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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2017
Fair Value Measurements |
Fair Value Measurements | (7) Fair Value Measurements The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value: 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. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
| · |  | Cash and cash equivalents, restricted cash, operating lease related receivables, and accounts payable: The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature.
| · |  | Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of December 31, 2017 and 2016 was estimated to have a fair value of approximately $1,090.0 million and $864.0 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each year end.
Assets Measured and Recorded at Fair Value on a Recurring Basis As of December 31, 2017 and 2016, the Company measured the fair value of its interest rate swap of $100.0 million (notional amount) based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. 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 interest rate swap agreement had a net fair value of $1.1 million and $68,000 as of December 31, 2017 and 2016, respectively. In 2017, 2016 and 2015, $0.6 million, $25,000 and nil, respectively, was realized through the income statement as an increase in interest expense. The following table shows by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of:
|  | Assets and (Liabilities) at Fair Value
|  | December 31, 2017 |  | December 31, 2016
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (in thousands) |  | (in thousands)
Derivatives |  | $ | — |  | $ | 1,129 |  | $ | — |  | $ | 1,129 |  | $ | — |  | $ | 69 |  | $ | — |  | $ | 69
Total |  | $ | — |  | $ | 1,129 |  | $ | — |  | $ | 1,129 |  | $ | — |  | $ | 69 |  | $ | — |  | $ | 69
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 Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. At December 31, 2017 and 2016, the Company used Level 2 inputs to measure write down of equipment held for lease, equipment held for sale, and spare parts inventory.
|  | Assets at Fair Value |  | Total Losses |
|  | December 31, 2017 |  | December 31, 2016 |  | December 31, |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | 2017 |  | 2016 |
|  | (in thousands) |  | (in thousands) |
Equipment held for lease |  | $ | — |  | $ | 23,255 |  | $ | — |  | $ | 23,255 |  | $ | — |  | $ | 1,196 |  | $ | — |  | $ | 1,196 |  | $ | (12,879) |  | $ | (3,674) |
Equipment held for sale |  |  | — |  |  | 39,261 |  |  | — |  |  | 39,261 |  |  | — |  |  | 8,976 |  |  | — |  |  | 8,976 |  |  | (8,708) |  |  | (5,365) |
Spare parts inventory |  |  | — |  |  | 5,336 |  |  | — |  |  | 5,336 |  |  | — |  |  | 1,538 |  |  | — |  |  | 1,538 |  |  | (3,343) |  |  | (475) |
Total |  | $ | — |  | $ | 67,852 |  | $ | — |  | $ | 67,852 |  | $ | — |  | $ | 11,710 |  | $ | — |  | $ | 11,710 |  | $ | (24,930) |  | $ | (9,514) |
Write-downs of equipment to their estimated fair values totaled $24.9 million for the year ended December 31, 2017 which included write-downs of $16.9 million for the adjustment of the carrying value of nine impaired engines and $4.7 million to adjust the carrying value of five impaired aircraft within the portfolio to reflect estimated market value. A writedown of $5.5 million was recorded due to the adjustment of the carrying value for six impaired engines and one impaired aircraft within the portfolio to reflect estimated market value. A further write-down of equipment totaling $2.0 million was recorded in the year ended December 31, 2016 due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds. An additional writedown of $2.0 million was recorded in year ended December 31, 2016 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
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