These are aggressive assumptions, they don't take into account CARES Act funding, and they don't take into account airlines effectively cutting 80-90% of flights. These guys are going to put out aggressive assumptions to protect their clients.
well, DL said they will run out of cash by June without CARES funding, so I don't know if these numbers are that aggressive. My point of posting that was to show that JetBlue is in a safer position than many other airlines. I'm assuming at this point that all non-ULCCs will get CARES funding in proportion to their salary obligations.
What are your sources on the Delta comment, and I wouldn't be quick to argue that B6 is safer
Edit found where you are getting this from:http://d18rn0p25nwr6d.cloudfront.net/CI ... 1cc110.pdf
"Without the self-help actions
we are taking to save costs and raise new financing, that money would be gone by June."
The only way they would run out of cash by June is if they continued spending at pre-Coronavirus levels
Alright, let's do some quick analysis here. Btw, I don't think JetBlue is in the best position of all airlines. I think both WN and G4 are in safer positions.
we know JetBlue is burning a little over $10 million a day and Delta is burning $60 million a day based on their recent filing and neither airlines are spending as much as pre-COVID. JetBlue had $1.2 billion in cash back on Mar 6th with additional $550 million in loans. They've since added another $1 billion in loan. Let's sya they've burnt through $250 million in cash since early March. They are down to about $2.5 billion in cash.
Delta simply does not have 5 or 6 times that much liquidity. They had under $3 billion in cash before this along with $3 billion in credit. They've since added another $2 billion in credit. At pre-COVID level spending, DL would be losing $85 to $90 million a day. Which if we take June as a mark (about 70 days from April 7th) , they had $5 to 6 billion left On April 7th.
Since both airlines are cutting about 80 to 90% of flights and freezing spending, the reduced level of spending should result in similar ratio of burn rate. So you have DL burning cash at 5 to 6 times that of JetBlue but with just a little over twice the amount of cash.
Let's add in CARES funding. Let's say Delta can get its burn rate down to $50 million per day and $30 million of that paid for by CARES funding over the next 6 months. That would $20 million per day burn rate over a little under 180 days roughly $3.5 billion in cash burn, which would bring their position down to about $1.5 billion in cash. Keep in mind since there is a lot of money in travel bank, operations will still be largely cash negative for Q4/Q1. And keep in mind there is normally requirements on how much cash needs to be available from creditors. So you don't get to $0 in cash before creditors start to take stuff away. Bottom line is that $1.5 billion is not enough to get them through Q4. Question is how much additional cash do they need in order to get through Q4/Q1. That's really dependent on the economy, drug treatment advances and if there will be further bailouts. If we conservatively say $40 million a day in Oct, $30 million a day in Nov, $20 million a day in Dec, $25 million a day in Jan/Feb, $15 million a day in March, $10 million a day in April, $5 million a day in May before becoming positive. They would need over $5 billion to get to summer when airlines will probably be cash positive. So at minimum, they'd need to secure at least $4 billion more in loans to not file chapter 11. The probably need $6 billion more actually to be safe. And that's assuming they don't go cash negative again in Sep/Oct. If we go by the logic that the more you fly, the more money you lose, then they'd need to be pretty slow in adding back flights to keep down the burn rate.
Let's take a look at B6. Let's say they get $5 million per day in CARES grant over the next 6 month and can get their burn rate down to $9 million a day over the next 6 month. That would be $4 million per day burn rate over a little under 180 days, so about $700 in cash burn, which would bring their cash position down to about $1.8 billion.
Using similar model to DL for B6, let's say they burn $7 million in Oct, $6 million in Nov, $4 million in Dec, $5 million in Jan/Feb, $3 million in March, $2 million in April, $1 million in May before becoming cash positive. They would need about $1 billion in cash to get through these month, which would bring their cash position to still reasonably healthy level of $800 million. My guess is that to be conservative, JetBlue needs to get another $500 million loan from somewhere. They have the assets in terms of both JFK/LGA slots and unencumbered aircraft to take out additional loan. It's a matter of whether or not banks are willing to lend in the current environment.
Here is the thing, things will be rough in airline industry as long as a vaccine isn't ready, because people will be afraid to be stuck in tight spaces and economy will not be functioning at 100%. Even if JetBlue is to become cash neutral or positive by next summer, they could still be losing money in Sep/Oct.
In order for JetBlue to avoid furlough and not shrink coming out of this, they'd probably need the additional cash. The loan they are taking out now has a one year time where they need to return the money. so to be safe, they need probably $500 million in cash to avoid having their assets taken away by the creditors. Again, additional loan for JetBlue with more generous terms of repayment would allow them to get through this without entering chapter 11.
But I'd rather be in JetBlue's position right now than a legacy airline. Again, WN is in a great position, which is probably why they are only canceling 50% of their flights thus far. G4 is in a great position. NK/F9 really dependent on how much CARES money they get (given they are clearly cutting cities). AS should be in a decent position. HA seems headed to chapter 11.