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The COVID-19 Pandemic (Notes) | 3 Months Ended
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Jun. 30, 2020
COVID-19 Pandemic [Abstract] |
COVID-19 Pandemic [Text Block] | The COVID-19 Pandemic The unprecedented and rapid spread of the coronavirus ("COVID-19") pandemic and the related travel restrictions and physical distancing measures implemented throughout the world have significantly reduced demand for air travel. Beginning in March 2020, 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. The pace of decline accelerated throughout March into April 2020 and has remained depressed. This decline in demand has had a material adverse impact on our operating revenues and financial position. During the second quarter of 2020, our operating revenues were 90% lower than the same quarter of 2019. Although demand began to improve during the second quarter, it remains significantly lower than in prior years. The length and severity of the reduction in demand due to the pandemic remains uncertain; accordingly, we expect the adverse impact to continue in the third quarter of 2020 and beyond. 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. Some states have experienced a resurgence of COVID-19 cases after reopening and as a result, certain other states, such as New York, have implemented travel restrictions or advisories for travelers from such states. 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, since March 2020 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 physical distancing and to implement new procedures that reflect the recommendations of health experts, including some of the following:
• | Introduced "Safety from the Ground Up", an initiative with a multi-layer approach that encompasses our safety measures on our flights, at our airports, and in our offices;
• | Instituted temperature checks for our customer-facing and support-center crewmembers;
• | 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, crewmember notification, and return to work clearance process for all crewmembers, wherever they may be located;
• | Required face covering for all crewmembers while boarding, in flight, and when physical distancing cannot be maintained;
• | Administered more frequent disinfecting of common surfaces and areas with high touchpoints;
• | Enhanced daily and overnight cleaning of our aircraft and all facilities, using electrostatic spraying of disinfectant in the cabins of aircraft parked overnight at selected focus cities;
• | Required customers to wear face coverings during check-in, boarding, and inflight;
• | Limited the number of seats available to be sold on most flights; we plan to continue blocking middle seats on large aircraft and aisle seats on smaller aircraft for those not traveling together through September 8, 2020;
• | Suspended group boarding and implemented a back-to-front boarding process to minimize passing in the aisle;
• | Eliminated layovers for crewmembers in New York City and worked with crew transportation companies to ensure physical distancing;
• | Implemented jump seat buffers on our flights to further promote physical distancing measures;
• | Provided enhanced flexibility to our customers by waiving change and cancel fees while also extending the expiration date of travel credits to 24 months; and
• | Retained an infectious disease specialist to conduct regular calls which are open to all crewmembers.
Our Business The COVID-19 pandemic drove a significant decline in demand beginning in the second half of March 2020. We have significantly reduced our capacity to a level that maintains essential services to align with demand. Our capacity for the second quarter of 2020 declined by 85% year-over-year. For the third quarter of 2020, we expect capacity to be down by at least 45%, as compared to the same period in prior year. As a result of the significant reduction in demand expectations and lower capacity, we have temporarily parked approximately 30% of our fleet. The reduction in demand and our capacity has resulted 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:
• | Adjustments in flying capacity to align with the expected demand.
•Temporary consolidations of our operations in certain cities that contain multiple airport locations.
• | Renegotiated service rates with our business partners and extended payment terms.
•Instituted a company-wide hiring freeze.
• | Implemented salary reductions of 20% to 50% for our officers.
• | Offered crewmembers voluntary time off and separation programs, with most departures for the separation programs scheduled for August 2, 2020.
At June 30, 2020, we had cash, cash equivalents, short-term investments, and short-term restricted cash of approximately $3.4 billion. We believe 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 through June 30, 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 of TrueBlue® points with our co-brand credit card partner.
• | Suspended non-critical capital expenditure projects.
• | Amended our purchase agreement with Airbus to defer several aircraft deliveries, 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.
• | Executed a $750 million term loan credit facility and immediately drew down on the facility for the full amount available.
• | Entered into $118 million of sale-leaseback transactions in June; which is discussed further below.
As a result of these activities, we had $3.1 billion in unrestricted and short-term restricted cash as of June 30, 2020. The $936 million of CARES Act funding represents short-term restricted cash since the funds must be utilized to pay the salaries and benefits costs of our crewmembers through September 30, 2020. The funds are reclassified from short-term restricted cash within prepaid expenses and other on our consolidated balance sheets to cash and cash equivalents when the funds are utilized. As of June 30, 2020, $533 million of CARES Act funding remained available. In June 2020, we executed $118 million of sale-leaseback transactions. These transactions did not qualify as sales for accounting purposes. The assets associated with these transactions remain on our consolidated balance sheets within property and equipment and the related liabilities under the lease are classified within debt and finance leases obligations. These transactions are treated as cash from financing activities on our condensed consolidated statements of cash flows. In July 2020, we executed $267 million of sale-leaseback transactions. We 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 For the three months ended March 31, 2020, we recorded an impairment loss of $202 million related to aircraft, including the ones that are under operating leases, and related spare parts in our Embraer E190 fleet. We did not record any additional impairment losses on our long-lived assets for the three months ended June 30, 2020. 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 the future cash flows of our fleet exceeded their carrying values as of June 30, 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 June 30, 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 prohibition on 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. As previously discussed, the $936 million of CARES Act funding represents short-term restricted cash since the funds must be utilized to pay the salaries and benefits costs of our crewmembers through September 30, 2020. The funds are reclassified from short-term restricted cash within prepaid expenses and other on our consolidated balance sheets to cash and cash equivalents when the funds are utilized. As of June 30, 2020, $533 million of CARES Act funding remained available. The carrying value relating to the payroll support grants is recorded within other liabilities and will be recognized as a contra-expense within special items on our consolidated statements of operations as the funds are utilized. The relative fair value of the warrants, estimated to be $18 million, was recorded within stockholder's equity and reduced the carrying value of the grants to $667 million. Proceeds from the payroll support grants and from the issuance of warrants were classified within operating activities and financing activities, respectively, on our condensed consolidated statements of cash flows. The carrying value relating to the unsecured term loan is recorded within long-term debt and finance lease obligations on our consolidated balance sheets. The proceeds from which were classified as financing activities on our consolidated statement of cash flows. 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 a margin. Any loans issued under the Loan Program are expected to be senior secured obligations of the Company, with the form of the 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. We have entered into a non-binding letter of intent with the Treasury for the Loan Program but have not yet decided if we will are going to take all or part of the loan amount. 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. We have deferred $20 million in payments through June 30, 2020. We expect to defer approximately $31 million of additional payments for the remainder of 2020. Income Taxes Among other things, the CARES Act allows a five-year carryback period for tax losses generated in 2018 through 2020. As a result, our effective tax rate includes an income tax benefit of $35 million recognized during the six months ended June 30, 2020, related to tax losses generated during 2020 that are permitted to be carried back to certain tax years when the U.S. federal income tax rate was 35%. This benefit was partially offset by $10 million of valuation allowance related to foreign tax credits. Because realizability is dependent on future income, we will continuously update our assessment and it is possible additional tax attributes may require a valuation allowance in future periods.

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