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Fair Value Measurements

3 Months Ended

May 31, 2022

Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs.

The following tables set forth our financial assets as of May 31, 2022 and February 28, 2022 that we measured at fair value on a recurring basis by level within the fair value hierarchy. Assets 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 Measurements at May 31, 2022 Using Fair Value Hierarchy
	Fair Value as of May 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:
Cash and cash equivalents	$	241,030	$	241,030	$	—	$	—	Market
Restricted cash and cash equivalents	650		650		—		—		Market

Total	$	241,680	$	241,680	$	—	$	—


			Fair Value Measurements at February 28, 2022 Using Fair Value Hierarchy
	Fair Value as of February 28, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Technique
Assets:
Cash and cash equivalents	$	167,891	$	167,891	$	—	$	—	Market
Restricted cash and cash equivalents	2,791		2,791		—		—		Market


Total	$	170,682	$	170,682	$	—	$	—

Our cash and cash equivalents and our restricted cash and cash equivalents consist largely of money market securities that are highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

For the three months ended May 31, 2022, we had no transfers into or out of Level 3.

We measure the fair value of certain assets and liabilities on a non-recurring basis, when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate the carrying amounts of these assets may not be recoverable. Assets subject to these measurements include our aircraft and investment in unconsolidated joint

venture. We record aircraft at fair value when we determine the carrying value may not be recoverable. Fair value measurements for aircraft in impairment tests are based on the average of the market approach that uses Level 2 inputs, which include third party appraisal data and an income approach that uses Level 3 inputs, which include the Company’s assumptions and appraisal data as to future cash proceeds from leasing and selling aircraft discounted using the Company’s weighted average cost of capital.

We account for our investment in unconsolidated joint ventures under the equity method of accounting. Investments are recorded at cost and are adjusted by undistributed earnings and losses and the distributions of dividends and capital. These investments are reviewed for impairment whenever events or changes in circumstances indicate the fair value is less than its carrying value and the decline is other-than-temporary.

Aircraft Valuation

Impairment of Flight Equipment

During the three months ended May 31, 2022, the Company wrote off the remaining book value of eight narrow-body aircraft in Russia which have not been returned to us totaling $4.4 million. While we maintain title to the aircraft and will continue to pursue repossession, we determined that it is unlikely we will regain possession of these eight aircraft – see Note 3 in the Notes to Unaudited Consolidated Financial Statements. The Company recognized $1.5 million of other revenue for these aircraft related to payments received on letters of credit.

During the three months ended May 31, 2021, the Company recorded transactional impairment charges totaling $20.6 million which related to two narrow-body aircraft and were the result of an early lease termination and a scheduled lease expiration. The Company recognized $21.1 million of maintenance revenue for these two aircraft.

Annual Recoverability Assessment

We plan to perform our annual recoverability assessment of all our aircraft during the third quarter of 2022.

We continue to closely monitor the impact of recent crises, such as the Russian invasion of Ukraine and the COVID-19 pandemic, on our customers, air traffic, lease rental rates, and aircraft valuations, and have and will continue to perform additional customer and aircraft specific reviews should changes in facts and circumstances arise that may impact the recoverability of our aircraft. We have and will focus on aircraft with near-term lease expirations, customers that have entered judicial insolvency proceedings and any additional customers that may become subject to similar-type proceedings, and certain other customers or aircraft variants that are more susceptible to the impact of the above crises and value deterioration.

The recoverability assessment is a comparison of the carrying value of each aircraft to its estimated undiscounted future cash flows. We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources. Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors, such as the location of the aircraft and accessibility to records and technical documentation.

If our estimates or assumptions change, including those related to our customers that have entered judicial insolvency proceedings, we may revise our cash flow assumptions and record future impairment charges. While we believe that the estimates and related assumptions used in our recoverability assessments are appropriate, actual results could differ from those estimates.

Financial Instruments

Our financial instruments, other than cash, consist principally of cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and amounts borrowed under financings. The fair value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature.

The fair value of our senior notes is estimated using quoted market prices. The fair values of all our other financings are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of our financial instruments at May 31, 2022 and February 28, 2022 were as follows:


	May 31, 2022				February 28, 2022
	Carrying Amount of Liability		Fair Value of Liability		Carrying Amount of Liability		Fair Value of Liability
Credit Facilities	$	20,000	$	20,000	$	20,000	$	20,000
Unsecured Term Loan	155,000		152,586		155,000		152,195
Export Credit Agency (“ECA”) Financings	—		—		21,576		21,931
Bank Financings	647,910		638,242		666,258		675,667
Senior Notes	3,700,000		3,574,154		3,700,000		3,776,997

All our financial instruments are classified as Level 2 except for our senior notes, which are classified as Level 1.

- 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.

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