Fitch Affirms Enhanced Equipment Notes Issued by AIR 2 US

CHICAGO--()--Fitch Ratings has affirmed the ratings for the series A and B enhanced equipment notes (EENs) issued by AIR 2 US at 'BB' and 'B-' respectively.

AIR 2 US is a special purpose Cayman Islands company created to issue EENs; utilize 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 'B'; Positive Outlook by Fitch) 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 as a result of the fact that 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 note holders 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' rating, three notches above United's 'B' IDR, reflects the high level of projected recovery.

Expected recoveries for Series B note holders would be weak, reflecting a high probability of lease payment shortfalls in a post-rejection scenario. The one notch differential between the Series B note rating and United's 'B' corporate IDR captures this weak recovery potential.

RATING SENSITIVITIES

The Rating Outlook has been revised to Positive from Stable for both the series A and B notes. The ratings are primarily driven by Fitch's recovery expectations based on a present value analysis of future lease payments and by the IDR of the underlying airline. As such, both the A and B tranche ratings could be upgraded if Fitch were to upgrade the ratings on United. The Ratings Outlook for United is Positive. Conversely, ratings for both tranches could be downgraded if the airline IDR was downgraded (not anticipated at this time) or if Fitch's expectations for future lease rates were to decline materially.

Fitch has affirmed the ratings as follows:

AIR 2 US

--Series A Enhanced Equipment Notes at 'BB';

--Series B Enhanced Equipment Notes at 'B-';

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 19, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=867254

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Joe Rohlena, CFA
Director
+1-312-368-3112
70 W. Madison
Chicago, IL 60602
or
Secondary Analyst
Craig Fraser
Managing Director
+1-212-908-0310
or
Committee Chairperson
Eric Ause
Senior Director
+1-312-606-2302
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Joe Rohlena, CFA
Director
+1-312-368-3112
70 W. Madison
Chicago, IL 60602
or
Secondary Analyst
Craig Fraser
Managing Director
+1-212-908-0310
or
Committee Chairperson
Eric Ause
Senior Director
+1-312-606-2302
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com