JetBlue Airways has announced a strategic decision to defer approximately $3 billion in capital expenditures through 2029, aiming to strengthen its cash flow following an unexpected profit in the second quarter. This announcement has caused a significant surge in their stock price, as investors reacted positively to the news and the company's financial outlook.
In a recent earnings conference call, JetBlue's Chief Executive Officer, Joanna Geraghty, discussed how aircraft grounding issues tied to Pratt & Whitney engines are substantially hindering the airline's growth and placing pressure on profitability. Compounding these operational challenges are escalating costs across the industry and persistent air traffic control issues.
In an effort to mitigate some of the financial strain, JetBlue has reached an arrangement with Airbus to delay the delivery of 44 A321neo jets, which have been heavily impacted by the Pratt & Whitney GTF engine problems. Throughout this adjustment, Geraghty emphasized the importance of this move in reducing upcoming capital expenditures by a substantial $3 billion.
Pratt & Whitney, a subsidiary of RTX, has acknowledged that a rare condition concerning powder metal required for making specific engine components necessitates accelerated inspections of their PW1100G-JM, also referred to as the GTF engine fleet. JetBlue's adjusted earnings per share declined to $0.08 for the quarter ending June 30, down from $0.45 the previous year, while operating revenue fell by 6.9% to $2.43 billion.
Wall Street analysts had anticipated a normalized loss of $0.10 with revenues of $2.4 billion. Despite the obstacles, Geraghty pointed out the company’s continued strength in its premium product offerings, contributing to a notable increase in unit revenue. JetBlue's shares soared by 13% in trading hours following the announcement.
Geraghty noted, however, that the ongoing issues with the Pratt & Whitney GTF engines are complicating JetBlue's long-term planning. She projected that the number of grounded aircraft is likely to escalate significantly next year. While revenue growth is occurring, it has not been sufficient to counterbalance rising costs.
This concern underpins the airline's strategic focus: to reestablish a foundation that will enable them to return to a positive operating margin in the near future, thus fostering sustainable earnings over the long term. Looking ahead to the third quarter, JetBlue anticipates a revenue decline ranging from 1.5% to 5.5% year over year, and a full-year revenue drop between 4% and 6%.
Earlier in the year, the airline predicted a modest single-digit downturn in 2024 revenue. President Marty St. George remarked that the company is actively reinvesting in its core markets, which include New York, New England, Florida, and Puerto Rico, while concurrently exiting routes and BlueCities that fail to meet their financial benchmarks.
Chief Financial Officer Ursula Hurley indicated that JetBlue expects to generate an additional $800 million to $900 million in earnings before interest and taxes from 2025 to 2027. Hurley elaborated that beyond the inspections related to powder metal, JetBlue has encountered numerous unscheduled maintenance visits for their engines, resulting in GTF engines being removed from service significantly sooner than expected; in some cases, merely a year after their introduction.
Notably, most of the average 11 jets grounded this year have been due to inspections unrelated to powder metal concerns..