| (29) | Fair value measurements |
The
fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated Statement of Financial
Position as of December 31, 2017 are as follows:
| December 31, 2017 | ||||||||||||
| Notes | Carrying amount |
Fair value | ||||||||||
| Financial assets | ||||||||||||
| Available–for–sale securities | 6.b | $ | 55 | $ | 55 | |||||||
| Derivative instruments | 26 | 23,539 | 23,539 | |||||||||
| $ | 23,594 | $ | 23,594 | |||||||||
| Financial liabilities | ||||||||||||
| Short term borrowings and long–term debt | 16 | $ | 3,752,113 | $ | 3,587,841 | |||||||
| Derivative instruments | 27 | 137 | 137 | |||||||||
| $ | 3,752,250 | $ | 3,587,978 | |||||||||
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated Statement of Financial Position as of December 31, 2016 are as follows:
| December 31, 2016 | ||||||||||||
| Notes | Carrying amount |
Fair value | ||||||||||
| Financial assets | ||||||||||||
| Available–for–sale securities | 6.b | $ | 76 | $ | 76 | |||||||
| Derivative instruments | 26 | 26,337 | 26,337 | |||||||||
| $ | 26,413 | $ | 26,413 | |||||||||
| Financial liabilities | ||||||||||||
| Short term borrowings and long–term debt | 16 | $ | 3,274,235 | $ | 3,241,240 | |||||||
| Derivative instruments | |
26, 27 |
|
528 | 528 | |||||||
| $ | 3,274,763 | $ | 3,241,768 | |||||||||
The fair value of the financial assets and liabilities corresponds the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Management assessed that cash and cash equivalents, account receivable, account payable and other current liabilities approximate their carrying amount largely due to the short–term maturities of these instruments.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
| (a) | The fair value of available–for–sale financial assets is determined by reference to the present value of future principal and interest cash flows, discounted at a market based interest rate at the reporting date. |
| (b) | The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate contracts, foreign currency forward contracts and commodity contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign currency spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. |
| (c) | The fair value of short–term borrowings and long–term debt, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at a market based interest rate at the reporting date. For finance leases, the market rate is determined by reference to similar lease agreements. |
| (d) | The Company uses the revaluation model to measure its land and buildings which are composed of administrative properties. Management determined that this constitutes one class of asset under IAS 16, based on the nature, characteristics and risks of the property. The fair values of the properties were determined by using market comparable methods. |
| This means that valuations performed by the appraisals are based on active market prices, adjusted for difference in the nature, location or condition of the specific property. The Company engaged accredited independent appraisals, to determine the fair value of its land and buildings. |
| (e) | The Frequent flyer liability is included in the Consolidated Statement of Financial Position within Air traffic liability. The Company estimates the fair value of miles awarded under the LifeMiles program by applying statistical techniques. Inputs to the models include making assumptions about expected redemption rates, the mix of products that will be available for redemption in the future and customer preferences. |
Fair values hierarchy
The
table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as
follows:
| Level 1 | inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. | |
| Level 2 | inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or | |
| Level 3 | inputs are unobservable inputs for the asset or liability. | |
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re–assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of December 31, 2017:
Quantitative disclosures of fair value measurement hierarchy for assets:
| Fair value measurement using | ||||||||||||||||
| Assets measured at fair value | Quoted prices in active markets (Level 1) |
Significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total | ||||||||||||
| Derivative financial assets (Note 26) | ||||||||||||||||
| Aircraft fuel hedges | — | 20,549 | — | 20,549 | ||||||||||||
| Interest rate derivatives | — | 2,990 | — | 2,990 | ||||||||||||
| Available–for–sale securities (Note 6) | — | 55 | — | 55 | ||||||||||||
| Revalued administrative property (Note 13) | — | 147,663 | — | 147,663 | ||||||||||||
Quantitative disclosures of fair value measurement hierarchy for liabilities:
| Fair value measurement using | ||||||||||||||||
| Liabilities measured at fair value | Quoted prices in active markets (Level 1) |
Significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total | ||||||||||||
| Derivative financial liabilities (Note 26) | ||||||||||||||||
| Foreing currency derivatives | — | 137 | — | 137 | ||||||||||||
| Frequent flyer liability (Note 21) | — | 191,157 | — | 191,157 | ||||||||||||
| Liabilities for which fair values are disclosed | ||||||||||||||||
| Short–term borrowings and long–term debt (Note 16) | — | 3,587,841 | — | 3,587,841 | ||||||||||||
The
following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of December 31,
2016:
Quantitative disclosures of fair value measurement
hierarchy for assets:
| Fair value measurement using | ||||||||||||||||
| Assets measured at fair value | Quoted prices in active markets (Level 1) |
Significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total | ||||||||||||
| Derivative financial assets (Note 26) | ||||||||||||||||
| Aircraft fuel hedges | ||||||||||||||||
| Interest rate derivatives | — | 25,540 | — | 25,540 | ||||||||||||
| Available–for–sale securities (Note 6) | — | 797 | — | 797 | ||||||||||||
| Assets held for sale | — | 76 | — | 76 | ||||||||||||
| Revalued administrative property (Note 13) | — | 149,371 | — | 149,371 | ||||||||||||
Quantitative disclosures of fair value measurement hierarchy for liabilities:
| Fair value measurement using | ||||||||||||||||
| Liabilities measured at fair value | Quoted prices in active markets (Level 1) |
Significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total | ||||||||||||
| Derivative financial liabilities (Note 26) | ||||||||||||||||
| Interest rate derivatives | — | 528 | — | 528 | ||||||||||||
| Frequent flyer liability (Note 21) | — | 171,848 | — | 171,848 | ||||||||||||
| Liabilities for which fair values are disclosed | ||||||||||||||||
| Short–term borrowings and long–term debt (Note 16) | — | 3,241,240 | — | 3,241,240 | ||||||||||||