JetBlue’s $2 Billion Frequent Flyer Debt Sinks To 72 Cents On The Dollar—How Close Is Bankruptcy?

JetBlue’s $2 billion in bonds backed by its TrueBlue frequent flyer program have fallen to 72 cents on the dollar. Investors are demanding an enormous return to lend against one of the airline’s most valuable assets. The airline still has cash and its biggest debt payments aren’t due until. But its lenders are getting nervous. The carrier can run into trouble well before then, and with most of its best assets pledged against its debt it’s tough to use bankruptcy to shed obligations and make itself attractive for United or Alaska to buy. Their 2031 bonds hit their lowest price since they were issued in August 2024. Their spread over benchmark yields has passed 10 percentage points. Meanwhile, reported average shorting has risen from 20% to 29% of the stock this year. I wrote about these same bonds in July when they traded around 84 cents. They pay a 9.875% coupon. At 72, the scheduled payments imply a yield to maturity of ~19%. What Are The Odds JetBlue Goes Bankrupt? JetBlue shares closed Friday at $3.84, versus around $20 going into the pandemic. That doesn’t tell us bankruptcy risk, but it’s some guide into just how far this airline has fallen. Polymarket has tracked credit default swap pricing and the high probability of default. I pushed back in April on claims of a greater than 75% bankruptcy probability by 2027, and called out fake filing rumors in May. A debt restructuring, potentially accompanied by a sale, is much more plausible than any kind of shutdown. The latest reported balance sheet, from June 30, showed about $2.2 billion in unrestricted cash and investments, plus an undrawn $600 million credit line against $8.5 billion in debt and finance leases, before adding operating leases. Their scheduled debt and finance lease maturities were: Period Amount Due Remainder of 2026 $236 million 2027 $478 million 2028 $582 million 2029 $1.835 billion 2030 $656 million Thereafter $4.691 billion The wall of debt happens in 2029, but roughly half a billion dollars annually beforehand still has to get refinanced. They reported about $6 billion in unencumbered assets in July, so there’s still something to borrow against. A bankruptcy filing might not wait until 2029, though: Continued losses could consume cash faster than they can raise additional debt. Lenders could demand terms that make another refinancing uneconomic, or they may not be able to raise nearly as much as their current valuation of unencumbered assets. Credit card processors can hold back proceeds of ticket sales to cover chargeback risk from passengers who haven’t flown yet. JetBlue disclosed that one could arise at the end of the last quarter. Management and creditors could agree to restructure while there’s still enough money to fund the process. There are also specific protections in the TrueBlue financing documents. They specify a $750 million quarter-end liquidity minimum, with available revolving credit counting toward it. The loyalty debt-service coverage test steps up to 1.75 times starting in September 2026. Failing that test, or specified collateral-value tests, can divert part of the loyalty cash toward accelerated debt repayment. That can leave less money for the airline. High Fuel Prices Don’t Explain Why JetBlue Is In Trouble United earned $805 million in the second quarter while paying $4.19 a gallon for fuel. Southwest earned $233 million. Delta just reported $1.1 billion in third quarter pretax profit. JetBlue paid $4.23 a gallon in the second quarter. Their revenue rose 14.5%, but they still lost $141 million before interest. Eliminating every dollar of interest expense wouldn’t have made that quarter profitable. They don’t have the costs of a bare-bones discounter, or the global network and corporate accounts of Delta and United. Their operation has been poor, more likely to delay and cancel flights than competitors. Their fleet and engine problems have been expensive although they reported just four aircraft grounded by Pratt & Whitney issues at the end of June. And the failed American partnership and Spirit acquisition consumed years that could have gone into other strategies. Bankruptcy Can Help Without Giving Away Every Valuable Asset When I wrote about whether JetBlue should file in January 2024, I suggested that a court process wouldn’t supply a profitable strategy. However, secured debt can be restructured, and creditors can agree to new debt, or equity while the airline keeps its assets. Nearly $1 billion of the airline’s debt is unsecured. A negotiated filing with new money could reduce some obligations, change ownership and preserve the business. A sale can also transfer assets free of liens under the right conditions, with creditors’ claims generally attaching to the proceeds. Buyers can obtain useful assets without assuming every old liability. United May Want Parts Of JetBlue More Than It Wants JetBlue I covered JetBlue exploring a sale in March. The reasons another airline might want them are New York slots, Boston and Fort Lauderdale gates, aircraft and pilots, customers and a loyalty program. Scott Kirby publicly rejected buying their money-losing network in May. Integrating JetBlue employees onto United’s pay scales would add costs, before the expense and distraction of combining airlines. United is also obtaining some of what it wants through their existing partnership, which reduces the urgency to buy everything. Southwest would gain a much stronger New York position but take on a very different fleet and operation. Alaska has a more complementary geography, but another acquisition competes with integrating Hawaiian. Delta would face especially difficult antitrust issues in New York and Boston. But there are some signs of progress even as the market worries. Fort Lauderdale can perform well, and so can their Barclays agreement. They no longer have Spirit dragging down fares. The United partnership can help, though I think the American deal was better for customers. Domestic first class should be a (modest) money-maker, though they’re degrading the rest of the cabin at the same time. Topics on this page