jetBlue announced that Lufthansa will purchase up to a 19% stake in the carrier click here. William Greene, the equity analyst at Morgan Stanley, said the deal will bolster liquidity for jetBlue at a time when near term debt obligations exceed expected cash flow from operations and cash on hand.
For Lufthansa, this would seem to be a smart investment in a quality US carrier with a product focus that recognizes that a one size fits all network does not appeal to all customers. Further, this transaction for Lufthansa would appear to be a very shrewd option play for a US carrier when equity values are low and the relationship of the euro to the dollar is high.
In this writer’s opinion, as well as Greene’s, jetBlue’s slot portfolio at JFK has strategic value. Down the road, connectivity to the many Star Alliance partners serving New York could be of value. But the first stage is a pure financial play and no commercial relationship is anticipated. The announcement comes just a day after a talk by Wolfgang Mayrhuber, the chief executive of German airline Lufthansa AG in China where he suggested that global consolidation is a necessary and logical development of the global market click here.
In that Reuter’s article, mention is made of Lufthansa moving away from the possibility of investing in Alitalia. In a previous blog post, we wrote about British Airways’ possibility of reconsidering the use of its capital to consolidate “at home” versus using that capital to invest in other countries, namely the US click here. Well it just happened – or at least the first step was taken. And BA has walked away from its interest in Iberia.
Yes, on the surface this deal may raise questions as to why would Lufthansa make such a deal. Is United, US Airways and/or Air Canada hurt by this transaction? Will this precipitate other similar types of transactions leveraging the current currency relationship to low equity values? WestJet and Air France are considering a closer relationship.
Change is coming. What would Yogi say?