Analyst Bill Greene with Morgan Stanley just issued a research note on the JetBlue/Lufthansa report.
Here is some of what he said.
Here is some of what he said.
"JetBlue needs liquidity: If this story is correct, the deal would help JetBlue's balance sheet. As we noted in our report on 12/12/07, JetBlue has $433M in current debt payable, but will be hard-pressed to fund from cash flow from operations or cash on hand.
However, such a deal would likely substantially dilute current shareholders. We assume that to raise this cash Lufthansa would be buying a stake at some discount to the recently-quoted prices.
It's not clear to us what Lufthansa gains from such a transaction. It may be that Lufthansa wishes to ensure access to JFK and by taking a stake in JetBlue, Lufthansa ensures that it will have slots if the FAA reimposes them at JFK. Lufthansa has a similar small stake in British Midland, which has helped ensure Lufthansa access to London's Heathrow.
This possible investment doesn't change the fundamental story, but clearly helps near-term liquidity. As we noted yesterday, JetBlue faces growing revenue and cost pressures and at $90/bbl will have difficult generating sufficient cash flow to fund its growth plan - even with an investment from Lufthansa. Growth opportunities are diminishing, in our view. We remain Underweight. In fact, such a deal could make JBLU a less plausible participant in US consolidation
However, such a deal would likely substantially dilute current shareholders. We assume that to raise this cash Lufthansa would be buying a stake at some discount to the recently-quoted prices.
It's not clear to us what Lufthansa gains from such a transaction. It may be that Lufthansa wishes to ensure access to JFK and by taking a stake in JetBlue, Lufthansa ensures that it will have slots if the FAA reimposes them at JFK. Lufthansa has a similar small stake in British Midland, which has helped ensure Lufthansa access to London's Heathrow.
This possible investment doesn't change the fundamental story, but clearly helps near-term liquidity. As we noted yesterday, JetBlue faces growing revenue and cost pressures and at $90/bbl will have difficult generating sufficient cash flow to fund its growth plan - even with an investment from Lufthansa. Growth opportunities are diminishing, in our view. We remain Underweight. In fact, such a deal could make JBLU a less plausible participant in US consolidation
