Fitch Affirms Ratings for Various EETCs issued by United Airlines

NEW YORK–(BUSINESS WIRE)–Fitch Ratings has affirmed the ratings for several series of enhanced
equipment trust certificates issued by United Airlines. Fitch currently
rates United ‘BB-‘/Outlook Positive. The following ratings have been
affirmed:

United Airlines Pass Through Trust Series 2016-1

–Class AA Certificates at ‘AA’

–Class A Certificates at ‘A’.

United Airlines Pass Through Trust Series 2014-2

–Class A Certificates at ‘A’

–Class B Certificates at ‘BBB-‘.

United Airlines Pass Through Trust Series 2014-1

–Class A Certificates at ‘A’

–Class B Certificates at ‘BBB-‘.

United Airlines Pass Through Trust Series 2013-1

–Class A Certificates at ‘A’

–Class B Certificates at ‘BBB-‘.

Continental Airlines Pass Through Trust Series 2012-2

–Class A Certificates at ‘A’

–Class B Certificates at ‘BBB-‘.

Continental Airlines Pass Through Trust Series 2012-3

–Class C Certificates at ‘BB’.

KEY RATING DRIVERS

Fitch’s senior EETC tranche ratings are primarily based on a top-down
analysis of the level of overcollateralization (OC) featured in the
transaction. Fitch’s stress analysis uses an approach assuming the
rejection of the entire pool of aircraft in a severe global aviation
downturn. The stress scenario incorporates a full draw on the liquidity
facility, an assumed 5% repossession/remarketing cost, and various
stresses to the value of the collateral. Fitch also utilizes its
top-down approach for the UAL 2016-1 ‘A’ tranche, which is the
subordinated tranche in that transaction. The ratings approach in that
transaction is supported by levels of OC that are similar to other,
previously issued senior tranches.

Based on updated appraisal information incorporated into Fitch’s
analysis, the level of OC in each of these transactions has weakened
slightly since the ratings were last reviewed, with the exception of UAL
2016-1, which was just launched in May of this year. Weaker levels of
collateral coverage are a result of aircraft values that have
depreciated slightly faster than the levels that were incorporated into
Fitch’s previous analysis. Faster rates of depreciation were
broad-based, including all of the aircraft types that are featured in
these transactions, namely the 737-900ER, the ERJ-175, and the 787-8 and
787-9. Despite slightly weaker loan-to-values (LTVs), all of the
transactions continued to pass Fitch’s stress tests that correspond to
their current rating levels.

The B and C tranche ratings are notched from the ‘BB-‘ IDR of the
underlying airline. The ‘BBB-‘ rating for the B tranches reflects a high
affirmation factor (+2 notches) and the presence of an 18-month
liquidity facility (+1 notch). The ‘BB’ rating for the 2012-3 C tranche
reflects a high affirmation factor (+2 notches) partially offset by
recovery expectations (-1 notch).

KEY ASSUMPTIONS

Ratings for these transactions are driven by a harsh downside scenario
in which United declares bankruptcy, chooses to reject the collateral
aircraft, and where the aircraft are remarketed in the midst of a severe
slump in aircraft values.

RATING SENSITIVITIES

Negative rating actions for the senior tranches could be driven by
unexpected declines in collateral values. For the 737-900ERs in these
transactions, values could be affected by the entrance of the 737-9 MAX,
or by an unexpected bankruptcy by one of its major operators. Likewise
the Embraer 175s could also be affected by the entrance of the 175 E-2.
Concerns for the 787 values largely revolve around the potential for
production issues on a scale above and beyond what has already been
experienced.

Subordinated tranche ratings are based off of the underlying airline
IDR. As such, Fitch would likely upgrade the B tranches to ‘BBB’ if
United’s IDR were upgraded to ‘BB’. Fitch’s criteria allow for greater
ratings uplift for lower rated carriers, therefore if United were
downgraded to ‘B+’, the subordinated tranche ratings would likely not
change.

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/site/re/869362

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01
Sep 2016)

https://www.fitchratings.com/site/re/886006

Rating Aircraft Enhanced Equipment Trust Certificates (pub. 12 May 2016)

https://www.fitchratings.com/site/re/881329

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011847

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011847

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
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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
Secondary
Analyst
David Petu
Director
+1-212-908-0280
or
Committee
Chairperson
Bill Densmore
Senior Director
+1-312-368-3125
or
Media
Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com