Shares of JetBlue were trading down around 6% Monday following an analyst downgrade that highlighted the outsize impact on the airline from the expiration of a 60-day deal made back in June to end fighting between the U.S. and Iran.
"To be sure, jet fuel volatility is a challenge for all, but it's a disproportionate risk to JBLU given elevated debt levels that are at risk of moving higher before they move lower," Seaport Research Partners Senior Analyst Daniel McKenzie wrote in his downgrade to Neutral from Buy.
JetBlue's debt load is tied to several factors, including prepayments for its failed merger with Spirit Airlines, financing of new Airbus aircraft, and a slower rebound from the pandemic travel drop due to fewer premium and international offerings.
"If oil spikes from increased hostilities with Iran and JBLU is forced to boost debt to fund losses, its balance sheet could become too indebted and shares could ultimately become worthless," he added.
Oil prices also jumped Monday, with most-active Brent futures settling just over $90 a barrel after a report from Iran's Fars news agency claimed that an Emirati oil tanker was seized in the Strait of Hormuz. The last time the international benchmark settled above $90 was on July 31.
McKenzie isn't the only one down on JetBlue. On Friday, activist investor Carl Icahn disclosed that he had unloaded 13 million shares of the airline, about a third of his prior holdings, in the second quarter.
Other analysts have soured on the air carrier as well. Of the 17 that FactSet tracks, none rate it a Buy. Earlier this month, Citi's John Godyn lowered his rating to Sell from Neutral, saying that leisure-focused travel demand could take a hit from higher inflation as a result of conflict in the Middle East.
Shares of other airline stocks, including American, United, Southwest and Delta all fell Monday as well, but on a much smaller scale. American down the most at 2.5%.
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