The COVID-19 Pandemic (Notes)

3 Months Ended

Mar. 31, 2020

The COVID-19 Pandemic

Since December 2019, a novel strain of the coronavirus ("COVID-19") has spread to most countries across the globe including the United States. The unprecedented and rapid spread of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world have significantly reduced demand for air travel. Beginning in March, large public events were canceled, governmental authorities began imposing restrictions on non-essential activities, businesses suspended travel, and popular leisure destinations temporarily closed to visitors. Certain countries have imposed bans on international travelers for specified periods or indefinitely.

Demand for air travel began to weaken at the end of February 2020 and the pace of decline accelerated throughout March and into April 2020. This decline in demand has had a material adverse impact on our operating revenues and financial position. The length and severity of the reduction in demand due to the pandemic is uncertain; accordingly, we expect the adverse impact to grow in the second quarter of 2020. While we are planning for a modest recovery in demand during the third quarter of 2020, the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall U.S. and global economy. Our response to the pandemic and the measures we take to secure additional liquidity may be modified as we have more clarity in the timing of demand recovery.

In response to these developments, we have implemented the following measures to focus on the safety of our customers, our crewmembers, and our business.

Customers and Crewmembers

The safety of our customers and crewmembers continues to be our highest priority. As the COVID-19 pandemic has developed, we have taken a number of steps to promote social distancing and to implement new procedures that reflect the recommendations of health experts, including some of the following:


•	Updated our sick leave policy to provide up to 14 days of paid sick leave for crewmembers who have been diagnosed with COVID-19 or are required to quarantine;


•	Implemented a framework for internal contact tracing and a crewmember notification process;


•	Enhanced daily and overnight cleaning and disinfection of our aircraft and all of our facilities;


•	Eliminated layovers for crewmembers in New York City and worked with crew transportation companies to ensure social distancing;


•	Limited the number of seats available to be sold on most flights to promote social distancing;


•	Retained an infectious disease specialist to conduct calls with crewmembers;


•	Implemented jump seat buffers on our flights to further promote social distancing measures;


•	Mandated that crewmembers use facial coverings and other personal protective equipment while also reducing the number of service touchpoints;


•	Provided enhanced flexibility to our customers by waiving change fees while also extending the expiration date of travel credits to 24 months; and


•	Recently required customers to wear face coverings while traveling on our aircraft.

Our Business

The COVID-19 pandemic drove a significant decline in demand during March 2020 and this is expected to continue through at least the second quarter of 2020. To align capacity with expected demand for air travel, we have significantly reduced our system capacity to a level that maintains essential service. For the second quarter of 2020, our capacity is expected to decline by approximately 80 percent when compared to the second quarter of 2019. As a result of the significant reduction in demand expectations and lower capacity, we are temporarily parking approximately 65 percent of our fleet.

The reduction in demand and our capacity will also result in a significant reduction to our revenue. As a result, we have, and will continue to implement cost saving initiatives to reduce our overall level of cash spend. Some of the initiatives we have undertaken include:


•	A reduction in flying capacity to align with the expected demand, which has resulted in temporarily parking approximately 170 aircraft.

•Temporary consolidations of our operations in certain cities that contain multiple airport locations.

•Instituted a company-wide hiring freeze.

•Offered voluntary time off programs to most of our crewmembers.


•	Implemented salary reductions of 20% to 50% for our officers.


•	Renegotiated service rates with our business partners and extended payment terms.

At March 31, 2020, we had cash, cash equivalents and short-term investments of approximately $1.8 billion. The unprecedented impact of COVID-19 on the demand for air travel and the corresponding decline in revenue will continue to have an adverse impact on our operating cash flow. Given this situation, we have taken immediate actions to increase liquidity, strengthen our financial position, and conserve cash. Some of the actions we have taken prior to and after March 31, 2020 include:


•	Executed a new $1.0 billion 364-day delayed draw term loan agreement and immediately drew down on the facility for the full amount available.


•	Borrowed on our existing $550 million revolving credit facility.


•	Executed a $150 million pre-purchase arrangement with our co-brand credit card partner.


•	Suspended non-critical capital expenditure projects.


•	Amended our purchase agreement with Airbus resulting in a $1.1 billion reduction in aircraft capital expenditures through 2022.


•	Suspended share repurchases.


•	Obtained $936 million of government funding under The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which is discussed further below.

As a result of these activities, we had $3.1 billion in restricted and unrestricted cash as of April 30, 2020. The $936 million of CARES Act funding is considered to be restricted cash since the funds must be utilized to pay the salaries and benefits costs of our crewmembers through September 30, 2020. We will continue to evaluate future financing opportunities to leverage our unencumbered assets in an effort to build additional levels of liquidity.

Valuation of Long-Lived Assets

Under the Property, Plant, and Equipment topic of the Codification, we are required to assess long-lived assets for impairment when events and circumstances indicate that the assets may be impaired. An impairment of long-lived assets exists when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets are less than the book value of the assets. Our long-lived assets include both owned and leased properties which are classified as property and equipment, and operating lease assets on our consolidated balance sheets, respectively.

As discussed above, our operations were adversely impacted by the unprecedented decline in demand for travel caused by the COVID-19 pandemic. To determine if impairment exists in our fleet, we grouped our aircraft by fleet-type and estimated their future cash flows based on projections of capacity, aircraft age, maintenance requirements, and other relevant conditions. Based on the assessment, we determined that the future cash flows from the operation of our Embraer E190 fleet were lower than the carrying value. For those aircraft, including the ones that are under operating lease, and related spare parts in our Embraer E190 fleet, we recorded an impairment loss of $202 million representing the difference between the book value of these assets and their fair value. We estimated the fair value of our Embraer E190 fleet using third party valuations and considered specific circumstance such as aircraft age, maintenance requirements and condition, and therefore classified as Level 3 in the fair value hierarchy. We evaluated the remaining fleet and determined the future cash flows of our Airbus A320 and Airbus A321 fleet exceeded their carrying values as of March 31, 2020. As the extent of the ongoing impact from the COVID-19 pandemic remains uncertain, we will update our assessment as new information becomes available.

Valuation of Indefinite-Lived Intangibles

Our intangible assets consist primarily of acquired take-off and landing slots, or Slots, at certain domestic airports. Slots are the rights to take-off or land at a specific airport during a specific time period of the day and are a means by which airport capacity and congestion can be managed. We account for Slots at High Density Airports, including Reagan National Airport in Washington, D.C., LaGuardia Airport, and JFK Airport, both in New York City, as indefinite life intangible assets which result

in no amortization expense. We evaluate our intangible assets for impairment at least annually or when events and circumstances indicate they may be impaired. Indicators include operating or cash flow losses as well as various market factors to determine if events and circumstances could reasonably have affected the fair value. We performed an impairment assessment as of March 31, 2020 and determined our indefinite-lived intangible assets are not impaired.

The Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which is intended to provide relief and support to the U.S. economy. Under the CARES Act, assistance is available to the aviation industry in the form of direct payroll support (the "Payroll Support Program") and secured loans (the "Loan Program").

On April 23, 2020, we entered into a Payroll Support Program Agreement (the "PSP Agreement") with the United States Department of the Treasury ("Treasury") governing our participation in the Payroll Support Program. Under the Payroll Support Program, Treasury provided us with a payment of $936 million (the "Payroll Support Payment"), consisting of $685 million in grants and $251 million in an unsecured term loan. The loan has a 10-year term and bears interest on the principal amount outstanding at an annual rate of 1.00% until April 23, 2025, and the applicable Secured Overnight Financing Rate ("SOFR") plus 2.00% thereafter until April 23, 2030. The principal amount may be repaid at any time prior to maturity at par. In consideration for the Payroll Support Payment, we issued warrants to purchase approximately 2.6 million shares of our common stock to the Treasury at an exercise price of $9.50 per share. The warrants will expire five years after issuance, and will be exercisable either through net cash settlement or net share settlement, at JetBlue's option, in whole or in part at any time. In accordance with the PSP Agreement, we are required to comply with the relevant provisions of the CARES Act which, among other things, includes the following: the requirement to use the Payroll Support Payment exclusively for the continuation of payment of crewmember wages, salaries and benefits; the requirement against involuntary furloughs and reductions in crewmember pay rates and benefits through September 30, 2020; the requirement that certain levels of commercial air service be maintained until March 1, 2022; the prohibitions on share repurchases and the payment of common stock dividends; and restrictions on the payment of certain executive compensation until March 24, 2022.

On April 29, 2020, we submitted our application for the Loan Program of the CARES Act. Under the Loan Program, we expect to have the ability, through September 30, 2020, to borrow up to approximately $1.1 billion from the Treasury for a term of up to five years with an interest rate of LIBOR plus 3.00%. Any loans issued under the Loan Program are expected to be senior secured obligations of the Company, with collateral to be determined. If we accept the full amount of the loan, we will issue warrants to purchase approximately 12.0 million shares of our common stock to the Treasury. Any amount received under the Loan Program will be subject to the relevant provisions of the CARES Act, including many of those described above under the Payroll Support Program.

The CARES Act also provides for deferred payments of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. This is expected to provide us with approximately $67 million of additional liquidity during the current year.

Income Taxes

The Company's effective tax rate was 24.3% and 28.3% for first quarter 2020 and 2019, respectively. The change in tax rate, as compared to the prior year period, is due to several factors including a $12.1 million discrete federal tax benefit recorded in the first quarter of 2020 related to the carryback of net operating losses.

Our effective tax rate through 2020 may be subject to change related to discrete items recorded as additional CARES Act implementation guidance is released.