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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
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We use the EBIT $80M/40.6M from exhibit 13 shares as leading data. We calculate the price range is $16.2 to $29.07.
Discounted cash flow analysis:
1 From 2003-2009, the revenue per aircraft is $17 million and increase by 4 percent per year.
2 Capital expenditures adjusted upwards for inflation of 5 percent per year.
3 The debt –to- equity ratio is estimated 8.59
4 The risk free rate and the market premium are the same as April 2002
5 The tax rate is 34%
6 The terminal growth rate is 4.5 percent.
7 The beta is 1.10 which is Southwest beta form exhibit 5
First: we calculate the wacc for jetblue base on the data of Southwest
Then calculate the jetblue the free cash flow
Finally to calculate the price of the share Southwest Capital Structure | | | MV Equity | 16,071,992 | 776.8M*$20.89 | MV Debt | 1,842,000 | exhibit 5 | tatal value | 17,913,992 | | D/E ratio | 0.114609315 | | Jet blue Beta | | | SW beta | 1.1 | exhibit 5 | SW tax rate | 31% | exhibit 5 | Jeblue Tax rate | 34% | exhibit 3

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