Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
or
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to__________
Commission file number 000-49728
JETBLUE AIRWAYS CORPORATION
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 87-0617894 |
(State of Other Jurisdiction of Incorporation) | | (I.R.S. Employer Identification No.) |
| | |
27-01 Queens Plaza North, Long Island City, New York | | 11101 |
(Address of principal executive offices) | | (Zip Code) |
(718) 286-7900
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | |
Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of June 30, 2016, there were 323,634,904 shares outstanding of the registrant’s common stock, par value $.01.
JETBLUE AIRWAYS CORPORATION
FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION | |
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PART II. OTHER INFORMATION | |
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in millions, except per share data) |
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
ASSETS | | | |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 935 |
| | $ | 318 |
|
Investment securities | 575 |
| | 558 |
|
Receivables, less allowance (2016-$5; 2015-$6) | 153 |
| | 136 |
|
Prepaid expenses and other | 415 |
| | 361 |
|
Total current assets | 2,078 |
| | 1,373 |
|
PROPERTY AND EQUIPMENT | | | |
Flight equipment | 7,334 |
| | 7,079 |
|
Predelivery deposits for flight equipment | 172 |
| | 171 |
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Total flight equipment and predelivery deposits, gross | 7,506 |
| | 7,250 |
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Less accumulated depreciation | 1,700 |
| | 1,573 |
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Total flight equipment and predelivery deposits, net | 5,806 |
| | 5,677 |
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Other property and equipment | 916 |
| | 868 |
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Less accumulated depreciation | 319 |
| | 293 |
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Total other property and equipment, net | 597 |
| | 575 |
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Assets constructed for others | 561 |
| | 561 |
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Less accumulated depreciation | 173 |
| | 161 |
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Total assets constructed for others, net | 388 |
| | 400 |
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Total property and equipment | 6,791 |
| | 6,652 |
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OTHER ASSETS | | | |
Investment securities | 30 |
| | 49 |
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Restricted cash | 66 |
| | 63 |
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Other | 493 |
| | 507 |
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Total other assets | 589 |
| | 619 |
|
TOTAL ASSETS | $ | 9,458 |
| | $ | 8,644 |
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| | | |
|
See accompanying notes to condensed consolidated financial statements.
3
JETBLUE AIRWAYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in millions, except per share data) |
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES | | | |
Accounts payable | $ | 341 |
| | $ | 205 |
|
Air traffic liability | 1,193 |
| | 1,053 |
|
Accrued salaries, wages and benefits | 297 |
| | 302 |
|
Other accrued liabilities | 336 |
| | 267 |
|
Current maturities of long-term debt and capital leases | 446 |
| | 448 |
|
Total current liabilities | 2,613 |
| | 2,275 |
|
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS | 1,300 |
| | 1,379 |
|
CONSTRUCTION OBLIGATION | 465 |
| | 472 |
|
DEFERRED TAXES AND OTHER LIABILITIES | | | |
Deferred income taxes | 1,341 |
| | 1,218 |
|
Other | 95 |
| | 90 |
|
Total deferred taxes and other liabilities | 1,436 |
| | 1,308 |
|
STOCKHOLDERS’ EQUITY | | | |
Preferred stock, $0.01 par value; 25 shares authorized, none issued | — |
| | — |
|
Common stock, $0.01 par value; 900 shares authorized, 395 and 392 shares issued and 324 and 322 shares outstanding at June 30, 2016 and December 31, 2015, respectively | 4 |
| | 4 |
|
Treasury stock, at cost; 71 and 70 shares at June 30, 2016 and December 31, 2015, respectively | (380 | ) | | (366 | ) |
Additional paid-in capital | 1,946 |
| | 1,896 |
|
Retained earnings | 2,058 |
| | 1,679 |
|
Accumulated other comprehensive income (loss) | 16 |
| | (3 | ) |
Total stockholders’ equity | 3,644 |
| | 3,210 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 9,458 |
| | $ | 8,644 |
|
See accompanying notes to condensed consolidated financial statements.
4
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
OPERATING REVENUES | | | | | | | |
Passenger | $ | 1,487 |
| | $ | 1,496 |
| | $ | 2,965 |
| | $ | 2,904 |
|
Other | 156 |
| | 116 |
| | 295 |
| | 231 |
|
Total operating revenues | 1,643 |
| | 1,612 |
| | 3,260 |
| | 3,135 |
|
OPERATING EXPENSES | | | | | | | |
Aircraft fuel and related taxes | 274 |
| | 371 |
| | 489 |
| | 706 |
|
Salaries, wages and benefits | 415 |
| | 375 |
| | 850 |
| | 750 |
|
Landing fees and other rents | 92 |
| | 90 |
| | 177 |
| | 173 |
|
Depreciation and amortization | 96 |
| | 81 |
| | 188 |
| | 168 |
|
Aircraft rent | 28 |
| | 31 |
| | 56 |
| | 62 |
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Sales and marketing | 72 |
| | 70 |
| | 137 |
| | 130 |
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Maintenance materials and repairs | 140 |
| | 126 |
| | 274 |
| | 239 |
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Other operating expenses | 213 |
| | 186 |
| | 427 |
| | 372 |
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Total operating expenses | 1,330 |
| | 1,330 |
| | 2,598 |
| | 2,600 |
|
OPERATING INCOME | 313 |
| | 282 |
| | 662 |
| | 535 |
|
OTHER INCOME (EXPENSE) | | | | | | | |
Interest expense | (28 | ) | | (32 | ) | | (57 | ) | | (66 | ) |
Capitalized interest | 2 |
| | 2 |
| | 4 |
| | 4 |
|
Interest income and other | 2 |
| | (2 | ) | | 3 |
| | (1 | ) |
Total other income (expense) | (24 | ) | | (32 | ) | | (50 | ) | | (63 | ) |
INCOME BEFORE TAXES | 289 |
| | 250 |
| | 612 |
| | 472 |
|
Income tax expense | 109 |
| | 98 |
| | 232 |
| | 183 |
|
NET INCOME | $ | 180 |
| | $ | 152 |
| | $ | 380 |
| | $ | 289 |
|
| | | | | | | |
EARNINGS PER COMMON SHARE: | | | | | | | |
Basic | $ | 0.56 |
| | $ | 0.48 |
| | $ | 1.18 |
| | $ | 0.92 |
|
Diluted | $ | 0.53 |
| | $ | 0.44 |
| | $ | 1.11 |
| | $ | 0.84 |
|
See accompanying notes to condensed consolidated financial statements.
5
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
|
| | | | | | | |
| Three Months Ended June 30, |
| 2016 | | 2015 |
NET INCOME | $ | 180 |
| | $ | 152 |
|
Changes in fair value of derivative instruments, net of reclassifications into earnings (net of $12 and $17 of taxes in 2016 and 2015, respectively) | 19 |
| | 26 |
|
Total other comprehensive income | 19 |
| | 26 |
|
COMPREHENSIVE INCOME | $ | 199 |
| | $ | 178 |
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|
| | | | | | | |
| Six Months Ended June 30, |
| 2016 | | 2015 |
NET INCOME | $ | 380 |
| | $ | 289 |
|
Changes in fair value of derivative instruments, net of reclassifications into earnings (net of $12 and $25 of taxes in 2016 and 2015, respectively) | 19 |
| | 39 |
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Total other comprehensive income | 19 |
| | 39 |
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COMPREHENSIVE INCOME | $ | 399 |
| | $ | 328 |
|
See accompanying notes to condensed consolidated financial statements.
6
JETBLUE AIRWAYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in millions) |
| | | | | | | |
| Six Months Ended June 30, |
| 2016 | | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 380 |
| | $ | 289 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Deferred income taxes | 122 |
| | 131 |
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Depreciation | 162 |
| | 138 |
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Amortization | 26 |
| | 30 |
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Stock-based compensation | 13 |
| | 10 |
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Gains on sale of assets and debt extinguishment | (4 | ) | | (8 | ) |
Collateral returned for derivative instruments | — |
| | 39 |
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Changes in certain operating assets and liabilities | 323 |
| | 254 |
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Other, net | (15 | ) | | 7 |
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Net cash provided by operating activities | 1,007 |
| | 890 |
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CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (276 | ) | | (372 | ) |
Predelivery deposits for flight equipment | (41 | ) | | (34 | ) |
Purchase of held-to-maturity investments | (95 | ) | | (267 | ) |
Proceeds from the maturities of held-to-maturity investments | 225 |
| | 187 |
|
Purchase of available-for-sale securities | (330 | ) | | (175 | ) |
Proceeds from the sale of available-for-sale securities | 200 |
| | 130 |
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Other, net | (2 | ) | | 1 |
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Net cash used in investing activities | (319 | ) | | (530 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from issuance of common stock | 25 |
| | 57 |
|
Repayment of long-term debt and capital lease obligations | (87 | ) | | (178 | ) |
Acquisition of Treasury Stock | (14 | ) | | (163 | ) |
Other, net | 5 |
| | 5 |
|
Net cash used in financing activities | (71 | ) | | (279 | ) |
INCREASE IN CASH AND CASH EQUIVALENTS | 617 |
| | 81 |
|
Cash and cash equivalents at beginning of period | 318 |
| | 341 |
|
Cash and cash equivalents at end of period | $ | 935 |
| | $ | 422 |
|
See accompanying notes to condensed consolidated financial statements.
7
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
JetBlue Airways Corporation, or JetBlue, provides air transportation services across the United States, the Caribbean and Latin America. Our condensed consolidated financial statements include the accounts of JetBlue and our subsidiaries which are collectively referred to as “we” or the “Company”. All majority-owned subsidiaries are consolidated on a line by line basis, with all intercompany transactions and balances being eliminated. These condensed consolidated financial statements and related notes should be read in conjunction with our 2015 audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, or our 2015 Form 10-K.
These condensed consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the Securities and Exchange Commission, or the SEC. In our opinion they reflect all adjustments, including normal recurring items, that are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S., or GAAP, have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for other interim periods or the entire fiscal year.
Investment securities
Investment securities consist of available-for-sale investment securities and held-to-maturity investment securities. We use a specific identification method to determine the cost of the securities when they are sold.
Held-to-maturity investment securities. The contractual maturities of the corporate bonds we held as of June 30, 2016 were not greater than 24 months. We did not record any significant gains or losses on these securities during the three and six months ended June 30, 2016 or 2015. The estimated fair value of these investments approximated their carrying value as of June 30, 2016 and December 31, 2015, respectively.
The carrying values of investment securities consisted of the following at June 30, 2016 and December 31, 2015 (in millions): |
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| June 30, 2016 | | December 31, 2015 |
Available-for-sale securities | | | |
Time deposits | $ | 125 |
| | $ | 125 |
|
Commercial paper | 13 |
| | 55 |
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Treasury bills | 247 |
| | 75 |
|
Total available-for-sale securities | 385 |
| | 255 |
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Held-to-maturity securities | | | |
Corporate bonds | $ | 95 |
| | $ | 322 |
|
Treasury notes | 125 |
| | 30 |
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Total held-to-maturity securities | 220 |
| | 352 |
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Total investment securities | $ | 605 |
| | $ | 607 |
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Loyalty Program
In 2015, we announced a co-branded credit card partnership with Barclaycard®, which commenced in March 2016. The agreement is a new multiple-element arrangement subject to Accounting Standards Update, or ASU, 2009-13, Multiple Deliverable Revenue Arrangements. ASU 2009-13 requires the allocation of the overall consideration received to each deliverable using the estimated selling price. We identified the following deliverables: air transportation; use of the JetBlue brand name and access to our frequent flyer customer lists; advertising; and other airline benefits. In determining the estimated selling price, JetBlue considered multiple inputs, methods and assumptions, including: discounted cash flows; estimated equivalent ticket value, net of fulfillment discount; points expected to be awarded and redeemed; estimated annual spending by cardholder; estimated annual royalty for use of JetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. The overall consideration received is allocated to each deliverable based on their relative selling prices. The air transportation element will be deferred and recognized as passenger revenue when the points are utilized. The other elements will generally be recognized as other revenue when earned.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Recent Accounting Pronouncements
During the first quarter of 2016, we adopted ASU 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs topic of the FASB Codification, or Codification. ASU 2015-03 provides a simplified presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Upon adoption, the ASU requires retrospective application to all prior periods presented in the financial statements. The condensed consolidated balance sheet as of December 31, 2015 reflects retrospective application and includes our unamortized debt issuance costs of $16 million within long-term debt and capital lease obligations. Prior to adoption this amount was included within other long-term assets.
Also during the first quarter of 2016, we adopted ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement topic of the Codification, which provides guidance to clarify the customer's accounting for fees paid in a cloud computing arrangement. Customers' cloud computing arrangements which include a software license should account for the software license consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted ASU 2015-05 prospectively and do not expect the amendments to have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, a lessee will recognize liabilities for lease payments and right-of-use assets representing its right to use the underlying asset for the lease term. While we are still evaluating the full impact of adopting the amendments on our consolidated financial statements and disclosures, we have determined that it will impact our accounting for aircraft and other leases. The amendments are effective for fiscal years beginning after December 15, 2018 and includes interim periods within those fiscal years. Early adoption is permitted, and companies are required to use a modified retrospective approach at the earliest period presented.
The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments apply to several aspects of accounting for stock-based compensation including the recognition of excess tax benefits and deficiencies and their related presentation in the statement of cash flows as well as accounting for forfeitures. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods and allows for prospective, retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. We are currently determining the transition method and assessing the impact the amendments may have on our financial condition, results of operations and cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers topic of the Codification, which supersedes existing revenue recognition guidance. Under the ASU 2014-09, a company will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. The amendments allow for either full retrospective or modified retrospective adoption. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 and permitted early adoption, but not prior to December 15, 2016. While we are still evaluating the full impact of adopting the amendments on our consolidated financial statements and disclosures, we have determined that it will impact our loyalty program accounting. The amendments will no longer allow us to use the incremental cost method when recording the financial impact of TrueBlue® points earned on JetBlue purchases and will require us to re-value our liability with a relative fair value approach.
Note 2—Long Term Debt, Short Term Borrowings, and Capital Lease Obligations
During the six months ended June 30, 2016, we made scheduled principal payments of $87 million on our outstanding long-term debt and capital lease obligations. As a result of scheduled principal payments, two aircraft became unencumbered.
Aircraft, engines, other equipment and facilities with a net book value of $2.8 billion at June 30, 2016 have been pledged as security under various loan agreements. As of June 30, 2016, we owned, free of encumbrance, 46 Airbus A320 aircraft, 21 Airbus A321 aircraft and 32 spare engines. At June 30, 2016, scheduled maturities of all of our long-term debt and capital lease obligations were $363 million for the remainder of 2016, $185 million in 2017, $193 million in 2018, $215 million in 2019, $179 million in 2020 and $611 million thereafter.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The carrying amounts and estimated fair values of our long-term debt at June 30, 2016 and December 31, 2015 were as follows (in millions):
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| | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Public Debt | | | | | | | |
Floating rate enhanced equipment notes | | | | | | | |
Class G-1, due 2016 | $ | 13 |
| | $ | 13 |
| | $ | 16 |
| | $ | 16 |
|
Class G-2, due 2016 | 185 |
| | 185 |
| | 185 |
| | 184 |
|
Fixed rate special facility bonds, due through 2036 | 43 |
| | 47 |
| | 43 |
| | 45 |
|
6.75% convertible debentures due in 2039 | 86 |
| | 274 |
| | 86 |
| | 405 |
|
Non-Public Debt | | | | | | | |
Fixed rate enhanced equipment notes, due through 2023 | $ | 196 |
| | $ | 211 |
| | $ | 201 |
| | $ | 209 |
|
Floating rate equipment notes, due through 2025 | 183 |
| | 185 |
| | 193 |
| | 195 |
|
Fixed rate equipment notes, due through 2026 | 906 |
| | 1,018 |
| | 964 |
| | 1,042 |
|
Total(1) | $ | 1,612 |
| | $ | 1,933 |
| | $ | 1,688 |
| | $ | 2,096 |
|
(1) Total excludes capital lease obligation of $148 million for June 30, 2016 and $155 million for December 31, 2015, and deferred financing costs of $14 million for June 30, 2016 and $16 million for December 31, 2015
The estimated fair values of our publicly held long-term debt are classified as Level 2 in the fair value hierarchy. The fair values of our enhanced equipment notes and our special facility bonds were based on quoted market prices in markets with low trading volumes. The fair value of our convertible debentures was based on other observable market inputs since they are not actively traded. The fair value of our non-public debt was estimated using a discounted cash flow analysis based on our borrowing rates for instruments with similar terms and therefore classified as Level 3 in the fair value hierarchy. The fair values of our other financial instruments approximate their carrying values. Refer to Note 7 for an explanation of the fair value hierarchy structure.
We have financed certain aircraft with Enhanced Equipment Trust Certificates (EETCs) as one of the benefits of this structure is being able to finance several aircraft at one time, rather than individually. The structure of EETC financing is that we create pass-through trusts in order to issue pass-through certificates. The proceeds from the issuance of these certificates are then used to purchase equipment notes which are issued by us and are secured by our aircraft. These trusts meet the definition of a variable interest entity, or VIE, as defined in the Consolidations topic of the Codification, and must be considered for consolidation in our condensed consolidated financial statements. Our assessment of our EETCs considers both quantitative and qualitative factors including the purpose for which these trusts were established and the nature of the risks in each. The main purpose of the trust structure is to enhance the credit worthiness of our debt obligation through certain bankruptcy protection provisions, liquidity facilities and lower our total borrowing cost. We concluded that we are not the primary beneficiary in these trusts because our involvement in them is limited to principal and interest payments on the related notes, the trusts were not set up to pass along variability created by credit risk to us and the likelihood of our defaulting on the notes. Therefore, we have not consolidated these trusts in our condensed consolidated financial statements.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 3—Earnings Per Share
The following table shows how we computed basic and diluted earnings per common share (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Numerator: | | | | | | | |
Net Income | $ | 180 |
| | $ | 152 |
| | $ | 380 |
| | $ | 289 |
|
Effect of dilutive securities: | | | | | | | |
Interest on convertible debt, net of income taxes and profit sharing | 1 |
| | 1 |
| | 1 |
| | 2 |
|
Net income applicable to common stockholders after assumed conversions for diluted earnings per share | $ | 181 |
| | $ | 153 |
| | $ | 381 |
| | $ | 291 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average shares outstanding | 323.2 |
| | 316.9 |
| | 322.4 |
| | 313.6 |
|
Effect of dilutive securities: | | | | | | | |
Employee stock options, restricted stock units and stock purchase plan | 1.7 |
| | 2.7 |
| | 2.0 |
| | 3.0 |
|
Convertible debt | 17.7 |
| | 28.0 |
| | 17.7 |
| | 30.4 |
|
Adjusted weighted average shares outstanding and assumed conversions for diluted earnings per share | 342.6 |
| | 347.6 |
| | 342.1 |
| | 347.0 |
|
During the three and six months ended June 30, 2016 and 2015 there were no shares excluded from earnings per share upon assumed conversion of our convertible debt.
Note 4—Crewmember Retirement Plan and Profit Sharing
We sponsor a retirement savings 401(k) defined contribution plan, or the Plan, covering all of our employees, who we refer to as Crewmembers, where we match 100% of our Crewmembers' contributions up to 5% of their eligible wages. The contributions vest over five years and are measured from a Crewmember's hire date. Crewmembers are immediately vested in their voluntary contributions.
Another component of the Plan is a Company discretionary contribution of 5% of eligible non-management Crewmember compensation, which we refer to as Retirement Plus. Retirement Plus contributions vest over three years and are measured from a Crewmember's hire date. Our non-management Crewmembers are also eligible to receive profit sharing, calculated as 15% of adjusted pre-tax income before profit sharing and special items with the result reduced by Retirement Plus contributions. Eligible non-management employees may elect to have their profit sharing contributed directly to the Plan. Certain Federal Aviation Administration, or FAA-licensed Crewmembers, receive an additional contribution of 3% of eligible compensation, which we refer to as Retirement Advantage. Total 401(k) company match, Retirement Plus, profit sharing and Retirement Advantage expensed for the three months ended June 30, 2016 and 2015 was $66 million and $58 million, respectively, while the total amount expensed for the Plan for the six months ended June 30, 2016 and 2015 was $148 million and $111 million, respectively.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5—Commitments and Contingencies
Flight Equipment Commitments
As of June 30, 2016, our firm aircraft orders consisted of 25 Airbus A320 new engine option (neo) aircraft, 17 Airbus A321 aircraft, 45 Airbus A321neo aircraft, 24 EMBRAER 190 aircraft and 10 spare engines scheduled for delivery through 2023. Committed expenditures for these aircraft and related flight equipment, including estimated amounts for contractual price escalations and predelivery deposits, will be approximately $402 million for the remainder of 2016, $807 million in 2017, $675 million in 2018, $1.0 billion in 2019, $1.4 billion in 2020 and $2.4 billion thereafter. In July 2016 we finalized two lease agreements to receive two additional Airbus A321 aircraft which we expect to be delivered during the fourth quarter of 2016. We are scheduled to receive eight new Airbus A321 aircraft during the remainder of 2016.
We amended our purchase agreement with Airbus during July 2016 to add 30 incremental Airbus A321 aircraft with deliveries beginning in 2017. We currently expect 15 of the incremental aircraft to be delivered with the current engine option beginning in 2017, with the remaining 15 aircraft to be Airbus A321neo, scheduled to be delivered beginning in 2020.
Other Commitments
As part of the 2014 sale of LiveTV, LLC, or LiveTV, formerly a wholly owned subsidiary of JetBlue, to Thales Holding Corporation a $3 million liability relating to Airfone, a former subsidiary of LiveTV, was assigned to JetBlue under the purchase agreement with Thales. Separately, prior to the sale of LiveTV, JetBlue had an agreement with ViaSat Inc. through 2020 relating to in-flight broadband connectivity technology on our aircraft. That agreement stipulated a $20 million minimum commitment for the connectivity service and a $25 million minimum commitment for the related hardware and software purchase. As part of the sale of LiveTV, these commitments to ViaSat Inc. were assigned to LiveTV and JetBlue entered into two new service agreements with LiveTV pursuant to which LiveTV will provide in-flight entertainment and connectivity services to JetBlue for a minimum of seven years.
As of June 30, 2016, we had approximately $34 million in assets serving as collateral for letters of credit relating to a certain number of our leases. These are included in restricted cash and expire at the end of the related lease terms. Additionally, we had approximately $26 million pledged related to our workers compensation insurance policies and other business partner agreements which will expire according to the terms of the related policies or agreements.
Legal Matters
Occasionally we are involved in various claims, lawsuits, regulatory examinations, investigations and other legal matters arising, for the most part, in the ordinary course of business. The outcome of litigation and other legal matters is always uncertain. The Company believes it has valid defenses to the legal matters currently pending against it, is defending itself vigorously and has recorded accruals determined in accordance with GAAP, where appropriate. In making a determination regarding accruals, using available information, we evaluate the likelihood of an unfavorable outcome in legal or regulatory proceedings to which we are a party and record a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of our defenses and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to our consolidated results of operations, liquidity or financial condition.
To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on our operations or financial condition. We have insured and continue to insure against most of these types of claims. A judgment on any claim not covered by, or in excess of, our insurance coverage could materially adversely affect our financial condition or results of operations.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 6—Financial Derivative Instruments and Risk Management
As part of our risk management techniques, we periodically purchase over the counter energy derivative instruments and enter into fixed forward price agreements, or FFPs, to manage our exposure to the effect of changes in the price of aircraft fuel. Prices for the underlying commodities have historically been highly correlated to aircraft fuel, making derivatives of them effective at providing short-term protection against sharp increases in average fuel prices. We also periodically enter into jet fuel basis swaps for the differential between heating oil and jet fuel, to further limit the variability in fuel prices at various locations.
To manage the variability of the cash flows associated with our variable rate debt, we have also entered into interest rate swaps. We do not hold or issue any derivative financial instruments for trading purposes.
Aircraft fuel derivatives
We attempt to obtain cash flow hedge accounting treatment for each fuel derivative that we enter into. This treatment is provided for under the Derivatives and Hedging topic of the Codification which allows for gains and losses on the effective portion of qualifying hedges to be deferred until the underlying planned jet fuel consumption occurs, rather than recognizing the gains and losses on these instruments into earnings during each period they are outstanding. The effective portion of realized fuel hedging derivative gains and losses is recognized in aircraft fuel expense in the period during which the underlying fuel is consumed.
Ineffectiveness occurs, in certain circumstances, when the change in the total fair value of the derivative instrument differs from the change in the value of our expected future cash outlays for the purchase of aircraft fuel. Ineffectiveness is recognized immediately in interest income and other. If a hedge does not qualify for hedge accounting, the periodic changes in its fair value are also recognized in interest income and other. When aircraft fuel is consumed and the related derivative contract settles, any gain or loss previously recorded in other comprehensive income is recognized in aircraft fuel expense. All cash flows related to our fuel hedging derivatives are classified as operating cash flows.
Our current approach to fuel hedging is to enter into hedges on a discretionary basis without a specific target of hedge percentage needs. We view our hedge portfolio as a form of insurance to help mitigate the impact of price volatility and protect us against severe spikes in oil prices, when possible.
The following table illustrates the approximate hedged percentages of our projected fuel usage by quarter as of June 30, 2016 related to our outstanding fuel hedging contracts that were designated as cash flow hedges for accounting purposes.
|
| | | | | | | | | | | |
| Jet fuel swap agreements | | Jet fuel collar agreements | | Heating oil collar agreements | | Total |
Third Quarter 2016 | 24 | % | | — | % | | — | % | | 24 | % |
Fourth Quarter 2016 | 26 | % | | — | % | | — | % | | 26 | % |
First Quarter 2017 | 11 | % | | — | % | | — | % | | 11 | % |
Second Quarter 2017 | 10 | % | | — | % | | — | % | | 10 | % |
Third Quarter 2017 | 9 | % | | — | % | | — | % | | 9 | % |
Fourth Quarter 2017 | 10 | % | | — | % | | — | % | | 10 | % |
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Interest rate swaps
The interest rate hedges we had outstanding as of June 30, 2016 effectively swap floating rate debt for fixed rate debt. They take advantage of lower borrowing rates in existence at the time of the hedge transaction as compared to the date our original debt instruments were executed. As of June 30, 2016, we had $13 million in notional debt outstanding related to these swaps, which cover certain interest payments through August 2016. The notional amount decreases over time to match scheduled repayments of the related debt.
All of our outstanding interest rate swap contracts qualify as cash flow hedges in accordance with the Derivatives and Hedging topic of the Codification. Since all of the critical terms of our swap agreements match the debt to which they pertain, there was no ineffectiveness relating to these interest rate swaps in 2016 or 2015. All related unrealized losses were deferred in accumulated other comprehensive loss. We did not recognize any material additional interest expense in the six months ended June 30, 2016 or 2015. We did not recognize any material interest rate hedge gains or losses in other comprehensive income in the six months ended June 30, 2016 or 2015. As of June 30, 2016 and December 31, 2015 we did not recognize any material interest rate hedge assets, liabilities or associated collateral.
The table below reflects quantitative information related to our derivative instruments and where these amounts are recorded in our financial statements (dollar amounts in millions):
|
| | | | | | | |
Fuel derivatives | June 30, 2016 | | December 31, 2015 |
Asset fair value recorded in prepaid expense and other(1) | $ | 21 |
| | $ | — |
|
Asset fair value recorded in other long term assets(1) | $ | 6 |
| | $ | — |
|
Liability fair value recorded in other accrued liabilities(1) | $ | — |
| | $ | 5 |
|
Longest remaining term (months) | 18 |
| | 12 |
|
Hedged volume (barrels, in thousands) | 4,170 |
| | 900 |
|
Estimated amount of existing gains expected to be reclassified into earnings in the next 12 months | $ | 26 |
| | $ | 4 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
Fuel derivatives | 2016 | | 2015 | | 2016 | | 2015 |
Hedge effectiveness losses recognized in aircraft fuel expense | $ | — |
| | $ | (31 | ) | | $ | — |
| | $ | (66 | ) |
Gains on derivatives not qualifying for hedge accounting recognized in other expense | — |
| | — |
| | — |
| | 1 |
|
Hedge gains (losses) on derivatives recognized in comprehensive income | 31 |
| | 12 |
| | 31 |
| | (2 | ) |
Percentage of actual consumption economically hedged | — | % | | 20 | % | | — | % | | 20 | % |
(1) Gross liability of each contract prior to consideration of offsetting positions with each counterparty and prior to the impact of collateral paid
Any outstanding derivative instrument exposes us to credit loss in connection with our fuel contracts in the event of nonperformance by the counterparties to our agreements, but we do not expect that any of our counterparties will fail to meet their obligations. The amount of such credit exposure is generally the fair value of our outstanding contracts for which we are in a receivable position. To manage credit risks we select counterparties based on credit assessments, limit our overall exposure to any single counterparty and monitor the market position with each counterparty. Some of our agreements require cash deposits from either JetBlue or our counterparty if market risk exposure exceeds a specified threshold amount.
We have master netting arrangements with our counterparties allowing us the right of offset to mitigate credit risk in derivative transactions. The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. Our policy is to offset the liabilities represented by these contracts with any cash collateral paid to the counterparties.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The impact of offsetting derivative instruments is depicted below (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Gross Amount of Recognized | | Gross Amount of Cash Collateral | | Net Amount Presented on Balance Sheet |
Fuel derivatives | Assets | | Liabilities | | Offset | | Assets | | Liabilities |
As of June 30, 2016 | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | — |
|
As of December 31, 2015 | — |
| | 5 |
| | — |
| | $ | — |
| | 5 |
|
Note 7—Fair Value
Under the Fair Value Measurements and Disclosures topic of the Codification, disclosures are required about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs as follows:
Level 1 quoted prices in active markets for identical assets or liabilities;
Level 2 quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3 unobservable inputs for the asset or liability, such as discounted cash flow models or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following is a listing of our assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of June 30, 2016 and December 31, 2015 (in millions):
|
| | | | | | | | | | | | | | | |
| June 30, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents | $ | 784 |
| | $ | — |
| | $ | — |
| | $ | 784 |
|
Available-for-sale investment securities | 247 |
| | 138 |
| | — |
| | 385 |
|
Aircraft fuel derivatives | — |
| | 27 |
| | — |
| | 27 |
|
| $ | 1,031 |
| | $ | 165 |
| | $ | — |
| | $ | 1,196 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2015 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents | $ | 147 |
| | $ | — |
| | $ | — |
| | $ | 147 |
|
Available-for-sale investment securities | 75 |
| | 180 |
| | — |
| | 255 |
|
| $ | 222 |
| | $ | 180 |
| | $ | — |
| | $ | 402 |
|
Liabilities | | | | | | | |
Aircraft fuel derivatives | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
|
| $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
|
Refer to Note 2 for fair value information related to our outstanding debt obligations as of June 30, 2016 and December 31, 2015.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Cash equivalents
Our cash equivalents include money market securities and commercial paper which are readily convertible into cash, have maturities of 90 days or less when purchased and are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.
Available-for-sale investment securities
Included in our available-for-sale investment securities are time deposits and commercial paper with maturities of greater than 90 days but less than one year. The fair values of these instruments are based on observable inputs in non-active markets and are therefore classified as Level 2 in the hierarchy. We did not record any significant gains or losses on these securities during the three and six months ended June 30, 2016 and 2015.
Aircraft fuel derivatives
Our aircraft fuel derivatives include swaps, collars, and basis swaps which are not traded on public exchanges. Heating oil and jet fuel are the products underlying these hedge contracts as they are highly correlated with the price of jet fuel. Their fair values are determined using a market approach based on inputs that are readily available from public markets for commodities and energy trading activities. Therefore, they are classified as Level 2 in the hierarchy. The data inputs are combined into quantitative models and processes to generate forward curves and volatilities related to the specific terms of the underlying hedge contracts.
Interest rate swaps
The fair values of our interest rate swaps are based on inputs received from the related counterparty, which are based on observable inputs for active swap indications in quoted markets for similar terms. The fair values of these instruments are based on observable inputs in non-active markets and are therefore classified as Level 2 in the hierarchy.
Note 8—Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes changes in fair value of our aircraft fuel derivatives and interest rate swap agreements, which qualify for hedge accounting. A rollforward of the amounts included in the accumulated other comprehensive income (loss), net of taxes for the three months ended June 30, 2016 and June 30, 2015 are as follows (in millions):
|
| | | | | | | | | | | |
| Aircraft Fuel Derivatives(1) | | Interest Rate Swaps(2) | | Total |
Balance of accumulated gains (losses) at March 31, 2016 | $ | (4 | ) | | $ | 1 |
| | $ | (3 | ) |
Change in fair value (net of $12 of taxes) | 19 |
| | — |
| | 19 |
|
Balance of accumulated gains at June 30, 2016 | $ | 15 |
| | $ | 1 |
| | $ | 16 |
|
| | | | | |
Balance of accumulated losses at March 31, 2015 | $ | (50 | ) | | $ | — |
| | $ | (50 | ) |
Reclassifications into earnings (net of $13 of taxes) | 18 |
| | — |
| | 18 |
|
Change in fair value (net of $4 of taxes) | 8 |
| | — |
| | 8 |
|
Balance of accumulated losses at June 30, 2015 | $ | (24 | ) | | $ | — |
| | $ | (24 | ) |
(1) Reclassified to aircraft fuel expense
(2) Reclassified to interest expense
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A rollforward of the amounts included in the accumulated other comprehensive income (loss), net of taxes for the six months ended June 30, 2016 and June 30, 2015 are as follows (in millions):
|
| | | | | | | | | | | |
| Aircraft Fuel Derivatives(1) | | Interest Rate Swaps(2) | | Total |
Balance of accumulated (losses) gains at December 31, 2015 | $ | (4 | ) | | $ | 1 |
| | $ | (3 | ) |
Change in fair value (net of $12 of taxes) | 19 |
| | — |
| | 19 |
|
Balance of accumulated gains at June 30, 2016 | $ | 15 |
| | $ | 1 |
| | $ | 16 |
|
| | | | | |
Balance of accumulated losses at December 31, 2014 | $ | (63 | ) | | $ | — |
| | $ | (63 | ) |
Reclassifications into earnings (net of $26 of taxes) | 40 |
| | — |
| | 40 |
|
Change in fair value (net of $(1) of taxes) | (1 | ) | | — |
| | (1 | ) |
Balance of accumulated losses at June 30, 2015 | $ | (24 | ) | | $ | — |
| | $ | (24 | ) |
(1) Reclassified to aircraft fuel expense
(2) Reclassified to interest expense
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Second Quarter 2016 Highlights
| |
• | We had a $31 million increase in operating revenue compared to the second quarter of 2015 due primarily to an 11.1% increase in capacity, partially offset by a 9.9% decrease in yield per passenger mile. |
| |
• | We generated $1,007 million in cash from operations for the six months ended June 30, 2016. |
| |
• | Our operating margin increased by 1.6 points to 19.1%. |
| |
• | Operating expense per available seat mile decreased by 9.9% to 9.78 cents, primarily due to a significant decline in aircraft fuel expenses and an increase in available seat miles. Excluding fuel, profit sharing and related taxes, our cost per available seat mile(1) decreased by 1.0%. |
| |
• | Operating income reached $313 million, an increase of $31 million over the comparable period in 2015. This increase was principally driven by a reduction in aircraft fuel expenses and higher revenue, partially offset by increases in most other expense categories. |
Balance Sheet
We ended the second quarter of 2016 with unrestricted cash, cash equivalents and short-term investments of $1.5 billion and undrawn lines of credit of approximately $600 million. Our unrestricted cash, cash equivalents and short-term investments is approximately 23% of trailing twelve months revenue. We increased the number of unencumbered aircraft by four during the quarter by using cash on hand to pay for our two deliveries and through scheduled payments of principal balances on two other aircraft. We have 67 unencumbered aircraft and 32 unencumbered spare engines as of June 30, 2016.
Fleet
In conjunction with our intention to expand our Mint experience we amended our purchase agreement with Airbus during July 2016 to add 30 incremental Airbus A321 aircraft scheduled to be delivered between 2017 and 2023. We believe these incremental aircraft will allow us to continue to grow profitably, particularly in the transcontinental market.
In support of our long-term transcontinental plans we currently expect 15 of the incremental 30 Airbus A321 aircraft to be delivered with the current engine option beginning in 2017, with five Mint deliveries expected in 2017. Our amendment includes flexibility to take these deliveries in our Mint or all-core configuration. We anticipate the remaining 15 aircraft to be Airbus A321 new engine option (A321neo), scheduled to be delivered beginning in 2020. Starting in June 2019, JetBlue would have the option to take any or all of its A321neo deliveries with the Long Range configuration, the A321-LR.
Network
Starting in the fall of 2016 and subject to government approval, we expect to offer service to four new BlueCities in Cuba: Havana, Santa Clara, Camagüey, and Holguín. We expect to offer up to four daily nonstop flights between the U.S. and Havana. We expect to service Havana from three of our Focus Cities, Fort Lauderdale-Hollywood, Orlando and New York. In addition to the Havana service, we expect to offer flights between Fort Lauderdale-Hollywood and Santa Clara, Camagüey, and Holguín.
We believe JetBlue’s focus cities make us uniquely situated to provide scheduled service to Cuba. Fort Lauderdale-Hollywood and New York are two of the three largest and most important markets for Cuba air service because of their large Cuban populations and associated familial, cultural and financial travel links. Orlando is the home of major attractions, which are important sites for international visitors and the Orlando area is home to a large number of Cuban-Americans. Each of the U.S. gateways also allows for convenient connecting service from destinations across the JetBlue network.
Outlook for 2016
For the third quarter of 2016, cost per available seat mile, excluding fuel and profit sharing(1) is expected to increase between 1% and 3% over the comparable 2015 period. In addition, we expect operating capacity to increase between 5.5% and 7.5% over the comparable 2015 period.
For the full year 2016, we expect our operating capacity to increase between 8.0% and 9.5% over full year 2015 with the addition of eight Airbus A321 aircraft to our operating fleet during the remainder of the year. We expect our cost per available seat mile, excluding fuel and profit sharing(1), for the full year 2016 to increase between zero and 1.5% over full year 2015.
(1) Refer to our "Regulation G Reconciliation" note below for more information on this non-GAAP measure.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2016 vs. 2015
Overview
We reported net income of $180 million, an operating income of $313 million and an operating margin of 19.1% for the three months ended June 30, 2016. This compares to net income of $152 million, an operating income of $282 million and an operating margin of 17.5% for the three months ended June 30, 2015. Diluted earnings per share were $0.53 for the second quarter of 2016 compared to $0.44 for the same period in 2015.
On-time performance, as defined by the Department of Transportation, or DOT, is arrival within 14 minutes of scheduled arrival time. In the second quarter of 2016, our systemwide on-time performance was 78.9% compared to 82.2% for the same period in 2015. Our on-time performance remains challenged by our concentration of operations in the northeast of the U.S., one of the world's most congested airspaces. Our completion factor was 99.4% in the second quarter of 2016 and 99.3% in the same period in 2015.
Operating Revenues
|
| | | | | | | | | | | | | | | |
(Revenues in millions; percent changes based on unrounded numbers) | Three months ended June 30, | | Year-over-Year Change |
2016 | | 2015 | | $ | | % |
Passenger revenue | $ | 1,487 |
| | $ | 1,496 |
| | $ | (9 | ) | | (0.6 | ) | |
Other revenue | 156 |
| | 116 |
| | 40 |
| | 35.2 |
| |
Total operating revenues | $ | 1,643 |
| | $ | 1,612 |
| | $ | 31 |
| | 2.0 |
| |
| | | | | | | | |
Average Fare | $ | 153.94 |
| | $ | 168.85 |
| | $ | (14.91 | ) | | (8.8 | ) | |
Yield per passenger mile (cents) | 12.87 |
| | 14.28 |
| | (1.41 | ) | | (9.9 | ) | |
Passenger revenue per ASM (cents) | 10.94 |
| | 12.22 |
| | (1.28 | ) | | (10.5 | ) | |
Operating revenue per ASM (cents) | 12.09 |
| | 13.17 |
| | (1.08 | ) | | (8.2 | ) | |
Average stage length (miles) | 1,097 |
| | 1,085 |
| | 12 |
| | 1.1 |
| |
Revenue passengers (thousands) | 9,660 |
| | 8,858 |
| | 802 |
| | 9.1 |
| |
Revenue passenger miles (millions) | 11,553 |
| | 10,472 |
| | 1,081 |
| | 10.3 |
| |
Available Seat Miles (ASMs) (millions) | 13,597 |
| | 12,237 |
| | 1,360 |
| | 11.1 |
| |
Load Factor | 85.0 | % | | 85.6 | % | | | | (0.6 | ) | pts. |
Passenger revenue is our primary source of revenue, which includes seat revenue as well as revenue from our ancillary product offerings such as EvenMore™ Space. The decrease in passenger revenue of $9 million, or 0.6%, for the three months ended June 30, 2016, compared to the same period in 2015, was primarily attributable to a 8.8% decrease in average fare, partially offset by a 9.1% increase in revenue passengers. The increase in other revenue of $40 million, or 35.2%, for the three months ended June 30, 2016, compared to the same period in 2015, was primarily attributable to a full quarter of Fare Options bag fees during the three months ended June 30, 2016 and the initial performance of the new co-branded credit card. Fare Options started at the end of the second quarter of 2015.
Operating Expenses
In detail, our operating costs per available seat mile, or ASM, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions; per ASM data in cents; percent changes based on unrounded numbers) | Three Months Ended June 30, | | Year-over-Year Change | | Cents per ASM |
2016 | | 2015 | | $ | | % | | 2016 | | 2015 | | % Change |
Aircraft fuel and related taxes | $ | 274 |
| | $ | 371 |
| | $ | (97 | ) | | (26.1 | )% | | 2.02 |
| | 3.03 |
| | (33.5 | )% |
Salaries, wages and benefits | 415 |
| | 375 |
| | 40 |
| | 10.6 |
| | 3.05 |
| | 3.06 |
| | (0.5 | ) |
Landing fees and other rents | 92 |
| | 90 |
| | 2 |
| | 3.2 |
| | 0.67 |
| | 0.74 |
| | (7.2 | ) |
Depreciation and amortization | 96 |
| | 81 |
| | 15 |
| | 18.2 |
| | 0.71 |
| | 0.66 |
| | 6.4 |
|
Aircraft rent | 28 |
| | 31 |
| | (3 | ) | | (9.5 | ) | | 0.20 |
| | 0.25 |
| | (18.6 | ) |
Sales and marketing | 72 |
| | 70 |
| | 2 |
| | 3.7 |
| | 0.53 |
| | 0.57 |
| | (6.7 | ) |
Maintenance materials and repairs | 140 |
| | 126 |
| | 14 |
| | 10.9 |
| | 1.03 |
| | 1.03 |
| | (0.1 | ) |
Other operating expenses | 213 |
| | 186 |
| | 27 |
| | 14.7 |
| | 1.57 |
| | 1.52 |
| | 3.2 |
|
Total operating expenses | $ | 1,330 |
| | $ | 1,330 |
| | $ | — |
| | 0.1 | % | | 9.78 |
| | 10.86 |
| | (9.9 | )% |
Aircraft Fuel and Related Taxes
Aircraft fuel and related taxes decreased by $97 million, or 26.1%, for the three months ended June 30, 2016 compared to the same period in 2015. The average fuel price for the second quarter 2016 decreased by 32.8% to $1.43 per gallon. This was partially offset by an increase of 9.9%, or 17 million gallons, in our fuel consumption and a 5.9% increase in the average number of aircraft operating during the second quarter 2016 as compared to the same period in 2015. Losses upon settlement of effective fuel hedges included in Aircraft fuel and related taxes during the second quarter of 2015 were $30 million.
Salaries, Wages and Benefits
Salaries, wages and benefits increased $40 million, or 10.6%, for the three months ended June 30, 2016 compared to the same period in 2015. It was our largest expense for the quarter, representing approximately 31% of our total operating expenses. The primary drivers were an increase in profit sharing which is based on adjusted pre-tax income as well as additional headcount.
Depreciation and Amortization
Depreciation and amortization increased $15 million, or 18.2%, for the three months ended June 30, 2016 compared to the same period in 2015, primarily driven by a 5.9% increase in the average number of aircraft operating during second quarter 2016 as compared to the same period in 2015.
Maintenance Materials and Repairs
Maintenance materials and repairs increased $14 million, or 10.9%, for the three months ended June 30, 2016 compared to the same period in 2015, primarily driven by increased flight hours on our engine flight-hour based maintenance repair agreements and by the number of airframe heavy maintenance repairs.
Other Operating Expenses
Other operating expenses increased $27 million, or 14.7%, for the three months ended June 30, 2016 compared to the same period in 2015, primarily due to an increase in airport and technology services and passenger on-board supplies resulting from an increased number of passengers flown. Other operating expenses for the three months ended June 30, 2016 included a $4 million gain related to the sale of an engine.
Six Months Ended June 30, 2016 vs. 2015
Overview
We reported net income of $380 million, an operating income of $662 million and an operating margin of 20.3% for the six months ended June 30, 2016. This compares to net income of $289 million, an operating income of $535 million and an operating margin of 17.1% for the six months ended June 30, 2015. Diluted earnings per share were $1.11 for the six months ended June 30, 2016 compared to $0.84 for the same period in 2015.
Approximately 80% of our operations reside in the heavily populated northeast corridor of the U.S., which includes the New York and Boston metropolitan areas. During the first three months of 2015, a series of winter storms impacted this area, with Boston's Logan Airport experiencing record breaking snowfall totals. We estimate that winter storms reduced our operating income by approximately $10 million in the first quarter of 2015.
Operating Revenues
|
| | | | | | | | | | | | | | | |
(Revenues in millions; percent changes based on unrounded numbers) | Six Months Ended June 30, | | Year-over-Year Change |
2016 | | 2015 | | $ | | % |
Passenger revenue | $ | 2,965 |
| | $ | 2,904 |
| | $ | 61 |
| | 2.1 |
| |
Other revenue | 295 |
| | 231 |
| | 64 |
| | 27.6 |
| |
Total operating revenues | $ | 3,260 |
| | $ | 3,135 |
| | $ | 125 |
| | 4.0 |
| |
| | | | | | | | |
Average Fare | $ | 157.88 |
| | $ | 171.29 |
| | $ | (13.41 | ) | | (7.8 | ) | |
Yield per passenger mile (cents) | 13.16 |
| | 14.45 |
| | (1.29 | ) | | (8.9 | ) | |
Passenger revenue per ASM (cents) | 11.13 |
| | 12.28 |
| | (1.15 | ) | | (9.3 | ) | |
Operating revenue per ASM (cents) | 12.24 |
| | 13.25 |
| | (1.01 | ) | | (7.6 | ) | |
Average stage length (miles) | 1,103 |
| | 1,091 |
| | 12 |
| | 1.1 |
| |
Revenue passengers (thousands) | 18,778 |
| | 16,953 |
| | 1,825 |
| | 10.8 |
| |
Revenue passenger miles (millions) | 22,529 |
| | 20,093 |
| | 2,436 |
| | 12.1 |
| |
Available Seat Miles (ASMs) (millions) | 26,626 |
| | 23,656 |
| | 2,970 |
| | 12.6 |
| |
Load Factor | 84.6 | % | | 84.9 | % | | | | (0.3 | ) | pts. |
The increase in passenger revenue of $61 million, or 2.1% for the six months ended June 30, 2016, compared to the same period in 2015, was primarily attributable to a 10.8% increase in revenue passengers, partially offset by a 7.8% decrease in average fare. The increase in other revenue of $64 million, or 27.6%, for the six months ended June 30, 2016, compared to the same period in 2015, was primarily attributable to Fare Options bag fees which started at the end of the second quarter of 2015.
Operating Expenses
In detail, our operating costs per available seat mile, or ASM, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions; per ASM data in cents; percent changes based on unrounded numbers) | Six Months Ended June 30, | | Year-over-Year Change | | Cents per ASM |
2016 | | 2015 | | $ | | % | | 2016 | | 2015 | | % Change |
Aircraft fuel and related taxes | $ | 489 |
| | $ | 706 |
| | $ | (217 | ) | | (30.7 | )% | | 1.84 |
| | 2.99 |
| | (38.5 | )% |
Salaries, wages and benefits | 850 |
| | 750 |
| | 100 |
| | 13.3 |
| | 3.19 |
| | 3.17 |
| | 0.7 |
|
Landing fees and other rents | 177 |
| | 173 |
| | 4 |
| | 2.6 |
| | 0.67 |
| | 0.73 |
| | (8.9 | ) |
Depreciation and amortization | 188 |
| | 168 |
| | 20 |
| | 11.2 |
| | 0.71 |
| | 0.71 |
| | (1.2 | ) |
Aircraft rent | 56 |
| | 62 |
| | (6 | ) | | (9.8 | ) | | 0.21 |
| | 0.26 |
| | (19.8 | ) |
Sales and marketing | 137 |
| | 130 |
| | 7 |
| | 5.0 |
| | 0.51 |
| | 0.55 |
| | (6.7 | ) |
Maintenance materials and repairs | 274 |
| | 239 |
| | 35 |
| | 14.6 |
| | 1.03 |
| | 1.01 |
| | 1.9 |
|
Other operating expenses | 427 |
| | 372 |
| | 55 |
| | 15.2 |
| | 1.60 |
| | 1.57 |
| | 2.3 |
|
Total operating expenses | $ | 2,598 |
| | $ | 2,600 |
| | $ | (2 | ) | | (0.1 | )% | | 9.76 |
| | 10.99 |
| | (11.2 | )% |
Aircraft Fuel and Related Taxes
Aircraft fuel and related taxes decreased by $217 million, or 30.7%, for the six months ended June 30, 2016 compared to the same period in 2015, and represented approximately 18.8% of our total operating expenses. The decrease was primary driven by a decrease in average fuel cost per gallon from $2.10 in 2015 to $1.31 in 2016. Losses upon settlement of effective fuel hedges during 2015 of $65 million contributed to the decrease in average fuel cost per gallon. The decrease in average fuel cost per gallon was partially offset by an increase in fuel consumption of 37 million gallons or 11.3% mainly due to a 5.8% increase in the average number of operating aircraft in 2016 compared to 2015 as well as a 8.6% increase in departures.
Salaries, Wages and Benefits
Salaries, wages and benefits increased $100 million, or 13.3%, for the six months ended June 30, 2016 compared to the same period in 2015. The primary drivers were an increase in profit sharing which is based on adjusted pre-tax income as well as additional headcount. Our average number of full-time equivalent employees in the six months ended June 30, 2016 increased by 7.6% compared to the same period in 2015.
Depreciation and Amortization
Depreciation and amortization increased $20 million, or 11.2%, for the six months ended June 30, 2016 compared to the same period in 2015, primarily driven by a 5.8% increase in the average number of aircraft operating during the six months ended June 30, 2016 as compared to the same period 2015.
Maintenance Materials and Repairs
Maintenance materials and repairs increased $35 million, or 14.6%, for the six months ended June 30, 2016 compared to the same period in 2015, primarily driven by increased flight hours on our engine flight-hour based maintenance repair agreements and by the number of airframe heavy maintenance repairs.
Other Operating Expenses
Other operating expenses increased $55 million, or 15.2%, for the six months ended June 30, 2016 compared to the same period in 2015, primarily due to an increase in airport services and passenger on-board supplies resulting from an increased number of passengers flown. Other operating expenses for the six months ended June 30, 2016 and 2015 include a $4 million gain related to the sale of an engine and a $9 million gain related to an insurance recovery for a damaged engine, respectively.
The following table sets forth our operating statistics for the three and six months ended June 30, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Year-over-Year Change | | Six Months Ended June 30, | | Year-over-Year Change | |
(percent changes based on unrounded numbers) | 2016 | | 2015 | | % | | 2016 | | 2015 | | % | |
Operational Statistics | | | | | | | | | | | | | |
Revenue passengers (thousands) | 9,660 |
| | 8,858 |
| | 9.1 |
| | | 18,778 |
| | 16,953 |
| | 10.8 |
| |
Revenue passenger miles (RPMs) (millions) | 11,553 |
| | 10,472 |
| | 10.3 |
| | | 22,529 |
| | 20,093 |
| | 12.1 |
| |
Available seat miles (ASMs) (millions) | 13,597 |
| | 12,237 |
| | 11.1 |
| | | 26,626 |
| | 23,656 |
| | 12.6 |
| |
Load factor | 85.0 | % | | 85.6 | % | | (0.6 | ) | pts | | 84.6 | % | | 84.9 | % | | (0.3 | ) | pts |
Aircraft utilization (hours per day) | 12.3 |
| | 12.0 |
| | 2.5 |
| | | 12.2 |
| | 11.8 |
| | 3.4 |
| |
| | | | | | | | | | | | | |
Average fare | $ | 153.94 |
| | $ | 168.85 |
| | (8.8 | ) | | | $ | 157.88 |
| | $ | 171.29 |
| | (7.8 | ) | |
Yield per passenger mile (cents) | 12.87 |
| | 14.28 |
| | (9.9 | ) | | | 13.16 |
| | 14.45 |
| | (8.9 | ) | |
Passenger revenue per ASM (cents) | 10.94 |
| | 12.22 |
| | (10.5 | ) | | | 11.13 |
| | 12.28 |
| | (9.3 | ) | |
Operating revenue per ASM (cents) | 12.09 |
| | 13.17 |
| | (8.2 | ) | | | 12.24 |
| | 13.25 |
| | (7.6 | ) | |
Operating expense per ASM (cents) | 9.78 |
| | 10.86 |
| | (9.9 | ) | | | 9.76 |
| | 10.99 |
| | (11.2 | ) | |
Operating expense per ASM, excluding fuel and related taxes (cents) | 7.76 |
| | 7.83 |
| | (0.8 | ) | | | 7.92 |
| | 8.00 |
| | (1.1 | ) | |
Operating expense per ASM, excluding fuel, profit sharing and related taxes (cents)(1) | 7.48 |
| | 7.56 |
| | (1.0 | ) | | | 7.57 |
| | 7.75 |
| | (2.3 | ) | |
| | | | | | | | | | | | | |
Departures | 85,285 |
| | 79,558 |
| | 7.2 |
| | | 166,524 |
| | 153,381 |
| | 8.6 |
| |
Average stage length (miles) | 1,097 |
| | 1,085 |
| | 1.1 |
| | | 1,103 |
| | 1,091 |
| | 1.1 |
| |
Average number of operating aircraft during period | 218.2 |
| | 206.0 |
| | 5.9 |
| | | 216.8 |
| | 205.0 |
| | 5.8 |
| |
Average fuel cost per gallon, including fuel taxes | $ | 1.43 |
| | $ | 2.13 |
| | (32.8 | ) | | | $ | 1.31 |
| | $ | 2.10 |
| | (37.8 | ) | |
Fuel gallons consumed (millions) | 191 |
| | 174 |
| | 9.9 |
| | | 374 |
| | 337 |
| | 11.3 |
| |
Average number of full-time equivalent crewmembers | | | | | | | | 15,297 |
| | 14,223 |
| | 7.6 |
| |
(1) Refer to our “Regulation G Reconciliation” note below for more information on this non-GAAP measure.
Although we experienced revenue growth throughout 2015 as well as in the first six months of 2016, this trend may not continue. Except for the uncertainty related to the direction of fuel prices, we expect our expenses to continue to increase as we acquire additional aircraft, as our fleet ages and as we expand the frequency of flights in existing markets as well as enter into new markets. In addition, we expect our operating results to significantly fluctuate from quarter-to-quarter in the future as a result of various factors, many of which are outside of our control. Consequently, we believe quarter-to-quarter comparisons of our operating results may not necessarily be meaningful; you should not rely on our results for any one quarter as an indication of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
The airline business is capital intensive. Our ability to successfully execute our growth plans is largely dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business depends on maintaining sufficient liquidity. We believe we have adequate resources from a combination of cash and cash equivalents, investment securities on hand and two available lines of credit. Additionally, as of June 30, 2016, we had 67 unencumbered aircraft and 32 unencumbered spare engines which we believe could be an additional source of liquidity, if necessary.
We believe a healthy liquidity position is crucial to our ability to weather any part of the economic cycle while continuing to execute on our plans for profitable growth and increased returns. Our goal is to continue to be diligent with our liquidity, maintaining financial flexibility and allowing for prudent capital spending.
At June 30, 2016, we had unrestricted cash and cash equivalents of $935 million and short-term investments of $575 million. We believe our current level of unrestricted cash, cash equivalents and short-term investments of approximately 23% of trailing twelve months revenue, combined with our available lines of credit and portfolio of unencumbered assets provides us with a strong liquidity position and the potential for higher returns on cash deployment.
Analysis of Cash Flows
Operating Activities
We rely primarily on operating cash flows to provide working capital for current and future operations. Cash flows from operating activities were $1,007 million and $890 million for the six months ended June 30, 2016 and 2015, respectively. Higher earnings, principally driven by a reduction in aircraft fuel expenses and higher passenger revenue, partially offset by higher profit sharing, contributed to our growth in operating cash flows.
Investing Activities
During the six months ended June 30, 2016, capital expenditures related to our purchase of flight equipment included $168 million related to the purchase of four Airbus A321 aircraft, $43 million in work-in-progress relating to flight equipment, $41 million for flight equipment deposits, and $6 million for spare part purchases. Other property and equipment capital expenditures also included ground equipment purchases and facilities improvements for $59 million.
During the six months ended June 30, 2015, capital expenditures related to our purchase of flight equipment included $244 million related to the purchase of six Airbus A321 aircraft, $39 million in work-in-progress relating to flight equipment, $34 million for flight equipment deposits, and $20 million for spare part purchases. Other property and equipment capital expenditures also included ground equipment purchases and facilities improvements for $69 million. Investing activities also included the net purchase of $125 million of investment securities.
Financing Activities
Financing activities for the six months ended June 30, 2016 primarily consisted of the scheduled maturities of $87 million relating to debt and capital lease obligations.
Financing activities for the six months ended June 30, 2015 consisted of the scheduled maturities of $94 million relating to debt and capital lease obligations, prepayment of $52 million of our outstanding principal relating to seven Airbus A320 aircraft as well as outstanding balance of $32 million on a special facility revenue bond for JFK that was issued by the New York City Industrial Development Agency in December 2006. In addition, we acquired $163 million of our shares of which $150 million worth of shares were repurchased pursuant to our accelerated share repurchase in June of 2015. During the period, we realized $57 million in proceeds from the issuance of stock related to employee share-based compensation.
Working Capital
We had a working capital deficit of $535 million and $902 million at June 30, 2016 and December 31, 2015, respectively. Working capital deficits can be customary in the airline industry because air traffic liability is classified as a current liability. Our working capital deficit decreased by $367 million due to several factors, primarily due to an overall increase in our cash balances.
We expect to meet our obligations as they become due through available cash, investment securities and internally generated funds, supplemented as necessary by financing activities which may be available to us. We expect to generate positive working capital through our operations. However, we cannot predict what the effect on our business might be from the extremely competitive environment in which we operate or from events beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, airport infrastructure challenges, the spread of infectious diseases, the impact of other airline bankruptcies, restructurings or consolidations, U.S. military actions or acts of terrorism. We believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.
Our scheduled debt maturities are expected to peak at $444 million for the full year 2016. As part of our efforts to effectively manage our balance sheet and improve Return on Invested Capital, or ROIC, we expect to continue to actively manage our debt balances. Our approach to debt management includes managing the mix of fixed and floating rate debt, annual maturities of debt and the weighted average cost of debt. We intend to continue to opportunistically pre-pay outstanding debt when market conditions and terms are favorable as well as when excess liquidity is available. Additionally, our unencumbered assets allow some flexibility in managing our cost of debt and capital requirements.
Contractual Obligations
Our noncancelable contractual obligations at June 30, 2016, include the following (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due in |
| Total | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Thereafter |
Debt and capital lease obligations(1) | $ | 2,036 |
| | $ | 400 |
| | $ | 245 |
| | $ | 242 |
| | $ | 254 |
| | $ | 208 |
| | $ | 687 |
|
Lease commitments | 1,237 |
| | 85 |
| | 157 |
| | 149 |
| | 124 |
| | 110 |
| | 612 |
|
Flight equipment purchase obligations | 6,722 |
| | 402 |
| | 807 |
| | 675 |
| | 1,038 |
| | 1,366 |
| | 2,434 |
|
Other obligations(2) | 3,572 |
| | 611 |
| | 572 |
| | 603 |
| | 573 |
| | 388 |
| | 825 |
|
Total | $ | 13,567 |
| | $ | 1,498 |
| | $ | 1,781 |
| | $ | 1,669 |
| | $ | 1,989 |
| | $ | 2,072 |
| | $ | 4,558 |
|
(1) Includes actual interest and estimated interest for floating-rate debt based on June 30, 2016 rates
(2) Amounts include noncancelable commitments for the purchase of goods and services
As of June 30, 2016, we are in compliance with the covenants of our debt and lease agreements. We have approximately $34 million of restricted cash pledged under standby letters of credit related to certain leases that will expire at the end of the related lease terms.
As of June 30, 2016, we operated a fleet of 29 Airbus A321 aircraft, 130 Airbus A320 aircraft and 60 EMBRAER 190 aircraft. Of our fleet, 159 are owned by us, of which 67 are unencumbered, 54 are leased under operating leases and six are leased under capital leases. As of June 30, 2016, the average age of our operating fleet was 8.7 years and our firm aircraft order was as follows:
|
| | | | | | | | | | |
Year | | Airbus A320neo | | Airbus A321 | | Airbus A321neo | | Embraer 190 | | Total |
2016 | | — | | 6 | | — | | — | | 6 |
2017 | | — | | 10 | | — | | — | | 10 |
2018 | | — | | 1 | | 6 | | — | | 7 |
2019 | | — | | — | | 15 | | — | | 15 |
2020 | | 6 | | — | | 9 | | 10 | | 25 |
2021 | | 16 | | — | | — | | 7 | | 23 |
2022 | | 3 | | — | | 13 | | 7 | | 23 |
2023 | | — | | — | | 2 | | — | | 2 |
Total | | 25 | | 17 | | 45 | | 24 | | 111 |
In July 2016 we finalized two lease agreements to receive two additional Airbus A321 aircraft which we expect to be delivered during the fourth quarter of 2016.
As previously discussed, we amended our purchase agreement with Airbus during July 2016 to add 30 incremental Airbus A321 aircraft delivering between 2017 and 2023. These incremental aircraft are scheduled for delivery as follows:
|
| | | | | | | | | | |
Year | | Airbus A320neo | | Airbus A321 | | Airbus A321neo | | Embraer 190 | | Total |
2017 | | — | | 5 | | — | | — | | 5 |
2018 | | — | | 4 | | — | | — | | 4 |
2019 | | — | | 6 | | — | | — | | 6 |
2020 | | — | | — | | 3 | | — | | 3 |
2021 | | — | | — | | 4 | | — | | 4 |
2022 | | — | | — | | 4 | | — | | 4 |
2023 | | — | | — | | 4 | | — | | 4 |
Total | | — | | 15 | | 15 | | — | | 30 |
Committed expenditures for our firm aircraft and spare engines include estimated amounts for contractual price escalations and predelivery deposits. We expect to meet our predelivery deposit requirements for our aircraft by paying cash or by using short-term borrowing facilities for deposits required six to 24 months prior to delivery. Any predelivery deposits paid by the issuance of notes are fully repaid at the time of delivery of the related aircraft.
Dependent on market conditions, we anticipate paying cash for the remainder of our firm aircraft deliveries in 2016. For deliveries after 2016, although we believe debt and/or lease financing should be available to us, we cannot give any assurance that we will be able to secure financing on attractive terms, if at all. While these financings may or may not result in an increase in liabilities on our balance sheet, our fixed costs will increase regardless of the financing method ultimately chosen. To the extent we cannot secure financing on terms we deem attractive, we may be required to pay in cash, further modify our aircraft acquisition plans or incur higher than anticipated financing costs.
Capital expenditures for non-aircraft such as facility improvements, spare parts and aircraft improvements are expected to be between approximately $150 million and $200 million for the full year 2016.
Off-Balance Sheet Arrangements
None of our operating lease obligations are reflected on our balance sheet. Although some of our aircraft lease arrangements are with variable interest entities, as defined by the Consolidations topic of the Codification, none of them require consolidation in our financial statements. Our decision to finance these aircraft through operating leases rather than through debt was based on an analysis of the cash flows and tax consequences of each financing alternative and a consideration of liquidity implications. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.
We have determined that we hold a variable interest in, but are not the primary beneficiary of, certain pass-through trusts. The beneficiaries of these pass-through trusts are the purchasers of equipment notes issued by us to finance the acquisition of aircraft. They maintain liquidity facilities whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs.
We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our balance sheet, which we believe will not have a significant impact on our results of operations, financial condition or cash flows. We have no other off-balance sheet arrangements.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates included in our 2015 Form 10-K.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which represent our management's beliefs and assumptions concerning future events. When used in this document and in documents incorporated herein by reference, the words “expects,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “may,” “will,” “should,” “seeks,” “targets” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions, and are based on information currently available to us. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including, without limitation, our extremely competitive industry; volatility in financial and credit markets which could affect our ability to obtain debt and/or lease financing or to raise funds through debt or equity issuances; volatility in fuel prices, maintenance costs and interest rates; our ability to implement our growth strategy; our significant fixed obligations and substantial indebtedness; our ability to attract and retain qualified personnel and maintain our culture as we grow; our reliance on high daily aircraft utilization; our dependence on the New York and Boston metropolitan markets and the effect of increased congestion in these markets; our reliance on automated systems and technology; our being subject to potential unionization, work stoppages, slowdowns or increased labor costs; our reliance on a limited number of suppliers; our presence in some international emerging markets that may experience political or economic instability or may subject us to legal risk; reputational and business risk from information security breaches or cyber-attacks; changes in or additional government regulation; changes in our industry due to other airlines' financial condition; acts of war or terrorist attacks; global economic conditions or an economic downturn leading to a continuing or accelerated decrease in demand for domestic and business air travel; the spread of infectious diseases; adverse weather conditions or natural disasters; and external geopolitical events and conditions. It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change prior to the end of each quarter or year.
Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. You should understand that many important factors, in addition to those discussed or incorporated by reference in this Report, could cause our results to differ materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this Report, those described in Item 1A of our 2015 Form 10-K under "Risks Related to JetBlue" and "Risks Associated with the Airline Industry" and our other filings with the SEC. In light of these risks and uncertainties, the forward-looking events discussed in this Report might not occur.
Where You Can Find Other Information
Our website is www.jetblue.com. Information contained on our website is not incorporated into this Report. Information we furnish or file with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available at the SEC’s website at www.sec.gov. You may obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
REGULATION G RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
We sometimes use non-GAAP measures that are derived from the consolidated financial statements, but that are not presented in accordance with generally accepted accounting principles in the U.S., or GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies.
Operating Expenses per Available Seat Mile, excluding fuel, profit sharing and related taxes
Operating expenses per available seat mile, or CASM, is a common metric used in the airline industry. Our CASM for the periods are summarized in the table below. We exclude aircraft fuel, profit sharing, and related taxes from operating expenses to determine CASM ex-fuel and profit sharing. We believe that CASM ex-fuel and profit sharing provides investors the ability to measure financial performance excluding items beyond our control, such as (i) fuel costs, which are subject to many economic and political factors beyond our control, and (ii) profit sharing, which is sensitive to volatility in earnings. We believe this non-GAAP measure is more indicative of our ability to manage costs and is more comparable to measures reported by other major airlines. We are unable to reconcile such projected CASM ex-fuel and profit sharing as the nature or amount of excluded items are only estimated at this time.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Operating Expense per ASM, excluding fuel, profit sharing and related taxes |
(in millions; per ASM data in cents; percentages based on unrounded numbers) | Three Months Ended June 30, | | Six Months Ended June 30, |
2016 | | 2015 | | 2016 | | 2015 |
$ | | per ASM | | $ | | per ASM | | $ | | per ASM | | $ | | per ASM |
Total operating expenses | $ | 1,330 |
| | 9.78 |
| | $ | 1,330 |
| | 10.86 |
| | 2,598 |
| | 9.76 |
| | 2,600 |
| | 10.99 |
|
Less: Aircraft fuel and related taxes | 274 |
| | 2.02 |
| | 371 |
| | 3.03 |
| | 489 |
| | 1.84 |
| | 706 |
| | 2.99 |
|
Operating expenses, excluding fuel and related taxes | 1,056 |
| | 7.76 |
| | 959 |
| | 7.83 |
| | 2,109 |
| | 7.92 |
| | 1,894 |
| | 8.00 |
|
Less: Profit sharing and related taxes | 38 |
| | 0.28 |
| | 33 |
| | 0.27 |
| | 92 |
| | 0.35 |
| | 60 |
| | 0.25 |
|
Operating expenses, excluding fuel, profit sharing and related taxes | $ | 1,018 |
| | 7.48 |
| | $ | 926 |
| | 7.56 |
| | 2,017 |
| | 7.57 |
| | 1,834 |
| | 7.75 |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risks from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our 2015 Form 10-K, except as follows:
Aircraft Fuel
Our results of operations are affected by changes in the price and availabil