Is JetBlue Airways (NASDAQ:JBLU) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, JetBlue Airways Corporation (NASDAQ:JBLU) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for JetBlue Airways

How Much Debt Does JetBlue Airways Carry?

The image below, which you can click on for greater detail, shows that JetBlue Airways had debt of US$3.41b at the end of September 2022, a reduction from US$3.78b over a year. However, it does have US$2.09b in cash offsetting this, leading to net debt of about US$1.32b.

How Healthy Is JetBlue Airways' Balance Sheet?

The latest balance sheet data shows that JetBlue Airways had liabilities of US$3.90b due within a year, and liabilities of US$5.92b falling due after that. On the other hand, it had cash of US$2.09b and US$298.0m worth of receivables due within a year. So it has liabilities totalling US$7.43b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$2.11b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, JetBlue Airways would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine JetBlue Airways's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year JetBlue Airways wasn't profitable at an EBIT level, but managed to grow its revenue by 76%, to US$8.6b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though JetBlue Airways managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$395m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through US$583m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how JetBlue Airways's profit, revenue, and operating cashflow have changed over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.