Aircraft Lease Assets

12 Months Ended

Dec. 31, 2021

Disclosure Text Block [Abstract]

AIRCRAFT LEASE ASSETS

5. AIRCRAFT LEASE ASSETS  

The Company’s leases are normally “triple net leases” under which the lessee is obligated to bear all costs, including tax, maintenance and insurance, on the leased assets during the term of the lease. In most cases, the lessee is obligated to provide a security deposit or letter of credit to secure its performance obligations under the lease, and in some cases, is required to pay maintenance reserves based on utilization of the aircraft, which reserves are available for qualified maintenance costs during the lease term and may or may not be refundable at the end of the lease. Typically, the leases also contain minimum return conditions, as well as an economic adjustment payable by the lessee (and in some instances by the lessor) for amounts by which the various aircraft or engine components are worse or better than a targeted condition set forth in the lease. Some leases contain renewal or purchase options, although the Company’s sales-type leases contain a bargain purchase option at lease end which the Company expects the lessees to exercise or require that the lessee purchase the aircraft at lease-end for a specified price.

Because all of the Company’s leases transfer use and possession of the asset to the lessee and contain no other substantial undertakings by the Company, the Company has concluded that all of its lease contracts qualify for lease accounting. Certain lessee payments of what would otherwise be lessor costs (such as insurance and property taxes) are excluded from both revenue and expense.

The Company evaluates the expected return on its leased assets by considering both the rents receivable over the lease term, any expected additional consideration at lease end, and the residual value of the asset at the end of the lease. In some cases, the Company depreciates the asset to the expected residual value because it expects to sell the asset at lease end; in other cases, it may expect to re-lease the asset to the same or another lessee and the depreciation term and related residual value will differ from the initial lease term and initial residual value. Residual value is estimated by considering future estimates provided by independent appraisers, although it may be adjusted by the Company based on expected return conditions or location, specific lessee considerations, or other market information.

In 2020 and 2021, three and nil, respectively, of the Company’s operating lease assets were subject to manufacturer residual value guarantees totaling approximately $13.7 million at the end of their lease terms in the second quarter of 2027. The Company considers the best market for re-leasing and/or selling its assets at the end of its leases, although it does not expect to retain ownership of the assets under sales-type leases given the lessees’ bargain purchase options or required purchase.

During 2020, the Company recorded impairment losses totaling $14,639,900 for seven of its aircraft held for lease, comprised of (i) $7,006,600 for two aircraft that were written down to their sales prices, less cost of sale and (ii) $7,633,300 for five aircraft that were written down based on third-party appraisals.

During 2021, the Company recorded impairment losses totaling $4,204,400 for five of its aircraft held for sale that were written down to their sales prices, less cost of sale.

(a) Assets Held for Lease

At December 31, 2021, the Company had one regional jet aircraft held for lease. As of December 31, 2020, the Company had four regional jet aircrafts and two Turboprop aircrafts held for lease.

The Company did not purchase any aircraft held for lease during 2021 and 2020. During the years ended December 31, 2021 and 2020, the Company sold one and two aircraft that had been held for lease, resulting in a loss of $194,900 and a gain of $118,500, respectively.

None of the Company’s aircraft held for lease were off lease at December 31, 2020. The Company had nine aircraft that are held for sale as of December 31, 2020: (i) three regional jet aircraft that are on lease and were sold in March 2021; (ii) three off-lease regional jet aircraft; (iii) one off-lease turboprop aircraft and (iv) two turboprop aircraft that are being sold in parts.

(b) Sales-Type and Finance Leases

In January 2020, the Company amended the leases for three of its assets that were subject to sales-type leases with two customers. The amendments provided for (i) the exercise of a purchase option of one aircraft to the customer in January 2020, which resulted in a gain of $12,700, (ii) application of collected maintenance reserves and a security deposit held by the Company to past due amounts for the other two aircraft, (iii) payments totaling $585,000 in January 2020 for two of the leases and (iv) the reduction of future payments due under the two finance leases. Because of the uncertainty of collection of amounts receivable under the finance leases, the Company does not recognize interest income on the finance lease receivables (i.e., they are accounted for on a non-accrual basis) and their asset value is based on the collateral value of the aircraft that secure the finance leases, net of projected sales costs. The Company recorded bad debt allowances totaling $1,503,000 related to the two sales-type leases during 2020.

In January 2020, the customer for an aircraft leased pursuant to a direct financing lease notified the Company of its intention to exercise the lease-end purchase option for the aircraft in March 2020. In February 2020, the Company and the same customer agreed to the early exercise of lease-end purchase options for direct financing leases that were to expire in March 2021 and March 2022. All three purchase options were exercised in March 2020, resulting in a loss of $60,600.

As a result of the Sale Order approved by the Bankruptcy Court in May 2021, the Company reclassified all of its aircraft under sales-type and finance leases to held for sale.

At December 31, 2021, September 29, 2021 and December 31, 2020, the net investment included in sales-type leases and direct financing leases receivable were as follows:

	Successor			Predecessor
	December 31,			September 29,			December 31,
	2021			2021			2020
Gross minimum lease payments receivable	$	300,000		$	1,597,000		$	4,138,000
Less unearned interest		-			-			(88,000	)
Allowance for doubtful accounts		(300,000	)		(1,147,000	)		(1,503,000	)
Finance leases receivable	$	-		$	450,000		$	2,547,000

As of December 31, 2021, there were no minimum future payments receivable under finance leases.