• USD 8.7bn debt load, grounded aircraft, and labor costs pose significant challenges
• Section 1110 protects aircraft lessors and lenders, crucial in potential restructuring
• Labor costs, union contracts, and retiree benefits add complexity to potential Chapter 11 filing

JetBlue Airways, which provides airline transportation in the US, Latin America, Europe, Canada, and the Caribbean, may be experiencing turbulence as a group of its senior creditors have organized and reportedly brought on financial adviser PJT Partners and law firm Akin after increased oil prices have driven down revenue. Despite the creditor organization, CEO Joanna Geraghty stated on 24 October that the airline is not planning to restructure its debt nor is it in discussions with creditors.

However, given JetBlue’s over USD 8.7bn debt load (some of which matures as soon as 2027 and 2028), increased jet fuel costs and grounded aircraft, as discussed below, the airline could consider restructuring options in the near future – including Chapter 11. Both domestic and foreign airlines have a long history of turning to Chapter 11 to successfully reorganize and, in some cases, liquidate. A review of some of these most notable cases shows that two predominant issues typically arise. As the Debtwire legal analyst team discusses below, the Bankruptcy Code gives lessors and lenders with security interests in aircraft and related equipment the upper hand in aircraft cases, while labor issues can often play a formative, if not antagonistic role. In JetBlue’s case, we expect that, in the event of a Chapter 11 filing, the airline would contend with both issues.

The company

JetBlue has approximately USD 3.7bn in funded debt, not including its equipment and facility debt, with maturities ranging between 2029 and 2031. The company had USD 8.45bn of gross debt and finance lease obligations at 30 September 2026, USD 7.46bn of which was secured.

JetBlue’s revenue is mainly generated from passenger fares, ancillary fees, and its TrueBlue loyalty program. In its Form 10-Q, JetBlue reported a USD 144m operating loss for 3Q26, compared to a USD 100m operating loss in the same period in 2025, and a USD 257m net loss, compared to a USD 143m net loss for the same period in 2025. The airline largely attributes its increased operating loss to significantly higher fuel prices, with the average fuel price per gallon for the quarter having increased 57.4% YoY. The conflict in the Middle East, the factor driving increased fuel costs, will continue to be a variable affecting the entire airline industry. In addition to carrying an over USD 8.7bn debt load, JetBlue also faces disruptions resulting from severe weather and air traffic control constraints across its core Northeast markets.

At 30 September 2026, the company had USD 2.2bn in liquidity, which includes USD 1.6bn in unrestricted cash, cash equivalents, and investment securities and its USD 600m undrawn Citibank line of credit. JetBlue’s tangible assets consist mostly of its fleet of aircraft.

Although its debt trades at distressed levels, as discussed in Debtwire’s credit report, JetBlue’s operating revenue rose 21.1% YoY to USD 2.81bn.

There have been no reports that JetBlue may be looking to restructure its debt through Chapter 11; however, as discussed below, the company currently faces obstacles that have driven other airlines into Chapter 11, making an in-court restructuring a viable option that should be considered along with other restructuring alternatives. This is particularly the case here given that airlines have a lengthy history of turning to Chapter 11 to restructure their debt and emerge as more viable and competitive companies.

Driving factors behind airline Chapter 11 filings

As shown in the following table, airline companies have historically turned to Chapter 11 to reorganize. Only two of the airlines listed below (Spirit Aviation and Silver Airways) turned to Chapter 11 to reorganize but were later forced to pivot to liquidation.

The US Bankruptcy Court for the Southern District of New York has been the most popular bankruptcy court for airline restructurings, and Davis, Polk & Wardwell and Milbank have the most experience representing airlines debtors. Weil, Gotshal & Manges has represented two major airlines in Chapter 11 as well.

Increases in jet fuel prices have been the most common factor driving airlines to seek Chapter 11 protection, often coupled with a decline in air travel, like those resulting from the COVID-19 pandemic and the 11 September attacks in which terrorists hijacked commercial flights.

Air Baltic, the national airline of Latvia that entered Chapter 11 in September 2026, listed a powdered metal issue that led to a shortage of Pratt & Whitney spare engines as a factor leading to its filing. In its Form 10-Q, JetBlue disclosed that in July 2023, Pratt & Whitney announced the requirement, mandated by the FAA, for removal of certain engines for inspection due to a rare condition involving powdered metal used in the production of certain engine parts for two engine types (i.e., the engines that power two of JetBlue’s Airbus fleets). As a result of these required inspections, as of 30 September 2026, JetBlue grounded two aircraft due to engine shortages. It expects each removed engine to take approximately 170 days for one of the engine types and approximately 270 days for the other to return to a serviceable condition. According to JetBlue, the number of aircraft grounded due to engine shortages should remain in the single digits for the remainder of 2026. JetBlue has since entered into an agreement with a Pratt & Whitney affiliate under which it will receive consideration, including up to USD 105m in credits toward future purchases of qualifying goods and services from the affiliate, in exchange for waiving certain claims.

Aircraft finance and labor costs are unique challenges in airline cases

Two legal issues often become particularly relevant in airline Chapter 11 cases. One relates to section 1110 of the Bankruptcy Code, which protects parties with an interest in a debtor’s aircraft and related equipment. The other issue relates to labor and unions, as well as the airline’s obligations under CBAs and its obligations to fund retiree benefits.

Special protections for parties with liens on aircraft assets

Aircraft debtors’ capital structures are often distinct from other corporate capital structures in that they include an additional type of financing – i.e., aircraft financing, which can involve purchase and lease agreements for certain aircraft, engines, and other required equipment. As listed in the capital structure table above, JetBlue has over USD 4.7bn in outstanding aircraft financing.

Aircraft lessors and lenders who take a security interest in aircraft and related equipment play a significant role in an airline’s capital structure and in most airline Chapter 11 cases. In fact, Spirit Airlines resorted to Chapter 11 after AerCap, its largest aircraft lessor, issued a notice of default and terminated the parties’ lease agreement. Similarly, Silver Airways turned to Chapter 11 after its aircraft lessor allegedly failed to perform its obligations (including delivering aircraft) under the parties’ lease.

Generally, section 1110 protects aircraft lessors and equipment financers who hold liens on certain of an airline debtor’s assets by exempting them from the automatic stay and allowing them to enforce their rights under lease and security agreements if the airline debtor fails to cure certain outstanding defaults within specified timeframes. Specifically, section 1110 provides that, subject to certain exceptions, no other provision of the Bankruptcy Code, including the automatic stay, may limit a lessor’s or secured party’s right to repossess aircraft equipment and enforce any remedies to which it is entitled.[1]

As for the exceptions, these protected enforcement rights will be subject to the automatic stay if (i) within 60 days of the bankruptcy filing, the debtor, subject to the bankruptcy court’s approval, agrees to perform all of its obligations under the security agreement, lease, or conditional sale contract, and (ii) cures certain defaults[2] under the governing contract or agreement within specified time periods.[3] In other words, unless an airline debtor cures most outstanding defaults under aircraft financing and lease agreements within specified timeframes after entering Chapter 11, its lenders and lessors will not be subject to the automatic stay and the debtor must immediately surrender the covered property to allow lenders and lessors to enforce their contractual rights.

Section 1110 obligates an airline debtor to immediately surrender the covered aircraft and related equipment and return it to the secured party, lessor, or conditional vendor if, at any time after the petition date, such secured party, lessor, or conditional vendor is entitled to take possession of such equipment and makes a written demand for possession to the debtor. If a security agreement or conditional sale contract is an executory contract (i.e., both parties to the agreement have material, outstanding obligations), it will be deemed rejected upon the vendor taking possession.

This Code section places significant pressure on airlines seeking to reorganize, to cut a deal with their aircraft/equipment secured lenders and lessors, thereby making this group of creditors critically important to a restructuring.

Labor costs and obligations

The second issue concerning labor costs and obligations is less unique to aircraft debtors, but nonetheless a common and significant issue for many of them. Like most other airlines, JetBlue has significant labor costs and union-represented employees. It sponsors a 401(k) defined contribution plan covering US and Puerto Rico crewmembers, and its company match and non-elective crewmember expense for 3Q26 and 3Q25 were USD 81m and USD 75m respectively. For the nine months ended 30 September 2026 and 2025, its 401(k) match and non-elective crewmember expenses totaled USD 232m and USD 224m, respectively.

As of 30 September 2026, 49% of JetBlue’s active full-time equivalent crewmembers were represented by labor unions, and its pilot and inflight crewmember groups are covered by a collective bargaining agreement (CBA). In American Airlines’ Chapter 11 case, its three largest unions were appointed to the unsecured creditors committee (UCC), and in United Airlines’ Chapter 11 case, an official committee of retired pilots (whose professional fees, including counsel and a financial advisor, were paid by the debtor airline) was formed to negotiate retiree benefit changes. In May 2005, the bankruptcy court overseeing United’s case approved its plan to terminate employee pensions. At the time, it was the largest corporate-pension default in US history. More recently, Spirit Airlines dealt with opposition in its Chapter 11 case from the Air Line Pilots Association, which opposed an asset sale Spirit proposed to liquidate its assets. Spirit’s former employees also objected to its DIP financing.

JetBlue travel plans

The extent to which JetBlue will benefit from fellow low-cost airline Spirit’s liquidation remains to be seen, although it has already benefited in one aspect. Specifically, in July 2026, JetBlue was the successful bidder at an auction for 22 takeoff and landing slots at New York’s LaGuardia airport with a USD 58m bid, only USD 1m more than Frontier Airlines’ bid. The Federal Aviation Authority reportedly approved the purchase on a final basis, and JetBlue reportedly stated that the purchase could allow up to 12 additional daily roundtrips in 2027.

Although there are no reports that Chapter 11 is on JetBlue’s itinerary, it faces two challenges that have driven other airlines into Chapter 11– increased jet fuel costs and the grounding of aircraft due to the removal of certain engines for inspection. If JetBlue ultimately opts to pursue a restructuring in Chapter 11, it and its creditors should be prepared to address two groups that do not typically play a significant role in most non-airline Chapter 11 cases – aircraft and related equipment lenders and lessors, and employees, both current and retired.

Prior to joining Debtwire, Sara was a law clerk to two judges in the United States Bankruptcy Court, S.D.N.Y. and practiced in the Financial Restructuring Group at Clifford Chance, where she represented financial institutions (as secured and unsecured creditors, defendants in adversary proceedings, and participants in DIP financings) in high-profile restructurings. She also represented foreign representatives in Chapter 15 cross-border cases.

This article should not be relied upon to make investment decisions. Furthermore, this article is not intended and should not be construed as legal advice. ION Analytics does not provide any legal advice, and clients should consult with their own legal counsel for matters requiring legal advice. All information is sourced from either the public domain, ION Analytics data or intelligence, and ION Analytics cannot and does not verify or guarantee the adequacy, accuracy or completeness of any source document. No representation is made that it is current, complete or accurate. The information herein is not intended to be used as a basis for investing and does not constitute an offer to buy or sell any securities or investment strategy. The information herein is for informational purposes only and ION Analytics accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein.

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[1] Section 1110 applies only to these items if they are subject to a security interest granted by, leased to, or conditionally sold to a debtor that, at the time such transaction is entered into, holds an air carrier operating certificate issued pursuant to chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo.

[2] Section 1110 of the Bankruptcy Code does not require a debtor to cure defaults relating to the debtor’s insolvency or financial condition, the commencement of the Chapter 11 case, or of the debtor at any time before the closing of the case, or the satisfaction of any penalty rate or penalty provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.

[3] A prepetition default must be cured within the first 60 days of the Chapter 11 filing. A post-petition default that occurs before the expiration of that 60-day period must be cured before the later of (i) 30 days after the date of the default or (ii) the expiration of such 60-day period. A default that occurs on or after the expiration of such 60-day period must be cured in compliance with the terms of the applicable security agreement, lease, or conditional sale contract, if a cure is permitted under that agreement, lease, or contract.