Boeing 2005 Annual Report Download - page 64

Notes to Consolidated Financial Statements
Note 10 - Customer Financing
Customer financing at December 31 consisted of the following:
2005 2004
Aircraft financing
Notes receivable $ 2,292 $2,155
Investment in sales-type/finance leases 3,036 3,799
Operating lease equipment, at cost,
less accumulated depreciation
of $881 and $823 4,617 5,112
Other equipment financing
Notes receivable 33 44
Operating lease equipment, at cost,
less accumulated depreciation of
$106 and $72 302 294
Less allowance for losses on receivables (274) (403)
$10,006 $11,001
The components of investment in sales-type/finance leases at
December 31 were as follows:
2005 2004
Minimum lease payments receivable $4,778 $5,998
Estimated residual value of leased assets 690 833
Unearned income (2,432) (3,032)
$3,036 $3,799
Interest rates on fixed-rate notes ranged from 5.99% to
10.60%, and interest rates on variable-rate notes ranged from
4.57% to 10.59%.
Aircraft financing operating lease equipment primarily includes
new and used jet and commuter aircraft. At December 31,
2005 and 2004, aircraft financing operating lease equipment
included $11 and $73 of equipment available for re-lease. At
December 31, 2005 and 2004, we had firm lease commit-
ments for $6 and $25 of this equipment.
Impaired receivables and the allowance for losses on those
receivables consisted of the following at December 31:
2005 2004
Impaired receivables with no specific
impairment allowance $1,008 $1,053
Impaired receivables with specific
impairment allowance 503 1,179
Allowance for losses on
impaired receivables 51 295
The average recorded investment in impaired receivables as of
December 31, 2005, 2004 and 2003, was $1,196, $1,940,
and $1,688, respectively. Income recognition is generally sus-
pended for receivables at the date when full recovery of income
and principal becomes doubtful. Income recognition is
resumed when receivables become contractually current and
performance is demonstrated by the customer. Interest income
recognized on such receivables during the period in which they
were considered impaired was $90, $118, and $106 for the
years ended December 31, 2005, 2004 and 2003, respectively.
The change in the allowance for losses on receivables for the
years ended December 31, 2005, 2004 and 2003, consisted of
the following:
Allowance
for Losses
Beginning balance–January 1, 2003 $(301)
Charge to costs and expenses (214)
Reduction in customer financing assets 111
Ending balance–December 31, 2003 (404)
Charge to costs and expenses (45)
Reduction in customer financing assets 46
Ending balance–December 31, 2004 $(403)
Charge to costs and expenses (73)
Reduction in customer financing assets 202
Ending balance–December 31, 2005 $(274)
During 2005, BCC recorded charges related to customer
financing-related asset impairment charges of $33 as a result
of declines in market values and projected future rents for air-
craft and equipment. During 2004, we recorded charges
related to customer financing activities of $42 in operating
earnings, which included impairment charges of $29 ($27
recorded by BCC). During 2003, we recorded charges related
to customer financing activities of $105 in operating earnings
($100 recorded by BCC).
Aircraft financing is collateralized by security in the related
asset; we have not experienced problems in accessing such
collateral. However, the value of the collateral is closely tied to
commercial airline performance and may be subject to reduced
valuation with market decline. Our financing portfolio has a
concentration of 757, 717 and MD-11 aircraft that have valua-
tion exposure. Notes receivable, sales-type/finance leases and
operating lease equipment attributable to aircraft financing at
December 31 were as follows:
2005 2004
757 Aircraft ($958 and $475 accounted
for as operating leases) $1,245 $1,457
717 Aircraft ($621 and $596 accounted
for as operating leases) 2,490 2,308
MD-11 Aircraft ($580 and $687
accounted for as operating leases) 672 833
As of December 31, 2005, the following customers have filed
for bankruptcy protection or requested lease or loan restructur-
ings:
Aircraft Financing Percentage of Portfolio
2005 2004 2005 2004
United Airlines (United)* $1,080 $1,131 11% 10%
ATA Holdings Corp. (ATA) 253 705 3% 6%
Hawaiian Airlines, Inc.* 432 456 4% 4%
Viacao Aerea Rio-Grandense 348 481 3% 4%
Northwest Airlines, Inc.
(Northwest) 494 295 5% 3%
Delta Airlines, Inc. (Delta) 118 146 1% 1%
Amounts related to these customers are believed to be fully collectible
and are not expected to have a material adverse impact on our earn-
ings, cash flows and/or financial position.
*Customer has emerged from bankruptcy.
62 The Boeing Company and Subsidiaries