Boeing 2009 Annual Report Download - page 76

Aircraft Valuation
Used aircraft under trade-in commitments and aircraft under repurchase commitments In
conjunction with signing a definitive agreement for the sale of new aircraft (Sale Aircraft), we have
entered into specified-price trade-in commitments with certain customers that give them the right to
trade in used aircraft upon the purchase of Sale Aircraft. Additionally, we have entered into contingent
repurchase commitments with certain customers wherein we agree to repurchase the Sale Aircraft at a
specified price, generally ten years after delivery of the Sale Aircraft. Our repurchase of the Sale
Aircraft is contingent upon a future, mutually acceptable agreement for the sale of additional new
aircraft. If we execute an agreement for the sale of additional new aircraft, and if the customer
exercises its right to sell the Sale Aircraft to us, a contingent repurchase commitment would become a
trade-in commitment. Our historical experience is that no contingent repurchase agreements have
become trade-in commitments.
All trade-in commitments at December 31, 2009 and 2008 are solely attributable to Sale Aircraft and
did not originate from contingent repurchase agreements. Exposure related to trade-in commitments
may take the form of:
(1) Adjustments to revenue for the difference between the contractual trade-in price in the
definitive agreement and our best estimate of the fair value of the trade-in aircraft as of the
date of such agreement, which would be recorded in Inventory and recognized upon delivery
of the Sale Aircraft, and/or
(2) Charges to cost of products for adverse changes in the fair value of trade-in aircraft that occur
subsequent to signing of a definitive agreement for Sale Aircraft but prior to the purchase of
the used trade-in aircraft. Estimates based on current aircraft values would be included in
Other accrued liabilities.
The fair value of trade-in aircraft is determined using aircraft specific data such as model, age and
condition, market conditions for specific aircraft and similar models, and multiple valuation sources.
This process uses our assessment of the market for each trade-in aircraft, which in most instances
begins years before the return of the aircraft. There are several possible markets in which we
continually pursue opportunities to place used aircraft. These markets include, but are not limited to,
the resale market, which could potentially include the cost of long-term storage; the leasing market,
with the potential for refurbishment costs to meet the leasing customer’s requirements; or the scrap
market. Trade-in aircraft valuation varies significantly depending on which market we determine is most
likely for each aircraft. On a quarterly basis, we update our valuation analysis based on the actual
activities associated with placing each aircraft into a market. This quarterly valuation process yields
results that are typically lower than residual value estimates by independent sources and tends to more
accurately reflect results upon the actual placement of the aircraft.
Used aircraft acquired by the Commercial Airplanes segment are included in Inventories at the lower of
cost or market as it is our intent to sell these assets. To mitigate costs and enhance marketability,
aircraft may be placed on operating lease. While on operating lease, the assets are included in
Customer financing; however, the valuation continues to be based on the lower of cost or market. The
lower of cost or market assessment is performed quarterly using the process described above.
Asset valuation for assets under operating lease, assets held for sale or re-lease and collateral
underlying receivables Customer financing includes operating lease equipment, notes receivables,
and sales-type/financing leases. Sales-type/financing leases are treated as receivables, and
allowances for losses are established as necessary.
We assess the fair value of the assets we own, including equipment under operating leases, assets
held for sale or re-lease, and collateral underlying receivables, to determine if their fair values are less
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