The ratings agencies do not anticipate taking action on securities issued by Morgan Stanley Aircraft Finance Trust, although the most recent securitization, a $1.3 billion deal that priced in March, contains a $32 million aircraft that had - unbeknownst to MSDW - fallen into the hands of Libyan Arab Airlines, Muammar Al Qaddafi's national airline.

However, the $32 million Airbus A320-200 represents just 1.6% of the entire trust, which is well over $2 billion in size. Further, there is an insurance policy that will likely kick in should the plane be deemed irrecoverable, which is probable, according to sources close to the situation.

"The specifics of [the type of lease used] do not need to be disclosed, so we were a bit surprised, frankly, that a plane ended up there," said Rochelle Tarlowe, a senior analyst on the deal for Moody's Investors Service. "But we don't think it will have much of an impact on the cash flows because the servicer can make an insurance claim which covers more than the entire aircraft value."

Though the incident is unlikely to affect the securitization, it does have players taking another look at "wet" leasing and the responsibility of the servicer, in this case International Lease Finance Corp. (ILFC), to more closely track aircraft that fall into wet lease arrangements.

In a wet lease, an airline under lease contract with the servicer subleases one or more of its planes to an unaffiliated airline for up-front payments. The lessor airline provides a full-service lease, including both crew and maintenance.

Technically, the servicer on the deal - which not only manages the leases but originates them for the owner (MSAF) - is not required to know all the details of the sublease, although there are certain countries (such as Libya) where business is prohibited. In this case, the airline contracted with the servicer was TransAer, which was based out of Ireland. TransAer sublet the plane to Libyan Arab Airlines sometime before it filed for bankruptcy in October.

"What we are trying to clarify is how a servicer allows a relatively weak airline to wet lease an aircraft, without putting certain limitations on the transaction," said Moody's Tarlowe.

ILFC is a single-A-rated company and a wholly owned subsidiary of American International Group (AIG). Neither ILFC nor MSDW returned phone calls when contacted.

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