Amid a three-deal pick up in aircraft-related activity Embraer-Empresa Brasileira de Aeronutica S.A. sold $409 million of enhanced equipment trust certificates last week, although the offering was named ExpressJet 2003-ERJ1. Backed by payments to Embraer from Continental Airlines, which in turn has subleased the aircraft to regional carrier ExpressJet Inc. The transaction came and went quickly via Citigroup Global Markets and Morgan Stanley, despite the somewhat confusing nature of the payment obligor.

The single-tranche deal, with an 8.2-year average life and 12-year final maturity, priced with a 7.785% coupon.

The payments in the transaction are for the delivery of 56 Embrear EMB 145 XR jets - 50-seat aircraft used to transport passengers from hub airports to smaller markets. ExpressJet flies mainly from Houston to destinations in Mexico, as well as out of Newark Airport to destinations such as Cleveland and Pittsburgh.

The 75 aircraft in ExpressJet 2003-ERJ1 represent the final aircraft in a 274 aircraft order Continental placed, with payments due through 2006, according to Dee Anne Gable in Continental's investor relations department.

The split Ba3' rating by Moody's Investors Service and BBB' by Standard & Poor's. are based on Continental's creditworthiness, even though ExpressJet is the end user of the planes. ExpressJet, 31% owned by Continental is a captive regional, and does not carry competing carriers passengers.

As part of the capacity purchase agreement written into its 2002 spinoff from Continental, ExpressJet is guaranteed a 10% minimum profit margin for carrying passengers to destinations not profitable for Continental to fly jumbo jets. The margin is capped at 18%.

"To further ensure the delivery of the aircraft, Continental agreed to help Embraer market this deal in the U.S.," said Gable. "While our payments are the primary cashflows in this deal, it is not our ultimate credit risk."

ExpressJet, with one convertible security outstanding, is not rated by any of the three rating agencies. It has sold one EETC in the past, a 1999-ERJ1 deal which priced via the former Salomon Smith Barney unit in March 1999. Embraer, based in So Jose dos Campos, Brazil, is also unrated.

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