London, 23 November 2012 -- Moody's Investors Service has today downgraded to Baa3 from Baa1 the rating on the Class A enhanced secured notes issued by Iberbond 2004 Public Limited Company ("Iberbond 2004"). Iberbond 2004 issued the notes to raise aircraft lease financing for Iberia Lineas Aereas de España S.A., Operadora, Sociedad Unipersonal ("Iberia"). This concludes the review for downgrade initiated by Moody's on 10 August 2012.

RATINGS RATIONALE

"Today's rating action primarily reflects the continued deterioration in Iberia's operating performance in recent quarters, as well as its weakened liquidity," says Richard Morawetz, a Moody's Vice President - Senior Credit Officer and lead analyst for Iberbond 2004. In the first three quarters of 2012, Iberia reported an operating loss of EUR262 million, versus a loss of EUR55 million the previous year. This is a result of the adverse effect on Iberia of the weak macroeconomic situation in Spain and tough competition, especially from low-cost carriers in the company's domestic market.

Moody's notes Iberia's plans for extensive restructuring, which will entail capacity cuts of 15% in 2013, mainly in short-haul flights, salary adjustments, as well as a 4,500 reduction in its workforce of about 20,000. Moody's believes that this strategy will result in some one-off cash costs and that its successful implementation will require agreement with unions. Iberia plans to fund its turnaround strategy entirely through its own resources.

With regard to liquidity, Iberia's reported cash position fell to approximately EUR1.05 billion as of September 2012 from around EUR1.5 billion as of FYE2011. Moody's recognises that Iberia's plans to substantially reduce its fleet and personnel could over time reduce this cash burn, and potentially improve profitability. However, the rating agency also expects that there will be cash costs associated with this restructuring, which could exert further pressure on Iberia's liquidity, at least in the near term. Moody's notes that the company retains a 7.5% stake in Amadeus (Baa3, stable), which could provide additional liquidity if necessary. Nevertheless, Moody's believes that the adequacy of Iberia's liquidity will be constrained beyond a 12-month horizon if the company does not stabilise its current level of cash utilisation.

In addition to Iberia's underlying credit profile, in assessing the notes issued by Iberbond 2004, Moody's has taken into consideration the characteristics of the collateral pool and the structural enhancement of the transaction, as well as exchange rate movements.

Iberia plans to fund its restructuring strategy entirely through its own resources, implying no external support from either British Airways (B1, positive outlook) or the airlines' parent company, International Consolidated Airlines Group (IAG, not rated). In this regard, Moody's assessment of the Iberbond 2004 transaction, like its rating for British Airways, continues to incorporate the assumption that no cross-guarantees have been, or will be, put in place between the two airlines.

WHAT COULD CHANGE THE RATING DOWN/UP

Any future rating action on the transaction would likely result from any combination of changes in (1) the underlying credit quality or liquidity profile of Iberia; (2) the country ceiling for Spain; (3) the value of the aircraft pledged as collateral; and/or (4) changes in the status or terms of the liquidity facilities or the credit quality of the liquidity provider.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Iberbond 2004 Public Limited Company was the Enhanced Equipment Trust and Equipment Trust Certificates Industry rating methodology, published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Iberbond 2004 Public Limited Company is a special purpose vehicle that issued debt instruments to raise aircraft financing for Iberia. Iberia, headquartered in Madrid, is now part of International Airlines Group following its merger with British Airways. In the first three quarters of 2012, Iberia reported revenues and an operating loss of EUR3.7 billion and EUR262 million, respectively.

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Richard Morawetz VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Paloma San Valentin MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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