Fitch Ratings has downgraded JetBlue's 2019-1 class A certificates to 'BBB' from 'BBB+' and affirmed JetBlue's 2019-1 class AA certificates at 'A+'.
The downgrade reflects limited LTV headroom under the 'BBB' stress scenario and slow rate of amortization in the transaction, making the rating susceptible to marginal collateral value declines.
Fitch has also affirmed JetBlue's 2013-1 and 2020-1 class A certificates at 'A+' and 'A', respectively. These ratings are supported by sufficient overcollateralization and quality of collateral. The affirmation of the subordinated tranche ratings of the 2019-1 and 2020-1 transactions are driven by strong affirmation factors (AF) and presence of a liquidity facility.
Key Rating Drivers
Fitch has downgraded JetBlue's 2019-1 class A certificates to 'BBB' from 'BBB+' due to limited loan-to-value (LTV) headroom under the 'BBB' stress scenario. Maximum LTVs rose to 97.9% from 95.4% due to the 2017-18 vintage A321 collateral under-performing Fitch's updated depreciation assumptions. The collateral in the pool is still seen as attractive; however, the low diversification and slow amortization profile makes the transaction's LTVs susceptible to marginal value declines.
Fitch has affirmed JetBlue's 2019-1 class AA certificates at 'A+' due to a large amount of overcollateralization. The class AA certificates saw LTVs rise to 81.8%, from 79.9% under the A level stress scenario. The large buffer in LTVs helps mitigate concerns related to slow amortization and diversification mentioned above.
The affirmation of JetBlue's 2020-1 class A certificates at 'A', is driven by the tranche continuing to pass the 'A' level stress scenario with sufficient headroom. Fitch calculates the maximum LTVs for the class A certificates to be 93.2%, up from 91.5%. Collateral declines for the pool's A321 NEOs were within Fitch's depreciation assumptions; however, the A321 CEOs declined 6%-7% during the period. Unlike the 2019-1 transaction, Fitch expects over-collateralization to improve over the next several years due to the transaction's pace of amortization.
The 2020-1 transaction collateral pool consists of 24 aircraft including 17 Airbus A321-200 aircraft delivered between January 2015 and January 2017 and 7 Airbus A321 NEO (new engine option) aircraft delivered between June 2019 and February 2020. The combination of young CEO and NEO collateral mitigates some concern around JetBlue's potential acceleration of the retirement of older A320ceos if a Spirit-JetBlue merger occurs.
Fitch has also affirmed JetBlue's 2013-1 class A certificates due to strong levels of overcollateralization. LTVs for the transaction rose to 72.6% from 65.9% in the prior review, driven by older vintage A320s dropping out of the pool, as well as higher than expected value declines over the period. The transaction now holds eight 2006-2012 vintage A320-200s, two of which are deemed tier 2 collateral due to age.
Fitch incorporates a 25% haircut to the A321-200 and A320-200 and a 20% haircut to the A321 NEO in its stress tests. The A321 NEO stress rate is on the low end of Fitch's stress range as Fitch believes the lower stress for the NEO remains appropriate due the newness and demand for that aircraft.
LTV Summary:
The value stresses listed above produce the following maximum LTVs for transactions rated through our top-down approach:
JBLU 2020-1 class A: Base Case - 63.7%, 'A' stress Case - 93.2%
JBLU 2019-1 Class AA: Base Case - 53.3%, 'A' stress Case - 82%
JBLU 2019-1 Class A: Base Case - 69.9%, 'BBB' stress Case - 97.9%
JBLU 2013-1: Class A: Base Case - 45.9%, 'A' stress Case - 72.6% as of March 2022
Subordinate Tranche Ratings:
The rating for the class B certificates is based on the bottom-up approach detailed in Fitch's EETC criteria, which calls for the rating to be notched up from JetBlue's corporate rating of 'BB-'. Subordinated traches receive notching uplift based on three factors: 1) the affirmation factor (0-3 notches) 2) the presence of a liquidity facility, (0-1 notch) and 3) recovery prospects (0-1 notch).
The class B certificates qualify for a three notch (to 'BBB-') uplift from JetBlue's 'BB-' IDR. The notching consists of +2 notches for the affirmation factor (maximum is +2 for a 'BB' category issuer) and +1 notch for the presence of a liquidity facility.
Derivation Summary
The certificates rated 'A+' are one notch higher than ratings for several class A certificates issued by other carriers. Stress scenario LTVs for the 2019-1 transaction remain moderately low and continue to support the 'A+' rating. The 2020-1 class A certificates that are rated 'A' compare well with issuances from American, Air Canada, and British Airways that are also rated 'A'. Rating similarities are driven by similar levels of overcollateralization and high-quality pools of collateral.
Key Assumptions
Key assumptions within the rating case for the issuer include a harsh downside scenario in which JetBlue declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values. JetBlue's bankruptcy is hypothetical, and is not Fitch's current expectation as reflected in JetBlue's 'BB-' IDR.
Fitch's analysis incorporates a 6% annual depreciation rate for Tier I aircraft, up from 5% in the prior review, reflecting updated analysis of historical aircraft value trends.
Fitch's models also incorporate a full draw on liquidity facilities and include assumptions for repossession and remarketing costs.
Fitch's recovery analyses for subordinated tranches utilize our 'BB' level stress tests and include a full draw on liquidity facilities and assumptions for repossessions and remarketing costs.
RATING SENSITIVITIES
The class AA and A certificate 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. Senior tranche ratings could also be affected by a perceived change in the affirmation factor or deterioration in the underlying airline credit. Positive rating actions are not expected for these transactions in the near term, given the negative outlook on JetBlue's IDR.
In the event JetBlue is downgraded, the 2019-1 class A and B certificates are more susceptible to ratings volatility due to limited LTV headroom, less aggressive amortization profile and low diversification. The 2020-1 and 2019-1 transaction ratings may be impacted in the future by pressures on A320 CEO family values or changes in value stress rates utilized in Fitch's models as the A320 NEO family becomes a more dominant presence in the global aircraft market.
Subordinated tranche ratings are based off of the underlying airline IDR. If JetBlue's IDR were to be downgraded into the 'B' category, the maximum affirmation factor (AF) would increase to +3 , from +2. Therefore subordinated tranche ratings may be affirmed or downgraded by one notch based on a re-assessment of the affirmation factor. Fitch currently views the Affirmation Factor for each JBLU EETC as high. This could weaken over time as the collateral aircraft age and become a smaller portion of JetBlue's total fleet. Subordinated tranches are affected by collateral value impacting recovery estimates as well as changes in Fitch's view of the likelihood of affirmation for the underlying collateral.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Liquidity and Debt Structure
JBLU 2020-1
All three tranches of debt in this transaction feature a dedicated liquidity facility provided by Natixis (Fitch rated A+/F1/Negative).
JBLU 2019-1
All three tranches of debt in this transaction feature a dedicated liquidity facility provided by Credit Agricole (Fitch rated A+/F1/Negative).
JBLU 2013-1
This transaction feature a dedicated liquidity facility provided by Kfw Ipex.
ESG Considerations
Fitch does not provide separate ESG scores for JetBlue's EETC transactions as ESG scores are derived from its parent. ESG relevance scores and commentary for the parent entity, JetBlue, can be found here https://www.fitchratings.com/entity/jetblue-airways-corporation-82391899
JETBLUE AIRWAYS CORPORATION 
