Wow... and I thought we were the only target of bad press... 
http://www.bloomberg.com/apps/news?pid=20601100&sid=aBhfw.eaU7GY&refer=germany
JetBlue Nosedives on U.S. Economic Weakness, Fuel
By Susanna Ray and Mary Schlangenstein
Dec. 20 (Bloomberg) -- JetBlue Airways Corp.'s $309.6 million infusion from Deutsche Lufthansa AG may not be enough to end a nosedive at the U.S. discount carrier, which has lost more than half its market value this year.
Net debt at JetBlue surged fivefold since 2003 to pay for the fastest growth among major U.S. airlines. Now, with fuel costs rising, demand weakening and competition coming from Richard Branson-backed Virgin America Inc., the company's survival may be at stake. It must go beyond the balance-sheet boost delivered by Lufthansa on Dec. 13 to slash costs, cut unprofitable routes and slow its expansion.
``There aren't many ways they can manage themselves out of this right now,'' said Marisa Thompson, an analyst at Morningstar Inc. in Chicago. ``They're in a dicey situation in terms of their leverage.''
Morgan Stanley analyst William Greene in New York cut his 12-month price target for the carrier's stock to $3, less than half the current share price, a day before the Lufthansa deal and has maintained it. Of 14 analysts surveyed by Bloomberg in the past three months, three recommend buying the stock while eight say ``hold'' and three, including Greene, say sell.
With its New York base and appetite for growth, JetBlue has spurred comparisons with People Express, a low-fare carrier that went on a six-year buying binge as it added new planes and acquired another airline before collapsing in 1986.
For JetBlue, rising oil prices and economic weakness on top of its debt may become a ``death knell,'' Thompson said.
``While this $300 million liquidity injection buys JetBlue time to execute its turnaround, its long-term strategy remains in question,'' Frank Boroch, a New York-based Bear Stearns & Co. analyst, said in a Dec. 14 report.
Share Valuation
JetBlue fell 34 cents, or 5.1 percent, to $6.33 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The stock jumped 14 percent to $7.15 on the day Lufthansa agreed to buy a 19 percent stake. Until then, its decline was the year's second-biggest in the 16-member Bloomberg U.S. Airlines Index, exceeded only by US Airways Group Inc.
Even after a stock slide that wiped out more than $1 billion in equity this year, JetBlue had a price-earnings ratio more than twice as high as its peers, at about 33. ``The valuations are still pretty rich,'' said Michael Derchin, an FTN Midwest Research Securities Corp. analyst in New York.
Billionaire George Soros, an original investor, sold about 2.9 million shares this year, or about 14 percent of his stake, according to Ben Silverman, research director at InsiderScore.com, a Princeton, New Jersey-based company that tracks insider transactions for more than 350 institutional investors.
JetBlue's Growth
Since first selling shares to the public in 2002, JetBlue more than tripled its passengers to 18.6 million last year. In 2003, the carrier ordered 65 Airbus SAS A320s, taking options for 50 more, and 100 regional jets from Brazil's Empresa Brasileira de Aeronautica SA, with an option for another 100.
Along the way, the carrier's net debt ballooned to $2.17 billion, according to data compiled by Bloomberg, even as demand weakened. The borrowing is about the same as Continental Airlines Inc., the fourth-largest U.S. airline by passenger traffic. While the U.S. airline industry pared losses in 2005 and returned to profit last year, JetBlue, the eighth-largest carrier, posted back-to-back deficits.
Former Chief Executive Officer David Neeleman last year slowed annual capacity growth to 21 percent from 25 percent by selling some jets. While JetBlue throttled back again in 2007, it still added 12 percent more capacity through Nov. 30, even as some rivals shrank in the U.S. due to decreasing demand.
Marooning Passengers
``This is a company that's not comfortable with the idea of not growing,'' said William Warlick, a debt analyst at Fitch Ratings in Chicago, which rates JetBlue's debt at CCC, eight steps below investment grade.
JetBlue isn't discussing 2008 plans. It has 141 planes due to be delivered through 2015, which would double its fleet, airline spokesman Bryan Baldwin said.
``The premise that JetBlue is in financial difficulties is incorrect,'' Baldwin said. ``We ended the third quarter with $844 million in cash on our balance sheet and a renewed focus on profitability, free cash flow and operations. The investment by Lufthansa improves our balance sheet and increases our financial flexibility.''
JetBlue's growth pains were evident in February, when an ice storm caused it to maroon thousands of passengers in planes for as long as 10 hours. It needed six days to restore full service.
The airline hired a new operations chief in March, and the board replaced Neeleman with President Dave Barger in May.
Among Barger's main challenges has been a 51 percent year- to-date surge in jet-fuel prices. Fuel made up more than 36 percent of operating costs, compared with an industry average of 27 percent, according to data compiled by Bloomberg.
Delta, Virgin America
JetBlue's main base, New York's John F. Kennedy International Airport, has also developed from being mainly a global gateway into a domestic hub for Delta Air Lines Inc., crimping JetBlue's ability to raise ticket prices.
Also flying from JFK is Virgin America, the start-up carrier partly owned by U.K. billionaire Branson, which is copying JetBlue's low fares, leather seats and live television. The new rival may reduce JetBlue's annual revenue by about $32 million, according to Gary Chase, a Lehman Brothers Holdings Inc. analyst in New York.
``They have to come out with a revised strategy to cope with $90 oil and a slower economy,'' FTN's Derchin said.
Some investors see opportunity in JetBlue's stock decline. Par Capital Management bought a 2.2 percent stake last quarter. Manning & Napier increased its holdings this month to 10 percent, making it JetBlue's third-biggest shareholder.
``We're seeing some solutions put in place'' with the new management, Manning & Napier analyst Michael Magiera said in Fairport, New York. ``We look for sustained and measured improvement in operations.''
`Great Assets'
A takeover may be the final word for JetBlue, said JPMorgan Chase & Co. analyst Jamie Baker, who predicts a loss next year and advises investors to sell.
That fate befell People Express, sold at a distressed price to Continental's former parent.
``People Express was just growing too fast; they couldn't control it,'' said Ray Neidl, an analyst with Calyon Securities in New York. ``JetBlue management has to be very careful.''
While federal limits on foreign ownership rule out Lufthansa as an acquirer, assets including a new terminal opening in 2008, a young fleet and landing rights in New York, the U.S.'s most congested airspace, would be attractive to plenty of rivals, Magiera said.
``They've got great assets,'' he said. ``They need to get something out of it, or someone else will.''
To contact the reporters on this story: Susanna Ray in Chicago at [email protected] ; Mary Schlangenstein in Dallas at [email protected]
Last Updated: December 20, 2007 16:15 EST
http://www.bloomberg.com/apps/news?pid=20601100&sid=aBhfw.eaU7GY&refer=germany
JetBlue Nosedives on U.S. Economic Weakness, Fuel
By Susanna Ray and Mary Schlangenstein
Dec. 20 (Bloomberg) -- JetBlue Airways Corp.'s $309.6 million infusion from Deutsche Lufthansa AG may not be enough to end a nosedive at the U.S. discount carrier, which has lost more than half its market value this year.
Net debt at JetBlue surged fivefold since 2003 to pay for the fastest growth among major U.S. airlines. Now, with fuel costs rising, demand weakening and competition coming from Richard Branson-backed Virgin America Inc., the company's survival may be at stake. It must go beyond the balance-sheet boost delivered by Lufthansa on Dec. 13 to slash costs, cut unprofitable routes and slow its expansion.
``There aren't many ways they can manage themselves out of this right now,'' said Marisa Thompson, an analyst at Morningstar Inc. in Chicago. ``They're in a dicey situation in terms of their leverage.''
Morgan Stanley analyst William Greene in New York cut his 12-month price target for the carrier's stock to $3, less than half the current share price, a day before the Lufthansa deal and has maintained it. Of 14 analysts surveyed by Bloomberg in the past three months, three recommend buying the stock while eight say ``hold'' and three, including Greene, say sell.
With its New York base and appetite for growth, JetBlue has spurred comparisons with People Express, a low-fare carrier that went on a six-year buying binge as it added new planes and acquired another airline before collapsing in 1986.
For JetBlue, rising oil prices and economic weakness on top of its debt may become a ``death knell,'' Thompson said.
``While this $300 million liquidity injection buys JetBlue time to execute its turnaround, its long-term strategy remains in question,'' Frank Boroch, a New York-based Bear Stearns & Co. analyst, said in a Dec. 14 report.
Share Valuation
JetBlue fell 34 cents, or 5.1 percent, to $6.33 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The stock jumped 14 percent to $7.15 on the day Lufthansa agreed to buy a 19 percent stake. Until then, its decline was the year's second-biggest in the 16-member Bloomberg U.S. Airlines Index, exceeded only by US Airways Group Inc.
Even after a stock slide that wiped out more than $1 billion in equity this year, JetBlue had a price-earnings ratio more than twice as high as its peers, at about 33. ``The valuations are still pretty rich,'' said Michael Derchin, an FTN Midwest Research Securities Corp. analyst in New York.
Billionaire George Soros, an original investor, sold about 2.9 million shares this year, or about 14 percent of his stake, according to Ben Silverman, research director at InsiderScore.com, a Princeton, New Jersey-based company that tracks insider transactions for more than 350 institutional investors.
JetBlue's Growth
Since first selling shares to the public in 2002, JetBlue more than tripled its passengers to 18.6 million last year. In 2003, the carrier ordered 65 Airbus SAS A320s, taking options for 50 more, and 100 regional jets from Brazil's Empresa Brasileira de Aeronautica SA, with an option for another 100.
Along the way, the carrier's net debt ballooned to $2.17 billion, according to data compiled by Bloomberg, even as demand weakened. The borrowing is about the same as Continental Airlines Inc., the fourth-largest U.S. airline by passenger traffic. While the U.S. airline industry pared losses in 2005 and returned to profit last year, JetBlue, the eighth-largest carrier, posted back-to-back deficits.
Former Chief Executive Officer David Neeleman last year slowed annual capacity growth to 21 percent from 25 percent by selling some jets. While JetBlue throttled back again in 2007, it still added 12 percent more capacity through Nov. 30, even as some rivals shrank in the U.S. due to decreasing demand.
Marooning Passengers
``This is a company that's not comfortable with the idea of not growing,'' said William Warlick, a debt analyst at Fitch Ratings in Chicago, which rates JetBlue's debt at CCC, eight steps below investment grade.
JetBlue isn't discussing 2008 plans. It has 141 planes due to be delivered through 2015, which would double its fleet, airline spokesman Bryan Baldwin said.
``The premise that JetBlue is in financial difficulties is incorrect,'' Baldwin said. ``We ended the third quarter with $844 million in cash on our balance sheet and a renewed focus on profitability, free cash flow and operations. The investment by Lufthansa improves our balance sheet and increases our financial flexibility.''
JetBlue's growth pains were evident in February, when an ice storm caused it to maroon thousands of passengers in planes for as long as 10 hours. It needed six days to restore full service.
The airline hired a new operations chief in March, and the board replaced Neeleman with President Dave Barger in May.
Among Barger's main challenges has been a 51 percent year- to-date surge in jet-fuel prices. Fuel made up more than 36 percent of operating costs, compared with an industry average of 27 percent, according to data compiled by Bloomberg.
Delta, Virgin America
JetBlue's main base, New York's John F. Kennedy International Airport, has also developed from being mainly a global gateway into a domestic hub for Delta Air Lines Inc., crimping JetBlue's ability to raise ticket prices.
Also flying from JFK is Virgin America, the start-up carrier partly owned by U.K. billionaire Branson, which is copying JetBlue's low fares, leather seats and live television. The new rival may reduce JetBlue's annual revenue by about $32 million, according to Gary Chase, a Lehman Brothers Holdings Inc. analyst in New York.
``They have to come out with a revised strategy to cope with $90 oil and a slower economy,'' FTN's Derchin said.
Some investors see opportunity in JetBlue's stock decline. Par Capital Management bought a 2.2 percent stake last quarter. Manning & Napier increased its holdings this month to 10 percent, making it JetBlue's third-biggest shareholder.
``We're seeing some solutions put in place'' with the new management, Manning & Napier analyst Michael Magiera said in Fairport, New York. ``We look for sustained and measured improvement in operations.''
`Great Assets'
A takeover may be the final word for JetBlue, said JPMorgan Chase & Co. analyst Jamie Baker, who predicts a loss next year and advises investors to sell.
That fate befell People Express, sold at a distressed price to Continental's former parent.
``People Express was just growing too fast; they couldn't control it,'' said Ray Neidl, an analyst with Calyon Securities in New York. ``JetBlue management has to be very careful.''
While federal limits on foreign ownership rule out Lufthansa as an acquirer, assets including a new terminal opening in 2008, a young fleet and landing rights in New York, the U.S.'s most congested airspace, would be attractive to plenty of rivals, Magiera said.
``They've got great assets,'' he said. ``They need to get something out of it, or someone else will.''
To contact the reporters on this story: Susanna Ray in Chicago at [email protected] ; Mary Schlangenstein in Dallas at [email protected]
Last Updated: December 20, 2007 16:15 EST
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