Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

7. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under GAAP is based on three levels of inputs.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance.

The successor of the Company had no interest rate swaps on September 30, 2021. The predecessor of the Company had no interest rate swaps as of September 29, 2021 or during the period from July 1, 2021 through September 29, 2021.

As of December 31, 2020, the Company measured the fair value of its interest rate swaps of $14,091,300 (notional amount) based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The interest rate swaps had a net fair value liability of $767,900 as of December 31, 2020. In the year ended December 31, 2020, $1,979,800 was realized through the income statement as an increase in interest expense.

The following table shows, by level within the fair value hierarchy, the predecessor of the Company’s assets and liabilities at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

	September 29, 2020 (Predecessor)								December 31, 2020 (Predecessor)
	Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2			Level 3
Derivatives	$	-		-	$	-		-	$	(767,900	)	$	-	$	(767,900	)	$	-
Total	$	-	$	-	$	-	$	-	$	(767,900	)	$	-	$	(767,900	)	$	-

There were no transfers into or out of Level 3 during the three and nine months ended September 30, 2021 or 2020.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease and these and other assets held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and other factors. The independent appraisals utilized the market approach which uses recent sales of comparable assets, making appropriate adjustments to reflect differences between them and the subject property being analyzed. Certain assumptions are used in the management’s estimate of the fair value of aircraft including the adjustments made to comparable assets, identifying market data of similar assets, and estimating cost to sell. These are considered Level 3 within the fair value hierarchy. An impairment charge is recorded when the Company believes that the carrying value of an asset will not be recovered through future net cash flows and that the asset’s carrying value exceeds its fair value.

The successor of the Company did not record impairment against assets held for sale, because the Effective Date was the same on the reporting date of September 30, 2021.

During the period from July 1 through September 29, 2021, the predecessor of the Company settled the liabilities subject to compromise by the aircrafts included in the assets held for sale, and no impairment losses were recorded. See Note 3- reorganization adjustment (b). For the period from January 1, 2021 through September 29, 2021, the Company recorded impairment losses of $4,204,400 on five assets held for sale, based on appraised values or expected sales proceeds, which had an aggregate fair value of $29,333,100. For the three and nine months ended September 30, 2020, the predecessor of the Company recorded impairment losses totaling $nil and $6,706,600 for two of its aircraft held for lease, which were written down to their estimated sales prices, less cost of sale.

The following table shows, by level within the fair value hierarchy, the Company’s assets at fair value on a nonrecurring basis as of September 29, 2021 and December 31, 2020:

	Assets Written Down to Fair Value (Predecessor)																Total Losses (Predecessor)
	September 29, 2021								December 31, 2020
	Level								Level
	Total		1		2		3		Total		1		2		3		For the period from January 1, 2021 through September 29, 2021		For the Nine Months Ended September 30, 2020
Assets held for lease	$	-	$	-	$	-	$	-	$	32,650,000	$	-	$	-	$	32,650,000	$	-	$	7,006,600
Assets held for sale		-		-		-		-		38,041,600		-		-		38,041,600		4,204,400		9,813,900
Total	$	-	$	-	$	-	$	-	$	70,691,600	$	-	$	-	$	70,691,600	$	4,204,400	$	16,820,500

There were no transfers into or out of Level 3 during the three and nine months ended September 30, 2021 or 2020.

There were no transfers in or out of assets or liabilities measured at fair value under Level 3 during the three months or nine months ended September 30, 2021 or 2020.