Moody's has downgraded the class A ratings assigned for two enhanced equipment trust certificates (EETCs) secured by Airbus A380s.
The US rating agency downgrade the ratings for the class A notes for both Doric Nimrod Air Finance (DNA) Alpha 2012-1 and DNA Alpha 2013-1 to Baa1 from A3, citing a weakening of the collateral securing the deal. The class B notes retain their Baa3 ratings.
Each transaction financed four Airbus A380s that were delivered new to Emirates in 2012 and 2013, and the downgrades reflect the weakening market for the A380, rather than Emirates' corporate credit.
In the report, Moody's writes that there could be an increased market risk and insufficiency of collateral coverage under a certificate default scenario.
"The prospect for improved demand for the A380 is dim," says the report.
Airbus has only booked five orders for the superjumbo since Emirates committed to 50 in 2013, and the secondary market continues to struggle. Malaysia Airlines will remove six A380s from its fleet by mid-2018 and Singapore Airlines has stated that it will not extend the lease for its first A380 coming off lease in October this year. Moreover, Airbus plans to drop production to one aircraft per month in 2018 and eight aircraft total in 2019.
Moody's says that the credit strength of Emirates "informs Moody's expectation that the pass through trustees will make timely payments of interest and scheduled principal for each transaction". The leases supporting the EETCs are full-payout over their respective ten-year terms.
"The faster annual amortisation of the certificates helps to sustain an equity cushion for each transaction," says Moody's which expects improvements in the equity cushions with upcoming amortization payments.
The rating outlook on each transaction is stable.