Fitch Ratings has taken the following rating actions on United Airlines' enhanced equipment trust certificates (EETCs).

UAL 2019-2:

$621.1 million class AA certificates due 2032 affirmed at 'A+';

$252.0 million class A certificates due 2028 downgraded to 'BBB-' from 'BBB';

$166.2 million class B certificates due 2028 downgraded to 'BB' from 'BB+'.

UAL 2019-1:

$554.1 million class AA certificates due in 2031 affirmed at 'A+';

$229.5 million class A certificates due in 2031 downgraded to 'BBB-' from 'BBB'.

UAL 2018-1:

$547.9 million class AA certificates due March 2030 affirmed at 'A+';

$208.7 million class A certificates due March 2030 downgraded to 'BBB-' from 'BBB';

$142.8 million class B certificates due March 2026 affirmed at 'BB+'.

UAL 2016-2:

$468.3 million class AA certificates due in 2028 downgraded to 'A' from 'A+';

$208.3 million class A certificates due in 2028 affirmed at 'BBB-';

$135.0 million class B certificates due in 2025 downgraded to 'BB' from 'BB+'.

UAL 2016-1:

$536.5 million class AA certificates due in 2028 downgraded to 'A' from 'A+';

$238.6 million class A certificates due in 2028 downgraded to 'BBB-' from 'BBB';

$158.8 million class B certificates due in 2026 downgraded to 'BB' from 'BB+'.

UAL 2014-2:

$500.4 million class A certificates due in 2026 affirmed at 'A'.

UAL 2014-1:

$433.6 million class A certificates due in 2026 downgraded to 'BBB+' from 'A-'.

UAL 2013-1:

$434.4 million class A certificates due in 2025 downgraded to 'BBB-' from 'BBB'.

Continental 2012-2:

$392.8 million class A certificates due in 2024 downgraded to 'BBB' from 'BBB+'.

The downgrades were driven by an increase in loan-to-value ratios, which was a result of the reclassification of some aircraft from Tier 1 to Tier 2, as well as a continued value stress on widebody aircraft, particularly the B777-300ER. However, these stresses are mitigated by stable values for narrow bodies driven by a recovery in domestic air travel. Fitch expects widebody values to stabilize going forward as international travel continues to rebound. The affirmations were driven by Loan-to-value ratios that continue to support the existing ratings.

Affirmation factors within the pools are largely unchanged, as United's fleet renewal is largely in line with Fitch's prior expectations. High affirmation factors and liquidity facilities support the notching from United's 'B+' Issuer Default Rating for tranches rated through Fitch's bottom-up approach. The notching is tempered by diminished recovery prospects as a result of the downgrade of aircraft collateralizing the certificates from Tier 1 to Tier 2.

Key Rating Drivers

Aircraft Tier Updates: Fitch has reclassified several aircraft types included in United's EETC transactions as part of a regular review of our aircraft tier classifications. Aircraft impacted include the B737-900ER, B737-MAX 9, B787-10 and the E175, which were moved to Tier 2 from Tier 1.

The B737-MAX9 is a new generation aircraft but has only a limited number of operators and aircraft in operations as airlines have tended to take delivery of either the MAX 8 or MAX 10. The B737-900ER is a prior generation aircraft that benefits from commonality with the 737-800 but suffers from a limited user base. While the B787-10 is a new generation technology, it is not as popular as the787-9 and, like the B737-MAX9, has a limited operator base (about 20 airlines). The E175 benefits from reasonable demand with only a relatively small number (about 8%) in storage but suffers from a limited user base.

Fitch has also made a downward adjustment to the base values used in its EETC models for the 777-300ER to account for one appraisal firm whose values were notably above estimates provided by peers. Accounting for this adjustment, 777-300ER values declined by between 13.0% to 16.3% from Fitch's prior review.

class AA Rating Updates: The affirmation of United's class AA certificates for the 2019-2, 2019-1 and 2018-1 transactions at 'A+' is supported by strong LTVs in the low-to-mid 80%, which gives them material headroom within Fitch's 'A' stress scenario. The class AA certificates for the 2016-2 and the 2016-1 transaction were downgraded to 'A' from 'A+'. Though the certificates' LTVs pass Fitch's 'A' category stress scenario, the downgrade reflects weakening LTVs driven by depreciating B777-300ER values, a greater percentage of the collateral pool comprising of Tier 2 aircraft, and high widebody exposure.

class A Downgrades: United's 2014-1 class A certificates failed to pass Fitch's 'A' level stress test, driven by exposure to the 737-900ER and E-175, but continued to pass the 'BBB' stress test with adequate headroom. The remaining downgrades to United's other class A certificates were driven by loan-to-value (LTV) ratios that failed to pass Fitch's 'BBB' stress test. According to Fitch's criteria, when LTVs no longer pass the 'BBB' test the transactions are rated via the bottom up approach. The increasing LTV ratios were driven by declining collateral coverage, exposure to 737-900ER, 737 MAX 9, 787-10, E175 aircraft, for which we have lowered the tier classification to tier 2 from tier 1, as well as by weaker 777-300ER values.

Bottom-up Approach Ratings:

Fitch utilizes a bottom up approach for subordinated tranches. The bottom up approach is also utilized when class AA or A certificates fail to pass Fitch's 'BBB' level stress tests, and the ratings achieved through the bottom up approach act as a ratings floor. Ratings are notched from the airline IDR based on three primary variables: 1) the affirmation factor (0-3 notches) 2) the presence of a liquidity facility, (0-1 notch) and 3) recovery prospects (-1-1 notch).

United's 2019-2, 2019-1 2018-1, 2016-2, 2016-1 and 2013-1 class A certificates are rated via the bottom-up approach. Tranches rated at 'BBB-' receive a four notch uplift consisting of +2 for a high affirmation factor, +1 for the presence of a liquidity facility and +1 for solid recovery prospects. United's 2016-2 and 2016-1 transactions have limited room for collateral values to weaken further without negatively impacting recovery ratings.

United's class B certificates are rated either 'BB+' or 'BB'. All of the class B certificates have received +2 notches uplift for a high affirmation factor and a +1 notch uplift for the presence of a liquidity facility. The 2018-1 transaction is the only class B certificate that received a 0 notch uplift for superior recovery prospects. The remainder of United's class B certificates are rated 'BB' and received a -1 notch adjustment for poor recovery prospects.

Affirmation Factor:

Fitch's views on transaction specific affirmation factors are consistent with prior reviews. Fitch views the affirmation factor as 'high' for each transaction but assigns an uplift of '+2' notches rather than the maximum allowance of +3 notches. Fitch considers United's 2020 EETC issuance to be a modest detractor for the affirmation factor for each of the transactions that we rate.

United raised $3 billion in an EETC transaction secured by 352 older vintage aircraft, 99 spare engines, and some spare parts. The aircraft in the pool make up some 45% of United's total mainline fleet. The large number of aircraft included in the transaction along with the operational importance of the spare engines and parts makes it extremely unlikely that United would reject its most recent EETC in a bankruptcy scenario and modestly increases the possibility of rejection for its smaller EETC transactions.

LTV Summary:

Loan to value calculations are approximate and reflect the lower of mean or median of three appraised values.

UAL 2019-2 class AA: Base Case - 48.4%, 'A' Stress Case - 83.4%

UAL 2019-2 class A: Base Case - 68.1%, 'BBB' Stress Case - 105.4%

UAL 2019-1 class AA: Base Case - 47%, 'A' Stress Case - 85.2%

UAL 2019-1 class A: Base Case - 66.4%, 'BBB' Stress Case - 107.5%

UAL 2018-1 class AA: Base Case - 49.3%, 'A' Stress Case - 81.6%

UAL 2018-1 class A: Base Case - 68.1%, 'BBB' Stress Case - 101.2%

UAL 2016-2 class AA: Base Case - 50.1%, 'A' Stress Case - 86.7%

UAL 2016-2 class A: Base Case - 72.4%, 'BBB' Stress Case - 112.1%

UAL 2016-1 class AA: Base Case - 50.1%, 'A' Stress Case -85.6%

UAL 2016-1 class A: Base Case - 72.3%, 'BBB' Stress Case - 110.5%

UAL 2014-2 class A: Base Case - 58.7%, 'A' Stress Case - 93.2%

UAL 2014-1 class A: Base Case - 61.4%, 'BBB' Stress Case - 93.8%

UAL 2013-1 class A: Base Case - 64.9%, 'BBB' Stress Case - 101.1%

CAL 2012-2 class A: Base Case - 63.4%, 'BBB' Stress Case - 98.7%

Derivation Summary

The certificates rated 'A+' are in line with other class 'AA' certificates in certain American Airlines transactions and one notch higher than ratings for several class A certificates issued by other carriers. Stress scenario LTVs for the 2019-2, 2019-1 and 2018-1 transactions remain low and continue to support the 'A+' rating. Certificates that are rated 'A' compare well with issuances from American and Air Canada that are also rated 'A'. Rating similarities are driven by similar levels of overcollateralization and high-quality pools of collateral.

Certificates rated at 'BBB-', 'BB+' or 'BB' are notched up from United's IDR through Fitch's bottom up approach. The four-notch uplift for transactions rated 'BBB-' is one notch lower than certain similar transactions issued by American Airlines, which benefit from higher affirmation factor notching. Certificates rated 'BB+' or 'BB' receive less ratings uplift compared to similar transactions from other issuers due to a combination of a lower affirmation factor or weaker recovery prospects.

Key Assumptions

Key assumptions within the rating case for the issuer include a harsh downside scenario in which United Airlines declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values. A United Airlines bankruptcy is hypothetical and is not Fitch's current expectation as reflected in United's 'B+' IDR. 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;

Fitch's analysis incorporates a 6% annual depreciation rate for Tier I aircraft and a 7% annual depreciation rate for Tier II aircraft.

'A' level stresses incorporate a 25% haircut for the 787-9 and 737-800, a 30% haircut for the 787-8, and 35% haircut for the 737-900ER, ERJ 175, and 787-10 aircraft.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Top-down approach:

United's class AA certificates and the 2014-2 and 2014-1 class A certificates are primarily based on a top-down analysis based on the value of the collateral. United's 2014-1 class A certificates could be upgraded to 'A-' as the transaction amortizes and collateral coverage improves, allowing the transaction to pass Fitch's 'A' category stress test. Positive rating actions are less likely for the remaining tranches.

Bottom up approach

United's remaining EETC tranches are notched off of United's IDR. Positive rating actions are unlikely in the near term. Fitch currently rates United 'B+' with a Negative Rating Outlook.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Top-down approach:

United's class AA certificates and the 2014-2 and 2014-1 class A certificates 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. All the class AA certificates remain well overcollateralized, and therefore negative actions based on declining aircraft values are less likely. Collateral coverage for the 2014-2 and 2014-1 class A certificates is less robust. Modest value declines could drive a one-notch downgrade for either transaction.

Bottom-up approach:

United's remaining EETC tranches are notched off of United's IDR. Tranches rated 'BBB-' or 'BB+' and are sensitive to recovery expectations in a stress scenario. Declining asset values could drive weaker recovery prospects, leading to further downgrades. United's 2016-2 and 2016-1 class A certificates have little remaining headroom at the 'BBB-' level due to weakening collateral values. Subordinate tranches are also subject to changes in Fitch's view of the likelihood of affirmation for the underlying collateral. In addition, tranches rated through the bottom up approach would be subject to downgrade should Fitch downgrade United's corporate rating.

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

UAL 2019-2

All three tranches of debt in this transaction feature a dedicated liquidity facility provided by NAB (A+/F1/Stable).

UAL 2019-1

The 'A' and 'B' tranches of debt in this transaction feature a dedicated liquidity facility provided by NAB (A+/F1/Stable).

UAL 2018-1

All three tranches of debt in this transaction feature a dedicated liquidity facility provided by NAB (A+/F1/Stable).

UAL 2016-2

All three tranches of debt in this transaction feature a dedicated liquidity facility provided by Commonwealth bank of Australia (A+/F1/Stable).

UAL 2016-1

All three tranches of debt in this transaction feature a dedicated liquidity facility provided by Commonwealth bank of Australia (A+/F1/Stable).

UAL 2014-2

The 'A' and 'B' tranches of debt in this transaction feature a dedicated liquidity facility provided by BNP Paribas (A+/F1/Stable).

UAL 2014-1

The 'A' and 'B' tranches of debt in this transaction feature a dedicated liquidity facility provided by Credit Agricole (A+/F1/Stable).

UAL 2013-1

The 'A' and 'B' tranches of debt in this transaction feature a dedicated liquidity facility provided by Natixis (A+/F1/Negative).

Continental 2012-2

The 'A' and 'B' tranches of debt in this transaction feature a dedicated liquidity facility provided by Natixis (A+/F1/Negative).

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Fitch does not provide separate ESG scores for United Airlines' EETC transactions as ESG scores are derived from its parent. ESG relevance scores and commentary for the parent entity-United Airlines-can be found here https://www.fitchratings.com/entity/united-airlines-inc-80091049

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