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Fitch Upgrades Jetblue's IDR to 'BB-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded JetBlue Airways Corp.'s (JBLU) ratings to 'BB-' from 'B+'. The Rating Outlook is Stable. Fitch has also upgraded JBLU's unsecured rating to 'BB-/RR4' from 'B+/RR4' and affirmed JetBlue's senior secured credit facility at 'BB+/RR1'. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The upgrade is supported by JetBlue's improving credit metrics, consistent profitability, unit revenue outperformance compared to its peers in 2015, and its solid financial flexibility. Debt reduction in 2015 outpaced Fitch's prior expectations, as JBLU utilized a portion of its savings from lower jet fuel costs to improve its balance sheet. The ratings upgrade is also supported by JBLU's continuing commitment towards paying down debt, the near-term cash flow benefits that Fitch expects as the results of significantly lower fuel prices, and improving health of the North American airline sector as a whole.

Primary ratings concerns include the cyclicality and high degree of operating leverage that is typical for the airline industry. JetBlue will continue to pursue a growth strategy that is more aggressive than its peer group, though that risk is offset by the company's successful track record. Longer term concerns also include the strengthened competitive position coming from the major network carriers as their financial performance has improved, and by the rapid growth of ultra-low cost competitors.

STRONG RECENT OPERATING PERFORMANCE

JBLU's EBIT margins expanded by more than 10 percentage points in 2015, outpacing the margin improvement generated by its competitors. The great majority of the margin improvement was a direct result of lower jet fuel prices. Fitch expects operating margins to expand by another 1% - 4% percentage points in 2016, primarily driven by the sharp recent drop in fuel prices and by expectations for relatively flat non-fuel unit costs.

Positive factors may be partially offset by the possibility for some softness in unit revenues. Fitch's current forecast for 2016 incorporates a jet fuel price of $1.40/gallon, representing a roughly 30% decrease from JetBlue's average price paid in 2015 of $1.93. Over the longer term, Fitch does expect fuel prices to rise off of recent lows, potentially bringing margins down from the record levels seen over the past year. Should fuel prices remain within the forecasted range, JBLU could spend nearly $300 million less on jet fuel than it did in 2015 and nearly $860 million less than it did in 2014, though the recent volatility in crude prices makes potential savings difficult to estimate. The cash saved on fuel will give JBLU significant ability to finance its stated goals of paying down debt and continuing to purchase aircraft with cash.

Fitch expects non-fuel unit costs to be fairly stable for the coming year. JetBlue is scheduled to take delivery of 10 A321-200s in 2016 and is scheduled to begin densifying its existing A321 fleet, adding 10 seats to each aircraft. A320 densification will begin in 2017, adding 12 seats to each of those aircraft. The larger gauge of the A321 and the additional...


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