The long-awaited securitization of 100 Boeing 767 aircraft leased to the U.S. Air Force is currently in the structuring process and preliminary details could emerge sometime in October, sources said. The $10 billion-plus transaction needs Congressional approval, however, and while it could very well be three years until the bonds actually hit the market, the structure will be firmed up well in advance, sources said.

The challenge for structural agent and lead manager Citigroup Capital Markets will be for the securitization to be cost-effective for the government, as there has been much debate over the true cost of the proposed 10-year lease arrangement between Boeing Co. and the Air Force. Some in Congress, including Sens. John McCain (R-Ariz.), Carl Levin (D-Mich.) and John Warner (R-Va.), oppose the idea, arguing that an outright purchase of the aircraft would cost less.

Dan Crippen, director of the Congressional Budget Office (CBO), estimated in a letter to Sen. McCain that the cost of the leasing proposal as analyzed by the CBO would total $37 billion. "CBO is one of the most respected nonpartisan agencies in Washington. Their analysis confirms what everyone already knows: This leasing proposal is a bad deal for taxpayers, a bad deal for the military and a bad deal for pretty much everyone but Boeing," said McCain in a statement.

Citigroup is expected to be out with documentation in the next two to three weeks, which would then be submitted to the rating agencies prior to being presented to the Senate Armed Services Committee. The deal is not expected to achieve a triple-A rating, despite the high credit quality of the lessee, due to a walk-out clause the Air Force has in the lease proposal.

Published reports have speculated that this transaction would be a boon to the aircraft lease sector of the ABS market, but some market players are bearish on new-issue aircraft lease ABS. "Right now I am advising investors interesting in aircraft (lease) ABS to look for opportunities in the secondary market," one banker said. "You can find paper that is trading much cheaper than anything in the primary right now," referring to spreads for the recent Aviation Capital 2003-A deal, he added.

The Boeing deal is being structured by Citigroup's global structured finance department, in conjunction with its project finance group, due to the public appropriation of funds needed to lease the aircraft. Citigroup refused to comment on the issue.

A source at Boeing, speaking on the condition of anonymity, confirmed that Boeing's finance unit, Boeing Capital, was currently working on the structure, but was uncertain that the offering would ever make it to syndicate desks. "This order is for 100 planes which have yet to be approved and yet to be approved by Congress. The public appropriation of funds makes this difficult to predict," the source said.

"Of course, we at Boeing would like to lease 100 aircraft," the source added.

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