Ipo Valuation Case

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UVA-F-1415-SSRN v 1.2

JETBLUE AIRWAYS IPO VALUATION My neighbor called me the other day and she said, 'You have an interesting little boy.' Turns out, the other day, she asked my son Daniel what he wanted for Christmas. And he said, 'I want some stock.' 'Stock?' she said. 'Don't you want video games or anything?' 'Nope,' he said, 'I just want stock. JetBlue stock.' --David Neeleman, CEO and Founder, JetBlue Airways It was the first week of April 2002, barely two years since the first freshly-painted JetBlue plane rolled out at the company’s home base at New York City’s John F. Kennedy (JFK) Airport. JetBlue’s first years had been good ones. Despite the challenges facing the U.S. airline industry following the aircraft terrorist attacks of September 2001, the company remained profitable and was growing aggressively. To support their growth trajectory and offset portfolio losses by their venture capital investors, management had accelerated the decision to raise additional capital through a public equity offering. Exhibits 1 through 4 provides selections from JetBlue’s initial public offering (IPO) prospectus, the name for the document required by the SEC to inform investors about the details of the equity offering. With less than a week to go until the offering, JetBlue management was preparing for a meeting with IPO co-lead manager, Morgan Stanley. The initial price range for JetBlue shares had originally been targeted at between $22 to $24. Facing sizeable excess demand for the 5.5 million shares planned in the IPO, the JetBlue management team was considering whether to support an increase in the offering price of the new shares.

This case was prepared by Professor Michael J. Schill with research assistance from Cheng Cui. This case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2003 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to dardencases@virginia.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

-2JetBlue Airways


In July 1999, David Neeleman, 39, announced his plan to launch a new airline that would bring "humanity back to air travel." Despite the fact that the U.S. airline industry had witnessed 87 new airline failures over the previous twenty years, Neeleman was convinced that his commitment to innovation in people, policies, and technology could keep his planes full and moving.1 His vision was shared by an impressive new management team and a growing group of investors. Ex-Continental Airlines vice-president, David Barger, had agreed to become the new JetBlue President and COO. John Owen, had left his position as Treasurer for Southwest Airlines to fill the CFO role at JetBlue. Neeleman had received strong support for his business plan from the venture capital community. He had been able to quickly raise $130 million in funding from such high profile firms as Weston Presidio Capital, the Chase venture fund, and George Soros’ private equity firm Quantim Industrial partners. Within seven months, JetBlue had secured a small fleet of Airbus A320 aircraft and initiated service from JFK to Fort Lauderdale, Florida and Buffalo, New York. By late summer 2000, routes had been added to two other Florida cities (Orlando and Tampa), two other upstate cities (Rochester and Burlington, Vermont), and two California cities (Oakland and Ontario). The company continued to grow rapidly through early 2002 and now operated 24 aircraft flying 108 flights per day to 17 destinations. JetBlue’s early success was often attributed to Neeleman’s extensive experience with airline startups. As a University of Utah student...
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