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Module 2: Reformulation Regional Airlines - jetBlue

Module 2: Reformulation Regional Airlines - jetBlue. Michelle Kelly. Background. Low Budget Airline Headquartered in Queens, NY Major Airport: JFK Market Share: 5.1% Serve 84 destinations in 24 states. Background. Started in 1998 by former Southwest employees Modeled after Southwest

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Module 2: Reformulation Regional Airlines - jetBlue

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  1. Module 2: ReformulationRegional Airlines - jetBlue Michelle Kelly

  2. Background • Low Budget Airline • Headquartered in Queens, NY • Major Airport: JFK • Market Share: 5.1% • Serve 84 destinations in 24 states

  3. Background • Started in 1998 by former Southwest employees • Modeled after Southwest • Difference: jetBlue aims to be low cost but high quality. • One of the only airlines to make a profit after 9/11 • Since, fuel costs have severely hurt profits

  4. Balance Sheet

  5. Balance Sheet - Assets

  6. Discussion • Restricted Cash • Restricted cash primarily consists of security deposits and performance bonds for aircraft and facility leases and funds held in escrow for estimated workers’ compensation obligations • Not available for use in operations, therefore classified as Financial Asset.

  7. Discussion • Asset Constructed for Other • Built new Terminal 5 at JFK • Technically lease the ground the terminal sits on from Port Authority of New York and New Jersey (PANYNJ) • Considered the owner for financial reporting purposes • Used in operations, therefore considered an Enterprise Asset

  8. Balance Sheet – Liabilities and S/E

  9. Balance Sheet – Liabilities and S/E

  10. Discussion • Air Traffic Liability • Tickets Sold but not yet used • Liabilities related to “True Blue” loyalty program and jetBlue credit cards • Related to operations, therefore Enterprise Liability • Construction Obligation • Related to building Terminal 5 at JFK • jetBlue has to pay back the PANYNJ the portion of the terminal they helped to pay for • Financial Liability

  11. Net Enterprise Assets (NEA)

  12. Net Financial Liabilities (NFL)

  13. Common Shareholders Equity

  14. Income Statement

  15. Income Statement

  16. Discussion • Depreciation and Amortization/Capitalized Interest • Capitalized Interest is the interest the company must by paid on the debt owed to the PANYNJ • Occurs due to building of Terminal 5 (similar to depreciation) • Capitalized Interest increases the value of asset and is not deductible for tax purposes • Like Depreciation, included in calculation of EPAT

  17. Calculation of Income Taxes

  18. Statement of Comprehensive Income

  19. Enterprise Profit After Tax (EPAT)

  20. Financing Expenses After Tax

  21. Unanswered Questions • Should the agreement jetBlue has with PANYNJ be considered a capital lease? • Even after paying back Construction Obligation, jetBlue still doesn’t own terminal • Is including capitalized interest in EPAT appropriate? • Why was there negative interest income in 2011? • Should taxes related to fuel costs be separated and added to the total tax expense when calculating EPAT to get a better idea of the true tax burden?

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