Jetblue Airways Ipo

JetBlue Airways IPO

• In April 2000, JetBlue first started in New York City’s John F. Kennedy Airport.

• Even after the 2001 terrorist attacks, company remained profitable and was growing aggressively.

• To support their growth and offset portfolio losses by their venture capital investors, management was ready to raise additional capital through a public equity offering.

• With representatives of co-lead manager Morgan Stanley and the JetBlue board was trying to come to an agreement on the offering price of the new shares. The initial price range was from $22 to $24. Facing sizable excess demand for the 5.5 million shares planned in the IPO, management had recently filed an increase in the offering price range to $25 to $26. NASDAQ was prepared for JBLU (the company’s ticker symbol) to begin trading on the exchange.

JetBlue Airways

• Ex-Continental Airlines vice-president, David Barger, had agreed to become the new JetBlue president and CEO.

• John Owen had left his position as executive vice president and former treasurer for Southwest Airlines to fill the CFO role at JetBlue.

• In 1999, David Neeleman, announced to launch a new airline. He had received strong support for his business plan from the venture capital community. He had quickly raised $130 million in funding from such high profile firms such as Weston Presidio Capital, Chase Capital Partners, and George Soros’s private equity firm, and Quantum Industrial Partners.

• JetBlue’s early success was often attributed to Neeleman’s extensive experience with airline startups. As a University of Utah student in his early 20’s, he began managing low-fare flights between Salt Lake City and Hawaii. His company, Morris Air, became a pioneer in ticketless travel and was later acquired by low-fare leader Southwest Airlines. Neeleman also developed the e-ticketing system, Open skies, which was acquired by Hewlett-Packard in 1999.

• Neeleman offered passengers a unique flying experience by providing new aircrafts, simple and low fares, leather seats, free Live TV at every seat, pre-assigned seating, reliable performance, and high-quality customer service. JetBlue focused on point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved. JetBlue’s operating strategy had produced the lowest cost per available seat mile of any of the major U.S. airlines in 2001—6.98 cents vs. 10.08 cents.

• JetBlue was the first U.S. airline to secure cockpits with bulletproof Kevlar doors and security cameras in response to the Sept. 11 hijackings.

• JetBlue had made significant progress in establishing a strong brand by seeking to be identified as a safe, reliable, low-fare airline that was highly focused on customer service and by providing an enjoyable flying experience.

The low-fare airlines

• Southwest Airlines, the pioneer in low-fare air travel was the dominant player among low-fare airlines. Southwest had been successful following a strategy of high frequency, short-haul, point-to-point, low-cost air travel. In 2002 Southwest’s market capitalization was larger than all other U.S. airlines combined.

• In addition to JetBlue, current low-fare U.S. airlines included AirTran, America West, ATA, and Frontier.

• Ryanair, WestJet, and easyJet had gone public.

The IPO process

• The process of “going public” typically required about three months.

• Private firms needed to fulfill a number of prerequisites prior to initiating the equity issuance process. Firms had to generate a credible business plan, gather a qualified management team, create an outside board of directors, prepare audited financial statements, performance measures and projections, and develop relationships with investment bankers, lawyers, and accountants. Frequently firms held “bake-off” meetings with potential investment banks to discuss the equity issuance process with a number of candidates before selecting a lead underwriter package, previous track record, analyst research support, distribution capabilities, and after –market market-making support.

• After establishing the prerequisites, the equity issuance process began with an organization or “all hands” meeting. This meeting was attended by all key participants of the process, including management, underwriters, accountants,