1. institutional aspects of equity issuance transaction
2. costs and benefits associated with public share offerings 3. develop a deeper appreciation for challenges of valuing unseasoned firms and enhance corporate valuation skills
KEY QUESTIONS FOR CONISDERATION
1)What are the advantages and disadvantages of going public? 2)What different approaches can be used to value JetBlue’s shares? 3)At what price would you recommend that JetBlue offer their shares?
Potential Questions to be addressed in report submission
* What is an Initial Public Offering and why is it such a big deal? * Is going public, particularly at the time they did, a good idea for JetBlue? * What do you believe JetBlue stock is really worth?
* Does the financial forecast in case Exhibit 13 seem reasonable? * What are the key assumptions in the IPO valuation?
* Is the length of the forecast period within the IPO valuation (exhibit 13) reasonable? * What discount rate is appropriate for the cash flow forecast? * How would you suggest estimating the terminal value? What assumptions have you made? How have your assumptions affected the estimated value of JetBlue shares?
After the terrorist attacks on September 11, 2001, it was upset deeply because of the safety for the airline industry in the United States. The passenger demand suddenly reduced and many flights cancelled afterwards, which led a lot of American airlines declared bankruptcy afterwards, including US Airways and United Airlines. It was a challenging time for airline industry, however, David Neeleman, the CEO and Founder of JetBlue Airways, discovered an opportunity for the company. Barely two years after its foundation, the company decided to raise additional capital through initial public offering (IPO).
This report is aimed to apply financial theories and concepts into analyse the real case study of JetBlue Airline. Firstly, the background of JetBlue will be introduced briefly. Also, the advantages and disadvantages of going public for JetBlue will be discussed in the following pages. In addition, the share valuation of JetBlue IPO will be estimated based on several assumptions. Last but not least, the recommendation will be provided in the last past of this report. Background
JetBlue was founded by David Neeleman in 1999, which looked to fulfil the purpose of “humanity back to air travel”. By following the low-cost model of Southwest Airlines, JetBlue pursued to offer passengers an enjoyable flying experience by providing in-flight entertainment, comfortable room and high-quality customer service. In addition, in order to organise a strong and experienced working team, Neeleman employed several skilled senior managers, comprising of David Barger who was a former vice president of Continental Airlines to be president and COO and John Owen who was executive vice president and former treasurer of Southwest Airlines to be CFO in JetBlue. Moreover, as the founder of JetBlue, Neeleman have own extensive experience with airline start-ups from managing low-fare flights during university period.
Based on the explicit marketing strategy of JetBlue, barely less than one year, the company increased the routes to other cities in America and it continued to grow rapidly to 17 destinations in early 2002. And not only that, JetBlue adopted the active measures to increase expenditures for security by setting up equip cockpits with bulletproof doors and security cameras, which enhanced the confidence of US residences to take flights under the circumstance of few people was afraid of flying after September 11 hijackings. Advantages and disadvantages of going public
Refer to Bodie, Kane and Marcus (2011), initial public offerings are stocks issued by a formerly privately owned company that is going public, which means that selling stock to the public for the first time. According to Rothberg, the...