Boeing 2011 Annual Report Download - page 86

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The change in the allowance for losses on financing receivables for the years ended December 31,
2011, 2010 and 2009, consisted of the following:
2011 2010 2009
Beginning balance – January 1 $(353) $(302) $(269)
Customer financing valuation benefit/(provision) 269 (51) (45)
Reduction in customer financing assets 14 12
Ending balance – December 31 $ (70) $(353) $(302)
Individually evaluated for impairment $ (2)
Collectively evaluated for impairment $ (70) $(353) (300)
We assign internal credit ratings for all customers and determine the creditworthiness of each
customer based upon public information and information obtained directly from our customers. We
utilize these credit ratings as one of the factors in assessing the adequacy of our allowance for losses
on receivables. Our rating categories are comparable to those used by the major credit rating
agencies. The customer financing valuation benefit recorded in 2011 was primarily driven by changes
in the internal credit rating categories assigned to our receivable balances from AirTran Holdings, LLC
(AirTran).
The following table details our financing receivable balances at December 31, by the internal credit
rating category which was used as a factor in determining our allowance for losses on receivables.
Rating categories 2011 2010
BBB $1,316
BB 67
B103 $ 207
CCC 512 2,432
D653
Other 200 113
Total carrying value of financing receivables $2,851 $2,752
At December 31, 2011, our allowance primarily related to receivables with ratings of BBB and CCC
and we applied default rates that averaged 4% and 48% to exposure associated with those
receivables. On May 2, 2011, Southwest Airlines Co. (Southwest) completed its acquisition of AirTran
Holdings, Inc. and AirTran Holdings, Inc. became a wholly owned subsidiary of Southwest. AirTran
became the successor to AirTran Holdings, Inc. As a result, we took into account Southwest’s credit
rating when we determined the allowance for losses on AirTran receivables during 2011. In the fourth
quarter of 2011, we revised the contractual terms of our leases with AirTran in conjunction with
receiving a full guarantee from Southwest which guaranteed AirTran’s obligations to BCC. At
December 31, 2011 and 2010, we assigned the internal rating categories of BBB and CCC to the
receivables from AirTran for the purpose of assigning default rates discussed above. The improved
rating in 2011 reduced the allowance for losses on receivables by $241 for the year ended
December 31, 2011.
In the fourth quarter of 2011, American Airlines filed for Chapter 11 bankruptcy protection. We believe
that our customer financing receivables from American Airlines of $653 are sufficiently collateralized
such that we do not expect to incur losses related to those receivables as a result of the bankruptcy.
Declines in collateral values are also a significant driver of our allowance for losses. Generally,
out-of-production aircraft have had greater percentages of collateral value declines than in-production
aircraft. Our portfolio consists primarily of financing receivables for out-of-production aircraft.
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