Jetblue Airways IPO Valuation By Team World Com

Jetblue Airways IPO Valuation By Team World. Com Mitchell Cameron, Lorenzo Meza, Joanna Broderick, Alex, Toureen, Tarek Bin. Mahfooz

Introduction Established in 1999 by David Neeleman, CEO and Founder Management: ● David Barger - former vice president of Continental Airlines ● John Owen - former executive VP and treasurer of Southwest Airlines Initial Public Offering: • 5, 500, 000 Shares • JBLU Nasdaq symbol • No current dividends

Problem Statement ● Jet. Blue management team in considering IPO to raise funds ● Pricing policy for IPO shares ● Critical to price shares correctly in order to succeed ○ Should Jetblue stick with a discounted IPO stock price, or increase this price to address investor demand?

Reasoning to Increase IPO Pricing Reasons to Increase the price: ($25 – $26 Range) • A larger influx of capital • • Stronger signal of confidence Take Equity now for growth, Debt later once growth has slowed More value for current investors Higher exchange of control for capital

Reasoning to Maintain Current IPO Pricing Reasons to maintain discounted stock price: ($22 - $24 Range) • Positive returns for employees and IPO purchasers • • Access to future capital needs Generate positive investor buzz Less risk from investor perception Increase in buyer demand

Stock Valuation Assumptions Southwest Airlines WACC as a proxy discount rate Equity Risk Free Rate Market Risk Premium Beta (Proxy SWA) CAPM Debt Cost of Debt Tax Years to Maturity Coupon After Tax Cost of Debt 5% 5% 1. 1 10. 5% 6. 91% 31% 10 8% 4. 77% Weight Stock Price 20. 69 Shares Outstanding Market value of Equity Weight Total Debt 776, 800, 000 16, 071, 992, 00 0 89. 01% Market Value Debt Weight Enterprise Value WACC 9. 87% 1, 842, 000, 00 0 1, 983, 465, 60 0 10. 99% 18, 055, 457, 60 0

Stock Valuation: FREE CASH FLOW BY YEAR $300 $200 Terminal Value $3, 158. 41 PV of Forecast & TV $ 695. 49 (-) Debt $ 290. 67 Value of Equity $ 404. 83 Shares Outstanding (Mil) FCF (Millions) Value Per Share $100 $0 -$100 -$200 -$300 1 2 3 4 5 6 f. ORECAST y. EAR 7 8 9 10 35. 10 $ 11. 53

Stock Valuation: Multiples Valuation Trailing EBIT Multiple EBIT 2001 Trail EBIT Multi Leading EBIT Multiple $26. 91 8. 66 EBIT 2002 Lead EBIT Multi $79. 76 12. 92 Value $233. 12 Value $1030. 81 (-)Debt $290. 67 Equity Value $-57. 54 Equity Value $740. 15 Shares Outstanding (Mil) Value per Share 35. 1 $-1. 64 Shares Outstanding (Mil) Value Per Share 35. 1 $21. 09

Recommendation Maintain discounted stock price: ($22 - $24 Range) • Trailing EBIT Multiple Value per Share $-1. 64 • Leading EBIT Multiple Value Per Share $21. 09 • DCF Analysis Value Per Share $11. 53

Appendix WACC 9. 87% Long Term Growth Rate Shares Outstanding (Mil) (US GDP Growth) Forecast Year EBIT NOPAT Depr. Capital Expenditure NWC Investments FCF Present Value Actual 2001 26. 91 17. 76 10. 42 234. 00 2. 5% 35. 1 1 2002 79. 76 52. 64 17. 71 290. 37 29. 56 2 2003 134. 35 88. 67 26. 25 328. 34 30. 08 3 2004 181. 17 119. 57 35. 60 344. 76 32. 60 4 2005 225. 75 148. 99 44. 62 310. 29 31. 04 5 2006 273. 90 180. 77 54. 45 325. 80 33. 53 6 2007 325. 85 215. 06 65. 15 342. 09 36. 17 7 2008 374. 90 247. 44 75. 38 299. 33 34. 15 8 2009 409. 52 270. 28 82. 82 157. 15 24. 10 9 2010 Terminal 442. 67 292. 16 90. 04 132. 00 23. 08 $ $ (249. 58) $ (243. 50) (222. 19) $ (147. 71) (124. 10) $ (98. 05) (10. 66) $ 171. 85 $ 227. 11 $3, 158. 41 -227. 16 -201. 71 -167. 52 -101. 37 -77. 51 -55. 74 -5. 52 80. 93 97. 34 1353. 75 Terminal Value $3, 158. 41 PV of Forecast & TV (-) Debt Value of Equity Shares Outstanding (Mil) Value Per Share $ 695. 49 $ 290. 67 $ 404. 83 35. 10 $ 11. 53