JetBlue Shares Soar as Carl Icahn Reveals 10% Stake, Prompts Investor Optimism

In a filing, Icahn portrayed JetBlue's shares as undervalued, deeming the airline as a lucrative investment prospect.

JetBlue Airways’ shares (JBLU.O) soared on Tuesday following activist investor Carl Icahn’s revelation of acquiring a stake close to 10% in the budget carrier.

In late morning trading, JetBlue’s shares surged by 14.7% subsequent to Icahn’s disclosure of engaging in discussions with the airline regarding potential board representation.

In a filing, Icahn portrayed JetBlue’s shares as undervalued, deeming the airline as a lucrative investment prospect.

Notably, this marks one of his initial significant moves for the year 2024, consistent with his modus operandi of acquiring undervalued companies.

JetBlue responded on Tuesday, expressing openness to constructive dialogue with its investors.

Analysts at Deutsche Bank remarked that Icahn’s foray into the U.S. airline sector reinforces their anticipation of further restructuring beyond prior merger announcements.

JetBlue has encountered earnings pressure due to escalated operating expenses and erratic travel demand.

The newly appointed CEO, Joanna Geraghty, has pledged vigorous measures to restore profitability, including deferring around $2.5 billion in planned aircraft capital expenditure and implementing cost-cutting measures via employee buyouts across corporate, airport, and customer support divisions.

Moreover, JetBlue aims to bolster its ancillary revenue to generate an additional £300 million in revenue this fiscal year.

Nonetheless, the airline’s £3.8 billion deal to acquire Spirit Airlines (SAVE.N) has raised apprehensions among some analysts.

Although a U.S. judge halted the deal last month, both airlines have sought an expedited appeal, scheduled for hearing in June.

If JetBlue manages to finalise the transaction with fresh debt to finance the original deal, its debt-to-EBITDA ratio is poised to escalate to 12 times or more by year-end, as per Moody’s investor service.

Concurrently, JetBlue’s annual interest expense is projected to surge to approximately £620 million from about £375 million in 2023.

Despite acknowledging the heightened indebtedness post-merger, JetBlue affirmed the continuity of the merger agreement in a regulatory filing.

Since the ruling on the merger, JetBlue’s shares have appreciated by 36%.

Carl Icahn’s stature as a corporate raider and activist investor is well-established, characterised by his adeptness at pressuring companies to overhaul their business strategies and bolster their stock performance.