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Jetblue Ipo Case Study

2287 words - 10 pages

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JetBlue Airways |
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Valuation of an IPO Case Study |

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JetBlue Airways |
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Valuation of an IPO Case Study |

2014
Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri

2014
Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri

TABLE OF CONTENTS
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History
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Advantages & Disadvantages of an IPO
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IPO Process
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Weighted Average Cost of Capital (WACC)
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Similar Company Analysis
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Discounted Cash Flow Analysis
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Final Decision

History
David Neeleman, an experienced entrepreneur in airline startups, announced that JetBlue would bring “humanity back to air travel” on July 1999. He was convinced that his ...view middle of the document...

98 cents versus 10.08 cents industry average. JetBlue was also able to afford greater economies of scale because the airline was only using one model aircraft securing a strong capital base used to acquire new fleet – Airbus A320 aircraft.
JetBlue was the first US airline to equip cockpits with bulletproof doors and security cameras in response to the September 11 attacks, this established a strong name, which was identified as a safe and reliable low-fare airline.

ADVANTAGES & DISADVANTAGES OF AN IPO
An initial public offering (IPO) is the first sale of stock by a company. Companies looking to further the growth of their company often use an IPO as a way to generate the capital needed to expand. Of course, this is a great way to raise capital but there are always certain advantages and disadvantages towards an IPO.
The biggest advantage is the raising of capital which can be utilized to fund R&D, capital expenditures, or even pay off debt. Another advantage is the public awareness that is generated that helps make the company get more publicity. This in turn can lead to an increase in market share for the company. An IPO can also be used as an exit strategy for founding members. With the added funds however, comes more regulations. Public companies are regulated by the Securities & Exchange Commission and therefore more disclosure is required for investors. To comply with these regulations can be costly especially for smaller companies. Furthermore, the costs have increased with the passing of the Sarbanes-Oxley Act. Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments and accounting oversight committees.
In the case of JetBlue Airways going public, the advantages are they will have access to more capital which in turn will increase liquidity for the company. Employees can also be motivated especially the company enacted policies based on stocks. Going public can also increase the company’s goodwill which in turn can positively affect sales growth. the motivations of JetBlue’s management board can also be seen as a significant advantage to go public.
The disadvantages for JetBlue Airways for going public are the initial cost for the IPO along with the ongoing costs after the IPO. The initial cost is a large sum for JetBlue and the added costs, since JetBlue will be a public company, of disclosure and audits. As soon as JetBlue becomes a public entity, share price becomes the reflection of the company’s overall well-being and this can hurt long-term growth since shareholders pressure for short-term profits.

IPO Process
The process of going public usually took about three months. Private firms, such as JetBlue, needed to fulfill prerequisites before starting the equity-issuance process. They had to formulate a reliable business plan, a qualified management team, create an outside board of directors, prepared audited financial statements,...

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