Boeing 2014 Annual Report Download - page 75

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when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered
by outside publications.
Impairment review for assets under operating leases and held for sale or re-lease We evaluate for
impairment assets under operating lease or assets held for sale or re-lease when events or changes in
circumstances indicate that the expected undiscounted cash flow from the asset may be less than the
carrying value. We use various assumptions when determining the expected undiscounted cash flow,
including our intentions for how long we will hold an asset subject to operating lease before it is sold, the
expected future lease rates, lease terms, residual value of the asset, periods in which the asset may be
held in preparation for a follow-on lease, maintenance costs, remarketing costs and the remaining economic
life of the asset. We record assets held for sale at the lower of carrying value or fair value less costs to
sell.
When we determine that impairment is indicated for an asset, the amount of impairment expense recorded
is the excess of the carrying value over the fair value of the asset.
Allowance for losses on customer financing receivables We record the potential impairment of
customer financing receivables in a valuation account, the balance of which is an accounting estimate of
probable but unconfirmed losses. The allowance for losses on receivables relates to two components of
receivables: (a) receivables that are evaluated individually for impairment and (b) all other receivables.
We determine a receivable is impaired when, based on current information and events, it is probable that
we will be unable to collect amounts due according to the original contractual terms of the receivable
agreement, without regard to any subsequent restructurings. Factors considered in assessing collectability
include, but are not limited to, a customer’s extended delinquency, requests for restructuring and filings
for bankruptcy. We determine a specific impairment allowance based on the difference between the carrying
value of the receivable and the estimated fair value of the related collateral we would expect to realize.
We review the adequacy of the allowance attributable to the remaining receivables (after excluding
receivables subject to a specific impairment allowance) by assessing both the collateral exposure and the
applicable cumulative default rate. Collateral exposure for a particular receivable is the excess of the
carrying value of the receivable over the fair value of the related collateral. A receivable with an estimated
fair value in excess of the carrying value is considered to have no collateral exposure. The applicable
cumulative default rate is determined using two components: customer credit ratings and weighted average
remaining contract term. Internally assigned credit ratings, our credit quality indicator, are determined for
each customer in the portfolio. Those ratings are updated based upon public information and information
obtained directly from our customers.
We have entered into agreements with certain customers that would entitle us to look beyond the specific
collateral underlying the receivable for purposes of determining the collateral exposure as described above.
Should the proceeds from the sale of the underlying collateral asset resulting from a default condition be
insufficient to cover the carrying value of our receivable (creating a shortfall condition), these agreements
would, for example, permit us to take the actions necessary to sell or retain certain other assets in which
the customer has an equity interest and use the proceeds to cover the shortfall.
Each quarter we review customer credit ratings, published historical credit default rates for different rating
categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness
of the allowance for losses on receivables. There can be no assurance that actual results will not differ
from estimates or that the consideration of these factors in the future will not result in an increase or
decrease to the allowance for losses on receivables.