FTAI Aviation Ltd. - 10-K filing on 2016-03-10

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2015

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:

•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.


•	Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants price the asset or liability.

The valuation techniques that may be used to measure fair value are as follows:


•	Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.


•	Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts.


•	Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and December 31, 2014, by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.



	Fair Value as of		Fair Value Measurements Using Fair Value Hierarchy as of
	December 31, 2015		December 31, 2015
	Total		Level 1		Level 2		Level 3		Valuation Technique
Assets:
Cash and cash equivalents	$	381,703	$	381,703	$	—	$	—	Market
Restricted cash	21,610		21,610		—		—		Market
Derivative assets	101		—		101		—		Income
Total assets at fair value	$	403,414	$	403,313	$	101	$	—

	Fair Value as of		Fair Value Measurements Using Fair Value Hierarchy as of
	December 31, 2014		December 31, 2014
	Total		Level 1		Level 2		Level 3		Valuation Technique
Assets:
Cash and cash equivalents	$	22,125	$	22,125	$	—	$	—	Market
Restricted cash	21,084		21,084		—		—		Market
Derivative assets	232		—		232		—		Income
Total assets at fair value	$	43,441	$	43,209	$	232	$	—

At December 31, 2015 and December 31, 2014, the Company had no liabilities that were measured at fair value on a recurring basis.

The Company’s cash and cash equivalents and restricted cash consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid and easily tradable. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy. The Company’s derivatives are valued using discounted cash flow models with observable market inputs (i.e., cash rates, futures rates, swap rates and contractual cash flows) that can be verified and do not involve significant judgments and are therefore classified as Level 2 within the fair value hierarchy.

Except as discussed below, the Company’s financial instruments other than cash and cash equivalents, restricted cash, and derivatives consist principally of accounts receivable, accounts payable and accrued liabilities, bonds payable, security deposits, maintenance deposits and management fees payable, whose fair value approximates their carrying value based on an evaluation of pricing data, vendor quotes, and historical trading activity or due to their short maturity profiles.

At December 31, 2015 and December 31, 2014, the Company’s notes receivable, included as a component of other assets on the accompanying Consolidated Balance Sheets, consisted of a $3,725 loan bearing interest at 12.0% made to the Company’s joint venture partner in MT 6015 (Note 2) which is collateralized by other property owned by the joint venture partner. At December 31, 2015, the Company's notes receivable also included a $14,869 loan bearing interest at 10% related to a terminal site under development, collateralized by property at that site. The fair values of these notes receivable approximate carrying value due to both bearing a market rate of interest for similar types of loans and is classified as Level 2 within the fair value hierarchy.

The fair values of Container Loan #1 and Container Loan #2, reported in Debt on the Consolidated Balance Sheets at December 31, 2015 and December 31, 2014, were approximately $34,758 and $42,515, respectively, and $11,359 and $19,129, respectively, based upon current market interest rates for similar types of loans. The fair value of Series 2012 bonds, reported in Debt on the Consolidated Balance Sheets, was approximately $49,268 at December 31, 2015 and approximated carrying value at December 31, 2014, based upon market prices for similar municipal securities. The fair values of all other items reported as Debt on the Consolidated Balance Sheets approximate their carrying values due to their bearing market rates of interest, and are classified as Level 2 within the fair value hierarchy.

The Company measures the fair value of certain assets and liabilities on a non-recurring basis when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include goodwill, intangible assets, property, plant and equipment and leasing equipment. The Company records such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions as to future cash flows from operation of the underlying businesses and the leasing and eventual sale of assets.

During the years ended December 31, 2015 and 2014, no impairment charges were recognized related to the Company's assets and liabilities measured at fair value on a recurring basis. See Note 7 for impairment recorded by the Company's investment in unconsolidated entity during the year ended December 31, 2015.