Jetblue Case Info

JetBlue Case

1. Focus on the process of underwriting, which is described well in pages of the

     case.

2. Focus on the Business Strategy of JetBlue---Will it succeed? Discuss the

     drawbacks as well as strengths of the strategy.

3. What airline would you compare JetBlue with—Southwest,  WestJet etc

 4. What is the cost of equity for JetBlue? Info. is given in the case about

      Southwest and market rates and premium.

5. What is the projected growth rate of Southwest? How does it compare with

     those of other airlines?

6. It is not easy to calculate the value/ price per share of this firm. But you can try.

     Exhibit 13 has forecasts of income statements and cash flows. Can you draw

      some quick inferences.

7. If the firm decides to offer at 24-27$ per share, do you think it is a fair price

    based on your judgment of the growth rate, cost of equity, cash flows and

       business  strategy.

 Try not to get lost in lot of #s. Think of this case as a relationship between business strategy and IPO.

JetBlue Case

Why IPO?

Benefits to the Firm:  

1.Gain visibility;

2.Acquire Cash for expansion/acquisition;

3. Liquify Ownership; Before IPO, the shares are not liquid in the market

4.  Independence from private equity firms;

5.  Diversify sources of funding;

Costs to the firm:

1.Floatation Costs including underpricing;

2.  Disclosure; and  Continuous Disclosure;

3. Potential Takeover Target;

4. Shareholders have  a short term view with emphasis on returns to  

      Shareholders;

5. Shareholders’ suits and Managing shareholders as a constituency;

Process of floating IPO:

It is well described in Exhibit 9. It starts with meetings with underwriters/investment bankers. After the “all hands” meeting “quiet period” starts. Underwriter does due diligence regarding financial statements and senior management, and drafts  preliminary registration material. Then registration with SEC which reviews the material. The underwriter assembles the distribution system (brokers etc)

There is a “road show”, the purpose of which is to assess the “ potential demand” for the stock. “Red herring”---preliminary prospectus is distributed.  Underwriter and firm decide the offer price and the date of offer. SEC gives its final approval.  The underwriter provides the following services: