Summary
- JetBlue faces legal challenges from the DOJ and has reported a net loss of $310 million in recent financial results.
- JetBlue’s CFO mentioned the possibility of using $11 billion in unencumbered assets to obtain fresh financing.
- Airlines like JetBlue can use assets, such as loyalty programs, as collateral to secure new lines of credit for managing financial commitments.
In recent years, the airline has faced significant challenges. The United States Department of Justice (DOJ) has secured two critical legal victories against JetBlue, successfully breaking up the Northeast Alliance (NEA) and preventing the planned merger with Spirit Airlines.
Adding to the company’s difficulties, JetBlue reported a net loss of $310 million for the period, although this represents an improvement compared to the $362 million net loss it experienced in 2022.
The airline is in debt.
According to Bloomberg, during an earnings call, JetBlue’s CFO Ursula Hurley informed that the company possesses approximately $11 billion in unencumbered assets, which are not currently pledged as collateral.
She mentioned that these assets could be utilized to obtain fresh financing. Additionally, Hurley noted that around half of this amount is attributed to the company’s loyalty program. The company’s balance sheet categorizes any current debt due to maturity within 12 months, including debts due in 2025. According to regulatory filings,
held $5.3 billion of long-term debt as of the end of June, including finance lease obligations.
What are collaterals?
According to the Cambridge English Dictionary, collateral is a valuable asset owned by an individual applying for a loan. The lender pledges this asset to guarantee the loan’s repayment.
If the borrower fails to repay the loan, the lender has the right to take possession of the collateral as a form of payment.
This arrangement provides security for the lender and can help borrowers qualify for loans they might not otherwise be able to obtain.
What can airlines use as collateral?
Airlines can use various assets as collateral, including high-value airplanes, which can be worth over $100 million. However, using airplanes as collateral carries the risk of the airline ceasing operations if the aircraft are seized.
To mitigate this risk, airlines such as United and American Airlines have chosen to use their frequent flier programs as collateral. While not as critical to the carrier’s operations as the airplanes, the frequent flier programs provide a valuable alternative asset for securing financing or other arrangements.
Related
Spirit Airlines To Raise $600 Million In New Debt
The airline is using its loyalty program to secure new lines of credit.
What about JetBlue?
It was reported that JetBlue Airways Corp.’s loyalty program might be collateral if the airline decides to seek financing in the debt capital markets.
The chief financial officer of JetBlue mentioned on Tuesday, 30 July, that the airline aims to address convertible maturities as swiftly as possible. This indicates the company’s proactive approach to managing its financial commitments and exploring potential financing options.
Although it is important to note that no decisions have yet been made regarding which of the company’s assets will be used, this is what Hurley told the analyst.
“We’re currently assessing all markets to see the most effective and the most constructive in terms of the all-in cost of funding,”
Other noteworthy JetBlue Loyalty news
Staying on their frequent flier program, TrueBlue members may be eligible for a 100% to 125% bonus in a buy-one-get-one-free offer designed to counter the airline’s recent fare increase, which elevated the overall point cost to 3 cents each.
