Fitch Affirms Ratings on Enhanced Equipment Notes Issued by Air 2 US
--Series A EENs affirmed at 'BB+/RR1';
--Series B EENs affirmed at 'B+/RR5''.
AIR 2 US is a special purpose Cayman Islands company created to issue EENs; use the proceeds to purchase Permitted Investments; and enter into a risk transfer agreement. AIR 2 US entered into the risk transfer agreement (the Payment Recovery Agreement), with a subsidiary of Airbus. The primary provision of the Payment Recovery Agreement states that if United Airlines, Inc. (rated 'BB-'/Positive Outlook) fails to pay scheduled rentals under existing subleases of aircraft with subsidiaries of Airbus, AIR 2 US will pay these rental deficiencies to a subsidiary of Airbus. These deficiency payments will come from the cash flows created by the Permitted Investments. As such, the greatest risk of the transaction is the bankruptcy risk of the lessee airline.
KEY RATING DRIVERS
AIR 2 US is not covered effectively by Fitch's EETC ratings criteria because aircraft cannot be sold and liquidated in the event of lease rejection of Airbus A320 aircraft sub-leased by United. In addition, the underlying subleases are not cross-defaulted or cross-collateralized. Applying a framework similar to that employed in analysis of corporate obligations, Fitch expects recoveries for series A noteholders to be very strong in a lease rejection scenario. Discounted lease cash flows, applying heavy stresses to current A320 lease rates, cover series A principal and a full liquidity facility draw. The 'BB+/RR1' rating, two notches above United's 'BB-' Issuer Default Rating (IDR), reflects the high level of projected recovery.
Expected recoveries for series B noteholders may be weak, in the 'RR5' range, reflecting a high probability of lease payment shortfalls in a post-rejection scenario. The one-notch differential between the 'B+/RR5' rating of the series B notes and United's 'BB-' corporate IDR captures this weak recovery potential.
Fitch's key assumptions within the rating case for Air 2 US include;
--A stress scenario where the underlying releases are rejected in the near - to intermediate-term;
--Lease rates come under pressure, falling below current market rates;
--The collateral aircraft experience a re-leasing period of six months.
The ratings are primarily driven by Fitch's recovery expectations and by the IDR of the underlying airline. Therefore changes in either of those factors could lead to rating actions on the Air 2 US notes.
FULL LIST OF RATING ACTIONS
AIR 2 US
--Series A enhanced equipment notes affirmed at 'BB+/RR1';
--Series B enhanced equipment notes affirmed at 'B+/RR5'.