Why JetBlue Stock Dived by Almost 10% on Monday

On Monday, JetBlue (JBLU -9.71%) stock lost significant altitude, on speculation that its creditors might be preparing for a business emergency. They have apparently hired high-level financial and legal advisors, which may or may not lead to a push to initiate bankruptcy proceedings. Understandably concerned about this, investors aggressively sold the airline‘s stock, resulting in a nearly 10% loss in that trading session.

Asking for advice?

After market close on Friday, The Wall Street Journal published an article describing the move by JetBlue’s lenders. Citing unnamed “people familiar with the matter,” the newspaper wrote that a group of senior creditors — also unnamed — has engaged financial advisor PJT Partners and law firm Akin for advice.

Getty Images. Image source: Getty Images.

Even by the standards of the capital-intensive airline industry, JetBlue is weighed down by indebtedness. At the end of June, the company’s long-term borrowings climbed to over $8.8 billion, against slightly over $2 billion in cash and short-term investments. Meanwhile, the company’s market cap is currently $894 million.

Creditors frequently turn to advisors when they fear a borrower might struggle to repay debt. In response to the article, an unidentified JetBlue representative told the newspaper that the company is currently focused on growing its revenue and turning profitable.

Debt burden

JetBlue was slated to publish its third-quarter results before market open tomorrow (Tuesday), but brought this forward to Monday afternoon. Its stock bounced back on this, rising by 10% in after-market trading as of this writing.

Yet even at times of peak travel, like our current moment, running an airline is a tough business, and it’s easy to get lapped by competitors. JetBlue’s debt load is worryingly large, so I wouldn’t count on that post-earnings pop lasting; this is a company facing significant financial challenges and potentially high restructuring risk.