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JetBlue Airways IPO Valuation

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Chase Boyle

on 1 November 2013

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Transcript of JetBlue Airways IPO Valuation

JetBlue Airways IPO Valuation
Kevin Haber, Chase Boyle, Sean Crane
Background
July 1999, David Neeleman announced plan to launch a new airline that would bring "humanity back to air travel"
Hired an impressive new management team
David Barger, COO, former vice president of Continental Airlines
John Owen, CFO, former executive vice president and treasurer of Southwest Airlines
Early 2002
24 aircraft's, 108 flights per day, 17 destinations
Questions?
JetBlue Strategy
Fix everything that "sucked"
Point-to-point service to large metropolitan areas or highly traveled markets that were under served
Produced the lowest cost per available-seat mile of any major US airline in 2001
6.98 cents vs industry average 10.08 cents
Established brand identified as safe, reliable, low-fare airline that was focused on customer service
Concerns
87 new-airline failures over 20 years
September 11, 2001 terrorist attacks
US airline industry lost $7.7 billion in 2001
Problems
At what price should JetBlue offer their shares
Current pricing would "leave money on the table"
Raising the price could compromise the the deals success (especially after 9-11)
What Actually Happened
April 12, 2002 IPO
$27 per share
5.87 million shares sold (initially 5.5 million)
Morgan Stanley and Merrill Lynch underwriters
Closed at $45 per share the first day
up $18 (67%)
Southwest stock price around $19.26
"The hottest deal of the year"
Outperformed PayPals IPO
About JetBlue
Competition
Low-fare business model taking off
Southwest
Frontier
Ryan Air (Europe)
easyJet (Europe)
WestJet (CAN)
Industry
Going Public
Advantages
Disadvantages
Raise additional capital through IPO
Support Growth
Offset venture capitalist's portfolio losses
Greater public awareness
Increased liquidity
Available information
Increased costs
Dilution of ownership
Exposure to idiosyncratic risks
Public pressure by stockholders
Overpriced IPO can cause company challenges
Industry in decline
Thank You

Valuation
Multiple Analysis
EPS Multiple Valuation
EBIT/Share Multiple Valuation
Average = $24.15
DCF Analysis
WACC
DCF Analysis
Projected Share Price: $26.92

Long Term Growth Rate: 7.07%
Long Term Growth Rate
Growth Rate Effect on Valuation
Our Conclusion
EPS Valuation: $28.48
EBIT/Share Valuation: $19.82

DCF Valuation: $26.92
JBLU = $25.07
SOURCES
KPMG: "Components of Aircraft Acquisition"
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/components-of-aircraft-acquisition.pdf

JBLU: Prospectus S-1, 2/11/02
http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTE1OTg0ODkmRFNFUT0xJlNFUT0zJlNRREVTQz1TRUNUSU9OX1BBR0UmZXhwPSZzdWJzaWQ9NTc%3d

JBLU: S-1, 2/11/02; Airbus A320
http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTE1OTg0ODkmRFNFUT0xJlNFUT0xNCZTUURFU0M9U0VDVElPTl9QQUdFJmV4cD0mc3Vic2lkPTU3

Airline Capital Expenditures
http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTE1OTg0ODkmRFNFUT0xJlNFUT0xNCZTUURFU0M9U0VDVElPTl9QQUdFJmV4cD0mc3Vic2lkPTU3

JBLU 2004 10-K
http://library.corporate-ir.net/library/13/131/131045/items/211507/200410k.pdf


ATA Annual Report 2002
http://www.airlines.org/Documents/economicreports/2002.pdf

JetBlue IPO Soars
http://money.cnn.com/2002/04/12/markets/ipo/jetblue/






WACC = 10.09%
Average of FAA projections, and Southwest projections
Full transcript