JetBlue Creditors Call In Restructuring Advisers As Stock, Bonds Crater

A federal judge blocked JetBlue Airways’ $3.8 billion takeover of Spirit Airlines during the Biden administration to protect consumers. That supposedly brilliant decision is now looking increasingly disastrous for both airlines and the passengers it was meant to protect.

First, Spirit Aviation shuttered all operations earlier this year, stunning travelers with the abrupt move after 34 years of offering some of the most deeply discounted fares. Now, JetBlue could be on a similar trajectory, as the carrier’s shares and junk bonds have cratered over the last several months.

Bloomberg News reported late Friday that JetBlue’s creditors are organizing with restructuring advisers as the budget airline grapples with cash burn and high jet fuel prices.

The report centers on a group of creditors, including holders of $2 billion in bonds due in 2031 and a $742 million first-lien loan, who are working with PJT Partners and Akin Gump Strauss Hauer & Feld.

JetBlue’s 9.875% 2031 bonds traded near 80 cents on the dollar at the start of October but, just three weeks into the month, had fallen to distressed levels around 44 cents by Friday’s close.

The stock has followed a similar trajectory, falling from $4.50 to $2.62 over the same period.

JetBlue reported about $2 billion in cash and $6 billion in unencumbered assets in the second quarter, as well as $8.5 billion in total debt. S&P stated that the budget airline had sufficient liquidity and borrowing capacity but warned about mounting debt-service costs.

Creditors of junk-rated airlines were worried this past week as larger airlines slashed guidance and warned of margin erosion from soaring jet fuel costs.

Latest guidance updates from airlines:

Southwest Airlines

Southwest lowered its full-year adjusted EPS guidance to $2.60-$2.85, down from a prior range of $3.25-$4.25. For Q4, it now expects adjusted EPS of $0.55-$0.80, below the $0.81 analyst consensus. The cuts came despite better-than-expected Q3 results and continued strong demand.

American Airlines

American cut its full-year outlook to an adjusted loss of $1.00-$1.60 per share, a significant deterioration from prior guidance of a $0.65 loss to $0.65 in earnings. For Q4, it guided to an adjusted loss of $0.50-$1.10 per share vs. the $0.49 consensus loss. CEO Robert Isom said fuel prices are expected to remain “higher, longer.”

United Airlines

United guided Q4 adjusted EPS to $0.50-$1.50, well below the $1.88 analyst consensus, after fuel expenses surged 61.6% to $4.84 billion in Q3. Shares fell ~2% in after-hours trading on October 20.

For context, the Biden administration’s DoJ sued to block JetBlue’s $3.8 billion takeover of Spirit in March 2023, claiming the deal would reduce competition and raise fares. Then, in early 2024, U.S. District Judge William Young sided with the Biden administration. Notably, Young was appointed by Ronald Reagan in 1985.

A reasonable argument can be made that government intervention backfired and is now hurting the very consumers it sought to protect, as Spirit’s shutdown has reduced competition in the budget airline market. Now the odds are increasing that JetBlue could face a similar fate.