Fitch Releases Updated EETC Surveillance Criteria.

CHICAGO -- Fitch Ratings has updated its surveillance methodology for enhanced equipment trust certificates (EETCs) to reflect the corporate - structured hybrid nature of these transactions. The new surveillance methodology limits the degree to which the EETC rating can be disconnected from the rating on the sponsoring airline. Fitch's updated EETC surveillance criteria provides that EETCs can only achieve ratings that are two rating categories, or six rating notches (ie: 'B' to 'BBB'), higher than the Issuer Default Rating of the sponsoring airline. Concurrently, Fitch has reviewed its rated portfolio of EETC bonds issued by various airlines. While the criteria revision has led to some minor downgrades on rated EETCs, all rating movements that are a direct result of the change in approach are limited to two or fewer notches. Fitch's updated criteria report is available at 'www.fitchratings.com'.

Similar to structured finance transactions, EETCs employ structural protections (such as liquidity reserves and overcollateralization provided by aircraft equipment), which often allow the notes to survive the insolvency of the supporting airline without incurring a payment default. As such, Fitch considers the probability of default (PD) on these securities to be lower than that of the affiliated airline, and as a result, assigns PD ratings to EETCs that can be higher than the airline's IDR. Under the updated surveillance criteria, PD credit is limited to three notches.

Fitch's review of EETCs also incorporates an evaluation of the aircraft equipment's value and cash flow generating capabilities, which mirrors the approach employed for many structured finance securities. This dedicated pool of equipment allows EETCs to exhibit superior recovery performance even after the occurrence of a default. In this respect, EETCs carry equivalent risk to secured corporate debt, with the previously noted exception that PD can be reduced by the structural enhancements. As such, Fitch also incorporates an element of recovery in its determination of EETC ratings. Similar to the methodology for assigning secured ratings for airlines, the EETC surveillance criteria provides that recovery uplift is limited to a maximum of three notches.

The surveillance criteria can be found under the following headers at 'www.fitchratings.com':

Criteria then Asset Backed Securities then Aircraft Finance

Fitch has completed reviews of multiple issuers' EETCs, which has resulted in various rating actions. Please refer to the following press releases for complete descriptions of these reviews and rating actions (also available at 'www.fitchratings.com'):

--'Fitch Takes Various Rating Actions on Delta EETCs';

--'Fitch Affirms 1 and Downgrades 3 Classes from Continental-backed EETCs; Assigns Outlooks';

--'Fitch Changes Outlook of FRANs 2003 Notes to Negative'.

Additional information is available at www.fitchratings.com.

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