Fitch Affirms JetBlue's Ratings; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the debt ratings of JetBlue Airways Corp. (JBLU) as follows:

--Issuer Default Rating (IDR) at 'B'

--Senior unsecured convertible notes at 'CCC' with a recovery rating of 'RR6'

The senior unsecured rating applies to $425 million of outstanding convertible notes. The Rating Outlook is Stable.

Ratings for JBLU reflect the low-cost carrier's highly levered capital structure and weak free cash flow generation capacity, balanced against its competitive cost structure, improving operating profile and fleet plan flexibility in an industry that remains highly vulnerable to over-capacity, demand shocks and very high energy costs. Because of its rapid growth-from the start of operations in 2000 to 130 aircraft in service today, JBLU's credit profile has been under pressure, especially since the dramatic run-up in jet fuel prices that began in 2004. High growth rates have necessitated heavy aircraft capital expenditures, absorbing operating cash flow and pushing leverage higher. Eventhough JBLU's low-cost, non-union model should allow it to generate industry-leading margins for some time to come, credit metrics will likely remain weak as new aircraft deliveries are financed with incremental debt and leases.

Management has signaled its willingness to slow growth in 2H07 and next year by reducing the number of Embraer E190 jets introduced into service, and by selling some Airbus A320s in the secondary aircraft market. A similar approach was taken last year when JBLU sold five A320s to help it reduce the available seat mile (ASM) growth rate. On July 24, management announced the sale of three more A320s and the deferral of 16 E190 deliveries from the 2007-2012 period to 2013 and beyond. Fitch regards this as a positive development, setting the stage for reduced financing needs and somewhat stronger liquidity moving into 2008.

Following a difficult winter, during which severe storms affecting the Northeast brought JBLU's operation to a virtual halt for several days in February, the airline's performance rebounded in Q2 as somewhat slower ASM growth and the introduction of the 100-seat E190 aircraft in new markets pushed JBLU's passenger RASM up by 5.4% versus Q206. The strong revenue performance came in spite of some softness in demand during April and May as slower U.S. economic growth undermined the ability of U.S. carriers to push fares higher. At the same time, high jet fuel costs have continued to pressure operating margins, with increases in crude oil prices and refining margins pushing spot jet fuel to above $2.20 per gallon by early August.

As JBLU matures as an organization (witnessed by the management re-shuffle earlier this year), it is taking a more disciplined approach to route profitability analysis and capacity planning. Slower growth will have a positive impact on free cash flow and will bolster liquidity-both positive from a credit quality perspective. Management has emphasized the importance of fleet plan flexibility as a tool in coping with changing operating conditions. In addition to the advantages JBLU enjoys as a result of its low-cost, non-union model, the carrier's ability to pull back on aircraft capital spending in response to weak operating conditions represents an important credit safety valve.

In addition to fuel price pressure, JBLU's unit operating costs have been increasing as a result of the introduction of the shorter-haul E190 aircraft into the fleet and by rising maintenance costs. For the full year 2007, JBLU expects non-fuel operating cost per ASM to be up 6% to 8%. Fitch expects non-fuel unit cost pressure to persist moving into 2008, though year-over-year increases should moderate as operational challenges related to the E190 launch are addressed. Through Q2, management was reporting improvement in the dispatch reliability and utilization of the E190, helping to ease cost pressure while opening up new potential markets for the E190 elsewhere in the JBLU route network.

Although Q2 finished strongly and the advanced booking outlook for Q3 is good, competitive conditions in domestic markets remain tough. Legacy carriers have pulled back on domestic ASM growth plans for 2H07 and 2008, but low-cost carrier seats are still being added across the JBLU system. The most notable change in the capacity picture will occur in transcon markets to be served by Virgin America, which launched its operation on Aug. 8. Virgin will enter a number of long-haul and short-haul markets to be served from its San Francisco hub, and it will compete directly with JBLU on JFK service to the Bay Area and the Los Angeles Basin. Fitch expects competitive fare pressure in transcon, Florida and Caribbean markets to continue into next year-especially in a slower-growth U.S. economic scenario.

As of June 30, 2007, JBLU's liquidity consisted of $772 million of cash, cash equivalents and investment securities, augmented by $55 million in availability on a $77 million facility to cover aircraft pre-delivery deposits (PDPs). Unrestricted liquidity at June 30 represented 29.7% of latest 12 month (LTM) revenues. JBLU has no revolver in place, but the carrier has had consistent access to the debt capital markets in financing both A320 and E190 aircraft entering the fleet. The potential sale of additional A320s in the secondary market represents an important supplemental source of liquidity that could become more critical if industry operating conditions deteriorate and credit market tightness persists in 2008. Scheduled debt maturities for the second half of 2007 total $103 million, with $240 million coming due in 2008. In addition, the $175 million 3.5% convertible note issue in JBLU's debt structure includes a put option that could force repurchase of the notes on July 15, 2008. New debt issuance may be required in anticipation of this repurchase if the airline is to maintain its current liquidity position.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery.

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