A JetBlue Airlines commercial aircraft flies over Washington as it approaches to land at Dulles International Airport, as seen from Washington, on Aug. 5.Umit Bektas/Reuters
Ratings agencies S&P and Moody’s downgraded JetBlue Airways after the carrier unveiled plans to raise more than US$3-billion in debt, majority backed by its loyalty program, TrueBlue.
Shares of the New York-based company plummeted 19 per cent.
JetBlue JBLU-Q intends to raise US$1.5-billion through a private offering of senior secured notes and an additional US$1.25-billion via a term loan, secured by TrueBlue.
It also plans to raise US$400-million through a convertible notes offering, primarily to refinance existing debt.
S&P downgraded JetBlue’s ratings from “B” to “B-,” citing concerns about its financial health.
The agency expects JetBlue’s funds from operations to debt ratio – a leverage ratio used to assess financial risk – to remain in the low single digits through 2025, with negative net cash flow from business operations.
Moody’s downgraded JetBlue’s corporate family rating to “B3″ from “B2,” stating that restoring the company’s operating profit and cash flow to levels that would lead to materially stronger credit metrics would require several years.
It expects the airline to burn US$2.2-billion in cash in 2024 and US$1.4-billion in 2025.
Leveraging loyalty programs as collateral has become a popular strategy for airlines to boost liquidity, a practice that gained traction during the COVID-19 pandemic.
Delta Air and United Airlines also previously leveraged their loyalty programs to enhance cash reserves during challenging times.
Fitch Ratings affirmed JetBlue’s rating at “B” with a stable outlook, citing “healthy” liquidity and manageable near-term debt maturities.
It, however, warned that a failure to improve profitability and cash flow in near term could result in negative rating actions.
JetBlue has been trying to control costs, including deferring deliveries of 44 new jets from Airbus, reducing its planned capital expenditure by about US$3-billion between 2025 and 2029.
Its operations have also been impacted by a powder metal issue with Pratt & Whitney’s Geared Turbofan engines, forcing the airline to ground several aircraft.