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���������ֳ� - Chicago - 12 May 2025: ���������ֳ� has affirmed the Long-Term Issuer Default Ratings (IDRs) of Macquarie AirFinance Holdings Limited (MAHL) and its rated subsidiaries, Macquarie Aircraft Leasing Inc. (MAL) and Macquarie Aerospace Finance UK Limited (MAFU), at 'BB+'. The Rating Outlook has been revised to Positive from Stable. ���������ֳ� has also affirmed MAHL's senior unsecured debt at 'BB+'.

These rating actions are being taken in conjunction with ���������ֳ�'s global aircraft leasing sector review, covering 11 publicly rated firms. For more information on the sector review, please see "���������ֳ� Completes Aircraft Lessor Peer Review, Sector Outlook Remains Neutral," available at .

Key Rating Drivers

Improved Scale and Earnings Consistency: The Positive Outlook reflects MAHL's improved scale and enhanced earnings consistency, which ���������ֳ� expects will be sustained through various market and economic cycles, including a moderation in travel demand due to a dampening of global economic growth.

A one-notch upgrade of the rating over the next 12-24 months could be supported by solid execution with respect to growth targets and long-term strategic financial objectives, including pretax return on average assets sustained above 1.5%, while maintaining leverage below 3.0x, unsecured debt to total debt above 50%, and a liquidity coverage ratio above 1.0x. An upgrade is also contingent on MAHL maintaining new technology aircraft above 50% of the portfolio, while further lengthening the weighted average lease profile and portfolio aircraft age to align more closely with investment-grade peers.

Moderate Franchise: MAHL's ratings reflect its position as a global, full-service aircraft operating lease platform, its portfolio focus on relatively liquid, narrowbody aircraft, its appropriate current and targeted leverage, the absence of near-term debt maturities, and solid liquidity metrics. The ratings also consider MAHL's affiliation with long-term equity holders, specifically Macquarie Group Limited (A/Stable), as well as its management's depth, experience, and track record in managing aircraft assets.

Weaker Earnings Profile; Sector Constraints: Rating constraints include a weaker but improving earnings profile, moderate exposure to older aircraft, a focus on the sale-leaseback market, which is highly competitive, and shorter average remaining lease terms relative to higher-rated peers. ���������ֳ� also notes the potential governance risks relative to larger, public peers, including the lack of independent board members and partial ownership by pension funds.

Rating constraints applicable to the aircraft leasing industry more broadly include the monoline nature of the business, vulnerability to exogenous shocks, potential exposure to residual value risk, and sensitivity to oil prices, inflation and unemployment, which negatively impact travel demand. Constraints also include a reliance on wholesale funding sources and meaningful competition.

Improved Asset Quality: MAHL's portfolio quality improved meaningfully following the acquisition of the ALAFCO Aviation Lease and Finance Company K.S.C.P. (ALAFCO) portfolio in August 2024, resulting in an increase in portfolio liquidity. The WA age was 9.3 years as of Dec. 31, 2024 (3Q25), which aligns with management's target of below 10 years and is down from 11.4 years a year ago.

The WA remaining lease term improved to 5.7 years, up from 4.2 years a year ago, enhancing cash flow stability. Highly liquid, tier 1 aircraft comprised 74.4% of the portfolio, up from 67.5% the previous year, as current technology aircraft were opportunistically sold in a strong secondary market. MAHL sold eight aircraft and six engines with an average age of 21 years in 9M25, generating proceeds of $119.7 million, with an average gain of 68.9% of net book value (NBV).

For 9M25, the company determined there were no aircraft that had a book value exceeding its recoverable value, and therefore no impairment charges were taken. Given the increased lease and trading activity seen in the market, ���������ֳ� does not expect material impairment charges on MAHL's core new technology narrowbody fleet going forward.

Improved Profitability: The company reported a pretax return on average assets of 0.6%, up from a loss of 0.4% during the same period. MAHL benefited from revenue expansion due to the recent acquisition of 75 aircraft from ALAFCO, partially offset by elevated funding costs associated with a larger portfolio and higher rates on debt facilities. Net spread (lease yield minus funding costs) was 5.5% in 9M25, unchanged from a year ago, but down from the average of 8.8% for FY21-FY24. ���������ֳ� expects economies of scale to reduce the SG&A margin, while net spreads are likely to trend between 5.5% and 7.0% over the Outlook horizon.

Historically, operating performance has been somewhat susceptible to remarketing risk, given MAHL's shorter WA lease term compared to higher-rated peers. A further lengthening of MAHL's lease maturity profile would be viewed favorably by ���������ֳ�, as it would enhance operating cash flow predictability.

Appropriate Leverage: Leverage on a gross debt to tangible equity basis was 2.8x at Dec. 31, 2024. With the $750 million capital investment by shareholders to support the company's growth between May 2022 and May 2024, leverage is expected to remain below management's long-term target of 3.0x, which ���������ֳ� believes is appropriate in the context of MAHL's portfolio liquidity profile.

Improved Funding Flexibility: As of Dec. 31, 2024, unsecured debt constituted 67.9% of total debt, an improvement from 54% a year ago and 28% in 2022. Secured debt to total assets was 19.2%, remaining below management's long-term target of 30%. In March 2025, the company completed a $650 million, three-year, 5.2% senior unsecured debt issuance. Proceeds were used to repay outstanding borrowings, including the redemption of its inaugural $500 million, five-year, 8.375% senior unsecured debt, to reduce funding costs. ���������ֳ� views MAHL's ability to access the unsecured markets on more economic terms favorably. The increase in the unsecured funding mix grows the pool of unencumbered assets and enhances funding flexibility.

Solid Liquidity: Liquidity included $268.9 million in cash and $1.22 billion of undrawn committed capacity under its revolving credit facility as of Dec. 31, 2024. ���������ֳ� projects operating cash flows of approximately $271.3 million over the next 12 months, although this could vary depending on portfolio expansion, aircraft sales, and collections. Together, these liquidity sources provide 2.3x coverage of $748.4 million of purchase obligations over the next 12 months as of Dec. 31, 2024, which is above the peer average. ���������ֳ� expects liquidity coverage ratios for MAHL to remain at or above 1.5x over time.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A revision of the Outlook to Stable could arise from failure to execute on planned growth targets, while maintaining leverage below 3.0x, unsecured debt to total debt above 50%, and a liquidity ratio above 1.0x. Beyond that, a downgrade of the ratings could be driven by:

--Macroeconomic and/or geopolitical-driven headwinds that pressure airlines and lead to additional lease restructurings, rejections, lessee defaults, and increased losses;

--An inability to improve scale and a weakening of the company's long-term cash flow generation, profitability, and liquidity position;

--Higher impairments or a sustained increase in leverage above 4.0x;

--A deviation in funding strategy leading to secured debt to total assets exceeding MAHL's internal target of 30% or a notably lower anticipated proportion of unsecured debt to total debt;

--A weakening in portfolio quality, in particular new technology aircraft representing notably less than the 50% targeted communicated by management.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

A one-notch upgrade over the next 12-24 months could be contingent upon solid execution with respect to growth targets and long-term strategic financial objectives, including sustained pretax return on average assets above 1.5%, while maintaining leverage below 2.7x, unsecured debt above 50% of total debt, and liquidity coverage above 1.2x. An upgrade of MAHL's ratings could also be contingent upon:

--Reduced exposure to weaker airlines, maintenance of an impairment ratio below 1%;

--Further lengthening of the WA lease profile and a reduction in the WA age of the fleet more in line with investment-grade peers;

--Increases in the proportion of tier 1 aircraft while maintaining its new technology, narrow body focus.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

The equalization of the unsecured debt ratings with MAHL's Long-Term IDR reflects the unsecured funding mix, as well as the availability of sufficient unencumbered assets, which provide support to unsecured creditors and suggest average recovery prospects in a stressed scenario.

The senior unsecured debt ratings are primarily sensitive to changes in MAHL's Long-Term IDR and secondarily to the relative recovery prospects of the instruments. A decline in unencumbered asset coverage, combined with a material increase in secured debt, could result in the notching of the unsecured debt down from the Long-Term IDR.

SUBSIDIARY AND AFFILIATE RATINGS: KEY RATING DRIVERS

The Long-Term IDRs assigned to MAL and MAFU are equalized with that of MAHL given that they are wholly owned subsidiaries of the company.

SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES

The ratings assigned to MAL and MAFU are primarily sensitive to changes in MAHL's Long-Term IDR and are expected to move in tandem.

ADJUSTMENTS

--The Standalone Credit Profile (SCP) has been assigned in line with the implied SCP. The Business Profile was identified as a relevant negative factor in the assessment.

--The Business Profile score has been assigned below the implied score due to the following adjustment reason: Market position (negative).

--The Asset Quality score has been assigned below the implied score due to the following adjustment reason: Risk profile and business model (negative).

--The Earnings & Profitability score has been assigned below the implied score due to the following adjustment reason: Earnings stability (negative).

--The Capitalization & Leverage score has been assigned below the implied score due to the following adjustment reason: Risk profile and business model (negative).

--The Funding, Liquidity & Coverage score has been assigned below the implied score due to the following adjustment reason: Funding flexibility (negative).

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

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