Jetblue

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Introduction:
JetBlue is planned to establish by David Neeleman in July 1999. Although the terrorist attacks of 9/11 made the huge loss of the whole airline industry, JetBlue airways try to publish its own IPO after 2 years of profitable operation in 2002, This case study is summarizing the step to publish the IPO. Following this, it will discuss the disadvantage and advantage to publish the IPO and use the financial data to evaluate the price is suit for the first publish. In this case, there are three different share valuation methods: P/E multiple (comparison pricing); EBIT multiple (comparison pricing) and discounted free cash flow (fundamental pricing). Analysis the advantage and disadvantage of the IPO

JetBlue has been successful to duplicate Southwest’s strategy which provides high aircraft utilization and low fare. The cost of per available-seat-mile is the lowest of the major U.S. airline in 2001 which is 6.98 cent compare with the industry average of 10.08 cents. On the other hand, JetBlue provides comfortable and convenient travel experience such as leather seats and free live TV. After these successful operations, JetBlue needed to raise capital use IPO for the further expansion. Although the non U.S. low-fare airlines have been publish IOP and the return is reasonable, there still have disadvantages to do this. Advantages:

1 For the financial reason, to issue IPO can increase the liquidity. Once to issue the IPO, JetBlue can get the money directly from investors. For example, JetBlue plan to issue 5,500,000 shares which price range $25 to $26. 2 For the competition reason, customer, supplier and investors are increase confidence of the company and improving the stability and competitive position of the company. On the other hand, it can improve the company’s reputation. 3 For the development perspective, by offering IPO, JetBlue can improve the governance structure. 4 For the wealthy reason, offering IPO will greatly enhance shareholder value and enterprise value. Disadvantage:

1 The cost is higher to offering IPO. Once the company decides to offer the IPO, they need to prepare the huge document about the law and accounting information. Also the cost of time is obviously. 2 The owner wills loss control.

3 According to the rules of SEC, information disclosure is another problem. Not only competitors can easily get the financial information and also increasing the expanse to additional accounting staff and prepare the report. 4 Put more pressure from investors to managers to improve position of the company. Evaluate the IPO price: Comparable companies’ analysis

P/E Multiple: in order to get the proper range for the JetBlue’s offering price, we look the financial data from the Low-cost Airline Industry which are AirTran, Frontier, Ryanair, Southwest, Westlet. According to the data of competitors which carried at the end 2001, we can calculate the price should be based these multiples and it is the same or JetBlue. | Trading| | | Leading| |

| Price/ Share| Earnings/ Share| PE Multiple| Earnings/ Share| PE Multiple| AirTran| 6.6 | 0.3 | 25.287356| 0.3 | 20|
Frontier| 17.0 | 2.0 | 8.3743842| 0.4 | 45.945946|
Ryanair| 32.1 | 0.7 | 44.024725| 0.9 | 34.095745|
Southwest| 18.5 | 0.7 | 27.586207| 0.7 | 28.430769|
WestJet| 15.9 | 0.8 | 19.567901| 0.6 | 26.864407|
Average | | | 24.968115| | 31.067373|
Jetblue (trailing)| 28.463651| 1.14| | | |
Jetblue (leading)| 40.387585| | | 1.3| |
At first, we separately calculate the average of the low-cost Airline industries PE Multiple using the Trading data and Leading data. The data of Earnings/ Share of Jetblue, we find them from exhibit 3. After the calculation, the price range of Jetblue is $28.5 to $40.4. EBIT Multiple:

| | | Trailing| | Leading| |
 | Price/ Share| Book Debt/ Share| EBIT/ Share| EBIT multiple| EBIT/ Share| EBIT multiple| AirTran| 6.6 | 4.0 | 0.8 |...
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