# JETBLUE AIRWAYS CORP (JBLU) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from JETBLUE AIRWAYS CORP's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1158463/000115846322000017/jblu-20211231.htm Accession: 0001158463-22-000017 Filing date: 2022-02-22 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/JBLU/ All MD&A years: /company/JBLU/mda/ Next year: /company/JBLU/mda/fy2022/ (FY 2022) ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Coronavirus (COVID-19) Pandemic The unprecedented COVID-19 pandemic continues to have a material adverse impact on our operating revenues and financial position. We began seeing signs of recovery in February 2021 which continued to progress throughout the year. Although the spread of the Delta and Omicron variants temporarily decelerated the demand for travel in 2021, we believe customer confidence will continue to grow, resulting in sustained demand improvement going forward. We expect the recovery of domestic demand to outpace the recovery of international demand in most regions. 2021 Results Our 2021 and 2020 results were adversely impacted by the COVID-19 pandemic. As a result, comparisons of our 2021 results to 2020 are not necessarily indicative of future operating results. In certain cases, we have also included comparisons of our 2021 results to our 2019 results which are more reflective of pre-pandemic operations. For the year end December 31, 2021: •System capacity increased by 65.5% year-over-year and decreased by 15.2% compared to 2019. •We generated $6.0 billion in operating revenue, an increase of $3.1 billion compared to 2020, primarily due to a 110.8% increase in revenue passengers. When compared to 2019, our operating revenue decreased by 25.4%, primarily driven by a decrease in revenue passenger of 29.6%. •Operating revenue per available seat mile (RASM) increased by 23.4% to 11.16 cents year-over-year and decreased by 12.0% compared to 2019. •Operating expense increased by 31.0% year-over-year to $6.1 billion. This compares to a decrease of 16.1% versus 2019. •Operating expense per available seat mile (CASM) decreased by 20.9% to 11.30 cents year-over-year and decreased by 1.1% compared to 2019. •Our 2021 and 2020 results included the effects of special items. Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our 2021 operating expense(1) increased by 27.6% to $5.5 billion, as compared to 2020. When compared to 2019, our operating expenses excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses(1) increased by 1.6%. •Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our cost per available seat mile (CASM ex-fuel)(1) decreased by 22.9% to 10.11 cents year-over-year and increased by 19.8% compared to 2019. •Our operating margin was (1.3)% in 2021, (58.0)% in 2020, and 9.9% in 2019. Excluding special items, our adjusted operating margin(1) were (15.1)%, (67.5)%, and 10.1% for full year 2021, 2020, and 2019 respectively. •Reported a net loss of $(0.2) billion in 2021 compared to a net loss of $(1.4) billion in 2020. Reported 2019 net income was $569 million. •Our reported (loss) per share for 2021 and 2020 was $(0.57) and $(4.88), respectively. Excluding special items, our adjusted (loss) per share(1) was $(2.51) for 2021, and $(5.65) for 2020. For 2019, our reported earnings per diluted share was $1.91. Adjusted earnings per diluted share(1) was $1.90 for 2019. •During 2021, we took delivery of eight Airbus A321neo aircraft and seven Airbus A220 aircraft. Outlook for 2022 We expect demand trends to remain non-linear through the course of the COVID-19 pandemic. Although the spread of the Delta and Omicron variants temporarily set back a full recovery of travel demand in 2021, we are seeing underlying momentum in demand and expect sequential improvements in customer demand throughout the first quarter of 2022 and beyond. We believe we would have generated higher revenue in the first quarter of 2022 compared to the first quarter of 2019, if not for the impact from the Omicron variant in late 2021. For full year 2022, we expect our capacity to increase between 11% to 15% compared to 2019 as we plan to execute growth across our high-value network enabled by the Northeast Alliance. Over three-quarters of our planned capacity growth in 2022 is expected to be deployed in the historically capacity constrained Northeast geography. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 37 Table of Contents RESULTS OF OPERATIONS As discussed in Note 1 to our consolidated financial statements, in 2021, a new SEC rule became effective that is intended to modernize, simplify, and enhance certain disclosures throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The new rule allows us to omit selected financial data for the preceding five years and discussions comparing 2020 and 2019 results, as such disclosures were included in our Annual Report on Form 10-K for the year ended December 31, 2020, which is available on the SEC's website at www.sec.gov. Please note that although our 2021 and 2020 results were adversely impacted by the COVID-19 pandemic, the impact of COVID-19 on our operating results for 2021 and 2020 was different. As a result, comparisons of our 2021 results to 2020 may not necessarily be indicative of changes between operating results for future reporting periods. 2021 Compared to 2020 Overview We reported a net (loss) of $(182) million, an operating (loss) of $(80) million and operating margin of (1.3)% for the year ended December 31, 2021. This compares to net (loss) of $(1.4) billion, operating (loss) of $(1.7) billion, and operating margin of (58.0)% for the year ended December 31, 2020. Our (loss) per share was $(0.57) for 2021 compared to $(4.88) for 2020. Our 2021 and 2020 reported results included the effects of special items. Adjusting for these one-time items, our adjusted net (loss)(1) was $(797) million, adjusted operating (loss)(1) was $(913) million, and our adjusted operating margin(1) was (15.1)% for 2021. This compares to an adjusted net (loss)(1) of $(1.6) billion, adjusted operating (loss)(1) of $(2.0) billion, and an adjusted operating margin(1) of (67.5)% for 2020. Excluding one-time items, our adjusted (loss) per share(1) was $(2.51) for 2021 compared to $(5.65) for 2020. Operating Revenues [[GREPCENT_TABLE]] [["(revenues in millions; percent changes based on unrounded numbers)","","","","","","Year-over-Year Change"],["","2021","","2020","","$","","%"],["Passenger revenue","","$","5,609","","","$","2,733","","","2,876","","","105.3"],["Other revenue","","428","","","224","","","204","","","91.4"],["Operating revenues","","$","6,037","","","$","2,957","","","3,080","","","104.2"],["Average fare","","$","186.39","","","$","191.42","","","(5.03)","","","(2.6)"],["Yield per passenger mile (cents)","","13.63","","","14.69","","","(1.06)","","","(7.2)"],["Passenger revenue per ASM (cents)","","10.37","","","8.36","","","2.01","","","24.0"],["Operating revenue per ASM (cents)","","11.16","","","9.04","","","2.12","","","23.4"],["Average stage length (miles)","","1,283","","","1,222","","","61","","","5.0"],["Revenue passengers (thousands)","","30,094","","","14,274","","","15,820","","","110.8"],["Revenue passenger miles (millions)","","41,152","","","18,598","","","22,554","","","121.3"],["Available seat miles (ASMs) (millions)","","54,113","","","32,689","","","21,424","","","65.5"],["Load factor","","76.0","%","","56.9","%","","","","19.1","","pts"]] [[/GREPCENT_TABLE]] Passenger revenue accounted for 92.9% of our total operating revenue for the year ended December 31, 2021. In addition to seat revenue, passenger revenue includes revenue from our ancillary product offerings such as Even More® Space. Revenue generated from international routes, including Puerto Rico, accounted for 35.6% of our total operating revenues in 2021. Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Passenger revenue from unused tickets and passenger credits are recognized in proportion to flown revenue based on estimates of expected expiration or when the likelihood of the customer exercising his or her remaining rights becomes remote. We measure capacity in terms of available seat miles, which represents the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing Passenger revenue by Revenue passenger miles. We attempt to increase Passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile. Our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 38 Table of Contents In 2021, the increase in Passenger revenue was primarily driven by the increase in demand for travel as we were gradually recovering from the COVID-19 pandemic. We saw a 110.8% increase in revenue passengers compared to 2020. Fees revenue, which was our largest source of ancillary revenue in 2021, increased by $326 million, or 125.0% year-over-year. This was mainly the result of our customers returning to air travel coupled with benefits from revenue initiatives such as enhancements to our Fare Options aimed at providing our customers more choices, more flexibility, and lower fares. Other revenue is primarily comprised of the marketing component of the sales of our TrueBlue® points. It also includes revenue from the sale of vacation packages, ground handling fees received from other airlines, and rental income. In 2021, Other revenue increased by $204 million, or 91.4%, principally driven by a $138 million increase in marketing revenue associated with our TrueBlue® program due to higher customer spend along with improved metrics from our new co-branded credit card agreements. Operating Expenses [[GREPCENT_TABLE]] [["(in millions; per ASM data in cents; percentages based on unrounded numbers)","","","","","","Year-over-Year Change","","per ASM"],["","2021","","2020","","$","","%","","2021","","2020","","% Change"],["Aircraft fuel and related taxes","","$","1,436","","","$","631","","","805","","","127.7","","","2.65","","","1.93","","","37.6"],["Salaries, wages and benefits","","2,358","","","2,032","","","326","","","16.1","","","4.36","","","6.21","","","(29.9)"],["Landing fees and other rents","","628","","","358","","","270","","","75.2","","","1.16","","","1.10","","","5.9"],["Depreciation and amortization","","540","","","535","","","5","","","0.9","","","1.00","","","1.64","","","(39.1)"],["Aircraft rent","","99","","","85","","","14","","","17.2","","","0.18","","","0.26","","","(29.2)"],["Sales and marketing","","183","","","110","","","73","","","66.0","","","0.34","","","0.34","","","0.3"],["Maintenance, materials and repairs","","626","","","441","","","185","","","42.0","","","1.15","","","1.34","","","(14.2)"],["Other operating expenses","","1,080","","","762","","","318","","","41.8","","","2.00","","","2.33","","","(14.4)"],["Special items","","(833)","","","(283)","","","(550)","","","194.8","","","(1.54)","","","(0.86)","","","78.1"],["Total operating expenses","","$","6,117","","","$","4,671","","","1,446","","","31.0","","","11.30","","","14.29","","","(20.9)"]] [[/GREPCENT_TABLE]] Aircraft Fuel and Related Taxes Aircraft fuel and related taxes represented 23.5% of our total operating expenses in 2021 compared to 13.5% in 2020. The average fuel price increased 34.6% in 2021 to $2.06 per gallon. Our fuel consumption increased by 68.9%, or 284 million gallons, due to capacity increases as demand for travel grew. We expect our fuel consumption to be higher in 2022 as we anticipate returning capacity to pre-pandemic levels. We recognized fuel hedge losses of $7 million, in 2020. These losses were recorded in Aircraft fuel and related taxes. We are unable to predict the potential loss from hedge accounting, which is determined on a derivative-by-derivative basis, due to the volatility in the forward markets for these commodities. No fuel hedge gains or losses were recognized in 2021. There were no outstanding fuel hedges as of December 31, 2021 and 2020. Salaries, Wages and Benefits Salaries, wages and benefits increased $326 million, or 16.1% in 2021, driven primarily by higher total hours worked by our crewmembers as we align our workforce with the increase in demand for air travel. Salaries, wages and benefits in 2020 were lower than usual as a result of various cost saving initiatives taken in response to the COVID-19 pandemic. Beginning in March 2020, we instituted a company-wide hiring freeze, implemented salary reductions for our officers, offered voluntary time off programs to our crewmembers, and reduced work hours for all other management workgroups. In June 2020, we announced voluntary separation programs to our crewmembers, with most departures having occurred in the third quarter of 2020. We had approximately 22,200 crewmembers as of December 31, 2021 as compared to approximately 20,000 crewmembers at December 31, 2020. During 2021, the average number of full-time equivalent crewmembers increased by 8.0% and the average tenure of our crewmembers was 7.9 years. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 39 Table of Contents Landing Fees and Other Rents Landing fees and other rents include landing fees, which are at premium rates in the heavily trafficked northeast corridor of the U.S. through which a large number of our flights operate. Other rents primarily consist of rent for airports in our BlueCities. Landing fees and other rents increased $270 million, or 75.2%, in 2021 driven by increases in departures as well as increases in rates partially tied to airport shortfalls attributed by a depressed level of travel demand. Departures increased by 56.8% compared to 2020. We expect the increase in landing fees and other rents to continue into 2022 as we anticipate a return of capacity to pre-pandemic levels partially offset by mitigations in airport rates tied to the recovery in travel demand. We expect full year 2022 capacity to increase between 11% and 15% compared to 2019. Depreciation and Amortization Depreciation and amortization primarily include depreciation for our owned and finance leased aircraft, engines, and inflight entertainment systems. Depreciation and amortization increased $5 million, or 0.9%, primarily driven by a 4.1% increase in the average number of aircraft operating in 2021 compared to the same period in 2020. We placed 16 aircraft, including our first Airbus A220 aircraft into service in 2021. The increase in depreciation expense attributed to our new aircraft described above was partially offset by lower depreciation due to the impairment of our Embraer E190 fleet and related spare parts which reduced the carrying value of the E190 fleet in 2020. In addition, we also executed a number of aircraft sale-leaseback transactions towards the second half of 2020, the majority of which qualified as sales for accounting purposes. As a result of these sales, we no longer record depreciation expense on the assets. The costs associated with leasing these assets back from the purchaser are included in Aircraft Rent on our consolidated statements of operations. Aircraft Rent Aircraft rent increased $14 million, or 17.2%, in 2021. As discussed above, we executed a number of aircraft sale-leaseback transactions towards the second half of 2020, the majority of which qualified as sales for accounting purposes. The assets associated with these transactions, which qualified as sales, are recorded within operating lease assets for which rent expenses are recognized throughout the life of the related lease terms. Sales and Marketing Sales and marketing increased $73 million, or 66.0%, in 2021 driven by higher credit card fees and computer reservation system charges, which are directly related to demand increases as we begin to recover from the pandemic. Revenue passengers more than doubled in 2021 to 30.1 million from 14.3 million in 2020. Maintenance, Materials and Repairs Maintenance, materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract. The average age of our aircraft in 2021 was 11.6 years which is relatively young compared to our competitors. However, as our fleet ages our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our unit costs, as older aircraft require additional, more expensive repairs over time. We had an average of 10.8 additional total operating aircraft in 2021 compared to 2020. In 2021, Maintenance, materials and repairs increased by $185 million, or 42.0% compared to 2020. The increase was primarily driven by a higher number of maintenance events as we brought our parked aircraft back into service. We significantly reduced our flying in 2020 due to the COVID-19 pandemic and parked a portion of our fleet throughout the year. We expect the increase in expenses relating to maintenance, materials, and repairs to continue into 2022 as we return our capacity to pre-pandemic levels. Other Operating Expenses Other operating expenses consist of the following categories: outside services (including expenses related to fueling, ground handling, skycap, security, and janitorial services), insurance, personnel expenses, professional fees, onboard supplies, shop and office supplies, bad debts, communication costs, and taxes other than payroll and fuel taxes. In 2021, other operating expenses increased by $318 million, or 41.8%, compared to 2020 due to higher levels of operations in response to the increased demand for air travel. Scheduled departures increased by 56.8% in 2021. Special Items In 2021, special items included the following: •Contra-expense of $830 million, which represents the amount of federal payroll support grants utilized during the period; (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 40 Table of Contents •Contra-expense of $11 million related to the recognition of Employee Retention Credits provided by the CARES Act; and •One-time costs of $8 million related to the ratification of the collective bargaining agreement with our inflight crewmembers. Special items in 2020 included the following: •Contra-expense of $685 million, which represents the amount of CARES Act payroll support grants utilized during the period; •Contra-expense of $36 million related to the recognition of Employee Retention Credits provided by the CARES Act; •Impairment charges of $273 million on our Embraer E190 fleet; •Losses of $106 million related to certain aircraft sale-leaseback transactions; and •One-time costs of $59 million, consisting of severance and health benefits, in connection with our voluntary separation programs. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 41 Table of Contents CONSOLIDATED BALANCE SHEET ANALYSIS Below is a discussion of the significant changes on our consolidated balance sheet between December 31, 2021 and December 31, 2020. [[GREPCENT_TABLE]] [["(in millions)"],["Selected Balance Sheet Data:","December 31, 2021","","December 31, 2020","","$ Change","","% Change"],["ASSETS"],["Investment securities","$","824","","","$","1,135","","","(311)","","","(27.4)","%"],["Receivables, net of allowance of $3 and $2, at December 31, 2021 and December 31, 2020, respectively.","207","","","98","","","109","","","111.7","%"],["Investment securities (non-current)","39","","","2","","","37","","","1840.9","%"],["LIABILITIES"],["Accounts payable","$","499","","","$","365","","","134","","","36.9","%"],["Air traffic liability","1,618","","","1,122","","","496","","","44.2","%"],["Accrued salaries, wages and benefits","480","","","409","","","71","","","17.5","%"],["Other accrued liabilities","359","","","215","","","144","","","66.5","%"],["Total debt and finance lease obligations","4,006","","","4,863","","","(857)","","","(17.6)","%"],["Other","552","","","78","","","474","","","603.7","%"]] [[/GREPCENT_TABLE]] Investment securities Short-term investment securities decreased by $311 million, or 27.4%, primarily driven by the maturities of our time deposits that were outstanding at December 31, 2020. Receivables, net of allowance Receivables, net of allowance, increased by $109 million, or 111.7%, as a result of improvements in customer demand which led to an increase in receivables from our credit card processors. Investment securities (non-current) Long-term investment securities increased by $37 million principally driven by the purchases of corporate bonds in the fourth quarter of 2021. Accounts payable Accounts payable increased by $134 million, or 36.9%, primarily due to increases in operating expenses and timing of payments. Customer demand began to recover from the COVD-19 pandemic in February 2021 and thus our level of operations was significantly greater at the end of 2021 compared to 2020. We operated over 26,000 flights in December 2021 as compared to approximately 15,000 flights in December 2020. Air traffic liability Air traffic liability increased by $496 million, or 44.2%, driven by improvements in demand as customers begin to gain confidence to travel and resumed booking travel further in advance. Cash collected from customers for future travel is recorded on our balance sheet until the point in time that the customer travels. Accrued salaries, wages and benefits Accrued salaries, wages and benefits increased by $71 million, or 17.5%, as a result of the increase in the number of crewmembers. We significantly increased our staffing levels in 2021 to align with greater demand as customers began returning to travel. We had over 22,000 crewmembers at December 31, 2021 compared to approximately 20,000 crewmembers at December 31, 2020. Other accrued liabilities Other accrued liabilities increased by $144 million, or 66.5%, principally driven by due the timing of passenger tax remittances to governmental authorities. Passenger taxes are collected from customers when tickets are sold and remitted to the authorities at a later date. The increase in passenger tax liability correlates to the increase in demand for travel as we began to recover from the COVID-19 pandemic. In addition, the initial cash payments received from our new co-branded credit card (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 42 Table of Contents agreements are deferred and recognized as revenue over the terms of the related contracts. Deferred amounts are classified as other accrued liabilities and other liabilities on our consolidated balance sheet. Total debt and finance lease obligations Total debt and finance lease obligations decreased by $857 million, or 17.6%, primarily due to $1.9 billion of debt repayments made during the year partially offset by the issuance of our 0.50% Convertible Senior Notes and unsecured term loans received under various federal payroll support programs. We will continue to look for opportunities to reduce our overall debt level as our business continues to recover. Other liabilities Other liabilities increased by $474 million principally due to the initial cash payments received from our new co-branded credit card agreements in 2021. The initial cash payments received from our new co-branded credit card agreements are deferred and recognized as revenue over the terms of the related contracts. Deferred amounts are classified as other accrued liabilities and other liabilities on our consolidated balance sheet. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 43 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The airline business is capital intensive. Our ability to successfully execute our growth plans is largely dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business depends on maintaining sufficient liquidity. We believe we have adequate resources from a combination of cash and cash equivalents and investment securities on-hand. During 2020, we executed a significant number of financing transactions to ensure that we have adequate levels of liquidity to navigate through the challenges posed by the COVID-19 pandemic. As we began to recover in 2021, our focus shifted to strengthening our balance sheet, lowering our total cost of debt, and growing our unencumbered asset base. As of December 31, 2021, our unrestricted cash, cash equivalents, and short-term investments totaled $2.8 billion. Our adjusted debt to capitalization ratio(1) at December 31, 2021 was 53%, down from 57% at December 31, 2020. We believe a healthy liquidity position is a crucial element of our ability to weather any part of the economic cycle while continuing to execute on our plans for profitable growth and increased returns. Our goal is to continue to be diligent with our liquidity, maintain financial flexibility, and be prudent with capital spending. Analysis of Cash Flows We had unrestricted cash and cash equivalents of $2.0 billion as of December 31, 2021. This compares to $1.9 billion and $959 million as of December 31, 2020 and 2019, respectively. We held both short and long-term investments in 2021, 2020 and 2019. Our short-term investments totaled $824 million as of December 31, 2021 compared to $1.1 billion and $369 million as of December 31, 2020 and 2019, respectively. Operating Activities Cash provided by operating activities totaled approximately $1.6 billion in 2021. This compares to cash used in operating activities of $683 million in 2020 and cash provided by operating activities of $1.5 billion in 2019. Lower losses, principally driven by higher operating revenues coupled with federal grants received under various payroll support programs, and the initial cash payments associated with our new co-branded credit card agreements all contributed to the $2.3 billion increase in operating cash flows in 2021. Cash provided by operating activities decreased by $2.1 billion in 2020 compared to 2019 principally driven by the unprecedented decline in demand for air travel caused by the COVID-19 pandemic. Investing Activities     Cash used in investing activities totaled approximately $704 million, $1.3 billion, and $1.1 billion in 2021, 2020, and 2019, respectively. During 2021, capital expenditures related to our purchase of flight equipment included $637 million for the purchase of eight new Airbus A321neo aircraft, seven Airbus A220 aircraft, and a number of spare engines; $88 million for flight equipment deposits, $133 million for flight equipment work-in-progress; and $44 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $93 million. Investing activities in 2021 also included the net proceeds of $296 million from our investment securities. During 2020, capital expenditures related to our purchase of flight equipment included $426 million for the purchase of seven new Airbus A321neo aircraft, our first A220 Aircraft, and the buyout of one Airbus A321 aircraft lease; $76 million for flight equipment deposits; $151 million for flight equipment work-in-progress; and $15 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $123 million. Investing activities in 2020 also included the net purchase of $767 million in investment securities. We executed $563 million of aircraft sale-leaseback transactions in 2020, which provided an additional source of liquidity during the COVID-19 pandemic. Of these transactions, $209 million qualified as sales for accounting purposes and the related proceeds are classified within investing activities. The remaining $354 million which did not qualify as sales for accounting purposes are treated as cash from financing activities as noted below. During 2019, capital expenditures related to our purchase of flight equipment included $478 million for the purchase of six new Airbus A321 aircraft and the buyout of one Airbus A320 aircraft lease; $224 million for flight equipment deposits; $249 million for flight equipment work-in-progress; and $48 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $158 million. Investing activities in 2019 also included the net purchase of $40 million in investment securities. We currently anticipate capital expenditures of approximately $175 million for the first quarter of 2022, and approximately $1.0 billion for the full year 2022. We plan to restrict non-aircraft capital expenditures to those that are most critical to our path to recovery. Financing Activities (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 44 Table of Contents We made significant progress in strengthening our balance sheet in 2021 by reducing our total debt balance from $4.9 billion at December 31, 2020 to $4.0 billion at December 31, 2021. Financing activities during the year primarily consisted of debt repayments of $1.9 billion on our outstanding debt and finance lease obligations, which included the following payoffs: •$722 million on our term loan facility; •$550 million on our revolving credit facility; and •$115 million on our secured loan balance under the CARES Act Loan Program. These principal payments were partially offset by: •Net proceeds of $734 million from the issuance of our 0.50% Convertible Senior Notes due 2026; •Net proceeds of $276 million and $14 million from the issuances of unsecured term loans and warrants, respectively, in connection with the Payroll Support Program 2 under the Consolidated Appropriations Act and Payroll Support Program 3 under the American Rescue Plan Act; and •$46 million in proceeds from the issuance of common stock related to our crewmember stock purchase plan. Also included in financing activities during 2021 were $8 million used for the acquisition of treasury stock which represents the return of shares to satisfy tax payments associated with crewmember stock compensation that vested during the period. We plan to continue to opportunistically pay down those obligations with the highest costs as we continue to manage through the recovery. Financing activities during 2020 primarily consisted of net proceeds of $2.2 billion from drawdowns of our credit facilities and the execution of a number of financing transactions which included the following: •$981 million from our 364-day delayed draw term loan facility with Morgan Stanley Senior Funding Inc. as administrative agent; •$717 million from our term loan facility with Barclays Bank PLC as administrative agent; and •$550 million from our revolving credit facility with Citibank N.A. as administrative agent. Also included in financing activities during 2020 were: •Net proceeds of $913 million from the public placements of equipment notes; •Net proceeds of $583 million from the offering of 42 million shares of our common sock •$354 million of aircraft sale-leaseback transactions which did not qualify as sales for accounting purposes; •Net proceeds of $259 million and $19 million from the issuance of unsecured term loan and warrants, respectively, in connection with the Payroll Support Program under the CARES Act; •Net proceeds of $105 million and $9 million from the issuance of secured term loan and warrants, respectively, in connection with the Loan Program under the CARES Act; and •$35 million in proceeds from the issuance of common stock related to our crewmember stock purchase plan. These proceeds were partially offset by the payoff of our 364-day delayed draw term loan facility for $1.0 billion, scheduled maturities of $372 million relating to debt and finance lease obligations, $12 million of which were associated with scheduled rent payments on sale-leaseback aircraft that did not qualify as sales for accounting purposes, and the acquisitions of treasury shares of $167 million, of which $160 million related to our accelerated share repurchases, or ASRs. Our share repurchase program has been suspended since March 31, 2020. Financing activities during 2019 consisted of the net issuance of $981 million of debt, $764 million of which related to the offering of our Enhanced Equipment Trust Certificates, Series 2019-1 ("2019-1 EETC") in November, partially offset by the scheduled repayment of $323 million in debt and finance lease obligations. Additionally, we acquired $542 million in treasury shares of which $535 million related to ASRs during 2019. During this period, we received $51 million in proceeds from the issuance of stock related to employee share-based compensation. In March 2019, we filed an automatic shelf registration statement with the SEC. Under this shelf registration statement, we may offer and sell from time to time common stock, preferred stock, debt securities, depositary shares, warrants, stock (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 45 Table of Contents purchase contracts, stock purchase units, subscription rights, and pass-through certificates. We may utilize this shelf registration statement, or a replacement filed with the SEC, in the future to raise capital to fund the continued development of our products and services, the commercialization of our products and services, to repay indebtedness, or for other general corporate purposes. The warrants issued by JetBlue to Treasury under the Acts were made, and any issuances of our underlying common stock are expected to be made, in reliance on the exemption from the registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for transactions not involving a public offering. None of our lenders or lessors are affiliated with us. Capital Resources Dependent on market conditions, we anticipate using a mix of cash and debt financing for our expected aircraft deliveries in 2022. To the extent we cannot secure financing on terms we deem attractive, we may be required to pay in cash, further modify our aircraft acquisition plans, or incur higher than anticipated financing costs. Although we believe debt and/or lease financing should be available to us if needed, we cannot give assurances we will be able to secure financing on terms attractive to us, if at all. We have a revolving line of credit with Morgan Stanley for up to approximately $200 million. This line of credit is secured by a portion of our investment securities held by Morgan Stanley and the borrowing amount may vary accordingly. This line of credit bears interest at a floating rate based upon the London Interbank Offered Rate, or LIBOR, plus a margin. We did not borrow under this facility in 2021 or 2020 and the line was undrawn as of December 31, 2021. We have a revolving Credit and Guaranty Agreement with Citibank N.A. as the administrative agent, for up to $550 million (the "Revolving Facility"). The term of the Revolving Facility runs through August 2023. Borrowings under the Revolving Facility bear interest at a variable rate equal to LIBOR, plus a margin. The Revolving Facility is secured by aircraft, simulators, and certain other assets as permitted thereunder. The Revolving Facility includes covenants that require us to maintain certain minimum balances in unrestricted cash, cash equivalents, and unused commitments available under revolving credit facilities. In addition, the covenants restrict our ability to, among other things, dispose of certain collateral, or merge, consolidate, or sell assets. In response to the unprecedented decline in demand for air travel caused by the COVID-19 pandemic, we borrowed the full amount of $550 million under the Revolving Facility on April 22, 2020. We repaid the full balance of the Revolving Facility in the first quarter of 2021. As of December 31, 2021, we did not have a balance outstanding or any borrowings under the Revolving Facility. Working Capital We had a working capital deficit of $170 million as of December 31, 2021 compared to a surplus of $671 million as of December 31, 2020. Our working capital decreased by $501 million due to several factors, including an overall increase in our air traffic liability resulting from the increase in customer bookings as demand for air travel began to recover from the COVID-19 pandemic. Working capital deficits can be customary in the airline industry since a large portion of air traffic liability is classified within current liability. We expect to meet our obligations as they become due through available cash, investment securities, and internally generated funds, supplemented, as necessary, by financing activities and federal government assistance programs, which may be available to us. We expect to generate positive working capital through our operations. However, we cannot predict what the effect on our business might be from future developments related to the COVID-19 pandemic and its impact on the economy and consumer behavior, the extremely competitive environment in which we operate, or from events beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, airport infrastructure challenges, the spread of infectious diseases, the impact of other airline bankruptcies, restructurings or consolidations, U.S. military actions, or acts of terrorism. We believe there is sufficient liquidity available to us to meet our cash requirements for at least the next 12 months. Debt and Finance Leases As part of our efforts to effectively manage our balance sheet, we expect to continue to actively manage our debt balances. Our approach to debt management includes managing the mix of fixed and floating rate debt, annual maturities of debt, and the weighted average cost of debt. Additionally, our unencumbered assets allow some flexibility in managing our cost of debt and capital requirements. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 46 Table of Contents CONTRACTUAL OBLIGATIONS Our contractual obligations at December 31, 2021 include the following (in billions): [[GREPCENT_TABLE]] [["","","Payments due in"],["","","Total","","2022","","2023","","2024","","2025","","2026","","Thereafter"],["Debt and finance lease obligations(1)","","$","4.6","","","$","0.5","","","$","0.7","","","$","0.4","","","$","0.2","","","$","0.9","","","$","1.9"],["Operating lease obligations","","1.1","","","0.2","","","0.2","","","0.1","","","0.1","","","0.1","","","0.4"],["Flight equipment purchase obligations","","7.5","","","0.9","","","1.6","","","1.8","","","1.3","","","0.9","","","1.0"],["Other obligations(2)","","2.3","","","0.3","","","0.4","","","0.4","","","0.4","","","0.4","","","0.4"],["Total","","$","15.5","","","$","1.9","","","$","2.9","","","$","2.7","","","$","2.0","","","$","2.3","","","$","3.7"]] [[/GREPCENT_TABLE]] (1)Includes actual interest and estimated interest for floating-rate debt based on December 31, 2021 rates. (2)Amounts include non-cancelable commitments for the purchase of goods and services. The interest rates are fixed for $3.9 billion of our debt and finance lease obligations, with the remaining $0.1 billion having floating interest rates. The floating interest rates adjust either quarterly or semi-annually based on LIBOR. The weighted average maturity of all of our debt was eight years as of December 31, 2021. As of December 31, 2021, we believe we were in compliance with the covenants of our debt and lease agreements and approximately 64% of our owned property and equipment were pledged as security under various loan agreements. As of December 31, 2021, we had operating lease obligations for 62 aircraft with lease terms that expire between 2023 and 2028. Our aircraft lease agreements contain termination provisions which include standard maintenance and return conditions. Our policy is to record these lease return conditions when they are probable and the costs can be estimated. We also lease airport terminal space and other airport facilities in each of our markets, as well as office space and other equipment. We have approximately $32 million of restricted assets pledged under standby letters of credit related to certain of our leases which will expire at the end of the related leases. As of December 31, 2021, the average age of our operating fleet was 11.6 years. Our firm aircraft order book as of December 31, 2021 was as follows: [[GREPCENT_TABLE]] [["Year","","Airbus A321neo","","Airbus A220","","Total"],["2022","","3","","9","","12"],["2023","","11","","18","","29"],["2024","","13","","22","","35"],["2025","","11","","12","","23"],["2026","","12","","1","","13"],["2027","","14","","\u2014","","14"],["Total","","64","","62","","126"]] [[/GREPCENT_TABLE]] In February 2022, we exercised our option to purchase 30 additional Airbus A220-300 aircraft under our existing agreement with Airbus Canada Limited Partnership. The 30 additional A220-300 aircraft are expected to be delivered from 2022 to 2026. Options for 20 additional A220-300 aircraft remain available to us. The 30 additional aircraft are not included in the aircraft delivery schedule above. With the addition of these 30 Airbus A220 aircraft, our flight equipment purchase obligations are expected to be $1.0 billion in 2022, $1.7 billion in 2023, $2.0 billion in 2024, $1.6 billion 2025, $1.3 billion in 2026 and 1.0 billion thereafter. Committed expenditures for our firm aircraft and spare engines include estimated amounts for contractual price escalations and pre-delivery deposits. We expect to meet our pre-delivery deposit requirements for our aircraft by paying cash or by using short-term borrowing facilities for deposits generally required six to 24 months prior to delivery. Any pre-delivery deposits paid by the issuance of notes are fully repaid at the time of delivery of the related aircraft. Our Terminal at JFK, T5, is governed by a lease agreement we entered into with the PANYNJ in 2005. We are responsible for making various payments under the lease. This includes ground rents for the terminal site which began at the time of the lease execution in 2005 and facility rents commenced in October 2008 upon our occupancy of T5. The facility rents are based on the number of passengers enplaned out of the terminal, subject to annual minimums. The PANYNJ reimbursed us (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 47 Table of Contents for construction costs of this project in accordance with the terms of the lease, except for approximately $76 million in leasehold improvements provided by us. In 2013, we amended this lease to include additional ground space for our international arrivals facility, T5i, which we opened in November 2014. Minimum ground and facility rents at JFK totaling $496 million are included in the commitments table above as operating lease obligations. Reaffirming our commitment to New York, in February 2022, we executed a new lease for our primarily corporate offices that will extend our stay in the present Long Island City location until 2039.We expect the new lease will increase our lease commitments by approximately $3 million in 2024, $6 million in 2025, $7 million in 2026, and $97 million thereafter. We enter into individual employment agreements with each of our non-unionized FAA-licensed crewmembers, inspectors, and air traffic controllers. Each employment agreement is for a term of five years and automatically renews for an additional five-year term unless the crewmember is terminated for cause or the crewmember elects not to renew it. Pursuant to these agreements, these crewmembers can only be terminated for cause. In the event of a downturn in our business requiring a reduction in flying and related work hours, we are obligated to pay these crewmembers a guaranteed level of income and to continue their benefits. As we are not currently obligated to pay this guaranteed income and benefits, no amounts related to these guarantees are included in the contractual obligations table above. OFF-BALANCE SHEET ARRANGEMENTS We have determined that we hold a variable interest in, but are not the primary beneficiary of, certain pass-through trusts. The beneficiaries of these pass-through trusts are the purchasers of equipment notes issued by us to finance the acquisition of aircraft. Each trust maintains a liquidity facility whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs. We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our consolidated balance sheets, which we believe will not have a significant impact on our results of operations, financial condition or cash flows. We have no other off-balance sheet arrangements. See Notes 3, 4, and 11 to our consolidated financial statements for a more detailed discussion of our variable interests and other contingencies, including guarantees and indemnities. (1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure. 48 Table of Contents CLIMATE CHANGE Concern over climate change, including the impact of global warming, has led to significant U.S. and international legislative and regulatory efforts to limit greenhouse gas ("GHG") emissions, including our aircraft and ground operations emissions. Below is a discussion of the regulations that are relevant to JetBlue and the efforts we have taken to address climate change. Legislation, Regulation, and Accords on Climate Change Carbon Offsetting and Reduction Scheme for International Aviation In October 2016, ICAO passed a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA"), which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020. Annual international emissions reporting is required via CORSIA as of the 2019 reporting year, and offsetting compliance is scheduled to be implemented through multiple phases beginning in 2021. In 2020, given the impacts of COVID-19 which dramatically reduced 2020 emissions, ICAO agreed that the baseline from which the industry achieves carbon neutral growth would be from 2019 only, rather than an average of 2019 and 2020 as originally intended. ICAO continues to develop details regarding implementation, but we expect compliance with CORSIA will increase our operating costs. Sustainable Skies Act In May 2021, the Sustainable Skies Act was introduced in the United States Congress to amend the Internal Revenue Code of 1986 to provide a tax credit for sustainable aviation fuel ("SAF"). Under this proposal, SAF that achieve 50% or greater reduction in lifecycle GHG emissions would be eligible to receive a tax credit ranging from $1.50 per gallon to $2.00 per gallon. We are supportive of this proposed legislation and consider this to be a meaningful development to stimulate the production of SAF, making it more affordable and widely available. We believe this to be an important step in helping the U.S. airline industry reach its goal of achieving net-zero carbon emissions by 2050. Actions Taken to Address Climate Change JetBlue is committed to proactively responding to climate change by taking meaningful steps to decarbonize our business and mitigating climate risks that may materially impact the business. As one of our key company-wide strategic priorities, we are pursuing six key levers to decarbonize our business. We discuss these levers and other sustainability initiatives in “Item 1. Business—Environmental, Social Governance – Environmental” above. Other Impacts of Climate Change The number of extreme weather events, such as hurricanes, typhoons, wildfires, and rainstorms, associated with climate change is expected to increase. Occurrences of these extreme weather events may result in flight cancellations, delays, and diversions, severely impacting our operations and thus adversely affecting our financial results and conditions. 49 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to adopt accounting policies as well as make estimates and judgments to develop amounts reported in our financial statements and accompanying notes. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the estimates that are required to prepare our financial statements. We believe our estimates and judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. The policies and estimates discussed below have been reviewed with our independent registered public accounting firm and with the Audit Committee of our Board of Directors. For a discussion of these and other significant accounting policies, see Note 1 to our consolidated financial statements. Passenger Revenue   Ticket sales and the fees collected for related ancillary services are initially deferred in air traffic liability. Air traffic liability represents tickets sold but not yet flown, credits which can be used for future travel, and a portion of the liability related to our TrueBlue® loyalty program. We allocate the transaction price to each performance obligation identified in a passenger ticket on a relative standalone basis. Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Taxes that we are required to collect from our customers, including foreign and U.S. federal transportation taxes, security taxes, and airport facility charges, are excluded from passenger revenue. Those taxes and fees are recorded as a liability upon collection and are relieved from the liability upon remittance to the applicable governmental agency. The majority of the tickets we sell are non-refundable. Non-refundable fares may be canceled prior to the scheduled departure date for a credit for future travel. Refundable fares may be canceled at any time prior to the scheduled departure date. Failure to cancel a refundable fare prior to departure will result in the cancellation of the original ticket and an issuance of a credit for future travel. Passenger credits can generally be used for future travel up to a year from the date of issuance. In response to the impact of COVID-19 on air travel, we extended the expiration dates for travel credits issued from February 27, 2020 through June 30, 2020 to a 24-month period. In January 2022, in response to the surge in COVID-19 cases and flight cancellations in late 2021, we further extended the expiration dates for travel credits with an original expiration date between February 1, 2020 through September 29, 2022 to September 30, 2022. All passenger credits were classified as current air traffic liability as of December 31, 2021. Passenger breakage revenue from unused tickets and passenger credits will be recognized in proportion to flown revenue based on estimates of expected expiration when the likelihood of the customer exercising his or her remaining rights becomes remote. Breakage revenue consists of non-refundable tickets that remain unused past the departure date, have continued validity, and are expected to ultimately expire unused, as well as passenger credits that are not expected to be redeemed prior to expiration. JetBlue uses estimates based on historical experience of expired tickets and credits and considers other factors that could impact future expiration patterns of tickets and credits. Tickets which do not have continued validity past the departure date are recognized as revenue after the scheduled departure date has lapsed. Passenger ticket costs primarily include credit card fees, commissions paid, and global distribution systems booking fees. Costs are allocated entirely to the purchased travel services and are capitalized until recognized when travel services are provided to the customer. Loyalty Program  Customers may earn points under our customer loyalty program, TrueBlue®, based on the fare paid and fare product purchased for a flight. Customers can also earn points through business partners such as credit card companies, hotels, car rental companies, and our participating airline partners. Points Earned From a Ticket Purchase. When a TrueBlue® member travels, we recognize a portion of the fare as revenue and defer in air traffic liabilities the portion that represents the value of the points net of spoilage, or breakage. We allocate the transaction price to each performance obligation on a relative standalone basis. We determine the standalone selling price of TrueBlue® points issued using the redemption value approach. To maximize the use of observable inputs, we utilize the actual ticket value of the tickets purchased with TrueBlue® points. The liability is relieved and passenger revenue is recognized when the points are redeemed and the free travel is provided. [[GREPCENT_TABLE]] [["(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures\" at the end of this section for more information on this non-GAAP measure."],["50"]] [[/GREPCENT_TABLE]] Table of Contents Points Sold to TrueBlue® Partners. Our most significant contract to sell TrueBlue® points is with our co-branded credit card partner. Co-branded credit card partnerships have the following identified performance obligations: air transportation; use of the JetBlue brand name, and access to our frequent flyer customer lists; advertising; and other airline benefits. In determining the estimated standalone selling price, JetBlue considers multiple inputs, methods, and assumptions, including: discounted cash flows; estimated redemption value, net of fulfillment discount; points expected to be awarded and redeemed; estimated annual spending by cardholders; estimated annual royalty for use of JetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. Payments are typically due monthly based on the volume of points sold during the period, and the terms of our marketing contracts are generally from one to ten years. The overall consideration received is allocated to each performance obligation based on its relative standalone selling price. The air transportation element is deferred and recognized as passenger revenue when the points are redeemed. The other elements are recognized as other revenue when the performance obligations related to those services are satisfied, which is generally the same period as when consideration is received from the participating company. Amounts allocated to the air transportation element which are initially deferred include a portion that are expected to be redeemed during the following twelve months (included within Air traffic liability), and a portion that are not expected to be redeemed during the following twelve months (included within Air traffic liability - non-current). We periodically update this analysis and adjust the split between current and non-current liabilities as appropriate. Points earned by TrueBlue® members never expire. TrueBlue® members can pool points between small groups of people, branded as Points Pooling™. Breakage is estimated using historical redemption patterns to determine a breakage rate. Breakage rates used to estimate breakage revenue are evaluated annually. Changes to breakage estimates impact revenue recognition prospectively. Accounting for Long-Lived Assets     In accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values, and the potential for impairment. In estimating useful lives and residual values of our aircraft, we have relied upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates. Our long-lived assets are evaluated for impairment when events and circumstances indicate the assets may be impaired. Indicators include operating or cash flow losses, significant decreases in market value, or changes in technology. To determine if impairment exists for our aircraft used in operations, we group our aircraft by fleet-type (the lowest level for which there are identifiable cash flows) and then estimate their future cash flows based on projections of capacity, aircraft age, maintenance requirements, and other relevant conditions. An impairment occurs when the sum of the estimated undiscounted future cash flows are less than the aggregate carrying value of the fleet. The impairment loss recognized is the amount by which the fleet's carrying value exceeds its estimated fair value. We estimate aircraft fair value using third party valuations which consider the effects of the current market environment, age of the assets, and marketability. Given the substantial reduction in our active aircraft and diminished projections of future cash flows experienced in 2020 as a result of the COVID-19 pandemic, we evaluated and recorded impairment charges of flight equipment and other property and equipment related to our Embraer E190 fleet for the year ended December 31, 2020. No impairment charges were recorded for the year ended December 31, 2021. Refer to Note 17 to our consolidated financial statements for further details of our impairment charges. Lease Accounting    We operate airport facilities, office buildings, and aircraft under operating leases with minimum lease payments. We recognize the costs associated with these agreements as rent expense on a straight-line basis over the expected lease term. Within the provisions of certain leases, there are minimum escalations in payments over the base lease term. There are also periodic adjustments of lease rates, landing fees, and other charges applicable under such agreements, as well as renewal periods. The effects of the escalations and other adjustments have been reflected in rent expense on a straight-line basis over the lease term. This includes renewal periods when it is deemed to be reasonably assured at the inception of the lease. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter. [[GREPCENT_TABLE]] [["(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures\" at the end of this section for more information on this non-GAAP measure."],["51"]] [[/GREPCENT_TABLE]] Table of Contents Derivative Instruments used for Aircraft Fuel    We utilize financial derivative instruments to manage the risk of changing aircraft fuel prices. We do not purchase or hold any derivative instrument for trading purposes. Fair values are determined using commodity prices provided to us by independent third parties. When possible, we designate these instruments as cash flow hedges for accounting purposes, as defined by the Derivatives and Hedging topic of the Codification which permits the deferral of the effective portions of gains or losses until contract settlement. The Derivatives and Hedging topic is a complex accounting standard. It requires us to develop and maintain a significant amount of documentation related to: (1) our fuel hedging program and fuel management approach, (2) statistical analysis supporting a highly correlated relationship between the underlying commodity in the derivative financial instrument and the risk being hedged, i.e. aircraft fuel, on both a historical and prospective basis, and (3) cash flow designation for each hedging transaction executed, to be developed concurrently with the hedging transaction. This documentation requires us to estimate forward aircraft fuel prices since there is no reliable forward market for aircraft fuel. These prices are developed through the observation of similar commodity futures prices, such as crude oil and/or heating oil, and adjusted based on variations to those like commodities. Historically, our hedges have settled within 24 months; therefore, the deferred gains and losses have been recognized into earnings over a relatively short period of time. [[GREPCENT_TABLE]] [["(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures\" at the end of this section for more information on this non-GAAP measure."],["52"]] [[/GREPCENT_TABLE]] Table of Contents REGULATION G RECONCILIATION OF NON-GAAP FINANCIAL MEASURES We sometimes use non-GAAP financial measures in this report. Non-GAAP financial measures are financial measures that are derived from the consolidated financial statements, but that are not presented in accordance with generally accepted accounting principles in the United States, or GAAP. We believe these non-GAAP financial measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies. The information below provides an explanation of each non-GAAP financial measure and shows a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable GAAP financial measures. Operating Expense per Available Seat Mile, excluding fuel and related taxes, other non-airline operating expenses, and special items ("CASM Ex-Fuel") Operating expenses per available seat mile, or CASM, is a common metric used in the airline industry. We exclude aircraft fuel and related taxes, operating expenses related to other non-airline businesses, such as our subsidiaries, JetBlue Technology Ventures and JetBlue Travel Products, and special items from operating expenses to determine CASM ex-fuel, which is a non-GAAP financial measure. In 2021, special items include contra-expenses recognized on the utilization of federal grants received under various payroll support programs, contra-expenses recognized on the Employee Retention Credits provided by the CARES Act, and one-time costs related to the ratification of the collective bargaining agreement with our inflight crewmembers. Special items in 2020 include contra-expenses recognized on the utilization of payroll support grants received under the CARES Act, contra-expenses recognized on the Employee Retention Credits provided by the CARES Act, impairment charges on our Embraer E190 fleet, losses generated from certain aircraft sale-leaseback transactions, and one-time costs associated with our voluntary crewmember separation programs. Special items for 2019 include an impairment charge and one-time costs related to the Embraer E190 fleet transition as well as one-time costs related to the ratification and implementation of our pilots' collective bargaining agreement. We believe that CASM ex-fuel is useful for investors because it provides investors the ability to measure financial performance excluding items beyond our control, such as fuel costs, which are subject to many economic and political factors, or not related to the generation of an available seat mile, such as operating expense related to other non-airline businesses. We believe this non-GAAP measure is more indicative of our ability to manage airline costs and is more comparable to measures reported by other major airlines. [[GREPCENT_TABLE]] [["NON-GAAP FINANCIAL MEASURE RECONCILIATION OF OPERATING EXPENSE PER ASM, EXCLUDING FUEL"],["(in millions; per ASM data in cents)","","2021","","2020","","2019","","2018","","2017"],["","$","","per ASM","","$","","per ASM","","$","","per ASM","","$","","per ASM","","$","","per ASM"],["Total operating expenses","","$","6,117","","","11.30","","","$","4,671","","","14.29","","","$","7,294","","","11.43","","","$","7,392","","","12.34","","","$","6,039","","","10.78"],["Less:"],["Aircraft fuel and related taxes","","1,436","","","2.65","","","631","","","1.93","","","1,847","","","2.89","","","1,899","","","3.17","","","1,363","","","2.43"],["Other non-airline expenses","","43","","","0.08","","","35","","","0.10","","","46","","","0.08","","","44","","","0.07","","","35","","","0.06"],["Special items","","(833)","","","(1.54)","","","(283)","","","(0.86)","","","14","","","0.02","","","435","","","0.73","","","\u2014","","","\u2014"],["Operating expenses, excluding fuel","","$","5,471","","","10.11","","","$","4,288","","","13.12","","","$","5,387","","","8.44","","","$","5,014","","","8.37","","","$","4,641","","","8.29"]] [[/GREPCENT_TABLE]] Reconciliation of Operating Expense, Income (Loss) before Taxes, Net Income (Loss) and Earnings (Loss) per Share, excluding special items and gain on equity investments Our GAAP results in the applicable periods were impacted by credits and charges that are deemed special items. In 2021, special items include contra-expenses recognized on the utilization of federal grants received under various payroll support programs, contra-expenses recognized on the Employee Retention Credits (ERCs) provided by the CARES Act, and one-time costs related to the ratification of the collective bargaining agreement with our inflight crewmembers. 53 Table of Contents Special items in 2020 include contra-expenses recognized on the utilization of payroll support grants received under the CARES Act, contra-expenses recognized on ERCs, impairment charges on our Embraer E190 fleet, losses generated from certain aircraft sale-leaseback transactions, and one-time costs associated with our voluntary crewmember separation programs. Special items in 2019 include one-time costs related to the Embraer E190 fleet transition as well as one-time costs related to the ratification and implementation of our pilots' collective bargaining agreement. Certain net gains on our equity investments were also excluded from our 2021 and 2019 GAAP results. We believe the impact of these items distort our overall trends and that our metrics are more comparable with the presentation of our results excluding the impact of these items. The table below provides a reconciliation of our GAAP reported amounts to the non-GAAP amounts excluding the impacts of these items. 54 Table of Contents [[GREPCENT_TABLE]] [["NON-GAAP FINANCIAL MEASURE RECONCILIATION OF OPERATING EXPENSE, INCOME (LOSS) BEFORE TAXES, NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE EXCLUDING SPECIAL ITEMS AND GAIN ON EQUITY INVESTMENTS"],["","","Year Ended December 31,"],["(in millions except per share amounts)","","2021","","2020","","2019"],["Total operating revenues","","$","6,037","","","$","2,957","","","$","8,094"],["Total operating expenses","","$","6,117","","","$","4,671","","","$","7,294"],["Less: Special items","","(833)","","","(283)","","","14"],["Total operating expenses excluding special items","","$","6,950","","","$","4,954","","","$","7,280"],["Operating income (loss)","","$","(80)","","","$","(1,714)","","","$","800"],["Add back: Special items","","(833)","","","(283)","","","14"],["Operating income (loss) excluding special items","","$","(913)","","","$","(1,997)","","","$","814"],["Operating margin excluding special items","","(15.1)","%","","(67.5)","%","","10.1","%"],["Income (loss) before income taxes","","$","(263)","","","$","(1,893)","","","$","768"],["Add back: Special items","","(833)","","","(283)","","","14"],["Less: Gain on equity investments","","44","","","\u2014","","","15"],["Income (loss) before income taxes excluding special items and gain on equity investments","","$","(1,140)","","","$","(2,176)","","","$","767"],["Pre-tax margin excluding special items and gain on equity investments","","(18.9)","%","","(73.6)","%","","9.5","%"],["Net income (loss)","","$","(182)","","","$","(1,354)","","","$","569"],["Add back: Special items","","(833)","","","(283)","","","14"],["Less: Income tax benefit (expense) related to special items","","(249)","","","(69)","","","4"],["Less: Gain on equity investments","","44","","","\u2014","","","15"],["Less: Income tax (expense) related to gain on equity investments","","(13)","","","\u2014","","","(4)"],["Net income (loss) excluding special items and gain on equity investments","","$","(797)","","","$","(1,568)","","","$","568"],["Earnings (loss) per common share:"],["Basic","","$","(0.57)","","","$","(4.88)","","","$","1.92"],["Add back: Special items, net of tax","","(1.84)","","","(0.77)","","","0.04"],["Less: Gain on equity investments, net of tax","","0.10","","","\u2014","","","0.04"],["Basic excluding special items and gain on equity investments","","$","(2.51)","","","$","(5.65)","","","$","1.92"],["Diluted","","$","(0.57)","","","$","(4.88)","","","$","1.91"],["Add back: Special items, net of tax","","(1.84)","","","(0.77)","","","0.03"],["Less: Gain on equity investments, net of tax","","0.10","","","\u2014","","","0.04"],["Diluted excluding special items and gain on equity investments","","$","(2.51)","","","$","(5.65)","","","$","1.90"]] [[/GREPCENT_TABLE]] 55 Table of Contents Adjusted Debt to Capitalization Ratio Adjusted debt to capitalization ratio is a non-GAAP financial measure which we believe is relevant in assessing the Company's overall debt profile. Adjusted debt includes aircraft operating lease liabilities, in addition to total debt and finance lease obligations. Adjusted capitalization represents total equity plus adjusted debt. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, our financial measures prepared in accordance with GAAP. [[GREPCENT_TABLE]] [["NON-GAAP FINANCIAL MEASURE ADJUSTED DEBT TO CAPITALIZATION RATIO"],["(in millions)","","December 31,"],["","","2021","","2020"],["Long-term debt and finance lease obligations","","$","3,651","","","$","4,413"],["Current maturities of long-term debt and finance lease obligations","","355","","","450"],["Operating lease liabilities \u2014 aircraft","","256","","","273"],["Adjusted debt","","$","4,262","","","$","5,136"],["Long-term debt and finance lease obligations","","$","3,651","","","$","4,413"],["Current maturities of long-term debt and finance lease obligations","","355","","","450"],["Operating lease liabilities \u2014 aircraft","","256","","","273"],["Stockholders' equity","","3,849","","","3,951"],["Adjusted capitalization","","$","8,111","","","$","9,087"],["Adjusted debt to capitalization ratio","","53","%","","57","%"]] [[/GREPCENT_TABLE]] 56 Table of Contents Free Cash Flow The table below reconciles cash provided by operations determined in accordance with GAAP to Free Cash Flow, a non-GAAP financial measure. We believe that Free Cash Flow is a relevant metric in measuring our financial strength and is useful in assessing our ability to fund future capital commitments and other obligations. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, our financial measures prepared in accordance with GAAP. [[GREPCENT_TABLE]] [["NON-GAAP FINANCIAL MEASURE RECONCILIATION OF FREE CASH FLOW"],["(in millions)","","Year Ended December 31,"],["","","2021","","2020","","2019","","2018","","2017"],["Net cash provided by (used in) operating activities","","$","1,642","","","$","(683)","","","$","1,449","","","$","1,200","","","$","1,379"],["Less: Capital expenditures","","(907)","","","(715)","","","(932)","","","(908)","","","(1,074)"],["Less: Pre-delivery deposits for flight equipment","","(88)","","","(76)","","","(224)","","","(206)","","","(128)"],["Free Cash Flow","","$","647","","","$","(1,474)","","","$","293","","","$","86","","","$","177"]] [[/GREPCENT_TABLE]] Glossary of Airline terminology Airline terminology used in this section and elsewhere in this Report: •Aircraft utilization - The average number of block hours operated per day per aircraft for the total fleet of aircraft. •Available seat miles - The number of seats available for passengers multiplied by the number of miles the seats are flown. •Average fare - The average one-way fare paid per flight segment by a revenue passenger. •Average fuel cost per gallon - Total aircraft fuel costs, including fuel taxes and effective portion of fuel hedging, divided by the total number of fuel gallons consumed. •Average stage length - The average number of miles flown per flight. •Load factor - The percentage of aircraft seating capacity actually utilized, calculated by dividing revenue passenger miles by available seat miles. •Operating expense per available seat mile - Operating expenses divided by available seat miles. •Operating expense per available seat mile, excluding fuel - Operating expenses, less aircraft fuel, other non-airline expenses, and special items, divided by available seat miles. •Operating revenue per available seat mile - Operating revenues divided by available seat miles. •Passenger revenue per available seat mile - Passenger revenue divided by available seat miles. •Revenue passengers - The total number of paying passengers flown on all flight segments. •Revenue passenger miles - The number of miles flown by revenue passengers. •Yield per passenger mile - The average amount one passenger pays to fly one mile.