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Rating Action:

Moody's downgrades JetBlue Airways' corporate family rating to Ba2, senior secured rating to Ba1, confirms EETC ratings; outlook negative

28 May 2020

New York, May 28, 2020 -- Moody's Investors Service ("Moody's") downgraded its corporate ratings assigned to JetBlue Airways Corp. ("JetBlue"); corporate family to Ba2 from Ba1, probability of default to Ba2-PD from Ba1-PD and senior secured to Ba1 from Baa3. Moody's confirmed its ratings on the company's Enhanced Equipment Trust Certificates ("EETC") at A1 and A3, respectively, for the Class AA and A tranches of its Series 2019-1 EETC. The speculative grade liquidity rating was downgraded to SGL-3 from SGL-2. The ratings outlook is negative. Today's actions conclude the review for downgrade of JetBlue's ratings that was initiated on March 17, 2020.

The spread of the coronavirus pandemic, the weakened global economic outlook, low oil prices, and asset price declines are sustaining a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The passenger airline industry is one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's downgrade of JetBlue's ratings considers the potential for JetBlue's recovery from the coronavirus to move at a slower pace than its US peers given the geographic concentration of its route network and its more modest liquidity.

Moody's expects the coronavirus pandemic to significantly curtail US domestic and global demand for air travel for an extended period. Moody's assumed that JetBlue's Q4 2020 capacity would be down about 60% compared to Q4 2019 in its faster recovery model and that JetBlue's capacity would be down about 70% versus Q4 2020 in its slower recovery model. These scenarios also project that demand and revenues will approach 2019 levels in 2023, and that sharper cost management and efficiencies gained while managing the operations through the pandemic will support a meaningful recovery in profit margins by 2023. In all scenarios, the reduction in passenger demand is greater than the reduction in capacity, leading to meaningfully lower load factors. The risk of more challenging downside scenarios remains high and the severity and duration of the pandemic and travel restrictions also remain highly uncertain, particularly given the threat of an increase in the number of infections as social distancing practices ease in upcoming weeks.

The negative outlook reflects the potential for greater than already anticipated impacts of the coronavirus, which would consume more of the company's liquidity and delay the pace and scope of the recovery in demand, the retirement of debt and the strengthening of credit metrics versus Moody's current expectations. Nonetheless, adequate liquidity currently mitigates further downwards pressure on JetBlue's corporate family rating.

The confirmation of the EETC ratings reflect the importance of the A321-200 aircraft in the collateral to the company's operations and supportive equity cushions. Moody's believes having 40% of the company's A321ceo fleet -- many with the company's higher-yielding, premium MINT cabin -- in the collateral supports a high likelihood that JetBlue would affirm this transaction if it declared bankruptcy.

LIQUIDITY

JetBlue's adequate liquidity profile is characterized by our estimate of cash and short-term investments of $2.2 billion as of April 30, 2020. JetBlue arranged a $1 billion, 364-day facility that expires in March 2021. On April 22nd, the company drew the $550 million revolver that expires in August 2023. JetBlue has received $936 million under the Payroll Support Program of the US Coronavirus Aid, Relief, and Economic Security (CARES) Act. Of this amount, $251 million will be in the form of a 10-year, unsecured loan. A CARES Act secured loan of $1.1 billion will also be available to JetBlue through September 30, 2020, should it decide to utilize this part of the program. Unsecured assets with estimated value of about $2 billion remain available for additional financing, if needed.

A commitment by the US airlines to return on capital and profit maximization rather than market share strategies, declines in unemployment rates, and passenger demand and oil price levels will be key determinants of JetBlue's future cash generation that will inform the potential pace of deleveraging the capital structure. JetBlue spent $1.8 billion on fuel and invested $900 million on capital expenditures and returned $540 million to shareholders in 2019. With the CARES Act prohibition on returns to shareholders for one year after the repayment of loans, expected significant reductions in capital expenditures and likely materially lower fuel prices, there is the potential for JetBlue to sequentially and cumulatively retire a significant amount of the debt incurred because of the coronavirus, as demand recovers through 2023.

RATINGS RATIONALE

The Ba2 corporate family rating reflects the company's solid competitive position in its US East Coast and transcontinental routes, anchored in its focus cities of New York (JFK International Airport), Boston, Fort Lauderdale, Los Angeles, Orlando and San Juan; historically strong credit metrics, including debt-to-EBITDA of 2.1x at December 31, 2019; and recurring free cash flow. The company's relatively smaller scale and expected increasing competitive intensity, particularly from Delta Air Lines and American Airlines at Boston's Logan Airport, following the coronavirus, will be a headwind for JetBlue.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The corporate family rating could be downgraded if Moody's believes the coronavirus will constrain passenger demand for an extended period and or credit metrics. Aggregate of cash and available revolver falling below $1.25 billion could pressure the ratings as could (i) a longer-running decline in passenger bookings beyond our expectations, or a slower pace of recovery as a result of the coronavirus outbreak, particularly if not matched by further additional sources of liquidity; (ii) greater liquidity pressure from an inability to remove costs and cut capital spending; and/or (iii) if there are clear expectations that JetBlue will not be able to timely restore its financial profile once the virus recedes (for example, if debt-to-EBITDA is sustained above 3.5x, funds from operations plus interest-to-interest approaches 4x, or retained cash flow-to-debt is sustained below 20%).

There will be no upwards pressure on the ratings until after passenger demand returns to pre-coronavirus levels, JetBlue maintains liquidity above $1.5 billion, and key credit metrics improve such that EBIT margins remain above 18%, debt-to-EBITDA is sustained below 2.5x as the company reshapes its fleet with A220 and A321 aircraft, and funds from operations plus interest-to-interest is above 8x.

Ratings on corporate (non-EETC) debt instruments could change with no change in the corporate family rating because of changes in the relative contribution of senior secured and senior unsecured obligations in Moody's Loss Given Default waterfall. For example, the $251 million loan portion of the CARES Act Payroll Support Payments is an unsecured obligation; the $1.1 billion CARES Act loan, if drawn, will be secured. The previously arranged $1 billion 364-day facility also increased secured claims in the LGD waterfall, which will be sustained if termed out by the maturity date in March 2021. Adding either materially larger amounts of secured debt than unsecured debt or material amounts of one but not the other can lower the ratings of each class.

Changes in the EETC ratings can result from any combination of changes in the underlying credit quality or ratings of the company, Moody's opinion of the importance of the aircraft collateral to the company's operations, and/or its estimates of current and projected aircraft market values, which will affect estimates of loan-to-value.

The methodologies used in these ratings were Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811, and Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The following rating actions were taken:

Downgrades:

..Issuer: JetBlue Airways Corp.

.... Corporate Family Rating, Downgraded to Ba2 from Ba1

.... Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

....Senior Secured Bank Credit Facility, Downgraded to Ba1 (LGD3) from Baa3 (LGD3)

Confirmations:

..Issuer: JetBlue Airways Corp.

....Senior Secured Enhanced Equipment Trust, Confirmed at A1

....Senior Secured Enhanced Equipment Trust, Confirmed at A3

Outlook Actions:

..Issuer: JetBlue Airways Corp.

....Outlook, Changed To Negative From Rating Under Review

JetBlue Airways Corp., based in Long Island City, New York, operates a low-cost, point-to-point airline from its primary focus cities -- New York from John F. Kennedy International airport, Boston, Fort Lauderdale and Los Angeles. In 2019, JetBlue served 103 cities with an average of 1,000 daily flights. The company reported revenue of $7.8 billion for the last twelve months ended March 31, 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jonathan Root, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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