PARAPHRASING in 12 hours

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Case_45JetBlueAirwaysIPOValuation.xlsx
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This spreadsheet supports STUDENT analysis of the case "JetBlue Airways IPO Valuation" (Case 45).
This spreadsheet was prepared by Professor Michael Schill. Copyright © 2004 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. For customer service inquiries, send an e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, posted to the Internet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Rev. Jan. 20, 2011
Maryam Barifah
Nour Abdulaziz
Shrouq Al-Jaaidi
Balqees Mekhlafi

Model Facts

JetBlue TN v3.0
This spreadsheet supports STUDENT analysis of the case, "JetBlue Airways IPO Valuation" (UVA -F- 1415)
Revised, February 2007
Copyright (C) 2004, by the University of Virginia Darden School Foundation.

Exhibit 7

Exhibit 7'!A1=AVERAGE(
JETBLUE AIRWAYS IPO VALUATION
Recent Valuation Multiples
Actual for 2001 Estimates for 2002
Price/ Share Book Equity/ Share Book Debt/ Share EBITDA*/ Share EBIT/ Share Earnings/ Share EBIT/ Share Earnings/ Share
(1) (2) (3) (4) (5) (6) (7) (8)
AirTran 6.6 0.5 4.0 1.2 0.8 0.3 0.8 0.3
Alaska Air 29.1 32.1 33.8 3.3 -1.7 -1.5 2.7 -0.8
America West 3.5 12.5 10.2 -4.3 -6.2 -4.4 -4.5 -4.1
AMR (American) 22.3 35.1 69.3 -7.0 -16.2 -11.5 12.4 -3.9
ATA 15.0 10.8 32.9 8.5 -2.0 -2.6 -6.4 -7.2
Continental 26.2 20.9 82.0 9.8 1.4 -1.6 11.1 -1.2
Delta 29.3 32.7 70.3 -1.4 -11.8 -9.9 8.4 -3.1
Frontier 17.0 5.4 0.0 3.2 3.0 2.0 0.6 0.4
Midwest 14.6 8.3 2.7 -0.1 -1.6 -1.1 1.6 0.8
Northwest 15.7 -5.1 66.9 1.6 -4.4 -5.0 7.2 -2.5
Ryanair 32.1 5.5 3.3 1.3 0.9 0.7 1.2 0.9
Southwest 18.5 5.3 1.8 1.5 1.1 0.7 1.4 0.7
United 13.5 59.6 186.2 -37.0 -56.1 -39.6 NA -15.4
WestJet 15.9 2.8 1.0 2.1 1.3 0.8 1.6 0.6
Trailing Leading
Market to book multiple Total Capital multiple EBITDA multiple EBIT multiple PE Multiple EBIT multiple PE Multiple
[1/2] [(1+3)/(2+3)] [(1+3)/4] [(1+3)/5] [1/6] [(1+3)/7] [1/8]
AirTran 13.5 2.4 8.6 13.0 25.3 13.9 20.0
Alaska Air 0.9 1.0 19.2 -37.0 -19.3 23.3 -38.8
America West 0.3 0.6 -3.2 -2.2 -0.8 -3.0 -0.8
AMR (American) 0.6 0.9 -13.1 -5.7 -1.9 7.4 -5.7
ATA 1.4 1.1 5.6 -23.8 -5.7 -7.5 -2.1
Continental 1.3 1.1 11.0 77.0 -16.7 9.8 -22.4
Delta 0.9 1.0 -71.6 -8.4 -3.0 11.8 -9.4
Frontier 3.2 3.2 5.3 5.7 8.4 26.6 45.9
Midwest 1.8 1.6 -298.3 -11.0 -13.5 11.2 17.4
Northwest -3.1 1.3 51.6 -18.8 -3.1 11.5 -6.3
Ryanair 5.8 4.0 26.4 38.5 44.0 30.3 34.1
Southwest 3.5 2.9 13.4 18.6 27.6 14.3 28.4
United 0.2 0.8 -5.4 -3.6 -0.3 NA -0.9
WestJet 5.6 4.4 8.1 12.7 19.6 10.6 26.9
Data source: Actual numbers for 2001 are from company annual reports. Estimates for 2002 are from Valueline when available, otherwise
consensus analyst estimates are used. All stock prices are quoted as of December 31, 2001. Ryanair figures are based on the respective
American Deposit Receipt prices. Westjet figures are in Canadian dollars. 1 US dollar = 1.5870 Canadian dollars as of March 31, 2002. The
calculation procedure for the valuation multiples is defined in the lower panel based on the numbered variables defined in the upper panel.

Exhibit 8

Exhibit 8
JETBLUE AIRWAYS IPO VALUATION
Historical Annual Growth Rates for Low Fare Airlines
$ Revenue Growth $ Gross Equipment Growth
Year AirTran ATA Frontier Ryanair Southwest AirTran ATA Frontier Ryanair Southwest
1970
1971
1972 -20% 177%
1973 5% 55%
1974 28% 61%
1975 32% 54%
1976 51% 35%
1977 101% 59%
1978 42% 66%
1979 46% 68%
1980 32% 57%
1981 35% 27%
1982 45% 23%
1983 18% 35%
1984 35% 20%
1985 49% 27%
1986 10% 13%
1987 -5% 1%
1988 24% 11%
1989 14% 18%
1990 10% 17%
1991 14% 11%
1992 20% 28%
1993 1% 21% 11% 36%
1994 456% 21% 18% 2204% 24% 13%
1995 186% 18% 49% 13% 175% 23% 186% 11%
1996 -4% 2% 125% 20% 10% -40% 5% 66% 25% 19%
1997 49% 20% 39% N/A 16% -4% 4% 26% 15% 12%
1998 18% 21% 56% N/A 19% 108% 17% 50% 29% 9%
1999 -20% 39% 105% 39% 19% 15% 22% 50% 11% 14%
2000 35% 23% 79% 68% 16% 24% 15% 43% 21% 19%
2001 -22% -58% 237% 12% 7% -1% -6% -2%
Source: Compustat

Exhibit 13

JETBLUE AIRWAYS IPO VALUATION
JetBlue Financial Forecast
$ figures in millions Actual Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Number of aircraft 21 34 48 62 74 86 98 108 113 117
$ Revenue/plane $15.3 $17.6 $18.4 $19.2 $20.1 $21.0 $21.9 $22.8 $23.8 $24.9
Expected inflation 16% 4% 4% 4% 4% 4% 4% 4% 4%
Operating margin 8.4% 13.3% 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% 15.2%
$ Depreciation/plane $0.5 $0.5 $0.5 $0.6 $0.6 $0.6 $0.7 $0.7 $0.7 $0.8
$ CapEx/New planes $21.3 $22.3 $23.5 $24.6 $25.9 $27.1 $28.5 $29.9 $31.4 $33.0
Expected inflation 5% 5% 5% 5% 5% 5% 5% 5% 5%
NWC Turnover 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4
Revenue $320 $600 $884 $1,192 $1,485 $1,802 $2,144 $2,466 $2,694 $2,912
Cash expenses 283 502 723 975 1,215 1,474 1,753 2,016 2,202 2,380
Depreciation 10 18 26 36 45 54 65 75 83 90
EBIT 27 80 134 181 226 274 326 375 410 443
Tax 34% 9 27 46 62 77 93 111 127 139 151
NOPAT 18 53 89 120 149 181 215 247 270 292
Capital expenditure 234 290 328 345 310 326 342 299 157 132
Net working capital 33.9 63.5 94 126 157 191 227 261 285 308
Fixed assets 530 802 1,104 1,413 1,679 1,950 2,227 2,451 2,526 2,568

Q3

Years 1 2 3 4 5 6 7 8 9
AirTran 456% 186% -4% 49% 18% -20% 35% -22%
ATA 1% 21% 18% 2% 20% 21% 39% 23% -58%
Frontier 49% 125% 39% 56% 105% 79% 237%
Ryanair 20% N/A N/A 39% 68%
Southwest -20% 5% 28% 32% 51% 101% 42% 46% 32%
Low-fare median revenue 20% 73% 23% 39% 51% 50% 41% 23% -13%
JetBlue revenue forecast 87% 47% 35% 25% 21% 19% 15% 9% 8%
Years 1 2 3 4 5 6 7 8 9
AirTran 2204% 175% -40% -4% 108% 15% 24% 7%
ATA 11% 24% 23% 5% 4% 17% 22% 15% -1%
Frontier 186% 66% 26% 50% 50% 43% -6%
Ryanair 25% 15% 29% 11% 21%
Southwest 177% 55% 61% 54% 35% 59% 66% 68% 57%
Low-fare median equipment 177% 55% 26% 11% 35% 30% 23% 15% 28%
JetBlue equipment forecast 59% 42% 31% 21% 18% 16% 12% 6% 5%
Beginning JetBlue $ gross equipment forecast $490 $780 $1,108 $1,453 $1,763 $2,089 $2,431 $2,731 $2,888

Q4

Appropraite Discount Rate for the Cash-flow Forecast
Total Debt (in millions) $1,842.0 *from Exhbit 5 in the book
Recent Stock price $20.69 *from Exhbit 5 in the book
Common Shares outstanding (in millions) 776.8 *from Exhbit 5 in the book
Market value of equity $16,072.0
Corporate tax rate 38.5% *from Exhbit 5 in the book
Yield on 10-year Treasury debt 5.0% *from page:623
Market risk premium 5.0% *from page:623
Beta on SWA equity 1.10 *from Exhbit 5 in the book
CAPM Cost of equity 10.5%
WACC 9.74%

Q2&5

All numbers are in millions except for the multiples and prices
DCF 2002 2003 2004 2005 2006 2007 2008 2009 2010
EBIT 80 134 181 226 274 326 375 410 443
NOPAT 53 89 120 149 181 215 247 270 292 Terminal Value 3,472.50
Add Depreciation 18 26 36 45 54 65 75 83 90 Enterprise Value 2,775.67
Less Capital expenditures 290 328 345 310 326 342 299 157 132 Less Preffered Stock 210.44 Taken from Exhibit 2
Less Change in NWC 30 30 33 31 34 36 34 24 23 Less Long term debt 290.00
Free cash flow (250) (243) (222) (148) (124) (98) (11) 172 227 Plus Cash 117.00
Discount rate (WACC) 9.74% Implied Equity Value 2,392.23
Present Value (PV) of cash flows ($227) ($202) ($168) ($102) ($78) ($56) ($6) $82 $98 Shares Outstanding 40.60
Discounted value of forecast period -$659 Implied Share Price 58.92
Book debt for 2001 $374
Convertible Reedemable Preferred Stock for 2001 $210 Jet Blue share price $27.52
Book Equity for 2001 -$32
Total Capital $855 1,187 1,529 1,826 2,130 2,444 2,702 2,800 2,865
Shares Outstanding 40.6
Terminal Value Estimates
Constant growth model Growth Share Price Terminal Value (2002) Terminal Value (2010)
Growth rate 3% 6 1,505 3,473 TV = (FCFn x (1 + g)) / (WACC – g)
Growth rate 5% 23 2,182 5,035
Trailing Leading Trailing Leading
P/E Valuation Price/share Earnings/share P/E Ratio Earnings/share P/E Ratio P/E Valuation Price/share Earnings/share P/E Ratio Earnings/share P/E Ratio
AirTran 6.6 0.3 25.3 0.3 20.0 AirTran 6.6 0.3 25.3 0.3 20.0
America West 3.5 -4.4 -0.8 -4.1 -0.8 Frontier 17.0 2.0 8.4 0.4 45.9
ATA 15.0 -2.6 -5.7 -7.2 -2.1 Ryanair 32.1 0.7 44.0 0.9 34.1
Frontier 17.0 2.0 8.4 0.4 45.9 Southwest 18.5 0.7 27.6 0.7 28.4
Ryanair 32.1 0.7 44.0 0.9 34.1 WestJet 15.9 0.8 19.6 0.6 26.9
Southwest 18.5 0.7 27.6 0.7 28.4
WestJet 15.9 0.8 19.6 0.6 26.9 Average 0.9 25.0 0.6 31.1
Median 0.7 25.3 0.6 28.4
Average -0.4 16.9 -1.2 21.8
Median 0.7 19.6 0.4 26.9
EPS Jet Blue EPS Jet Blue
Jetblue Trailing Price 19.27 1.140 Jetblue Trailing Price 28.46 1.140
Jetblue Leading Price 24.8 Jetblue Leading Price 35.42
Trailing EBIT Multiple Multiple Share Price Terminal Value 2002 Terminal Value 2010
Average for all airlines 3.9 -$12 754 1,741
Median all airlines -2.9 -$44 -553 -1,277
Average for low fare 8.9 $12 1712 3,950
Median for low fare 12.7 $30 2444 5,641
Ryanair 38.5 $151 7376 17,022
Southwest 18.6 $57 3567 8,232
Trailing EBITDA Multiple Multiple Price Terminal Value 2002 Terminal Value 2010
Average for all airlines -17.3 -$129 -3,994 -9,216
Median for all airlines 6.9 $8 1,588 3,664
Average for low fare 9.2 $22 2,122 4,897
Median for low fare 8.1 $16 1,876 4,329
Ryanair 26.4 $120 6,104 14,085
Southwest 13.4 $46 3,099 7,151
Valuation Based on Mutiple Estimates
Leading EBIT Multiple Multiple Price
Average low fare 8.9 $3
Median low fare 12.7 $11
Ryanair 38.5 $61
Southwest 18.6 $22
Leading EBITDA Multiple Multiple Price
Average low fare 9.2 $8
Median low fare 8.1 $5
Ryanair 26.4 $49
Southwest 13.4 $18
Trailing EBIT Multiple for recent IPOs
2001 EBIT $26.80 Taken from page 626 Exhibit 3 Operating Income (Loss)
Multiple Price
Ryanair 8.5 -$9
EasyJet 11.6 -$7
WestJet 13.4 -$6
Taken from page 619