Last week a number of articles emerged in the press addressing write-downs that companies and investors are facing for exposure to airline enhanced equipment trust certificates (EETCs), following the failure of several major airlines, including UAL Corp.

While EETCs are not securitizations, the losses and downgrades are showing up in CBOs, a strong provider of liquidity for EETCs over the last few years. Deals that have suffered from exposure to aircraft industry include series I and II of Diversified Asset Securitization Holdings (DASH), CAB I from Structured Finance Advisors and Mid-Ocean CBO 2000-1 from Deerfield Capital Management.

Investors, lessors and lessees have been closely watching the values - reportedly plummeting - of the aircraft backing the failed EETCs.

According to Nicholas Weil of Moody's Investors Service, the pooled lease deals do not suffer directly from the value of the aircrafts because they don't directly compete in the same markets, as an aircraft maintained by a specific airline might not suit the needs of lessees in the portfolio deals.

"Even though they are not directly competing, there is always downward pressure on lease rates when airlines reject leases," Weil said.

Two Moody's rated deals had direct exposure to UAL: Air 2 U.S., a hybrid small pool securitization with American Airlines and United has 50% exposure to UAL, and PBG Aircraft Trust has 20% exposure to UAL.

"Generally the EETCs should have more risk and downside than the portfolio deals, as they're tied to the corporate rating of one airline, and they do not have the structural protections and diversifications of the portfolio deals," said Donald Powell, of Fitch Ratings. "Has that been the case? Perhaps if you look at the worst pooled lease deal and compare it to the worst EETCs, it's probably played out that way."

However, comparing the two of universes deals, portfolio deals might statistically be performing worse, because there have been fewer transactions in a more concentrated time frame.


Meanwhile, boutique firm Westwood Capital is currently making a market for the A notes of distressed, privately placed aircraft EETCs.

"The A bonds might still have some value," said Len Blum of Westwood. "If you do the research, and find out what the aircraft are worth, you can determine a price. For example, two 747s might have radically different values."

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