Fitch Affirms Ratings; Revises One Outlook on Delta EETCs

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of all classes in the following Delta Air Lines (DAL) Enhanced Equipment Trust Certificate (EETC) transactions as detailed below:

Delta Air Lines Pass Through Certificates, series 2001-1

--Class A-2 affirmed at 'BB'; Outlook Stable;

--Class B affirmed at 'B'; Outlook Stable.

Delta Air Lines European Enhanced Equipment Pass Through Trust Certificates, series 2001-2

--Class B affirmed at 'BB-'; Outlook Stable.

Delta Air Lines Pass Through Certificates, series 2002-1

--Class C affirmed at 'B+'; Outlook Stable.

Delta Air Lines Pass Through Certificates, series 2007-1

--Class A affirmed at 'BBB-'; Outlook revised to Positive from Stable.

Fitch's review of the Delta EETC transactions listed above is consistent with Fitch's EETC criteria titled 'Surveillance Criteria for Enhanced Equipment Trust Certificates,' dated November 18, 2009, except as detailed in the paragraphs below.

EETCs are hybrid corporate - structured debt obligations in which payment on the notes is effectively supported by the underlying corporate entity, while structured elements of the transaction provide protection to investors in the event of issuer default. As such, Fitch's ratings on EETC transactions are strongly tied to the Issuer Default Rating (IDR) of the issuing entity and incorporate credit to the reduced probability of default (PD) provided by the collateral and structural enhancements in place. The analysis also incorporates a review of the recovery prospects on the issued securities in the event that they default, similar to Fitch's approach for assigning recovery credit to secured corporate debt.

On June 21, 2011, Fitch affirmed Delta's IDR at 'B-' and revised the Rating Outlook to Positive from Stable. Delta's IDR reflects the airline's still highly leveraged capital structure, volatile cash flow generation through the cycle, and exposure to sharp increases in jet fuel costs against a backdrop of turmoil in world energy markets in 2011. The carrier has made significant progress toward lease-adjusted debt reduction over the past 18 months as the U.S. airline industry revenue environment has strengthened. Moving into this summer's peak demand period, the outlook for passenger revenue per available seat mile (RASM) growth remains good, and Fitch expects DAL to report solid passenger yield growth, helping to offset significantly higher fuel costs during the summer.

Within the 2001-1 transaction, the class A-2 notes were found to have structural enhancements consistent with their current ratings, leading to their affirmation. Although Fitch's EETC surveillance criteria would suggest no rating uplift for the class B notes over Delta's IDR of 'B-,' the notes were affirmed at one notch over Delta's IDR due to the available liquidity facility and collateral security. As both classes have final expected distribution dates in Sept. 2011, their Outlook was maintained at Stable despite the Positive Outlook on Delta's IDR as no upgrades to the EETC notes are anticipated over the next 12 - 18 months.

Within 2001-2, the class B notes were found to have structural enhancements consistent with their current ratings, leading to their affirmation. As the class B notes have a final expected distribution date in Dec. 2011, their Outlook was maintained at Stable despite the Positive Outlook on Delta's IDR as no upgrades to the EETC notes are anticipated over the next 12 - 18 months.

While current aircraft market values in 2002-1 exceed the class G and C balances, resulting in loan to value ratios (LTVs) below 100%, a minor decline in those values would result in the class C notes being moderately undercollateralized. As a result, Fitch assumed that the class C notes' LTV% would reach just above 100%, which under Fitch's EETC surveillance criteria is eligible for two notches of rating uplift, leading to their affirmation. As the class C notes have a final expected distribution date in Jan. 2012, their Outlook was maintained at Stable despite the Positive Outlook on Delta's IDR as no upgrades to the EETC notes are anticipated over the next 12-18 months.

For 2007-1, Fitch's analysis suggests that the LTV on the class A notes is just above the threshold commensurate with a total of six notches of rating uplift. However, under Fitch's depreciation assumptions, the LTV is expected to decline as the notes amortize. Furthermore, 2007-1 has a heavy concentration of in-demand next generation Boeing 737 and 777 aircraft. As a result, Fitch awarded a total of six notches of rating uplift, leading to the affirmation of the class A notes. Furthermore, the Outlook was revised to Positive, consistent with the Outlook on Delta's IDR.

Fitch will continue to monitor the transactions and take appropriate rating actions as necessary.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Surveillance Criteria for Enhanced Equipment Trust Certificates' (Nov. 18, 2009);

--'Global Structured Finance Rating Criteria' (Aug. 16, 2010).

Applicable Criteria and Related Research:

Surveillance Criteria for Enhanced Equipment Trust Certificates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=486826

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

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