Bai B Nai
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With a cheap dollar, everything's a bargain to the Europeans.
December 14, 2007
JetBlue Sells Stake to Lufthansa for $300 Million
By ANDREW ROSS SORKIN and JEFF BAILEY
JetBlue, the struggling discount carrier, sold a 19 percent stake in its business to Lufthansa of Germany for $300 million Thursday, the first major investment by a foreign airline in an American rival since British Airways took a stake in American Airlines in the early 1990s.
The transaction is also the latest example of a foreign company’s taking advantage of the weak dollar to invest in a prominent American company.
The stake sale may help shore up the lagging finances of JetBlue, which has $433 million in current debt obligations and has already substantially curtailed its growth plans and sold some assets like older planes. Some analysts have even suggested that the Lufthansa investment amounted to a rescue effort.
William J. Greene, a Morgan Stanley analyst, said JetBlue was “hard pressed” to pay back its debt using cash flow from its operations and money on hand.
While Lufthansa’s investment is strictly financial and does not include any strategic partnership for now, industry watchers speculated that the deal could lead to further cooperation and give Lufthansa an important foothold in the United States.
Under the terms of the deal, Lufthansa, Europe’s second-largest airline after Air France-KLM, will buy 42 million newly issued shares at $7.27 each. It will also gain a seat on the discount airline’s board.
Federal law limits foreign ownership of an airline to a 25 percent voting stake and 49 percent of equity. Both companies say they have not agreed on specific areas of cooperation.
Among the biggest benefits for Lufthansa could be tapping into JetBlue’s huge presence at Kennedy International Airport in New York, one of the nation’s biggest hubs for foreign flights. Because of overcrowding and delays, officials are considering reducing the number of takeoffs and landings; any cuts would make each existing slot much more valuable.
JetBlue expects to complete a new terminal at the airport next year and has an option to build a second. The terminal opening in 2008 is being built solely for domestic flights on single-aisle jets and it has no customs office. But JetBlue could build a second terminal with international capacity, a spokeswoman, Jenny Dervin, said.
Lufthansa flies direct to 17 United States cities, and has three daily flights from both J.F.K. and Newark Liberty International Airport. It currently has ticketing partnerships — called code-sharing agreements — with United Airlines and US Airways.
It is unclear what the deal portends for consolidation in the United States. Several of the chief executives of the largest airlines in the nation — including Delta, UAL, US Airways and Northwest — have talked about the need for consolidation.
Mr. Greene said that Lufthansa’s investment made it unlikely JetBlue would be a candidate for a merger with another domestic airline.
The interest from Lufthansa, which is based in Germany, is the latest example of foreign investors leveraging the strength of their currencies against the dollar. In the last several months foreign companies and so-called sovereign wealth funds have been on a buying spree, acquiring stakes in businesses including Citigroup, Sony and the Carlyle Group.
Before trading was halted, shares in JetBlue rose as much as 35 percent after The New York Times reported the deal. The stock closed up 90 cents, or 14.4 percent, at $7.15.
In a conference call Thursday afternoon, JetBlue’s chief executive, David Barger, said Lufthansa first made an approach this summer. “It will improve our balance sheet and give us greater financial flexibility,” Mr. Barger said in the call.
Lufthansa, one of the most profitable international airlines, has aggressively sought to extend its reach through stakes in other carriers in recent years. It owns a 30 percent share of British Midland Airways, which holds valuable landing slots at Heathrow Airport in London, and could wind up with a majority stake depending on the actions of British Midland’s two other owners.
Lufthansa also bought Swiss International Air Lines, starting with a 19 percent stake in 2005 and completing the purchase this year. JetBlue, founded in 1999 by a former Morris Air and Southwest Airlines employee, David G. Neeleman, has become one of the best-known discount domestic airlines, with regular coast-to-coast flights.
The airline’s stock has tumbled over the last two years amid a string of troubles. When fuel prices surged more than two years ago, JetBlue’s costs rose rapidly because it had not hedged against the price increase. It could not immediately raise fares fast enough in the hypercompetitive East Coast air market to offset those costs, and it reported a small 2006 loss.
Since then, JetBlue has slowed its growth, taking delivery of fewer planes than originally planned, and has increased its fares. It reported a profit of $23 million, or 12 cents a diluted share, for the third quarter, versus a loss of $500,000 a year ago.
The company also promoted its president, Mr. Barger, to chief executive, bringing a nuts-and-bolts airline operator to the top job. Mr. Neeleman was a charismatic entrepreneur who at times pushed the company’s growth past its ability to manage.
Perhaps the worst black eye the airline suffered came in February, when nine JetBlue planes and their passengers were stranded on the tarmac at Kennedy for hours during an ice storm. The highly publicized event damaged the airline’s formerly sterling reputation.
JetBlue is facing increased competition as Virgin America, another low-cost airline, flies from New York to San Francisco. While other airlines lobbied the Transportation Department to block Virgin America’s debut, JetBlue was not among them.
December 14, 2007
JetBlue Sells Stake to Lufthansa for $300 Million
By ANDREW ROSS SORKIN and JEFF BAILEY
JetBlue, the struggling discount carrier, sold a 19 percent stake in its business to Lufthansa of Germany for $300 million Thursday, the first major investment by a foreign airline in an American rival since British Airways took a stake in American Airlines in the early 1990s.
The transaction is also the latest example of a foreign company’s taking advantage of the weak dollar to invest in a prominent American company.
The stake sale may help shore up the lagging finances of JetBlue, which has $433 million in current debt obligations and has already substantially curtailed its growth plans and sold some assets like older planes. Some analysts have even suggested that the Lufthansa investment amounted to a rescue effort.
William J. Greene, a Morgan Stanley analyst, said JetBlue was “hard pressed” to pay back its debt using cash flow from its operations and money on hand.
While Lufthansa’s investment is strictly financial and does not include any strategic partnership for now, industry watchers speculated that the deal could lead to further cooperation and give Lufthansa an important foothold in the United States.
Under the terms of the deal, Lufthansa, Europe’s second-largest airline after Air France-KLM, will buy 42 million newly issued shares at $7.27 each. It will also gain a seat on the discount airline’s board.
Federal law limits foreign ownership of an airline to a 25 percent voting stake and 49 percent of equity. Both companies say they have not agreed on specific areas of cooperation.
Among the biggest benefits for Lufthansa could be tapping into JetBlue’s huge presence at Kennedy International Airport in New York, one of the nation’s biggest hubs for foreign flights. Because of overcrowding and delays, officials are considering reducing the number of takeoffs and landings; any cuts would make each existing slot much more valuable.
JetBlue expects to complete a new terminal at the airport next year and has an option to build a second. The terminal opening in 2008 is being built solely for domestic flights on single-aisle jets and it has no customs office. But JetBlue could build a second terminal with international capacity, a spokeswoman, Jenny Dervin, said.
Lufthansa flies direct to 17 United States cities, and has three daily flights from both J.F.K. and Newark Liberty International Airport. It currently has ticketing partnerships — called code-sharing agreements — with United Airlines and US Airways.
It is unclear what the deal portends for consolidation in the United States. Several of the chief executives of the largest airlines in the nation — including Delta, UAL, US Airways and Northwest — have talked about the need for consolidation.
Mr. Greene said that Lufthansa’s investment made it unlikely JetBlue would be a candidate for a merger with another domestic airline.
The interest from Lufthansa, which is based in Germany, is the latest example of foreign investors leveraging the strength of their currencies against the dollar. In the last several months foreign companies and so-called sovereign wealth funds have been on a buying spree, acquiring stakes in businesses including Citigroup, Sony and the Carlyle Group.
Before trading was halted, shares in JetBlue rose as much as 35 percent after The New York Times reported the deal. The stock closed up 90 cents, or 14.4 percent, at $7.15.
In a conference call Thursday afternoon, JetBlue’s chief executive, David Barger, said Lufthansa first made an approach this summer. “It will improve our balance sheet and give us greater financial flexibility,” Mr. Barger said in the call.
Lufthansa, one of the most profitable international airlines, has aggressively sought to extend its reach through stakes in other carriers in recent years. It owns a 30 percent share of British Midland Airways, which holds valuable landing slots at Heathrow Airport in London, and could wind up with a majority stake depending on the actions of British Midland’s two other owners.
Lufthansa also bought Swiss International Air Lines, starting with a 19 percent stake in 2005 and completing the purchase this year. JetBlue, founded in 1999 by a former Morris Air and Southwest Airlines employee, David G. Neeleman, has become one of the best-known discount domestic airlines, with regular coast-to-coast flights.
The airline’s stock has tumbled over the last two years amid a string of troubles. When fuel prices surged more than two years ago, JetBlue’s costs rose rapidly because it had not hedged against the price increase. It could not immediately raise fares fast enough in the hypercompetitive East Coast air market to offset those costs, and it reported a small 2006 loss.
Since then, JetBlue has slowed its growth, taking delivery of fewer planes than originally planned, and has increased its fares. It reported a profit of $23 million, or 12 cents a diluted share, for the third quarter, versus a loss of $500,000 a year ago.
The company also promoted its president, Mr. Barger, to chief executive, bringing a nuts-and-bolts airline operator to the top job. Mr. Neeleman was a charismatic entrepreneur who at times pushed the company’s growth past its ability to manage.
Perhaps the worst black eye the airline suffered came in February, when nine JetBlue planes and their passengers were stranded on the tarmac at Kennedy for hours during an ice storm. The highly publicized event damaged the airline’s formerly sterling reputation.
JetBlue is facing increased competition as Virgin America, another low-cost airline, flies from New York to San Francisco. While other airlines lobbied the Transportation Department to block Virgin America’s debut, JetBlue was not among them.
