Bondholders of junior classes of aircraft-backed bonds are likely to get next to nothing in the event of bankruptcy, which could prove to be the final nail on the coffin for the asset class as a whole. The thinking comes following Standard & Poor's' downgrade of almost $18 billion of the roughly $30 billion market for enhanced equipment trust certificates. The downgrades underscore the view EETC recoveries are not likely to be substantial for bankrupt airlines. S&P downgraded a slew of aircraft-backed bonds from Continental Airlines, Northwest Airlines, FLYi Inc. and the American Airlines unit of AMR Corp late last month.
Roger King, analyst at CreditSights, said holders of senior EETCs are likely to recover at par if airlines are bankrupt, but investors of more junior tranches will see significantly less. Furthermore, King suggested between the depreciation in the value of planes and the UAL ruling, EETCs are unlikely to be a viable financing option for airlines going forward. "The horse left the barn in the summer and the gate closed in December [with the UAL ruling]," he stated, adding future financing is likely to come from the likes of GE Capital and manufacturers' financing arms such as Boeing Capital. He said the only recent EETC financing was one from JetBlue which was completed last November.