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Rating Action:

Moody's downgrades CRAFT aircraft securitization notes and comments on RASPRO, following Mesa Airlines bankruptcy

18 Feb 2010

Approximately $230 million of asset-backed securities affected.

New York, February 18, 2010 -- Moody's has downgraded the Class A notes (the Notes) of the Canadian Regional Aircraft Finance Transaction No. 1 1998-A (CRAFT) aircraft securitization from B2 to Caa1 and placed these notes on review for further possible downgrade. The action follows the January 5, 2010 Chapter 11 bankruptcy filing of Mesa Air Group Inc. (Mesa) and most of its subsidiaries, including Mesa Airlines, Inc. (Mesa Airlines). Mesa Airlines operates eleven CRJ-200 aircraft from CRAFT, which together represent approximately 27% of CRAFT's portfolio by value. Separately, Mesa Airlines also operates fifteen CRJ-900 aircraft pursuant to agreements with RASPRO Trust 2005-1, and as described further below, Moody's does not believe the Mesa bankruptcy filing will have a ratings impact on the notes issued by RASPRO Trust 2005-1 despite this substantial exposure.

In its Ch. 11 filing Mesa said that the bankruptcy "will allow Mesa to eliminate excess aircraft to better match its needs and give Mesa the flexibility to align its business to the changing regional airline marketplace" Importantly, the bankruptcy filing specified 77 excess aircraft by type -- 35 Canadian Regional Jet CRJ-200, 12 Embraer Regional Jet ERJ-145, 10 Dash-8, and 20 Beechcraft-1900. The CRAFT transaction includes CRJ-200 aircraft while the RASPRO transaction has no CRJ-200s but rather CRJ-900s and the latter are not cited in Mesa's announcement. This, in brief, accounts for our divergent conclusions regarding the impact of the bankruptcy on the respective transactions.

The complete rating action is as follows:

Issuer: Canadian Regional Aircraft Finance Transaction No. 1 Trust 1998-A

Class A Floating Rate Notes due May 15, 2020, downgraded to Caa1 and placed on review for possible downgrade; previously downgraded to B2 on August 17, 2009.

The CRAFT transaction is backed by finance and lease cashflows and aircraft values associated with a portfolio of 45 Bombardier-manufactured Dash 8 and Canadian Regional Jet (CRJ) aircraft. In the wake of airline bankruptcies earlier in the deal's life, a substantial number of aircraft in the CRAFT portfolio came off their original finance leases and have spent varying periods of time off-lease, which lowered leasing revenues to date and slowed amortization, and subsequently certain of the re-marketing transactions were concluded as operating leases. Operating leases generate less certain cash flow as compared to full payout finance leases and loans.

In its bankruptcy filing, Mesa announced plans to eliminate 35 out of its 48 CRJ-200 aircraft. Therefore, we believe Mesa is likely to keep the 13 CRJ-200 aircraft which are most economic. This leads us to conclude that the leases and/or loan obligations relating to the CRAFT CRJ-200s operated by Mesa Airlines, nine under leveraged leases and two under loan agreements, are likely to be subject to one of the following scenarios: the aircraft may be given up by Mesa; the airline may attempt to renegotiate payment terms downward; or some combination of these. The outcome of any of these scenarios will adversely affect CRAFT's future cash-flows.

The Notes are currently receiving full interest payments, and have the benefit of support from a liquidity facility if needed. However the Notes are currently slightly behind their Target Balance. Based on our cash flow expectations prior to Mesa Airlines' bankruptcy, in our view the Notes would have remained close to their Target Balance in the near-term. We now conclude the Notes will likely fall further behind and ultimately that cash flows may prove insufficient to fully repay the Notes. Our review will focus on refining our analysis as Mesa's plans while operating under bankruptcy become clearer.

NO RATING ACTION EXPECTED ON RASPRO NOTES

Mesa Airlines operates under leveraged lease agreements fifteen CRJ 900 aircraft from RASPRO Trust 2005-1 (RASPRO), approximately 28% of RASPRO's portfolio by value. Nevertheless Moody's at this time does not see Mesa's bankruptcy impacting the ratings of the securities issued by RASPRO. The CRJ-900 aircraft that Mesa Airlines is leasing via RASPRO are relatively new fuel efficient aircraft and are currently in active service under revenue generating contracts with US Airways. No CRJ-900s were designated as 'excess' aircraft in Mesa's announcement and we believe them to be among the most valuable and useful aircraft in Mesa's fleet.

RASPRO has three classes of rated securities: Class G Certificates (Aa3), Class B Notes (Aa2) and Preferred Equity Amount (Aa3). The Class B Notes are supported by a guarantee from an affiliate of the Province of Quebec while the other ratings reflect the intrinsic credit of RASPRO's assets and expected cash flow. To date the transaction has performed according to expectations.

Finally, it should be noted that the rated RASPRO securities benefits from ample liquidity facilities which in aggregate should be more than sufficient to address any liquidity issues arising as a result of the bankruptcy. Furthermore, each lessee airline, including Mesa, has its own reserve account, a feature which disincents Mesa, to some degree, against defaulting on its obligations.

Nevertheless, the outcome of Mesa's reorganization cannot be predicted. We will continue to monitor events for possible impact on the rated securities.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating action was "Moody's Approach To Pooled Aircraft-Backed Securitization", published in March 1999 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Giyora Eiger
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades CRAFT aircraft securitization notes and comments on RASPRO, following Mesa Airlines bankruptcy
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