JetBlue Airways IPO Valuation
Borislav Belenov, Wade Brashear, Jamie Clausen,
Paul Collier, Nicole Hagan and Melissa Lein
Chadron State College
Professor Steve Stoner
David Neeleman is the founder of JetBlue Airways, which began under the name of “New Air” in 1999. Many JetBlue executives were previously employed by Southwest Airlines, a competitor in the area of low cost travel. However, Mr. Neeleman’s vision was to offer more amenities to its passengers, like in flight entertainment, leather seats, and unsurpassed customer service (Discounting, 2009). His idea was “to launch a new airline that would bring humanity back to air travel (Schill, M. J., et al, 2003, pp. 344).” The employees of JetBlue “strive to make every part of your experience as simple and as pleasant as possible (JetBlue Airways, 2009, para. 1).”
David Neeleman began his airline, based out of New York, with a small fleet of new A320 Airbus aircraft. By having new aircrafts, Mr. Neeleman cut down on aircraft mechanical problems, as well as training on the aircraft. Also, low cost was accomplished by having a smaller, more productive workforce, as well as better use of current technology. This saved money for the fledgling company. JetBlue focused on a positive flying experience with point to point full service from the dedicated employees of the company (Schill, M. J., et al, 2003).
In April of 2002, JetBlue Airways began trading publicly in the NASDAQ exchange under the ticker symbol of JBLU. The initial public offering, or IPO, for JetBlue was 5.5 million shares of common stock offered for public trading (Schill, M. J., et al, 2003). By late April 2002, JetBlue took delivery on two more aircraft (JetBlue Airways, 2009).
This case study describes the process that a company must go through in order to offer common stock for public trade. It also brings up the advantages and disadvantages of being a publicly traded company. The direction the company follows after becoming a publicly traded company may differ from how the company began. The exhibits support the information given in the case study.
IPO stands for initial public offering. It is the process that a company must go through in order initially sell publicly traded equity. “It is primarily for raising additional capital or funds for a company that will be used to sustain its growing needs (production, distribution, and others). The term merely applies to initial issuance of common shares to interested public investors (Initial-Public-Offering-Process, para. 5).”
The process, which takes one hundred days, or more, begins with choosing a bank, or banks, to act as an advisor, and underwriter. The underwriter drafts a letter of intent. A registration statement needs to be filed with the Securities and Exchange Commission, also known as the SEC. There are two parts to the registration statement, the prospectus, and information that is made accessible for public inspection by the SEC. These disclosure requirements make sure that the public has correct information pertaining to the sale of the offered securities. The underwriter needs to verify this information by investigating the company (Ellis, K., et al, 1999).
The registration statement, once filed with the SEC, becomes the preliminary prospectus. The primary prospectus is used as a marketing tool. When the registration statement becomes effective, the preliminary prospectus is converted to the prospectus, which is the official offering document. Then, the offering is marketed, which is called a “road show.” The registration and marketing can take several months (Ellis, K., et al, 1999).
The day before the effective date, but after the market closes, the company and the underwriter decide the exact number of shares to be sold, as well as the price those share will be offered to the public. After the final terms are...