JetBlue slumps as Lufthansa unloads stake

The news comes two days after a pilot meltdown in midair, which raises many questions.

By MSN Money Partner Mar 29, 2012 2:48PM

By Melly Alazraki

A pilot's bizarre breakdown is grabbing all the headlines, but that wasn't the reason JetBlue Airways (JBLU) shares were down nearly 7% in afternoon trading Thursday. The drop came after Deutsche Lufthansa said it would effectively sell its stake in the airline, currently around 16%, by issuing a corporate bond exchangeable into shares of JetBlue.


According to Dow Jones, the notes will be exchangeable into 46.7 million shares in JetBlue, though the airline has an option to redeem the bonds in cash instead. Shares of JetBlue closed Wednesday at $5.22. Lufthansa bought its stake in January 2009 for about $7.27 per share. JBLU shares traded around $4.87 Thursday afternoon.

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The news comes just two days after a JetBlue pilot, Clayton Osbon, had a complete meltdown midair on a flight from New York to Las Vegas. After the co-pilot locked Osbon out of the cockpit, he asked passengers to subdue Osbon, who was ranting about Jesus, Iran, Iraq, al-Qaida and a possible bomb on board. Passengers and crew tackled and restrained him for about 20 minutes until the plane landed in a diverted location in Amarillo, Tex.


JetBlue suspended Osbon, who now also faces criminal charges, saying he suffered from a "medical situation." But with heightened sensitivity to flight security the incident raises many questions about pilots, licensing procedures and screening.


According the New York Times, pilots are indeed required to have annual medical exams. But these checkups don't include psychological evaluations and rely on pilots to voluntarily disclose any problems. Many of them, however, are reluctant to do this for fear of losing their jobs and because of an Federal Aviation Administration ban on certain psychiatric drugs while flying.


A further investigation by Bloomberg reveals that a pilot's salary in the first year is about $42,000, based on 80 hours of flying a month, and goes up to an annual salary of nearly $190,000. Pilots are also getting older (the average age is 49).


When it comes to training, pilots are only required to have 250 hours of training to get licensed, which is a third as much as military pilots. The workday limit is 16 hours, followed by only eight hours rest. The FAA has proposed much stricter regulations, such as increasing the hours of training and reducing the workday.


But then, of course, there is the issue of cost. The industry suffered a downturn after the 9/11 attacks, and cost pressures have reduced the screening of newly hired pilots. With airline workers facing increasing pressures because of cost cuts, some analysts are surprised such meltdowns aren't more frequent. Perhaps with increased traffic and capacity, as JetBlue reported for February, the pressures would be lessened.


The JetBlue pilot's meltdown, while serious in nature, was not nearly as serious as Carnival's (CCL) grounded cruise ship Costa Concordia. JetBlue also didn't suffer a major asset loss -- or future revenue as a result of an asset loss. But with the Lufthansa sale, shares are suffering.