Fitch Ratings-Chicago-17 April 2017: Fitch Ratings has affirmed the ratings on the certificates issued by British Airways (BA) Pass Through Trust Series 2013-1 as follows:

—Class A certificates at ‘A’;
—Class B certificates at ‘BBB+’.

KEY RATING DRIVERS

Fitch’s review of BA’s EETC (Enhanced Equipment Trust Certificates) ratings follows on the agency’s recent decision to upgrade BA’s Long-term Issuer Default Rating (IDR) to
‘BBB-’ from ‘BB+’. The affirmation of the senior tranches reflects Fitch’s top-down methodology, which relies primarily on collateral value and where the credit quality of the airline is a secondary factor.

Subordinate tranche ratings are based on a bottoms-up approach, with the ratings being notched up from the airline IDR. Although BA was upgraded by one notch the affirmation of the subordinated tranche ratings is due to provisions in Fitch’s EETC criteria, which provide for more limited ratings uplift once an airline is upgraded into the ‘BBB’ category. Criteria state that Fitch may apply 0 to 2 notches of ratings uplift depending on the agency’s view of the affirmation factor for airlines rated in the ‘BB’ category, and 0 to 1 notch for airlines in the ‘BBB’ category.

Since Fitch’s previous review in November 2017, there have been no changes to the quality of the collateral that would warrant a rating action on the senior tranche. Likewise, Fitch’s views regarding the affirmation factor of the transaction as it relates to the subordinated tranche ratings remain consistent with the agency’s previous review.

KEY ASSUMPTIONS

Key assumptions included in Fitch’s rating case include current base values for the collateral aircraft provided by independent appraisers. Depreciation rates and value stresses incorporated into Fitch’s base and stress case scenario are in line with those used for similar Tier 1 assets as described in Fitch’s EETC criteria.

RATING SENSITIVITIES
Senior tranche ratings are primarily based on a top-down analysis based on the value of the collateral. Therefore, a negative rating action could be driven by an unexpected decline in collateral values beyond those that Fitch has assumed in its analytical models. The IDR of the underlying airline acts as a secondary factor. Therefore, British Airways’ investment grade rating may be supportive of an ‘A+’ rating on the senior tranche. However, at this time, Fitch is watching to ensure that asset values hold up over the longer term before upgrading the ratings.

Subordinated tranche ratings are based on the underlying airline IDR. An upgrade of BA’s ratings to ‘BBB’ would result in an upgrade of the B tranche as well. However, a downgrade of BA’s ratings to ‘BB+’ may not lead to a downgrade of the B tranche since Fitch’s EETC criteria allows for wider notching potential for airlines rated in the ‘BB’ category.