Jet Blue Analysis

As a growth strategy, strategic acquisition can be a significant contributor to the enterprise value; however, a widely cited KPMG study indicated that 53% of acquisitions analyzed actually reduced the enterprise value. Given the global impacts that the acquisition strategy might have on the value, the CEO of JetBlue should take these five critical issues into consideration when acquiring another company. Those issues are justification of acquisition decision, identification of the driver of the acquisition and its challenges, staffing due diligence process, communicating the message to related parties and integration.

Any acquisition can only be carried out if the CEO can justify to the board of directors, shareholders and market that the shareholder's value can be enhanced through that acquisition. In order to justify the decision, the CEO needs to consider the build versus buy analysis. Building strategy allows JetBlue to develop an asset to exactly match its strategy and existing business, to spread out capital and resource requirement over a period of time, and to make necessary changes during the building process. However, it also has some distinct disadvantages such as expertise requirement, a significant amount of time, and distraction from core business. In contrast, buying strategy has the advantages of speed in obtaining instant expertise and gaining geographic expansion. Nevertheless, buying can be very expensive and if not carried out effectively, buying can derail JetBlue.

When the CEO already decides to pursue the acquisition strategy, he should identify the drivers of the acquisition and their inherent challenges which could potentially derail the integration process. The drivers of the acquisition can be customers and market share, brand, people and economies of scale. One of the most powerful and obvious reasons for JetBlue to acquire another company is to enhance its market share. Increasing market share can help boost JetBlue's revenue. JetBlue may simply seek to acquire more customer relationships or expand its customer base. However, JetBlue needs to consider the potential degradation of the customer base because the transaction might reduce customers' brand loyalty. Brand is another common reason to pursue an acquisition. JetBlue's CEO also needs to give significant thought to the procedures of brand integration and the inherent risk of brand degradation in post integration. Integrating a brand effectively is challenging and risky. The third driver is people. Reasons why people can be the driver of an acquisition can derive from a tight employment market or some areas of specialty where it may be easier and less time consuming to acquire them. However, for an acquisition where people are a significant asset, the risk is substantial because of the risk that people can quit the company anytime. Lastly, if driven by economies of scale, it is particularly important for JetBlue to consider the challenges and costs of integration. The cost of integrating products, operations and other factors under a single platform should never be underestimated.

The third critical issue is staffing the Due Diligence team and equipping them with the adequate resources and command authority to lead the acquisition. At this stage, JetBlue tries to get an understanding of the target company to ensure that it is not overpriced and to examine the feasibility of the growing, expanding, or improving plans. Effective due diligence is the key to avoiding unexpected losses. Therefore, members of the Due Diligence team need not only be experts in specific skills, such as valuation and negotiation but also possess characteristics and credibility to get the job done. The Due Diligence team can include staff from specialized areas such as Accounting, Audit, IT, Marketing, personnel, plant management, and engineering. Outside consultants should also be recruited to evaluate certain aspects of the seller's business. To be effective, the CEO needs to equip these staff with adequate command authority to have the access to necessary resources.

The fourth critical issue is communication before and after acquisition. The transaction will cause a strong reaction from most related parties. Once a transaction takes places, JetBlue CEO needs to manage the message both internally and externally and the impacts it might have on the market reaction, stock price, employee reaction. The CEO also needs to plan the messages which can help alleviate concerns and enhance optimism about the acquisition.

Last but not least, integration is often cited as the single greatest determinant of success or failure. For components that are chosen for integration, the CEO and the team need to determine how that integration will take place and if there is redundancy, which side will be eliminated. While the JetBlue may have a preference for its own facilities, systems, employees and methodologies, it is critical that the CEO take an unbiased look at each component and make a business judgment about whether to eliminate its own or those of the target company. A reduction in cost by integrating two components and an increase in quality, efficiency, or other metrics of performance from adopting a superior approach for platform from the acquired company are the two most valuable synergies that JetBlue can get from an acquisition

JetBlue Airways Corporation was founded in February 1999 by the discount airline veteran, David Neeleman. Its first

...