Structured Finance · 2020-06-03 · Structured Finance . June 6, 2019 . This presale report reflects information at the time that Fitch’s Expected Ratings are issued and as of

Structured Finance

www.fitchratings.com June 6, 2019

This presale report reflects information at the time that Fitch’s Expected Ratings are issued and as of the date of this report. Investors should be aware that the transaction has yet to be finalized and changes could occur. Investors should refer to Fitch’s related Rating Action Commentary issued at transaction closing for final ratings. Final ratings will include an assessment of any material information that may have changed subsequent to the publication of the presale.

Aircraft ABS / U.S.A.

AASET 2019-1 Trust Presale Report

Transaction Summary Fitch Ratings expects to rate the aircraft operating lease ABS secured notes issued by AASET 2019-1 Trust (2019-1) as listed above. 2019-1 expects to use proceeds of the initial notes to acquire all the aircraft-owning entity (AOE) series A, B and C notes (initial series A, B and C AOE notes) issued by AASET 2019-1 US Ltd. (AASET US) and AASET 2019-1 International Ltd. (AASET International; collectively, the AOE issuers).

The notes will be secured by lease payments and disposition proceeds on a pool of 25 mid- to end-of-life aircraft purchased from the SASOF III fund, managed by Carlyle Aviation Partners (CAP) and its affiliates. Carlyle Aviation Management Limited (CAML), a wholly owned subsidiary of Carlyle Aviation Holdings Limited, will be the servicer. This is the fifth public, Fitch-rated AASET transaction, and the eighth issued since 2014 and serviced by CAML. Fitch does not rate CAP or CAML.

Key Rating Drivers Stable Asset Quality: High Widebody Aircraft Concentration (29.4%): The pool is composed of 25 aircraft including 10 B737-800s (39.8%) and seven A319-100s (20.9%). The five widebody aircraft include two A330-200s (13.4%), two A330-300s (11.9%) and one B777-200ER (4.1%) aircraft. The pool has a weighted average (WA) age of 15.8 years, which is at the older end of the range for recent transactions but generally consistent with 2018-2.

Lease Term and Maturity Schedule – Neutral: The WA original lease term is 9.8 years with a WA remaining lease term of 3.9 years, comparable to recently rated pools. Two leases totaling 8.1% come due in 2020, five (14.3%) in 2021, six (29.5%) in 2022 and three (13.3%) in 2023. From 2021−2024, 19 leases (80.4%) come due.

Weaker Lessee Credits: Lessees assumed at ‘CCC’ by Fitch total 47.5%, which is notably higher compared to prior AASET transactions, and most of the 17 lessees are either unrated or speculative-grade credits, typical of aircraft ABS. Unrated or speculative airlines are assumed to perform consistent with either a 'B' or ‘CCC’ Issuer Default Rating (IDR) to reflect default risk in the pool. Ratings were further stressed during future assumed recessions, and once an aircraft reaches Tier 3 classification.

Capital Structurea

Notes Expected Rating

Expected Rating Outlook

Amount ($ Mil.)

Size (% of Notes) LTV (%)b

Interest Rate (%)

Expected Final

Maturity

Legal Final

Maturity A Asf Stable 300.299 79.04 66.0 TBD May 2026 May 2039 B BBBsf Stable 54.600 14.37 78.0 TBD May 2026 May 2039 C BBsf Stable 25.025 6.58 83.5 TBD July 2023 May 2039 Total 379.924 aExpected ratings do not reflect final ratings and are based on information provided by the issuer as of June 2019. The expected ratings are contingent on final documents conforming to information already received and are not a recommendation to buy, sell or hold any security. The offering memo and other materials should be reviewed prior to any purchase. The notes are being offered under Rule 144A of the U.S. Securities Act of 1933. bBased on the average of the base values from Avitas Inc., Collateral Verifications and Morten, Beyer & Agnew as of 1Q19, adjusted to reflect maintenance conditions and aircraft specifications determined by ICF as of March 2019. Note: Numbers may not add to total due to rounding.

Inside This Report Page Transaction Summary 1 Key Rating Drivers 1 Transaction Comparison 3 Transaction Counterparty Summary 4 Transaction Notes 4 Criteria Application 4 Data Application 4 Data Adequacy 5 Lease Simulator Assumptions 6 Cash Flow Forecasts 15 Legal Structure 17 Asset Analysis 19 Credit Enhancement 24 Financial Structure 27 Rating Sensitivities 35 Performance Analytics 38 Transaction Counterparties 38 Appendices 41−42

Related Presale Appendix AASET 2019-1 Trust (June 2019)

Related Criteria Aircraft Operating Lease ABS Rating Criteria (March 2019) Global Structured Finance Rating Criteria (May 2019) Structured Finance and Covered Bonds Counterparty Rating Criteria (April 2019)

Analysts Cathy Oh +1 646 582-4572 [email protected]

Deke Hu +1 646 582-4522 [email protected]

Hylton Heard +1 212 908-0214 [email protected]

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AASET 2019-1 Trust 2 June 6, 2019

Country Credit Risk – Neutral: The largest country concentration is Brazil (16.9%) with three aircraft, which has a LT IDR of ‘BB−’ with a Stable Rating Outlook, and second largest is France (12.0%) with two, followed by the U.S. (11.9%), Senegal (9.6%) and Russia (9.3%). Senegal is not rated by Fitch. The top five countries total 59.6%, with 28.4% of lessees concentrated in developed Europe.

Consistent Transaction Structure: Credit enhancement (CE) comprises overcollateralization (OC), a liquidity facility and a cash reserve. The initial loan to value (LTV) ratios for class A, B and C notes are 66.0%, 78.0% and 83.5%, respectively, based on the average of the maintenance-adjusted base values. These levels are consistent with AASET 2018-2.

Adequate Structural Protections: Each class of notes makes full payment of interest and principal in the primary scenarios, commensurate with their ratings after applying Fitch’s stressed asset and liability assumptions. Fitch will also create multiple alternative cash flows to evaluate the structural sensitivity to different scenarios, detailed later in this report.

Capable Servicing History and Experience: Fitch believes CAML has the ability to collect lease payments, remarket and repossess aircraft in an event of lessee default, and procure maintenance to retain values and ensure stable performance. This is evidenced by their prior securitization performance and its servicing experience of aviation assets and managed aviation funds. CAP’s parent company, The Carlyle Group (Carlyle), is rated ‘BBB+’/Stable.

Aviation Market Cyclicality: Commercial aviation has been subject to significant cyclicality due to macroeconomic and geopolitical events. Fitch's analysis assumes multiple periods of significant volatility over the life of the transaction. Downturns are typically marked by reduced aircraft utilization rates, values and lease rates, as well as deteriorating lessee credit quality. Fitch employs aircraft value stresses in its analysis, which takes into account age and marketability to simulate the decline in lease rates expected over the course of an aviation market downturn, and the decrease to potential residual sales proceeds.

Rating Cap of ‘Asf’: Fitch limits aircraft operating lease ratings to a maximum cap of ‘Asf’ due to the factors discussed above, and the potential volatility they produce. For more details, refer to Fitch’s “Global Structured Finance Rating Criteria” (May 2019) and “Aircraft Operating Lease ABS Rating Criteria” (March 2019), available at www.fitchratings.com.

http://www.fitchratings.com/

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Transaction Comparison (As of Initial Pool and Appraisal Date) AASET 2019-1 CLAS 2019-1 Horizon I Servicer Carlyle Aviation

Management Limited Castlelake L.P. Babcock & Brown Asset Management

Collateral Appraisal Date March 2019 January 2019 May 2018 Collateral Value ($)a 454,997,557 1,045,262,100 737,669,601 No. of Aircraft 25 32 29 Avg. Aircraft Value ($) 18,199,902 32,664,441 25,436,883 No. of Lessees 17 14 15 Avg. Lessee Concentration ($) 26,764,562 74,661,579 49,177,973 W A Aircraft Age (Years) 15.8 8.9 9.8 WA Remaining Lease Term (Years) 3.9 4.4 3.4 WA Lease Rate Factor 1.10 1.09 1.04 CCC Lessee Bucket (%) 47.5 12.1 27.3 Narrow Body Aircraft (%) 70.6 71.6 100.0 Wide Body Aircraft (%) 29.4 28.4 0.0 Other Aircraft/Engines (%) 0.0 0.0 0.0 Airbus (%) 56.0 44.5 59.1 Boeing (%) 44.0 55.5 40.9 Other Manufacturers (%) 0.0 0.0 0.0 Largest Variant (%) B737-800 (39.8) A320-200 (29.2) B737-800 (50.8) Second Largest Variant (%) A319-100 (20.9) B737-800 (23.2) A320-200 (36.5) Third Largest Variant (%) A330-200 (13.4) B777-300ER (21.4) B737-700 (8.3) Top Three Variant Total (%) 74.1 73.8 95.6 Largest Lessee (%) American Airlines (11.9) AirAsia Berhad (11.9) Travel Service (11.7) Second Largest Lessee (%) Gol (11.3) Thai Airways (11.4) Eastar Jet (9.6) Third Largest Lessee (%) Air Senegal (9.6) Qatar Airways (10.4) Ryanair (8.3) Top Three Lessee Total (%) 32.8 33.7 29.6 Largest Country (%) Brazil (16.9) Malaysia (11.9) Czech Republic (11.7) Second Largest Country (%) France (12.0) Thailand (11.4) South Korea (9.6) Third Largest Country (%) United States (11.9) Qatar (10.4) Ireland (8.3) Top Three Countries Total (%) 40.7 33.7 29.6 Structure Class A LTV (%)b 66.0 65.0 64.6 Class B LTV (%)b 78.0 76.0 76.9 Class C LTV (%)b 83.5 83.0 83.1 Senior Amortization Schedule (Years) 11 (3) / 12c 12.5 / 10 / 6.5 13 / 7 Senior Expected Maturity Date (Years) 7 7 / 7 / 6.5 7 Ratings Class A Asf (EXP) Asf Asf Class B BBBsf (EXP) BBBsf BBBsf Class C BBsf (EXP) BBsf BBsf aMaintenance-adjusted base value. bLTV ratios are based on the average of initial maintenance-adjusted base c11-year, straight-line in years 1−3, 12-year thereafter. CLAS – Castlelake Aircraft Securitization Trust. NR – Not rated. Source: Fitch Ratings.

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Transaction Notes SASOF III is the seller of the assets to 2019-1, and affiliates Carlyle (CAP) will retain a small 5% Equity Certificate position as a beneficial owner of an E Certificates, consistent with similar investments made by the SASOF funds in prior AASET transactions. Therefore, CAP will have a vested interest in the performance of the transaction, outside of merely collecting servicing fees by CAML. Fitch views this as a positive, since CAP has an interest in generating positive cash flows through management of the assets over the life of the transaction. Certain private funds managed by Pacific Investment Management Company (PIMCO; the PIMCO-managed investors) will purchase the remaining 95% of the Equity Certificates. Furthermore, upon closing, the PIMCO-managed investors are expected to purchase all the class C notes offered.

Of the 25 aircraft in the pool, 18 are existing aircraft currently owned by subsidiaries of the AOE issuers, and seven are new aircraft that will be acquired by AOE issuer 2 post closing within 270 days. If an aircraft in the pool (or replacement aircraft) is not transferred to the AOE issuers within 270 days of closing, the applicable amount attributable to each aircraft not transferred will be used to prepay the notes without the premium, consistent with prior ASSET and other aircraft ABS transactions.

UMB Bank, National Association (UMB) will act as trustee, security trustee and operating bank, and Phoenix American Financial Services, Inc. (Phoenix) will act as managing agent.

Criteria Application Fitch’s analysis was consistent with its “Aircraft Operating Lease ABS Rating Criteria” report dated March 2019, available at www.fitchratings.com. Other applicable criteria reports include “Global Structured Finance Rating Criteria,” dated May 2019, and “Structured Finance and Covered Bonds Counterparty Rating Criteria,” dated April 2019, also available on Fitch’s website.

Data Application Fitch’s quantitative review of an aircraft securitization centers on cash flow forecasting and, more specifically, determining the amount of cash expected to be generated by a pool of assets under base and stress case scenarios. Assumed asset cash flows for each rating

Transaction Counterparty Summary Role Name Fitch Rating Master Issuer AASET 2019-1 Trust NR AOE Issuers AASET 2019-1 US Ltd. NR AASET 2019-1 International Ltd. NR Servicer Carlyle Aviation Management Limited NR Parent of Servicer The Carlyle Group BBB+ / Outlook Stable Sponsors/Sellers SASOF III Luxembourg S.a r.l. NR SASOF International Master Fund III LP NR Managing Agent Phoenix American Financial Services, Inc. NR Trustee/Administrator/Operating Bank UMB Bank, National Association A / F1; Outlook Negative Liquidity Facility Provider Natixis S.A., acting through its New York Branch A / F1; Outlook Positive Appraisal Providers Avitas, Inc. NR Collateral Verifications, LLC NR Morten Beyer & Agnew, Inc. NR Maintenance Forecast Provider ICF International Inc. NR Sole Structuring Agent/ Lead Bookrunner Goldman Sachs & Co. LLC A / F1; Outlook Stable

NR − Not rated. Source: AASET 2019-1.

The Carlyle Group Acquires Apollo Aviation Group The Carlyle Group (BBB+; Outlook Stable by Fitch) purchased 100% of Apollo Aviation Group (AAG) closing the transaction in December 2018. Renamed Carlyle Aviation Partners Ltd (CAP), the aircraft leasing company became a new business line within Carlyle. Fitch views the acquisition positively, as it provides CAP with strong financial support. Furthermore, the senior management team at CAP has remained in place with minimal changes to date.

AASET 2019-1 is the first ABS transaction serviced by CAML (subsidiary of CAP) since the sale back in December 2018.

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scenario are applied to the transaction’s liability structure to determine if generated cash flow is sufficient to repay the securities in full, in accordance with terms of the transaction documents.

Fitch develops multiple cash flows for each rating scenario, with stresses commensurate with the applicable rating category. These cash flow streams are aggregated from the monthly cash flow contributed by each individual aircraft in the portfolio over the term of the securitization. Individual aircraft cash flow streams are determined using Fitch’s internal Aircraft Lease Simulator Model (simulator or the asset model).

Initially, each aircraft is assumed to be leased with its current contracted monthly rate until the earlier of scheduled lease termination or assumed default. Default assumptions are based on Fitch’s assessment of lessee credit quality, as measured by the credit rating of the underlying lessees. Subsequent to lease termination or default, the aircraft is repossessed (following default), remarketed and placed with a new lessee under new lease terms based on parameters defined within the simulator. Fitch projects future lease payments and terms based on several factors. In its simplest form, the monthly lease payment for a lease executed in any given month is largely predicated on its then-assumed market value and lease rate for that aircraft.

Fitch stresses cash flow in various ways to refine the analysis further. General assumptions and stresses are driven by Fitch’s current commercial aviation market outlook, in addition to historical lessor experience and market data. These assumptions are principally meant to stress a portfolio’s sensitivity to peaks and valleys observed in the commercial aviation market. Individual asset attributes that affect assumptions include an aircraft model’s perceived marketability as well as the aircraft’s current lessee and lease terms. Additionally, Fitch will consider altering certain assumptions to adjust for perceived strengths or concerns related to the operational review of the servicer. Key assumptions utilized by the asset model are listed below in order of general impact on cash flow. However, this order will change based on the characteristics of a given portfolio.

• Depreciation and recessionary asset value declines.

• Lease rate factors (LRFs).

• Lessee default frequency.

• Downtime and costs associated with lease expirations and defaults.

• Timing and duration of aviation market downturns.

• Terms of new leases.

• Probability of lease extensions.

• Residual value of aircraft.

Stresses are calibrated based on the perceived marketability of the aircraft, as measured by aircraft tier and whether or not a recession is assumed to be occurring. For example, a Tier 3 aircraft will be assumed to suffer more lease downtime than a Tier 1 aircraft. Similarly, the same aircraft would be assumed to be off lease for a longer period during a recession. One recession timing scenario is considered the primary scenario while others are run as rating sensitivities. The recession timing scenarios are used as stresses in cash flow modeling scenarios and are not predictions by Fitch as to when the next recession is expected to occur.

Data Adequacy Fitch received data from CAP regarding the pool of aircraft and various characteristics for each aircraft including, but not limited to, manufacturer serial number (MSN), date of manufacture (DOM), variant, lease terms, lease rates, lessee and security deposits. The data provided were not audited but found to be consistent with those provided in the transaction’s offering

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memorandum. In addition, CAP provided appraisal summaries for each aircraft in the pool, including half-life base values and current market values, from each appraiser. Fitch believes the data provided to be adequate for the analysis.

Fitch received data from CAP on remarketing, repossession, lease transition and sales events from 2013 to 2019, which Fitch utilized to determine certain stress assumptions for asset cash flow modeling. The data provided were not, to Fitch’s knowledge, audited by any third party. Fitch compared the data provided from other lessors in the aircraft leasing sector and found the CAP data to be consistent. Fitch utilized third-party market data received from other lessors to supplement the data provided by CAP. Fitch believes the data provided by CAP and the third-party market data utilized to be adequate and robust for the analysis.

Fitch also analyzed various data provided by third-party data sources, such as appraisers and aviation consultants, to determine other assumptions for use in its modeling process. These assumptions included aircraft useful life, recessionary value declines, lease rate factors (LRFs) and maintenance expenses.

Lease Simulator Assumptions

Asset Value Assumptions

Fitch was provided with base and current market value appraisals, on both a half-life and maintenance-adjusted basis, for each aircraft in the portfolio. Avitas, Inc., Collateral Verifications, LLC (CV) and Morten Beyer & Agnew, Inc. (mba), all appraisers certified by the International Society of Transport Aircraft Trading (ISTAT), provided half-life base and market values, while maintenance adjustments were provided by ICF International Inc. (ICF). The base value (BV) appraisals estimate what an aircraft’s value is in an open, unrestrained market with a reasonable balance of supply and demand, whereas current market value (MV) appraisals estimate what the aircraft would be worth in the current market. Half-life (HL) values assume an aircraft is half-way between required maintenance events, whereas maintenance-adjusted values account for actual current aircraft condition.

Fitch utilized the maintenance-adjusted BVs (MABVs) as they reflect the current maintenance condition of the aircraft. The average MABV for each aircraft, which totals $455.0 million, was used to calculate all collateral concentrations and LTVs. This is intended to align collateral percentages with figures reported in transaction documents.

The chart on the next page displays the unadjusted appraisal comparison for each aircraft in the pool on an HL basis, showing some degree of disparity between the three appraisers. Differences between appraised values are to be expected, as the appraisers have differing views and approaches to asset valuation. There are certain aircraft in the pool for which one appraisal is materially higher than that of peers. This is most notable for the A330s, a factor Fitch considered when determining appraisal values used in modeling analysis.

LTV Comparison Capital Structure Size ($)

% of Notes

Avg. MABV LTV (%)

Fitch Modeled MABV LTV (%)

A 300,299,000 79.04 66.0 71.5 B 54,600,000 14.37 78.0 84.5 C 25,025,000 6.58 83.5 90.5

Source: Fitch Ratings, Avitas, CV, mba, ICF, AASET 2019-1.

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Fitch separately derived asset values in order to prevent excessive valuation credit from being applied to the larger aircraft in the portfolio, given the degree of variability in appraised values. The highest appraisal value was removed for the aircraft, and the average of the remaining two values was taken to determine value inputs for modeling. Furthermore, given the larger disparity of WB values and recent weakness observed on B777-200, the average of three market values provided by the appraisers was utilized. This approach yielded a modeled value for the pool of $419.9 million, approximately $35 million lower than the MABV of $455.0 million. The different appraisal values considered result in varying LTV levels on the notes. Above are the LTV levels that result from using the average MABV, and Fitch’s modeled MABV as detailed above.

Two months will have passed from the time the appraisals were completed to the assumed closing date. Fitch’s model considers depreciation of the pool of aircraft over the course of this period.

Aircraft Useful Life

Fitch considered multiple useful life assumptions to observe the transaction structure’s sensitivity to the effect of altering the pool’s expected remaining life considering the older age of the aircraft. Fitch’s primary scenario assumes a useful life of approximately 20 years, given the age of the aircraft in the pool.

Fitch typically utilizes a 25-year useful life assumption for new aircraft ABS transactions and essentially runs the assets in the cash flow model until part-out, due to the larger uncertainty regarding these pools and their targeted age for sale among lessors in the new aircraft space. However, based on data received from CAP, a majority of sales are expected to occur by year 20. CAP generally targets to sell aircraft prior to costly maintenance events, which typically

Annualized Base Aircraft Depreciation Rate Assumptions (%) Age (Years) Tier 1 Tier 2 Tier 3 0−<10 5–7 6–8 7–9 ≥10−<15 6–8 7–9 8–10 ≥15−<20 8–10 8–10 9–11 ≥20 10–12 10–12 10–12

Source: Fitch Ratings.

05

101520253035404550

($ Mil.)

MBA Avitas CV

Source: mba, Avitas, CV.

AASET 2019-1 HLBV Appraisal Comparison

Appraisal Summary ($)

Half-Life Market Value

Half-Life Base Value

ICF Mx Adjustments

Mx-Adjusted Market Value

Mx-Adjusted Base Value

Avitas 429,343,691 415,083,788 (6,167,039) 423,176,655 408,916,749 CV 452,146,500 516,010,000 (6,167,039) 445,979,461 509,842,961 mba 441,070,000 452,400,000 (6,167,039) 434,902,961 446,232,961 Average 440,853,398 461,164,596 — 434,686,359 454,997,557 Avg. Exc. Highest 428,537,099 430,426,894 — 422,370,060 424,259,855

Avg. Exc. Highest – Average excluding highest. Mx − Maintenance. Source: Fitch Ratings, Avitas, CV, mba, ICF.

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occur when assets are around 15−20 years old or later, since these maintenance events can severely affect cash flows.

In cash flow modeling, Fitch assumed CAP would sell an aircraft if it was at least 19 years old at the end of the first lease. Fitch believes it unlikely that CAP would remarket a 19-year-old aircraft and pay the costs associated with such remarketing if the aircraft is expected to be sold within a year.

For aircraft that will be over 20 years old at the end of the first lease, Fitch assumed longer useful lives to match their age at lease end to give appropriate credit to the current contracted leases. Under this approach, 15 of the 25 aircraft are assumed to be sold at the end of their initial lease, while the WA age at sale is 20.5 years. All assumptions for useful life are consistent with Fitch’s criteria and prior AASET transactions.

Aircraft Tiering and Technological Risk

Asset-specific factors that could drive an aircraft model’s future values include fuel efficiency, versatility, operator base, fleet size, types of routes served and the sustainability of future demand for aircraft, in addition to a number of other factors. Per criteria, Fitch groups aircraft into three tiers to differentiate between their expected liquidity and marketability.

Fitch’s Tier 1 classification includes the most in-demand aircraft, primarily composed of “workhorse” narrowbody models with large operator bases. Tier 2 generally consists of mid-life programs with established operator bases, and often includes in-demand widebody aircraft as well.

Tier 3 aircraft generally consist of out-of-production aircraft, particularly those facing or experiencing retirement of a substantial portion of the existing fleet. A further discussion of Fitch’s current aircraft tiers can be found in the criteria.

The A320 and B737 families of aircraft, which compose 49% of the pool, are the largest and most successful narrowbody aircraft of all time. Over 10,000 aircraft within these two families have been delivered and each variant remains in production. Each fleet is expected to grow over the remainder of this decade as a result of the orders that remain on airline orderbooks. As a result, Fitch generally considers the majority of these to be Tier 1.

However, Fitch does not consider the A319-100s within these families to be Tier 1, given the demand trend within the industry toward larger-capacity aircraft, as evidenced by the larger order books for the A320-200, A321-200 and B737-800. The shorter variants are also heavily concentrated within certain carriers and do not have extensive operator bases, such as the B737-700, which has nearly one-half its active fleet in service with Southwest Airlines.

If one or more operators decide to retire certain aircraft in their fleet or move toward newer or other technology, these shorter variants could be subjected to severe declines in values and lease rates. Fitch considers these smaller capacity variants Tier 2 assets for these reasons.

Widebody variants in the pool include A330-300 and -200 aircraft and one B777-200ER, composing 29% altogether. The A330-300 variant is more popular than the -200 with +680 in service, but concentrated in fewer operators at ~70. Production for this aircraft began in 2006, and, as such, most remain on their first leases, with the first significant batch of maturities expected to occur in 2021 and 2022. The orderbook is still fairly robust for the widebody with 78 on order through 2019. Fitch considers this variant to be Tier 1.

While the A330-200 aircraft are widely utilized, they have recently been subject to steeper drops in market values in the past few years, consistent with other widebody variants, primarily due to preference for the larger -300 variant. In addition, Rolls Royce’s policy of controlling the secondary

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engine market negatively affected values of these aircraft with TRENT engines. Furthermore, there have also been oversupply issues and competition from B787s and the new A350. The aircraft remains in production, but due to declining demand from the shift in preference to larger variants, Fitch considers these aircraft to be Tier 2.

The B777-200ER has a weakening position in the market, as it is an older aircraft and has been squeezed out by newer variants. Demand is low and the price point is expensive, making it difficult to justify the cost for many smaller airlines. However, the engine, GE90, is a strong engine for a part-out.

All aircraft in the pool will be exposed to increasing competitive pressure over the course of the transaction from existing OEMs and new entrants to the market, as described below.

• A320ceo and B737 NG: Airbus and Boeing have introduced the A320neo and B737MAX replacement programs for the A320ceo and B737 NG families of aircraft. The “neo” began service in 2016 and the “MAX” entered service in May 2017. Orderbooks for both of these new variants have increased and certain airlines have shifted their orders to the replacement technology. Nevertheless, orderbooks for the “ceo” and “NG” variants remain robust, particularly for the longer variants. Due to the massive size of the existing fleet and the length of time it will take to deliver the new aircraft, the “neos” and NGs are expected to constitute the majority of the combined fleet until well into the next decade. Fitch and industry constituents anticipate the existing technology will represent the majority of the combined fleet until approximately 2028.

• E2: Embraer plans to revamp their regional jets with new technology engines and introduce the E2 family in 2018 to the market. These new fuel-efficient jets could create pressure on the shorter variants of the A320ceo and B737 NG families.

• A220: The A200, formerly known as Bombardier’s C-Series, is expected to burn 20% less fuel than competitors. It entered service with Swiss Air in July 2016 after numerous delays in the production process and uncertainty surrounding the orderbook during the production phases. The aircraft is expected to compete directly with the shorter variants in the A320ceo and B737NG families as well as Embraer’s regional jets. However, Fitch expects the lead time for this aircraft to be lengthy, especially considering all the delays encountered thus far.

• C919: Commercial Aircraft Corporation of China, Ltd.’s (COMAC) long planned C919 is slated to compete directly with the A320ceo and B737 NG families. However, the technology of the aircraft is not expected to outpace the current technology of the in-production narrowbody fleets and is, therefore, not expected to match that of the neo and MAX aircraft. Introduction has been delayed to 2021 from 2020.

• A330 neo: Airbus plans to introduce the A330neo, with the 800 and 900 variants expected to enter service before YE18. The jets will be powered strictly by the TRENT 7000 and have better fuel burn with larger capacity and better range. In addition, the A350 XWB, which entered service in early 2015, has poached much of the demand from the existing A330 fleet. The first A330neos have been delivered, and commercial flights were launched at YE18.

• B777X: Boeing is currently developing the B777X, which will come in three variants: -8, -9 and -10. The -9 will enter service first, which is currently expected to occur in the beginning of 2020. This variant will replace the -300, although it is slightly longer and will typically seat 414 passengers, up from 396 for the -300. The -8 variant is expected to enter service two years later and will replace the -200LR variant.

While there are several new variants from other OEMs that could pressure the current next-generation narrowbody aircraft, Fitch expects most of the technological obsolescence pressure to

Fitch Tier Migration Age (Years) Tier 1 Tier 2 Tier 3 1−15 1 2 3 16−20 2 3 3 21−25 3 3 3 Source: Fitch Ratings.

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come from the neo and MAX. As their popularity increases, the airlines and lessors could shift their orderbooks to the newer variants and values for the older variants could decline. However, due to the demand for these aircraft, this would result in a lengthy delay until the aircraft are delivered. Another important factor to consider is the effect of oil prices on the next-generation aircraft. While currently low and favorable to the current fleet, oil prices could move higher in the future and force airlines and lessors to choose aircraft with better fuel efficiency.

Regardless, Fitch believes the long lead time needed to replace the current-generation aircraft will insulate the aircraft in the near to medium term. To account for the possible technological risk, Fitch assumed the pool will migrate to lower tiers over the life of the transaction.

Timing of Aviation Downturns

Fitch assumes the first recession will begin in December 2019, six months from closing, to give credit to the current positive macroeconomic environment in global aviation. This approach does not immediately stress transaction performance triggers, such as the debt service coverage ratio (DSCR). The six-month delay in the start of the first recession assumes a gradual and realistic buildup to stressed recessionary cash flow levels.

Recessions were assumed to last four years for each rating scenario, with the second recession starting five years after the end of the first. Fitch utilizes this timing assumption as it closely resembles observed aviation industry downturns that have typically lasted three to four years. Aircraft leasing is a global industry, and lessors are able to shift assets in response to regional downturns. Therefore, recessionary cycles are typically shorter than cycles observed in other ABS asset classes.

Based on these assumptions, the recessionary timing is outlined below for each recession.

• recession 1 – December 2019 to December 2023;

• recession 2 – December 2028 to December 2032; and

• recession 3 – December 2037 to December 2041.

Depreciation and Recessionary Value Declines

An aircraft’s market value is affected by depreciation and recessionary value declines. Each aircraft’s base case depreciation is determined by tier-specific curves, which are derived following a review of data from multiple appraiser sources. Fitch typically assumes commercial aircraft have a maximum useful life of 20–25 years, with each transaction’s assumption dependent on the asset types and the lessor. The table at left represents Fitch’s standard assumed depreciation rate ranges for Tier 1, 2 and 3 aircraft.

Aircraft Summary

Model Type % of Pool

No. in Pool

Fitch Tier

No. in Service

No. of Outstanding

Orders No. of

Operators Capacity

(Seats) Range

(km) Replacement Technology Current/Future Competition

B737−800 Narrow 39.8 10 1 4,938 127 213 162−189 5,400 B737 MAX 8 A320-200, A320neo, C919 A319−100 Narrow 20.9 7 2 1,357 19 160 124−156 6,950 A319neo B737-700, B737 MAX 7, CS300, E195-E2 A330-200 Wide 13.4 2 2 605 36 105 247−406 13,450 A330neo A350, B787, B777 A330−300 Wide 11.9 2 1 699 34 72 277−440 11,760 A330neo A350, B787, B777 A321-200 Narrow 6.8 2 1 1,629 0 107 185−236 5,950 A321neo 737-900ER, B737 MAX 9 B777-200ER Wide 4.1 1 2 397 0 41 313-440 7,065 B777X B777X-8, -9, -10 A320−200 Narrow 3.1 1 1 4,177 107 254 150−180 6,100 A320neo B737-800, B737 MAX 8, C919

Source: Airbus.com, Boeing.com, Aviation Specialists Group.

Annualized Base Aircraft Depreciation Rate Assumptions (%)

Age (Years) Tier 1 Tier 2 Tier 3 0 ≤ to < 10 5–7 6–8 7–9 10 ≤ to < 15 6–8 7–9 8–10 15 ≤ to < 20 8–10 8–10 9–11 ≥ 20 10–12 10–12 10–12


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Fitch’s depreciation schedules assume that heavier depreciation (in dollar terms) occurs during the first several years, with tapering depreciation in the latter years. Tier 2 and 3 aircraft depreciation rates are higher in the early years, but all reach parity in the latter years of the aircraft life. Depreciation assumptions may vary between aircraft types and can change over time. Factors that can influence Fitch’s depreciation assumptions include an aircraft’s marketability, useful life, appraiser expectations and market conditions.

Fitch’s aircraft operating lease ABS criteria assume that recessions occur periodically through the life of a transaction to mimic aviation downturns. During these assumed downturns, Fitch assumes significant value declines occur, outside of expected depreciation.

Fitch’s criteria utilize specific stresses for each rating category and tier based on historical experience. These assumed declines reference observations from the 2001‒2003 and 2007‒2009 aviation market downturns as a basis for base case decline rates (the Bsf rating scenario) and are stressed incrementally for each higher rating category, as detailed in the table at the left. Under Fitch’s modeling scenarios, aircraft values are not assumed to recover from these recessionary declines, a trend that has been observed for certain aircraft historically.

Fitch utilized the lower end of the indicative criteria ranges with respect to both depreciation and recessionary value declines for 2019-1. These assumed depreciation rates and value declines are consistent with recent Fitch-rated transactions. Fitch assumed three years for the length of the recessionary asset value decline under all rating scenarios. This is consistent with assumptions used for 2018-2. The shorter the value decline, the more quickly the impact is felt by the transaction in terms of decreased lease revenue.

Lease Rate Factor

Fitch utilizes the lease rate factor (LRF) as a constant to derive lease rates, rather than a stressed assumption. If a new lease is assumed to be executed in any given month, the new lease rate is the product of the then-assumed aircraft market value and the assumed LRF. For example, if an aircraft is assumed to be worth $20 million at the time of lease execution and the assumed LRF is 1.00%, the aircraft would be expected to enter a new lease with a rental payment of $200,000 per month.

As aircraft age, LRFs tend to increase, as the monthly rent collections for aircraft do not decline as rapidly as their value, as evidenced by the current lease rates in the pool, lease rate data from other lessors and appraisal firm forecasts. This is particularly true for mid- to late-stage aircraft. Fitch maintains a database of LRFs on various pools of aircraft from multiple lessors to calibrate the LRF assumptions.

Fitch compared the LRFs of the pool’s leases to Fitch’s internal LRF curve for commercial aircraft to determine if any adjustments were warranted. Fitch deemed the LRFs in the pool to be consistent with, but slightly lower than, LRFs at certain ages when compared to Fitch’s LRF curve. Current lease rates are, on average, approximately 33bps below Fitch’s LRF curve, which is worse than 16bps below observed for 2018-2 and 23bps below for 2018-1. However, the comparison is not ideal, as it shows lease rates that may have been in place for years versus current aircraft values as opposed to values at lease origination.

Additionally, Fitch’s LRF curve in modeling scenarios is multiplied by market value, so aircraft values are far more stressed in relation to the base values and, thus, so are future assumed lease rates. Furthermore, certain aircraft in the pool are seasoned over 10 years into their leases, and some aircraft in the pool were acquired from other lessors. Certain leases in the pool may not reflect lease rates CAP would negotiate with a new lessee in the event of a lease transition event. Therefore, no adjustments were made to Fitch’s historical LRF curve utilized in cash flow modeling. To account for

Fitch Recessionary Values Decline Ranges (%)

Asf BBBsf BBsf Bsf Tier 1 25−30 20−25 15−20 10-15 Tier 2 35−40 30−35 25−30 20−25 Tier 3 45−50 40−45 35−40 30−35


Fitch Recessionary Values Decline Assumptions (%)

Asf BBBsf BBsf Bsf Tier 1 25 20 15 10 Tier 2 35 30 25 20 Tier 3 45 40 35 30


Structured Finance


potential softness in lease rates, Fitch ran a sensitivity scenario in which lease rates were stressed downward from Fitch’s assumed curve by 25%.

Lessee Default Rate

Fitch’s assumptions regarding lessee default rates are predicated on the actual rating of the lessee and the historical default rate for corporate debt obligations, which carried that same rating. As an input in its model, Fitch first looks to the actual ratings for all rated lessees in the initial pool. However, a majority of the lessees in the initial pool are unrated. Only two of the initial lessees carry public ratings: American Airlines at ‘BB-’ and Gol at ‘B’. For the unrated lessees, Fitch generally assumed default performance consistent with a ‘B’ or ‘CCC’ IDR. There is a higher concentration of ‘CCC’ rated lessees than prior AASET transactions. A rating of ‘B’ produces a default probability of 22%−27% over the typical 5−7 year window of a long-term operating lease and produces default rates significantly in excess of observed securitization historical airline/lessee default experience through recent aviation downturns.

Public ratings from Fitch were utilized for the following 2 airlines, totaling 23.2% of the pool:

• American Airlines – parent American Airlines Group, rated ‘BB-’; Outlook Stable; • GOL – parent GOL Linhas Aereas Ineligentes S.A., rated ‘B’; Outlook Stable.

Fitch identified nine airlines in the initial pool that display relatively weaker operating performance, have limited size or have a short operating history. These airlines include Air Senegal, Ukraine International Airlines, XL Airways France, Corendon Airlines, Sky Angkor, Nesma Airlines, Olympus Air, Croatia Airlines and AirExplore. As these airlines are perceived to be weaker credits, they were assumed to carry ‘CCC’ IDRs, totaling 47.5% of the pool.

In Fitch’s primary stressed scenarios, all leases executed in the future were assumed to be placed with a ‘B’ credit, regardless of the rating of the initial lessee. During the first assumed recession, the credit rating of initial lessees is assumed to drop by one notch for non-distressed ratings and one category for distressed ratings (e.g. B to B− or CCC to CC). Fitch views the migration as appropriate, considering the current relative profitability and healthy financial condition of many large commercial airlines. During future recessions, all ratings are assumed to migrate to ‘CCC’. Similarly, as aircraft migrate to Tier 3, they are assumed to be placed with ‘CCC’ lessees, reflecting the historical observation that lower-tier aircraft migrate to lower credit lessees, often in emerging markets. The default rate for ‘CCC’ credits is significant, with a 25% assumption in the first year.

Repossession and Remarketing Downtime

Upon lessee default and/or lease termination, aircraft may experience a period during which they are not leased and, thus, not generating cash flow. Low portfolio utilization as a result of these downtime periods can provide a substantial stress to cash flow and impair the ability of the pool to repay the notes. Fitch’s lease simulations assume some period of downtime occurs during each instance of repossession and remarketing to account for risks associated with these events.

Fitch’s remarketing and repossession downtime assumptions can be seen in the table on the prior page. Fitch’s analysis of CAP’s historical remarketing activity, which was compared to industry data from other lessors, produced the probabilistic distribution of remarketing, as detailed for the ‘Asf’, ‘BBBsf’ and ‘BBsf’ stress scenarios. Fitch utilized CAP’s downtime data to derive ‘Bsf’ base assumptions before adding incremental stresses across rating scenarios.

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In addition, Fitch included additional downtime assumptions for repossession events as shown in the table on the prior page. For the ‘Asf’ scenario, aircraft are assumed to be grounded for an additional three months in a non-recessionary period and four months in a recessionary period. In a default scenario, the aircraft experience both repossession downtime and remarketing downtime. For example, in a non-recessionary period under the ‘Asf’ scenario, a Tier 1 aircraft would be exposed to three months of downtime related to repossession of the aircraft and up to seven months of remarketing time.

Repossession and Remarketing Cost

Fitch derived lease transition cost assumptions for aircraft based on data provided by CAP as well as industry data compiled from other lessors. Cost assumptions were separated by narrowbody and widebody aircraft, since widebody aircraft typically incur higher costs due to larger reconfigurations, higher maintenance and less marketability compared to narrowbody aircraft. Fitch derived ‘Bsf’ assumptions from CAP and industry data, with incremental stress added across rating scenarios up to ‘Asf’. Therefore, Fitch considers the stressed costs to be conservative relative to the historical experience of CAP and other lessors.

Fitch assumed costs for repossession and remarketing events of $450,000 and $400,000, respectively, for narrowbody aircraft under the ‘Asf’ stress scenario. For widebody aircraft under the same scenario, repossession and remarketing cost assumptions were increased to $700,000 and $800,000, respectively. Costs decrease across rating scenarios, per the table at left.

An aircraft experiences both repossession and remarketing costs when an airline default occurs in these scenarios. For example, under the ‘Asf’ scenario, a widebody aircraft would be exposed to $700,000 and $800,000 in repossession and remarketing costs, respectively, for an aggregate cost of $1.5 million. Narrowbody aircraft in the same scenario would incur a total of $850,000 in costs. Per Fitch’s criteria, security deposits in place for the initial pool of lessees can be utilized to offset costs associated with airline defaults. However, future lessees are not assumed to have security deposits.

Downtime Assumptions Remarketing Downtime (%, Cumulative Probability) Asf BBBsf BBsf Recessionary Non-Recessionary Recessionary Non-Recessionary Recessionary Non-Recessionary Month(s) Tier 1 Tier 2 Tier3 Tier 1 Tier 2 Tier3 Tier 1 Tier 2 Tier3 Tier 1 Tier 2 Tier3 Tier 1 Tier 2 Tier3 Tier 1 Tier 2 Tier3 1 45 40 35 55 50 45 50 45 40 60 55 50 55 50 45 65 60 55 2 55 50 45 65 60 55 60 55 50 70 65 60 65 60 55 75 70 65 3 65 60 55 75 70 65 70 65 60 80 75 70 75 70 65 85 80 75 4 75 70 65 85 80 75 80 75 70 90 85 80 85 80 75 95 90 85 5 80 75 70 90 85 80 85 80 75 95 90 85 90 85 80 100 95 90 6 85 80 75 95 90 85 90 85 80 100 95 90 100 95 90 100 100 95 7 90 85 80 100 95 90 100 95 90 100 100 95 100 100 95 100 100 100 8 100 95 90 100 100 95 100 100 95 100 100 100 100 100 100 100 100 100 9 100 100 95 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 10 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Repossession Downtime (No. of Months) Asf BBBsf BBsf Non-Recessionary 3 2 2 Recessionary 4 3 2


Repossession and Remarketing Cost Assumptions ($000s)

Repossession Asf BBBsf BBsf Narrowbody 450 400 350 Widebody 700 650 600 Remarketing Asf BBBsf BBsf Narrowbody 400 350 300 Widebody 800 700 600

Structured Finance


Terms of New Leases

The assumed length of new leases in Fitch’s modeling scenarios has a direct impact on portfolio utilization and, ultimately, cash flow. Fitch assumed new lease terms of 50, 55 and 60 months in assumed non-recessionary periods for ‘Asf’, ‘BBBsf’ and ‘BBsf’, respectively. During assumed recessions, these terms were stressed to 40, 45 and 50 months, respectively. Fitch derived ‘Bsf’ assumptions from CAP data and data provided by other lessors, with incremental stress added across rating scenarios up to ‘Asf’.

Fitch assumed a certain amount of lease extension activity for aircraft in the pool. Fitch assumed a stressed rate of 50% probability of lease extension for each rating scenario with conservative lease terms of 24, 30 and 36 months under ‘Asf’, ‘BBBsf’ and ‘BBsf scenarios, respectively. When deriving the extension rate, Fitch considered the high level of extensions observed in CAP’s data relative to other lessors. Per criteria, these leases would not be exposed to remarketing downtime but would reset the lease rate according to the assumed aircraft value and Fitch’s LRF curve.

Residual Sales Proceeds

Consistent with the analysis of prior AASET transactions, Fitch utilized a sales proceeds assumption of 50% for a majority of the aircraft in the pool. However, sales assumptions were adjusted upward for certain aircraft types expected to be sold within a relatively short time frame due to observed strong sales proceeds for those aircraft. Fitch made this adjustment following a review of sales proceeds data from multiple lessors. Fitch has compiled sales data on over 700 different aircraft sales since the late 1990s, including data for variants in this pool.

Fitch applied a higher residual realization percentage for in-production narrowbody aircraft sold within five years from the pool’s cutoff date. Higher residual credit is warranted for sales of these aircraft expected to occur in a shorter time horizon, as there is less uncertainty regarding value volatility when compared to an aircraft that is not expected to be sold for many years. Fitch applied 85% residual realization credit for any A320-200s and B737-800s sold within five years. There are several aircraft in the portfolio that are expected to be sold at the end of the initial lease and have fairly sizable expected end-of-lease proceeds, which will be owed by the lessee at lease termination. The combination of Fitch’s residual credit, which would have been 85%, and the end of lease proceeds, could overstate the actual anticipated total value for the aircraft. The residual analysis resulted in eight aircraft receiving 85% credit and the remaining 17 receiving 50%. On a WA basis, residual realization credit for the aggregate portfolio is 58%, lower than that of AASET 2018-2 and 2018-1.

The chart below shows average sales realization proceeds as a percentage of appraised values for the four variants to which Fitch is recommending credit above 50% to be given. As shown, the A319-100 and B737-700 have performed well from a sales perspective in comparison to the A320-200 and B737-800 aircraft. However, the A320-200 and B737-800 data are more extensive, each encompassing over 50 sales events. Sales data provided by CAP were found to be consistent with data aggregated in Fitch’s database.

New Lease Term Assumptions (Months)

Asf BBBsf BBsf

Non-Recessionary 50 55 60 Recessionary 40 45 50 Extensions 24 30 36


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An important consideration is that aircraft forecast to receive higher residual proceeds are still subject to Fitch’s standard depreciation and recessionary value decline stresses until they are sold, and Fitch’s residual credit is based off of stressed market values. As discussed previously, in the ‘Asf’ scenario, Tier 1, 2 and 3 aircraft are subject to residual value declines of 25%, 35% and 45%, respectively, on top of standard depreciation assumptions, which are high considering the elevated ages of the aircraft.

Cash Flow Forecasts

Cash Flow Inputs The table below displays the assumptions utilized in cash flow modeling for Fitch’s primary cash flow scenarios. Under these scenarios, the pool generates $361 million, $374 million and $386 million in gross cash flow, including residual proceeds, for the ‘Asf’, ‘BBBsf’ and ‘BBsf’ scenarios, respectively.

All told, under Fitch’s primary scenarios, the portfolio generated utilization rates in the 80%−96% range, depending on whether an assumed recession was occurring, significantly below utilization rates observed in the prior four AASET transactions.

020406080

100120140160180200

11 12 13 14 15 16 17 18 19

B737NG Average Sales Realization A320ceo Average Sales Realization

Note: No sales data for 19-year-old B737NG Family.Source: Fitch Ratings.

(%)

Age

Aircraft Sales Realization Segemented by Age and Family

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Liability Modeling Fitch applied the assumed lease cash flows and residual sales proceeds generated using its lease simulation model to the transaction’s liability structure to determine whether or not the notes paid in full under various scenarios. Fitch conducted this process for the primary ‘Asf’, ‘BBBsf’ and ‘BBsf’ cash flow scenarios, as well as the sensitivity scenarios. All scenarios were run to legal final maturity.

Maintenance Reserve Account and Modeling Full detail on the structure of the MRA can be found on pages 23−24. Initial maintenance revenue and expense projections were completed by ICF, while future expected expenses for the purposes of sizing the MRA will be updated semiannually by the servicer, and reviewed for reasonableness by ICF. To evaluate the adequacy of the proposed MRA structure, Fitch provided ICF with ‘Asf’, ‘BBBsf’, ‘BBsf’ and ‘Bsf’ stress assumptions consistent with those used in Fitch’s asset model. The stresses addressed default probability, remarketing and repossession downtime, extension rates and expected terms of new leases.

Fitch Forecast Assumptions Summary

Asf BBBsf BBsf

Base Case Depreciation (Year-over-Year Depreciation Rate %) -- (Years 1‒10/11‒15/16‒20/21‒25)

Tier 1 5/6/8/10 5/6/8/10 5/6/8/10

Tier 2 6/7/8/10 6/7/8/10 6/7/8/10

Tier 3 7/8/9/10 7/8/9/10 7/8/9/10

Recessionary Value Shock (Total Value Decline) (%)

Tier 1 25 20 15

Tier 2 35 30 25

Tier 3 45 40 35

Length of Value Decline Three Years Three Years Three Years

Rating Assumption for Unrated Obligors

Non-Recessionary B/CCCa B/CCCa B/CCCa

First Recession B−/CC B−/CC B−/CC

Second and Third Recession CCC CCC CCC

Remarketing Downtime (%) See Remarketing Probability Table on Page 12

Repossession Downtime (Months) Non-Recessionary 3 2 2

Recessionary 4 3 2

Remarketing/Repossession Costs ($)

Narrowbody Remarketing 400,000 350,000 300,000

Repossession 800,000 700,000 600,000

Widebody Remarketing 450,000 400,000 350,000

Repossession 700,000 650,000 600,000

Long-Term Lease Length (Months)

Non-Recessionary 50 55 60

Recessionary 40 45 50

Extensions 24 30 36

Lease Extension Rate (%) 50 50 50 Residual Sales Proceeds (% of Projected Market Value)

A320-200 / B737-800 Sale within Five Years 85 85 85

A319-100 / B737-700 Sale within Five Years 50 50 50

All Other Aircraft Sales 50 50 50

aNine airlines are assumed to initially be rated ‘CCC’. Source: Fitch Ratings.

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Fitch’s primary maintenance scenario also included the assumption that only 50% of future lessees would be required to pay monthly maintenance reserves. This assumption exposes the trust to larger uncovered maintenance expenses in the event of lessee default and is conservative relative to the initial lease pool in which 19 of the 25 leases (88%) pay maintenance reserves.

ICF provided Fitch with initial expected maintenance collections and expenditures based on these and other factors, including the current condition of the aircraft and typical usage patterns. While ICF’s base case expectations called for expected future net income from maintenance collections relative to expenses of approximately $180 million in Fitch’s modeling scenarios, Fitch’s stressed maintenance scenarios with the 50% maintenance payer assumption resulted in a range of $90 million–$105 million in lifetime net maintenance collections.

Stress Scenario Results Under the primary cash flow scenarios detailed on page 15, the class A, B and C notes were able to pay in full under the ‘Asf’, ‘BBBsf’ and ‘BBsf’ scenarios, respectively, prior to their legal final maturity dates. As a result, Fitch is expected to assign ratings of ‘Asf’ for the class A notes, ‘BBBsf’ for the class B notes and ‘BBsf’ for the class C notes.

Legal Structure AASET 2019-1, the master issuer, is a newly established, bankruptcy-remote, special-purpose Delaware statutory trust. AASET 2019-1 will be beneficially owned by a Delaware charitable trust. The AOEs, which directly or indirectly lease aircraft to U.S. carriers, such as American Airlines in the initial pool, will be wholly owned by AASET US (formerly known as AASET 2016-1 US Ltd), a Cayman exempted company, incorporated with limited liability. All other AOEs directly or indirectly

0

20

40

60

80

100

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Asf NCF (LHS) BBBsf NCF (LHS) BBsf NCF (LHS)Asf Utilization (RHS) BBBsf Utilization (RHS) BBsf Utilization (RHS)


($000)

AASET 2019-1 Primary Cash Flow Runs(Net Cash Flow Excluding Aircraft Sales)

(%)

Primary Stress Scenario

Net Cash Flowa ($) Avg. Utilization (%) Class A Result Class B Result Class C Result

Asf 218,802,639 90.2 Pass Pass Fail

BBBsf 228,837,060 91.9 Pass Pass Fail BBsf 237,179,476 93.3 Pass Pass Pass

Implied Rating Asf Asf BBsf aExclusive of aircraft sales proceeds. Source: Fitch Ratings.

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leasing aircraft will be wholly owned by a newly organized Luxembourg S.a.r.l. that, in turn, will be wholly owned by AASET International (formerly known as AASET 2016-1 International Ltd.), a Cayman exempted company incorporated with limited liability.

Fitch believes the legal structure of the transaction provides that a bankruptcy of CAP, or affiliated entities, would not impair the timeliness of payments on the notes. Fitch expects to receive and will review legal opinions to the effect that the transfers of the leases, aircraft and beneficial interests in the AOEs to the AOE issuers constitute a true sale and not a secured financing, and that the assets of 2019-1 would not be consolidated with those of the sellers in the event of bankruptcy. Furthermore, Fitch expects to receive an opinion of counsel stating the trustee would have a first-priority perfected security interest in the assets transferred from SASOF III to 2019-1.

AASET 2019-1 — Anticipated Ownership Structure After Delivery

aNewly created. bThe servicer will provide asset portfolio management services to the AOE Group. The managing agent will provide cash management and administrative services to AASET and the AOE Group. cEach of the AOE Group members have pledged or will pledge, and AASET will pledge, substantially all of its assets to a security trustee for the benefit of the secured parties under the applicable security trust agreement. dThe liquidity facility provider will enter into the liquidity facility with the two AOE issuers, as borrowers. Note: The chart describes the anticipated structure of the transaction at the end of the Purchase Period. Dotted lines indicate payment or service obligations, and solid lines indicate ownership interests.Source: CAP.

AASET 2019-1 Trusta

“Master Issuer”

DE Orphan Charitable Trusta

AASET 2019-1 US Ltd. AASET 2019-1 International Ltd.

Series A, B and C Notes

E Certificates

Class A, B and C Notes

Initial Note Holders

Trustees and Security Trusteesc

Liquidity Facility Providerd

Cayman Trustee of Cayman

Charitable Trust

Managing Agentb

Servicerb

Cayman Trustee of Cayman

Charitable Trust

AASET Luxembourg

Eight Irish Companies

23 Initial Aircraft

Delaware LLC

Two Trusts

Two Initial Aircraft

E Certificate Investors

Certificate Issuer

U.S. E Certificate Subsidiary

E Certificates

E Certificates

Series A, B and C Notes

Structured Finance


Asset Analysis The notes issued from 2019-1 are secured by a pool of 25 mid-life commercial aircraft, manufactured by Boeing (44.0%) and Airbus (56.0%). This compares to 32.0%/68.0% in 2018-2, 53.1%/46.9% in 2018-1 and 41.8%/58.2% in 2017-1 for Boeing and Airbus concentrations, respectively. All concentrations, aircraft ages and remaining lease terms herein are based on the pool’s average maintenance-adjusted base value appraisals, dated as of March 2019.

AASET Comparison

AASET 2019-1 AASET 2018-2 AASET 2018-1 AASET 2017-1 AASET 2016-2 AASET 2016-1 AASET 2014-1 Pool Appraisal Date March 2019 September 2018 October 2017 March 2017 September 2016 December 2015 July 2014 Closing Date June 2019 November 2018 January 2018 June 2017 November 2016 March 2016 December 2014 Total Assets Value ($)a 454,997,557 734,298,480 528,391,558 730,801,974 792,213,272 632,241,508 767,366,726 No. of Assets 25 35 24 32 35 32 40 Average Assets Value ($) 18,199,902 20,979,957 22,016,315 22,837,562 22,634,665 19,757,547 19,184,168.15 No. of Lessees 17 30 16 23 22 20 20 Average Lessee Concentration ($) 26,764,562 24,476,616 33,024,472 31,773,999 36,009,694 31,612,075 38,368,336.30 WA Aircraft Age (Years) 15.8 13.9 14.1 12.2 12.2 14.8 14.2 WA Remaining Term (Years) 3.9 3.6 4.1 4.7 4.7 3.5 3.6 Aircraft Type Concentrations (%)

Narrowbody 70.6 66.6 66.2 70.7 80.6 70.4 76.1 Widebody 29.4 33.4 33.8 29.3 19.4 29.6 23.9 OEM Concentrations (%) Boeing 56.0 32.0 53.1 41.8 35.5 36.4 35.0 Airbus 44.0 68.0 46.9 58.2 64.5 63.6 65.0 Top Variant Concentrations (%)

First Largest Variant B737-800 – 39.8 B737-800 – 30.3 B737-800 – 34.9 B737-800 – 40.0 A320-200 – 27.7 B737-800 – 29 A321-200 – 19 Second Largest Variant A319-100 – 20.9 A320-200 – 24.1 A330-200 – 22.5 A330-200 – 29.3 B737-800 – 23.2 A319-100 – 24 B737-800 – 15 Third Largest Variant A330-200 – 13.4 A330-200 – 20.1 A320-200 – 11.3 A319-100 – 19.8 A330-200 – 19.4 A330-300 – 16 A330-300 – 14 Top Three Variant Concentration 74.1 74.5 68.7 89.1 70.3 69 48 Top Lessee Concentrations First Largest Lessee (%) American

Airlines – 11.9 China Airlines –

13.3 Beijing Capital Airlines – 11.4

Air Europa – 11.8 American Airline – 10.2

EasyJet – 14.2 US Airways – 11.3

Second Largest Lessee (%) Gol – 11.3 Enter Air – 7.4 FlyGlobal – 11.3 Air Asia– 6.8 Virgin America – 7.5

US Airways – 12.5 AtlasJet - 10.2

Third Largest Lessee (%) Air Senegal – 9.6 Garuda Indonesia – 7.2

Vueling – 8.1 Jet Airwayl – 6.8 Spice Jet – 7.3 Iberia – 8.7 SriLankan – 9.9

Top Three Lessee Concentration (%) 32.8 27.9 30.6 24.7 25.0 35.4 31.4 Top Three Country Concentrations

First Largest Country (%) Brazil – 16.9 Taiwan – 13.3 Russia – 12.9 Spain – 11.8 U.S. – 17.8 U.K. – 18.7 U.S. – 16.1 Second Largest Country (%) France – 12.0 Russia – 10.2 France – 11.1 India – 10.5 Indonesia – 11.1 U.S. – 12.5 Turkey – 15.6 Third Largest Country (%) U.S. – 11.9 Poland – 7.4b China – 11.4 Canada – 7.6 India – 7.3 Spain – 8.7 Germany – 10.8 Top Three Countries Concentration (%) 40.7 32.5b 35.4 29.7 36.1 39.9 42.5 aAverage of MABVs for AASET 2018-2, 2016-2, 2016-1 and 2014-1; LMM of MABVs for AASET 2018-1 and 2017-1. bAccounts for follow-on lease with AlbaStar. Source: Fitch Ratings, CAP.

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Aircraft Attributes

Aircraft Types Neutral

The variant with the highest concentration is the B737-800 with 10 aircraft (39.8%), followed by the A319-100 (20.9%) with four aircraft. The B737-800, A330-300 (11.9%), A321-200 (6.8%) and A320-200 (3.1%) are Tier 1 aircraft due to their large operator bases, demand profiles and remaining order books. The A319-100 (20.9%), A330-200 (13.4%) and B777-200ER (4.1%) are Tier 2 due to airline and lessor preference for larger-capacity variants. The pool comprises 70.6% narrowbody aircraft with the remaining 29.4% consisting of widebody aircraft. This is in line with prior pools’ narrowbody and widebody concentrations, which had ranged from 66.2%−72.1% and 27.6%−33.8%, respectively.

Within the widebody concentration, there has been a notable shift from Boeing to Airbus, consistent with 2018-2. The prior transaction featured all widebody Airbus aircraft, while this transaction features one B777. For further detail on each aircraft in the pool, see Appendix B.

Aircraft Age Increasing

The WA age of the pool is 15.8 years, higher than 13.9 years, 14.1 years and 12.2 years in 2018-2, 2018-1 and 2017-1, respectively. The largest shift in this pool is in aircraft aged over 15 years (54.6%), which is up significantly from 34.4% in 2018-2 and more in line with 58.5% in 2018-1. This contributes to more variants transitioning to Tier 2 or 3 based on age, consistent with criteria. 100% of this pool is older than 10 years, consistent with the overall older profile of AASET transactions, but the oldest in recent AASET transactions. The 2019-1 pool skews older from an age perspective compared to other mid- to end-of-life aircraft ABS transactions that have come to market since 2015.

Engine Types Neutral

60.3% of the pool is powered by CFM International’s (CFM) 56-5B and 56-7B engines utilized for the next-generation B737 and A320 families. This is up from 53.4% in 2018-2 and 47.3% in 2018-1, and consistent with 58.3% in 2017-1. Fitch considers these engines the most marketable since there is high demand for them in the secondary market and they can be utilized in part-out situations to generate significant sales proceeds.

The TRENT 772B powers two A330-200 aircraft, making up 13.4% of the pool, for which there are both positive and negative attributes. A330-200s, powered by TRENT engines, are more popular than those with the competing GE CF6 engines. An operator currently flying A330-200s powered by

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12

16

20

0

20

40

60

80

100

AASET2019-1

AASET2018-2

AASET2018-1

AASET2017-1

AASET2016-2

AASET2016-1

AASET2014-1

>10 Years Old (LHS) WA Age at Appraisal (RHS)

Source: CAP.

(Years)(%)

Greater than 10-Year Old Concentration Comparison

B737-800

39.8%

A319-100

20.9%

A330-200

13.4%

A330-300

11.9%

A321-200

6.8%

B777-200ER4.1%

A320-200

3.1%

Source: CAP.

Aircraft Variants

Structured Finance


TRENTs and looking to lease more A330-200s is likely to seek those with similar engines. The PW4000-100 powers the two A330-300 aircraft, composing 11.9% of the pool.

The two A330-200s, Azul and XL Airways are a part of Rolls Royce’s (RR) Total Care Program, in which the maintenance on the engines are guaranteed by RR, and any end of lease expectations are to be paid at lease end by RR thereby mitigating credit risk of the respective lessees. As an added protective mechanism, if the engines are being serviced by RR when the lessee defaults, then the lessor has control and the ability to direct RR on which party to release the engine to, potentially decreasing time to repossess.

A portion of the A320 family aircraft in the pool is powered by IAE’s V2500 engines, totaling 10.3%, down from 13.2% in 2018-2 and 18.9% in 2018-1. Fitch considers this engine less marketable compared to CFM’s 5B engine, since the operator base and production levels are lower. However, values for the V2500 have been positively affected by recent lower supply levels due to production cuts from IAE.

The B777 is powered by GE90, composing 4.1% of the pool. On the other hand, residual values on TRENT-powered aircraft have been negatively affected as the secondary market is controlled by the manufacturer, RR, hindering the ability to sell or part-out the engines. The inability to sell these engines is part of the reason why the competing B777-200 aircraft experienced significant value weakness in recent years. However, as mentioned previously, RR has recently implemented programs to make it possible to sell or part-out engines powering the A330-200. These factors have been met with mixed results by the appraisers, as some view those powered by TRENT engines as being stronger, while others prefer the CF6 engines.

Lessee Attributes

Lessees Weakening

There are 17 lessees in the pool with American Airlines, Inc. (AA) having the largest concentration at 11.9% with two A330-300 aircraft on lease. VRG Linhas Aereas S.A. (GOL) (11.3%), Air Senegal S.A. (Air Senegal) (9.6%), UTAir Aviation (UTAir) (9.3%) and Ukraine International Airlines PJSC (8.0%) round out the top five lessees totaling 50.1%. Seven airlines in the pool are flag carriers for their respective countries, although most do not receive direct financial support from government-owned entities.

The pool is diverse from a lessee standpoint with the top three totaling 32.8%, at the lower end of the range observed in mid- to late-life aircraft ABS transactions in the past three years, which have largely ranged from 25%−55%. The previous AASET transactions had top three

02468

101214

Source: CAP.

(%)

AASET 2019-1 Initial Lessee Concentrations

Structured Finance


concentrations of 25%−35%. Lessee diversification is important as airlines are generally lowly rated entities and the bankruptcy of a large lessee could disrupt transaction cash flow. However, lessees will change over time, and top concentrations may increase in the latter stages of the transaction’s life.

Fitch rates two lessees in the pool, AA (BB−/Stable) and GOL (B/Stable). These ratings were used as inputs in Fitch’s cash flow model to account for the default probabilities of airlines. If available, internal credit opinions or ratings from NRSROs were used for other airlines in the pool. However, the vast majority is unrated. For the unrated portion, Fitch derived initial rating assumptions based on the current and perceived health of each carrier. Some of the pool was assumed to be ‘B’, but Fitch assumed ‘CCC’ for 47.5% of the pool, up markedly from 30.6% in AASET 2018-2 and 24.4% in 2018-1, reflecting the weaker credit profile of the pool compared to that of airlines globally.

Fitch considered nine airlines to be ‘CCC’ due to limited operating histories, small fleets or operational difficulties in recent years. For an extended discussion of each lessee in the pool, see Appendix A.

Geographic Concentrations Improving

The initial lessees are well-distributed across the globe, with lessee concentrations in 14 different countries. Brazil (16.9%), France (12.0%) and the U.S. (11.9%) are the top three countries in the pool, totaling 40.7%. This concentration is at the lower end of the range for mid- to end-of-life aircraft ABS transactions, which have ranged from 29.6% to as high as 67.7%. Developed countries represent 40.2% of the pool, while emerging markets represent 59.8%. The results are generally in line with those of the three latest AASET transactions, as well as with recently issued aircraft ABS. Developed Europe has the highest concentration at 28.4%. Emerging APAC countries represent 3.6% of the pool, contrary to the industry and CAP’s recent growth within the region.

The top three countries in the pool are generally stronger economies, leading with Brazil, France and the U.S. Growing markets are represented in the pool, but there are concentrations in countries currently experiencing varying degrees of financial or geopolitical stress. Russia, the fifth highest country in the pool, experienced recent currency devaluation and economic headwinds; however, the economy is now recovering. Middle Eastern countries (13.1%) continue to operate in a region host to numerous conflicts including the ongoing Syrian Civil War and the Qatar crisis.

Despite the economic and geopolitical risks associated with the countries in the pool, no single country totals over 16.9%, and outside the two rated entities in the pool, each lessee has a concentration below 10%. Additionally, several countries have high investment-grade sovereign Long-Term IDRs of ‘A–’ or higher at 34.0% of the pool.

Geographic diversification is important to shield the transaction from rolling regional recessions and economic downturns that may affect lessees’ financial strength and their ability to make payments. As the pool of lessees and, thus, country/region concentrations will change over time, concentration limits are in place to limit the portfolio’s exposure to any particular country or region. The geographic risks mentioned have been addressed in Fitch’s assumptions and stresses applied during its credit analysis of the transaction.

Lease Attributes

Lease Term Stable

The WA remaining lease term of the pool is 3.9 years, in the middle range for mid- to end-of-life transactions, which have generally ranged from 2.0 to 5.0 years. 2019-1 is generally consistent

Structured Finance


with each of the prior three transactions, at 3.6, 4.7 and 4.7 years, respectively. The WA original term for the pool is 9.8 years, slightly lower than terms observed for other lessors in the market. There are several aircraft in the pool that have been on lease longer than 10 years, which Fitch considers a positive considering the long relationships certain lessees have had with their aircraft.

Lease Maturities Improving

The earliest lease maturities are in 1Q20 and 3Q20 with AirExplore S.R.O. (AirExplore) and GOL, collectively totaling 8.1%. The next earliest lease maturities are in 2021, when five aircraft come off lease, totaling 14.3% of the pool. Six (29.5%), three (13.3%) and five aircraft (23.4%) come off lease in 2022, 2023 and 2024, respectively, collectively representing 66.2% of the pool. While this is a somewhat concentrated maturity schedule over a three-year period, it is not uncommon for aircraft ABS that feature older collateral pools. Furthermore, it is down from the 2018-2 peak concentration of 76.1% over a similar three-year period.

Lease maturity distribution is important in aircraft operating lease transactions as cash flow available to pay principal may decline if multiple aircraft come off lease and are grounded at the same time. However, Fitch expects that a significant number of aircraft in the 2019-1 pool will be sold at the end of their initial lease.

Fitch will monitor the sales and re-leasing activities as 2020 approaches, as CAP typically begins negotiations with lessees 18–24 months prior to lease expiry and maintains a strategy of extending leases as long as possible until aircraft reach a targeted sale age of 18−20 years. Given the elevated age of the pool, it may take CAP a longer time frame to remarket certain aircraft. However, CAP has consistently displayed the ability to efficiently extend leases or remarket or sell aircraft with minimal downtime.

Lease Rate Factor Declining

As discussed previously, Fitch compared the LRF of the leases in the pool with the Fitch LRF curve utilized to determine future lease rates in cash flow modeling. The leases are generally consistent with, but lower than, Fitch’s LRF curve. On average, there is a negative 33-bp difference between the current LRF of each aircraft and the expected LRF based on Fitch’s LRF curve, higher than for 2018-2 and 2018-1 at negative 16-bp and negative 27-bp differentials, respectively. However, it is important to note that the LRFs are a measure of the lease rate against current age and base values and not the age and base values at lease inception, the latter of which are unavailable. Furthermore, a majority of aircraft are expected to be sold at the end of their first lease. Nevertheless, Fitch has conducted a sensitivity analysis to test the effect of reduced lease rates on the cash flows.

0.01.02.03.04.05.06.07.0

05

101520253035

2020 2021 2022 2023 2024 2025 2026 2027

% of Pool (LHS) # of Aircraft (RHS)

Source: CAP.

(No.)(%)

AASET 2019-1 Annual Maturity Schedule

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Credit Enhancement The notes will benefit from CE in the form of OC and both a liquidity facility and cash reserve account to protect the notes from potential interest payment disruptions resulting from depletions in asset cash flow. The class A and B notes benefit from a liquidity facility, while the class C notes benefit from a cash reserve. Additionally, the structure includes an expense reserve account to pay certain senior expenses, a maintenance reserve account (MRA) for ongoing maintenance expenses and an engine reserve account (ERA), which will accrue funds in advance of anticipated engine purchases.

Finally, security deposits are in place for 23 of the 25 leases in the pool in the event of lessee default, outside of American Airlines, which generally does not have security deposits as it is a stronger credit. These security deposits will then be funded in a security deposit account to the extent of available collections from the payment waterfall to cover security deposit liabilities projected to become due in the next 12 months.

Overcollateralization OC is the primary form of CE for the notes. At closing, the class A, B and C notes will have LTVs of 66.0%, 78.0% and 83.5%, respectively, based on the initial pool values determined by the transaction documents. These levels are higher than for 2018-2 (66.5%, 76.5% and 83.5% for class A, B and C notes, respectively) and 2018-1 (66.0%, 77.0% and 83.0% for class A, B and C notes, respectively). When considering the Fitch-modeled values, the LTVs for 2019-1 increase to 72.6%, 84.5% and 90.5%, respectively. The LTVs are higher than those of prior AASET transactions and other recent mid- to end-of-life aircraft ABS. Class A notes in 2016-1 and 2016-2 had LTVs based on average appraisals of 62.5% and 65.0%, respectively.

Liquidity Facility The liquidity facility will be sized to nine months of class A and B interest, initially at approximately $12.4 million. This will be available to cover interest and expense shortfalls for class A and B notes should monthly collections be insufficient. The facility carries a per annum (p.a.) commitment fee to be paid monthly based on the average daily amount during each period. If the facility is drawn upon, the AOE issuers will be required to reimburse the liquidity facility for the drawn amount, plus accrued interest, at a rate of one-month LIBOR plus 3.50%, up from 1mL + 3.00% in 2018-1. The liquidity facility provider is Natixis S.A., acting through its New York Branch, currently rated ‘A’ / ‘F1’ with a Rating Outlook Positive by Fitch. The sizing of the facility will decline over time as the outstanding class A and B notes amortize.

0.0

0.5

1.0

1.5

2.0

2.5

0 5 10 15 20

Fitch LRF Curve AASET 2019-1 AASET 2018-2AASET 2018-1 AASET 2017-1 Linear (AASET 2019-1)

Source: Fitch Ratings, CAP.

AASET LRF Comparison

(%)

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The liquidity facility provider currently complies with Fitch’s counterparty criteria. However, the transaction documents state that should a provider be downgraded, and be no longer eligible, either a downgrade drawing or securing of a replacement provider must occur within 40 days, which is outside of Fitch’s criteria. Furthermore, transaction documents state that, should the initial rating agencies no longer rate Natixis, the rating of a third rating agency will be used, with the eligible rating threshold declining to ‘BBB−’ from ‘BBB.’ Per Fitch’s criteria, a liquidity facility provider supporting a class rated ‘Asf’ is expected to carry a rating no lower than ‘BBB.’

If Natixis were to be downgraded below ‘BBB’ or otherwise become an ineligible LF provider, the notes could be subject to negative rating actions based on various factors. These include the rating of Natixis relative to the rating of the notes, actual timing of remedial actions taken and the transaction’s reliance on the LF at the time of ineligibility.

Any downgrade advance drawings on the facility will be deposited into an LF reserve account.

Class C Interest Reserve Account The class C interest reserve account will be available to cover shortfalls on payments of class C note interest up to and including the expected maturity date of the senior notes. The account will be initially funded at $1,000,000. After the anticipated repayment date (ARD) and after covering for interest shortfalls on the class C notes, all remaining amounts in the account will be transferred to the collections account for application in accordance with the priority of payments.

Expense Reserve Account An expense reserve account will be established and initially funded at $260,000. The reserve will be used to cover certain monthly senior expenses and will be replenished each month in the first step of the transaction waterfall to a target of three months of anticipated expenses.

Maintenance Reserve Account The transaction features an MRA to cover monthly maintenance expenses, and is based on a look-forward mechanism for the senior required amount (SRA) and junior required amount (JRA).

The SRA will be re-sized monthly to the sum of a five-month look-forward basis following close:

• 100.0% of next month’s maintenance costs; • 75.0% of second month’s maintenance costs; • 50.0% of third month’s maintenance costs; • 25.0% of fourth month’s maintenance costs; and • 12.5% of fifth month’s maintenance costs.

The JRA will be re-sized monthly to be the excess of 1) the sum of the below 12-month look-forward and 2) the SRA plus the REA (discussed below):

• 100.0% of next month’s maintenance costs and ERA payments; • 75.0% of second and third month’s maintenance costs and ERA payments; • 62.5% of fourth month’s maintenance costs and ERA payments; • 50.0% of fifth month’s maintenance costs and ERA payments; • 37.5% of sixth and seventh month’s maintenance costs and ERA payments; • 25.0% of eighth and ninth month’s maintenance costs and ERA payments; and • 12.5% of 10th through 12th month’s maintenance costs and ERA payments.

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The JRA sizing maintains one schedule following close, whereas in 2018-2, the JRA altered schedules after the first year. Additionally, the JRA has been shortened to 12-month look forward from 15-month look forward.

On each payment date following the first anniversary from closing, if the amount on deposit in the MRA exceeds the SRA plus JRA prior to the application of the priority of payments, the excess funds will be released to the collections account for distribution to the waterfall. The MRA will be funded upfront by equity investors and/or the net proceeds of the note sales to investors.

Other amounts (in addition to maintenance and other expenses referred to above) may also be drawn from the MRA to satisfy the obligations of a lessee under a lease, but only to the extent funds on deposit in the security deposit account are insufficient for such purpose.

The aggregate initial funding for the MRA and ERA will be approximately $15.0 million. The floor for the MRA and ERA in aggregate is $1 million, or if less, the aggregate outstanding principal amount of the class A and B notes.

Engine Reserve Account In certain instances based on a cost analysis completed by CAP, it may be more economically beneficial to sell an engine in need of maintenance and purchase another in lieu of paying for a shop visit. The engine reserve account (ERA) will be established to build cash needed for engine purchases and be sized monthly to its target, the required engine amount (REA). Each month, cash available in the payment waterfall will be contributed until the amount in the ERA equals the REA. If the amount in the ERA exceeds the REA, the excess funds will be released to the collections account for distribution to the waterfall.

The REA is sized on a five-month look-forward basis, namely:

• 100.0% of next month’s expected ERA payments;

• 75.0% of second month’s expected ERA payments;

• 50.0% of third month’s expected ERA payments;

• 25.0% of fourth month’s expected ERA payments; and

• 12.5% of fifth month’s expected ERA payments.

The initial look-forward structure is up from 2018-2, but does not follow a similar step up after nine years as in 2018-2.

Security Deposits Frequently, lessees are required to provide security deposits via cash or letter of credit to secure a lease. In the pool, 23 of the initial 25 leases have a cash security deposit and/or letter of credit, totaling $13.5 million. American Airlines is the only lessee in the pool that does not have a security deposit in place. In the event of a lessee default under a lease with an associated security deposit or letter of credit, those amounts will be available to the trust to limit exposure to said default. To the extent that amounts in the security deposit account (SDA) are insufficient, amounts in the MRA will be available to cover relevant shortfalls.

Security deposits received after the closing date will be directly deposited into the SDA. The SDA will initially be unfunded at close and build to its target using funds from available collections in a subordinated position in the payment waterfall based on 100.0% of anticipated cash repayment obligations over the subsequent 12 months. After ARD, all remaining security deposits will be held in the SDA.

Structured Finance


Financial Structure

Sources of Payments The notes constitute direct obligations of 2019-1 and do not represent obligations of, and are not guaranteed by, CAP or any other affiliates. The only sources of payments on the obligations of 2019-1 are as follows:

• Rental payments, utilization rents, end-of-lease payments, other lease payments and, in certain circumstances, security deposits.

• Amounts drawn from, and investment earnings on, the liquidity facilities and other accounts.

• Net proceeds from aircraft dispositions.

• Net receipts, if any, under any hedging agreements.

• Amounts on deposit in various transaction accounts.

• Amounts paid pursuant to or in respect of claims.

• In respect of certain obligations, amounts available under the liquidity facility.

• Advances made by the E certificate investors, subject to certain limitations.

• Other amounts received by any AOE group member pursuant to terms of the indenture.

Interest Payments Interest on the notes will be calculated on the basis of a 360-day year, consisting of 12 30-day months. Each class of notes will receive interest on a fixed-rate basis through the life of the transaction. If any class of notes is not paid in full on or before the anticipated repayment date (ARD), it will accrue additional step-up interest at a rate of 2.00% on a deferred basis. The payment of step-up interest is subordinated in the transaction waterfall. If available collections in any month are insufficient to pay the step-up interest, additional interest will accrue on the unpaid amount at 2.00% p.a. Fitch’s ratings do not address the payment of step-up interest.

Scheduled Amortization Class A and B notes will amortize following an 11-year, straight-line schedule for the first three years of the transaction, and then switch to a 12-year, straight-line schedule. Class C notes will amortize following a seven-year, straight-line schedule. While class A and B notes receive scheduled principal in the fifth waterfall step, class C note principal is subordinated in the 14th step. Amounts owed to noteholders from aircraft dispositions are paid in the same step as scheduled principal.

Structured Finance


The amortization profiles of class A and B notes are faster than those of 2018-2 and 2018-1. In 2018-1, class A and B notes amortize over an 11-year schedule for the first two years following close, and then shift to a 12-year schedule, while class C starts on a five-year schedule and transitions to a seven-year schedule after two years. Furthermore, 2019-1 features an ARD further out at month 84, consistent with 2018-2, and further out than 68 months in 2018-1 and 76 months in 2017-1. After the ARD, any collections remaining at the 10th step in the waterfall will be used to amortize the outstanding senior note balances sequentially.

In addition to scheduled amortization, each class may receive principal payments through various rapid amortization and/or excess proceeds distributions, which are described in detail below. Following the receipt of disposition, rapid amortization or excess proceeds amounts, the amortization schedule is adjusted downward. Thus, it is possible for any class of notes to pay in full prior to the end of its scheduled amortization profile.

Disposition Proceeds When an aircraft is sold, disposition proceeds will be paid in the same step as scheduled principal. The amount of principal to be distributed contains many criteria, including the requirement that at least 105% of that aircraft’s allocable note balance be paid. In other words, if an aircraft that represents 5% of the collateral pool is sold, 5.25% of the outstanding balance of each note must be paid (5% x 105% = 5.25%). This is common in aircraft ABS transactions. 2019-1 also includes a disposition feature that considers the LTV ratio of the class A and B notes. Thus, in the case of a below-value disposition, if the existing LTV ratio is above the levels seen to the left, it is possible for additional disposition proceeds to be paid to noteholders that otherwise might have been released to equity holders.

Excess Proceeds 2019-1 includes a feature that has become more common in aircraft ABS transactions in recent years, whereby certain amounts considered to be excess proceeds are required to be used to amortize the notes at specified steps in the transaction waterfall. Most notably, excess proceeds include end of lease (EoL) payments made by lessees to account for maintenance. Normally, these payments would be utilized to perform maintenance prior to the aircraft moving to another lessee. However, given the age of the aircraft in the pool, many will be sold at first lease-end and most of these payments will not be used to reinvest in the assets as they would be in a younger pool.

Other payments are also considered excess proceeds, such as proceeds and fees associated with the restructuring or termination of a lease when re-leased to the same lessee, certain “green-time” lease payments, and certain other payments made in lieu of maintenance, future lease payments or other obligations.

Target Portfolio LTV Years Since Close

Target LTV (%)

0.0–1.0 82 1.0–2.0 82 2.0–3.0 79 3.0–4.0 79 4.0–5.0 66 5.0–6.0 62 6.0-ARD 50 After ARD 0

Source: AASET 2019-1.

0102030405060708090

100(%)

Month

Class A & B Class C

Source: Fitch Ratings, CAP.

AASET 2019-1 Amortization Profile

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While the payment of EoL proceeds is contractual, the amount to be paid by the lessee, or reimbursed to the lessee, is not. Rather, it is based on the maintenance condition of the aircraft at the time of redelivery. Fitch reviewed the EoL expectations of both CAP and ICF. Partial credit was given to six of eight aircraft to reflect the probability of default based on assumed lessee rating and remaining term as provided by ICF. Two aircraft received additional credit based on their participation in Rolls Royce’s Total Care Program. After these considerations, Fitch’s credit to EoL proceeds more than $70 million.

Rapid Amortization Events The transaction structure includes various rapid amortization events, which if triggered will force additional principal payments to be made at various steps in the priority of payments. If a senior rapid amortization event (RAE) is triggered, principal will be paid sequentially to class A and then class B notes at the appropriate step in the waterfall. A senior RAE will be in effect under the following circumstances:

• the debt service coverage ratio (DSCR) has been less than 1.15x within the past three months after the six-month anniversary of the Closing Date (further detailed below);

• utilization is below 75% within the past three months;

• the ARD has occurred; or

• the issuer delivered a rapid amortization election notice.

Additionally, after the fifth anniversary of the closing date to and including ARD, a partial cash sweep event (PCSE) will be in effect for the combined senior notes as well as the class B notes, and paid under the appropriate step in the waterfall. While a PCSE is occurring, a percentage of all amounts remaining at that point in the waterfall will be used to pay down the notes. Overall, the senior and series B PCSE percentages have decreased from 2018-2.

A series C RAE will occur on the first anniversary of close. Once it is in effect, a percentage of funds remaining at the appropriate step in the waterfall will be used to amortize the class C notes. The timing has been pushed back and percentages have declined from 2018-1.

Cash Trap Starting on the sixth payment date, if the DSCR is less than 1.20x, then 100% of the remaining available collections on such date after making all payments entitled to priority in the waterfall will be transferred to the collections account to be used as distributions on the following payment date. If the DSCR is above 1.20x for three consecutive months, the trigger will be cured.

Debt Service Coverage Ratio A DSCR will be calculated on a trailing six-month basis (beginning on the sixth monthly payment date following close) and will be equal to a ratio that will be calculated as: net receipts into the collections account in the form of basic rent and supplemental rent, plus amounts transferred from the MRA or ERA to the collections account, plus investment earnings transferred from those two accounts to the collections account, plus EoL payments received by a lessor, minus rent fees paid to the servicer, minus the aggregate amount needed to replenish the senior required amount and the required engine amount out of the applicable payment waterfall, in each case during the six-month period ending on such date, divided by interest on class A and B notes during the six-month period ending on such date, plus the scheduled principal amount on class A and B notes during the six-month period ending on such date.

Senior and Series B Partial Cash Sweep Event (%) Months Senior Series B 61–72 25 5 73–84 50 10 85+ 100 100


Series C Partial Cash Sweep Event (%) Months Series C 12−84 10 84+ 100


Structured Finance


The DSCR calculation will not include any aircraft sales proceeds. A DSCR of less than 1.20x will result in a cash trap event where all available cash remaining in the waterfall at step 12 in the waterfall will be deposited into the collections account for distribution on the next payment date. The trigger will be cured when the DSCR returns to compliance with the 1.20x test for three consecutive months.

A DSCR of less than 1.15x will result in an SRAE. All available cash remaining in the waterfall at step 10 will be utilized in a full cash flow sweep to repay class A and B notes sequentially. The trigger will be cured when the DSCR returns to compliance with the 1.15x test for three consecutive months.

Events of Default To protect lenders from a 2019-1 insolvency or deterioration in credit, the structure includes several events of default, as listed below.

• Failure to pay interest, when due and payable on class A notes (or, if they are the senior series of the notes, class B notes) that remain unremedied for a period of five business days after becoming due and payable.

• Failure to pay principal or interest on any notes by the legal final maturity.

• Failure to pay other amounts due in accordance with the order of priority of payments to the extent collections available to pay such amounts that remain unremedied for a period of five business days after becoming due and payable.

• Breach of any representations, warranties or covenants by the master issuer (subject to certain materiality qualifiers).

• Bankruptcy (whether voluntary or involuntary) of any issuer (master and AOE issuers) or any significant (5%−10%) subsidiary.

• Judgment for the payment of an amount exceeding 5% of the then most recent appraised portfolio MABV of the portfolio is entered and unstayed for a period (except to the extent the judgment is covered by a valid and binding policy of insurance and the insurer: (i) is rated at least ‘A’ by A.M. Best Company (or its successor) and (ii) is notified and has not disputed the claim).

Payment Waterfall The priority of distributions under the indenture for each AOE issuer while there is no event of default in effect is identified below. This waterfall is consistent with the priority of distributions utilized in recent Fitch-rated transactions.

1. Payable senior expenses and servicing fees to various counterparties, provided that maintenance expenses are first drawn from the MRA and engine maintenance payments from the ERA, or MRA if amounts therein are insufficient.

2. a) First, pro rata (other than step-up interest), (i) series A interest and (ii) senior hedge payments, if applicable, to hedge counterparties and, b) second, series B interest.

3. Principal and interest owed to the liquidity facility provider, pursuant to the liquidity facility.

4. Pro rata, to replenish (i) the MRA up to the senior required amount and (ii) the ERA up to the required engine amount.

5. a) First, the series A scheduled principal amount and, b) second, the series B scheduled principal amount.

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6. Amounts to replenish the MRA up to the sum of the senior required amount and the junior required amount.

7. Pro rata, to pay the senior disposition fees and the senior end of lease compensation fees.

8. Outstanding disposition premium, a) first, to series A and, b) second, to series B.

9. The lesser of i) the outstanding principal balance of the notes and ii) the excess proceeds series payments, a) first, to series A notes and, b) second, to series B notes.

10. If a senior RAE is in effect, the senior RAE amount, a) first, to series A and, b) second, to series B.

11. If a class B RAE is in effect, the class B RAE amount.

12. If the DSCR is below 1.20x within a three-month period, (as long as no senior RAE has occurred and is continuing), all remaining collections to the cash trap account.

13. Series C interest (other than step-up interest).

14. a) First, the series C scheduled principal, b) second, for series C the lesser of i) the outstanding principal balance of the notes and ii) the excess proceeds series payments, and, c) third, if a class C RAE is in effect, the class C RAE amount.

15. Series D interest, if applicable.

16. a) First, the series D scheduled principal, if applicable, b) second, for series D the lesser of i) the outstanding principal balance of the notes and ii) the excess proceeds series payments, and, c) third, if a class D RAE is in effect, the class D RAE amount (if applicable).

17. Subordinated indemnification amounts and subordinated hedge payments, if any.

18. After the ARD, step-up amounts in sequential order to series A, B, C and D, if applicable.

19. To the servicer, a) first, the maintenance reserve incentive fee, b) second, the rent incentive fee and, c) third, pro rata, the subordinated disposition fees and subordinated end of lease compensation fees.

20. Required amount to security deposit account.

21. Additional anticipated asset expenses up to $5,000,000, including expenses related to modifications, remarketing and freighter conversions to the expense account (or larger amounts as agreed to by the board).

22. To fund a disposition contribution account up to an amount determined by the servicer based on any applicable projected disposition amount deficit, if applicable.

23. The repayment of, first, cure advances and, second, additional advances, to the applicable E certificate holders, pro rata (including any interest thereon).

24. Discharge of any inter-issuer loans.

25. All remaining amounts, to the E certificate holders.

Post-Default Waterfall: If an EOD has occurred and is continuing, available collections will be distributed as per the following priority of payments on a monthly basis:

1. Payable senior expenses and servicing fees to various counterparties, provided that maintenance expenses are first drawn from the MRA and engine maintenance payments from the ERA, or MRA if amounts therein are insufficient.

2. Principal and interest owed to the liquidity facility provider, pursuant to the liquidity facility.

Structured Finance


3. a) First, pro rata (i) series A interest and (ii) senior hedge payments, including disposition hedge termination payments, if any and, b) second, outstanding principal balance of series A.

4. a) First, series B interest and, b) second, outstanding principal balance of series B.

5. a) First, series C interest and, b) second, outstanding principal balance of series C.

6. a) First, series D interest and, b) second, outstanding principal balance of series D.

7. a) First, outstanding disposition premium on series A and, b) second, outstanding disposition premium on series B.

8. Senior disposition fees.

9. After ARD, step-up amounts for, a) first, series A, b) second, series B, c) third, series C and, d) fourth, series D.

10. To replenish pro rata i) the MRA up to sum of the senior required amount and the junior required amount and ii) the ERA to the required engine amount.

11. Subordinated indemnification amounts.

12. Subordinated hedge payments, if any.

13. To the servicer, a) first, the MR incentive fee, b) second, the rent incentive fee and, c) third, pro rata, the subordinated disposition fees and subordinated end of lease compensation fees.

14. The repayment of, first, cure advances and, second, additional advances, to the applicable E certificate holders, pro rata (including any interest thereon).

15. To discharge the inter-issuer loans.

16. All remaining amounts to the E certificate holders.

Servicing, Disposition and Administrative Fees CAP will be compensated for servicing the transaction with various fees, some of which are subordinated in the priority of payments. A $250,000 p.a. expense at the top of the waterfall included for setup of the equity trust is included in expense fees.

• Service Fees:

• Rent Based Fees – 2.0% of rents collected, payable in the first priority of payments on a monthly basis; 3.0% of rents collected as rent incentive fee, payable in a subordinated position on a monthly basis; 1.0% of rents collected during a trailing six-month period as MR incentive fee, payable in a subordinated position on a semiannual basis.

• Disposition Fees – Senior and subordinated fees, both equal to 1.5% of net sales proceeds.

• EOL Compensation Fees – Senior and subordinated fees, both equal to 1.5% of net end of lease compensation proceeds.

• Expense Fees: Annual fees and expenses, and costs of the trustees, operating bank, managing agent and E certificate trust are expected to total $854,000 p.a. and payable at the top of the waterfall, prior to interest and principal.

• Aircraft Expenses: Per aircraft expenses are payable in the first priority of payments at $2,990 p.a.

Structured Finance


Aircraft Sales and Substitutions

Aircraft Sales

Aircraft sales are permitted in the following circumstances, subject to certain terms and conditions:

1. Dispositions pursuant to a purchase option under a lease or similar agreement that existed as of the closing date for an initial aircraft (or as of the purchase date for a replacement aircraft), or as long as the purchase price is at least equal to the fair market value of the asset. If the purchase price is below the fair market value of the asset, it must be approved by the board and permitted under clause (4) below. If the purchase price is less than the assumed note target price (a below-value disposition), the sale must be approved by all the directors unless, on the date on which any purchase option is granted, the LTV test would be satisfied upon giving effect to such disposition.

2. Dispositions within or among the issuer group members.

3. Dispositions pursuant to receipt of insurance proceeds in connection with a total loss.

4. Dispositions if (i) they do not result in a concentration default (unless approved by the board), (ii) no EOD or payment or insolvency default is occurring or will occur as a result of the disposition, (iii) the disposition is pursuant to a part-out agreement prior to the second anniversary of the closing date, no more than 15% of the initial aircraft shall be subject to a part-out agreement, (iv) the disposition is pursuant to a part-out agreement after the second anniversary of the closing date but prior to the fourth, no more than 20% of the initial aircraft shall be subject to a part-out agreement, other than those related to a supplemental ending trade unless such trade required written board approval, and (v) other than certain part-out scenarios, such disposition is approved by the board.

At any time following the occurrence of a continuing SRAE, no below-value disposition that would result in more than 25% of the initial MABV of all aircraft having been made subject of a below-value disposition, shall be permitted unless the senior trustee approves such disposition. In addition, notice thereof must be delivered to each rating agency.

Consistent with other recent transactions, the assumed note target price is equal to 105% of the allocable note balance minus applicable excess additional amounts, plus the senior and subordinated sales fees, plus the assumed disposition premiums. The allocable note balance equals the same proportion of the notes that the aircraft in question represented in the entire portfolio. In other words, the allocable note balance of an aircraft that composes 5% of the portfolio is equal to 5% of the outstanding note balance. This sales price concept is utilized to limit sales, which would result in negative LTV migration.

Disposition premiums may apply for class A and B notes if aircraft are sold within the first three years following transaction closing. There is no disposition premium payable on the notes after the third anniversary of the closing date or from any principal prepayment as a result of the total loss of an aircraft or during the continuance of an EOD of senior rapid amortization event.

Concentration Limits Concentration limits exist regarding lessees and geographic regions, and are listed in the table on the next page. These covenants limit the AOE issuers from substituting and/or selling an aircraft, or executing an aircraft lease that would cause a concentration limit to be breached. The concentration limits can shift according to the total note LTV, which is 83.5% as of the assumed closing date when using the average of MABVs. Once the LTV declines below 55%, certain limits can shift according to the table, and once the LTV declines past 40%, all

Structured Finance


concentration limits are essentially lifted, aside from the limitation of prohibited airlines, which will remain at 0%. The concentration limits are similar to those in prior AASET transactions and other recent Fitch-rated transactions.

A merger or consolidation between two lessees will not be considered to result in a breach of the concentration limits. As shown, all concentrations are well within their current limits. The highest concentration relative to the limit is the “other single countries”, with a current concentration of 16.9% for Brazil versus the limit of 25%. Prohibited countries are any jurisdiction subject to any sanctions administered or enforced by the U.S. Treasury’s Office of Foreign Asset Control (OFAC) at the date of lease execution (including extensions).

Cape Town Convention The security interest in each aircraft owned by an AOE located in a contracting state under the Cape Town Convention (Convention), or where the relevant aircraft is registered in a contracting state, and any lease executed with a lessee situated in a contracting state after the date the applicable jurisdiction became a contracting state will be registered under the Convention. Each of the initial direct aircraft owners is expected to be a trust or company established under the laws of Utah, Delaware or Ireland, which are all contracting jurisdictions under the Convention. Although mortgage filings are generally not made in the aircraft registries where the aircraft are registered, it is expected that international interests in each aircraft will be registered in the international registry under the Convention. The interests in leases (including subsequent leases) eligible for registration in the international registry, and the security assignments of those eligible interests, will also be registered in the international registry.

In addition, UCC financing statements with respect to all relevant security interests created under New York law under the security trust agreement will be filed in the relevant jurisdictions.

Interest Rate Hedge All classes of notes will bear interest at a fixed rate. All the leases also bear fixed rates or have limited downside potential in the current interest rate environment. As such, interest rate risk is minimal.

AASET 2019-1 Concentration Limits (%) LTV >= 55%

LTV = 40.0–54.9% LTV < 40% 2019-1 Notes

Single Lessee 40 50 100 11.9 American Airlines Three Largest Lessees 55 55 100 32.8 American Airlines, Gol, Air Senegal U.S. 100 100 100 11.9 American Airlines U.K. 100 100 100 0.0 — Single Country (BBB or Higher Other than U.S./U.K.) 40 45 100 12.0 France All Other Single Countries 25 35 100 16.9 Brazil Developed Europe (non-U.K.) 60 65 100 28.4 France, Spain, Greece, Croatia, Slovakia Developed Asia Pacific 50 50 100 0.0 — Developed North America (Non-U.S.) 60 60 100 0.0 — Emerging Europe and CIS 40 50 100 23.7 Russia, Ukraine, Turkey Emerging Africa and Middle East 40 50 100 13.1 Senegal, Egypt Emerging South and Central America 35 50 100 19.4 Brazil, Trinidad & Tobago Emerging Asia Pacific 55 60 100 3.6 Cambodia Undesignated 20 25 100 0.0 — Freighter N.A. N.A. N.A. — — Prohibited 0 0 0 0.0 —

N.A. – Not available. Source: AASET 2019-1.

Structured Finance


Currency Hedge Currency hedging of non-USD leases will be required if the MABV of aircraft exceeds 5% of the MABV of the pool. Non-USD leases will be subject to a cap of 10% of the pool at any time. Hedge payments will be payable from the collections account, at the applicable step in the payment waterfall, for senior and subordinated hedge payments, if any. At closing, no hedging arrangements are expected to be in place.

Commingling After lease novations occur, payments under the leases will be made directly to 2019-1 or one of the AOE issuers, rather than CAML, as servicer. Therefore, there will be no material payment interruptions or credit risk related to the commingling of funds with CAML.

Counterparty Risk Counterparty eligibility criteria as they pertain to account banks, qualified investments and characteristics of the liquidity facility are expected to be consistent with Fitch’s expectations described in “Structured Finance and Covered Bonds Counterparty Rating Criteria,” and available on its website.

Disclaimer For the avoidance of doubt, Fitch relies, in its credit analysis, on legal and/or tax opinions provided by transaction counsel. As Fitch has always made clear, Fitch does not provide legal and/or tax advice or confirm that the legal and/or tax opinions or any other transaction documents or any transaction structures are sufficient for any purpose. The disclaimer at the foot of this report makes it clear that this report does not constitute legal, tax and/or structuring advice from Fitch and should not be used or interpreted as legal, tax and/or structuring advice from Fitch. Should readers of this report need legal, tax and/or structuring advice, they are urged to contact relevant advisers in the relevant jurisdictions.

Rating Sensitivities The performance of aircraft operating lease securitizations can be affected by various factors, which, in turn, could have an impact on the assigned ratings. Fitch conducted multiple rating sensitivity analyses to evaluate the impact of changes to a number of the variables in the analysis. As previously stated, these sensitivity scenarios were also considered in determining Fitch’s expected ratings.

Technological Cliff Stress Scenario All aircraft in the pool face replacement programs over the next decade. Fitch believes the current generation aircraft in the pool remain well insulated due to large operator bases and long lead times for full replacement. This scenario simulates a drop in demand (and associated values). The first recession was assumed to occur two years following close, and all recessionary value decline stresses were increased by 10% at each rating category. Fitch additionally utilized a 25% residual assumption rather than the base level of 50% to stress end-of-life proceeds for each asset in the pool. Lease rates drop under this scenario, and aircraft are sold for scrap at end of useful lives.

Structured Finance


Under this scenario, all classes fail ‘Asf’, ‘BBBsf’ and ‘BBsf’ stresses. Class A notes are able to pass at ‘Bsf’ category. As a result, such a scenario could result in the downgrade of class A notes by up to three notches, while class B and C notes could experience a downgrade of up to two categories. This is the most stressful sensitivity to this transaction due to the higher reliance on residual proceeds than previous transactions.

‘CCC’ Unrated Lessee Assumption Stress Scenario Airlines across the globe are generally viewed as speculative grade. While Fitch gives credit to available ratings of the initial lessees in the pool, assumptions must be made for the unrated lessees in the pool, as well as all future unknown lessees. While Fitch typically utilizes a ‘B’ assumption for most unrated lessees with some assumed to be ‘CCC’, Fitch evaluated a scenario in which all unrated airlines are assumed to carry a ‘CCC’ rating. This scenario mimics a prolonged recessionary environment in which airlines are susceptible to an increased likelihood of default. This, in turn, would subject the aircraft pool to increased downtime and expenses, as repossession and remarketing events would increase.

Sensitivity Scenario: Technological Cliff

Net Cash Flowa ($)

Avg. Utilization (%) Class A Result Class B Result Class C Result

Asf 220,958,448 90.1 Fail Fail Fail BBBsf 229,190,477 91.8 Fail Fail Fail BBsf 236,606,726 93.0 Fail Fail Fail Bsf 243,112,717 94.1 Pass Fail Fail

Implied Rating Bsf <Bsf <Bsf aExclusive of aircraft sales proceeds. Source: Fitch Ratings.

0

20

40

60

80

100

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Asf NCF (LHS) BBBsf NCF (LHS) BBsf NCF (LHS)Bsf NCF (LHS) BBsf Utilization (RHS) Bsf Utilization (RHS)Asf Utilization (RHS) BBBsf Utilization (RHS)


AASET 2019-1 Technological Cliff Scenario Cash Flow Runs(Net Cash Flow Excluding Aircraft Sales)

($000) (%)

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Under this scenario, class A and class B notes pass comfortably at ‘Asf’. Class C notes pass at ‘BBsf’. This sensitivity is less stressful to the transactions because 47.5% of the lessees are already modeled at ‘CCC’ in the primary scenario, so much of this risk is already captured in the primary scenario.

Widebody Stress Scenarios The pool contains a large concentration of A330s and one B777-200ER, which are less marketable compared to the A320 family aircraft in the pool, and have seen value declines in recent years. The B777, in particular, has been phased out by other more marketable variants. In addition, both Airbus and Boeing plan to introduce new engine variants to replace the current generation of A330s and B777s in the coming years.

Therefore, Fitch created a scenario in which the widebody aircraft in the pool encounter a considerable amount of stress to their residual values. First, Fitch assumed all were initially considered to be Tier 3 aircraft to stress depreciation rates and recessionary value declines. In addition, Fitch decreased its residual credit to 25% from 50% of stressed future market values. Essentially under this scenario, the A330-200s and -300s and B777 encounter severe value decline stresses and are only granted part-out value at the end of their useful lives.

Sensitivity Scenario: CCC Unrated Lessee Assumption

Net CF Rating Scenarioa ($)

Avg. Utilization (%) Class A Result Class B Result Class C Result

Asf 208,432,395 87.6 Pass Pass Fail BBBsf 219,660,377 89.9 Pass Pass Fail BBsf 229,311,217 91.5 Pass Pass Pass Bsf 236,261,506 92.7 Pass Pass Pass Implied Rating Asf Asf BBsf

aExclusive of aircraft sales proceeds. Source: Fitch Ratings.

0

20

40

60

80

100

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Asf NCF (LHS) BBBsf NCF (LHS) BBsf NCF (LHS)Bsf NCF (LHS) Asf Utilization (RHS) BBBsf Utilization (RHS)BBsf Utilization (RHS) Bsf Utilization (RHS)


AASET 2019-1 CCC Lessee Scenario Cash Flow Runs(Net Cash Flow Excluding Aircraft Sales)

($000) (%)

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Under this scenario, class A and class B pass at their respective ratings and class C passes at one category lower at Bsf. Although stressful, Fitch feels this scenario is important to consider due to the weaker demand profiles of the widebody aircraft. indicating potentially lower reliance on widebody aircraft due to the level and timing of expected cash flows and sales proceeds.

Performance Analytics Fitch receives servicer reports on a monthly basis that detail amortization, as well as asset performance and characteristics. If a transaction is identified as performing outside of expectations, a full review will be conducted, and any recommendations will be presented to a rating committee. If performance remains within expectations, the transaction will receive an in-depth review on an annual basis. Fitch keeps investors informed about reviews and rating actions on its website at www.fitchratings.com.

Transaction Counterparties

Carlyle Aviation Partners / CAML (Servicer) Company Overview

Carlyle Aviation Partners (CAP), fka Apollo Aviation Group (AAG), was acquired by Carlyle in December 2019. As a result, AAG’s name was changed to CAP. To date, there have been no material changes within the company as all staff members were retained, including founding partners Robert Korn and William Hoffman. Carlyle is expected to have minimal influence on CAM’s daily operations.

0

20

40

60

80

100

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Asf NCF (LHS) BBBsf NCF (LHS) BBsf NCF (LHS)Bsf NCF (LHS) BBsf Utilization (RHS) Bsf Utilization (RHS)Asf Utilization (RHS) BBBsf Utilization (RHS)


AASET 2019-1 Widebody Stress Scenario Cash Flow Runs(Net Cash Flow Excluding Aircraft Sales)

($000) (%)

Widebody Stress Scenario

Net Cash Flowa($) Avg. Utilization (%) Class A Result Class B Result Class C Result

Asf 219,131,502 90.3 Pass Pass Fail BBBsf 228,767,111 92.2 Pass Pass Fail BBsf 236,672,187 93.3 Pass Pass Fail Bsf 243,477,464 94.3 Pass Pass Pass Implied Rating Asf Asf Bsf aExclusive of aircraft sales proceeds. Source: Fitch Ratings.


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CAP’s focus is on mid-life aircraft, and it was the first lessor to place primary focus on this market, along with Castlelake, in recent years. CAP believes the strategy of mid-life leasing fills a need from airlines around the world considering the average age of aircraft operating is 11 years old and 65% of the fleet can be classified as mid-life/mature aircraft, according to IBA, an ISTAT-certified appraisal firm. Given the number of lessors in the new aircraft leasing market and the increasing level of competition, CAM feels the mid-life segment is a more opportunistic market to operate in.

CAP is a global mid-life aircraft and engine lessor and aircraft engine part-out firm with other operations covering capital markets as well as a multistrategy institutional investment manager focused on all segments of the aviation industry. It is the 12th largest lessor (source: Airfinance Journal and CAP analysis) with 241 aircraft and 105 lessees in 58 countries with $5.8 billion of total assets under management (AUM; all as of March 31, 2019). The company also employs over 80 employees with offices in Miami, Dublin and Singapore. Fitch does not rate CAP.

CAML is a wholly owned subsidiary of CAP and servicer for the AASET ABS transactions. Carlyle Aviation Securities Partners (CASP) manages the securities side of the business located in the Miami office, managing the Aviation Income Return Fund (AIR fund), an investment-grade aviation debt fund. CASP also manages structured asset loans (SALSA) as an advisor for bespoke loan accounts for Japanese institutional investors in aircraft-backed EETCs. CAP’s aviation lending strategies include aircraft pre-delivery financing and is also involved in Aircraft Finance Insurance Consortium (AFIC). The company also provides services for customized investment mandates for institutional investors developed to meet specific spread, duration, concentration limits and other objectives.

Servicing and Operations

The remarketing process for aircraft nearing lease maturity begins no less than 18−24 months in advance, similar to other lessors. The company does an in-depth analysis on the aircraft’s age and maintenance condition prior to lease maturity to compare expected lease revenue, proceeds from sales and proceeds via consignment. CAP will determine the best course of action according to this analysis, and act accordingly to attempt to maximize value for each aircraft. The company tries to accurately predict maintenance events where possible and typically looks to sell aircraft once they reach an age of about 18 years.

CAP’s primary strategy for lease remarketing is to extend leases until retirement, or until an aircraft reaches costly maintenance events. Extensions result in consistent cash flow with minimal reconfiguration costs. If the aircraft needs to be remarketed to a new lessee, CAP will identify prospective airlines to lease the aircraft with. Once a potential lessee is identified, the underwriting team works with the marketing team to determine the appropriate terms, including lease duration, lease rate and security package. Thereafter, a letter of intent (LOI) is sent to the airline for review. A thorough credit analysis of the airline is also performed at this time.

Credit reports produced by the underwriting team provide a comprehensive analysis of the potential lessee, including a recommendation on whether or not to proceed with the transaction. The underwriting team uses a variety of resources including audited financial statements, company presentations and business plans. Airlines are scored by CAP’s internal tiering system, based on a number of quantitative and qualitative factors. Once the review is complete and the airline is scored, the investment committee consisting of CAP’s board members must have unanimous agreement on the potential transaction to proceed. The company also meets with potential lessees to conduct due diligence meetings.

CAP’s technical team is based in Miami and conducts annual inspections on all aircraft and engines using a global network of mechanics, quality control inspectors and engineers. Aircraft records are

Structured Finance


largely scanned or digitized, and saved in a secure location or with lessees. The technical team plays a crucial role in CAP’s operations as it monitors aircraft closely to determine their appropriate maintenance condition, and whether or not the aircraft are approaching a major maintenance event.

Phoenix American Financial Services, Inc. (Managing Agent) Phoenix will act as managing agent for the transaction. In this capacity, Phoenix will provide certain administrative, accounting, cash management and other services, including preparing budgets for the trust’s approval, preparing and arranging all regulatory filings on behalf of the trust, monitoring the servicer, investing funds held by the trust in the accounts in certain prescribed investments on permitted items, calculating and directing the transfer and withdrawal of funds and the payment of obligations, and requesting drawings under the credit facilities. Phoenix has over 30 years of experience, specializing in creating lease and loan portfolios, and securitized six of its own structured transactions. The company has been involved in the securitization industry since 1995 and currently manages $9 billion in assets.

Structured Finance


Appendix A: Lessee Summary

Lessee Summary

Lessee No. of

Aircraft % of Pool Jurisdiction

Country Ceiling

Flag Carrier

Cape Town

No. In-Service

Fleet Major Variants in Service

No. on Order

Major Variants in Orderbook

American Airlines 2 11.9 United States AAA No Yes 938 737 NG, A321, A319 220 A321, 737 MAX, 787 Gol 2 11.3 Brazil BB No Yes 113 737 NG 143 737 MAX Air Senegal 2 9.6 Senegal NR Yes Yes 6 A319, ATR 72, A330 1 A330 Utair 2 9.3 Russia BBB– No Yes 225 Mi-8, 737, H125/AS350 53 737 MAX, MC-21, A321 Ukraine International Airlines 2 8.0 Ukraine B– Yes Yes 42 737 NG, E190, 767 2 737 MAX XL Airways France 1 7.8 France AAA No Yes 4 A330 2 A330 Volotea Air 3 6.5 Spain AAA No Yes 32 717, A319 0 N.A. Corendon Airlines 2 6.3 Turkey BB+ No Yes 17 737 NG, A320 1 737 MAX Azul Brazilian Airlines 1 5.6 Brazil BB No Yes 130 E195, ATR 72, A320 111 E195, A320, A321 Air France 1 4.1 France AAA Yes Yes 209 777, A320, A319 21 A350 Sky Angkor 1 3.6 Cambodia NR No No 3 A320, A321 0 N.A. Nesma Airlines 1 3.5 Egypt B+ No Yes 3 A320, A319 0 N.A. Olympus Air 1 3.2 Greece BBB– No Yes 12 DHC-8, ATR 42 0 N.A. Croatia Airlines 1 3.1 Croatia BBB Yes No 14 DHC-8, A319, A320 4 A320 Caribbean Airlines 1 2.5 Trinidad & Tobago NR Yes No 17 737 NG, ATR 72 4 737 MAX Air Explore 1 2.3 Slovakia AAA No Yes 1 737 NG 0 N.A. Iberia 1 1.3 Spain AAA Yes Yes 84 A330, A320, A340 29 A350, A320, A321

N.A. – Not applicable. Source: Fitch Ratings, Ascend as of May 2019.

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Appendix B: Individual Aircraft Summary

Individual Aircraft Summary

MSN Aircraft Type

Date of Manufacture

Age at Cutoff

(Years) Engine Type

Age-Adjusted

Tier at Cutoff Current Lease

Current Lease Expiry

Mx- Adjusted

Base Value ($ Mil.)

% of Pool

635 A330-200 December 2004 14.4 RR Trent 772B-60 2 XL Airways France December 2022 35.6 7.8 342 A330-300 June 2000 18.8 PW4168A 2 American Airlines May 2022 27.2 6.0 337 A330-300 May 2000 19.0 PW4168A 2 American Airlines June 2022 26.8 5.9 34656 B737-800 November 2006 12.4 CFM56-7B27 1 Gol September 2020 26.2 5.8 529 A330-200 May 2003 15.9 RR Trent 772 3 Azul Brazilian Airlines June 2023 25.5 5.6 34963 B737-800 April 2007 12.0 CFM56-7B27 1 Gol March 2024 25.2 5.5 35072 B737-800 January 2007 12.3 CFM56-7B26 1 Utair April 2024 23.5 5.2 3078 A319-100 April 2007 12.1 CFM56-5B5/P 2 Air Senegal May 2025 22.7 5.0 2897 A319-100 October 2006 12.6 CFM56-5B5/P 2 Air Senegal October 2024 21.0 4.6 34280 B737-800 November 2006 12.5 CFM56-7B24 1 Ukraine International Airlines June 2024 19.3 4.3 28682 B777-200ER March 2001 18.1 GE90-94B 3 Air France March 2021 18.9 4.1 29250 B737-800 March 2001 18.1 CFM56-7B26 2 Utair April 2023 18.8 4.1 34281 B737-800 November 2006 12.4 CFM56-7B24 1 Ukraine International Airlines July 2024 17.3 3.8 1293 A321-200 August 2000 18.7 IAE V2533-A5 2 Sky Angkor April 2023 16.3 3.6 1952 A319-100 November 2003 15.4 IAE V2524-A5 3 Nesma Airlines June 2022 16.0 3.5 29247 B737-800 April 2000 19.0 CFM56-7B26 2 Corendon Airlines September 2021 14.9 3.3 1060 A321-200 August 1999 19.7 IAE V2533-A5 2 OlympusAir May 2022 14.5 3.2 1009 A320-200 June 1999 19.9 CFM56-5B4 2 Croatia Airlines April 2022 14.1 3.1 29246 B737-800 April 2000 19.0 CFM56-7B26 2 Corendon Airlines September 2021 14.0 3.1 28234 B737-800 November 2000 18.5 CFM56-7B27 2 Caribbean Airlines January 2021 11.3 2.5 28213 B737-800 June 1998 20.9 CFM56-7B26 3 AirExplore January 2020 10.7 2.3 2050 A319-100 October 2003 15.6 CFM56-5B5/P 3 Volotea Airline November 2026 10.3 2.3 2043 A319-100 October 2003 15.6 CFM56-5B5/P 3 Volotea Airline January 2027 9.9 2.2 2037 A319-100 September 2003 15.6 CFM56-5B5/P 3 Volotea Airline November 2026 9.3 2.0 998 A319-100 April 1999 20.1 CFM56-5B4/P 3 Iberia February 2021 5.9 1.3

Source: Offering memorandum and CAP.

Structured Finance


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Documents

Structured Finance · 2020-06-03 · Structured Finance . June 6, 2019 . This presale report reflects information at the time that Fitch’s Expected Ratings are issued and as of