American Airlines Secures 1.1 Billion Financing for New Aircraft

Decoding American Airlines’ $1.1 Billion Aircraft Financing Deal

In the world of airline finance, a move by a major carrier like American Airlines Inc. (AAL) always warrants a closer look. Recently, S&P Global Ratings assigned preliminary ratings to a new set of financial instruments from the airline, known as Enhanced Equipment Trust Certificates (EETCs). This isn’t just another transaction; it’s a carefully structured deal worth approximately $1.1 billion designed to fund the acquisition of 25 new Commercial-Aircraft. Understanding the mechanics and ratings of this deal offers a clear window into the airline’s fleet strategy, its credit health, and the sophisticated financial engineering that keeps the global aviation industry flying.

At its core, an EETC is a way for Airlines to buy planes without paying for them upfront. Investors buy certificates, and the money is used to purchase the aircraft, which then serve as collateral. What makes this particular Series 2025-1 transaction noteworthy are the strong investment-grade preliminary ratings of ‘A+ (sf)’ for the senior Class A certificates and ‘BBB (sf)’ for the junior Class B certificates. These ratings stand in stark contrast to American Airlines’ own corporate credit rating of ‘B+’, signaling a high degree of confidence from the rating agency in the structure of this specific deal and the quality of the assets backing it. This financial maneuver highlights the industry’s reliance on secured financing to modernize fleets and manage capital, even for companies with lower corporate credit ratings.

Breaking Down the Transaction: Structure and Collateral

The Series 2025-1 issuance is divided into two main tranches. The Class A certificates, totaling around $884 million, received a preliminary ‘A+ (sf)’ rating. The Class B certificates, valued at approximately $221 million, were assigned a ‘BBB (sf)’ rating. This tiered structure is common in EETCs, creating different levels of risk and return for investors. The senior Class A holders have first claim on the collateral, making their investment safer and thus warranting a higher rating. The ‘sf’ identifier in the ratings simply denotes that this is a “structured finance” instrument, a product whose credit risk is tied to a specific pool of assets rather than the general creditworthiness of the issuing company.

The strength of any EETC lies in the quality of its collateral. In this case, the certificates are backed by a pool of 25 brand-new, in-demand aircraft scheduled for Delivery between October 2025 and March 2026. The fleet is diverse and strategic, comprising two Airbus A321XLRs, twelve Boeing 737 MAX 8s, three Boeing 787-9s, and eight Embraer ERJ 175LRs. According to S&P Global Ratings, these aircraft are considered core to American’s fleet strategy, supporting both its regional and long-haul operations. The Boeing 737 MAX 8 jets alone account for over 43% of the collateral’s estimated value, underscoring their importance to the airline’s future.

A critical metric in these deals is the loan-to-value (LTV) ratio, which measures the debt relative to the appraised value of the aircraft. S&P Global Ratings estimates the initial appraised base value of the 25 aircraft at just over $1.5 billion. The LTV for the Class A certificates is projected to peak at a conservative 58% in 2027, while the Class B LTV peaks at nearly 73% in 2026. These figures are crucial; the lower the LTV, the larger the equity cushion for investors, meaning the aircraft’s value would have to fall significantly before their investment is at risk. This strong collateral coverage is a primary reason for the high ratings.

The ratings for the EETCs are significantly higher than AAL’s ‘B+’ long-term rating due to several factors, including the high likelihood that AAL would agree to continue making payments on the certificates even in a bankruptcy scenario and the quality of the aircraft collateral.

The “Why” Behind the High Ratings: Protections and Expert Opinion

It’s natural to ask how certificates tied to a ‘B+’ rated airline can achieve ratings as high as ‘A+’. The answer lies in a multi-layered system of structural protections designed to insulate investors from the airline’s own credit risk. S&P Global Ratings provides a “credit uplift” based on two main factors: the likelihood of affirmation in bankruptcy and the quality of the collateral. For the Class A certificates, this resulted in a nine-notch uplift from AAL’s corporate rating.

The first layer of protection is the high probability that, even if American Airlines were to face bankruptcy, it would choose to “affirm” the debt and continue making payments on these specific aircraft. Because the planes are new, fuel-efficient, and essential to its operations, the airline would have a strong incentive to keep them. The transaction is also cross-collateralized and cross-defaulted, meaning AAL can’t pick and choose which planes to keep from the pool; it must assume the obligations for all 25 or risk losing them all. This structure heavily favors affirmation.

The second major protection is a liquidity facility, provided by Natixis S.A. (rated ‘A+’), which covers up to 18 months of interest payments for certificate holders. This facility acts as a crucial buffer. If AAL were to stop paying, this liquidity would give investors time to negotiate with the airline or, if necessary, repossess and sell the aircraft without missing interest income. Furthermore, the legal documentation includes language intended to ensure a fair, market-value sale of the aircraft in a repossession scenario, a lesson learned from past airline bankruptcies.

Conclusion: A Strategic Move in a Favorable Market

American Airlines’ Series 2025-1 EETC is a textbook example of how major airlines leverage sophisticated financial tools to fund their growth and modernization. By isolating the credit risk of high-quality, essential aircraft from its broader corporate credit profile, AAL can access capital at more favorable terms. The high preliminary ratings from S&P Global Ratings underscore the market’s confidence in this specific financing structure, the quality of the underlying assets, and the robust legal protections in place for investors.

Looking ahead, the transaction is well-timed. S&P notes the potential for favorable aircraft supply-and-demand dynamics for several years, driven by global fleet replacement cycles and steady passenger growth. This suggests that the value of the collateral is likely to remain strong, further securing the investment. For American Airlines, this deal provides the capital needed to integrate next-generation aircraft into its fleet, enhancing efficiency and competitiveness. For the broader aviation industry, it reaffirms the EETC as a resilient and vital financing mechanism that helps keep the skies busy and the fleets modern.

FAQ

Question: What is an EETC?
Answer: An Enhanced Equipment Trust Certificate (EETC) is a type of financial security used by airlines to finance the purchase of aircraft. Investors buy certificates, and the funds are used to buy the planes, which then serve as collateral for the investment. It includes structural enhancements like liquidity facilities to make it more secure than lending directly to the airline.

Question: Why are the EETC ratings so much higher than American Airlines’ corporate rating?
Answer: The ratings are higher due to strong investor protections that are separate from the airline’s overall financial health. These include the high quality and essential nature of the aircraft collateral, a low loan-to-value ratio, a liquidity facility to cover interest payments, and legal structures that make it highly likely the airline would continue payments even during bankruptcy.

Question: What aircraft are included in this deal?
Answer: The deal is collateralized by 25 new aircraft: two Airbus A321XLRs, twelve Boeing 737 MAX 8s, three Boeing 787-9s, and eight Embraer ERJ 175LRs. These are considered core to American Airlines’ regional and long-haul strategies.

Sources

• S&P Global Ratings