JetBlue Airlines 2012 Annual Report Download - page 39

JETBLUE AIRWAYS CORPORATION-2012 10K 35
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financing Activities
Financing activities during 2012 consisted of (1)scheduled maturities of
$198 million of debt and capital lease obligations, (2) the pre-payment
of $185 million in high-cost debt secured by seven Airbus A320 aircraft,
(3) the repayment of $35 million of debt related to two EMBRAER 190
aircraft which were sold in 2012, (4)proceeds of $215 million in non-
public fl oating rate aircraft-related fi nancing secured by four Airbus A320
aircraft and four EMBRAER 190 aircraft, (5) the net repayment of $88
million under our available lines of credit, (6)the repayment of $12million
in principal related to our construction obligation for Terminal 5 and (7)the
acquisition of 4.8 million treasury shares for $26million primarily related
to our share repurchase program and the withholding of taxes upon the
vesting of restricted stock units.
Financing activities during 2011 consisted primarily of (1)the early
extinguishment of $39 million principal of our 6.75% Series A convertible
debentures due 2039 for $45 million, (2)scheduled maturities of $188 million
of debt and capital lease obligations, (3)the early payment of $3 million on
our spare parts pass-through certifi cates, (4)proceeds of $121 million in
fi xed rate and $124 million in non-public fl oating rate aircraft-related fi nancing
secured by four Airbus A320 aircraft and fi ve EMBRAER 190 aircraft, (5)the
net borrowings of $88 million under our available line of credit, (6)the
repayment of $10 million in principal related to our construction obligation
for Terminal 5 and (7)the acquisition of $4 million in treasury shares related
to the withholding of taxes, upon the vesting of restricted stock units.
In November 2012, we fi led an automatic shelf registration statement with
the SEC. Under this universal shelf registration statement, we have the
capacity to offer and sell from time to time debt securities, pass-through
certifi cates, common stock, preferred stock and/or other securities. The
net proceeds of any securities we sell under this registration statement
may be used to fund working capital and capital expenditures, including
the purchase of aircraft and construction of facilities on or near airports.
Through December 31, 2012, we had not issued any securities under
this registration statement. At this time, we have no plans to sell any such
securities under this registration statement. We may utilize this universal
shelf in the future to raise capital to fund the continued development of
our products and services, the commercialization of our products and
services or for other general corporate purposes.
None of our lenders or lessors are affi liated with us.
Capital Resources
We have been able to generate suffi cient funds from operations to meet
our working capital requirements. Approximately 70% of our property and
equipment is encumbered, excluding 11 Airbus A320 aircraft and nine spare
engines which we own free and clear. We have historically fi nanced our
aircraft through either secured debt or lease fi nancing. At December31,
2012, we operated a fl eet of 180 aircraft, of which 60 were fi nanced under
operating leases, four were fi nanced under capital leases and all but 11
of the remaining 116 were fi nanced by private and public secured debt.
As noted above, we pre-paid some of 2013 aircraft deliveries. We have
committed fi nancing for two EMBRAER 190 aircraft scheduled for delivery
in 2013. We plan to opportunistically fi nance the remaining 2013 scheduled
deliveries at favorable borrowing terms relative to our weighted average
cost of debt. Although we believe debt and/or lease fi nancing should be
available for our remaining aircraft deliveries, we cannot give assurance we
will be able to secure fi nancing on terms attractive to us, if at all. While these
fi nancings may or may not result in an increase in liabilities on our balance
sheet, our fi xed costs will increase signifi cantly regardless of the fi nancing
method ultimately chosen. To the extent we cannot secure fi nancing, we
may be required to pay in cash, further modify our aircraft acquisition plans
or incur higher than anticipated fi nancing costs.
Working Capital
We had working capital defi cit of $508 million at December 31, 2012
compared to working capital of $216million at December31, 2011.
Working capital defi cits can be customary in the airline industry since air
traffi c liability is classifi ed as a current liability. The signifi cant decrease in
our working capital is primarily attributable to approximately $220 million
in debt prepayments made during 2012 and the $200 million prepayment
for future aircraft deliveries. Our working capital includes the fair value of
our short-term fuel hedge derivatives, which was a net liability of $1 million
and $4 million at December31, 2012 and 2011, respectively.
Also contributing to our working capital defi cit as of December 31, 2012
is $136 million in marketable investment securities classifi ed as long-
term assets, including $57 million related to a deposit made to lower the
interest rate on the debt secured by two aircraft. These funds on deposit
are readily available to us; however, if we were to draw upon this deposit,
the interest rates on the debt would revert to the higher rates in effect
prior to the re-fi nancing.
We have a corporate purchasing line with American Express allowing us
to borrow up to a maximum of $125million for the purchase of jet fuel.
Borrowings, which are to be paid monthly, are subject to a 6.9% annual
interest rate subject to certain limitations. This borrowing facility will
terminate no later than January 5, 2015. During 2012, we had borrowed
up to $125 million on this corporate purchasing line, all of which was
fully repaid, leaving the line undrawn as of December 31, 2012. In July
2012, we entered into a revolving line of credit with Morgan Stanley for
up to $100 million, and increased the line of credit for up to $200 million
in December 2012. This line of credit is secured by a portion of our
investment securities held by Morgan Stanley and the borrowing amount
may vary accordingly. This line of credit bears interest at a fl oating rate of
interest based upon LIBOR plus 100 basis points. During 2012, we had
borrowed up to the maximum $200 million, all of which was fully repaid,
leaving the line undrawn as of December 31, 2012.
We expect to meet our obligations as they become due through available
cash, investment securities and internally generated funds, supplemented
as necessary by fi nancing activities, as they may be available to us. We
expect to generate positive working capital through our operations.
However, we cannot predict what the effect on our business might
be from the extremely competitive environment we are operating in or
from events beyond our control, such as volatile fuel prices, economic
conditions, weather-related disruptions, the impact of airline bankruptcies,
restructurings or consolidations, U.S. military actions or acts of terrorism.
We believe the working capital available to us will be suffi cient to meet our
cash requirements for at least the next 12months.
Debt and Capital Leases
Our scheduled debt maturities are expected to increase over the next fi ve
years, with a scheduled peak in 2014 of nearly $600 million. Our scheduled
debt maturities in 2013 include fi nal mortgage payments on six Airbus
A320 aircraft, which will further increase our portfolio of unencumbered
assets. As part of our efforts to effectively manage our balance sheet
and improve ROIC, we expect to continue to actively manage our debt
balances. Our approach to debt management includes managing the mix
of fi xed vs. fl oating rate debt, managing the annual maturities of debt,
and managing the weighted average cost of debt. Further, we intend to
continue to opportunistically pre-purchase outstanding debt when market
conditions and terms are favorable. Additionally, our unencumbered assets,
including 11 A320 aircraft, allows us some fl exibility in managing our cost
of debt and capital requirements.