Fitch Takes Various Rating Actions on Enhanced Equipment Notes Issued by Air 2 US

CHICAGO--()--Fitch Ratings has taken the following rating actions on the enhanced equipment notes (EENs) issued by AIR 2 US:

--Series A EENs affirmed at 'BB+/RR1';

--Series B EENs upgraded to 'B+/RR5' from '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 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 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 would 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.

KEY ASSUMPTIONS

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

RATING SENSITIVITIES

The ratings are primarily driven by Fitch's recovery expectations and by the IDR of the underlying airline. However, consistent with Fitch's recovery criteria, Fitch is unlikely to upgrade the A tranche above 'BB+' if United's IDR were upgraded to 'BB'. The 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 the A tranche would likely remain stable if the airline IDR was downgraded (not anticipated at this time) while the B tranche would likely be downgraded by one notch.

Fitch has taken the following rating actions:

AIR 2 US

--Series A enhanced equipment notes affirmed at 'BB+/RR1';

--Series B enhanced equipment notes upgraded to 'B+/RR5' from 'B/RR5'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 12 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867275

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991020

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991020

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Craig Fraser
Managing Director
+1-212-908-0310
or
Committee Chairperson
Stephen Brown
Senior Director
+1-312-368-3139
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Joe Rohlena, CFA
Director
+1-312-368-3112
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Craig Fraser
Managing Director
+1-212-908-0310
or
Committee Chairperson
Stephen Brown
Senior Director
+1-312-368-3139
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com