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Module 10: Adjusting Accounting Information Regional Airlines - jetBlue

Module 10: Adjusting Accounting Information Regional Airlines - jetBlue. Michelle Kelly. Background. Low Budget Airline Modeled after Southwest Difference: jetBlue aims to be low cost but high quality. Headquartered in Queens, NY Major Airport: JFK Market Share: 5.1%

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Module 10: Adjusting Accounting Information Regional Airlines - jetBlue

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  1. Module 10: Adjusting Accounting InformationRegional Airlines - jetBlue Michelle Kelly

  2. Background • Low Budget Airline • Modeled after Southwest • Difference: jetBlue aims to be low cost but high quality. • Headquartered in Queens, NY • Major Airport: JFK • Market Share: 5.1% • Serve 84 destinations in 24 states

  3. Adjustments – Operating Leases • Operating Leases are a huge part of the airline industry that are not present on the financial statements • Results in: • Understated EPAT • Understated EPM • Overstated EATO

  4. Adjustments – Operating Leases • Steps for adjustment: • Determine IRR from capital leases • Use IRR to compute present value of operating lease payments • Adjust the financials for the present value of the lease asset and lease liability

  5. Calculating IRR

  6. Present Value of Operating Leases • Remaining Life: 1088/114 = 5.32 years

  7. Adjustments • EPAT : (205-(1088/10.325))(1-.39) = $61 • FEAT: (1088*5.25%)(1-.39) = $35

  8. Adjustments

  9. Adjustments – Employee Stock Options • JetBlue has two share based compensation plans which do not require adjustments to the financial statements: • 2011 Incentive Compensation Plan • 2002 Stock Incentive Plan • Part of this incentive plan is stock options • Have not granted stock options since 2008

  10. Adjustments – Employee Stock Options

  11. Adjustments • Not in the money, therefore no adjustment is necessary

  12. Questions?

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