The unexpected closure of airspace in Europe caused by the recent volcanic ash disruption is not expected to impact ratings of aviation-related structured finance deals, Fitch Ratings said.
Even if the crisis has added new economic pressures to the ailing European airline industry, it is not likely to be an economic catastrophe for major European flag carriers.
In the U.S., Fitch rates 21 commercial aircraft securitizations. Of these, eight are Enhanced Equipment Trust Certificate (EETC) offerings that are supported by U.S.-based carriers. These carriers were considerably less exposed to the crisis. This is why their effect on the airlines' financial position has been notably smaller and similar to a major storm interruption.
Fitch also rates 13 commercial operating lease securitizations in the U.S. These ABS are backed by leases extended to airlines around the world, and might carry meaningful concentrations in European carriers.
"Considering the expected relative stability in most carriers' credit positions, as well as the conservative assumptions regarding airline creditworthiness and default frequency already employed for the analysis of these transactions, Fitch does not anticipate negative structured finance rating action directly as a result of the crisis," said Bradley Sohl, a director in Fitch's U.S. ABS group.
Sohl added that the bulk of the U.S. operating lease ratings have been previously downgraded to distressed categories, which further limits any potential rating impact.
The major European airlines' credit stability means that the rating agency does not expect negative action for the three aviation-related structured finance transactions it rates in Europe.
Of these three, two are actually EETC transactions — FRANS 2003 and Iberbond 2004 — that are closely linked to the underlying creditworthiness of flag carriers Air France and Iberia.
The third — Da Vinci Synthetic — is a synthetic deal that references a portfolio of aircraft loans granted to major airlines across the world.
The agency also does not anticipate the disruption to affect the ratings of the 186 synthetic global CDOs it rates that reference certain aviation-related entities.
This is inspite of the considerable airline-related credit default swap exposure in some of these transactions. The same also applies for Structured Finance CDOs, which might have exposure to aircraft lease ABS deals or EETCs.
The three most commonly referenced airlines within CDOs are Southwest Airlines (referenced in 73 transactions), Qantas (46 transactions) and Lufthansa (17 transactions).
