JetBlue Offering Cleared for Takeoff

S&P says the discount airline's p-e -- based on an expected $25-$26 IPO price -- seems reasonable. But it could be vulnerable to a liquidity crunch

By James Corridore

The initial public offering of JetBlue Airways (JBLU ) has generated a great deal of interest on Wall Street, and the discount airline could be a tough contender in the $15 billion airline industry.

JetBlue, which operates a small fleet of new 23 Airbus 320s flying among 19 cities, plans to go public Apr. 11 with 5.5 million shares. Standard & Poor's sees the IPO being priced at $25-$26 per share, giving it an initial market capitalization of about $1.0-$1.1 billion.

JetBlue has often been compared to its older and more successful rival, Southwest Airlines. Both airlines focus on point-to-point travel between secondary airports on highly traveled routes, and has streamlined its equipment. JetBlue also keeps its cost structure low by using nonunion labor and eliminating in-flight meals. The company plans to add 60 planes by the end of 2007.

On a price-to-sales basis, the expected IPO price values JetBlue at around 3.4 times 2001 revenues -- a premium to all large public airlines. But JetBlue's price-earnings multiple of 23 times 2001 (pro forma) earnings per share seems reasonable. The debt-to-capitalization ratio of 68% is not bad for this industry, either. However, the carrier currently has no line of credit, and could be vulnerable to a future liquidity crunch.

JetBlue's cost per available seat mile is among the lowest in the industry, because of its super-low ticket costs. The company estimates that its advance-purchase tickets are typically 30% to 40% lower than other airlines' nonsale prices. And walk-up fares, often used by business travelers, are 60% to 70% lower. But S&P will watch to see if this low-cost approach will hold.

S&P currently carries no investment opinion on these shares, but JetBlue will be an airline to watch closely.

Analyst Corridore follows airline stocks for Standard & Poor's

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