Cash, Planes, and More: A Look at JetBlue Airways

Digging into a company's assets is always important before making an investment decision and JetBlue Airways (NASDAQ: JBLU) is no exception. Here, I'll look at some of the key assets of JetBlue including cash and aircraft as well as the less talked about routes and slots.

Cash
As of Dec. 31, JetBlue had $708 million in cash and short-term investments. That may seem like a lot for a $5 billion company, but retaining a significant amount of cash on hand is a common practice in the aviation industry. At the moment, the major carriers all have multiple billions in cash that they're retaining to fund working operations, provide a safety net in the event of an industry downturn, and improve the balance sheet in order to get better financing rates for purchases and leased aircraft. Many airlines are ordering new aircraft, but these planes are purchased largely with a mixture of debt financing and cash generated from operations instead of straight cash purchases. Even with its current cash and short-term investments, JetBlue only owns 137 planes in its 203 aircraft fleet since it would rather retain the cash than buy a more of its fleet.

Since 2012, JetBlue's cash and short-term investments have remained fairly stable within the $600 million to $800 million range, which puts the company's liquidity slightly below but well within the range of its competitors on a current and quick ratio basis-- both measures of liquid assets compared to working capital.

All five airlines don't have enough liquid assets on hand to cover their capital needs, but all are currently in positions where they could tap the debt markets for more financing if needed. Here, I consider JetBlue's financial health largely in line with peers but something investors should still keep an eye on.

Planes
An airline doesn't own all of the planes you see painted in that airline's colors. In many cases, they're leased. In fact, there's an entire industry built around leasing aircraft to commercial airlines.

Source: JetBlue.

There are enough pros and cons to leasing aircraft to merit a book on the subject. In looking over an airline's assets, finding out how many planes are leased is important to know. Having more owned aircraft can provide more flexibility in tough times by allowing carriers to raise funds through sale-leaseback programs, not having to pay aircraft leases, and having the flexibility to reduce costs and capacity by taking extra aircraft out of service.

The following table shows airlines in order of percentage of aircraft owned:

source: Company 10-K forms

Here, it appears JetBlue is in line with the industry average for leasing versus owning aircraft but as the airline takes delivery of more aircraft investors should keep an eye on whether they are purchased upfront, financed, or leased.

At this point, JetBlue's fleet is comprised of the Airbus A320, Airbus A321, and Embraer 190; all of which are narrowbody aircraft. For an airline focused on travel within the Americas rather than flying to Europe and Asia, this arrangement of aircraft is workable. Having a limited variety of aircraft helps to save on maintenance costs and increase pilot flexibility. Also, With an average fleet age of 7.8 years, JetBlue's fleet is younger than those of its larger rivals.

source: Company 10-Ks

Like many of its rivals, though, JetBlue is busy ordering new aircraft which should result in lowering the average age over the next several years. Investors should keep an eye on how many of JetBlue's new aircraft go to replacing existing planes and how many are used to grow the fleet.

Routes and slots
Another factor to point out are routes the airline controls. Although JetBlue doesn't place a dollar value on all of its routes and slots, it's clear they are highly valuable when considering how airlines operate and how they compete for slots.

Source: JetBlue.

Having access to the best routes through controlling slots at airports is critical to an airline's ability to offer the flights passengers demand. JetBlue describes one of its competitive advantages as "high-value geography," and the value becomes clear when considering that many of the airports in the Northeastern U.S. are in demand and slot-restricted.

And with a strong Northeast presence, JetBlue has gained access to these airports in a way that no new entrant could hope to claim within any reasonable timeframe, unless it had an extremely large amount of capital to use. So not only do these slots make sure JetBlue has access to the routes passengers want but they also keep new airlines out.

For an example of how airlines compete for airport access, look no further than the situation at Washington National Airport. During the American Airlines-US Airways merger, JetBlue and Southwest Airlines both pushed for the new American to be forced to divest some slots at the airport.Sure enough, the Department of Justice the required divestment of 104 slots at Washington National as part of the merger approval, and JetBlue and Southwest lined up to bid. In the end, JetBlue and Southwest both won slots at the airport, giving them greater access to the closest major airport to the nation's capital.

So while JetBlue doesn't break down the value all of its slots (acquired ones are part of intangible assets), it's clear that they're valuable and provide an advantage over potential new airline start-ups.

Branding and loyalty
While things like cash and planes tend to get the most attention, intangible assets like brand names and customer loyalty are essential to the airline industry. Here, airlines put great effort into providing perks for their most frequent and highest paying travelers in an effort to encourage them to continue spending money at the same airline.

JetBlue has long built a brand name around being a different type of airline. From its early tech-savvy days to today where it still provides more economy legroom than most rivals, the JetBlue name is something that no other airline can completely copy. Combined with previous experiences on JetBlue and accumulated status, the airline maintains an advantage over new entrants that lack a core customer base and widely known brand name.

It would be difficult to put a dollar value on JetBlue's brand, customer loyalty, and market position but it's clear they are important to the airline.

The bottom line
Many of JetBlue's assets resemble those of other airlines, reflecting a broader industry strategy. Cash levels remain high not because of excessive hoarding but because airlines industrywide find it necessary to retain cash to fund operations and provide a cushion in the event of a downturn.

Aircraft ownership is also similar to the owned-to-leased ratios among the major legacy carriers. An X factor at JetBlue is the slots it controls, particularly those at high-demand Northeast airports, which, although valued highly in the airline industry, aren't all included on the balance sheet.