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Why JetBlue Stock Is Losing Altitude Today

By Lou Whiteman - Mar 22, 2021 at 3:19PM

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The company plans to raise $650 million in convertible debt.

What happened

Shares of JetBlue Airways (JBLU -2.94%) traded down more than 8% on Monday afternoon after the airline announced a new $650 million convertible-note offering.

So what

Airlines spent most of last year scrambling to raise money to counter mounting losses due to the pandemic. Travel demand is starting to bounce back, but the industry is not out of the woods yet.

A JetBlue plane on the tarmac.

Image source: JetBlue Airways.

JetBlue on Monday made plans to add to its cash pile, announcing it intends to offer $650 million in convertible senior notes due in 2026. Exact terms of the offering have not yet been determined, but the notes could eventually be converted into additional equity.

The proceeds would go toward general corporate purposes and paying down other debt. Investors tend to frown upon convertibles because they carry the risk of adding shares to a stock's float, which then dilutes current holders. It's not usually enough to send a stock falling, but on a day when most of the airlines were in the red, it caused an oversized reaction in JetBlue shares.

Now what

It's hard to criticize the move by JetBlue, but it is also hard to get too excited about the shares right now. JetBlue arguably should have an easier time recovering than some businesses and internationally focused airlines, but its focus on its Mint premium product could mean it has more of a challenge winning leisure travel business this summer compared to pure discounters, including Southwest Airlines (LUV -1.95%) and Spirit Airlines (SAVE -5.91%).

Given that JetBlue's enterprise value, a measure of market capitalization plus total debt, is more than 30% higher than it was prior to the pandemic, it is hard to make the case that the stock can really take off right now even if travel does return this summer. I'd be in no hurry to board JetBlue shares even after the Monday drop.

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Stocks Mentioned

JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$9.92 (-2.94%) $0.30
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$44.23 (-1.95%) $0.88
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$19.42 (-5.91%) $-1.22

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