e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
|
|
|
x
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
|
|
For the fiscal
year ended December 31, 2009
|
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 or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
118-29
Queens Boulevard
Forest Hills, New York 11375
(Address, including zip code, of registrants principal
executive offices)
(718) 286-7900
Registrants telephone number, including area code:
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
|
|
Name of each exchange
|
Title of each class
|
|
on which registered
|
|
Common Stock, $0.01 par value
|
|
The NASDAQ Global Select Market
|
Participating Preferred Stock Purchase Rights
|
|
|
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No x
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. Yes x No o
Indicate by checkmark whether the registrat has submitted
electronically and posted on its corporate Website, 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). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
|
|
x
|
|
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 x
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant as of June 30,
2009 was approximately $1,068,690,000 (based on the last
reported sale price on the NASDAQ Global Select Market on that
date). The number of shares outstanding of the registrants
common stock as of January 31, 2010 was
291,722,138 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2010
Annual Meeting of Stockholders, which is to be filed subsequent
to the date hereof, are incorporated by reference into
Part III of this
Form 10-K.
FORWARD-LOOKING
INFORMATION
Statements in this
Form 10-K
(or otherwise made by JetBlue or on JetBlues behalf)
contain various forward-looking statements within the meaning of
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 managements beliefs and assumptions
concerning future events. When used in this document and in
documents incorporated by reference, forward-looking statements
include, without limitation, statements regarding financial
forecasts or projections, and our expectations, beliefs,
intentions or future strategies that are signified by the words
expects, anticipates,
intends, believes, plans or
similar language. These forward-looking statements are subject
to risks, uncertainties and assumptions that could cause our
actual results and the timing of certain events to differ
materially from those expressed in the forward-looking
statements. 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. Although these expectations may change, we may
not inform you if they do.
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
this report under Risks Related to JetBlue and
Risks Associated with the Airline Industry. In light
of these risks and uncertainties, the forward-looking events
discussed in this report might not occur.
ii
Overview
JetBlue Airways Corporation is a passenger airline that we
believe has established a new airline category a
value airline based on service, style,
and cost. Known for its award-winning customer service and free
TV as much as for its competitive fares, JetBlue believes it
offers its customers the best coach product in markets it serves
with a strong core product and reasonably priced optional
upgrades. JetBlue operates primarily on
point-to-point
routes with its fleet of 110 Airbus A320 aircraft and 41 EMBRAER
190 aircraft the youngest and most
fuel-efficient fleet of any major U.S. airline. As of
December 31, 2009, we served 60 destinations in
20 states, Puerto Rico, and eleven countries in the
Caribbean and Latin America. Most of our flights have as an
origin or destination one of our focus cities: Boston,
Fort Lauderdale, Los Angeles/Long Beach, New York/JFK,
or Orlando. By the end of 2009, we operated on average 600 daily
flights. For the year ended December 31, 2009 JetBlue was
the 7th largest passenger carrier in the United States
based on revenue passenger miles as reported by those airlines.
As used in this
Form 10-K,
the terms JetBlue, we, us,
our and similar terms refer to JetBlue Airways
Corporation and its subsidiaries, unless the context indicates
otherwise.
JetBlue was incorporated in Delaware in August 1998 and
commenced service February 11, 2000. Our principal
executive offices are located at
118-29
Queens Boulevard, Forest Hills, New York 11375 and our telephone
number is
(718) 286-7900.
Our filings with the Securities and Exchange Commission, or the
SEC, are accessible free of charge at our website
http://investor.jetblue.com.
Information contained on our website is not incorporated by
reference in this report.
1
Our Value
Proposition
Our mission is to bring humanity back to air travel. As we begin
our second decade of operations in 2010, our goal is to become
Americas Favorite Airline for our
employees (whom we refer to as crewmembers), customers, and
shareholders. Achieving this goal is dependent upon continuing
to provide superior customer service and delivering the JetBlue
Experience, while maintaining financial strength. We do this by
offering what we believe to be the best domestic coach product
and providing our customers more value for their purchase. The
elements of our value proposition include:
High Quality Service and
Product. Onboard JetBlue customers enjoy a
distinctive flying experience, which we refer to as the
JetBlue Experience, that includes friendly,
award-winning, customer service-oriented employees, new
aircraft, roomy leather seats with lots of legroom, 36 channels
of free
DirecTV®,
100 channels of free XM satellite radio and premium movie
channel offerings from JetBlue
Features®,
our source of first run films from multiple major movie studios
and other entertainment features available for purchase. Our
onboard offerings include free and unlimited brand name snacks
and beverages, premium beverages and specially-designed products
for our overnight flights. Our customers have told us the
JetBlue Experience is an important reason why they choose us
over other airlines.
We strive to communicate openly and honestly with customers
about delays and service disruptions. We introduced the JetBlue
Airways Customer Bill of Rights in 2007 which provides for
compensation to customers who experience avoidable
inconveniences (and some unavoidable circumstances) and commits
us to perform at high service standards and holds us accountable
if we do not. We are the first and currently the only major
airline to provide such a fundamental benefit for our customers.
In 2009, we completed 98.7% of our scheduled flights. Unlike
most other airlines, we have a policy of not overbooking our
flights.
All of our aircraft are equipped with leather seats in a
comfortable single class layout. Our Airbus A320 aircraft,
with 150 seats, has a wider cabin than both the Boeing 737
and 757, two types of aircraft operated by many of our
competitors. Our Airbus A320 cabin has at least 34 inches
of seat pitch at every seat and as much as 38 inches of
seat pitch in our Even More Legroom rows, providing the most
legroom in coach of all U.S. airlines. Our EMBRAER 190
aircraft each have 100 seats that are wider than industry
average for this type of aircraft and are arranged in a
two-by-two
seating configuration with either 32 or 33 inches between
rows of seats. We strive to continually enhance and refine our
product based on customer and crewmember feedback.
Low Operating Costs. Our cost structure
has allowed us to offer fares lower than many of our
competitors. For the year ended December 31, 2009, our cost
per available seat mile, excluding fuel, of 6.33 cents is
among the lowest reported by all other major U.S. airlines.
Some of the factors that contribute to our competitive unit
costs are:
|
|
|
|
|
High aircraft utilization. By scheduling and
operating our aircraft efficiently, we are able to spread our
fixed costs over a greater number of flights and available seat
miles. For the year ended December 31, 2009, our aircraft
operated an average of 11.5 hours per day, which we believe
is the highest among all major U.S. airlines. Our airport
operations allow us to schedule our aircraft with minimum ground
time.
|
|
|
|
Low distribution costs. Our distribution costs
are low for several reasons. Although most airlines use
electronic tickets in some capacity, electronic tickets are our
only form of tickets, saving paper, postage, employee time and
back-office processing expense. Additionally, a majority of our
sales are booked through our website, www.jetblue.com,
which is our least expensive form of distribution.
|
|
|
|
Productive workforce. Our employee efficiency
results from flexible and productive work rules, effective use
of part-time employees and the use of technology to automate
tasks. For example, most of our reservation agents work from
their homes, providing better scheduling flexibility and
allowing employees to customize their schedules. We are
continually looking for ways to make our workforce more
efficient through the use of technology without compromising our
commitment to customer service.
|
2
|
|
|
|
|
New and efficient aircraft. We maintain a
fleet consisting of only two types of aircraft, the Airbus A320
and the EMBRAER 190, which, with an average age of only
4.3 years, is the youngest fleet of any major
U.S. airline. We believe that operating a young fleet
having the latest technologies results in our aircraft being
more efficient and dependable than older aircraft. We operate
the worlds largest fleet of Airbus A320 aircraft, and have
the best dispatch reliability of all U.S major Airbus
A320 aircraft operators. Operating only two types of
aircraft, both of which are newer aircraft types, results in
cost savings over our competitors (who generally operate more
aircraft types) as maintenance processes are simplified, spare
parts inventory requirements are reduced, scheduling is
simplified and training costs are lower.
|
Brand Strength. We believe we have
created a widely recognized brand that differentiates us from
our competitors and identifies us as a safe, reliable,
value-added airline focused on customer service and which
provides a high quality travel experience. Similarly, we believe
customer awareness of our brand has contributed to the success
of our marketing efforts, and enables us to market ourselves as
a preferred marketing partner with companies across many
different industries. In 2009, we were voted Top Low Cost
Airline for Customer Satisfaction by J.D. Power and
Associates for the fifth consecutive year. We also earned
distinctions as the Best Large Domestic Airline (economy
class), Best Inflight Entertainment (domestic
flights) and Most Eco-friendly Airline in the
2009 Zagat Airline Survey. Additionally, the JetBlue Experience
won us Best Onboard Entertainment-Domestic Airline
from the 2009 Smarter Traveler Readers Choice Awards, an
Extra Mile award from Budget Travel, and was
recognized by AIGA for Design Excellence.
Strength of Our People. We believe we
have developed a strong and vibrant service-oriented company
culture built around our five key values: Safety, Caring,
Integrity, Fun and Passion. Our success depends on our ability
to continue hiring, retaining, and developing people who are
friendly, helpful, team-oriented and committed to delivering the
JetBlue Experience to our customers. Our culture is reinforced
through an extensive orientation program for our new employees
which emphasizes the importance of customer service,
productivity and cost control. We also provide extensive
training for our employees, including a leadership program and
other training that emphasizes the importance of safety.
None of our employees are currently unionized. We believe a
direct relationship with JetBlue leadership, not third-party
representation, is in the best interests of our employees,
customers, and shareholders. We enter into individual employment
agreements with each of our Federal Aviation Administration, or
FAA, licensed employees, which consist of pilots, dispatchers
and technicians. Each employment agreement is for a term of five
years and renews for an additional five-year term unless the
employee is terminated for cause or the employee elects not to
renew. Pursuant to these agreements, these employees can only be
terminated for cause. In the event of a downturn in our business
that would require a reduction in work hours, we are obligated
to pay these employees a guaranteed level of income and to
continue their benefits. In addition, we provide what we believe
to be industry-leading job protection language in the agreements
in the event of a merger or acquisition scenario, including the
establishment of a legal defense fund to utilize for seniority
integration negotiations.
Our full-time equivalent employees at December 31, 2009
consisted of 1,797 pilots, 2,027 flight attendants, 3,409
airport operations personnel, 467 technicians (whom others refer
to as mechanics), 869 reservation agents, and 2,502
management and other personnel. At December 31, 2009, we
employed 9,180 full-time and 3,352 part-time employees.
Our leadership team has extensive and diverse airline industry
experience and strives to communicate on a regular basis with
all JetBlue employees, keeping them informed about JetBlue
events and soliciting feedback for ways to improve our service,
teamwork and employees work environment.
Well-Positioned
in New York Metropolitan Area the Nations
Largest Travel Market.
Since 2000, the majority of our operations have originated in
New York City, the nations largest travel market. We are
the largest airline at New Yorks John F. Kennedy
International Airport, or JFK, as measured by passengers and, by
the end of 2009, our domestic operations at JFK accounted for
more than 40% of all domestic passengers at that airport. In
addition to JFK, we serve Newarks Liberty International
Airport,
3
New Yorks LaGuardia Airport, Newburgh, New
Yorks Stewart International Airport and White Plains,
New Yorks Westchester County Airport. JFK is New
Yorks largest airport, with an infrastructure that
includes four runways, large facilities and a convenient direct
light-rail connection to the New York City subway system and the
Long Island Rail Road. Operating out of the nations
largest travel market does make us susceptible to certain
operational constraints.
In October 2008, after three years of construction, we commenced
operations at our new 26-gate terminal at JFKs Terminal 5.
Terminal 5 has an optimal location with convenient access to
active runways which we believe has helped increase the
efficiency of our operations. We believe this new terminal with
its modern amenities, concession offerings and passenger
convenience has also improved the overall efficiency of our
operation and, more importantly, has significantly enhanced the
ground experience of our customers and has become an integral
part of the JetBlue Experience. Terminal 5 has received several
award accolades after just over one year of operations,
including being recognized in November 2009 by the Airports
Council International North America as the Richard
A. Griesbach Award of Excellence winner in the 2009
Airports Concessions Contest, which judged Terminal 5s
overall concession program as best of nominees.
Our
Industry
The passenger airline industry in the United States has
traditionally been dominated by the major U.S. airlines,
the largest of which are Delta/Northwest Air Lines, American
Airlines, United Air Lines, Continental Airlines, Southwest
Airlines and US Airways. The U.S. Department of
Transportation, or DOT, defines the major U.S. airlines as
those airlines with annual revenues of at least $1 billion;
there are currently 15 passenger airlines meeting this standard.
These airlines offer scheduled flights to most large cities
within the United States and abroad and also serve numerous
smaller cities. Seven of the largest major U.S. airlines
have adopted the traditional hub and spoke network
route system, or traditional network. This type of system
concentrates most of an airlines operations at a limited
number of hub cities, serving the majority of other destinations
in the system by providing one-stop or connecting service
through one of its hubs.
Regional airlines, such as SkyWest Airlines and Comair,
typically operate smaller aircraft on lower volume routes than
do traditional network airlines. Regional airlines typically
enter into relationships with one or more traditional network
airlines under which the regional airline agrees to use its
smaller aircraft to carry passengers booked and ticketed by the
traditional network airline between their hubs and a smaller
outlying city. There are currently four regional
U.S. airlines within the major designation.
Low-cost airlines largely developed in the wake of deregulation
of the U.S. airline industry in 1978 which permitted
competition on many routes for the first time. Southwest
Airlines pioneered the low-cost model which enabled it to offer
fares that were significantly lower than those charged by
traditional network airlines. Excluding JetBlue, there are
currently three low-cost major U.S. airlines.
Following the September 11, 2001 terrorist attacks,
low-cost airlines were able to fill a significant capacity void
left by traditional network airline flight reductions. Lower
fares and increased low-cost airline capacity created an
unprofitable operating environment for the traditional network
airlines. Since 2001, the majority of traditional network
airlines have undergone significant financial restructuring,
including bankruptcies, mergers and consolidations. These
restructurings have allowed them to reduce labor costs,
restructure debt, terminate pension plans and generally reduce
their cost structure, increase workforce flexibility and provide
innovative offerings similar to those of the low-cost airlines
while still maintaining their expansive route networks,
alliances and frequent flier programs. As a result, while our
costs remain lower than those of our largest competitors, the
difference in the cost structures and the competitive advantage
previously enjoyed by low-cost airlines has diminished.
Competition
The airline industry is highly competitive. Airline profits are
sensitive to even slight changes in fuel costs, average fare
levels and passenger demand. Passenger demand and fare levels
historically have been influenced by, among other things, the
general state of the economy, international events, industry
capacity and pricing actions taken by other airlines. The
principal competitive factors in the airline industry are fares,
customer
4
service, routes served, flight schedules, types of aircraft,
safety record and reputation, code-sharing relationships,
capacity, in-flight entertainment systems and frequent flyer
programs.
Our competitors and potential competitors include traditional
network airlines, low-cost airlines, and regional airlines. Six
of the other major U.S. airlines are generally larger, have
greater financial resources and serve more routes than we do.
Our competitors also use some of the same advanced technologies
that we do such as laptop computers in the cockpit and website
bookings. In recent years, the U.S. airline industry
experienced significant consolidation, bankruptcy protection,
and liquidation largely as a result of high fuel costs and
continued strong competition. In 2009, numerous smaller airlines
around the world ceased operations and other larger
international carriers faced bankruptcy. Additionally, the
merger of Delta and Northwest created the worlds largest
airline. Further industry consolidations or restructurings may
result in our competitors having a more rationalized route
structure and lower operating costs, enabling them to compete
more aggressively.
Price competition occurs through price discounting, fare
matching, increased capacity, targeted sale promotions and
frequent flyer travel initiatives, all of which are usually
matched by other airlines in order to maintain their share of
passenger traffic. A relatively small change in pricing or in
passenger traffic could have a disproportionate effect on an
airlines operating and financial results. Our ability to
meet this price competition depends on, among other things, our
ability to operate at costs equal to or lower than our
competitors. All other factors being equal, we believe customers
often prefer JetBlue and the JetBlue Experience.
During 2009, most traditional network airlines began to reduce
capacity on their international routes while continuing to
reduce overall domestic and Caribbean capacity by redeploying
the capacity to more regional routes. Virgin America continued
to expand in routes that compete directly with us, although
other carriers substantially reduced capacity in a number of our
markets. We are encouraged by continued capacity discipline
across the industry and expect it to continue through 2010 which
we believe will help offset the impact of the recessionary
environment.
Airlines frequently participate in marketing alliances which
generally provide for code-sharing, frequent flyer program
reciprocity, coordinated flight schedules that provide for
convenient connections and other joint marketing activities.
These alliances also permit an airline to market flights
operated by other alliance airlines as its own. The benefits of
broad networks offered to customers could attract more customers
to these networks. We currently participate in marketing
alliances with Deutsche Lufthansa AG, one of the worlds
preeminent airlines and our largest shareholder; Cape Air, an
airline that services destinations out of Boston and
San Juan, Puerto Rico; and Aer Lingus, an airline based in
Dublin, Ireland.
Route
Network
Our operations primarily consist of transporting passengers on
our aircraft with domestic U.S. operations, including
Puerto Rico, accounting for 89% of our capacity in 2009. The
historic distribution of our available seat miles, or capacity,
by region is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Capacity Distribution
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
East Coast Western U.S.
|
|
|
34.7
|
%
|
|
|
41.5
|
%
|
|
|
47.4
|
%
|
Northeast Florida
|
|
|
32.8
|
|
|
|
33.9
|
|
|
|
31.8
|
|
Medium haul
|
|
|
3.5
|
|
|
|
3.0
|
|
|
|
2.8
|
|
Short haul
|
|
|
7.7
|
|
|
|
7.6
|
|
|
|
7.4
|
|
Caribbean, including Puerto Rico
|
|
|
21.3
|
|
|
|
14.0
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
As of December 31, 2009, we provided service to 60
destinations in 20 states, Puerto Rico, and eleven
countries in the Caribbean and Latin America. We have begun
service to the following new destinations since
December 31, 2008:
|
|
|
Destination
|
|
Service Commenced
|
|
Bogotá, Colombia
|
|
January 2009
|
San José, Costa Rica
|
|
March 2009
|
Montego Bay, Jamaica
|
|
May 2009
|
Los Angeles, California
|
|
June 2009
|
Baltimore, Maryland
|
|
September 2009
|
Bridgetown, Barbados
|
|
October 2009
|
Vieux Fort, Saint Lucia
|
|
October 2009
|
Kingston, Jamaica
|
|
October 2009
|
We have applied for route authority with the DOT for approval to
begin service to Punta Cana, Dominican Republic in May 2010. In
considering new markets, we focus on those that are underserved
or have high average fares. In this process, we analyze publicly
available data from the DOT showing the historical number of
passengers, capacity and average fares over time. Using this
data, combined with our knowledge and experience about how
comparable markets have reacted in the past when prices were
increased or decreased, we forecast the level of demand in a
particular market expected to result from the introduction of
our service and lower prices, as well as the anticipated
response of existing airlines in that market.
We are the leading carrier in number of flights flown per day
between the New York metropolitan area and Florida. As of
December 31, 2009, we also offer service to the most
non-stop destinations of any carrier out of Boston, and further
plan to increase daily departures by 30% by the summer of 2010.
Marketing
and Distribution
Our marketing objectives are to attract new customers to our
brand and give our current customers reasons to come back to us
time and time again. Our key value proposition and marketing
message is that competitive fares and quality air travel need
not be mutually exclusive. Our competitive fares, high quality
product and outstanding customer service create the overall
JetBlue Experience that we believe is unique in the domestic
airline industry.
We market our services through advertising and promotions in
newspapers, magazines, television, radio, through the internet,
outdoor billboards, and through targeted public relations and
promotions. We engage in large multi-market programs, as well as
many local events and sponsorships, and mobile marketing
programs. Our targeted public and community relations efforts
promote brand awareness and complement our strong
word-of-mouth
channel.
On January 29, 2010 we began the implementation of a new
integrated customer service system, which includes a
reservations system, website, revenue management system, revenue
accounting system, and a customer loyalty management system
among others. The integrated system, when fully implemented,
will increase our capabilities including growing our current
business, providing for more commercial partnerships and
allowing us to attract more business customers.
Our primary distribution channel is through our website,
www.jetblue.com, our lowest cost channel that is also
designed to ensure our customers have as pleasant an experience
booking their travel as they do in the air. Our participation in
global distribution systems, or GDSs, supports our growth in the
corporate market, as business customers are more likely to book
through a travel agency or booking product that utilizes the
GDS platform. While the cost of sales through this channel
is higher than through our website, the average fare purchased
through this channel generally covers the increased distribution
costs. We currently participate in three major GDSs (Sabre,
Travelport and Amadeus) and four major online travel agents, or
OTAs (Expedia, Travelocity, Orbitz, and Priceline).
We sell vacation packages through JetBlue Getaways, a one-stop,
value-priced vacation website designed to meet customers
demand for self-directed packaged travel planning. Getaways
packages offer competitive
6
fares for air travel on JetBlue and a selection of
JetBlue-recommended hotels and resorts, car rentals and
attractions. We also offer a la carte hotel and car rental
reservations through our website.
Customer
Loyalty Program
In November 2009, we launched an improved version of
JetBlues customer loyalty program, TrueBlue. TrueBlue is
an online program designed to reward and recognize our most
loyal customers. The program offers incentives to increase
members travel on JetBlue. TrueBlue members earn points
for each one-way trip flown based on the value paid for the
trip. Members accumulate points in their account which expire
after 12 months but can be reset with new earnings
activity. An award flight redemption can begin once a member
attains as few as 5,000 points. There are no seat restrictions
in the improved TrueBlue program and any JetBlue destination can
be booked if the member has enough points to exchange for the
value of an open seat. However, the number of points needed to
acquire travel is variable based on market conditions.
The number of travel awards used on JetBlue during 2009 was
approximately 302,000, representing 3.7% of our total revenue
passenger miles. Due to the structure of the program and low
level of redemptions as a percentage of total travel, the
displacement of revenue passengers by passengers using TrueBlue
awards has been minimal to date. However, we expect redemptions
to grow as a result of the program enhancements rolled out in
2009.
Upon launch of the improved version of TrueBlue, members with
points very near award levels were able to convert them into an
award. Points earned under the improved version can also be
converted into the old versions point structure in order
to get to an award level.
We have an agreement with American Express under which it issues
co-branded credit cards allowing cardmembers to earn TrueBlue
points. Every time JetBlue Card or a JetBlue Business Card
holders from American Express earn the equivalent of one
TrueBlue point or purchase and complete travel on JetBlue before
their points expire, all of the points in their TrueBlue account
are extended for another 12 months. We also have an
agreement with American Express allowing its cardholders to
convert their Membership Reward points into TrueBlue points. We
intend to pursue other loyalty partnerships in the future.
Maintenance
We have an FAA-approved maintenance program which is
administered by our technical operations department. Consistent
with our core value of safety, we use qualified maintenance
personnel, ensure they have comprehensive training and maintain
our aircraft and associated maintenance records in accordance
with, and often exceeding, FAA regulations.
The work performed on our fleet is divided into four general
categories of maintenance: aircraft line, aircraft heavy,
component and power plant. The bulk of line maintenance
requirements are handled by JetBlue technicians and inspectors
and consist of daily checks, overnight and weekly checks, A
checks, diagnostics and routine repairs. All other maintenance
activity is
sub-contracted
to qualified business partner maintenance, repair and overhaul
organizations.
Aircraft heavy maintenance checks consist of a series of more
complex tasks that take from one to four weeks to accomplish.
The typical frequency for these events is once every
15 months. We send our aircraft to Aveos facilities in El
Salvador, Pemco in Tampa, Florida and Embraer Aircraft
Maintenance Services in Nashville, Tennessee. In all cases this
work is performed with oversight by JetBlue personnel.
Component and power plant maintenance, repairs and overhauls on
equipment such as engines, auxiliary power units, landing gears,
pumps and avionic computers are performed by a number of
different
FAA-approved
repair stations. For example, maintenance of our V2500 series
engines on our Airbus A320 aircraft is performed under a
15-year
service agreement with MTU Maintenance Hannover GmbH in Germany.
Most of our maintenance service agreements are based on a fixed
cost per flying hour.
7
Aircraft
Fuel
In 2009, continuing a trend that began in 2005, fuel costs were
our largest operating expense. Fuel prices and availability are
subject to wide price fluctuations based on geopolitical factors
and supply and demand that we can neither control nor accurately
predict. We use a third party fuel management service to procure
most of our fuel. Our historical fuel consumption and costs were
as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gallons consumed (millions)
|
|
|
455
|
|
|
|
453
|
|
|
|
444
|
|
Total cost (millions)
|
|
$
|
945
|
|
|
$
|
1,397
|
|
|
$
|
968
|
|
Average price per gallon
|
|
$
|
2.08
|
|
|
$
|
3.08
|
|
|
$
|
2.18
|
|
Percent of operating expenses
|
|
|
31.4
|
%
|
|
|
42.6
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and average price per gallon each include related
fuel taxes as well as effective fuel hedging gains and losses.
In the second quarter of 2009, we resumed fuel hedging after
suspending our hedge activity at the end of 2008. Our goal is to
mitigate our liquidity exposures and provide some protection
against significant increases in fuel prices by entering into a
variety of crude call options, heating oil collar contracts, and
jet fuel swap agreements. At December 31, 2009, we had
hedged approximately 40% of our projected 2010 fuel requirements
and 3% of our projected 2011 fuel requirements. We had no
collateral posted related to margin calls on our outstanding
fuel hedge contracts as of December 31, 2009.
LiveTV,
LLC
LiveTV, LLC, a wholly owned subsidiary of JetBlue, provides
in-flight entertainment, voice communication and data
connectivity services for commercial and general aviation
aircraft. LiveTVs assets include certain tangible
equipment and interests in systems installed on its
customers aircraft, system components and spare parts in
inventory, an
air-to-ground
spectrum license granted by the Federal Communications
Commission, a network of approximately 100 ground stations
across the continental U.S., and rights to certain patents and
intellectual property. LiveTVs major competitors in the
in-flight entertainment systems market include Rockwell Collins,
Thales Avionics and Panasonic Avionics. Only Panasonic is
currently providing in-seat live television. In the voice and
data communication services market, LiveTVs primary
competitors are Aircell, Row 44, Panasonic, OnAir and Aeromobile.
LiveTV has agreements with eleven other domestic and
international commercial airlines for the sale and installation
of certain hardware, programming and maintenance of its live
in-seat satellite television as well as XM Satellite Radio
service and certain other products and services. LiveTV also has
general aviation customers to which it supplies voice and data
communication services. LiveTV continues to pursue additional
customers and related product enhancements.
Government
Regulation
General. We are subject to regulation
by the DOT, the FAA, the Transportation Security Administration,
or TSA, and other governmental agencies. The DOT primarily
regulates economic issues affecting air service such as
certification and fitness, insurance, consumer protection and
competitive practices. The DOT has the authority to investigate
and institute proceedings to enforce its economic regulations
and may assess civil penalties, revoke operating authority and
seek criminal sanctions. In February 2000, the DOT granted us a
certificate of public convenience and necessity authorizing us
to engage in air transportation within the United States,
its territories and possessions.
The FAA primarily regulates flight operations and, in
particular, matters affecting air safety such as airworthiness
requirements for aircraft, the licensing of pilots, mechanics
and dispatchers, and the certification of flight attendants. The
civil aviation security functions of the FAA were transferred to
the TSA under the Aviation and Transportation Security Act. The
FAA requires each airline to obtain an operating certificate
authorizing the airline to operate at specific airports using
specified equipment. We have and maintain FAA
8
certificates of airworthiness for all of our aircraft and have
the necessary FAA authority to fly to all of the cities we
currently serve.
Like all U.S. certified carriers, we cannot fly to new
destinations without the prior authorization of the FAA. The FAA
has the authority to modify, suspend temporarily or revoke
permanently our authority to provide air transportation or that
of our licensed personnel, after providing notice and a hearing,
for failure to comply with FAA regulations. The FAA can assess
civil penalties for such failures or institute proceedings for
the imposition and collection of monetary fines for the
violation of certain FAA regulations. The FAA can revoke our
authority to provide air transportation on an emergency basis,
without providing notice and a hearing, where significant safety
issues are involved. The FAA monitors our compliance with
maintenance, flight operations and safety regulations, maintains
onsite representatives and performs frequent spot inspections of
our aircraft, employees and records.
The FAA also has the authority to issue maintenance directives
and other mandatory orders relating to, among other things,
inspection of aircraft and engines, fire retardant and smoke
detection devices, increased security precautions, collision and
windshear avoidance systems, noise abatement and the mandatory
removal and replacement of aircraft parts that have failed or
may fail in the future.
The TSA operates under the Department of Homeland Security and
is responsible for all civil aviation security, including
passenger and baggage screening, cargo security measures,
airport security, assessment and distribution of intelligence,
and security research and development. The TSA also has law
enforcement powers and the authority to issue regulations,
including in cases of national emergency, without a notice or
comment period.
In December 2009, the DOT issued a rule, which among other
things, requires carriers to not permit domestic flights to
remain on the tarmac for more than three hours. The rule becomes
effective in April 2010. Violators can face fines up to a
maximum of $27,500 per passenger. The new rule also introduces
requirements to disclose on-time performance and delay
statistics for certain flights. This new rule may have adverse
consequences on our business and our results of operations.
We believe that we are operating in material compliance with
DOT, FAA and TSA regulations and hold all necessary operating
and airworthiness authorizations and certificates. Should any of
these authorizations or certificates be modified, suspended or
revoked, our business could be materially adversely affected.
We are also subject to state and local laws and regulations in a
number of states in which we operate.
Airport Access. In January 2007, the
High Density Rule, established by the FAA in 1968 to limit the
number of scheduled flights at JFK from 3:00 p.m. to
7:59 p.m., expired. As a result, like nearly every other
airport, the number of flights at JFK was no longer regulated
and airlines became able to schedule flights without
restrictions. As a result of over-scheduling beyond the
airports hourly capacity, congestion and delays increased
significantly in 2007.
JFK and its neighboring metropolitan area airports have
experienced significant Air Traffic Control, or ATC, related
delays as a result of increasing scheduled and general aviation
services since June 2006. The magnitude of delays not only
deteriorated air travel services in the New York area, but the
entire air traffic system in the United States. Consequently,
the FAA imposed slot restrictions and hourly operational caps at
JFK and Newarks Liberty International Airport with the
goal of reducing system congestion in 2008. Despite this action,
the summer of 2008 was one of the most challenging periods for
disruptive operations in the New York metropolitan area.
The delay level during this time actually surpassed the levels
during the same period of 2007 as ATC implemented daily ground
delay programs at JFK. While JFK delays in 2009 were much more
manageable, the delay reductions were primarily driven by
industry capacity reductions and a mild summer in the New York
area.
In an effort to reduce delays and modernize the airport, the FAA
and the Port Authority of New York and New Jersey, or PANYNJ,
have been undertaking major construction work at JFK. Their
plans include the creation of new taxiways and holding pads,
runway widening and rehabilitation, as well as the installation
of new ground radar, lighting and other navigation equipment.
Most significantly, this project will include the closure and
rehabilitation of the most important runway in our network. The
JFK runway is scheduled to be
9
closed from March 1 through June 30, 2010. While we believe
the results of this project will ultimately help to alleviate
some of the challenges of operating at JFK, our operations may
be adversely impacted during the runway closure. In order to
help mitigate the impact of this closure, the major domestic
carriers operating at JFK have agreed to reduce flights
throughout the closure period.
At LaGuardia Airport, where we maintain a small presence, the
High Density Rule was replaced by the FAA with a temporary rule
continuing the strict limitations on operations during the hours
of 6:00 a.m. to 9:59 p.m. This rule had been scheduled
to expire in late 2007 upon the enactment of a permanent rule
restructuring the rights of carriers to operate at LaGuardia.
This final rule was issued in October 2008, but its
implementation has been partially stayed. Under the current
rule, our operations remain unaffected. Should new rules be
implemented in whole or in part, our ability to maintain a full
schedule at LaGuardia would likely be impacted.
Long Beach (California) Municipal Airport is a slot-controlled
airport as a result of a 1995 court settlement. Under the
settlement, there are a total of 41 daily non-commuter departure
slots and a single slot is required for every commercial
departure. There are no plans to eliminate slot restrictions at
the Long Beach Municipal Airport. In April 2003, the FAA
approved a settlement agreement among the City of Long Beach,
American Airlines, Alaska Airlines and JetBlue with respect to
the allocation of the slots. This settlement provides for a
priority allocation procedure should supplemental slots above
the 41 current slots become available. We have 29 slots
available for use and currently operate 30 weekday
roundtrip flights from Long Beach Municipal Airport to 14
domestic cities.
Environmental. We are subject to
various federal, state and local laws relating to the protection
of the environment, including the discharge or disposal of
materials and chemicals and the regulation of aircraft noise
administered by numerous state and federal agencies.
The Airport Noise and Capacity Act of 1990 recognizes the right
of airport operators with special noise problems to implement
local noise abatement procedures as long as those procedures do
not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. Certain
airports, including San Diego and Long Beach, California,
have established restrictions to limit noise which can include
limits on the number of hourly or daily operations and the time
of such operations. These limitations serve to protect the local
noise-sensitive communities surrounding the airport. Our
scheduled flights at Long Beach and San Diego are in
compliance with the noise curfew limits but when we experience
irregular operations, on occasion, we violate these curfews. We
have agreed to a payment structure with the Long Beach City
Prosecutor for any violations which we pay quarterly to the Long
Beach Public Library Foundation and are based on the number of
infractions in the preceding quarter. This local ordinance has
not had, and we believe that it will not have, a negative effect
on our operations.
We have launched a Jetting to Green program on
www.jetblue.com, which we use to educate our customers and
crewmembers about environmental issues and to inform the public
about our green initiatives. We have also published
a corporate sustainability report, which addresses our
environmental programs, including those aimed at curbing
greenhouse gas emissions, our conservation efforts and our
social responsibility initiatives.
In December 2009, we signed comprehensive memorandums of
understanding, along with 14 other airlines, with two different
producers for a future supply of alternative aviation fuel,
which would be more environmentally friendly than jet fuel
currently being used. One producer, AltAir Fuels, plans for the
production of approximately 75 million gallons per year of
jet fuel and diesel fuel derived from camelina oils or
comparable feedstock. The other producer, Rentech, plans for the
production of approximately 250 million gallons per year of
synthetic jet fuel derived principally from coal or petroleum
coke.
Foreign Operations. International air
transportation is subject to extensive government regulation.
The availability of international routes to U.S. carriers
is regulated by treaties and related agreements between the
United States and foreign governments. We currently operate
international service to The Bahamas, the Dominican Republic,
Bermuda, Aruba, the Netherlands Antilles, Mexico, Colombia,
Costa Rica, Jamaica, Barbados, and Saint Lucia. To the extent we
seek to provide air transportation to additional international
10
markets in the future, we will be required to obtain necessary
authority from the DOT and the applicable foreign government.
Foreign Ownership. Under federal law
and the DOT regulations, we must be controlled by
United States citizens. In this regard, our president and
at least two-thirds of our board of directors must be United
States citizens and not more than 24.99% of our outstanding
common stock may be voted by
non-U.S. citizens.
We believe that we are currently in compliance with these
ownership provisions.
Other Regulations. All air carriers are
also subject to certain provisions of the Communications Act of
1934 because of their extensive use of radio and other
communication facilities, and are required to obtain an
aeronautical radio license from the FCC. To the extent we are
subject to FCC requirements, we will take all necessary steps to
comply with those requirements. Our labor relations are covered
under Title II of the Railway Labor Act of 1926 and are
subject to the jurisdiction of the National Mediation Board. In
addition, during periods of fuel scarcity, access to aircraft
fuel may be subject to federal allocation regulations. We are
also subject to state and local laws and regulations at
locations where we operate and the regulations of various local
authorities that operate the airports we serve.
Civil Reserve Air Fleet. We are a
participant in the Civil Reserve Air Fleet Program, which
permits the United States Department of Defense to utilize our
aircraft during national emergencies when the need for military
airlift exceeds the capability of military aircraft. By
participating in this program, we are eligible to bid on and be
awarded peacetime airlift contracts with the military.
Risks
Related to JetBlue
We operate in an extremely competitive industry.
The domestic airline industry is characterized by low profit
margins, high fixed costs and significant price competition. We
currently compete with other airlines on all of our routes. Many
of our competitors are larger and have greater financial
resources and name recognition than we do. Following our entry
into new markets or expansion of existing markets, some of our
competitors have chosen to add service or engage in extensive
price competition. Unanticipated shortfalls in expected revenues
as a result of price competition or in the number of passengers
carried would negatively impact our financial results and harm
our business. The extremely competitive nature of the airline
industry could prevent us from attaining the level of passenger
traffic or maintaining the level of fares required to maintain
profitable operations in new and existing markets and could
impede our growth strategy, which would harm our business.
Additionally, if a traditional network airline were to fully
develop a low cost structure, or if we were to experience
increased competition from low cost carriers, our business could
be materially adversely affected.
Our business is highly dependent on the price and
availability of fuel.
Our results of operations are heavily impacted by the price and
availability of fuel. Fuel costs, which increased significantly
in 2007 and 2008, comprise a substantial portion of our total
operating expenses and are our single largest operating expense.
Historically, fuel costs have been subject to wide price
fluctuations based on geopolitical factors and supply and
demand. The availability of fuel is not only dependent on crude
oil but also on refining capacity. When even a small amount of
the domestic or global oil refining capacity becomes
unavailable, supply shortages can result for extended periods of
time. The availability of fuel is also affected by demand for
home heating oil, gasoline and other petroleum products, as well
as crude oil reserves, dependence on foreign imports of crude
oil and potential hostilities in oil producing areas of the
world. Because of the effects of these factors on the price and
availability of fuel, the cost and future availability of fuel
cannot be predicted with any degree of certainty.
Our aircraft fuel purchase agreements do not protect us against
price increases or guarantee the availability of fuel.
Additionally, some of our competitors may have more leverage
than we do in obtaining fuel. We have and may continue to enter
into a variety of option contracts and swap agreements for crude
oil, heating oil, and jet fuel to partially protect against
significant increases in fuel prices; however, such contracts
and agreements do not completely protect us against price
volatility, are limited in volume and duration, and
11
can be less effective during volatile market conditions and may
carry counterparty risk. Under the fuel hedge contracts we may
enter from time to time, counterparties to those contracts may
require us to fund the margin associated with any loss position
on the contracts if the price of crude oils falls below
specified benchmarks. Meeting our obligations to fund these
margin calls could adversely affect our liquidity.
Due to the competitive nature of the domestic airline industry,
at times we have not been able to adequately increase our fares
to offset the increases in fuel prices nor may we be able to do
so in the future. Future fuel price increases, continued high
fuel price volatility or fuel supply shortages may result in a
curtailment of scheduled services and could have a material
adverse effect on our financial condition and results of
operations.
We have a significant amount of fixed obligations and we
will incur significantly more fixed obligations, which could
harm our ability to service our current or future fixed
obligations.
As of December 31, 2009, our debt of $3.30 billion
accounted for 68% of our total capitalization. In addition to
long-term debt, we have a significant amount of other fixed
obligations under leases related to our aircraft, airport
terminal space, other airport facilities and office space. As of
December 31, 2009, future minimum payments under
noncancelable leases and other financing obligations were
approximately $1.04 billion for 2010 through 2014 and an
aggregate of $1.73 billion for the years thereafter. We
have also constructed, and in October 2008 began operating, a
new terminal at JFK under a
30-year
lease with the PANYNJ. The minimum payments under this lease are
being accounted for as a financing obligation and have been
included in the totals above.
As of December 31, 2009, we had commitments of
approximately $4.50 billion to purchase 115 additional
aircraft and other flight equipment through 2018, including
estimated amounts for contractual price escalations. We will
incur additional debt and other fixed obligations as we take
delivery of new aircraft and other equipment and continue to
expand into new markets. As a result of the continued economic
downturn, in an effort to limit the incurrence of significant
additional debt, we may seek to defer some of our scheduled
deliveries, or sell or lease aircraft to others, to the extent
necessary or possible. The amount of our existing debt, and
other fixed obligations, and potential increases in the amount
of our debt and other fixed obligations could have important
consequences to investors and could require a substantial
portion of cash flows from operations for debt service payments,
thereby reducing the availability of our cash flow to fund
working capital, capital expenditures and other general
corporate purposes.
Our high level of debt and other fixed obligations could:
|
|
|
|
|
impact our ability to obtain additional financing to support
capital expansion plans and for working capital and other
purposes on acceptable terms or at all;
|
|
|
|
divert substantial cash flow from our operations and expansion
plans in order to service our fixed obligations;
|
|
|
|
require us to incur significantly more interest or rent expense
than we currently do, since a large portion of our debt has
floating interest rates and five of our aircraft leases have
variable-rate rent; and
|
|
|
|
place us at a possible competitive disadvantage compared to less
leveraged competitors and competitors that have better access to
capital resources.
|
Our ability to make scheduled payments on our debt and other
fixed obligations will depend on our future operating
performance and cash flows, which in turn will depend on
prevailing economic and political conditions and financial,
competitive, regulatory, business and other factors, many of
which are beyond our control. We are principally dependent upon
our operating cash flows and access to the capital markets to
fund our operations and to make scheduled payments on debt and
other fixed obligations. We cannot assure you that we will be
able to generate sufficient cash flows from our operations or
from capital market activities to pay our debt and other fixed
obligations as they become due; if we fail to do so our business
could be harmed. If we are unable to make payments on our debt
and other fixed obligations, we could be forced to renegotiate
those obligations or seek to obtain additional equity or other
forms of additional financing.
12
Our substantial indebtedness and limited number of shares
of common stock currently available for issuance may limit our
ability to incur additional debt or issue additional equity to
obtain future financing needs.
We typically finance our aircraft through either secured debt or
lease financing. The impact on financial institutions from the
current global credit and liquidity crisis may adversely affect
the availability and cost of credit to JetBlue as well as to
prospective purchasers of our aircraft that we undertake to sell
in the future, including financing commitments that we have
already obtained for purchases of new aircraft. To the extent we
finance our activities with additional debt, we may become
subject to financial and other covenants that may restrict our
ability to pursue our growth strategy or otherwise constrain our
operations. While we intend to seek approval from our
shareholders to increase the number of shares of our common
stock available for issuance, we are currently limited in our
ability to obtain additional equity as a result of the limited
of shares of common stock currently available for issuance.
Furthermore, if we are unable to increase our authorized common
stock, our ability to satisfy our significant financing needs or
meet our obligations may be affected.
If we fail to successfully implement our modified growth
strategy, our business could be harmed.
We have grown, and expect to continue to grow our business
whenever practicable, by increasing the frequency of flights to
markets we currently serve, expanding the number of markets we
serve and increasing flight connection opportunities. In 2006,
primarily due to higher fuel prices, the competitive pricing
environment and other cost increases, we began modifying our
growth plans by deferring some of our scheduled deliveries of
new aircraft, selling some used aircraft, terminating our leases
for some of our aircraft, and leasing aircraft to other
operators. A continuation of the economic downturn may cause us
to further reduce our future growth plans from previously
announced levels.
To the extent we continue to grow our business, opening new
markets requires us to commit a substantial amount of resources
even before the new services commence. Expansion is also
dependent upon our ability to maintain a safe and secure
operation and requires additional personnel, equipment and
facilities. An inability to hire and retain personnel, timely
secure the required equipment and facilities in a cost-effective
manner, efficiently operate our expanded facilities, or obtain
the necessary regulatory approvals may adversely affect our
ability to achieve our growth strategy, which could harm our
business. In addition, our competitors often add service, reduce
their fares
and/or offer
special promotions following our entry into a new market. We
cannot assure you that we will be able to profitably expand our
existing markets or establish new markets or be able to
adequately temper our growth in a cost effective manner through
additional deferrals or selling or leasing aircraft; if we fail
to do so, our business could be harmed.
There are risks associated with our presence in some of
our international emerging markets, including political or
economic instability and failure to adequately comply with
existing legal requirements.
Expansion to new international emerging markets may have risks
due to factors specific to those markets. Emerging markets are
countries which have less developed economies that are
vulnerable to economic and political problems, such as
significant fluctuations in gross domestic product, interest and
currency exchange rates, civil disturbances, government
instability, nationalization and expropriation of private assets
and the imposition of taxes or other charges by governments. The
occurrence of any of these events in markets served by us and
the resulting instability may adversely affect our business.
We have recently expanded our service to countries in the
Caribbean and Latin America, some of which have less developed
legal systems, financial markets, and business and political
environments than the United States, and therefore present
greater political, economic and operational risks. We emphasize
legal compliance and have implemented policies, procedures and
certain ongoing training of employees with regard to business
ethics and many key legal requirements; however, there can be no
assurance that our employees will adhere to our code of business
ethics, other Company policies, or other legal requirements. If
we fail to enforce our policies and procedures properly or
maintain adequate record-keeping and internal accounting
practices to accurately record our transactions, we may be
subject to sanctions. In the event that we believe or have
reason to believe that employees have or may have violated
applicable laws or regulations, we may be subject to
investigation costs, potential penalties and other related costs
which in turn could negatively affect our results of operations
and cash flow.
13
Our LiveTV subsidiarys business may subject us to
risks through their commitments.
LiveTV has agreements to provide in-flight entertainment
products and services with eleven other airlines. At
December 31, 2009, LiveTV services were available on 416
aircraft under these agreements, with firm commitments for 354
additional aircraft through 2013, with options for 167
additional installations through 2018. Performance under these
agreements requires that LiveTV hire, train and retain qualified
employees, obtain component parts unique to its systems and
services from their suppliers and secure facilities necessary to
perform installations and maintenance on those systems. Should
LiveTV be unable to satisfy its commitments under these third
party contracts, our business could be harmed.
We may be subject to unionization, work stoppages,
slowdowns or increased labor costs; potential changes to the
labor laws may make unionization easier to achieve.
Our business is labor intensive and, unlike most airlines, we
have a non-union workforce. The unionization of any our
employees could result in demands that may increase our
operating expenses and adversely affect our financial condition
and results of operations. Any of the different crafts or
classes of our employees could unionize at any time, which would
require us to negotiate in good faith with the employee
groups certified representative concerning a collective
bargaining agreement. Further, the National Mediation Board has
proposed changes to its election procedures that would permit a
majority of those voting to elect to unionize (from a majority
of those in the craft or class). These proposed rule changes
fundamentally differ from the manner in which labor groups have
been able to organize in our industry since the inception of the
Railway Labor Act. Ultimately, if we and the newly elected
representative were unable to reach agreement on the terms of a
collective bargaining agreement and all of the major dispute
resolution processes of the Railway Labor Act were exhausted, we
could be subject to work slowdowns or stoppages. In addition, we
may be subject to disruptions by organized labor groups
protesting our non-union status. Any of these events would be
disruptive to our operations and could harm our business.
We rely on maintaining a high daily aircraft utilization
rate to keep our costs low, which makes us especially vulnerable
to delays.
We maintain a high daily aircraft utilization rate (the amount
of time that our aircraft spend in the air carrying passengers).
High daily aircraft utilization allows us to generate more
revenue from our aircraft and is achieved in part by reducing
turnaround times at airports so we can fly more hours on average
in a day. Aircraft utilization is reduced by delays and
cancellations from various factors, many of which are beyond our
control, including adverse weather conditions, security
requirements, air traffic congestion and unscheduled
maintenance. The majority of our operations are concentrated in
the Northeast and Florida, which are particularly vulnerable to
weather and congestion delays. Reduced aircraft utilization may
limit our ability to achieve and maintain profitability as well
as lead to customer dissatisfaction.
Our business is highly dependent on the New York
metropolitan market and increases in competition or congestion
or a reduction in demand for air travel in this market, or
governmental reduction of our operating capacity at JFK, would
harm our business.
We are highly dependent on the New York metropolitan market
where we maintain a large presence with approximately 60% of our
daily flights having JFK, LaGuardia, Newark, Westchester County
Airport or Newburghs Stewart International Airport as
either their origin or destination. We have experienced an
increase in flight delays and cancellations at JFK due to
airport congestion which has adversely affected our operating
performance and results of operations. Our business could be
further harmed by an increase in the amount of direct
competition we face in the New York metropolitan market or by
continued or increased congestion, delays or cancellations. Our
business would also be harmed by any circumstances causing a
reduction in demand for air transportation in the New York
metropolitan area, such as adverse changes in local economic
conditions, negative public perception of New York City,
terrorist attacks or significant price increases linked to
increases in airport access costs and fees imposed on passengers.
In an effort to reduce delays and modernize the airport, the FAA
and the Port Authority of New York and New Jersey, or PANYNJ,
have commenced major construction work at JFK. Their plans
include the creation of new taxiways and holding pads, runway
widening and rehabilitation, as well as the installation of new
ground radar, lighting and other navigation equipment. Most
significantly, the project includes two major
14
runway closures, one of which occurred in April 2009 and the
other is scheduled for March through June 2010. While we believe
the results of this project will ultimately help to alleviate
some of the challenges of operating at JFK, our operations may
be adversely impacted during these runway closures.
We rely heavily on automated systems to operate our
business; any failure of these systems could harm our
business.
We are dependent on automated systems and technology to operate
our business, enhance customer service and achieve low operating
costs. The performance and reliability of our automated systems
is critical to our ability to operate our business and compete
effectively. These systems include our computerized airline
reservation system, flight operations system, telecommunications
systems, website, maintenance systems, check-in kiosks and
in-flight entertainment systems. Our website and reservation
system must be able to accommodate a high volume of traffic and
deliver important flight information. These systems require
upgrades or replacement periodically, which involve
implementation and other operational risks, and our business may
be harmed if we fail to replace or upgrade systems successfully.
We are currently transitioning to a new customer service system,
which includes a reservations system, revenue management system,
revenue accounting system, customer loyalty management system
and website, which we implemented in late January 2010. While
the initial launch of these systems has been successful, we may
experience higher levels of customer disruptions as we begin to
operate during more peak travel periods. It is not uncommon for
an integrated systems implementation of this magnitude to affect
service levels for weeks or even months following the initial
implementation; as such our business may be harmed.
Additionally, system deficiencies or shortcomings may be
discovered when we utilize these systems to perform our
financial and accounting close processes for the first time.
We rely on the providers of our current automated systems for
technical support, even in the event we select new systems and
service providers to meet our future needs. If the current
provider were to fail to adequately provide technical support
for any one of our key existing systems, we could experience
service disruptions, which, if they were to occur, could result
in the loss of important data, increase our expenses, decrease
our revenues and generally harm our business and reputation.
Furthermore, our automated systems cannot be completely
protected against events that are beyond our control, including
natural disasters, computer viruses or telecommunications
failures. Substantial or sustained system failures could impact
customer service and result in our customers purchasing tickets
from other airlines. We have implemented security measures and
change control procedures and have disaster recovery plans;
however, we cannot assure you that these measures are adequate
to prevent disruptions, which, if they were to occur, could
result in the loss of important data, increase our expenses,
decrease our revenues and generally harm our business and
reputation.
Our liquidity could be adversely impacted in the event one
or more of our credit card processors were to impose material
reserve requirements for payments due to us from credit card
transactions.
We currently have agreements with organizations that process
credit card transactions arising from purchases of air travel
tickets by our customers. Credit card processors have financial
risk associated with tickets purchased for travel which can
occur several weeks after the purchase. Our credit card
processing agreements provide for reserves to be deposited with
the processor in certain circumstances. We do not currently have
reserves posted for our credit card processors. If circumstances
were to occur that would require us to deposit reserves, the
negative impact on our liquidity could be significant which
could materially adversely affect our business.
Our maintenance costs will increase as our fleet
ages.
Because the average age of our aircraft is 4.3 years, our
aircraft require less maintenance now than they will in the
future. We have incurred lower maintenance expenses because most
of the parts on our aircraft are under multi-year warranties.
Our maintenance costs will increase significantly, both on an
absolute basis and as a percentage of our operating expenses, as
our fleet ages and these warranties expire.
If we are unable to attract and retain qualified personnel
or fail to maintain our company culture, our business could be
harmed.
15
We compete against the other major U.S. airlines for
pilots, mechanics and other skilled labor; some of them offer
wage and benefit packages that exceed ours. We may be required
to increase wages
and/or
benefits in order to attract and retain qualified personnel or
risk considerable employee turnover. If we are unable to hire,
train and retain qualified employees, our business could be
harmed and we may be unable to implement our growth plans.
In addition, as we hire more people and grow, we believe it may
be increasingly challenging to continue to hire people who will
maintain our company culture. If we decide to relocate our
corporate offices to a different state, we may face a situation
in which a number of employees choose not to relocate. In that
instance, we may be faced with the necessity to hire a number of
employees in a relatively short time period and our company
culture may suffer as a result. One of our competitive strengths
is our service-oriented company culture that emphasizes
friendly, helpful, team-oriented and customer-focused employees.
Our company culture is important to providing high quality
customer service and having a productive workforce that helps
keep our costs low. As we continue to grow, we may be unable to
identify, hire or retain enough people who meet the above
criteria, including those in management or other key positions.
Our company culture could otherwise be adversely affected by our
growing operations and geographic diversity. If we fail to
maintain the strength of our company culture, our competitive
ability and our business may be harmed.
Our results of operations will fluctuate.
We expect our quarterly operating results to fluctuate due to
seasonality including high vacation and leisure demand occurring
on the Florida routes between October and April and on our
western routes during the summer. Actions of our competitors may
also contribute to fluctuations in our results. We are more
susceptible to adverse weather conditions, including snow storms
and hurricanes, as a result of our operations being concentrated
on the East Coast, than some of our competitors. As we enter new
markets we could be subject to additional seasonal variations
along with any competitive responses to our entry by other
airlines. Price changes in aircraft fuel as well as the timing
and amount of maintenance and advertising expenditures also
impact our operations. As a result of these factors,
quarter-to-quarter
comparisons of our operating results may not be a good indicator
of our future performance. In addition, it is possible that in
any future period our operating results could be below the
expectations of investors and any published reports or analyses
regarding JetBlue. In that event, the price of our common stock
could decline, perhaps substantially.
We are subject to the risks of having a limited number of
suppliers for our aircraft, engines and a key component of our
in-flight entertainment system.
Our current dependence on two types of aircraft and engines for
all of our flights makes us vulnerable to significant problems
associated with the Airbus A320 aircraft or the IAE
International Aero Engines
V2527-A5
engine and the EMBRAER 190 aircraft or the General Electric
Engines CF-34-10 engine, including design defects, mechanical
problems, contractual performance by the manufacturers, or
adverse perception by the public that would result in customer
avoidance or in actions by the FAA resulting in an inability to
operate our aircraft. Carriers that operate a more diversified
fleet are better positioned than we are to manage such events.
One of the unique features of our fleet is that every seat in
each of our aircraft is equipped with free in-flight
entertainment including
DirecTV®.
An integral component of the system is the antenna, which is
supplied to us by KVH Industries Inc, or KVH. If KVH were to
stop supplying us with its antennas for any reason, we would
have to incur significant costs to procure an alternate supplier.
Our reputation and financial results could be harmed in
the event of an accident or incident involving our
aircraft.
An accident or incident involving one of our aircraft, or an
aircraft containing LiveTV equipment, could involve significant
potential claims of injured passengers or others in addition to
repair or replacement of a damaged aircraft and its
consequential temporary or permanent loss from service. We are
required by the DOT to carry liability insurance. Although we
believe we currently maintain liability insurance in amounts and
of the type generally consistent with industry practice, the
amount of such coverage may not be adequate and we may be forced
to bear substantial losses from an accident. Substantial claims
resulting from an accident in excess of our related insurance
coverage would harm our business and financial results.
Moreover, any aircraft
16
accident or incident, even if fully insured, could cause a
public perception that we are less safe or reliable than other
airlines which would harm our business.
An ownership change could limit our ability to utilize our
net operation loss carryforwards.
As of December 31, 2009, we had approximately
$553 million of estimated federal net operating loss
carryforwards for U.S. income tax purposes that begin to
expire in 2023. Section 382 of the Internal Revenue Code
imposes limitation on a corporations ability to use its
net operating loss carryforwards if it experiences an
ownership change. In the event an ownership
change were to occur in the future, our ability to utilize
our net operating losses could be limited.
Our business depends on our strong reputation and the
value of the JetBlue brand.
The JetBlue brand name symbolizes high-quality friendly customer
service, innovation, fun, and a pleasant travel experience.
JetBlue is a widely recognized and respected global brand; the
JetBlue brand is one of our most important and valuable assets.
The JetBlue brand name and our corporate reputation are powerful
sales and marketing tools and we devote significant resources to
promoting and protecting them. Adverse publicity (whether or not
justified) relating to activities by our employees, contractors
or agents could tarnish our reputation and reduce the value of
our brand. Damage to our reputation and loss of brand equity
could reduce demand for our services and thus have an adverse
effect on our financial condition, liquidity and results of
operations, as well as require additional resources to rebuild
our reputation and restore the value of our brand.
Risks
Associated with the Airline Industry
The airline industry is particularly sensitive to changes
in economic condition.
Fundamental and permanent changes in the domestic airline
industry began several years ago following five consecutive
years of losses being reported through 2005. These losses
resulted in airlines renegotiating or attempting to renegotiate
labor contracts, reconfiguring flight schedules, furloughing or
terminating employees, as well as considering other efficiency
and cost-cutting measures. Despite these actions, several
airlines have reorganized under Chapter 11 of the
U.S. Bankruptcy Code to permit them to reduce labor rates,
restructure debt, terminate pension plans and generally reduce
their cost structure. Since 2005, the U.S. airline industry
has experienced significant consolidation and liquidations. The
global economic recession and related unfavorable general
economic conditions, such as higher unemployment rates, a
constrained credit market, housing-related pressures, and
increased business operating costs can reduce spending for both
leisure and business travel. Unfavorable economic conditions
could also impact an airlines ability to raise fares to
counteract increased fuel, labor, and other costs. It is
foreseeable that further airline reorganizations, consolidation,
bankruptcies or liquidations may occur in the current global
recessionary environment, the effects of which we are unable to
predict. We cannot assure you that the occurrence of these
events, or potential changes resulting from these events, will
not harm our business or the industry.
A future act of terrorism, the threat of such acts or
escalation of U.S. military involvement overseas could
adversely affect our industry.
Acts of terrorism, the threat of such acts or escalation of
U.S. military involvement overseas could have an adverse
effect on the airline industry. In the event of a terrorist
attack, whether or not successful, the industry would likely
experience increased security requirements and significantly
reduced demand. We cannot assure you that these actions, or
consequences resulting from these actions, will not harm our
business or the industry.
Changes in government regulations imposing additional
requirements and restrictions on our operations or the
U.S. Government ceasing to provide adequate war risk
insurance could increase our operating costs and result in
service delays and disruptions.
Airlines are subject to extensive regulatory and legal
requirements, both domestically and internationally, that
involve significant compliance costs. In the last several years,
Congress has passed laws, and the DOT, FAA and the TSA have
issued regulations relating to the operation of airlines that
have required significant expenditures. We expect to continue to
incur expenses in connection with complying with government
17
regulations. Additional laws, regulations, taxes and airport
rates and charges have been proposed from time to time that
could significantly increase the cost of airline operations or
reduce the demand for air travel. If adopted, these measures
could have the effect of raising ticket prices, reducing air
travel demand
and/or
revenue and increasing costs. The FAA is currently drafting new
requirements, and depending on whether the final rules
incorporate significant changes to crew rest requirements, our
cost structure could be adversely affected. We cannot assure you
that these and other laws or regulations enacted in the future
will not harm our business.
The U.S. Government currently provides insurance coverage
for certain claims resulting from acts of terrorism, war or
similar events. Should this coverage no longer be offered, the
coverage that would be available to us through commercial
aviation insurers may have substantially less desirable terms,
result in higher costs and not be adequate to protect our risk,
any of which could harm our business.
Compliance with future environmental regulations may harm
our business.
Many aspects of airlines operations are subject to
increasingly stringent environmental regulations, and growing
concerns about climate change may result in the imposition of
additional regulation. There is growing consensus that some form
of federal regulation will be forthcoming with respect to
greenhouse gas emissions (including carbon dioxide (CO2))
and/or
cap and trade legislation, compliance with which
could result in the creation of substantial additional costs to
us. The U.S. Congress is considering climate change
legislation and the Environmental Protection Agency issued a
rule which regulates larger emitters of greenhouse gases. Since
the domestic airline industry is increasingly price sensitive,
we may not be able to recover the cost of compliance with new or
more stringent environmental laws and regulations from our
passengers, which could adversely affect our business. Although
it is not expected that the costs of complying with current
environmental regulations will have a material adverse effect on
our financial position, results of operations or cash flows, no
assurance can be made that the costs of complying with
environmental regulations in the future will not have such an
effect. The impact to us and our industry from such actions is
likely to be adverse and could be significant, particularly if
regulators were to conclude that emissions from commercial
aircraft cause significant harm to the upper atmosphere or have
a greater impact on climate change than other industries.
Compliance with recently adopted DOT passenger protections
rules will increase our costs and may ultimately negatively
impact our operations.
In December 2009, the DOT adopted a series of passenger
protection rules that we believe may have a significant effect
on our business and operations and which are scheduled to take
effect at the end of April, 2010. These rules provide, among
other things, that airlines return aircraft to the gate for
deplaning following tarmac delays in certain circumstances. A
significant portion of our operations are focused in the
northeast. Given the poor operating performance of the air
traffic control system in the northeast during certain weather
conditions, particularly during the summer season, this rule may
produce results more harmful to customers than intended. The
implementation of these rules may negatively impact our
operations and our business.
We could be adversely affected by an outbreak of a disease
that affects travel behavior.
In the second quarter of 2009, there was an outbreak of the H1N1
virus which had an adverse impact throughout our network,
including on our operations to and from Mexico. Any outbreak of
a disease (including a worsening of the outbreak of the H1N1
virus) that affects travel behavior could have a material
adverse impact on us. In addition, outbreaks of disease could
result in quarantines of our personnel or an inability to access
facilities or our aircraft, which could adversely affect our
operations.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
18
Aircraft
As of December 31, 2009, we operated a fleet consisting of
110 Airbus A320 aircraft each powered by two IAE International
Aero Engines V2527-A5 engines and 41 EMBRAER 190 aircraft each
powered by two General Electric Engines CF-34-10 engines, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
Average Age
|
|
Aircraft
|
|
Capacity
|
|
|
Owned
|
|
|
Leased
|
|
|
Leased
|
|
|
Total
|
|
|
in Years
|
|
|
Airbus A320
|
|
|
150
|
|
|
|
82
|
|
|
|
4
|
|
|
|
24
|
|
|
|
110
|
|
|
|
4.9
|
|
EMBRAER 190
|
|
|
100
|
|
|
|
10
|
|
|
|
|
|
|
|
31
|
|
|
|
41
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
92
|
|
|
|
4
|
|
|
|
55
|
|
|
|
151
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our aircraft leases have an average remaining lease term of
approximately 11.8 years at December 31, 2009. The
earliest of these terms ends in 2011 and the latest ends in
2026. We have the option to extend most of these leases for
additional periods or to purchase aircraft at the end of the
related lease term. All but one of our 92 owned aircraft and all
but two of our 25 owned spare engines are subject to secured
debt financing. We also own two EMBRAER 190 aircraft that are
currently being leased to another air carrier and are not
included in the table above.
In February 2009, we amended our EMBRAER purchase agreement,
canceling the exercise of two options originally scheduled for
delivery in 2015. Additionally, in March 2009, we deferred
delivery of three aircraft originally scheduled for delivery in
2010 to 2012. In December 2009, we further amended our EMBRAER
purchase agreement, rescheduling firm aircraft deliveries
originally scheduled for delivery between 2011 through 2016 to
2010 through 2018, and options originally scheduled from 2011
through 2015 to 2011 through 2018.
In July 2009, we amended our Airbus purchase agreement,
deferring delivery of three aircraft previously scheduled for
delivery in 2010 to 2011 and canceling the exercise of six
options to purchase aircraft at a future date. In
February 2010, we amended our Airbus A320 purchase
agreement by deferring delivery of six aircraft previously
scheduled for delivery in 2011 and 2012 to 2015 in addition to
canceling seven purchase options.
Additionally, in July 2009, we extended the lease on two of our
aircraft, one of which had been set to expire in December 2009
and the other in March 2010.
As of December 31, 2009, including the effects of the
various 2009 amendments and the 2010 Airbus A320 amendment, we
had on order 115 aircraft, which are scheduled for delivery
through 2018, with options to acquire 82 aircraft. We have the
right to cancel five firm EMBRAER 190 deliveries in 2012 or
later, provided no more than two deliveries are canceled in any
one year. Our aircraft delivery schedule is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
Option
|
|
|
|
Airbus
|
|
|
EMBRAER
|
|
|
|
|
|
Airbus
|
|
|
EMBRAER
|
|
|
|
|
Year
|
|
A320
|
|
|
190
|
|
|
Total
|
|
|
A320
|
|
|
190
|
|
|
Total
|
|
|
2010
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
4
|
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
2012
|
|
|
11
|
|
|
|
6
|
|
|
|
17
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2013
|
|
|
13
|
|
|
|
7
|
|
|
|
20
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2014
|
|
|
12
|
|
|
|
7
|
|
|
|
19
|
|
|
|
4
|
|
|
|
10
|
|
|
|
14
|
|
2015
|
|
|
15
|
|
|
|
7
|
|
|
|
22
|
|
|
|
4
|
|
|
|
10
|
|
|
|
14
|
|
2016
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2017
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2018
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
60
|
|
|
|
115
|
|
|
|
8
|
|
|
|
74
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Facilities
We occupy all of our facilities at each of the airports we serve
under leases or other occupancy agreements. Our agreements for
terminal passenger service facilities, which include ticket
counter and gate space, operations support area and baggage
service offices, generally have terms ranging from less than one
year to five years, and contain provisions for periodic
adjustments of rental rates, landing fees and other charges
applicable under the type of lease. We also are responsible for
maintenance, insurance, utilities and certain other
facility-related expenses and services. We have entered into use
arrangements at each of the airports we serve that provide for
the non-exclusive use of runways, taxiways and other airport
facilities. Landing fees under these agreements are typically
based on the number of landings and the weight of the aircraft.
In November 2005, we executed a lease agreement with the PANYNJ
for the construction and operation of Terminal 5 which became
our principal base of operations at JFK when we began to operate
from it in October 2008. The lease term ends on October 22,
2038, the thirtieth anniversary of the date of our beneficial
occupancy of the new terminal, and we have a one-time early
termination option five years prior to the end of the scheduled
lease term.
As of December 31, 2009, our West Coast operations were
based at Long Beach Municipal Airport which serves the Los
Angeles area. Our operations at Bostons Logan
International Airport were based at Terminal C where we operated
11 gates and 28 ticket counter positions. Our operations at
Washingtons Dulles International Airport were based at
Terminal B where we operated four gates and ten ticket counter
positions.
We lease a 70,000 square foot aircraft maintenance hangar
and an adjacent 32,000 square foot office and warehouse
facility at JFK to accommodate our technical support operations
and passenger provisioning personnel. The ground lease for this
site expires in 2030. In addition, we occupy a building at JFK
where we store aircraft spare parts and perform ground equipment
maintenance.
We also lease a flight training center at Orlando International
Airport which encompasses 80,000 square feet and is
equipped with six full flight simulators, two cabin trainers, a
training pool, classrooms and support areas. This facility,
which is capable of housing eight full flight simulators, is
being used for the initial and recurrent training of our pilots
and in-flight crew, as well as support training for our
technical operations and airport crew. In addition, we lease a
70,000 square foot hangar at Orlando International Airport
which is used by Live TV for the installation and maintenance of
in-flight satellite television systems and aircraft maintenance.
The ground leases for our Orlando facilities expire in 2035.
Our primary corporate offices are located in Forest Hills, New
York, where we occupy space under a lease that expires in 2012,
and our finance department is based in Darien, Connecticut,
where we occupy space under a lease that expires in 2011. Our
office in Salt Lake City, Utah, where we occupy space under a
lease that expires in 2014, contains a core team of employees
who are responsible for group sales, customer service, at-home
reservation agent supervision, disbursements and certain other
finance functions. In addition to the above, a portion of our
information technology function is based in Garden City, New
York, where we occupy space under a lease that expires in 2015.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In the ordinary course of our business, we are party to various
legal proceedings and claims which we believe are incidental to
the operation of our business. We believe that the ultimate
outcome of these proceedings to which we are currently a party
will not have a material adverse effect on our business,
financial position, results of operations or cash flows.
20
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the fourth quarter of 2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Certain information concerning JetBlues executive officers
as of the date of this report follows. There are no family
relationships between any of our executive officers.
David Barger, age 51, is our President and Chief
Executive Officer. He has served in the capacity of Chief
Executive Officer since May 2007 and in the capacity of
President since June 2009. He is also a member of our Board of
Directors. He previously served as our President from August
1998 to September 2007 and Chief Operating Officer from August
1998 to March 2007. From 1992 to 1998, Mr. Barger served in
various management positions with Continental Airlines,
including Vice President, Newark hub. He held various director
level positions at Continental Airlines from 1988 to 1995. From
1982 to 1988, Mr. Barger served in various positions with
New York Air, including Director of Stations.
Edward Barnes, age 45, is our Executive Vice
President and Chief Financial Officer, a position he has held
since November 2007. Mr. Barnes joined us in October 2006
as Vice President, Cost Management and Financial Analysis, and
more recently served as Vice President, Finance. His prior
experience includes serving as Vice President, Controller of JDA
Software from April 2005 through September 2006; Senior Vice
President, Chief Financial Officer at Assisted Living Concepts
from December 2003 to March 2005; and Vice President, Controller
at Pegasus Solutions from June 2000 to December 2003.
Previously, he served in various positions of increasing
responsibility at Southwest Airlines Co. and America West
Airlines, Inc., with his final position at America West as Vice
President, Controller of The Leisure Company, their vacation
packaging subsidiary. He is a Certified Public Accountant and a
member of the AICPA.
Rob Maruster, age 38, is our Executive Vice
President and Chief Operating Officer and has served in this
capacity since June 2009. Mr. Maruster joined JetBlue in
2005 as Vice President, Operations Planning, after a
12-year
career with Delta Air Lines in a variety of increasingly
responsible leadership positions in the carriers Marketing
and Customer Service departments, culminating in being
responsible for all operations at Deltas largest hub in
Atlanta as Vice President, Airport Customer Service at
Hartsfield-Jackson Atlanta International Airport. In 2006,
Mr. Maruster was promoted to Senior Vice President,
Airports and Operational Planning and in 2008,
Mr. Marusters responsibilities expanded to include
the Customer Services group which included Airports, Inflight
Services, Reservations, and System Operations.
Robin Hayes, age 43, is our Executive Vice President
and Chief Commercial Officer. He joined JetBlue in August 2008
after nineteen years at British Airways. In his last role at
British Airways, Mr. Hayes served as Executive Vice
President for The Americas and before that he served in a number
of operational and commercial positions in the UK and Germany.
James Hnat, age 39, is our Executive Vice President
Corporate Affairs, General Counsel and Secretary and has served
in this capacity since April 2007. He served as our Senior Vice
President, General Counsel and Assistant Secretary since March
2006, and as our General Counsel and Assistant Secretary from
February 2003 to March 2006 and as our Associate General Counsel
from June 2001 to January 2003. Mr. Hnat is a member of the
bar of New York and Massachusetts.
Don Daniels, age 42, is our Vice President and Chief
Accounting Officer, a position he has held since May 2009. He
served as our Vice President and Corporate Controller since
October 2007. He previously served as our Assistant Controller
since July 2006 and Director of Financial Reporting since
October 2002.
21
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY; RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is traded on the NASDAQ Global Select Market
under the symbol JBLU. The table below shows the high and low
sales prices for our common stock.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008 Quarter Ended
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
7.33
|
|
|
$
|
4.30
|
|
June 30
|
|
|
5.99
|
|
|
|
3.52
|
|
September 30
|
|
|
6.75
|
|
|
|
3.04
|
|
December 31
|
|
|
7.20
|
|
|
|
3.09
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
7.74
|
|
|
$
|
2.81
|
|
June 30
|
|
|
6.40
|
|
|
|
3.44
|
|
September 30
|
|
|
6.87
|
|
|
|
4.08
|
|
December 31
|
|
|
6.39
|
|
|
|
4.74
|
|
As of January 31, 2010, there were approximately 644
holders of record of our common stock.
We have not paid cash dividends on our common stock and have no
current intention of doing so, in order to retain our earnings
to finance the expansion of our business. Any future
determination to pay cash dividends will be at the discretion of
our Board of Directors, subject to applicable limitations under
Delaware law, and will be dependent upon our results of
operations, financial condition and other factors deemed
relevant by our Board of Directors.
22
Stock
Performance Graph
This performance graph shall not be deemed filed
with the SEC or subject to Section 18 of the Exchange Act,
nor shall it be deemed incorporated by reference in any of our
filings under the Securities Act of 1933, as amended.
The following line graph compares the cumulative total
stockholder return on our common stock with the cumulative total
return of the Standard & Poors 500 Stock Index
and the AMEX Airline Index from December 31, 2004 to
December 31, 2009. The comparison assumes the investment of
$100 in our common stock and in each of the foregoing indices
and reinvestment of all dividends. The stock performance shown
represents historical performance and is not representative of
future stock performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
|
|
12/31/09
|
|
|
JetBlue Airways Corporation
|
|
$
|
100
|
|
|
$
|
99
|
|
|
$
|
92
|
|
|
$
|
38
|
|
|
$
|
46
|
|
|
$
|
35
|
|
S&P 500 Stock Index
|
|
|
100
|
|
|
|
105
|
|
|
|
121
|
|
|
|
128
|
|
|
|
81
|
|
|
|
102
|
|
AMEX Airline Index(1)
|
|
|
100
|
|
|
|
91
|
|
|
|
97
|
|
|
|
57
|
|
|
|
40
|
|
|
|
56
|
|
(1) As of December 31, 2009, the AMEX Airline Index
consisted of Alaska Air Group Inc., AMR Corporation, Continental
Airlines Inc., Delta Air Lines, Inc., Gol Linhas Aereas
Inteligentes, JetBlue Airways Corporation, US Airways Group
Inc., Lan Airlines SA, SkyWest Inc., Southwest Airlines Co.,
Ryanair Holdings plc., Tam S.A., and UAL Corporation.
23
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following financial information for the five years ended
December 31, 2009 has been derived from our consolidated
financial statements. This information should be read in
conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
3,286
|
|
|
$
|
3,388
|
|
|
$
|
2,842
|
|
|
$
|
2,363
|
|
|
$
|
1,701
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
945
|
|
|
|
1,397
|
|
|
|
968
|
|
|
|
786
|
|
|
|
514
|
|
Salaries, wages and benefits (1)
|
|
|
776
|
|
|
|
694
|
|
|
|
648
|
|
|
|
553
|
|
|
|
428
|
|
Landing fees and other rents
|
|
|
213
|
|
|
|
199
|
|
|
|
180
|
|
|
|
158
|
|
|
|
112
|
|
Depreciation and amortization (2)
|
|
|
228
|
|
|
|
205
|
|
|
|
176
|
|
|
|
151
|
|
|
|
115
|
|
Aircraft rent
|
|
|
126
|
|
|
|
129
|
|
|
|
124
|
|
|
|
103
|
|
|
|
74
|
|
Sales and marketing
|
|
|
151
|
|
|
|
151
|
|
|
|
121
|
|
|
|
104
|
|
|
|
81
|
|
Maintenance materials and repairs
|
|
|
149
|
|
|
|
127
|
|
|
|
106
|
|
|
|
87
|
|
|
|
64
|
|
Other operating expenses (3)
|
|
|
419
|
|
|
|
377
|
|
|
|
350
|
|
|
|
294
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,007
|
|
|
|
3,279
|
|
|
|
2,673
|
|
|
|
2,236
|
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
279
|
|
|
|
109
|
|
|
|
169
|
|
|
|
127
|
|
|
|
48
|
|
Other income (expense) (4)
|
|
|
(180
|
)
|
|
|
(199
|
)
|
|
|
(138
|
)
|
|
|
(128
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
99
|
|
|
|
(90
|
)
|
|
|
31
|
|
|
|
(1
|
)
|
|
|
(31
|
)
|
Income tax expense (benefit)
|
|
|
41
|
|
|
|
(5
|
)
|
|
|
19
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58
|
|
|
$
|
(85
|
)
|
|
$
|
12
|
|
|
$
|
(7
|
)
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
8.5
|
%
|
|
|
3.2
|
%
|
|
|
6.0
|
%
|
|
|
5.4
|
%
|
|
|
2.8
|
%
|
Pre-tax margin
|
|
|
3.0
|
%
|
|
|
(2.7
|
)%
|
|
|
1.1
|
%
|
|
|
(0.1
|
)%
|
|
|
(1.8
|
)%
|
Ratio of earnings to fixed charges (5)
|
|
|
1.32
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
486
|
|
|
$
|
(17
|
)
|
|
$
|
358
|
|
|
$
|
274
|
|
|
$
|
170
|
|
Net cash used in investing activities
|
|
|
(457
|
)
|
|
|
(247
|
)
|
|
|
(734
|
)
|
|
|
(1,307
|
)
|
|
|
(1,276
|
)
|
Net cash provided by financing activities
|
|
|
306
|
|
|
|
635
|
|
|
|
556
|
|
|
|
1,037
|
|
|
|
1,093
|
|
|
|
|
(1) |
|
In 2005, we recorded $7 million in non-cash stock-based
compensation expense related to the acceleration of certain
employee stock options. |
|
(2) |
|
In 2008, we wrote-off $8 million related to our temporary
terminal facility at JFK. |
|
(3) |
|
In 2009, 2008, 2007, and 2006, we sold two, nine, three, and
five aircraft, respectively, which resulted in gains of
$1 million, $23 million, $7 million, and
$12 million, respectively. In 2005, we wrote-off
$6 million in development costs relating to a maintenance
and inventory tracking system that was not implemented. |
|
(4) |
|
In 2008, we recorded $13 million in additional interest
expense related to the early conversion of a portion of our 5.5%
convertible debentures due 2038 and $14 million in interest
income related to the gain on extinguishment of debt. In
December 2008, we recorded a holding loss of $53 million
related to the valuation of our auction rate securities. |
|
(5) |
|
Earnings were inadequate to cover fixed charges by
$136 million, $11 million, $27 million and
$46 million for the years ended December 31, 2008,
2007, 2006, and 2005, respectively. |
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
896
|
|
|
$
|
561
|
|
|
$
|
190
|
|
|
$
|
10
|
|
|
$
|
6
|
|
Investment securities
|
|
|
246
|
|
|
|
244
|
|
|
|
611
|
|
|
|
689
|
|
|
|
476
|
|
Total assets
|
|
|
6,554
|
|
|
|
6,020
|
|
|
|
5,595
|
|
|
|
4,840
|
|
|
|
3,890
|
|
Total debt
|
|
|
3,304
|
|
|
|
3,144
|
|
|
|
3,022
|
|
|
|
2,804
|
|
|
|
2,281
|
|
Common stockholders equity
|
|
|
1,539
|
|
|
|
1,266
|
|
|
|
1,050
|
|
|
|
972
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating Statistics (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers (thousands)
|
|
|
22,450
|
|
|
|
21,920
|
|
|
|
21,387
|
|
|
|
18,565
|
|
|
|
14,729
|
|
Revenue passenger miles (millions)
|
|
|
25,955
|
|
|
|
26,071
|
|
|
|
25,737
|
|
|
|
23,320
|
|
|
|
20,200
|
|
Available seat miles (ASMs)(millions)
|
|
|
32,558
|
|
|
|
32,442
|
|
|
|
31,904
|
|
|
|
28,594
|
|
|
|
23,703
|
|
Load factor
|
|
|
79.7
|
%
|
|
|
80.4
|
%
|
|
|
80.7
|
%
|
|
|
81.6
|
%
|
|
|
85.2
|
%
|
Aircraft utilization (hours per day)
|
|
|
11.5
|
|
|
|
12.1
|
|
|
|
12.8
|
|
|
|
12.7
|
|
|
|
13.4
|
|
Average fare
|
|
$
|
130.41
|
|
|
$
|
139.40
|
|
|
$
|
123.23
|
|
|
$
|
119.73
|
|
|
$
|
110.03
|
|
Yield per passenger mile (cents)
|
|
|
11.28
|
|
|
|
11.72
|
|
|
|
10.24
|
|
|
|
9.53
|
|
|
|
8.02
|
|
Passenger revenue per ASM (cents)
|
|
|
8.99
|
|
|
|
9.42
|
|
|
|
8.26
|
|
|
|
7.77
|
|
|
|
6.84
|
|
Operating revenue per ASM (cents)
|
|
|
10.09
|
|
|
|
10.44
|
|
|
|
8.91
|
|
|
|
8.26
|
|
|
|
7.18
|
|
Operating expense per ASM (cents)
|
|
|
9.24
|
|
|
|
10.11
|
|
|
|
8.38
|
|
|
|
7.82
|
|
|
|
6.98
|
|
Operating expense per ASM, excluding fuel (cents)
|
|
|
6.33
|
|
|
|
5.80
|
|
|
|
5.34
|
|
|
|
5.07
|
|
|
|
4.81
|
|
Airline operating expense per ASM (cents)(6)
|
|
|
8.99
|
|
|
|
9.87
|
|
|
|
8.27
|
|
|
|
7.76
|
|
|
|
6.91
|
|
Departures
|
|
|
215,526
|
|
|
|
205,389
|
|
|
|
196,594
|
|
|
|
159,152
|
|
|
|
112,009
|
|
Average stage length (miles)
|
|
|
1,076
|
|
|
|
1,120
|
|
|
|
1,129
|
|
|
|
1,186
|
|
|
|
1,358
|
|
Average number of operating aircraft during period
|
|
|
148.0
|
|
|
|
139.5
|
|
|
|
127.8
|
|
|
|
106.5
|
|
|
|
77.5
|
|
Average fuel cost per gallon, including fuel taxes
|
|
$
|
2.08
|
|
|
$
|
3.08
|
|
|
$
|
2.18
|
|
|
$
|
2.08
|
|
|
$
|
1.70
|
|
Fuel gallons consumed (millions)
|
|
|
455
|
|
|
|
453
|
|
|
|
444
|
|
|
|
377
|
|
|
|
303
|
|
Full-time equivalent employees at period end(6)
|
|
|
10,704
|
|
|
|
9,895
|
|
|
|
9,909
|
|
|
|
9,265
|
|
|
|
8,326
|
|
|
|
|
(6) |
|
Excludes results of operations and employees of LiveTV, LLC,
which are unrelated to our airline operations and are immaterial
to our consolidated operating results. |
The following terms used in this section and elsewhere in this
report have the meanings indicated below:
Revenue passengers represents the total
number of paying passengers flown on all flight segments.
Revenue passenger miles represents the number
of miles flown by revenue passengers.
Available seat miles represents the number of
seats available for passengers multiplied by the number of miles
the seats are flown.
Load factor represents the percentage of
aircraft seating capacity that is actually utilized (revenue
passenger miles divided by available seat miles).
Aircraft utilization represents the average
number of block hours operated per day per aircraft for the
total fleet of aircraft.
25
Average fare represents the average one-way
fare paid per flight segment by a revenue passenger.
Yield per passenger mile represents the
average amount one passenger pays to fly one mile.
Passenger revenue per available seat mile
represents passenger revenue divided by available seat miles.
Operating revenue per available seat mile
represents operating revenues divided by available seat miles.
Operating expense per available seat mile
represents operating expenses divided by available seat miles.
Operating expense per available seat mile, excluding
fuel represents operating expenses, less aircraft
fuel, divided by available seat miles.
Average stage length represents the average
number of miles flown per flight.
Average fuel cost per gallon represents total
aircraft fuel costs, including fuel taxes and effective portion
of fuel hedging, divided by the total number of fuel gallons
consumed.
26
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
We are an award winning airline with a differentiated product
and a commitment to customer service that offers competitive
fares primarily on
point-to-point
routes. Our value proposition includes operating a young, fuel
efficient fleet with more legroom than any other domestic
airlines coach product, free in-flight entertainment,
pre-assigned seating, unlimited snacks, and the airline
industrys only Customer Bill of Rights. At
December 31, 2009, we served 60 destinations in
20 states, Puerto Rico, and eleven countries in the
Caribbean and Latin America and operated over 600 flights a day
with a fleet of 110 Airbus A320 aircraft and 41 EMBRAER 190
aircraft.
In 2009, we reported net income of $58 million and an
operating margin of 8.5%, as compared to a net loss of
$85 million and an operating margin of 3.2% in 2008. The
year-over-year
improvement in our financial performance was primarily a result
of a 33% decrease in our realized fuel price and a net
$53 million holding loss related to the valuation of our
auction rate securities, or ARS, in 2008.
Our goal is to become Americas Favorite
Airline for our employees (whom we refer to as
crewmembers), customers and shareholders. Our plan in achieving
this goal is dependent upon continuing to provide superior
customer service and delivering the JetBlue Experience. Our
financial strategy currently includes a commitment to positive
free cash flow and long-term sustainable growth while also
maintaining an adequate liquidity position. Our commitment to
these goals drives a focus on controlling costs, maximizing unit
revenues, managing capital expenditures, and disciplined growth.
Our disciplined growth begins with managing the growth, size and
age of our fleet. In 2009, in response to continuing uncertain
economic conditions, we continued to carefully manage the size
of our fleet. As a result, aircraft capital expenditures were
significantly reduced from previous years. We modified our
Airbus A320 purchase agreement in July resulting in the deferral
of three aircraft previously scheduled for delivery in 2010 to
2011 and canceling six options to purchase aircraft at a future
date. We also modified our EMBRAER 190 purchase agreement three
times rescheduling deliveries and options originally scheduled
for delivery between 2010 and 2016 to 2010 through 2018. During
the year, we increased the size of our A320 operating fleet by
three aircraft and our EMBRAER 190 operating fleet by six
aircraft. In February 2010, as part of broader ongoing
discussions, we further amended our Airbus purchase agreement,
deferring six aircraft previously scheduled for delivery in 2011
and 2012 to 2015. This amendment had the effect of reducing our
2010 capital expenditures by $40 million in related
pre-delivery deposits. We are currently scheduled to take
delivery of four aircraft in 2010. We may further slow our fleet
growth through additional aircraft sales, leasing of aircraft,
returns of leased aircraft
and/or
deferral of aircraft deliveries.
Our disciplined growth has also allowed us to optimize our route
network. The growth of our route network in 2009 was primarily
through the addition of new destinations in the Caribbean and
Latin America, markets which have historically matured more
quickly than mainland flights of a comparable distance. We have
approximately 21% of our capacity in the Caribbean and Latin
America; we expect this number to continue to grow in 2010. We
added eight new destinations in 2009, six of which were in the
Caribbean and Latin America, compared to two new destinations
that were added in 2008 and five that were added in 2007. We
have also strengthened our position as the largest carrier at
Bostons Logan International Airport in terms of number of
seats offered and destinations served. In 2010, we plan to
continue to focus on our Boston and Caribbean expansion.
In November 2009, we launched a commercial agreement with
Deutsche Lufthansa AG, or Lufthansa, providing our customers
with convenient connections at 12 of our domestic locations to
Lufthansas network of over 400 locations overseas and
providing Lufthansas customers access to our growing
network.
In November 2009, we also launched an improved version of our
customer loyalty program, TrueBlue. The program was re-designed
based on customer feedback, and is aimed at making our frequent
flyer benefits more robust, rewarding, and flexible. TrueBlue
points are earned based on the value paid for a flight as
opposed to the length of travel. Under the enhanced program,
there are no blackout dates for award flights and
27
points expirations can be extended. Based on extensive customer
surveys, we believe this enhanced program will make our product
more appealing to the business customer.
On January 29, 2010 we implemented a new integrated
customer service system, which includes a reservations system,
revenue management system, revenue accounting system, and
customer loyalty management system. Transitioning to this new
platform offers many benefits which we believe will position us
well for our long term growth. These benefits include added
flexibility in the complex environments we operate under,
opportunities for future codeshare and interline agreements,
customer relationship management, ancillary revenue
opportunities, improved functionality of our website, and
improved revenue management capabilities.
In an effort to reduce delays and modernize the airport, the FAA
and the Port Authority of New York and New Jersey, or PANYNJ,
have been undertaking major construction work at JFK. Their
plans include the creation of new taxiways and holding pads,
runway widening and rehabilitation, as well as the installation
of new ground radar, lighting and other navigation equipment.
Most significantly, this project will include the closure and
rehabilitation of the most important runway in our network. The
JFK runway is scheduled to be closed from March 1 through
June 30, 2010. While we believe the results of this project
will ultimately help to alleviate some of the challenges of
operating at JFK, our operations may be adversely impacted
during the runway closure. In order to help mitigate the impact
of this closure, we, and the other major domestic carriers
operating at JFK have agreed to reduce flights throughout the
closure period.
We derive our revenue primarily from transporting passengers on
our aircraft. Passenger revenue accounted for 89% of our total
operating revenues for the year ended December 31, 2009.
Revenues generated from international routes, excluding Puerto
Rico, accounted for 13% of our total passenger revenues in 2009.
Revenue is recognized either when transportation is provided or
after the ticket or customer credit expires. We measure capacity
in terms of available seat miles which represents the number of
seats available for passengers multiplied by the number of miles
the seats are flown. Yield, or the average amount one passenger
pays to fly one mile, is calculated by dividing passenger
revenue by revenue passenger miles.
We strive to increase passenger revenue primarily by increasing
our yield per flight which produces higher revenue per available
seat mile, or RASM. Our objective is to optimize our fare mix to
increase our overall average fare and, in certain markets,
utilize our network to maximize connecting opportunities while
continuing to provide our customers with competitive fares. When
we enter a new market our fares are designed to stimulate
demand, particularly from fare-conscious leisure and business
travelers who might otherwise have used alternate forms of
transportation or would not have traveled at all. In addition to
our regular fare structure, we frequently offer sale fares with
shorter advance purchase requirements in most of the markets we
serve and match the sale fares offered by other airlines.
Other revenue consists primarily of fees charged to customers in
accordance with our published policies relating to reservation
changes and baggage limitations, the marketing component of
TrueBlue point sales, concession revenues, revenues associated
with transporting mail and cargo, rental income and revenues
earned by our subsidiary, LiveTV, LLC, for the sale of, and
on-going services provided for, in-flight entertainment systems
on other airlines.
We maintain one of the lowest cost structures in the industry
due to the young average age of our fleet, a productive
non-union workforce, and cost discipline. In 2010, we plan to
continue our focus on cost control while improving the JetBlue
Experience for our customers. The largest components of our
operating expenses are aircraft fuel and related taxes and
salaries, wages and benefits provided to our crewmembers. Unlike
most airlines, we have a policy of not furloughing crewmembers
during economic downturns and a non-union workforce, which we
believe provides us with more flexibility and allows us to be
more productive. The price and availability of aircraft fuel,
which is our single largest operating expense, are extremely
volatile due to global economic and geopolitical factors that we
can neither control nor accurately predict. Sales and marketing
expenses include advertising, fees paid to credit card
companies, and commissions paid for our participation in GDSs
and OTAs. Our distribution costs tend to be lower than those of
most other airlines on a per unit basis because the majority of
our customers book directly through our website or our agents.
Maintenance materials and repairs are expensed when incurred
unless covered by a third party services contract. Because the
average age of our aircraft is 4.3 years, all of our
aircraft currently require less
28
maintenance than they will in the future. Our maintenance costs
will increase significantly, both on an absolute basis and as a
percentage of our unit costs, as our fleet ages. Other operating
expenses consist of purchased services (including expenses
related to fueling, ground handling, skycap, security and
janitorial services), insurance, personnel expenses, cost of
goods sold to other airlines by LiveTV, professional fees,
passenger refreshments, supplies, bad debts, communication
costs, gains on aircraft sales and taxes other than payroll and
fuel taxes.
During 2009 we experienced lower fuel prices than we did in
2008, helping to offset the weaker demand environment for air
travel. In the fourth quarter of 2008, we effectively exited a
majority of our 2009 fuel hedges then outstanding and prepaid a
portion of our liability thereby limiting our exposure to
additional cash collateral requirements. As a result, we
benefited from the lower fuel prices in 2009. In the second and
third quarters of 2009, fuel prices began to rise although they
remain much lower than the record high prices of 2008. In
response, we began to rebuild our fuel hedge portfolio by
entering into a variety of fuel hedge contracts covering a
portion of our consumption in the fourth quarter 2009 through
the first half of 2011. In total, we effectively hedged 23% of
our total 2009 fuel consumption. As of December 31, 2009,
we had outstanding fuel hedge contracts covering approximately
60% of our forecasted consumption for the first quarter of 2010,
40% for the full year 2010, and 6% for the first half of 2011.
Additionally, in January 2010 we entered into a jet fuel swap
agreement covering another 5% of our total 2010 forecasted
consumption. We will continue to monitor fuel prices closely and
take advantage of fuel hedging opportunities in order to
mitigate our liquidity exposure and provide some protection
against significant volatility and increases in fuel prices.
The airline industry is one of the most heavily taxed in the
U.S., with taxes and fees accounting for approximately 16% of
the total fare charged to a customer. Airlines are obligated to
fund all of these taxes and fees regardless of their ability to
pass these charges on to the customer. Additionally, if the TSA
changes the way the Aviation Security Infrastructure Fee is
assessed, our security costs may be higher.
The airline industry has been intensely competitive in recent
years due in part to persistently high fuel prices and the
adverse financial condition of many of the domestic airlines,
leading to significant consolidation, bankruptcies and
liquidation in recent years. In 2009 numerous smaller airlines
around the world ceased operations and other larger
international carriers faced bankruptcy. At the same time, the
merger of Delta and Northwest created the worlds largest
airline.
We continue to focus on maintaining adequate liquidity. In June
2009, we successfully accessed the capital markets raising net
proceeds of approximately $300 million through a
$201 million convertible debt financing and a
$112 million common stock offering. In October 2009, we
entered into an agreement with Citigroup Global Markets, Inc.
under which they agreed to purchase our auction rate securities,
or ARS, which had a par value of approximately
$158 million, for approximately $120 million. We also
had approximately $117 million in collateral posted for our
fuel hedges as of December 31, 2008 returned to us during
2009. Our goal is to continue to be diligent with our liquidity.
We have manageable scheduled debt maturities in 2010 totaling
approximately $390 million, which we believe will enable us
to achieve this liquidity goal.
Our ability to be profitable in this competitive environment
depends on, among other things, operating at costs equal to or
lower than those of our competitors, continuing to provide high
quality customer service and maintaining adequate liquidity
levels. Although we have been able to raise capital and continue
to grow, the highly competitive nature of the airline industry
and the impact of the current economic conditions could prevent
us from attaining the passenger traffic or yields required to be
profitable in new and existing markets.
The highest levels of traffic and revenue on our routes to and
from Florida are generally realized from October through April
and on our routes to and from the western United States in the
summer. Our Visiting Friends and Relatives (or VFR) markets
continue to complement our leisure-driven markets from both a
seasonal and day of week perspective. Many of our areas of
operations in the Northeast experience bad weather conditions in
the winter causing increased costs associated with de-icing
aircraft, cancelled flights and accommodating displaced
customers. Our Florida and Caribbean routes experience bad
weather conditions in the summer and fall due to thunderstorms
and hurricanes. As we enter new markets we could be subject to
additional seasonal variations along with competitive responses
to our entry by other airlines. Given our high proportion of
fixed costs, this seasonality may cause our results of
operations to vary from quarter to quarter.
29
Outlook
for 2010
Our focus in 2010 will continue to be on seeking to achieve
positive free cash flow and long-term sustainable growth through
managing capital expenditures, disciplined cost control and unit
revenue optimization while continuing to manage risk in an
uncertain and volatile economic environment. We expect the
benefits of slower growth we began to see in 2008 will continue
through 2010. We will, nevertheless, continue to rationalize
capacity to take advantage of market opportunities, including
potential further increases in our Caribbean presence. In
addition, we continuously look to expand our other ancillary
revenue opportunities.
In addition to the economic pressures facing the entire
industry, we have two major operational obstacles that will
challenge us in the first half of 2010. First, the ongoing
implementation of our new integrated customer service system.
The integrated system, when fully implemented, will increase our
capabilities including growing our current business, improving
the overall customer experience and enhancing the JetBlue brand.
However, we will continue to work through implementation issues
and incur one time implementation costs in the weeks and months
following our initial implementation in late January 2010.
Second, the impact of the four month closure of the largest
runway at JFK, our home base of operations, beginning in March
is unknown. While we have planned for this closure and have
undertaken efforts to mitigate the impact, including reduced
flights schedules and redeploying capacity, we do anticipate
some operational challenges during this period.
For the full year, we expect our operating capacity to increase
approximately 5% to 7% over 2009 with the addition of four new
EMBRAER 190 aircraft to our operating fleet, most of which will
be deployed in our Caribbean markets. Revenue per available seat
mile, or RASM, is expected to improve between 5% and 8% over
2009, which reflects the maturation of markets we previously
opened and some improved capabilities in the later part of the
year associated with our new customer service system. Assuming
fuel prices of $2.26 per gallon, including fuel taxes and net of
effective hedges, our cost per available seat mile for 2010 is
expected to increase by 5% to 7% over 2009. This expected
increase is a result of higher salaries and wages due to the
pilot wage increases implemented in June of 2009, higher
maintenance costs and the costs associated with transitioning to
our new customer service system.
Results
of Operations
Unfavorable economic conditions contributed to the continued
weakened demand for domestic leisure and business air travel.
Throughout 2009, many airlines were aggressive with fare sales,
particularly during off-peak travel periods, which further
pressured an already challenging pricing environment. However,
we are encouraged going into 2010 as these fare sales appear to
be tapering down. We continue to closely monitor consumer demand
in order to promptly respond to changes in the demand
environment as a result of continued volatility and economic
uncertainty. Domestic airlines have largely responded to the
economic environment and softening demand by offering fare sales
and redeploying capacity and reducing overall capacity. In an
effort to increase demand during low travel periods and attract
new customers, we launched our All-You-Can-Jet Pass promotion in
September 2009 offering unlimited travel for one month for a
$599 fixed fee. In response to the uncertain economic
conditions, throughout 2009, we focused on cost discipline,
careful management of our fleet and capacity, and maintaining a
strong liquidity position. Average fares for the year decreased
6% over 2008 to $130.41 while load factor declined 0.7 points to
79.7% from the full year 2008.
Our on-time performance, defined by the DOT as arrivals within
14 minutes of schedule, was 77.5% in 2009 compared to 72.9% in
2008. We continued to see improvement in our on-time performance
throughout the year and on a
year-over-year
basis; however, we continued to be affected by the fact that a
significant percentage of our flights operate out of three of
the most congested and delay-prone airports in the U.S.
Year
2009 Compared to Year 2008
We reported net income of $58 million in 2009 compared to a
net loss of $85 million in 2008. In 2009, we had operating
income of $279 million, an increase of $170 million
over 2008, and our operating margin of 8.5%, up 5.3 points from
2008. Diluted earnings per share were $0.20 for 2009 compared to
diluted loss per share of $0.37 for 2008.
30
Operating Revenues. Operating revenues
decreased 3%, or $102 million, primarily due to a 4%
decrease in passenger revenues. The $128 million decrease
in passenger revenues was attributable to a 4% decrease in yield
over 2008 and a 0.7 point decrease in load factor on relatively
flat capacity offset by increases in fees from our Even More
Legroom optional upgrade product, which we introduced in
mid-2008.
Other revenues increased 8%, or $26 million, primarily due
to higher excess baggage revenue of $18 million resulting
from the introduction of the second checked bag fee in June 2008
and increased rates for these and other ancillary services
during 2009. Other revenue also increased due to additional
LiveTV
third-party
revenues as a result of additional third party aircraft
installations, and higher concession revenues from our new
terminal at JFK, partially offset by a reduction in charter
revenue.
Operating Expenses. Operating expenses
decreased 8%, or $272 million, primarily due to lower fuel
prices, partially offset by increased salaries, wages and
benefits, depreciation and amortization, maintenance and
variable costs. In 2009 operating expenses were offset by
$1 million in gains on the sale of aircraft compared to
$23 million in gains on the sale of aircraft in 2008. While
we had on average eight additional average aircraft in service
in 2009, operating capacity increased less than 1% to
32.56 billion available seat miles in 2009 due to shorter
stage lengths as a result of shifting capacity from
transcontinental flying to shorter haul. Operating expenses per
available seat mile decreased 9% to 9.24 cents. Excluding fuel,
our cost per available seat mile increased 9% in 2009. In
detail, operating costs per available seat mile were (percent
changes are based on unrounded numbers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(in cents)
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
2.91
|
|
|
|
4.31
|
|
|
|
(32.6
|
)%
|
Salaries, wages and benefits
|
|
|
2.38
|
|
|
|
2.14
|
|
|
|
11.4
|
|
Landing fees and other rents
|
|
|
.65
|
|
|
|
.62
|
|
|
|
6.4
|
|
Depreciation and amortization
|
|
|
.70
|
|
|
|
.63
|
|
|
|
11.0
|
|
Aircraft rent
|
|
|
.39
|
|
|
|
.40
|
|
|
|
(2.5
|
)
|
Sales and marketing
|
|
|
.46
|
|
|
|
.47
|
|
|
|
(0.8
|
)
|
Maintenance materials and repairs
|
|
|
.46
|
|
|
|
.39
|
|
|
|
17.2
|
|
Other operating expenses
|
|
|
1.29
|
|
|
|
1.15
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9.24
|
|
|
|
10.11
|
|
|
|
(8.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, our average aircraft utilization declined 5% to 11.5
hours per day. A lower aircraft utilization results in fewer
available seat miles and, therefore, higher unit costs. We
estimate that a significant portion of the
year-over-year
increase in our total cost per available mile, excluding fuel,
was attributable to the decrease in our aircraft utilization and
also was a significant factor of the increase in each component.
Aircraft fuel expense decreased 32%, or $452 million, due
to a 33% decrease in average fuel cost per gallon, or
$457 million after the impact of fuel hedging, offset by
two million more gallons of aircraft fuel consumed, resulting in
$6 million of higher fuel expense. We recorded
$120 million in fuel hedge losses during 2009 versus
$47 million in fuel hedge gains during 2008. Our average
fuel cost per gallon was $2.08 for the year ended
December 31, 2009 compared to $3.08 for the year ended
December 31, 2008. Our fuel costs represented 31% and 43%
of our operating expenses in 2009 and 2008, respectively. Based
on our expected fuel volume for 2010, a 10% per gallon increase
in the cost of aircraft fuel would increase our annual fuel
expense by approximately $101 million. Cost per available
seat mile decreased 33% primarily due to the decrease in fuel
prices.
Salaries, wages and benefits increased 12%, or $82 million,
due primarily to increases in pilot pay and related benefits and
an 5% increase in average full-time equivalent employees. The
increase in average
full-time
equivalent employees is partially driven by our policy of not
furloughing employees and additional staffing levels in
preparation for our new customer service system implementation
in January 2010. Cost per available seat mile increased 11%
primarily due to increased average wages.
31
Landing fees and other rents increased 7%, or $14 million,
due to a 5% increase in departures over 2008, and increased
landing fees associated with increased rates in existing markets
as well as the opening of eight new cities in 2009, offset by a
$12 million reduction in airport rents at JFK following our
terminal move. Cost per available seat mile increased 6% due to
increased departures.
Depreciation and amortization increased 11%, or
$23 million, primarily due to $21 million in
amortization associated with Terminal 5, which we began
operating from in October 2008, and $13 million related to
an average of 93 owned and capital leased aircraft in 2009
compared to 85 in 2008. This increase was offset by an
$8 million asset write-off related to a temporary terminal
facility at JFK in 2008. Cost per available seat mile was 11%
higher due to the amortization associated with Terminal 5 and
having on average eight additional owned operating aircraft.
Aircraft rent decreased 2%, or $3 million, primarily due to
lower rates in effect on our aircraft under operating leases in
2009 compared to 2008. Cost per available seat mile decreased 2%
due to these lower rates.
Sales and marketing expense remained relatively flat. Credit
card fees were $3 million lower as a result of decreased
passenger revenues, offset by $1 million in higher
advertising costs and $2 million in higher commissions in
2009 related to our increased participation in GDSs and OTAs.
Maintenance materials and repairs increased 18%, or
$22 million, due to eight more average operating aircraft
in 2009 compared to 2008 and the gradual aging of our fleet. The
average age of our fleet increased to 4.3 years as of
December 31, 2009 compared to 3.6 years as of
December 31, 2008. Maintenance expense is expected to
increase significantly as our fleet ages, resulting in the need
for additional repairs over time. Cost per available seat mile
increased 17% primarily due to the gradual aging of our fleet.
Other operating expenses increased 11%, or $42 million,
primarily due to an increase in variable costs associated with
5% more departures versus 2008, operating out of eight
additional cities in 2009, and increased costs due to
preparations for our implementation of our new customer service
system in January 2010. Other operating expenses include the
impact of $1 million and $23 million in gains on sales
of aircraft in 2009 and 2008, respectively. Other operating
expenses were further offset in 2009 by $11 million for
certain tax incentives compared to $7 million in 2008. Cost
per available seat mile increased 11% due primarily to increased
departures and new stations.
Other Income (Expense). Interest expense
decreased 19%, or $45 million, primarily due to lower
interest rates and debt repayments, totaling approximately
$59 million, offset by additional financing including nine
new aircraft and the issuance in 2009 of our 6.75% convertible
Debentures, resulting in $32 million of additional interest
expense. Interest expense in 2008 included the impact of
$11 million of make whole payments from escrow in
connection with the partial conversion of a portion of our 5.5%
convertible Debentures due 2038. We incurred $30 million of
interest expense in 2009 related to T5, compared to
$38 million in 2008. Prior to the completion of the
project in October 2008, we had capitalized $32 million of
the 2008 interest expense. The remainder of the decrease in
capitalized interest was due to lower average outstanding
pre-delivery deposits and lower interest rates.
Interest income and other increased 287%, or $15 million,
primarily due to a $53 million loss related to our auction
rate securities in 2008. Additionally, interest rates earned on
investments were much lower in 2009, resulting in
$23 million lower interest income. Interest income and
other included $2 million and $14 million in gains on
the extinguishment of debt in 2009 and 2008, respectively.
Derivative instruments not qualifying for cash flow hedges in
2009 resulted in a loss of $1 million, compared to a
$3 million gain in 2008. Additionally, accounting
ineffectiveness on crude, heating oil, and jet fuel derivatives
classified as cash flow hedges resulted in a gain of
$1 million in both 2009 and 2008. We are unable to predict
what the amount of ineffectiveness will be related to these
instruments, or the potential loss of hedge accounting which is
determined on a
derivative-by-derivative
basis, due to the volatility in the forward markets for these
commodities.
Our effective tax rate was 41% in 2009 compared to 6% in 2008,
mainly due to the nondeductibility of $21 million related
to our ARS impairment in 2008. Our effective tax rate differs
from the statutory income
32
tax rate due to the non deductibility of certain items for tax
purposes and the relative size of these items to our pre-tax
income of $99 million in 2009 and pre-tax loss of
$90 million in 2008.
Year
2008 Compared to Year 2007
We reported a net loss of $85 million in 2008 compared to
net income of $12 million in 2007. In 2008, we had
operating income of $109 million, a decrease of
$60 million over 2007, and our operating margin was 3.2%,
down 2.8 points from 2007. Diluted loss per share was $0.37 for
2008 compared to diluted earnings per share of $0.06 for 2007.
Operating Revenues. Operating revenues
increased 19%, or $546 million, primarily due to an
increase in passenger revenues. The $420 million increase
in passenger revenues was attributable to a 14% increase in
yield due to a higher average fare offset by a slightly lower
load factor. Passenger revenues were also higher due to a 5%
increase in departures. Included in passenger revenues are the
fees collected from passengers related to our EML product
upgrade introduced in 2008.
Other revenue increased 61%, or $126 million, primarily due
to higher change fees and excess baggage fees of
$68 million resulting from more passengers, the
introduction of the second checked bag fee in 2008, and
increased change fee rates. Other revenue also increased due to
higher LiveTV third-party revenues, rental income, mail
revenues, in-flight sales, and the marketing component of
TrueBlue pint sales.
Operating Expenses. Operating expenses
increased 23%, or $606 million, primarily due to a 41%
increase in average fuel price per gallon and operating an
average of 12 additional aircraft, which provided us with higher
capacity. Operating capacity increased 2% to 32.44 billion
available seat miles in 2008 due to having 9% more average
aircraft in-service. Operating expenses per available seat mile
increased 21% to 10.11 cents. Excluding fuel, our cost per
available seat mile increased 9% in 2008. In detail, operating
costs per available seat mile were (percent changes are based on
unrounded numbers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(in cents)
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
4.31
|
|
|
|
3.04
|
|
|
|
42.0
|
%
|
Salaries, wages and benefits
|
|
|
2.14
|
|
|
|
2.03
|
|
|
|
5.2
|
|
Landing fees and other rents
|
|
|
.62
|
|
|
|
.57
|
|
|
|
8.8
|
|
Depreciation and amortization
|
|
|
.63
|
|
|
|
.55
|
|
|
|
14.7
|
|
Aircraft rent
|
|
|
.40
|
|
|
|
.39
|
|
|
|
2.5
|
|
Sales and marketing
|
|
|
.47
|
|
|
|
.38
|
|
|
|
23.4
|
|
Maintenance materials and repairs
|
|
|
.39
|
|
|
|
.33
|
|
|
|
18.4
|
|
Other operating expenses
|
|
|
1.15
|
|
|
|
1.09
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10.11
|
|
|
|
8.38
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, our average aircraft utilization declined 5% to 12.1. A
lower aircraft utilization results in fewer available seat miles
and, therefore, higher unit costs. We estimate that a
significant portion of the
year-over-year
increase in our total cost per available seat mile was
attributable to the decrease in our aircraft utilization and
also was a significant factor of the increase in each component.
Aircraft fuel expense increased 44%, or $429 million, which
includes related fuel taxes and the effective portion of fuel
hedging, due to a 41% increase in average fuel cost per gallon,
and nine million more gallons of aircraft fuel consumed
resulting in $20 million of additional fuel expense.
Aircraft fuel prices continued to ascend to record high levels
during most of 2008, with our average fuel price per gallon at
$3.08 compared to $2.18 for the year ended December 31,
2007. Our fuel costs represented 43% and 36% of our operating
expenses in 2008 and 2007, respectively. Cost per available seat
mile increased 42% primarily due to higher fuel prices.
Salaries, wages and benefits increased 7%, or $46 million,
due primarily to a 4% increase in average
full-time
equivalent employees and increases in pay rates, offset by a
decrease in overtime pay that was incurred in connection with
the weather-related events in the first quarter of 2007. The
increase in average full-time
33
equivalent employees is partially driven by our policy of not
furloughing employees during economic downturns. Cost per
available seat mile increased 5% as a result of the increases in
salaries, wages, and benefits.
Landing fees and other rents increased 11%, or $19 million,
due to a 5% increase in departures over 2007 and increased
airport rents associated with increased rates in existing
markets as well as the opening of two new cities in 2008. Cost
per available seat mile increased 9% due to the increased rents.
Depreciation and amortization increased 17%, or
$29 million, primarily due to having an average of 85 owned
and capital leased aircraft in 2008 compared to 78 in 2007 and
an $8 million asset write-off related to our temporary
terminal facility at JFK in 2008, as well as $5 million in
amortization related to our new terminal at JFK in 2008. Cost
per available seat mile was 15% higher due to the asset
write-off.
Aircraft rent increased 4%, or $5 million, due to operating
an average of five more aircraft under operating leases in 2008
compared to 2007. Cost per available seat mile increased 3% due
to a higher percentage of our fleet being leased.
Sales and marketing expense increased 26%, or $30 million,
primarily due to $16 million in higher credit card fees
resulting from increased passenger revenues and $5 million
in commissions related to our participation in GDSs, as well as
$10 million in higher advertising costs in 2008, which
included the launch of our Happy Jetting campaign.
On a cost per available seat mile basis, sales and marketing
expense increased 23%, primarily due to higher advertising costs
and higher credit card fees associated with our increase in
average fares. We book the majority of our reservations through
a combination of our website and our agents.
Maintenance materials and repairs increased 19%, or
$21 million, due to 12 more average operating aircraft in
2008 compared to 2007 and a gradual aging of our fleet. Cost per
available seat mile increased 18%, primarily due to an increase
in the average age of our fleet. Maintenance expense is expected
to increase significantly as our fleet ages.
Other operating expenses increased 8%, or $27 million,
primarily due to more LiveTV third-party customers, higher
variable costs associated with a 2% increase in capacity and a
3% increase in the number of passengers served. Other operating
expenses include the impact of $23 million and
$7 million in gains on sales of aircraft in 2008 and 2007,
respectively. Other operating expenses were further offset in
2008 by $7 million for certain tax incentives. Cost per
available seat mile increased 6% due primarily to additional
LiveTV third-party customer installations.
Other Income (Expense). Interest expense
increased 3%, or $7 million, primarily due to the impact of
partial conversion of our 5.5% convertible debentures due 2038
and the associated $11 million of accelerated payments from
the escrow accounts for these securities, $2 million in
issuance cost write-offs and increases of $33 million in
interest associated with the debt financing for new aircraft
deliveries and other non-aircraft related debt. Interest expense
was reduced by approximately $43 million due to lower
interest rates and the scheduled pay downs of our long-term debt
obligations and an additional $8 million related to retired
debt for sold aircraft. Interest expense also included an
increased accretion in interest related to the construction
obligation for our new terminal at JFK, of which
$12 million was capitalized. This increase in capitalized
interest was offset by lower balances on our pre-delivery
deposit facility and lower interest rates.
Interest income and other decreased 110%, or $59 million,
primarily due to a $53 million net impairment charge for
ARS and a $20 million decrease in interest income due to
lower rates of return in 2008, offset partially by
$14 million in gains on the extinguishment of debt.
Our effective tax rate was 6% in 2008 compared to 61% in 2007,
mainly due to the establishment of a valuation allowance of
$21 million related to our $67 million ARS impairment.
Our effective tax rate differs from the statutory income tax
rate due to the nondeductibility of certain items for tax
purposes and the relative size of these items to our pre-tax
loss of $90 million in 2008 and pre-tax income of
$31 million in 2007.
34
Quarterly
Results of Operations
The following table sets forth selected financial data and
operating statistics for the four quarters ended
December 31, 2009. The information for each of these
quarters is unaudited and has been prepared on the same basis as
the audited consolidated financial statements appearing
elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Statements of Operations Data (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
793
|
|
|
$
|
807
|
|
|
$
|
854
|
|
|
$
|
832
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
222
|
|
|
|
236
|
|
|
|
255
|
|
|
|
232
|
|
Salaries, wages and benefits
|
|
|
185
|
|
|
|
192
|
|
|
|
199
|
|
|
|
200
|
|
Landing fees and other rents
|
|
|
50
|
|
|
|
54
|
|
|
|
56
|
|
|
|
53
|
|
Depreciation and amortization
|
|
|
55
|
|
|
|
56
|
|
|
|
59
|
|
|
|
58
|
|
Aircraft rent
|
|
|
32
|
|
|
|
32
|
|
|
|
31
|
|
|
|
31
|
|
Sales and marketing
|
|
|
37
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Maintenance materials and repairs
|
|
|
37
|
|
|
|
34
|
|
|
|
40
|
|
|
|
38
|
|
Other operating expenses (1)
|
|
|
102
|
|
|
|
89
|
|
|
|
110
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
720
|
|
|
|
731
|
|
|
|
788
|
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
73
|
|
|
|
76
|
|
|
|
66
|
|
|
|
64
|
|
Other income (expense) (2)
|
|
|
(53
|
)
|
|
|
(40
|
)
|
|
|
(43
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
20
|
|
|
|
36
|
|
|
|
23
|
|
|
|
20
|
|
Income tax expense (benefit)
|
|
|
8
|
|
|
|
16
|
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12
|
|
|
$
|
20
|
|
|
$
|
15
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
9.3
|
%
|
|
|
9.4
|
%
|
|
|
7.7
|
%
|
|
|
7.6
|
%
|
Pre-tax margin
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
|
|
2.7
|
%
|
|
|
2.4
|
%
|
Operating Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers (thousands)
|
|
|
5,291
|
|
|
|
5,691
|
|
|
|
6,011
|
|
|
|
5,457
|
|
Revenue passenger miles (millions)
|
|
|
6,040
|
|
|
|
6,545
|
|
|
|
7,027
|
|
|
|
6,343
|
|
Available seat miles ASM (millions)
|
|
|
7,942
|
|
|
|
8,237
|
|
|
|
8,391
|
|
|
|
7,988
|
|
Load factor
|
|
|
76.0
|
%
|
|
|
79.5
|
%
|
|
|
83.7
|
%
|
|
|
79.4
|
%
|
Aircraft utilization (hours per day)
|
|
|
12.0
|
|
|
|
11.9
|
|
|
|
11.5
|
|
|
|
10.8
|
|
Average fare
|
|
$
|
133.39
|
|
|
$
|
126.74
|
|
|
$
|
127.04
|
|
|
$
|
135.07
|
|
Yield per passenger mile (cents)
|
|
|
11.69
|
|
|
|
11.02
|
|
|
|
10.87
|
|
|
|
11.62
|
|
Passenger revenue per ASM (cents)
|
|
|
8.89
|
|
|
|
8.76
|
|
|
|
9.10
|
|
|
|
9.23
|
|
Operating revenue per ASM (cents)
|
|
|
9.98
|
|
|
|
9.80
|
|
|
|
10.19
|
|
|
|
10.41
|
|
Operating expense per ASM (cents)
|
|
|
9.06
|
|
|
|
8.88
|
|
|
|
9.40
|
|
|
|
9.62
|
|
Operating expense per ASM, excluding fuel (cents)
|
|
|
6.25
|
|
|
|
6.02
|
|
|
|
6.36
|
|
|
|
6.71
|
|
Airline operating expense per ASM (cents) (3)
|
|
|
8.83
|
|
|
|
8.66
|
|
|
|
9.13
|
|
|
|
9.35
|
|
Departures
|
|
|
53,014
|
|
|
|
54,885
|
|
|
|
55,420
|
|
|
|
52,207
|
|
Average stage length (miles)
|
|
|
1,064
|
|
|
|
1,067
|
|
|
|
1,081
|
|
|
|
1,091
|
|
Average number of operating aircraft during period
|
|
|
142.3
|
|
|
|
147.4
|
|
|
|
151.0
|
|
|
|
151.0
|
|
Average fuel cost per gallon, including fuel taxes
|
|
$
|
2.03
|
|
|
$
|
2.05
|
|
|
$
|
2.14
|
|
|
$
|
2.08
|
|
Fuel gallons consumed (millions)
|
|
|
109
|
|
|
|
115
|
|
|
|
119
|
|
|
|
112
|
|
Full-time equivalent employees at period end (3)
|
|
|
10,047
|
|
|
|
10,235
|
|
|
|
10,246
|
|
|
|
10,704
|
|
|
|
|
(1) |
|
During the first quarter, we sold two EMBRAER 190 aircraft which
resulted in a gain of $1 million. During the second quarter
of 2009, we recorded $11 million in gains related to
certain tax incentives. |
35
|
|
|
(2) |
|
During the first, second, and third quarters of 2009, we
recorded a net $8 million loss, $6 million gain, and
$3 million gain in other-than temporary holding adjustments
related to the valuation of our auction rate securities,
respectively. During the third quarter, we recorded
$2 million in the gain on extinguishment of debt. |
|
(3) |
|
Excludes results of operations and employees of LiveTV, LLC,
which are unrelated to our airline operations and are immaterial
to our consolidated operating results. |
Although we have recently faced a difficult revenue environment
amid an uncertain economy, we do not expect this trend of
declining revenues to continue. We expect our expenses to
continue to increase significantly as we acquire additional
aircraft, as our fleet ages and as we expand the frequency of
flights in existing markets and enter into new markets.
Accordingly, the comparison of the financial data for the
quarterly periods presented may not be meaningful. In addition,
we expect our operating results to fluctuate significantly from
quarter-to-quarter
in the future as a result of various factors, many of which are
outside our control. Consequently, we believe that
quarter-to-quarter
comparisons of our operating results may not necessarily be
meaningful and you should not rely on our results for any one
quarter as an indication of our future performance.
Liquidity
and Capital Resources
At December 31, 2009, we had cash and cash equivalents of
$896 million, as compared to cash and cash equivalents of
$561 million at December 31, 2008. Cash flows provided
by operating activities totaled $486 million in 2009
compared to cash flows used in operating activities of
$17 million in 2008 and cash flows provided by operating
activities of $358 million in 2007. The $503 million
increase in cash flows from operations in 2009 compared to 2008
was primarily as a result of a 33% lower price of fuel in 2009
compared to 2008 and the $149 million in collateral we
posted for margin calls related to our outstanding fuel hedge
and interest rate swap contracts in 2008, most of which was
returned to us during 2009. We also posted $70 million in
restricted cash that collateralizes letters of credit issued to
certain of our business partners in 2008, including
$55 million for our primary credit card processor. In 2009,
$65 million of the restricted cash was returned to us. Cash
flows from operations in 2008 compared to 2007 decreased due to
the higher cost of fuel and the collateral and restricted cash
posted. We rely primarily on cash flows from operations to
provide working capital for current and future operations.
At December 31, 2009, we had one line of credit secured by
all of our ARS, which was fully drawn, totaling $56 million.
Investing Activities. During 2009, capital
expenditures related to our purchase of flight equipment
included $313 million for 11 aircraft and two spare
engines, $27 million for flight equipment deposits and
$13 million for spare part purchases. Capital expenditures
for other property and equipment, including ground equipment
purchases and facilities improvements, were $108 million.
Proceeds from the sale of certain auction rate securities were
$175 million. Expenditures related to the construction of
our terminal at JFK totaled $47 million. Investing
activities in 2009 also included the net purchase of
$172 million in investment securities. Other investing
activities included the receipt of $58 million in proceeds
from the sale of two EMBRAER 190 aircraft.
During 2008, capital expenditures related to our purchase of
flight equipment included $587 million for 18 aircraft and
four spare engines, $49 million for flight equipment
deposits and $7 million for spare part purchases. Capital
expenditures for other property and equipment, including ground
equipment purchases and facilities improvements, were
$60 million. Expenditures related to the construction of
our new terminal at JFK totaled $142 million. Net cash
provided by the sale of investment securities was
$328 million. Other investing activities included the
receipt of $299 million in proceeds from the sale of nine
aircraft.
Financing Activities. Financing activities
during 2009 consisted primarily of (1) our issuance of
$201 million of 6.75% convertible debentures, raising net
proceeds of approximately $197 million, (2) our public
offering of approximately 26.5 million shares of common
stock for approximately $109 million in net proceeds,
(3) our issuance of $143 million in fixed rate
equipment notes to banks and $102 million in floating rate
equipment notes to banks secured by three Airbus A320 and six
EMBRAER 190 aircraft, (4) paying down a net of
$107 million on our lines of credit collateralized by our
ARS, (5) scheduled maturities of
36
$160 million of debt and capital lease obligations,
(6) the repurchase of $20 million principal amount of
3.75% convertible debentures due 2035 for $20 million, and
(7) the reimbursement of construction costs incurred for
Terminal 5 of $49 million.
Financing activities during 2008 consisted primarily of
(1) the issuance of approximately 42.6 million shares
of common stock to Deutsche Lufthansa AG for approximately
$300 million, net of transaction costs, (2) our public
offering of $201 million aggregate principal amount of 5.5%
convertible debentures due 2038, raising net proceeds of
approximately $165 million after depositing
$32 million in separate interest escrow accounts for these
securities and issuance costs, (3) our issuance of
$340 million in fixed rate equipment notes to various
financial institutions secured by 11 aircraft, (4) our
issuance of $181 million in floating rate equipment notes
to various financial institutions secured by six aircraft,
(5) proceeds of two lines of credit totaling
$163 million collateralized by our ARS,
(6) reimbursement of construction costs incurred for our
new terminal at JFK of $138 million, (7) the financing
of four spare engine purchases of $26 million, (8) the
sale and leaseback over 18 years of one aircraft for
$26 million by a U.S leasing institution,
(9) scheduled maturities of $404 million of debt,
including the repayment of $174 million principal amount of
3.5% convertible debt issued in 2003, (10) the repayment of
$209 million of debt in connection with the sale of nine
aircraft, and (11) the repurchase of $73 million
principal amount of 3.75% convertible debentures due 2035 for
$55 million.
In October 2009, we filed an automatic shelf registration
statement with the SEC relating to our sale, from time to time,
in one or more public offerings of debt securities, pass-through
certificates, common stock, preferred stock
and/or other
securities. The net proceeds of any securities we sell under
this registration statement may be used to fund working capital
and capital expenditures, including the purchase of aircraft and
construction of facilities on or near airports. Through
December 31, 2009, we had not issued any securities under
this registration statement. At this time, we have no plans to
sell securities under this registration statement and our
ability to do so at this time may be limited.
None of our lenders or lessors are affiliated with us.
Capital Resources. We have been able to
generate sufficient funds from operations to meet our working
capital requirements. Other than one line of credit, which is
secured by ARS held by us, and our short-term aircraft
predelivery deposit facility, substantially all of our property
and equipment is encumbered. We typically finance our aircraft
through either secured debt or lease financing. At
December 31, 2009, we operated a fleet of 151 aircraft, of
which 55 were financed under operating leases, four were
financed under capital leases and all but one of the remaining
92 were financed by secured debt. We have received committed
financing for the four aircraft scheduled for delivery in 2010.
Although we believe that debt
and/or lease
financing should be available for our remaining aircraft
deliveries, we cannot assure you that we will be able to secure
financing on terms attractive to us, 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
significantly regardless of the financing method ultimately
chosen. To the extent we cannot secure financing, we may be
required to further modify our aircraft acquisition plans or
incur higher than anticipated financing costs.
Working Capital. We had working capital of
$369 million at December 31, 2009, compared to a
working capital deficit of $119 million at
December 31, 2008. Our working capital includes the fair
value of our short term fuel hedge derivatives, which was an
asset of $25 million at December 31, 2009 and a
liability of $128 million at December 31, 2008. We had
reduced our December 31, 2008 liability associated with
these instruments by posting $138 million in cash
collateral with our counterparties. Also contributing to our
working capital is the classification of our $85 million of
ARS as short-term assets at December 31, 2009. All of our
ARS held at December 31, 2008 were classified as long term.
At December 31, 2008, we had $244 million invested in
ARS, which were included in long-term investments. Beginning in
February 2008, all of the ARS then held by us experienced failed
auctions which resulted in us continuing to hold these
securities beyond the initial auction reset periods. All of our
ARS are collateralized by student loan portfolios (substantially
all of which are guaranteed by the United States Government).
Despite the quality of the underlying collateral, the market for
ARS and other securities has been diminished due to the lack of
liquidity experienced in the market since early 2008 and
expected to be experienced into the future.
37
During 2008, various regulatory agencies began investigating the
sales and marketing activities of the banks and broker-dealers
that sold ARS, alleging violations of federal and state laws in
connection with these activities. One of the two broker-dealers
from which we purchased ARS announced settlements under which
they will repurchase the ARS at par at a future date. As a
result of our participation in this settlement agreement, UBS is
required to repurchase our ARS brokered by them beginning in
June 2010. In October 2009, we entered into an agreement with
Citigroup, whereby they repurchased all our outstanding ARS
issued by them for approximately $120 million.
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, as
they may be available to us. We expect to continue 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 we are operating in or from
events that are beyond our control, such as the volatile fuel
prices, the current economic recession and global credit and
liquidity crisis, weather-related disruptions, the impact of
airline bankruptcies 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.
Contractual
Obligations
Our noncancelable contractual obligations at December 31,
2009 include (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due in
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Long-term debt and capital lease obligations (1)
|
|
$
|
4,150
|
|
|
$
|
514
|
|
|
$
|
295
|
|
|
$
|
289
|
|
|
$
|
480
|
|
|
$
|
682
|
|
|
$
|
1,890
|
|
Lease commitments
|
|
|
1,796
|
|
|
|
208
|
|
|
|
191
|
|
|
|
168
|
|
|
|
140
|
|
|
|
142
|
|
|
|
947
|
|
Flight equipment obligations
|
|
|
4,500
|
|
|
|
235
|
|
|
|
575
|
|
|
|
790
|
|
|
|
790
|
|
|
|
735
|
|
|
|
1,375
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing obligations and other (2)
|
|
|
3,784
|
|
|
|
202
|
|
|
|
189
|
|
|
|
231
|
|
|
|
243
|
|
|
|
252
|
|
|
|
2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,230
|
|
|
$
|
1,159
|
|
|
$
|
1,250
|
|
|
$
|
1,478
|
|
|
$
|
1,653
|
|
|
$
|
1,811
|
|
|
$
|
6,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes actual interest and estimated interest for
floating-rate debt based on December 31, 2009 rates. |
|
(2) |
|
Amounts include noncancelable commitments for the purchase of
goods and services. |
The interest rates are fixed for $1.85 billion of our debt
and capital lease obligations, with the remaining
$1.45 billion having floating interest rates. The floating
interest rates adjust quarterly or semi-annually based on the
London Interbank Offered Rate, or LIBOR. The weighted average
maturity of all of our debt was 8 years at
December 31, 2009. We are not subject to any financial
covenants in any of our debt obligations. Our spare parts
pass-through certificates issued in November 2006 require us to
maintain certain non-financial collateral coverage ratios, which
could require us to provide additional spare parts collateral or
redeem some or all of the related equipment notes. At
December 31, 2009, we were in compliance with all covenants
of our debt and lease agreements and 78% of our owned property
and equipment was collateralized.
We have operating lease obligations for 55 aircraft with lease
terms that expire between 2011 and 2026. Five of these leases
have variable-rate rent payments that adjust semi-annually based
on LIBOR. We also lease airport terminal space and other airport
facilities in each of our markets, as well as office space and
other equipment. We have approximately $29 million of
restricted assets pledged under standby letters of credit
related to certain of our leases which will expire at the end of
the related lease terms.
Including the effects of the 2009 amendments to our Airbus and
EMBRAER purchase agreements, our firm aircraft orders at
December 31, 2009 consisted of 55 Airbus A320 aircraft and
60 EMBRAER 190 aircraft scheduled for delivery as follows: 4 in
2010, 13 in 2011, 19 in 2012, 20 in 2013, 19 in 2014, 16 in
2015, 8 in 2016, 8 in 2017, and 8 in 2018. We have the right to
cancel five firm EMBRAER 190 deliveries in 2012 or later,
provided no more than two deliveries are canceled in any one
year. In February 2010, we further amended our Airbus A320
purchase agreement, deferring six aircraft previously scheduled
for delivery in 2011 and 2012 to 2015, the effects of which are
not reflected above. We meet our predelivery deposit
requirements
38
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.
We also have options to acquire 8 additional Airbus A320
aircraft for delivery from 2014 through 2015 and 74 additional
EMBRAER 190 aircraft for delivery from 2011 through 2018. We can
elect to substitute Airbus A321 aircraft or A319 aircraft for
the A320 aircraft until 21 months prior to the scheduled
delivery date for those aircraft not on firm order.
In October 2008, we began operating out of our new Terminal 5 at
JFK, or Terminal 5, which we had been constructing since
November 2005. The construction and operation of this facility
is governed by a lease agreement that we entered into with the
PANYNJ in 2005. We are responsible for making various payments
under the lease, including ground rents for the new terminal
site which began on lease execution in 2005 and facility rents
that commenced in October 2008 upon our occupancy of the new
terminal. The facility rents are based on the number of
passengers enplaned out of the new terminal, subject to annual
minimums. The PANYNJ has reimbursed us for costs of this project
in accordance with the terms of the lease, except for
approximately $77 million in leasehold improvements that
have been provided by us. For financial reporting purposes, this
project is being accounted for as a financing obligation, with
the constructed asset and related liability being reflected on
our balance sheets. Minimum ground and facility rents for this
terminal totaling $1.25 billion are included in the
commitments table above as lease commitments and financing
obligations.
Anticipated capital expenditures for facility improvements,
spare parts and ground purchases in 2010 are projected to be
approximately $155 million. Our commitments also include
those of LiveTV, which has several noncancelable long-term
purchase agreements with its suppliers to provide equipment to
be installed on its customers aircraft, including
JetBlues aircraft.
We enter into individual employment agreements with each of our
FAA-licensed employees. Each employment agreement is for a term
of five years and automatically renews for an additional
five-year term unless the employee is terminated for cause or
the employee elects not to renew it. Pursuant to these
agreements, these employees can only be terminated for cause. In
the event of a downturn in our business that would require a
reduction in work hours, we are obligated to pay these employees
a guaranteed level of income and to continue their benefits. As
we are not currently obligated to pay this guaranteed income and
benefits, no amounts related to these guarantees are included in
the table above.
Off-Balance
Sheet Arrangements
None of our operating lease obligations are reflected on our
balance sheet. Although some of our aircraft lease arrangements
are variable interest entities, as defined by ASC 810,
Consolidation, none of them require consolidation in our
financial statements. The 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
option and a consideration of additional liquidity requirements.
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
which are the purchasers of equipment notes issued by us to
finance the acquisition of new aircraft and certain aircraft
spare parts owned by JetBlue and held by such pass-through
trusts. These
pass-through
trusts 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. The liquidity providers for the
Series 2004-1
aircraft certificates and the spare parts certificates are
Landesbank Hessen-Thüringen Girozentrale and Morgan Stanley
Capital Services Inc. The liquidity providers for the
Series 2004-2
aircraft certificates are Landesbank Baden-Württemberg and
Citibank, N.A.
We use a policy provider to provide credit support on our
Class G-1
and
Class G-2
floating rate enhanced equipment notes. The policy provider has
unconditionally guaranteed the payment of interest on the
certificates when due and the payment of principal on the
certificates no later than 18 months after the final
expected regular distribution date. The policy provider is MBIA
Insurance Corporation (a subsidiary of MBIA,
39
Inc.). Financial information for the parent company of the
policy provider is available at the SECs website
at http://www.sec.gov
or at the SECs public reference room in
Washington, D.C.
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. See Notes 2,
3 and 12 to our consolidated financial statements for a more
detailed discussion of our variable interests and other
contingencies, including guarantees and indemnities.
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
generally accepted accounting principles requires management to
adopt accounting policies and make estimates and judgments to
develop amounts reported in our financial statements and
accompanying notes. We maintain a thorough process to review the
application of our accounting policies and to evaluate the
appropriateness of the estimates that are required to prepare
our financials statements. We believe that our estimates and
judgments are reasonable; however, actual results and the timing
of recognition of such amounts could differ from those
estimates. In addition, estimates routinely require adjustment
based on changing circumstances and the receipt of new or better
information.
Critical accounting policies and estimates are defined as those
that are reflective of significant judgments and uncertainties,
and potentially result in materially different results under
different assumptions and conditions. The policies and estimates
discussed below have been reviewed with our independent
registered public accounting firm and with the Audit Committee
of our Board of Directors. For a discussion of these and other
accounting policies, see Note 1 to our consolidated
financial statements.
Passenger revenue. Passenger ticket sales are
initially deferred in air traffic liability. The air traffic
liability also includes customer credits issued and unused
tickets whose travel date has passed. Credit for unused tickets
and customer credits can each be applied towards another ticket
within 12 months of the original scheduled service or
12 months from the issuance of the customer credit. Revenue
is recognized when transportation is provided or when a ticket
or customer credit expires. We also defer in the air traffic
liability, an estimate for customer credits issued in
conjunction with the JetBlue Airways Customer Bill of Rights
that are expected to be ultimately redeemed. These estimates are
based on historical experience and are periodically evaluated,
and adjusted if necessary, based on actual credit usage.
Accounting for long-lived assets. In
accounting for long-lived assets, we make estimates about the
expected useful lives, projected residual values and the
potential for impairment. In estimating useful lives and
residual values of our aircraft, we have relied upon actual
industry experience with the same or similar aircraft types and
our anticipated utilization of the aircraft. Changing market
prices of new and used aircraft, government regulations and
changes in our maintenance program or operations could result in
changes to these estimates.
Our long-lived assets are evaluated for impairment at least
annually or when events and circumstances indicate that the
assets may be impaired. Indicators include operating or cash
flow losses, significant decreases in market value or changes in
technology. As our assets are all relatively new and we continue
to have positive operating cash flows, we have not identified
any significant impairments related to our long-lived assets at
this time.
Share-based compensation. The adoption of ASC
718, Compensation-Stock Compensation, in 2006 required
the recording of stock-based compensation expense for issuances
under our stock purchase plan and stock incentive plan over
their requisite service period using a fair value approach. We
use a Black-Scholes-Merton option pricing model to estimate the
fair value of share-based awards. The Black-Scholes-Merton
option pricing model incorporates various and highly subjective
assumptions. We estimate the expected term of options granted
using an implied life derived from the results of a lattice
model, which incorporates our historical exercise and
post-vesting cancellation patterns, which we believe are
representative of future behavior. The expected term of
restricted stock units is based on the requisite service period
of the awards being granted. We estimate the expected volatility
of our common stock at the grant date using a blend of 75%
historical volatility of our common stock and 25% implied
volatility of two-year publicly traded options on our common
stock as of the option grant date. Our decision to use a blend
of historical and implied
40
volatility was based upon the volume of actively traded options
on our common stock and our belief that historical volatility
alone may not be completely representative of future stock price
trends. Regardless of the method selected, significant judgment
is required for some of the valuation variables. The most
significant of these is the volatility of our common stock and
the estimated term over which our stock options will be
outstanding. The valuation calculation is sensitive to even
slight changes in these estimates.
Lease accounting. We operate airport
facilities, offices buildings and aircraft under operating
leases with minimum lease payments associated with these
agreements recognized as rent expense on a straight-line basis
over the expected lease term. Within the provisions of certain
leases there are minimum escalations in payments over the base
lease term and periodic adjustments of lease rates, landing
fees, and other charges applicable under such agreements, as
well as renewal periods. The effects of the escalations and
other adjustments have been reflected in rent expense on a
straight-line basis over the lease term, which includes renewal
periods when it is deemed to be reasonably assured that we would
incur an economic penalty for not renewing. The amortization
period for leasehold improvements is the term used in
calculating straight-line rent expense or their estimated
economic life, whichever is shorter. Had different conclusions
been reached with respect to the lease term and related renewal
periods, different amounts of amortization and rent expense
would have been reported.
Derivative instruments used for aircraft
fuel. We utilize financial derivative instruments
to manage the risk of changing aircraft fuel prices. We do not
purchase or hold any derivative instrument for trading purposes.
At December 31, 2009, we had a $28 million asset
related to the net fair value of these derivative instruments;
the majority of which are not traded on a public exchange. Fair
values are assigned based on commodity prices that are provided
to us by independent third parties. When possible, we designate
these instruments as cash flow hedges for accounting purposes,
as defined by ASC 815, Derivatives and Hedging, which
permits the deferral of the effective portions of gains or
losses until contract settlement.
ASC 815 is a complex accounting standard and requires that we
develop and maintain a significant amount of documentation
related to (1) our fuel hedging program and strategy,
(2) statistical analysis supporting a highly correlated
relationship between the underlying commodity in the derivative
financial instrument and the risk being hedged (i.e. aircraft
fuel) on both a historical and prospective basis and
(3) cash flow designation for each hedging transaction
executed, to be developed concurrently with the hedging
transaction. This documentation requires that we estimate
forward aircraft fuel prices since there is no reliable forward
market for aircraft fuel. These prices are developed through the
observation of similar commodity futures prices, such as crude
oil and/or
heating oil, and adjusted based on variations to those like
commodities. Historically, our hedges have settled within
24 months; therefore, the deferred gains and losses have
been recognized into earnings over a relatively short period of
time.
Fair value measurements. We adopted ASC
820-10,
Fair Value Measurements and Disclosures, which
establishes a framework for measuring fair value and requires
enhanced disclosures about fair value measurements, on
January 1, 2008. ASC
820-10
clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. ASC
820-10 also
requires disclosure about how fair value is determined for
assets and liabilities and establishes a hierarchy for which
these assets and liabilities must be grouped, based on
significant levels of inputs. We rely on unobservable
(level 3) inputs, which are highly subjective, in
determining the fair value of certain assets and liabilities,
including ARS and our interest rate swaps.
We have elected to apply the fair value option under ASC
825-10,
Financial Instruments, to an agreement with one of our
ARS broker, to repurchase in 2010, at par. We recorded an
$11 million asset associated with the fair value of this
put option, which offsets the $11 million of cumulative
impairment on the related ARS. The fair value of the put is
determined by comparing the fair value of the related ARS, as
described above, to their par values and also considers the
credit risk associated with the broker. This put option will be
adjusted on each balance sheet date based on its then fair
value. The fair value of the put option is based on unobservable
inputs and is therefore classified as level 3 in the
hierarchy.
In February 2008 and February 2009, we entered into various
interest rate swaps, which qualify as cash flow hedges in
accordance with ASC 815. The fair values of our interest rate
swaps were initially based on inputs received from the
counterparty. These values were corroborated by adjusting the
active swap indications
41
in quoted markets for similar terms (6-8 years) for the
specific terms within our swap agreements. There was no
ineffectiveness relating to these interest rate swaps in 2009
since all critical terms continued to match the underlying debt,
with all of the unrealized losses being deferred in accumulated
other comprehensive income.
Frequent flyer accounting. We utilize a number
of estimates in accounting for our TrueBlue customer loyalty
program, or TrueBlue, which are consistent with industry
practices. We record a liability, which was $4 million as
of December 31, 2009, for the estimated incremental cost of
providing free travel awards, including an estimate for
partially earned awards. The estimated cost includes incremental
fuel, insurance, passenger food and supplies, and reservation
costs. We adjust this liability, which is included in air
traffic liability, based on points earned and redeemed, changes
in the estimated incremental costs associated with providing
travel and changes in the TrueBlue program. In November 2009, we
launched an improved version of TrueBlue, which allows customers
to earn points based on the value paid for a trip rather than
the length of the trip. In addition, unlike our original
program, the improved version does not result in the automatic
generation of a travel award once minimum award levels are
reached, but instead the points are maintained in the account
until used by the member or until they expire 12 months
after the last account activity. As a result of these changes we
expect breakage, or the points that ultimately expire unused, to
be substantially reduced. Estimates of breakage for the improved
version of TrueBlue have been made based on a simulation of the
improved program rules using our historical data. As more data
is collected by us on our members behaviors in the program,
these estimates may change. Periodically, we evaluate our
assumptions for appropriateness, including comparison of the
cost estimates to actual costs incurred as well as the
expiration and redemption assumptions to actual experience.
Changes in the minimum award levels or in the lives of the
awards would also require us to reevaluate the liability,
potentially resulting in a significant impact in the year of
change as well as in future years.
Points in TrueBlue can also be sold to participating companies,
including credit card and car rental companies. These sales are
accounted for as multiple-element arrangements, with one element
representing the travel that will ultimately be provided when
the points are redeemed and the other consisting of marketing
related activities that we conduct with the participating
company. The fair value of the transportation portion of these
point sales is deferred and recognized as passenger revenue when
transportation is provided. The remaining portion, which is the
excess of the total sales proceeds over the estimated fair value
of the transportation to be provided, is recognized in other
revenue when the points are sold. Deferred revenue for points
not redeemed is recognized as revenue when the underlying points
expire. Deferred revenue was $54 million at
December 31, 2009. Historically, expiration of points sold
has been minimal; however, with program changes made to TrueBlue
during 2009 we recorded $5 million in revenue for point
expirations.
Our co-branded credit card agreement, under which we sell
TrueBlue points as described above, provides for a minimum point
sales guarantee, which is to be paid to us throughout the life
of the agreement if specified point sales have not been
achieved. Through December 31, 2009, we had received
$21 million in connection with this guarantee, which is
subject to refund in the event that point sales exceed future
minimums. We record revenue related to this guarantee when it is
remote that any future service will be provided by us. During
2009, we recognized approximately $5 million related to
this guarantee, leaving $16 million deferred and included
in our air traffic liability. In December 2009, we extended our
initial co-brand arrangement through 2015.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The risk inherent in our market risk sensitive instruments and
positions is the potential loss arising from adverse changes to
the price of fuel and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that
such adverse changes may have on the overall economic activity,
nor do they consider additional actions we may take to mitigate
our exposure to such changes. Variable-rate leases are not
considered market sensitive financial instruments and,
therefore, are not included in the interest rate sensitivity
analysis below. Actual results may differ. See Notes 1, 2
and 13 to our consolidated financial statements for accounting
policies and additional information.
42
Aircraft fuel. Our results of operations are
affected by changes in the price and availability of aircraft
fuel. To manage the price risk, we use crude or heating oil
option contracts or jet fuel swap agreements. Market risk is
estimated as a hypothetical 10% increase in the
December 31, 2009 cost per gallon of fuel. Based on
projected 2010 fuel consumption, such an increase would result
in an increase to aircraft fuel expense of approximately
$101 million in 2010, compared to an estimated
$75 million for 2009 measured as of December 31, 2008.
As of December 31, 2009, we had hedged approximately 40% of
our projected 2010 fuel requirements. All hedge contracts
existing at December 31, 2009 settle by June 30, 2011.
We expect to realize approximately $12 million in gains
during 2010 currently in other comprehensive income related to
our outstanding fuel hedge contracts.
Interest. Our earnings are affected by changes
in interest rates due to the impact those changes have on
interest expense from variable-rate debt instruments and on
interest income generated from our cash and investment balances.
The interest rate is fixed for $1.85 billion of our debt
and capital lease obligations, with the remaining
$1.45 billion having floating interest rates. If interest
rates average 10% higher in 2010 than they did during 2009, our
interest expense would increase by approximately
$1 million, compared to an estimated $4 million for
2009 measured as of December 31, 2008. If interest rates
average 10% lower in 2010 than they did during 2009, our
interest income from cash and investment balances would decrease
by approximately $1 million, compared to $1 million
for 2009 measured as of December 31, 2008. These amounts
are determined by considering the impact of the hypothetical
interest rates on our variable-rate debt, cash equivalents and
investment securities balances at December 31, 2009 and
2008.
Fixed Rate Debt. On December 31, 2009,
our $482 million aggregate principal amount of convertible
debt had a total estimated fair value of $605 million,
based on quoted market prices. If interest rates were 10% higher
than the stated rate, the fair value of this debt would have
been $569 million as of December 31, 2009.
43
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
JETBLUE
AIRWAYS CORPORATION
(In millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
896
|
|
|
$
|
561
|
|
Investment securities
|
|
|
240
|
|
|
|
|
|
Receivables, less allowance (2009-$6; 2008-$5)
|
|
|
81
|
|
|
|
86
|
|
Inventories, less allowance (2009-$3; 2008-$4)
|
|
|
40
|
|
|
|
30
|
|
Restricted cash
|
|
|
13
|
|
|
|
78
|
|
Prepaid expenses
|
|
|
147
|
|
|
|
91
|
|
Other
|
|
|
43
|
|
|
|
10
|
|
Deferred income taxes
|
|
|
78
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,538
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
4,170
|
|
|
|
3,832
|
|
Predelivery deposits for flight equipment
|
|
|
139
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309
|
|
|
|
3,995
|
|
Less accumulated depreciation
|
|
|
540
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,769
|
|
|
|
3,589
|
|
|
|
|
|
|
|
|
|
|
Other property and equipment
|
|
|
515
|
|
|
|
487
|
|
Less accumulated depreciation
|
|
|
169
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets constructed for others
|
|
|
549
|
|
|
|
533
|
|
Less accumulated depreciation
|
|
|
26
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
4,638
|
|
|
|
4,470
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
6
|
|
|
|
244
|
|
Restricted cash
|
|
|
64
|
|
|
|
69
|
|
Other
|
|
|
308
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
378
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
6,554
|
|
|
$
|
6,020
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
JETBLUE
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
93
|
|
|
$
|
144
|
|
Air traffic liability
|
|
|
455
|
|
|
|
445
|
|
Accrued salaries, wages and benefits
|
|
|
121
|
|
|
|
107
|
|
Other accrued liabilities
|
|
|
116
|
|
|
|
113
|
|
Short-term borrowings
|
|
|
|
|
|
|
120
|
|
Current maturities of long-term debt and capital leases
|
|
|
384
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,169
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
|
|
|
2,920
|
|
|
|
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSTRUCTION OBLIGATION
|
|
|
529
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED TAXES AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
259
|
|
|
|
197
|
|
Other
|
|
|
138
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
289
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 25,000,000 shares
authorized, none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 500,000,000 shares
authorized, 318,592,283
|
|
|
|
|
|
|
|
|
and 288,633,882 shares issued and 291,490,758 and
271,763,139 shares outstanding
|
|
|
|
|
|
|
|
|
in 2009 and 2008, respectively
|
|
|
3
|
|
|
|
3
|
|
Treasury stock, at cost; 27,102,136 and 16,878,876 shares
in 2009 and 2008, respectively
|
|
|
(2
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,419
|
|
|
|
1,287
|
|
Retained earnings
|
|
|
118
|
|
|
|
60
|
|
Accumulated other comprehensive income (loss), net of taxes
|
|
|
1
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,539
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
6,554
|
|
|
$
|
6,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
$
|
2,928
|
|
|
$
|
3,056
|
|
|
$
|
2,636
|
|
Other
|
|
|
358
|
|
|
|
332
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,286
|
|
|
|
3,388
|
|
|
|
2,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes ($34, $45, and $39 in 2009,
2008, and 2007, respectively)
|
|
|
945
|
|
|
|
1,397
|
|
|
|
968
|
|
Salaries, wages and benefits
|
|
|
776
|
|
|
|
694
|
|
|
|
648
|
|
Landing fees and other rents
|
|
|
213
|
|
|
|
199
|
|
|
|
180
|
|
Depreciation and amortization
|
|
|
228
|
|
|
|
205
|
|
|
|
176
|
|
Aircraft rent
|
|
|
126
|
|
|
|
129
|
|
|
|
124
|
|
Sales and marketing
|
|
|
151
|
|
|
|
151
|
|
|
|
121
|
|
Maintenance materials and repairs
|
|
|
149
|
|
|
|
127
|
|
|
|
106
|
|
Other operating expenses
|
|
|
419
|
|
|
|
377
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,007
|
|
|
|
3,279
|
|
|
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
279
|
|
|
|
109
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(197
|
)
|
|
|
(242
|
)
|
|
|
(235
|
)
|
Capitalized interest
|
|
|
7
|
|
|
|
48
|
|
|
|
43
|
|
Interest income and other
|
|
|
10
|
|
|
|
(5
|
)
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(180
|
)
|
|
|
(199
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
99
|
|
|
|
(90
|
)
|
|
|
31
|
|
Income tax expense (benefit)
|
|
|
41
|
|
|
|
(5
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
58
|
|
|
$
|
(85
|
)
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
46
JETBLUE
AIRWAYS CORPORATION
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58
|
|
|
$
|
(85
|
)
|
|
$
|
12
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
40
|
|
|
|
(6
|
)
|
|
|
19
|
|
Depreciation
|
|
|
190
|
|
|
|
189
|
|
|
|
161
|
|
Amortization
|
|
|
44
|
|
|
|
21
|
|
|
|
19
|
|
Stock-based compensation
|
|
|
16
|
|
|
|
16
|
|
|
|
15
|
|
Gains on sale of flight equipment and extinguishment of debt
|
|
|
(3
|
)
|
|
|
(45
|
)
|
|
|
(9
|
)
|
Collateral returned (deposits) for derivative instruments
|
|
|
132
|
|
|
|
(149
|
)
|
|
|
|
|
Auction rate securities impairment, net
|
|
|
|
|
|
|
53
|
|
|
|
|
|
Restricted cash returned by (paid for) business partners
|
|
|
65
|
|
|
|
(70
|
)
|
|
|
|
|
Changes in certain operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in receivables
|
|
|
3
|
|
|
|
4
|
|
|
|
(14
|
)
|
Decrease (Increase) in inventories, prepaid and other
|
|
|
(43
|
)
|
|
|
(10
|
)
|
|
|
3
|
|
Increase in air traffic liability
|
|
|
10
|
|
|
|
19
|
|
|
|
86
|
|
Increase (Decrease) in accounts payable and other accrued
liabilities
|
|
|
(66
|
)
|
|
|
15
|
|
|
|
36
|
|
Other, net
|
|
|
40
|
|
|
|
31
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
486
|
|
|
|
(17
|
)
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(434
|
)
|
|
|
(654
|
)
|
|
|
(617
|
)
|
Predelivery deposits for flight equipment
|
|
|
(32
|
)
|
|
|
(49
|
)
|
|
|
(128
|
)
|
Assets constructed for others
|
|
|
(47
|
)
|
|
|
(142
|
)
|
|
|
(242
|
)
|
Proceeds from sale of flight equipment
|
|
|
58
|
|
|
|
299
|
|
|
|
100
|
|
Refund of predelivery deposits for flight equipment
|
|
|
5
|
|
|
|
|
|
|
|
12
|
|
Purchase of
held-to-maturity
investments
|
|
|
(22
|
)
|
|
|
|
|
|
|
(11
|
)
|
Proceeds from maturities of
held-to-maturity
investments
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Purchase of
available-for-sale
securities
|
|
|
(636
|
)
|
|
|
(69
|
)
|
|
|
(654
|
)
|
Sale of
available-for-sale
securities
|
|
|
486
|
|
|
|
|
|
|
|
719
|
|
Sale of auction rate securities
|
|
|
175
|
|
|
|
397
|
|
|
|
|
|
Return of (deposits for) security deposits
|
|
|
(10
|
)
|
|
|
1
|
|
|
|
72
|
|
Increase in restricted cash and other assets, net
|
|
|
|
|
|
|
(30
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(457
|
)
|
|
|
(247
|
)
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
120
|
|
|
|
320
|
|
|
|
26
|
|
Issuance of long-term debt
|
|
|
446
|
|
|
|
716
|
|
|
|
376
|
|
Aircraft sale and leaseback transactions
|
|
|
|
|
|
|
26
|
|
|
|
183
|
|
Short-term borrowings
|
|
|
10
|
|
|
|
17
|
|
|
|
48
|
|
Borrowings collateralized by ARS
|
|
|
3
|
|
|
|
163
|
|
|
|
|
|
Construction obligation
|
|
|
49
|
|
|
|
138
|
|
|
|
242
|
|
Repayment of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
|
(180
|
)
|
|
|
(673
|
)
|
|
|
(265
|
)
|
Short-term borrowings
|
|
|
(20
|
)
|
|
|
(52
|
)
|
|
|
(44
|
)
|
Borrowings collateralized by ARS
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(12
|
)
|
|
|
(20
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
306
|
|
|
|
635
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
335
|
|
|
|
371
|
|
|
|
180
|
|
Cash and cash equivalents at beginning of period
|
|
|
561
|
|
|
|
190
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
896
|
|
|
$
|
561
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance at December 31, 2006
|
|
|
178
|
|
|
$
|
2
|
|
|
|
|
|
|
$
|
|
|
|
$
|
844
|
|
|
$
|
133
|
|
|
$
|
(7
|
)
|
|
$
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Changes in comprehensive income (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Exercise of common stock options
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under crewmember stock purchase plan
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
182
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
884
|
|
|
|
145
|
|
|
|
19
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
(85
|
)
|
Changes in comprehensive loss (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
Exercise of common stock options
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under crewmember stock purchase plan
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from secondary offering, net of offering expenses
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares loaned under 2008 Share Lending Agreement
|
|
|
44
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversions of 2008 Series A and B convertible notes
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares returned pursuant to 2008 share lending
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
289
|
|
|
|
3
|
|
|
|
17
|
|
|
|
|
|
|
|
1,287
|
|
|
|
60
|
|
|
|
(84
|
)
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
Changes in comprehensive income (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
Vesting of restricted stock units
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under crewmember stock purchase plan
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from secondary offering, net of offering expenses
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
319
|
|
|
$
|
3
|
|
|
|
27
|
|
|
$
|
(2
|
)
|
|
$
|
1,419
|
|
|
$
|
118
|
|
|
$
|
1
|
|
|
$
|
1,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
48
JetBlue Airways Corporation is an innovative passenger airline
that provides award winning customer service at competitive
fares primarily on
point-to-point
routes. We offer our customers a high quality product with
young, fuel-efficient aircraft, leather seats, free in-flight
entertainment at every seat, pre-assigned seating and reliable
performance. We commenced service in February 2000 and
established our primary base of operations at New Yorks
John F. Kennedy International Airport, or JFK, where we now have
more enplanements than any other airline. As of
December 31, 2009, we served 60 destinations in
20 states, Puerto Rico, and eleven countries in the
Caribbean. Our wholly owned subsidiary, LiveTV, LLC, or LiveTV,
provides in-flight entertainment systems for commercial
aircraft, including live in-seat satellite television, digital
satellite radio, wireless aircraft data link service and cabin
surveillance systems.
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Basis of Presentation: Our consolidated
financial statements include the accounts of JetBlue Airways
Corporation, or JetBlue, and our subsidiaries, collectively
we or the Company, with all intercompany
transactions and balances having been eliminated. Air
transportation services accounted for substantially all the
Companys operations in 2009, 2008 and 2007. Accordingly,
segment information is not provided for LiveTV. Certain prior
year amounts have been reclassified to conform to the current
year presentation. We reclassified $45 million and
$39 million in fuel taxes for the year ended
December 31, 2008 and 2007, respectively, previously
included in other operating expenses to aircraft fuel and
related taxes.
Use of Estimates: We are required to
make estimates and assumptions when preparing our consolidated
financial statements in conformity with accounting principles
generally accepted in the United States that affect the amounts
reported in our consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.
Fair Value: Effective January 1,
2008, we adopted the Fair Value Measurements and Disclosures
provisions of ASC 820, which establishes a framework for
measuring fair value and requires enhanced disclosures about
fair value measurements. ASC 820 clarifies that fair value is an
exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants. ASC 820 also requires
disclosure about how fair value is determined for assets and
liabilities and establishes a hierarchy for which these assets
and liabilities must be grouped, based on significant levels of
inputs. See Note 14 for more information.
Cash and Cash Equivalents: Our cash and
cash equivalents include short-term, highly liquid investments
which are readily convertible into cash. These investments
include money market securities and commercial paper with
maturities of three months or less when purchased.
Restricted Cash: Restricted cash
primarily consists of security deposits and performance bonds
for aircraft and facility leases, funds held in escrow for
estimated workers compensation obligations, and funds held
as collateral for our primary credit card processor.
Accounts and Other
Receivables: Accounts and other receivables
are carried at cost. They primarily consist of amounts due from
credit card companies associated with sales of tickets for
future travel and amounts due from counterparties associated
with fuel derivative instruments that have settled. We estimate
an allowance for doubtful accounts based on known troubled
accounts, if any, and historical experience of losses incurred.
Investment Securities: Investment
securities consist of the following: (a) auction rate
securities, or ARS, stated at fair value; (b) variable rate
demand notes with stated maturities generally greater than ten
years with interest reset dates often every 30 days or
less, stated at fair value; (c) short-term investments,
which include short-term, highly liquid investments with
maturities greater than three months when purchased;
(d) commercial paper with maturities between six and twelve
months, stated at fair value; and (e) investment-
49
grade interest bearing instruments classified as
held-to-maturity
investments and stated at amortized cost. When sold, we use a
specific identification method to determine the cost of the
securities.
Investment securities consisted of the following at
December 31, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-back securities
|
|
|
|
|
|
$
|
109
|
|
|
$
|
|
|
Time deposits
|
|
|
|
|
|
|
36
|
|
|
|
|
|
Commercial paper
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
22
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan bonds
|
|
|
|
|
|
|
74
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
246
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: Derivative
instruments, including fuel hedge contracts and interest rate
swap agreements, are stated at fair value, net of any collateral
postings. Derivative instruments are included in other assets on
our consolidated balance sheets.
Inventories: Inventories consist of
expendable aircraft spare parts and supplies, which are stated
at average cost and aircraft fuel, which is stated on a
first-in,
first-out basis. These items are charged to expense when used.
An allowance for obsolescence on aircraft spare parts is
provided over the remaining useful life of the related aircraft
fleet.
Property and Equipment: We record our
property and equipment at cost and depreciate these assets on a
straight-line basis to their estimated residual values over
their estimated useful lives. Additions, modifications that
enhance the operating performance of our assets, and interest
related to predelivery deposits to acquire new aircraft and for
the construction of facilities are capitalized.
Effective January 1, 2009, we adjusted the estimated useful
lives for our in-flight entertainment systems from 12 years
to 7 years, which resulted in approximately $4 million
of additional depreciation expense and an estimated $0.01
reduction in diluted earnings per share in 2009.
Estimated useful lives and residual values for our property and
equipment are as follows:
|
|
|
|
|
|
|
|
|
Estimated Useful Life
|
|
Residual Value
|
|
Aircraft
|
|
25 years
|
|
|
20
|
%
|
In-flight entertainment systems
|
|
7 years
|
|
|
0
|
%
|
Aircraft parts
|
|
Fleet life
|
|
|
10
|
%
|
Flight equipment leasehold improvements
|
|
Lease term
|
|
|
0
|
%
|
Ground property and equipment
|
|
3-10 years
|
|
|
0
|
%
|
Leasehold improvements
|
|
Lower of 15 years or lease term
|
|
|
0
|
%
|
Buildings on leased land
|
|
Lease term
|
|
|
0
|
%
|
Property under capital leases is initially recorded at an amount
equal to the present value of future minimum lease payments
computed on the basis of our incremental borrowing rate or, when
known, the interest rate implicit in the lease. Amortization of
property under capital leases is on a straight-line basis over
the expected useful life and is included in depreciation and
amortization expense.
We record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the
assets may be impaired and the undiscounted future cash flows
estimated to be generated by these assets are less than the
assets net book value. If impairment occurs, the loss is
measured by comparing the fair value of the asset to its
carrying amount. Impairment losses are recorded in depreciation
and amortization expense. In 2008, we recorded an impairment
loss of $8 million related to the write-off of our
temporary terminal facility at JFK.
50
In 2009, we sold two aircraft, which resulted in gains of
$1 million. In 2008, we sold nine aircraft, which resulted
in gains of $23 million. In 2007, we sold three aircraft,
which resulted in gains of $7 million. The gains on our
sales of aircraft are included in other operating expenses.
Software: We capitalize certain costs
related to the acquisition and development of computer software.
We amortize these costs using the straight-line method over the
estimated useful life of the software, which is generally
between five and ten years. The net book value of computer
software, which is included in other assets on our consolidated
balance sheets, was $30 million and $35 million at
December 31, 2009 and 2008, respectively. Amortization
expense related to computer software was $14 million,
$8 million and $7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Passenger Revenues: Passenger revenue
is recognized, net of the taxes that we are required to collect
from our customers, including federal transportation taxes,
security taxes and airport facility charges, when the
transportation is provided or after the ticket or customer
credit (issued upon payment of a change fee) expires. Tickets
sold but not yet recognized as revenue and unexpired credits are
included in air traffic liability.
LiveTV Revenues and Expenses: We
account for LiveTVs revenues and expenses related to the
sale of hardware, maintenance of hardware, and programming
services provided, as a single unit in accordance with ASC
605-25,
Revenue Recognition-Multiple-Element Arrangemets, because
we lack objective and reliable evidence of fair value of the
undelivered items. Revenues and expenses related to these
components are recognized ratably over the service periods,
which extend through 2018 as of December 31, 2009. Customer
advances are included in other liabilities.
Airframe and Engine Maintenance and
Repair: Regular airframe maintenance for
owned and leased flight equipment is charged to expense as
incurred unless covered by a third-party services contract. We
have separate services agreements covering certain of our
scheduled and unscheduled repair of airframe line replacement
unit components and the engines on our Airbus A320 aircraft.
These agreements, which range from ten to 15 years, require
monthly payments at rates based either on the number of cycles
each aircraft was operated during each month or the number of
flight hours each engine was operated during each month, subject
to annual escalations. These payments are expensed as the
related flight hours or cycles are incurred.
Advertising Costs: Advertising costs,
which are included in sales and marketing, are expensed as
incurred. Advertising expense in 2009, 2008 and 2007 was
$53 million, $52 million and $41 million,
respectively.
Loyalty Program: We account for our
customer loyalty program, TrueBlue, by recording a liability for
the estimated incremental cost of outstanding points earned from
JetBlue purchases that we expect to be redeemed. We adjust this
liability, which is included in air traffic liability, based on
points earned and redeemed, changes in the estimated incremental
costs associated with providing travel and changes in the
TrueBlue program.
Points in TrueBlue can also be sold to participating companies,
including credit card and car rental companies. These sales are
accounted for as multiple-element arrangements, with one element
representing the travel that will ultimately be provided when
the points are redeemed and the other consisting of marketing
related activities that we conduct with the participating
company. The fair value of the transportation portion of these
point sales is deferred and recognized as passenger revenue when
transportation is provided. The remaining portion, which is the
excess of the total sales proceeds over the estimated fair value
of the transportation to be provided, is recognized in other
revenue when the points are sold. Deferred revenue for points
not redeemed is recognized as revenue when the underlying points
expire. Historically, expiration of points sold has been
minimal; however, with the launch of an improved version of
TrueBlue in 2009, we did record $5 million in revenue for
point expirations.
Our co-branded credit card agreement, under which we sell
TrueBlue points as described above, provides for a minimum point
sales guarantee, which is to be paid to us throughout the life
of the agreement if specified point sales have not been
achieved. Through December 31, 2009, we had received
$21 million in connection with this guarantee, which is
subject to refund in the event that point sales exceed future
minimums. We record revenue related to this guarantee when it is
remote that any future service will be provided by us. During
2009, we recognized approximately $5 million related to
this guarantee, leaving $16 million deferred and included
in our air traffic liability.
51
Upon launch of the improved TrueBlue program, we extended our
co-branded credit card agreement. In connection with this
extension, we received a one-time payment of $37 million,
which we have deferred and will recognize over the term of the
agreement.
Income Taxes: We account for income
taxes utilizing the liability method. Deferred income taxes are
recognized for the tax consequences of temporary differences
between the tax and financial statement reporting bases of
assets and liabilities. A valuation allowance for net deferred
tax assets is provided unless realizability is judged by us to
be more likely than not. Our policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a
component of income tax expense.
Share-Based Compensation: We record
compensation expense in the financial statements for share-based
awards based on the grant date fair value of those awards.
Share-based compensation expense includes an estimate for
pre-vesting forfeitures and is recognized over the requisite
service periods of the awards on a straight-line basis, which is
generally commensurate with the vesting term.
Under the Compensation-Stock Compensation topic of the
Codification, ASC
718-740, the
benefits associated with tax deductions in excess of recognized
compensation cost are required to be reported as a financing
cash flow. We recorded an insignificant amount in excess tax
benefits generated from option exercises in 2009. We recorded
$1 million in 2008 and did not record any in 2007 in excess
tax benefits generated from option exercises.
Our policy is to issue new shares for purchases under our
Crewmember Stock Purchase Plan, or CSPP, and issuances under our
Amended and Restated 2002 Stock Incentive Plan, or 2002 Plan.
New Accounting Standards: In
April 2009, the FASB issued an update to ASC 820, Fair
Value Measurements and Disclosures, to provide additional
guidance on estimating fair value when the volume and level of
transaction activity for an asset or liability have
significantly decreased in relation to normal market activity
for the asset or liability. Additional disclosures are required
regarding fair value in interim and annual reports. These
provisions are effective for interim and annual periods ending
after June 15, 2009. We have included these additional
disclosures in Note 14.
In May 2009, the FASB issued ASC 855, Subsequent Events,
which provides guidance on events that occur after the
balance sheet date but prior to the issuance of the financial
statements. ASC 855 distinguishes events requiring recognition
in the financial statements and those that may require
disclosure in the financial statements. Furthermore, ASC 855
requires disclosure of the date through which subsequent events
were evaluated. These requirements are effective for interim and
annual periods after June 15, 2009. We adopted these
requirements for the quarter ended June 30, 2009, and have
evaluated subsequent events through February 5, 2010.
In June 2009, the FASB issued an update of ASC 105, Generally
Accepted Accounting Principles, changing the accounting for
securitizations and special-purpose entities. ASC 105 enhances
disclosure requirements related to the transfers of financial
assets, including securitization transactions, and the
continuing risk exposures related to transferred financial
assets. The concept of a qualifying special-purpose
entity is eliminated and the requirements for
derecognizing financial assets have been modified. ASC 105
modifies the criteria which determine whether an entity should
be consolidated. ASC 105 enhances the disclosure requirements
related to an entitys involvement with variable interest
entities and any changes to the related risk exposure. ASC 105
will be effective for fiscal years beginning after
November 15, 2009. We are currently evaluating the impact
the adoption of these standards will have on our financial
statements and related disclosures.
In June 2009, the FASB issued an update of ASC 105, Generally
accepted accounting principles, which establishes the FASB
Accounting Standards
Codificationtm,
or Codification, which supersedes all existing accounting
standard documents and has become the single source of
authoritative non-governmental U.S. GAAP. All other
accounting literature not included in the Codification is
considered non-authoritative. We have conformed our financial
statements and related Notes to the new Codification.
52
In June 2009, the Emerging Issues Task Force of the FASB, or
EITF, reached final consensus on Accounting Standards update
No. 2009-15,
Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance, or ASU
2009-15,
which changes the accounting for equity share lending
arrangements on an entitys own shares when executed in
contemplation of a convertible debt offering. ASU
2009-15
requires the share lending arrangement to be measured at fair
value and recognized as an issuance cost. These issuance costs
should then be amortized as interest expense over the life of
the financing arrangement. Shares loaned under these
arrangements should be excluded from computation of earnings per
share. ASU
2009-15 is
effective for fiscal years beginning after December 15,
2009 and requires retrospective application for all arrangements
outstanding as of the beginning of the fiscal year. As described
more fully in Note 2, we lent 44.9 million shares of
our common stock in conjunction with our 2008 $201 million
convertible debt issuance that is subject to the provisions of
ASU 2009-15.
While ASU
2009-15
requires that we measure this share lending arrangement at fair
value, it does not provide guidance on how fair value should be
determined. There is no observable market for shares lent, nor
do we have any history of lending our shares. Further
complicating the determination of fair value is the relative
number of shares lent to the total shares we otherwise had
outstanding. There have been relatively few share lending
arrangements by an issuer in the market place generally. We are
not aware of an instance where shares have been loaned in a
manner that did not support an issuers transaction. The
result is that determination of a stand-alone fair value for the
share lending arrangement, separate from the other components of
the financing transaction is difficult to determine. The range
of fair values could be as little as the one cent per share fee
that we charged to initially lend these shares, or as great as
$100 million, reflective of our estimate of the effective
borrowing rate for this offering if it didnt include a
share lending arrangement. We are continuing to evaluate the
impact that the adoption of this standard will have on our
financial statements and related disclosures.
In September 2009, the EITF reached final consensus on Issue
08-1,
Revenue Arrangements with Multiple Deliverables, or Issue
08-1, which
will update ASC 605, Revenue Recognition, and changes the
accounting for certain revenue arrangements. The new
requirements change the allocation methods used in determining
how to account for multiple payment streams and will result in
the ability to separately account for more deliverables, and
potentially less revenue deferrals. Additionally, Issue
08-1
requires enhanced disclosures in financial statements. Issue
08-1 is
effective for revenue arrangements enter into or materially
modified in fiscal years beginning after June 15, 2010 on a
prospective basis, with early application permitted. We are
currently evaluating the impact this Issue will have on our
financial statements.
53
|
|
Note 2
|
Long-term
Debt, Short-term Borrowings and Capital Lease
Obligations
|
Long-term debt and capital lease obligations and the related
weighted average interest rate at December 31, 2009 and
2008 consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Secured Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate equipment notes, due through 2020 (1)
|
|
|
|
|
|
$
|
697
|
|
|
|
2.4
|
%
|
|
$
|
659
|
|
|
|
4.5
|
%
|
Floating rate enhanced equipment notes (2) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class G-1,
due through 2016
|
|
|
|
|
|
|
265
|
|
|
|
2.7
|
%
|
|
|
296
|
|
|
|
4.0
|
%
|
Class G-2,
due 2014 and 2016
|
|
|
|
|
|
|
373
|
|
|
|
1.5
|
%
|
|
|
373
|
|
|
|
2.8
|
%
|
Class B-1,
due 2014
|
|
|
|
|
|
|
49
|
|
|
|
4.1
|
%
|
|
|
49
|
|
|
|
7.1
|
%
|
Fixed rate equipment notes, due through 2024
|
|
|
|
|
|
|
1,163
|
|
|
|
6.3
|
%
|
|
|
1,075
|
|
|
|
5.9
|
%
|
Fixed rate special facility bonds, due through 2036 (4)
|
|
|
|
|
|
|
85
|
|
|
|
6.0
|
%
|
|
|
85
|
|
|
|
6.0
|
%
|
UBS line of credit (5)
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.75% convertible debentures due in 2039 (6)
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.75% convertible debentures due in 2035 (7)
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
5.5% convertible debentures due in 2038 (8)
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
3.5% convertible notes due in 2033
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases (9)
|
|
|
|
|
|
|
137
|
|
|
|
3.8
|
%
|
|
|
141
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and capital lease obligations
|
|
|
|
|
|
|
3,304
|
|
|
|
|
|
|
|
3,024
|
|
|
|
|
|
Less: current maturities
|
|
|
|
|
|
|
(384
|
)
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
|
|
|
|
$
|
2,920
|
|
|
|
|
|
|
$
|
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rates adjust quarterly or semi-annually based on the
London Interbank Offered Rate, or LIBOR, plus a margin. |
|
(2) |
|
In November 2006, we completed a public offering of
$124 million of pass-through certificates to finance
certain of our owned aircraft spare parts. Separate trusts were
established for each class of these certificates. The entire
principal amount of the
Class G-1
and
Class B-1
certificates is scheduled to be paid in a lump sum on the
applicable maturity date. In April 2009, we entered into
interest rate swap agreements that have effectively fixed the
interest rate for the remaining term of half of the
Class G-1
certificates and all of the
Class B-1
certificates for the November 2006 offering. The swapped portion
of the
Class G-1
and Class B-1 certificates had a balance of $37 million and
$49 million, respectively, at December 31, 2009, and
effective interest rates of 2.1% and 4.6%, respectively. The
interest rate for the remaining half of the
Class G-1
certificates is based on three month LIBOR plus a margin.
Interest is payable quarterly. |
|
(3) |
|
In November 2004 and March 2004, we completed public offerings
of $498 million and $431 million, respectively, of
pass-through certificates to finance the purchase of 28 new
Airbus A320 aircraft delivered through 2005. Separate trusts
were established for each class of these certificates. Quarterly
principal payments are required on the
Class G-1
certificates. The entire principal amount of the
Class G-2
certificates is scheduled to be paid in a lump sum on the
applicable maturity dates. In June and November 2008, we fully
repaid the principal balances of the Class C certificates.
In February 2008, we entered into interest rate swap agreements
that have effectively fixed the interest rate for the remaining
term of the Class G-1 certificates for the November 2004
offering. These certificates had a balance of $124 million
at December 31, 2009 and an effective interest rate of
4.5%. In February, we entered into interest rate swap agreements
that have effectively fixed the interest rate for the remaining
term of the
Class G-2
certificates for the November 2004 offering. These certificates
had a balance of $185 million at December 31, 2009 |
54
|
|
|
|
|
and an effective interest rate of 2.2%. The interest rate for
all other certificates is based on three month LIBOR plus a
margin. Interest is payable quarterly. |
|
(4) |
|
In December 2006, the New York City Industrial Development
Agency issued special facility revenue bonds for JFK and, in
November 2005, the Greater Orlando Aviation Authority issued
special purpose airport facilities revenue bonds, in each case
for reimbursement to us for certain airport facility
construction and other costs. We have recorded the issuance of
$39 million (net of $1 million discount) and
$45 million (net of $2 million discount),
respectively, principal amount of these bonds as long-term debt
on our consolidated balance sheet because we have issued a
guarantee of the debt payments on the bonds. This fixed rate
debt is secured by leasehold mortgages of our airport facilities. |
|
(5) |
|
In 2008, we entered into the UBS auction rate security loan
program under a credit line agreement with UBS Securities LLC
and UBS Financial Services Inc, or UBS, which provides us with a
no net cost loan in the principal amount of $56 million.
However, this credit line agreement calls for all interest
income earned on the ARS being held by UBS to be automatically
transferred to UBS. This line of credit is secured by
approximately $85 million in par value of our ARS being
held by UBS. The term of the credit line is through at least
June 30, 2010 or when the underlying ARS are sold. In
January 2010, the issuers redeemed at par $12 million of
the ARS securing this line of credit and the proceeds were
applied directly to the outstanding loan balance. |
|
(6) |
|
On June 9, 2009, we completed a public offering of
$115 million aggregate principal amount of 6.75%
Series A convertible debentures due 2039, or the
Series A 6.75% Debentures, and $86 million
aggregate principal amount of 6.75% Series B convertible
debentures due 2039, or the Series B 6.75% Debentures,
and collectively with the Series A 6.75% Debentures,
the 6.75% Debentures. The 6.75% Debentures are general
obligations and rank equal in right of payment with all of our
existing and future senior unsecured debt, effectively junior in
right of payment to our existing and future secured debt,
including our secured equipment debentures, to the extent of the
value of the assets securing such debt, and senior in right of
payment to any subordinated debt. In addition, the
6.75% Debentures are structurally subordinated to all
existing and future liabilities of our subsidiaries. The net
proceeds were approximately $197 million after deducting
underwriting fees and other transaction related expenses.
Interest on the 6.75% Debentures is payable semi-annually
on April 15 and October 15. The first interest payment on
the 6.75% Debentures was paid October 15, 2009. |
|
|
|
Holders of either the Series A or Series B
6.75% Debentures may convert them into shares of our common
stock at any time at a conversion rate of 204.6036 shares
per $1,000 principal amount of the 6.75% Debentures. The
conversion rates are subject to adjustment should we declare
common stock dividends or effect any common stock splits or
similar transactions. If the holders convert the
6.75% Debentures in connection with a fundamental change
that occurs prior to October 15, 2014 for the Series A
6.75% Debentures or October 15, 2016 for the
Series B 6.75% Debentures, the applicable conversion
rate may be increased depending on our then current common stock
price. The maximum number of shares into which all of the
6.75% Debentures are convertible, including pursuant to
this make-whole fundamental change provision, is
235.2941 shares per $1,000 principal amount of the
6.75% Debentures outstanding, as adjusted. |
|
|
|
We may redeem any of the 6.75% Debentures for cash at a
redemption price of 100% of their principal amount, plus accrued
and unpaid interest at any time on or after October 15,
2014 for the Series A 6.75% Debentures and
October 15, 2016 for the Series B
6.75% Debentures. Holders may require us to repurchase the
6.75% Debentures for cash at a repurchase price equal to
100% of their principal amount plus accrued and unpaid interest,
if any, on October 15, 2014, 2019, 2024, 2029 and 2034 for
the Series A 6.75% Debentures and October 15,
2016, 2021, 2026, 2031 and 2036 for the Series B
6.75% Debentures; or at any time prior to their maturity
upon the occurrence of a certain designated event. |
|
|
|
We evaluated the various embedded derivatives within the
supplemental indenture for bifurcation from the
6.75% Debentures under the applicable provisions, including
the basic conversion feature, the fundamental change make-whole
provision and the put and call options. Based upon our detailed
assessment, we concluded these embedded derivatives were either
(i) excluded from bifurcation as a result of being clearly
and closely related to the 6.75% Debentures or are indexed
to our common stock and would be classified in
stockholders equity if freestanding or (ii) are
immaterial embedded derivatives. |
55
|
|
|
(7) |
|
In March 2005, we completed a public offering of
$250 million aggregate principal amount of 3.75%
convertible unsecured debentures due 2035, or
3.75% Debentures, which are currently convertible into
14.6 million shares of our common stock at a price of
approximately $17.10 per share, or 58.4795 shares per
$1,000 principal amount of debentures, subject to further
adjustment. Upon conversion, we have the right to deliver, in
lieu of shares of our common stock, cash or a combination of
cash and shares of our common stock. |
|
|
|
At any time, we may irrevocably elect to satisfy our conversion
obligation with respect to the principal amount of the
debentures to be converted with a combination of cash and shares
of our common stock. At any time on or after March 20,
2010, we may redeem any of the debentures for cash at a
redemption price of 100% of their principal amount, plus accrued
and unpaid interest. Holders may require us to repurchase the
debentures for cash at a repurchase price equal to 100% of their
principal amount plus accrued and unpaid interest, if any, on
March 15, 2010, 2015, 2020, 2025 and 2030, or at any time
prior to their maturity upon the occurrence of a specified
designated event. Interest is payable semi-annually on
March 15 and September 15. |
|
|
|
We account for this convertible debt under the provisions of ASC
470-20,which
applies to all convertible debt instruments that have a
net settlement feature, which means instruments that
by their terms may be settled either wholly or partially in cash
upon conversion. Under these provisions, the liability and
equity components of convertible debt instruments that may be
settled wholly or partially in cash upon conversion must be
accounted for separately in a manner reflective of their
issuers nonconvertible debt borrowing rate. Since our
3.75% Debentures have an option to be settled in cash, they
are within the scope of this standard. |
|
|
|
Our effective borrowing rate for nonconvertible debt at the time
of issuance of the 3.75% Debentures was estimated to be 9%,
which resulted in $52 million of the $250 million
aggregate principal amount of debentures issued, or
$31 million after taxes, being attributed to equity. We are
amortizing the debt discount through March 2010, the first
repurchase date of the debentures. The principal amount,
unamortized discount and net carrying amount of the debt and
equity components are presented below (in millions): |
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Principal amount
|
|
$
|
156
|
|
|
$
|
177
|
|
Unamortized discount
|
|
|
(2
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
154
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, net
|
|
$
|
29
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
Interest expense related to these debentures consisted of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
3.75% contractual rate
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Discount amortization
|
|
|
8
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
14
|
|
|
$
|
19
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
|
|
|
In 2008, we repurchased approximately $73 million principal
amount of our 3.75% Debentures for $54 million. The
$14 million net gain from these transactions is recorded in
interest income and other in the accompanying consolidated
statements of operations. |
|
|
|
During 2009, we repurchased approximately $20 million
principal amount of our 3.75% Debentures at a slight
discount to par. Of the total consideration paid,
$2 million was allocated to the reacquisition of the equity
component, resulting in a $2 million gain on the
extinguishment of debt after writing off unamortized debt
discount and issuance costs. |
56
|
|
|
|
|
As of December 31, 2009, the if-converted value of the
3.75% Debentures did not exceed the principal amount. |
|
(8) |
|
On June 4, 2008, we completed a public offering of
$100.6 million aggregate principal amount of 5.5%
Series A convertible debentures due 2038, or the
Series A 5.5% Debentures, and $100.6 million
aggregate principal amount of 5.5% Series B convertible
debentures due 2038, or the Series B 5.5% Debentures,
and collectively with the Series A 5.5% Debentures,
the 5.5% Debentures. The 5.5% Debentures are general
senior obligations secured in part by an escrow account for each
series. We deposited approximately $32 million of the net
proceeds from the offering, representing the first six scheduled
semi-annual interest payments on the 5.5% Debentures, into
escrow accounts for the exclusive benefit of the holders of each
series of the 5.5% Debentures. The total net proceeds of
the offering were approximately $165 million, after
deducting underwriting fees and other transaction related
expenses as well as the $32 million escrow deposit.
Interest on the 5.5% Debentures is payable semi-annually on
April 15 and October 15. |
|
|
|
Holders of the Series A 5.5% Debentures may convert
them into shares of our common stock at any time at a conversion
rate of 220.6288 shares per $1,000 principal amount of
Series A 5.5% Debenture. Holders of the Series B
5.5% Debentures may convert them into shares of our common
stock at any time at a conversion rate of 225.2252 shares
per $1,000 principal amount of Series B 5.5% Debenture. The
conversion rates are subject to adjustment should we declare
common stock dividends or effect any common stock splits or
similar transactions. If the holders convert the
5.5% Debentures in connection with any fundamental
corporate change that occurs prior to October 15, 2013 for
the Series A 5.5% Debentures or October 15, 2015
for the Series B 5.5% Debentures, the applicable
conversion rate may be increased depending upon our then current
common stock price. The maximum number of shares of common stock
into which all of the 5.5% Debentures are convertible,
including pursuant to this make-whole fundamental change
provision, is 54.4 million shares. Holders who convert
their 5.5% Debentures prior to April 15, 2011 will
receive, in addition to the number of shares of our common stock
calculated at the applicable conversion rate, a cash payment
from the escrow account for the 5.5% Debentures of the
series converted equal to the sum of the remaining interest
payments that would have been due on or before April 15,
2011 in respect of the converted 5.5% Debentures. |
|
|
|
We may redeem any of the 5.5% Debentures for cash at a
redemption price of 100% of their principal amount, plus accrued
and unpaid interest at any time on or after October 15,
2013 for the Series A 5.5% Debentures and
October 15, 2015 for the Series B
5.5% Debentures. Holders may require us to repurchase the
5.5% Debentures for cash at a repurchase price equal to
100% of their principal amount plus accrued and unpaid interest,
if any, on October 15, 2013, 2018, 2023, 2028, and 2033 for
the Series A 5.5% Debentures and October 15,
2015, 2020, 2025, 2030, and 2035 for the Series B
5.5% Debentures; or at any time prior to their maturity
upon the occurrence of a specified designated event. |
|
|
|
On June 4, 2008, in conjunction with the public offering of
the 5.5% Debentures described above, we also entered into a
share lending agreement with Morgan Stanley & Co.
Incorporated, an affiliate of the underwriter of the offering,
or the share borrower, pursuant to which we loaned the share
borrower approximately 44.9 million shares of our common
stock. Under the share lending agreement, the share borrower is
required to return the borrowed shares when the debentures are
no longer outstanding. We did not receive any proceeds from the
sale of the borrowed shares by the share borrower, but we did
receive a nominal lending fee of $0.01 per share from the share
borrower for the use of borrowed shares. |
|
|
|
We evaluated the various embedded derivatives within the
supplemental indenture for bifurcation from the
5.5% Debentures under the applicable provisions. Based upon
our detailed assessment, we concluded these embedded derivatives
were either (i) excluded from bifurcation as a result of
being clearly and closely related to the 5.5% Debentures or
are indexed to our common stock and would be classified in
stockholders equity if freestanding or (ii) the fair
value of the embedded derivatives was determined to be
immaterial. |
|
|
|
The net proceeds from our public offering of the
5.5% Debentures described above were used for the
repurchase of substantially all of our $175 million
principal amount of 3.5% convertible notes due 2033, issued in
July 2003, which became subject to repurchase at the
holders option on July 15, 2008. |
57
|
|
|
|
|
During 2008, approximately $76 million principal amount of
the 5.5% Debentures were voluntarily converted by holders.
As a result, we issued 16.9 million shares of our common
stock. Cash payments from the escrow accounts related to these
conversions were $11 million and borrowed shares equivalent
to the number of shares of our common stock issued upon these
conversions were returned to us pursuant to the share lending
agreement described above. During 2009, approximately
$3 million principal amount of the 5.5% Debentures
were voluntarily converted by holders into approximately
0.6 million shares of our common stock. The borrower
returned 10.0 million shares to us in September 2009,
almost all of which were voluntarily returned shares in excess
of converted shares, pursuant to the share lending agreement. At
December 31, 2009, the remaining principal balance was
$123 million, which is currently convertible into
27.4 million shares of our common stock. At
December 31, 2009, the amount remaining in the escrow
accounts was $10 million, which is reflected as restricted
cash on our consolidated balance sheets. |
|
(9) |
|
At December 31, 2009 and 2008, four capital leased Airbus
A320 aircraft are included in property and equipment at a cost
of $152 million with accumulated amortization of
$13 million and $9 million, respectively. The future
minimum lease payments under these noncancelable leases are
$15 million per year through 2011, $14 million per
year in 2012, 2013 and 2014 and $124 million in the years
thereafter. Included in the future minimum lease payments is
$61 million representing interest, resulting in a present
value of capital leases of $135 million with a current
portion of $7 million and a long-term portion of
$128 million. |
Maturities of long-term debt and capital leases, including the
assumption that our convertible debt will be converted upon the
first put date, for the next five years are as follows (in
millions):
|
|
|
|
|
2010
|
|
$
|
384
|
|
2011
|
|
|
175
|
|
2012
|
|
|
176
|
|
2013
|
|
|
375
|
|
2014
|
|
|
594
|
|
We had utilized a funding facility to finance aircraft
predelivery deposits. This facility allowed for borrowings of up
to $30 million. In October 2009, we repaid the balance of
$10 million and terminated the funding facility. At
December 31, 2008, the outstanding balance was
$10 million and the weighted average interest rate on the
outstanding short-term borrowings was 5.6%.
In July 2008, we obtained a line of credit with Citigroup Global
Markets, Inc. which allowed for borrowings of up to
$110 million through July 20, 2009 and was originally
secured by our ARS which were then held by Citigroup. We repaid
the entire $110 million on this line of credit in October
2009 when we sold the ARS which secured it and concurrently
terminated the facility. See Note 14 for further
information.
We do not have any financial covenants associated with our debt
agreements. We are subject to certain collateral ratio
requirements in our spare parts pass-through certificates and
spare engine financing issued in November 2006 and December
2007, respectively. If we fail to maintain these collateral
ratios, we will be required to provide additional collateral or
redeem some or all of the equipment notes so that the ratios
return to compliance.
Aircraft, engines, predelivery deposits and other equipment and
facilities having a net book value of $3.62 billion at
December 31, 2009 were pledged as security under various
loan agreements. Cash payments of interest, net of capitalized
interest, aggregated $143 million, $166 million and
$175 million in 2009, 2008 and 2007, respectively.
58
The carrying amounts and estimated fair values of our long-term
debt at December 31, 2009 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Public Debt
|
|
|
|
|
|
|
|
|
Floating rate enhanced equipment notes
|
|
|
|
|
|
|
|
|
Class G-1,
due through 2016
|
|
$
|
265
|
|
|
$
|
205
|
|
Class G-2,
due 2014 and 2016
|
|
|
373
|
|
|
|
261
|
|
Class B-1,
due 2014
|
|
|
49
|
|
|
|
35
|
|
Fixed rate special facility bonds, due through 2036
|
|
|
85
|
|
|
|
70
|
|
6.75% convertible debentures due in 2039
|
|
|
201
|
|
|
|
250
|
|
3.75% convertible debentures due in 2035
|
|
|
154
|
|
|
|
156
|
|
5.5% convertible debentures due in 2038
|
|
|
123
|
|
|
|
166
|
|
3.5% convertible notes due in 2033
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Non-Public Debt
|
|
|
|
|
|
|
|
|
Floating rate equipment notes, due through 2020
|
|
|
697
|
|
|
|
592
|
|
Fixed rate equipment notes, due through 2024
|
|
|
1,163
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,111
|
|
|
$
|
2,721
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values of our publicly held long-term debt
were based on quoted market prices or other observable market
inputs when instruments are not actively traded. The fair value
of our non-public debt was estimated using discounted cash flow
analysis based on our borrowing rates for instruments with
similar terms. The fair values of our other financial
instruments approximate their carrying values.
We utilize a policy provider to provide credit support on the
Class G-1
and
Class G-2
certificates. The policy provider has unconditionally guaranteed
the payment of interest on the certificates when due and the
payment of principal on the certificates no later than
18 months after the final expected regular distribution
date. The policy provider is MBIA Insurance Corporation (a
subsidiary of MBIA, Inc.).
We have determined that each of the trusts related to our
aircraft EETCs meet the definition of a variable interest entity
as defined in ASC 810, Consolidations. We evaluated the
purpose for which these trusts were established and nature of
risks in each. These trusts were not designed to pass along
variability to us. We concluded that we are not the primary
beneficiary in these trusts due to our involvement in them being
limited to principal and interest payments on the related notes
and the variability created by credit risk related to us and the
likelihood of our defaulting on the notes. Therefore, we have
not consolidated these trusts in our financial statements.
Note 3Operating
Leases
We lease aircraft, as well as airport terminal space, other
airport facilities, office space and other equipment, which
expire in various years through 2035. In July 2009, we extended
the lease on two of our aircraft, one of which was previously
scheduled to expire in December 2009 and the other in March
2010. These extensions resulted in an additional
$11 million of lease commitments through 2012. Total rental
expense for all operating leases in 2009, 2008 and 2007 was
$236 million, $243 million and $225 million,
respectively. We have $29 million in assets that serve as
collateral for letters of credit related to certain of our
leases, which are included in restricted cash.
At December 31, 2009, 55 of the 151 aircraft we operated
were leased under operating leases, with remaining lease term
expiration dates ranging from 2011 to 2026. Five of the 55
aircraft operating leases have variable rate rent payments based
on LIBOR. Leases for 47 of our aircraft can generally be renewed
at rates based on fair market value at the end of the lease term
for one or two years. We have purchase options in 45 of our
aircraft leases at the end of the lease term at fair market
value and a one-time option during the term at amounts that are
expected to approximate fair market value. During 2008, we
entered into a sale and
59
leaseback transaction for one EMBRAER 190 aircraft acquired
during the year, which is being accounted for as an operating
lease. There were no material deferred gains recorded related to
this transaction.
Future minimum lease payments under noncancelable operating
leases with initial or remaining terms in excess of one year at
December 31, 2009, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
|
|
|
Other
|
|
|
Total
|
|
|
2010
|
|
$
|
160
|
|
|
$
|
48
|
|
|
$
|
208
|
|
2011
|
|
|
148
|
|
|
|
43
|
|
|
|
191
|
|
2012
|
|
|
129
|
|
|
|
39
|
|
|
|
168
|
|
2013
|
|
|
107
|
|
|
|
33
|
|
|
|
140
|
|
2014
|
|
|
116
|
|
|
|
26
|
|
|
|
142
|
|
Thereafter
|
|
|
589
|
|
|
|
358
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum operating lease payments
|
|
$
|
1,249
|
|
|
$
|
547
|
|
|
$
|
1,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have entered into sale-leaseback arrangements with a third
party lender for 45 of our operating aircraft. The
sale-leasebacks occurred simultaneously with the delivery of the
related aircraft to us from their manufacturers. Each
sale-leaseback transaction was structured with a separate trust
set up by the third party lender, the assets of which consist of
the one aircraft initially transferred to it following the sale
by us and the subsequent lease arrangement with us. Because of
their limited capitalization and the potential need for
additional financial support, these trusts are variable interest
entities as defined in ASC 810, Consolidations. JetBlue
does not retain any equity interests in any of these trusts and
our obligations to them are limited to the fixed rental payments
we are required to make to them, which were approximately
$1.15 billion as of December 31, 2009 and are
reflected in the future minimum lease payments in the table
above. Our only interest in these entities is a fixed price
option to acquire the aircraft at the end of the lease term that
was not deemed to be bargain purchase options at lease
inception. Since there are no other arrangements (either
implicit or explicit) between us and the individual trusts that
would result in our absorbing additional variability from the
trusts, we concluded that we are not the primary beneficiary of
these trusts. We account for these leases as operating leases,
following the appropriate lease guidance as required by the
Leases topic in the Codification.
Operating Leases as Lessor: In 2008, we leased
two of our owned EMBRAER 190 aircraft, each with a lease term of
12 years. The net book value of these two aircraft was
approximately $50 million as of December 31, 2009 and
is included in other assets on our consolidated balance sheet.
Under the terms of these leases, we recorded approximately
$6 million and $2 million in rental income during 2009
and 2008, respectively. Future lease payments due to us under
these leases are approximately $6 million per year over the
remaining terms.
In October 2008, we began operating out of our new Terminal 5 at
JFK, or Terminal 5. The construction and operation of this
facility is governed by a lease agreement that we executed with
the Port Authority of New York and New Jersey, or PANYNJ, in
2005. Under the terms of this lease agreement, we were
responsible for the construction of a 635,000 square foot
26-gate terminal, a parking garage, roadways and an AirTrain
Connector, all of which are owned by the PANYNJ and which are
collectively referred to as the Project. The lease term ends in
2038 and we have a one-time early termination option in 2033.
We are responsible for various payments under the lease,
including ground rents for the new terminal site which began on
lease execution in 2005, and facility rents that commenced in
2008 when we took beneficial occupancy of Terminal 5. The
facility rents are based on the number of passengers enplaned
out of the new terminal, subject to annual minimums. The PANYNJ
has reimbursed us for the costs of constructing the Project in
accordance with the lease, except for approximately
$77 million in leasehold improvements that have been
provided by us and which are classified as leasehold
improvements and included in ground property and equipment on
our consolidated balance sheets.
60
We are considered the owner of the Project for financial
reporting purposes only and are required to reflect an asset and
liability for the Project on our balance sheets. Through
December 31, 2009, exclusive of ground property, we had
incurred $613 million in Project costs and have capitalized
$68 million of interest, which are reflected as Assets
Constructed for Others in the accompanying consolidated balance
sheets. These project costs are reimbursed by the PANYNJ and are
reflected as Construction Obligation in our consolidated balance
sheets. Through December 31, 2009, we had reduced this
amount by $17 million through scheduled facility payments
which were not representative of interest.
Certain elements of the Project, including the parking garage
and Airtrain Connector, are not subject to the underlying ground
lease and, following their delivery to and acceptance by the
PANYNJ in October 2008, we no longer have any continuing
involvement in these elements. As a result, Assets Constructed
for Others and Construction Obligation were both reduced by
$133 million in a non-cash transaction when they were
returned to the PANYNJ upon completion. Our continuing
involvement in the remainder of the Project precludes us from
sale and leaseback accounting; therefore the cost of these
elements of the Project and the related liability will remain on
our balance sheets and be accounted for as a financing.
Scheduled facility payments totaled $32 million and
$6 million in 2009 and 2008, respectively, almost all of
which was representative of interest.
Assets Constructed for Others are being amortized over the
shorter of the 25 year non-cancelable lease term or their
economic life. We recorded $21 million and $5 million
in amortization expense during 2009 and 2008, respectively.
Facility rents are recorded as debt service on the Construction
Obligation, with the portion not relating to interest reducing
the principal balance. Ground rents are being recognized on a
straight-line basis over the lease term and are reflected in the
future minimum lease payments table included in Note 3.
Minimum estimated facility payments, including escalations,
associated with this lease are estimated to be $31 million
in 2010, $38 million in 2011, $39 million in 2012,
$40 million in 2013, $40 million in 2014 and
$779 million thereafter. Payments could exceed these
amounts depending on future enplanement levels at JFK.
We have subleased a portion of Terminal 5, primarily space for
concessionaires. Minimum lease payments due to us are subject to
various escalation amounts through 2018 and also include a
percentage of gross receipts, which may vary from month to
month. Future minimum lease payments due to us are estimated to
be $9 million in each of 2010 through 2012 and
$10 million in each of 2013 through 2014.
|
|
Note 5
|
Stockholders
Equity
|
Our authorized shares of capital stock consist of
500 million shares of common stock and 25 million
shares of preferred stock. The holders of our common stock are
entitled to one vote per share on all matters which require a
vote by the Companys stockholders as set forth in our
Amended and Restated Certificate of Incorporation and Bylaws.
On June 9, 2009, in conjunction with the public offering of
the 6.75% Debentures described in Note 2, we also
completed a public offering of 26,450,000 shares of our
common stock at a price of $4.25 per share, raising net proceeds
of approximately $109 million, after deducting discounts
and commissions paid to the underwriters and other expenses
incurred in connection with the offering. Approximately 15.6% of
this offering was reserved for and purchased by Deutsche
Lufthansa AG, to allow them to maintain their pre-offering
ownership percentage.
In January 2008, we completed a $301 million, net of
transaction costs, equity offering to Deutsche Lufthansa AG, or
Lufthansa. Under the terms of the agreement, Lufthansa
purchased, in a private placement, approximately
42.6 million newly issued shares of JetBlue common stock,
which represented approximately 19% of JetBlues then
outstanding common stock. Under the terms of the agreement, as
amended, two Lufthansa nominees, Christoph Franz and Stephan
Gemkow, were appointed to our Board of Directors.
Pursuant to our amended Stockholder Rights Agreement, which
became effective in February 2002, each share of common stock
has attached to it a right and, until the rights expire or are
redeemed, each new share of common stock issued by the Company
will include one right. Upon the occurrence of certain events
described below, each right entitles the holder to purchase one
one-thousandth of a share of Series A participating
preferred stock at an exercise price of $35.55, subject to
further adjustment. The rights become
61
exercisable only after any person or group acquires beneficial
ownership of 15% or more (25% or more in the case of certain
specified stockholders) of the Companys outstanding common
stock or commences a tender or exchange offer that would result
in such person or group acquiring beneficial ownership of 15% or
more (25% or more in the case of certain stockholders) of the
Companys common stock. If after the rights become
exercisable, the Company is involved in a merger or other
business combination or sells more than 50% of its assets or
earning power, each right will entitle its holder (other than
the acquiring person or group) to receive common stock of the
acquiring company having a market value of twice the exercise
price of the rights. The rights expire on April 17, 2012
and may be redeemed by the Company at a price of $.01 per right
prior to the time they become exercisable.
As of December 31, 2009, we had a total of
188.1 million shares of our common stock reserved for
issuance related to our CSPP, our 2002 Plan, our convertible
debt, and our share lending facility. As of December 31,
2009, we had a total of 27.1 million shares of treasury
stock, almost all of which resulted from the return of borrowed
shares under our share lending agreement. Refer to Note 2
for further details on the share lending agreement and
Note 7 for further details on our share-based compensation.
|
|
Note 6
|
Earnings
(Loss) Per Share
|
The following table shows how we computed basic and diluted
earnings (loss) per common share for the years ended December 31
(dollars in millions; share data in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58
|
|
|
$
|
(85
|
)
|
|
$
|
12
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible debt, net of income taxes
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders after
assumed conversion for diluted earnings per share
|
|
$
|
67
|
|
|
$
|
(85
|
)
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic earnings (loss)
per share
|
|
|
260,486
|
|
|
|
226,262
|
|
|
|
179,766
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
2,972
|
|
|
|
|
|
|
|
4,483
|
|
Unvested common stock
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Convertible debt
|
|
|
68,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares outstanding and assumed
conversions for diluted earnings (loss) per share
|
|
|
332,063
|
|
|
|
226,262
|
|
|
|
184,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares excluded from EPS calculation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of our convertible debt since
assumed conversion would be antidilutive
|
|
|
9.2
|
|
|
|
38.3
|
|
|
|
20.8
|
|
Shares issuable upon exercise of outstanding stock options since
assumed exercise would be antidilutive
|
|
|
23.9
|
|
|
|
27.2
|
|
|
|
24.7
|
|
As of December 31, 2009, a total of approximately
18.0 million shares of our common stock, which were loaned
to our share borrower pursuant to the terms of our share lending
agreement as described in Note 2, were issued and are
outstanding for corporate law purposes, and holders of the
borrowed shares have all the rights of a holder of our common
stock. However, because the share borrower must return all
borrowed shares to us (or identical shares or, in certain
circumstances, the cash value thereof), the borrowed shares are
not considered outstanding for the purpose of computing and
reporting basic or diluted earnings (loss) per share.
62
|
|
Note 7
|
Share-Based
Compensation
|
Fair Value Assumptions: We use a
Black-Scholes-Merton option pricing model to estimate the fair
value of share-based awards in accordance with the
Compensation-Stock Compensation topic 718, or ASC 718, for
issuances under our CSPP and stock options under our 2002 Plan.
The Black-Scholes-Merton option pricing model incorporates
various and highly subjective assumptions, including expected
term and expected volatility. We have reviewed our historical
pattern of option exercises under our 2002 Plan, and have
determined that meaningful differences in option exercise
activity existed among employee job categories. Therefore, for
all stock options granted after January 1, 2006, we have
categorized these awards into three groups of employees for
valuation purposes. We have determined there were no meaningful
differences in employee activity under our CSPP due to the
broad-based nature of the plan.
We estimate the expected term of options granted using an
implied life derived from the results of a lattice model, which
incorporates our historical exercise and post-vesting employment
termination patterns, which we believe are representative of
future behavior. The expected term for our restricted stock
units is based on the associated service period. The expected
term for our CSPP valuation is based on the length of each
purchase period as measured at the beginning of the offering
period.
We estimate the expected volatility of our common stock at the
grant date using a blend of 75% historical volatility of our
common stock and 25% implied volatility of two-year publicly
traded options on our common stock as of the option grant date.
Our decision to use a blend of historical and implied volatility
was based upon the volume of actively traded options on our
common stock and our belief that historical volatility alone may
not be completely representative of future stock price trends.
Our risk-free interest rate assumption is determined using the
Federal Reserve nominal rates for U.S. Treasury zero-coupon
bonds with maturities similar to those of the expected term of
the award being valued. We have never paid any cash dividends on
our common stock and we do not anticipate paying any cash
dividends in the foreseeable future. Therefore, we assumed an
expected dividend yield of zero.
Additionally, ASC 718 requires us to estimate pre-vesting
forfeitures at the time of grant and periodically revise those
estimates in subsequent periods if actual forfeitures differ
from those estimates. We record stock-based compensation expense
only for those awards expected to vest using an estimated
forfeiture rate based on our historical pre-vesting forfeiture
data.
The following table shows our assumptions used to compute the
stock-based compensation expense for stock option grants for the
years ended December 31. We did not grant any stock options
in 2009.
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
2008
|
|
|
2007
|
|
|
Expected term (years)
|
|
|
6.0
|
|
|
|
4.1-6.8
|
|
Volatility
|
|
|
47.7
|
%
|
|
|
42.5
|
%
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
4.6
|
%
|
Weighted average fair value of stock options
|
|
$
|
3.45
|
|
|
$
|
4.91
|
|
Unrecognized stock-based compensation expense was approximately
$19 million as of December 31, 2009, relating to a
total of three million unvested restricted stock units and three
million unvested stock options under our 2002 Plan. We expect to
recognize this stock-based compensation expense over a weighted
average period of approximately two years. The total fair value
of stock options vested during the years ended December 31,
2009, 2008 and 2007 was approximately $9 million,
$9 million and $6 million, respectively.
Stock Incentive Plan: The 2002 Plan, which
includes stock options issued during 1999 through 2001 under a
previous plan as well as all options issued since, provides for
incentive and non-qualified stock options and restricted stock
units to be granted to certain employees and members of our
Board of Directors, as well as deferred stock units to be
granted to members of our Board of Directors. The 2002 Plan
became effective following our initial public offering in April
2002.
During 2007, we began issuing restricted stock units under the
2002 Plan. These awards will vest in annual installments over
three years or upon the occurrence of a change in control as
defined in the 2002 Plan.
63
Our policy is to grant restricted stock units based on the
market price of the underlying common stock on the date of grant.
The following is a summary of restricted stock unit activity for
the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested at beginning of year
|
|
|
1,735,671
|
|
|
$
|
6.22
|
|
|
|
71,418
|
|
|
$
|
10.42
|
|
Granted
|
|
|
2,294,240
|
|
|
|
4.61
|
|
|
|
1,799,849
|
|
|
|
6.12
|
|
Vested
|
|
|
(595,105
|
)
|
|
|
6.28
|
|
|
|
(23,805
|
)
|
|
|
10.42
|
|
Forfeited
|
|
|
(124,432
|
)
|
|
|
5.36
|
|
|
|
(111,791
|
)
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
3,310,374
|
|
|
$
|
5.13
|
|
|
|
1,735,671
|
|
|
$
|
6.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value, determined as of the date of vesting,
of restricted stock units vested and converted to shares of
common stock during the twelve months ended December 31,
2009 was $3 million.
During 2008, we also began issuing deferred stock units under
the 2002 Plan. These awards vest immediately upon being granted
to members of the Board of Directors and shares are issued six
months and one day following the Directors departure from
the Board. During the year ended December 31, 2009, we
granted 66,790 deferred stock units at a weighted average grant
date fair value of $5.24, all of which remain outstanding at
December 31, 2009.
Prior to January 1, 2006, stock options under the 2002 Plan
became exercisable when vested, which occurred in annual
installments of three to seven years. For issuances under the
2002 Plan beginning in 2006, we revised the vesting terms so
that all options granted vest in equal installments over a
period of three or five years, or upon the occurrence of a
change in control. All options issued under the 2002 Plan expire
ten years from the date of grant. Our policy is to grant options
with an exercise price equal to the market price of the
underlying common stock on the date of grant.
The following is a summary of stock option activity for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
27,242,115
|
|
|
$
|
12.47
|
|
|
|
29,731,932
|
|
|
$
|
12.30
|
|
|
|
31,089,745
|
|
|
$
|
12.13
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
54,000
|
|
|
|
7.03
|
|
|
|
2,926,250
|
|
|
|
10.94
|
|
Exercised
|
|
|
(960,626
|
)
|
|
|
0.78
|
|
|
|
(718,226
|
)
|
|
|
1.12
|
|
|
|
(1,823,903
|
)
|
|
|
4.25
|
|
Forfeited
|
|
|
(93,062
|
)
|
|
|
11.00
|
|
|
|
(461,316
|
)
|
|
|
11.79
|
|
|
|
(737,127
|
)
|
|
|
11.87
|
|
Expired
|
|
|
(595,544
|
)
|
|
|
13.99
|
|
|
|
(1,364,275
|
)
|
|
|
14.62
|
|
|
|
(1,723,033
|
)
|
|
|
15.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
25,592,883
|
|
|
|
12.88
|
|
|
|
27,242,115
|
|
|
|
12.47
|
|
|
|
29,731,932
|
|
|
|
12.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of year
|
|
|
23,101,559
|
|
|
|
12.86
|
|
|
|
22,464,451
|
|
|
|
12.38
|
|
|
|
22,537,850
|
|
|
|
12.19
|
|
Available for future grants (1)
|
|
|
29,189,222
|
|
|
|
|
|
|
|
19,867,014
|
|
|
|
|
|
|
|
12,589,744
|
|
|
|
|
|
|
|
|
(1) |
|
On January 1, 2010, the number of shares reserved for
issuance was increased by 11,659,630 shares. |
64
The following is a summary of outstanding stock options at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested and Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Intrinsic
|
|
Range of
|
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Value
|
|
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Value
|
|
exercise prices
|
|
Shares
|
|
|
Life (years)
|
|
|
Price
|
|
|
(millions)
|
|
|
Shares
|
|
|
Life (years)
|
|
|
Price
|
|
|
(millions)
|
|
|
$0.33 to $4.00
|
|
|
2,641,863
|
|
|
|
1.6
|
|
|
$
|
2.25
|
|
|
$
|
9
|
|
|
|
2,641,863
|
|
|
|
1.6
|
|
|
$
|
2.25
|
|
|
$
|
9
|
|
$7.03 to $29.71
|
|
|
22,951,020
|
|
|
|
4.6
|
|
|
|
14.10
|
|
|
|
|
|
|
|
20,459,696
|
|
|
|
4.4
|
|
|
|
14.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,592,883
|
|
|
|
4.3
|
|
|
|
12.88
|
|
|
$
|
9
|
|
|
|
23,101,559
|
|
|
|
4.1
|
|
|
|
12.86
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value, determined as of the date of
exercise, of options exercised during the twelve months ended
December 31, 2009, 2008 and 2007 was $4 million,
$3 million and $15 million, respectively. We received
$1 million, $1 million and $8 million in cash
from option exercises for the years ended December 31,
2009, 2008 and 2007, respectively.
The number of shares reserved for issuance under the 2002 Plan
will automatically increase each January by an amount equal to
4% of the total number of shares of our common stock outstanding
on the last trading day in December of the prior calendar year.
In no event will any such annual increase exceed
12.2 million shares. The 2002 Plan, by its terms,
terminates no later than December 31, 2011.
Crewmember Stock Purchase Plan: Our CSPP,
which is available to all employees, had 5.1 million shares
of our common stock initially reserved for issuance at its
inception in April 2002. Through 2008, the reserve automatically
increased each January by an amount equal to 3% of the total
number of shares of our common stock outstanding on the last
trading day in December of the prior calendar year. The CSPP was
amended in 2008 to eliminate this automatic reload feature and,
by its terms, terminates no later than the last business day of
April 2012.
The CSPP has a series of successive overlapping
6-month
offering periods, with a new offering period beginning on the
first business day of May and November each year. Employees can
only join an offering period on the start date. Employees may
contribute up to 10% of their pay, through payroll deductions,
toward the purchase of common stock. Purchase dates occur on the
last business day of April and October each year.
Effective May 1, 2007, all new CSPP participation is
considered non-compensatory following the elimination of the
24-month
offering period and the reduction of the purchase price discount
from 15% to 5%. Participants previously enrolled were allowed to
continue to purchase shares in their compensatory offering
periods until those offering periods expired in 2008.
Prior to the 2007 amendment, if the fair market value per share
of our common stock on any purchase date within a particular
offering period was less than the fair market value per share on
the start date of that offering period, then the participants in
that offering period were automatically transferred and enrolled
in the new two-year offering period which began on the next
business day following such purchase date and the related
purchase of shares.
Should we be acquired by merger or sale of substantially all of
our assets or sale of more than 50% of our outstanding voting
securities, then all outstanding purchase rights will
automatically be exercised immediately prior to the effective
date of the acquisition at a price equal to 95% of the fair
market value per share immediately prior to the acquisition.
65
The following is a summary of CSPP share reserve activity for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Available for future purchases, beginning of year
|
|
|
23,550,382
|
|
|
|
|
|
|
|
20,076,845
|
|
|
|
|
|
|
|
16,908,852
|
|
|
|
|
|
Shares reserved for issuance
|
|
|
|
|
|
|
|
|
|
|
5,447,803
|
|
|
|
|
|
|
|
5,328,277
|
|
|
|
|
|
Common stock purchased
|
|
|
(1,380,824
|
)
|
|
$
|
4.82
|
|
|
|
(1,974,266
|
)
|
|
$
|
4.65
|
|
|
|
(2,160,284
|
)
|
|
$
|
8.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future purchases, end of year
|
|
|
22,169,558
|
|
|
|
|
|
|
|
23,550,382
|
|
|
|
|
|
|
|
20,076,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 718 requires that deferred taxes be recognized on temporary
differences that arise with respect to stock-based compensation
attributable to nonqualified stock options and awards. However,
no tax benefit is recognized for stock-based compensation
attributable to incentive stock options (ISO) or CSPP shares
until there is a disqualifying disposition, if any, for income
tax purposes. A portion of our stock-based compensation is
attributable to ISO and CSPP shares; therefore, our effective
tax rate is subject to fluctuation.
LiveTV Management Incentive Plan. In April
2009, our Board of Directors approved the LiveTV Management
Incentive Plan, or MIP, an equity based incentive plan for
certain members of leadership at our wholly-owned subsidiary,
LiveTV. Notional equity units are available under the MIP,
representing up to 12% of the notional equity interest of
LiveTV, with the award value based on the increase in the value
of the LiveTV entity over time subject to certain adjustments.
Awards are payable in cash upon the achievement of certain
events, or in February 2013, whichever is first. Compensation
cost will be recorded ratably over the service period ending in
2012. As of December 31, 2009, we have recorded
approximately $1 million as a liability related to the
outstanding awards we expect to ultimately vest, including an
estimate for pre-vesting forfeitures.
Purchased technology, which is an intangible asset related to
our September 2002 acquisition of the membership interests of
LiveTV, was being amortized over seven years based on the
average number of aircraft expected to be in service as of the
date of acquisition. Purchased technology became fully amortized
in 2009.
Through December 31, 2009, LiveTV had installed in-flight
entertainment systems for other airlines on 416 aircraft and had
firm commitments for installations on 354 additional aircraft
scheduled to be installed through 2013, with options for 167
additional installations through 2018. Revenues in 2009, 2008
and 2007 were $65 million, $58 million and
$40 million, respectively. Deferred profit on hardware
sales and advance deposits for future hardware sales are
included in long term liabilities in our consolidated balance
sheets was $29 million and $19 million at
December 31, 2009 and 2008, respectively. Deferred profit
to be recognized on installations completed through
December 31, 2009 will be approximately $4 million in
2010, $3 million per year from 2011 through 2014, and
$3 million thereafter. The net book value of equipment
installed for other airlines was approximately $64 million
and $36 million as of December 31, 2009 and 2008,
respectively.
The provision (benefit) for income taxes consisted of a current
expense of $1 million for 2009 and 2008, and the following
for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
34
|
|
|
$
|
(6
|
)
|
|
$
|
15
|
|
State and foreign
|
|
|
6
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income tax expense (benefit)
|
|
$
|
40
|
|
|
$
|
(6
|
)
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
The effective tax rate on income (loss) before income taxes
differed from the federal income tax statutory rate for the
years ended December 31 for the following reasons (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax expense (benefit) at statutory rate
|
|
$
|
35
|
|
|
$
|
(32
|
)
|
|
$
|
11
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal benefit
|
|
|
5
|
|
|
|
(4
|
)
|
|
|
2
|
|
Stock-based compensation
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
Non-deductible meals
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Non-deductible costs
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Valuation allowance
|
|
|
(1
|
)
|
|
|
23
|
|
|
|
|
|
Other, net
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
41
|
|
|
$
|
(5
|
)
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no cash payments for income taxes in 2009, 2008 and
2007.
The net deferred taxes below include a current net deferred tax
asset of $78 million and a long-term net deferred tax
liability of $259 million at December 31, 2009, and a
current net deferred tax asset of $106 million and a
long-term net deferred tax liability of $197 million at
December 31, 2008.
The components of our deferred tax assets and liabilities as of
December 31 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
203
|
|
|
$
|
213
|
|
Employee benefits
|
|
|
26
|
|
|
|
23
|
|
Deferred revenue/gains
|
|
|
86
|
|
|
|
60
|
|
Derivative instruments
|
|
|
4
|
|
|
|
54
|
|
Investment securities
|
|
|
15
|
|
|
|
21
|
|
Other
|
|
|
26
|
|
|
|
20
|
|
Valuation allowance
|
|
|
(25
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
335
|
|
|
|
365
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|