Fitch Ratings has downgraded American Airlines' 2015-1, 2014-1, and 2013-1 class A certificates and affirmed American's other enhanced equipment trust certificate (EETC) ratings, including the B tranches for the 2015-1 and 2014-1 transactions and all tranches of six other transactions. Fitch has also removed American's 2017-2 and 2013-2 certificates from Rating Watch Negative.
The three downgrades are primarily driven by weakened collateral coverage driven by lower secondary market values for the 777-300ERs contained in the affected transactions. While loan-to-value ratios for American's other EETC transactions have also weakened since Fitch's prior review, collateral coverage remains adequate to pass the relevant stress scenarios supporting the current senior tranche ratings, while expected affirmation and liquidity features continue to support existing subordinated tranche notching from American's 'B-' Issuer Default Rating (IDR).
Fitch has downgraded American's 2015-1 class A certificates to 'BB+' from 'BBB'. The downgrade is primarily driven by a sharp decline in 777-300ERs over the past year. Values for the 2014 vintage 777s, which make up 43% of the collateral pool by value, decreased by around 17% over the past year according to updated appraisals. As such, the transaction no longer passes our 'A' or 'BBB' level stress tests.
The transaction continues to pass our 'BB' level stress test with adequate headroom to support the 'BB+' rating. The rating is also supported by scheduled amortization over the next several years, which should allow the transaction to de-lever and begin to pass the 'BBB' level stress test by 2023 or 2024.
Fitch has downgraded American's 2014-1 class A certificates to 'BBB-' from 'BBB'. Like the 2015-1 transaction, collateral coverage for 2014-1 has weakened due to declining 777-300ER values. 777s account for more than 50% of total collateral value in the 2014-1 pool. Incorporating the updated values into Fitch's models leaves the 2014-1 class A certificates with minimal headroom within our 'BBB' level stress test, meaning that further downgrades into the 'BB' category could be prompted if asset values decline further.
Fitch has downgraded American's 2013-1 class A certificates to 'BB-' from 'BB'. Collateral has dropped out of this transaction over time as individual aircraft notes have matured, leaving the portfolio secured only by four 777-300ERs and one 777-200ER. Pressure on widebody values has caused the 2013-1 transaction to fail to pass any of Fitch's top-down stress tests. As such, we now rate the transaction through our bottom-up approach (the rating approach used for subordinated tranches). The three-notch uplift reflects one notch for a low-to-moderate affirmation factor, one for the presence of a liquidity facility and one for recovery.
Fitch has affirmed the class AA and A certificates American's remaining EETC transactions. American's 2017-2 and 2017-1 class AA certificates have been affirmed at 'A+'. Both transactions remain well overcollateralized and retain a large amount of headroom within Fitch's 'A' category stress test.
The 2017-2 and 2017-1 class A certificates are subordinate to the class AA certificates in the structures, and while they remain sufficiently overcollateralized to pass Fitch's 'A' category stress test, LTVs have deteriorated over the past year, leaving limited headroom. Fitch views the downside risks to these transactions as more limited compared to some of American's other EETCs because of a better collateral mix. The 2017-1 and 2017-2 transactions are secured by aircraft such as 787-9s, A321-200s, 737 MAX 8s 737-800s, which Fitch views as well positioned to hold value following the pandemic.
Fitch has also removed the American 2017-2 class AA and A certificates from Rating Watch Negative. The Negative Watch was driven in part by the 737 MAX's in the portfolio, which had been grounded until November of last year. The ungrounding of the aircraft and return to commercial service has removed a level of tail risk from this transaction.
Fitch has affirmed the American 2013-2 class A certificates at 'BBB+' and removed the Negative Rating Watch. The Rating Watch was in place due to near-term risk in which the senior certificates failed to pass Fitch's 'BBB' level stress test until mid-2021. Fitch expects LTVs to improve materially, and the senior certificates will begin to pass our 'BBB' level test following the next distribution date when the 777-200ERs are paid off and fall out of the collateral pool. The remaining collateral consists of relatively attractive 737-800s, which are well overcollateralized. Near-term risks for the transaction have lessened as American's liquidity position and cash burn have improved.
Fitch has affirmed former US Airways certificates series 2013-1, 2012-2 and 2012-1 at 'A'. These transactions have amortized sufficiently that they remain well overcollateralized and continue to pass Fitch's 'A' category stress scenario with ample headroom. The 2012-2 and 2013-1 transactions include A330-200s, which American has chosen to retire and whose values remain under pressure. Nevertheless, the A321-200s in those transactions remain core aircraft with values that are likely to fare relatively well.
Fitch has affirmed all of American's class B and Class C certificates.
The pools of aircraft represented by the AAL EETCs are all considered strategically important and are likely to remain so over the intermediate term. Fitch considers the affirmation factor for the 2014, 2015, and 2017 transactions to be high while the other transactions receive more limited ratings uplift.
The affirmation factor for AAL 2017-1 and 2017-2 benefits from the inclusion of 787-9s and 787-8s, which are strategically important to American as they replace older 767s and operate with a much higher level of fuel efficiency. The 2015, and 2017 transactions also contain attractive narrowbodies including newer delivery 737 MAXs and A321s which are likely to play a prominent role in the fleet as older/higher maintenance narrowbodies are retired.
Each of these transactions also contains sizeable numbers of E-175s. Although the ERJ-175s arguably represent some of the weakest pieces of collateral, they represent a positive in terms of affirmation factor. As of year-end 2020, American operated a fleet 122 regional jets with 50 or fewer seats. 50-seat regional aircraft are far more likely to be rejected in a potential restructuring than brand new ERJ 175s as the smaller planes are more costly to operate and do not offer a business class cabin.
The 2014-1 transaction benefits from having five newer delivery 777-300ERs. While the 777s has weakened materially in terms of secondary market value, American views the 777-300ER as its premier wide-body aircraft, and utilizes the plane on its key long-haul international routes.
The affirmation factor for 2013-2 has deteriorated over time as aircraft have fallen out of the collateral pool and as the aircraft have aged. This transaction originally consisted of 75 planes, representing a significant portion of American's total fleet. The pool is now down to 46 aircraft, 19 of which will fall out of the pool in July 2021, and 9 of which consist of 757-200s that American has chosen to retire. However, the pool also contains 2009 and 2010 vintage 737-800s, which are core to American's narrowbody fleet.
Fitch views the affirmation factor for the AAL 2013-1 transaction as moderate-to-low given the small size of the portfolio. The transaction consists of four 777-300ERs and one older-vintage 777-200ER.
The former US Airways transactions receive a moderate affirmation factor. The transactions are secured by A321-200s which remain attractive and are likely to have a long-term place in American's narrowbody fleet. Affirmation uplift is limited by the size of the collateral pools and the presence of A330-200s, which American has chosen to retire.