price consistently moved above the $20 to $30 trading range, they would split 3 for 2 to put it back in range. This makes the stock more attractive psychologically for small investors and increases volume. Whatever, it works. Ma and Pa Investor will buy 10 shares at $25 bucks, but won't even consider a single share at $250.

I figure anyone on the pilot sen list around 70-80 is sitting with close to $250,000 woth of options.

Well, strictly speaking, every JetBlue pilot has options on the same number of shares, but the cost to the pilot for those shares varies widely, depending on DOH. But, you can take 10 years to exercise them and it doesn't cost anything until then. A lot can happen in 10 years.

AAflyer (wish I were sitting on that number of options)

What are you doing for the next ten years?

Jeff

 

[ACWild]

Whatever, it works. Ma and Pa Investor will buy 10 shares at $25 bucks, but won't even consider a single share at $250.

That's because you have more flexibility if you have more shares. If you need some money, you can sell some of your shares if you want. I'm not sure that you can go to your broker and sell a quarter share.

I think that the Motley Fool guys are only looking at the paper model. Anyone who has actually flown on JetBlue knows that it's a great experience worth repeating. A simple thing like the tvs in every seat would make me prefer to fly on JB instead of SW. Heck, I'd rather fly on them than on any of the other airlines, unless I can get first class cheap.