Key Points
- JetBlue’s ratings were downgraded by S&P and Moody’s after plans to raise over $3 billion in debt.
- The debt will be secured by JetBlue’s loyalty program, TrueBlue, and used to refinance existing debt.
- S&P downgraded JetBlue to “B-“, while Moody’s lowered its rating to “B3”, citing financial risks and negative cash flow projections.
- Fitch Ratings affirmed JetBlue’s rating at “B” with a stable outlook but warned of potential negative actions if profitability doesn’t improve.
JetBlue Airways (JBLU.O) faced a significant blow as credit rating agencies S&P and Moody’s downgraded the airline following its announcement to raise over $3 billion in debt. The New York-based airline’s shares plunged by 19% as investors reacted to the news.
JetBlue revealed plans to generate $1.5 billion through a private offering of senior secured notes, with an additional $1.25 billion via a term loan, which its loyalty program, TrueBlue, will secure. The airline also intends to raise $400 million through a convertible note offering, primarily used to refinance existing debt.
S&P lowered JetBlue’s credit rating from “B” to “B-“, expressing concerns about the airline’s financial health. The rating agency anticipates JetBlue’s funds from operations to debt ratio—a key leverage metric—will remain in the low single digits through 2025, coupled with a negative net cash flow from business operations.
Similarly, Moody’s downgraded JetBlue’s corporate family rating to “B3” from “B2”, citing the airline’s challenges in restoring operating profit and cash flow to levels that would result in significantly stronger credit metrics. Moody’s predicts that JetBlue will burn $2.2 billion in cash in 2024 and an additional $1.4 billion in 2025.
Leveraging loyalty programs as collateral has become increasingly common among airlines to enhance liquidity, a trend that gained momentum during the COVID-19 pandemic. Major airlines like Delta Air Lines (DAL.N) and United Airlines (UAL.O) have also used their loyalty programs to boost cash reserves during difficult periods.
While Fitch Ratings affirmed JetBlue’s rating at “B” with a stable outlook, it acknowledged its “healthy” liquidity and manageable near-term debt maturities. However, Fitch cautioned that failure to improve profitability and cash flow shortly could lead to negative rating actions.
JetBlue has deferred the delivery of 44 new Airbus (AIR.PA) jets to control costs, reducing its planned capital expenditure by approximately $3 billion between 2025 and 2029. The airline’s operations have also been hampered by issues with Pratt & Whitney’s Geared Turbofan engines, which have forced JetBlue to ground several aircraft.
The downgrades from S&P and Moody’s reflect the broader challenges JetBlue faces as it navigates through financial difficulties, operational disruptions, and the pressures of raising significant debt in a volatile market.
