Fitch Ratings has completed a peer review of four rated aircraft lessors, resulting in the affirmation of the long-term Issuer Default Ratings (IDRs) of International Lease Finance Corp. (ILFC, ‘BB’), AerCap Holdings N.V. (AER, ‘BBB-’), Aviation Capital Group (ACG, ‘BBB-’) and BOC Aviation Pte Ltd (BOC Aviation, ‘A-’). The Rating Outlook for ILFC has been revised to Negative from Stable reflecting continued ownership uncertainty, and the unsecured debt rating of AER has been downgraded to ‘BB+’ from ‘BBB-’, reflecting the company’s predominantly secured funding profile. The Outlooks for AER, ACG and BOC Aviation remain Stable. Company-specific rating rationales are described below, and a full list of rating actions is provided at the end of this release.

The recent cyclical improvement in aviation has supported fundamentals in the leasing sector and allowed a number of lessors to expand their global footprint. Profitability in the airline industry has continued to improve this year, which has resulted in a lack of significant credit issues among the lessors. Aircraft financing has become more plentiful with increasing investor appetite and the securitization market re-emerging. Operating lease penetration of the global fleet has recently crossed 40% and is expected to reach 50% by the end of the decade, according to numerous industry estimates. Fitch believes these positive long term trends are supported by growth in global air travel demand, capital constraints among the world’s airlines, and the aircraft technology replacement cycle.

The aviation cycle has the tendency to change direction rapidly and remains highly sensitive to exogenous shocks. While lessors have proven to be more resilient than airlines due to their ability to redeploy aircraft, Fitch’s ratings on the sector are constrained by its singular focus on aircraft assets and reliance on wholesale funding markets. The lack of price transparency for aircraft makes it more difficult to analyze the residual values of lessors’ fleets. Therefore, shareholders’ equity is susceptible to impairments, particularly for lessors with older and less frequently traded portfolios.

Most aircraft lessors have reported flat lease yields over the past several quarters as market values and lease rates on some aircraft models (such as A320s) have stabilized, but still remain soft. Fitch believes many lessors are positioned to benefit from a rise in interest rates if it is underpinned by improved economic activity. Higher funding costs will be passed onto customers via lease rates, albeit with some lag. If rates rise sharply, that lag may temporarily pressure earnings for those lessors with high levels of near-term debt maturities and/or variable-rate debt, as funding costs would rise faster than lease yields.

Proposed lease accounting changes outlined in the most recent FASB/IASB exposure draft will significantly alter financial reporting standards for aircraft lessors. The proposed standards would generally make lessor accounting more complex; both income statements and balance sheets will likely require numerous adjustments to analyze the true economics of the business. While lessors will have to incur higher costs to implement the new rules, Fitch does not expect the economic fundamentals of the business to change significantly. The industry should have sufficient time to adjust to the new standards, which are not expected to take effect before 2017.

International Lease Finance Corporation:

KEY RATING DRIVERS

The Outlook revision to Negative from Stable results from continued uncertainty surrounding the ultimate ownership of ILFC. Fitch believes that failure to complete the contemplated sale to a consortium of Chinese financial institutions would result in greater uncertainty regarding the company’s future strategic direction. While a successful IPO would be viewed as a long-term credit positive event, Fitch believes there is a relatively high level of execution risk in a public floatation. Fitch will assess any near-term actions or longer-term strategic changes undertaken by ILFC or American International Group (AIG) as part of the sale process and incorporate them into its ratings.

Over the last three years, ILFC has made significant improvements to its stand-alone funding and liquidity profile, which support the current ‘BB’ rating. At the same time, however, AIG has clearly stated its intention to sell the aircraft leasing unit as expeditiously as possible. Absent the closing of the current transaction, there is the potential that AIG may take steps to otherwise facilitate the sale of all or part of the unit, which may not necessarily be in the best interests of ILFC’s bondholders.

Despite the ownership uncertainty, ILFC has been able to maintain an attractive funding profile. This is characterized by reduced balance sheet leverage and laddered debt maturities. Debt to tangible equity has continued to decline modestly and stood at 2.7x as of June 30, 2013, down from 3.0x at YE12. Fitch notes that leverage may temporarily increase upon completion of any potential sale, as equity is marked down. The company maintains sufficient liquidity to service approximately 18-20 months of ongoing principal & interest obligations, which is viewed positively by Fitch.

ILFC’s operating performance has stabilized since the company took large impairment charges in 2010 and 2011. However profitability continues to lag industry averages as a result of elevated depreciation, SG&A and interest expenses. The performance of the aircraft fleet remains adequate and generated cash flow from operations of $1.2 billion in the first six months of 2013, compared to $1.4 billion during the same period in 2012. On aggregate, ILFC’s lease yields have remained fairly consistent, even as some of its peers have experienced some weakness. Fitch expects operating performance and operating cash flow to remain adequate to support ongoing funding and capital expenditure requirements. ILFC’s external funding needs will start to increase in 2014, as new aircraft deliveries ramp up, and additional debt issuance is likely to follow.

The company continues to implement a long-term aircraft portfolio strategy that incorporates acquiring new aircraft, managing the overall fleet via aircraft sales, and maximizing the value of the aircraft throughout its life cycle. Over the past year, ILFC has placed a number of sizeable orders with Boeing, Airbus and Embraer in order to support its future fleeting strategy. The order book, which currently stands at 346 aircraft is the largest in the leasing sector.

RATING DRIVERS AND SENSITIVITIES

As discussed above, uncertainty around long-term ownership will be the most immediate rating driver for the company. Fitch expects to resolve the Negative Outlook once there is more clarity around this issue. A considerable amount of time has passed since AIG first indicated its desire to sell ILFC in 2011 and the timeframe remains unclear.

Once the new ownership structure is clearer, Fitch will assess any potential changes to ILFC’s corporate governance and long-term strategy. A meaningful change in ILFC’s growth plans may influence Fitch’s long-term view of the ratings. Furthermore, any adverse impact on ILFC’s current funding facilities or future availability of credit may have a negative impact on its ratings.

Additionally, ILFC’s ratings are constrained by relatively weak profitability and the residual value risk in the company’s older aircraft. Negative momentum for the ratings could also result from inability to access capital markets to fund debt maturities or purchase commitments, deterioration in operating cash flows or a permanent increase in balance sheet leverage (excluding any purchase accounting adjustments).

While positive rating momentum is not likely in the near term, over a longer-term time horizon, positive drivers would include consistently stronger profitability, continued funding flexibility, commitment to reduced leverage levels and a robust corporate governance structure.

AerCap Holdings N.V.

KEY RATING DRIVERS

The affirmations of AER’s IDR and secured debt ratings and the maintenance of the Stable Outlook reflect the company’s attractive aircraft fleet, modest balance sheet leverage, diverse customer base, consistent operating performance, strong competitive positioning, and solid management team. The downgrade of AerCap Aviation Solutions B.V.‘s unsecured debt rating to ’BB+’ from ‘BBB-’ reflects the structurally subordinated nature of the debt relative to the company’s predominantly secured funding profile. AER’s ratings are constrained by exposure to the highly cyclical aviation industry, and the company’s wholesale funding profile and largely secured funding structure. Positive rating momentum is not expected in the foreseeable future.

Profitability trends have remained strong, supported by a young fleet, reduced debt load and gains on aircraft sales during the first six months of 2013. Net income for 1H13 was $144 million, up 55% from the same period in the prior year. The improvement was primarily driven by reduced depreciation and interest expenses as well as gains on aircraft sales. These were partially offset by lower lease revenues resulting from recent aircraft sales. Fitch expects a positive long-term impact from rising interest rates, although modest negative earnings pressure is possible in the near term.

Lease yields have trended down in recent quarters, as the company has refreshed its fleet. The company’s higher exposure to the A320 family has also pressured lease yields over the past 2-3 years. Lease rates on newer A320 models have started to firm over the past several months, which should support AER’s lease yields. AER’s ability to maintain an attractive cost of funding through the use of interest rate hedges has served to offset some of the decrease in asset yields.

The company’s opportunistic and active approach to fleet management was evident in recent transactions. In November 2012, AER sold its equity interest in the ALS portfolio to Guggenheim, reducing the average age of its fleet and freeing up capital for newer aircraft. In May 2013, the company deployed some of this capital in a large $2.6 billion sale-leaseback deal with LATAM Airlines Group. The LATAM transaction will further diversify AER’s fleet into a variety of popular widebody aircraft, including 787s and A350s, as the aircraft deliver through 2017. However, the lessor will need to maintain its focus on managing customer concentrations, which tend to increase with large sale-leasebacks.

AER’s funding profile has continued to broaden over the past year, but remains primarily reliant on secured debt. As of June 30, 2013, unsecured debt comprised only 9% of total debt, which is lower than other Fitch-rated peers. While the company has demonstrated robust access to funding throughout various market environments, the limited size of the senior unsecured debt class creates structural risks for bondholders. Furthermore, AER has not built up a long-term pool of unencumbered aircraft to support future unsecured issuance. As a result, Fitch has downgraded the senior unsecured debt rating to ‘BB+’ from ‘BBB-’ in order to reflect these continued risks.

Cash and contingent liquidity sources have decreased over the past year, primarily as a result of aircraft purchases. According to Fitch’s calculations, AER currently has approximately 12 months of liquidity available to cover principal & interest obligations (excluding non-recourse debt and restricted cash). Fitch views this with caution, but expects the liquidity level to improve during the second half of 2013. During 4Q12, the company obtained a three-year $290 million senior unsecured revolving credit facility, $220 million of which has been drawn to purchase aircraft from LATAM. Once these aircraft are financed on a permanent basis, the revolver availability is expected increase.

Over the past year, Cerberus has sold its entire stake in AER. Approximately 25% of the shares are currently held by Waha Capital PJSC (Waha), with the rest publicly floated. Fitch believes ownership uncertainty, which had been a negative driver, has been reduced.

RATING DRIVERS AND SENSITIVITIES

Negative rating actions could result if Fitch comes to view AER’s capital management as becoming more aggressive or if the company fails to maintain its debt-to-equity ratio at or below 3.0x over the long term. Continued weakness in the liquidity position, deteriorating operating performance and/or lower quality of the aircraft fleet could also lead to negative rating actions.

Conversely, further diversification of funding sources, including a meaningful unsecured component, would be viewed positively. Given AER’s exposure to the cyclical aviation sector and wholesale funding profile, Fitch does not expect any positive rating momentum over the foreseeable future.

Aviation Capital Group:

KEY RATING DRIVERS

Fitch’s rating affirmations and the maintenance of the Stable Outlook reflect ACG’s consistent operating cash flow generation, attractive aircraft portfolio, diverse funding profile and appropriate capitalization. Fitch believes ACG maintains sufficient liquidity to support the increased number of aircraft deliveries it is scheduled to take over the next several years.

While operating performance at ACG was generally weaker in 2012, lease revenues grew nearly 9% due to portfolio growth, offset by increased depreciation and higher interest expense, which resulted in lower pre-tax operating income in 2012 compared to 2011. Net income was 11% higher in 2012 compared to the year prior, benefitting from a basis adjustment to ACG’s deferred tax allowance, which subsequently created a large, one-time tax benefit in 2012. Absent this adjustment, net income in 2012 would have been 41% lower compared to 2011 as higher overall expenses, more than offset incremental lease revenues generated due to portfolio growth. Fitch expects near-term profitability to improve along with net margins, as the new aircraft portfolio seasons.

ACG’s aircraft portfolio remains attractive and broadly used by airlines, which provides a stable stream of cash flow that minimizes market volatility throughout economic and sector cycles. Currently, the portfolio is evenly split between the B737 and A320 families, with a weighted average age of approximately six years. Approximately 75% of the aircraft is younger than 10 years, by net book value. Currently, ACG has 157 aircraft on order with deliveries scheduled through 2021. Given ACG’s strategy of investing in young, primarily narrowbody aircraft with broad customer appeal, Fitch expects the portfolio will remain relatively consistent in the near- to medium-term.

Fitch believes ACG is well positioned to support ongoing aircraft funding requirements with nearly $1.3 billion, in aggregate, of available liquidity from its various credit facilities as of March 31, 2013, and approximately $400 million of annual operating cash flows. The company’s debt profile is well laddered, with only 15% of maturing within the next five years. In addition, ACG continues to make progress on diversifying its overall capital structure and broadening its capital markets access and other funding sources. During the first quarter of 2013, ACG accessed the unsecured debt market and completed a five-year, $300 million 144A bond transaction at reasonable terms. Currently, the proportion of unsecured debt has grown to represent 51% of the overall debt mix, which is viewed favorably by Fitch.

Balance sheet leverage, as measured by total debt-to-equity was 4.22x as of March 31, 2013. Fitch believes ACG’s leverage is modestly higher relative to other aircraft lessors rated by Fitch. Over the last several years, leverage has remained relatively stable as incremental earnings have offset an increase in overall debt levels to fund aircraft purchases. Fitch expects ACG’s leverage to remain within 4x to 5x in the near term, which is consistent with its current ratings.

Fitch considers ACG’s standalone profile to be reflective of a ‘BB+’ rating, without institutional support. Based on the ‘Rating FI Subsidiaries and Holding Companies’ criteria, Fitch views ACG’s business as having limited importance to Pacific LifeCorp’s (PCL) overall operations due to limited operational and financial synergies, as well as lack of common branding. This suggests that future support may be uncertain, particularly in a stress scenario. That said, Fitch believes PCL maintains a high level of commitment to ACG, as evidenced by Pacific Life Insurance Company’s (PLIC) ownership of 100% of ACG’s equity, which amounted to $1.2 billion of invested capital to date, representing a meaningful portion of the insurance company’s equity base. Consequently, ACG’s long-term IDR receives a one-notch uplift from the standalone rating due to PCL’s direct ownership and demonstrated financial support.

RATING DRIVERS AND SENSITIVITIES

Fitch believes positive rating momentum is limited based on ACG’s current capitalization on a standalone basis. In addition, a further uplift in ACG’s current ratings is not envisioned unless balance sheet leverage is reduced to below 3.5x or more explicit forms of parental support are incorporated. Conversely, negative rating actions could result from an unwillingness or inability of PCL to provide timely support to ACG. Significant deterioration in operating performance and a material decline in operating cash flow resulting from a significant weakening of sector or economic conditions, or a meaningful increase in balance sheet leverage could also generate negative rating momentum.

BOC Aviation Pte Ltd:

KEY RATING DRIVERS

The affirmation of BOC Aviation’s ‘A-’ IDR and senior unsecured debt rating and maintenance of the Stable Outlook primarily reflect Fitch’s view of a very high probability of support from Bank of China (BOC; ‘A’/Stable), if needed. This Fitch’s view with respect to parent support is premised on BOC Aviation’s strategic importance to and strong links with BOC, as evident in the name-sharing, full ownership and close board oversight by BOC, forthcoming resources, close reporting links and cross selling potential. This is despite BOC Aviation’s small size relative to BOC and their different domicile. Fitch considers the company’s stand-alone credit profile in its analysis, although it is not directly incorporated into the IDR.

BOC provides BOC Aviation a direct committed line of USD2 billion, which is considerable relative to the latter’s assets of USD9.9 billion at end-June 2013. This is on top of common equity of USD300 million injected by BOC since taking over BOC Aviation in 2006. Such firm parental backing underlines BOC Aviation’s moderately high leverage appetite, with its debt/equity ratio managed to an internal target of 3.5x-4.0×.

BOC Aviation is one of the few wholly owned subsidiaries within the BOC group that reports directly to BOC’s management. Seven of BOC Aviation’s nine board members are BOC representatives; with a high-ranking officer of BOC, Chen Siqing, appointed as chairman. These internal arrangements underline the strategic importance of BOC Aviation to BOC, despite the former accounting for less than 0.5% of BOC’s consolidated assets. Cross-selling initiatives center on BOC Aviation assisting BOC in originating relationships with airlines and aircraft manufacturers. This supports BOC’s aim of diversifying its non-interest income base and to move into non-commercial banking businesses.

Fitch considers BOC Aviation’s standalone profile to be reflective of a ‘BB+’ rating (i.e. without any institutional support). This reflects its consistent track record, young fleet age, solid lessee quality and a well-seasoned management team. The standalone profile is constrained by BOC Aviation’s leverage appetite and reliance on secured bank borrowings. BOC Aviation has consistently reported one of the highest ROAs among its rated peers – thanks to its active fleet quality management, aircraft collections and procurement, combined with a low cost of funds. Fitch takes a positive view of BOC Aviation’s demonstrated ability to trade aircraft through the cycle, which has allowed it to keep the average age of its portfolio at around four years. Changes in the agency’s view concerning the standalone credit profile would be likely to take into account BOC Aviation’s future leverage appetite, funding diversity and/or risk appetite in terms of lessee quality and growth ambitions.

RATING DRIVERS AND SENSITIVITIES

Any perceived changes in BOC’s propensity and ability to provide support would impact BOC Aviation’s IDR and senior unsecured debt ratings. BOC Aviation’s ratings are also likely to be sensitive to changes in BOC’s ratings. However, a change in BOC Aviation’s standalone risk profile is unlikely to directly impact its IDR, unless support factors that drive its IDR were to change.

Fitch has affirmed the following ratings:

International Lease Finance Corp.

—Long-term IDR at ‘BB’; Outlook revised to Negative from Stable;

-$3.9 billion senior secured notes at ’BBB’;

—Senior unsecured debt at ‘BB’;

—Preferred stock at ‘B’.

Flying Fortress Inc.

—Senior secured debt at ‘BB’.

ILFC E-Capital Trust I

—Preferred stock at ‘B’.

ILFC E-Capital Trust II

—Preferred stock at ‘B’.

AerCap Holdings N.V.

-Long-term IDR at ’BBB’; Outlook Stable.

AerCap B.V.

AerCap Dutch Aircraft Leasing I B.V.

AerCap Dutch Aircraft leasing IV B.V.

AerCap Dutch Aircraft Leasing VII B.V.

AerCap Engine Leasing Limited

AerCap Ireland Limited

AerCap Note Purchaser (IOM) Limited

AerCap Partners I Limited

AerCap Partners 767 Limited

AerFunding 1 Limited

Flotlease MSN 973 Limited

Genesis Portfolio Funding 1 Limited

GLS Atlantic Alpha Limited

Harmonic Aircraft Leasing Limited

Melodic Aircraft Leasing Limited

Philharmonic Aircraft Leasing Limited

Rouge Aircraft Leasing Limited

Sapa Aircraft Leasing 2 BV

Sapa Aircraft Leasing BV

SkyFunding Limited

Symphonic Aircraft Leasing Limited

Triple Eight Aircraft Leasing Limited

Wahaflot Leasing 3699 (Bermuda) Limited

Westpark 1 Aircraft Leasing Limited

—Senior secured bank debt at ‘BBB’.

Aviation Capital Group:

-Long-term IDR at ’BBB’; Outlook Stable;

-Senior unsecured debt rating at ’BBB’.

BOC Aviation Pte Ltd:

-Long-term IDR at ’A’, Outlook Stable;

-Senior unsecured debt rating at ’A’.

Fitch has downgraded the following rating:

AerCap Aviation Solutions B.V. (subsidiary of AER)

-Senior unsecured debt rating to ‘BB+’ from ’BBB’.

Fitch has assigned ratings to senior secured debt obligations of the following AER subsidiaries:

AerCap Ireland Funding I Limited

AerCap Leasing 946 Limited

Cielo Funding Limited

Harmony Funding BV

Parilease / Jasmine Aircraft Leasing Limited

Worldwide Aircraft Leasing Limited

Skyfunding II Limited

—Senior secured bank debt ‘BBB’.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

—‘Global Financial Institutions Rating Criteria’ (Aug. 15, 2012);

—‘Finance and Leasing Companies Criteria’ (Dec. 11, 2012);

—‘Rating FI Subsidiaries and Holding Companies’ (Aug. 10, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209