New York, October 29, 2019 -- Moody's Investors Service ("Moody's") has assigned ratings to JetBlue Airways Corp.'s ("JetBlue") Pass Through Certificates, Series 2019-1 that the company announced earlier today: $588.685 million Class AA with a legal final maturity of November 15, 2033 at Aa3 and $183.570 million Class A with a legal final maturity of November 15, 2029 at A2 (together, "the Certificates"). The final scheduled distribution dates precede the respective legal final maturity dates by 18 months. The Certificates' proceeds will finance 25 Airbus A321-200ceo (current engine option) narrow-body aircraft delivered new to JetBlue between February 2017 and December 2018. JetBlue's Ba1 Corporate Family Rating ("CFR") and stable outlook are unaffected by today's rating assignments.
RATINGS RATIONALE
The ratings reflect the credit quality of JetBlue; the typical benefits of EETCs, including the applicability of Section 1110, cross-default and cross-collateralization of the equipment notes; 18-month liquidity facilities provided by Credit Agricole CIB, New York Branch; cross-subordination pursuant to the Intercreditor Agreement; and Moody's belief that each of the aircraft models will remain important to JetBlue's network during the transaction's 12.5-year term. Moody's believes having 40% of the company's A321ceo fleet in the collateral supports a very high likelihood that JetBlue would affirm this transaction if it declared bankruptcy.
Moody's estimates of the peak loan-to values (LTV) for the Class AA and Class A (about 57% and 67%, respectively, before priority claims for repossession and remarketing costs and of liquidity providers) support the rating of each class. The amortization profile of the Class AA is upward sloping, with Moody's projected LTV steady at about 50% through 2027, then increasing to 57% at the final scheduled payment date in 2032. The amortization profile of the Class A is about flat at 65% over its eight year term. The projected LTV's in the prospectus supplement have downward sloping curves from inception to maturity; from 46% to 32% over the life for the Class AA and from 61% to 51% for the Class A. Moody's uses a 5% annual rate of decline and a 1% inflation rate when projecting the current market value of the aircraft. This compares to the 3% rate and appraisers' base values used in the prospectus supplement and accounts for the differences in projected LTVs. Moody's estimates the aggregate market value of the 25 aircraft at about $1.207 billion at the transaction's issuance date, about $910 million in November 2024 and about $400 million at scheduled maturity in May 2032. These values compare to about $1.266 billion, $1.065 billion and $763 million, respectively, of maintenance-adjusted base values disclosed in the offering memorandum.
Moody's value projection implies an average value of $16 million for a 14 year-old A321ceo at the transaction's scheduled maturity in 2032; the prospectus supplement implies an average value of $30.5 million at maturity. These compare to a range of about $15 million to $22 million according to certain aircraft appraisers other than those used in the transaction. Moody's anticipates that the market values of current engine technology models (e.g.: Airbus A320ceo family, Boeing 737NG family) will experience greater pressure through the 2020s as compared to through the 2010s because of the gradual changeover in the global fleet to new engine technology models (A320neo and 737MAX).
The A321ceo will remain important to JetBlue's fleet over the transaction's life, along with the A321neo. There are 63 A321ceos (25% of total) in the fleet today. The 25 in the transaction are the youngest of the type. 120 A320ceos and 60 Embraer E190s round out the total current fleet of 253 aircraft. JetBlue had 83 A321neo aircraft on order at September 30, 2019, 23 of which will be of the longer range versions, either the LR or XLR. These will likely serve on trans-Atlantic routes the company plans to offer starting in 2021 and, we believe, likely longer routes into Latin America that have yet to be announced. There is an order for 70 Airbus A220s, which will replace the company's Embraer fleet. Moody's believes that a significant portion of the typical range A321neos in the order book will replace the company's smaller A320ceo aircraft. The 40 oldest A320s in the fleet delivered between 1999 and 2003. Some A321s have the very popular premium MINT cabin, which provides solid support to the company's operating profits, as do the higher seat count, high density A321s that do not have the MINT cabin. The high density A321s and the coming neos will help the company lower its carbon footprint. The higher seating density will lower emissions per passenger and per available seat mile. According to Airbus, the neo family will improve fuel efficiency by 20% compared to the predecessor ceo models.
The Ba1 Corporate Family rating reflects the company's solid competitive position in its US East Coast and transcontinental routes, anchored in its focus cities in New York (JFK International Airport), Boston, Fort Lauderdale, Los Angeles, Orlando and San Juan; strong credit metrics, including Debt to EBITDA of about 1.5x at September 30, 2019; and recurring free cash flow. The company's relatively smaller scale and increasing competitive intensity, particularly from Delta Air Lines at Boston's Logan Airport, constrain the Ba1 rating. Pro forma for this EETC, Debt to EBITDA will increase to 2x at September 30, 2019.
Changes in the EETC ratings can result from any combination of changes in the underlying credit quality or ratings of JetBlue, Moody's opinion of the importance of particular aircraft models to the airline's network, or Moody's estimates of aircraft market values, which will affect estimates of loan-to-value.
The methodologies used in these ratings were Passenger Airline Industry published in April 2018, and Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
The following ratings were assigned:
Assignments:
..Issuer: JetBlue Airways Corp.
....Senior Secured Enhanced Equipment Trust 2019-1 Class A, Assigned A2
....Senior Secured Enhanced Equipment Trust 2019-1 Class AA, Assigned Aa3
JetBlue Airways Corp., based in Long Island City, New York, operates a low-cost, point-to-point airline from its primary focus cities -- New York from John F. Kennedy International airport, Boston, Fort Lauderdale and Los Angeles. JetBlue serves more than 100 cities with an average of more than 1,000 daily flights. The company reported revenue of $8 billion in the last 12 months ended September 30, 2019.