Fair Value Measurement

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

11. FAIR VALUE MEASUREMENT

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 US 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 June 30, 2022 and December 31, 2021. For the three and six months ended June 30, 2021, the Predecessor of the Company reversed $48,700 as realized through the income statement as a result of sale of interest rate swaps. For the six months ended June 30, 2021, the Predecessor of the Company recorded no realized income or loss as a change in interest expense.

There were no transfers into or out of Level 3 during the three and six months ended June 30, 2022.

Assets Measured and Recorded at Fair Value on a Non-recurring Basis

The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for lease 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.

For the three months ended June 30, 2021, the Company recorded impairment losses totaling $2,264,000 on five assets held for sale, based on appraised values or expected sales proceeds, which had an aggregate fair value of $29,333,100 During the six months ended June 30, 2021, the Predecessor of the Company recorded an impairment loss of $4,204,400 on its five assets held for sale, based on expected sales proceeds, which had an aggregate fair value of $29,333,100.

The Successor of the Company did not record impairment against assets held for sale for the three and six months ended June 30, 2022.

There were no transfers into or out of Level 3 during the three and six months ended June 30, 2022.

Fair Value of Other Financial Instruments  

The Company’s financial instruments, other than cash and cash equivalents, consist principally of finance leases receivable, amounts borrowed under the MUFG Credit Facility and Drake Loan, notes payable under special-purpose financing, its derivative termination liability and its derivative instruments. The fair value of accounts receivable, accounts payable and the Company’s maintenance reserves and accrued maintenance costs approximates the carrying value of these financial instruments because of their short-term maturity. The fair value of finance lease receivables approximates the carrying value. The fair value of the Company’s derivative instruments is discussed in Note 9 and in this note above in “Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis.” 

Borrowings under the Company’s Drake Loan bore floating rates of interest that reset periodically to a market benchmark rate plus a credit margin. The Company believes the effective interest rate under the Drake Loan approximates current market rates, and therefore that the outstanding principal and accrued interest of $80,060,900 at June 30, 2021 approximate their fair values on such date. The fair value of the Company’s outstanding balance of its Drake Loan is categorized as a Level 3 input under the US GAAP fair value hierarchy. 

As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company’s Consolidated balance sheet at their respective allowed claim amounts. Accordingly, the Company did not have finance leases receivable, amounts borrowed under the MUFG Credit Facility and Drake Loan, notes payable under special-purpose financing, its derivative termination liability and its derivative instruments as of June 30, 2022 and December 31, 2021.

There were no transfers in or out of assets or liabilities measured at fair value under Level 3 during the three and six months ended June 30, 2022 or 2021.