Fitch Ratings has affirmed the ratings for several series of enhanced equipment trust certificates issued by United Airlines. Fitch currently rates United ‘BB-’/Outlook Positive. The following ratings have been affirmed:

United Airlines Pass Through Trust Series 2016-1

—Class AA Certificates at ‘AA’

—Class A Certificates at ‘A’.

United Airlines Pass Through Trust Series 2014-2

—Class A Certificates at ‘A’

-Class B Certificates at ’BBB’.

United Airlines Pass Through Trust Series 2014-1

—Class A Certificates at ‘A’

-Class B Certificates at ’BBB’.

United Airlines Pass Through Trust Series 2013-1

—Class A Certificates at ‘A’

-Class B Certificates at ’BBB’.

Continental Airlines Pass Through Trust Series 2012-2

—Class A Certificates at ‘A’

-Class B Certificates at ’BBB’.

Continental Airlines Pass Through Trust Series 2012-3

—Class C Certificates at ‘BB’.

KEY RATING DRIVERS

Fitch’s senior EETC tranche ratings are primarily based on a top-down analysis of the level of overcollateralization (OC) featured in the transaction. Fitch’s stress analysis uses an approach assuming the rejection of the entire pool of aircraft in a severe global aviation downturn. The stress scenario incorporates a full draw on the liquidity facility, an assumed 5% repossession/remarketing cost, and various stresses to the value of the collateral. Fitch also utilizes its top-down approach for the UAL 2016-1 ‘A’ tranche, which is the subordinated tranche in that transaction. The ratings approach in that transaction is supported by levels of OC that are similar to other, previously issued senior tranches.

Based on updated appraisal information incorporated into Fitch’s analysis, the level of OC in each of these transactions has weakened slightly since the ratings were last reviewed, with the exception of UAL 2016-1, which was just launched in May of this year. Weaker levels of collateral coverage are a result of aircraft values that have depreciated slightly faster than the levels that were incorporated into Fitch’s previous analysis. Faster rates of depreciation were broad-based, including all of the aircraft types that are featured in these transactions, namely the 737-900ER, the ERJ-175, and the 787-8 and 787-9. Despite slightly weaker loan-to-values (LTVs), all of the transactions continued to pass Fitch’s stress tests that correspond to their current rating levels.

The B and C tranche ratings are notched from the ‘BB-’ IDR of the underlying airline. The ‘BBB-’ rating for the B tranches reflects a high affirmation factor (2 notches) and the presence of an 18-month liquidity facility (1 notch). The ‘BB’ rating for the 2012-3 C tranche reflects a high affirmation factor (+2 notches) partially offset by recovery expectations (-1 notch).

KEY ASSUMPTIONS

Ratings for these transactions are driven by a harsh downside scenario in which United declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values.

RATING SENSITIVITIES

Negative rating actions for the senior tranches could be driven by unexpected declines in collateral values. For the 737-900ERs in these transactions, values could be affected by the entrance of the 737-9 MAX, or by an unexpected bankruptcy by one of its major operators. Likewise the Embraer 175s could also be affected by the entrance of the 175 E-2. Concerns for the 787 values largely revolve around the potential for production issues on a scale above and beyond what has already been experienced.

Subordinated tranche ratings are based off of the underlying airline IDR. As such, Fitch would likely upgrade the B tranches to ‘BBB’ if United’s IDR were upgraded to ‘BB’. Fitch’s criteria allow for greater ratings uplift for lower rated carriers, therefore if United were downgraded to ‘B+’, the subordinated tranche ratings would likely not change.

Variation from Criteria:

Fitch looks to its Counterparty Criteria for Structured Finance dated Sept. 1, 2016 for guidance on rating requirements for direct counterparties including liquidity facility providers. Criteria stipulate that in cases where the senior-most tranche of rated debt is rated in the ‘AA’ category, the liquidity provider should maintain an IDR of at least ‘A-’. The transaction documents that govern the United 2016-1 EETC stipulate a downgrade threshold for the ‘AA’ tranche liquidity facility provider of ‘BBB+’, representing a variation from Fitch’s criteria.

The variation recognizes that this aspect of the counterparty criteria does not directly apply to EETC ratings. In particular, Fitch’s EETC criteria stipulate that in order to maintain a senior tranche rating in the ‘AA’ rating category, the underlying airline must be rated at least ‘B’.

However, if the liquidity facility were to be drawn due to non-payment of interest, the airline would be rated below the ‘B’ rating level. Thus, the ratings on the senior tranche would have already been downgraded below the ‘AA’ category, at which point, the threshold rating of ‘A-’ stipulated in Fitch’s counterparty criteria is not applicable.

Additional information is available on www.fitchratings.com