Activist investor Carl Icahn has taken a 10% interest in JetBlue by purchasing 33.6 million shares of its stock in January and February. His investment has caused a more than 18% rise in the prices of JetBlue stock, a phenomenon known as the Icahn Rise. This event occurs when other investors see an opportunity to benefit from Icahn's interest in the company and buy the target stock in his footsteps. Icahn is in talks with JetBlue seeking representation on its board of directors. 

Icahn has a history in the airline industry. He cemented his reputation as a corporate raider in the 1980s when he executed a leveraged buyout of Trans World Airlines (TWA) in 1985. Icahn merged Midwest regional powerhouse Ozark Airlines with TWA the following year and took the company private in 1988. Later, he attempted to acquire parts of Pan American during its demise in 1990-91. 

Based on that history, an Icahn acquisition of a stake in JetBlue may have various explanations and equally numerous potential consequences. There are several possible reasons for Icahn taking a stake in JetBlue, ranging from a simple profit-taking opportunity to long-term airline control.

Ownership Control

It is highly unlikely Icahn wishes to personally run JetBlue, given his failure to make TWA the "premier airline" he promised employees it would be under his leadership. "My first thought was, oh, no, not again," commented Dr. Daniel Rust, a Transportation & Logistics Management professor at the School of Business & Economics at the University of Wisconsin-Superior. 

"It was such a bad experience for TWA. JetBlue has been a good airline," continued Dr. Rust. "Sure, it's had some ups and downs, but it is a good brand and enjoys customer and employee loyalty."

Dr. Rust co-authored the recent book Come Fly With Me: The Rise and Fall of Trans World Airlines. The book details the struggles of Trans World Airlines under Icahn's leadership. In his seven years as the CEO of TWA, the airline did not purchase a single new airplane. He moved TWA headquarters operations near his home in Mt. Kisko, NY, charging the airline rent for the facilities.

Icahn made up for the debt incurred while purchasing the airline by selling TWA assets, a practice known as asset stripping. He sold TWA's aircraft to a leasing company he established, then leased the fleet back to TWA, benefitting from both the sale and future lease payments.

In 1989, Icahn sold TWA's prized U.S. to London routes to various competitors. These routes were considered the "crown jewels" of the airline, a key part of its "trans world" strategy since being established by Howard Hughes at the end of World War II. Icahn sold London routes from various cities in the U.S. to American Airlines for $450 million and its Philadelphia to London routes to USAir for an additional $50 million. 

Until then, TWA flew more flights between the United States and Europe than all other airlines combined. Icahn asked for 20 to 30 percent salary concessions from TWA's employees, which led to a flight attendant strike that lasted for years.

Icahn failed to fund company pensions properly. By 1990, TWA pensions, which included the pensions of Ozark Airlines, taken over in 1986, were deemed underfunded by the Pension Benefit Guarantee Corporation by an estimated $150 to $900 million. Legislation ushered through Congress by Missouri Senator John Danforth and Missouri Congressman Dick Gephardt, then the Speaker of the House, held Icahn responsible for the pension shortfall as TWA declared bankruptcy in 1992. 

As part of the bankruptcy agreement, Icahn was forced to divest himself of airline ownership, but only after TWA was left with more than $540 million in debt. At the same time, Icahn's personal fortune had increased by more than $469 Million.

Part of the negotiation of Icahn's departure included a loan of $200 million to the airline, which he later insisted be repaid through an agreement known as the Karabu Ticket Deal. Through it, Icahn was entitled to purchase TWA tickets on flights connecting through the St. Louis hub at a 45% discount for a decade. Though Icahn was restricted from access to tickets sold by travel agencies, Icahn then formed the Karabu Corp., which used the discounted tickets to sell on one of the earliest internet ticket sites, lowestfare.com. 

The Karabu ticket deal is estimated to cost TWA $100 million annually. The FAA and DOT placed certain prohibitions against future airline directorship on Icahn as a key provision in his ouster. It is unclear if those prohibitions are still in place.

Dr. Rust does not believe control of JetBlue is Icahn's goal, saying:

"Icahn's approach is going to be different than in the 1980s. He really wanted to have an airline. Also, he was 50 years old at TWA. He's not the same age now."

It should be noted that Icahn is now 88 years old.

Greenmail Strategy

Short of operating the airline, Icahn's most likely strategy is to "greenmail" JetBlue. Investopedia defines greenmailing as "the practice of buying enough shares in a company to threaten a hostile takeover so that the target company will repurchase its shares at a premium."

In a memo to recruiting partners in 1980, Icahn himself spoke of this type of strategy as the core of his enterprise. In the memo, he stated, ". . . sizable profits can be earned by taking large positions in 'under valued' stocks and then attempting to control the destinies of the companies... by convincing management to liquidate or sell the company... waging a proxy contest... making a tender offer... [or] selling back our position to the company."

Icahn's initial interest in TWA was rumored to be a simple greenmail strategy. But when Frank Lorenzo of Texas Air International and Continental Airlines tendered a competing offer for TWA, TWA union representatives supported Icahn, fearing Lorenzo's anti-union activities at Continental. Thus, Icahn found himself uniquely positioned to operate the airline.

Betting on Spirit Airlines Purchase Court Decision Reversal

At the very least, the move at JetBlue might be as simple as speculation on the outcome of the appeal of the Spirit Airlines purchase offer.

In 2023, the federal government opposed the purchase of Spirit Airlines by JetBlue to eliminate the ultra-low-cost competitor, leaving air travelers with fewer options and no access to cheaper fares. In January of this year, U.S. District Judge William Young sided with the government, citing the reduced competition the merger would cause. Both airlines have asked for an expedited U.S. appeals court ruling, which may happen as soon as this June. 

"Greenmail would be in line with his character." Dr. Rust said. "But don't discount his betting on the merger going through. Ultra low-cost carriers have been the darlings of the industry lately, but not so much now. A combined airline would be a bigger airline and more competitive in that way."

Having the decision overturned by the appeals court ruling would put Icahn in a favorable position to reap profits from the value of the stock he would own in the new entity. Still, he referred to JetBlue stock as "undervalued". He blamed mismanagement in virtually the same language he used when he took his initial 20% position in TWA and in other moves against such targets as Motorola, Yahoo!, and eBay in the past.

Whatever strategy he employs, Icahn is under pressure to see an improvement in fortunes. In May 2023, short-selling firm Hindenburg Research accused Icahn Enterprises (IEP) of inflating asset valuation. It also accused the company of creating "ponzi-like economic structures," causing the market cap of Icahn Enterprises to plunge from $18 billion to $7 billion in a matter of weeks. IEP stock also fell 63% that month.

"He needs to make some moves," said Prof. Rust. "He sees an opportunity here where he probably makes some money."

Regardless of Icahn's involvement, JetBlue faces many challenges and opportunities for success. Just before the Icahn announcement, JetBlue announced the appointment of Joanna Geraghty as their new CEO. Geraghty, 51, has been with JetBlue for two decades, most recently as president and COO. She is the first female CEO of a major U.S. airline. 

"JetBlue is still struggling with the Northeast region and FAA slots restrictions, but with Joanna Geraghty it will see opportunities to make a real difference," said Dr. Rust. "JetBlue has been a solid airline, and is in a good spot due to their size. Its not one of the Big 4, but it has created a good niche with style, as an 'upscale discount airline.'"

Still, Icahn's influence will be felt. "I wouldn't be surprised if the new board members have some wishes," Dr. Rust concluded.