UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 001-11992

BOEING CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-2564584
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)
500 Naches Ave. SW, 3rd Floor • Renton, Washington 98057
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (425) 965-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $100 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨		Accelerated filer   ¨
Non-accelerated filer	x	(Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

No common stock is held by non-affiliates of the registrant. Common stock shares outstanding at February 1, 2013: 50,000 shares

Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE: None

Table of Contents

			Page
Part I
	Item 1.	Business	2
	Item 1A.	Risk Factors	3
	Item 1B.	Unresolved Staff Comments	5
	Item 2.	Properties	6
	Item 3.	Legal Proceedings	6
	Item 4.	Mine Safety Disclosures	6
Part II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	7
	Item 6.	Selected Financial Data	7
	Item 7.	Management’s Narrative Analysis of the Results of Operations	7
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 8.	Financial Statements and Supplementary Data	15
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	42
	Item 9A.	Controls and Procedures	42
	Item 9B.	Other Information	42
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance *	43
	Item 11.	Executive Compensation *	43
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters *	43
	Item 13.	Certain Relationships and Related Transactions, and Director Independence *	43
	Item 14.	Principal Accounting Fees and Services	43
Part IV
	Item 15.	Exhibits, Financial Statement Schedules	44
	Signatures		46

* Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

PART I

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates” and similar expressions are used to identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, future portfolio size, amounts of new aircraft financing, future levels of indebtedness and debt-to-equity ratios, the outcome of contingencies as well as any other statement that does not directly relate to any historical or current fact.

Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to:

– the financial condition of the airline industry, which could be adversely affected by changes in general economic conditions, credit ratings, increases in fuel-related costs, the liquidity of the global financial markets, responses to increasing environmental concerns, as well as events such as war, terrorist attacks or a serious health epidemic;

– the impact of bankruptcies, restructurings or mergers and acquisitions on commercial airline customers;

– the impact of changes in aircraft valuations;

– the sufficiency of our liquidity;

– the impact on us of strategic decisions by The Boeing Company (Boeing), including the amount of financing necessary to support the sale of Boeing products, the level and types of transactional or other support made available to us by Boeing and the ending of production of certain aircraft programs;

– the market acceptance of Boeing products;

– a decline in Boeing’s or our financial performance, outlook or credit ratings;

– the availability of commercial and governmental financing, which can be affected by a number of factors, including global economic conditions, economic and monetary crises, legislative and regulatory changes, and availability of and policies regarding governmental export finance support;

– the extent to which we are called upon to fund Boeing’s and our outstanding financing commitments or satisfy other financing requests, and our ability to satisfy those requirements;

– reduced lease rates as a result of competition in the used aircraft market, or the inability to maintain aircraft on lease at satisfactory lease rates;

– financial, legal, tax, regulatory, legislative and accounting changes or actions that may affect the overall performance of our business;

– the adequacy of coverage of our allowance for losses on receivables; and

– volatility in our earnings due to the timing of asset sales, other risk mitigation activities, fluctuations in our portfolio size and changes in interest rates.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission (SEC), including the “Risk Factors” contained on pages 3 through 5 of this report, “Management’s Narrative Analysis of the Results of Operations” and Note 12 to our Consolidated Financial Statements included in this report and our Current Reports on Form 8-K. Any forward-looking statement herein speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law.

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Item 1. Business

GENERAL

Boeing Capital Corporation (together with its subsidiaries, referred to as “us,” “we,” “our” or the “Company”) is a wholly owned subsidiary of Boeing. The Company was incorporated in Delaware in 1968. In the commercial aircraft market, we facilitate, arrange, structure and provide selective financing solutions for Boeing’s Commercial Airplanes customers. In the space and defense markets, we primarily arrange and structure financing solutions for Boeing’s Defense, Space & Security customers.

At December 31, 2012, our portfolio consisted of equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease and investments. At December 31, 2012, our portfolio totaled $4.1 billion, which was substantially collateralized by Boeing commercial aircraft. At December 31, 2012, we owned 213 commercial aircraft and had partial ownership or security interest in an additional 53 aircraft.

RISK MANAGEMENT

We monitor the potential volatility in the value of our portfolio and the amount of capital required to support our portfolio, using internally and externally developed statistical models. In addition, we track and analyze our exposure to potential net income fluctuations, analyze and assess transactional support and guarantees, and assess individual transaction values considering factors such as forecasted aircraft values and potential credit rating migrations. This analysis allows us to structure transactions that are designed to achieve our targeted balance of risks and rewards.

RELATIONSHIP WITH BOEING

We have agreements with Boeing that are significant to our operation. These agreements provide for financial support, among other things. At December 31, 2012, Boeing provided us with various types of partial and full guarantees, including first loss deficiency guarantees, residual value guarantees and rental loss guarantees, with a maximum potential value of $1.5 billion related to portfolio assets totaling $1.8 billion. For further discussion of these guarantees, agreements and other arrangements with Boeing, see Item 8. Financial Statements and Supplementary Data, Note 2.

For a further description of significant factors that may affect Boeing, see Boeing’s Annual Report on Form 10-K for the year ended December 31, 2012. That report is not incorporated by reference into this filing of Boeing Capital Corporation.

COMPETITIVE CONDITIONS

The value of Boeing products we finance is influenced by the aerospace and financial markets and general economic conditions. The financing solutions we develop are part of overall sales campaigns and can be integral to Boeing winning orders in the commercial aircraft and space and defense markets. During campaigns, Boeing competes against other companies also offering in-house customer financing. Some customers require a financing commitment prior to ordering aircraft. Third party financiers are often unwilling to offer financing when orders are made since there may be a period of several years between order and delivery. Therefore, we may provide a financing commitment when products are ordered and subsequently assist our customers in obtaining alternative financing from third parties.

When we sell or remarket used aircraft, we compete with other leasing companies and financial institutions primarily on the basis of pricing, terms, structure and service. The prices at which we sell aircraft or rental rates at which we lease aircraft are impacted by the demand for suitable aircraft and the quantity, condition and type of aircraft that are available. For further discussion on the airline industry environment, see Item 7. Management’s Narrative Analysis of the Results of Operations, Business Environment and Trends.

SIGNIFICANT CONCENTRATIONS

For a discussion of our geographic and portfolio concentrations, see Item 8. Financial Statements and Supplementary Data, Note 15.

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EMPLOYEES

At December 31, 2012 and 2011, we had 146 employees. While we believe that our current level of employment is adequate to support our current and projected business operations over the next year, our actual employment levels may vary from our current levels due to changes in the needs and requirements of our business operations and timing of filling open positions. No employees are covered by collective bargaining agreements. We believe our employee relations are satisfactory. As of February 1, 2013, we had 143 employees.

AVAILABLE INFORMATION

General information about us can be found at www.boeing.com. The information contained on or connected to Boeing’s web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed by the Company with the SEC. Our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q, as well as any amendments to those reports, are available free of charge through Boeing’s website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. These reports may also be obtained at the SEC’s public reference room at 100 F Street N.E. Washington, DC 20549. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330.

The SEC also maintains a website at www.sec.gov that contains reports and other information regarding SEC issuers, including Boeing and Boeing Capital Corporation.

Item 1A. Risk Factors

An investment in our debt securities involves risks and uncertainties and our actual results and future trends may differ materially from our past or projected future performance due to a variety of factors. We urge investors to consider carefully the risk factors described below in evaluating the information contained in this report.

A substantial deterioration in the financial condition of the commercial airline industry may adversely impact us.

The financial condition of the airline industry is of particular importance to us because substantially all of our portfolio consists of lease and loan financing with commercial airline customers. If terrorist attacks; a serious health epidemic; significant regulatory actions in response to environmental, safety or other concerns; increases in fuel-related costs or other exogenous events were to occur, a material adverse effect on the airline industry, increased requests for financing, significant defaults by airline customers, repossessions of aircraft or airline bankruptcies and restructurings could result. If this were to occur, aircraft values or lease rates could decline. These events could have a material adverse effect on our earnings, cash flows and/or financial position.

We may be unable to obtain debt to fund our operations and contractual commitments at competitive rates, on commercially reasonable terms or in sufficient amounts.

We depend, in part, upon the issuance of debt to fund our operations and contractual commitments. As described in Item 9B of this report, we plan to suspend our separate SEC reporting obligations after the filing of this Annual Report on Form 10-K. We expect that our future funding requirements will be obtained from intercompany borrowings from Boeing. As a segment of Boeing, we will be dependent on Boeing’s overall liquidity position and access to capital markets. If we were called upon to fund a substantial portion of outstanding financing commitments made by us and Boeing, our and Boeing’s market liquidity may not be sufficient. A number of factors could cause us and Boeing to incur increased borrowing costs and to have greater difficulty accessing markets for debt. These factors include disruptions or declines in the global capital markets (including any impacts related to the European sovereign debt crisis or other broader market developments), and a decline in Boeing’s or our own financial performance or outlook or Boeing’s credit ratings. The occurrence of any or all of these events may adversely affect our ability to fund our operations and contractual commitments or financing commitments made by us or Boeing.

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Our allowance for losses on receivables may prove to be inadequate.

Our allowance for losses on receivables is intended to cover probable losses on notes receivable and finance leases. Unexpected adverse changes in the economy or other events adversely affecting our customers, the airline industry as a whole or collateral values could cause us to make additional provisions, which could have a material adverse effect on our earnings and/or financial position.

We may be required to recognize significant asset impairment charges on equipment under operating leases.

We periodically review our portfolio of equipment under operating leases for impairment. The cumulative undiscounted cash flows expected to result from the use and eventual disposition of these assets are greater than their carrying value. However, the fair value of certain of these assets as measured at their expected sale price is less than their carrying value. Expected undiscounted cash flows could be adversely affected by certain factors, including credit deterioration of a lessee, declines in future rental rates or by a change in our intention to hold or dispose of an asset. If, during our periodic reviews, we determine that the fair value of an asset is less than the carrying value and the revised expected undiscounted cash flows reflect an adverse change, we may recognize impairment charges, which could have a material adverse effect on our earnings and/or financial position.

We may be unable to maintain assets on lease at satisfactory lease rates.

Our profitability depends largely on our ability to maintain assets on lease at satisfactory lease rates. A number of factors can adversely affect utilization and lease rates, including, but not limited to, reduced demand or oversupply in the markets in which the company operates and changes in customer preferences for aircraft types. For example, bankruptcies or restructurings of our current or potential customers could lead to reduced demand for leased aircraft and reduced lease rates. If aircraft lease rates fall or if a significant number of our aircraft were to remain idle for an extended period, there could be a material adverse effect on our earnings, cash flows and/or financial position.

We face competition which could cause us to lower our lease rates and offer terms which may affect our financial results.

Our primary competitors include other commercial aircraft, aerospace and defense companies offering in-house customer financing as well as other finance companies. Additionally, when selling or re-leasing used aircraft, we compete with other leasing companies and finance companies in the used aircraft market. We compete primarily based upon pricing, terms, structure, service and type of aircraft offered. Increased competition could have a material adverse effect on our earnings, cash flows and/or financial position.

We are a wholly owned subsidiary and therefore subject to strategic decisions of Boeing and affected by Boeing’s performance.

We are fundamentally affected by our relationship with Boeing. As a wholly owned subsidiary of Boeing we are subject to a wide range of possible strategic decisions which Boeing may make from time to time. Those strategic decisions could include the level and types of financing provided to support the sale of Boeing products, the level and types of transactional or other support made available to us by Boeing, and the ending of production of certain aircraft programs. In addition, circumstances affecting Boeing can significantly affect us. Significant changes in Boeing’s overall strategy or its relationship with us or material adverse changes in Boeing’s performance could have a material adverse effect on us.

We may experience volatility and decreases in our earnings due to a reduced asset base.

From time to time, we may sell notes, leases, investments or other assets from our portfolio. The timing of these sales could affect our earnings due to the resulting gains or losses. If we sell assets from our portfolio or if normal portfolio runoff or prepayments from customers occur and we do not replace those assets, our income may decline.

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We operate in a highly regulated industry and changes in laws or regulations may affect us.

Aspects of our business are regulated by state, federal and foreign governmental authorities. We are also subject to various laws and judicial and administrative decisions, mostly as a result of our activities as a lender and lessor, that restrict or regulate, among other things,

– our credit granting and financing activities,

– the establishment of maximum interest rates,

– financing transactions we enter into,

– our collection, foreclosure, repossession and claims-handling procedures and other trade practices,

– the use and reporting of information related to a borrower’s or lessee’s credit experience and other data collection, and

– disclosure requirements.

We may not be able to forecast changes to legislation; tax, accounting and other regulations; and judicial and administrative decisions and orders or interpretations, and these changes could have a material adverse effect on our earnings, cash flows and/or financial position. Our operations and results could also be materially impacted by financial regulatory reform.

We may act to mitigate certain risk in our portfolio assets.

When market conditions permit, we may consider asset sales or other risk reduction initiatives which may involve adjustments in our capital structure, portfolio size and portfolio risk. If we pursue any of those actions our future earnings could be impacted.

A significant portion of our portfolio is concentrated among certain customers based in the United States, and in certain types of Boeing aircraft, which exposes us to concentration risks.

A significant portion of our portfolio is concentrated among certain customers and in distinct geographic regions, particularly in the United States. Our portfolio is also concentrated by varying degrees across Boeing aircraft product types, most notably out-of-production Boeing aircraft such as 717 aircraft. Our concentration risk is mitigated in part by intercompany guarantees from Boeing with respect to certain portfolio assets, which primarily relate to 717 aircraft. Nonetheless, if one or more customers holding a significant portion of our portfolio assets experiences financial difficulties, defaults or does not renew its leases with us at their expiration and we are unable to redeploy the aircraft on reasonable terms, or if the types of aircraft that are concentrated in our portfolio suffer greater than expected declines in value, our earnings, cash flows and/or financial position could be materially adversely affected.

Our portfolio and indebtedness may significantly increase if we are required to fund greater amounts than historically required.

Boeing’s and BCC’s outstanding financing commitments have increased significantly since the end of 2010. Financing commitments may continue to increase as a result of general market conditions, customer requirements or as a result of competition in the marketplace. While we work with third party financiers to provide alternative financing to customers, there can be no assurances that we will not be required to fund greater amounts than historically required. Such requirements could significantly increase our capital requirements and level of indebtedness.

Item 1B. Unresolved Staff Comments

Not applicable.

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Item 2. Properties

Our headquarters, which is our main administrative and operational facility, is located in Renton, Washington, and is leased by Boeing. We also have offices in greater Los Angeles, California; Beijing, China; Hong Kong, China; London, England; and Moscow, Russia.

We believe that our properties are suitable and adequate to meet the requirements of our business.

Item 3. Legal Proceedings

Various legal proceedings and claims are pending or have been asserted against us. We believe that the final outcome of these proceedings and claims will not have a material effect on our earnings, cash flows and/or financial position.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We are a wholly owned subsidiary of The Boeing Company (Boeing), and accordingly, there is no public trading market for our common stock. In 2012 and 2011, we declared and paid dividends (including return of capital) totaling $89 million and $228 million to Boeing.

A covenant in one of our debt agreements requires us to limit the payment of cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments. At December 31, 2012, as well as at each quarter end during the year, we were in compliance with this covenant.

Item 6. Selected Financial Data

See Note 1, “Immaterial Restatement” to Consolidated Financial Statements included in Item 8 of this Form 10-K for discussion and quantification of the impact of restatement adjustments on the Company’s consolidated financial statements for the year ended December 31, 2011. The selected consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements and with Item 7. Management’s Narrative Analysis of the Results of Operations.

	Years Ended December 31,
(Dollars in millions)	2012		2011		2010		2009		2008
New business volume (1)	$	364	$	239	$	72	$	766	$	155
Statement of operations data:
Revenue	$	436	$	520	$	639	$	660	$	703
Income from continuing operations	$	49	$	71	$	96	$	80	$	102
Dividends to Boeing (including return of capital)	$	89	$	228	$	108	$	93	$	254
Non-cash capital contributions from Boeing	$	1	$	1	$	2	$	2	$	3
Balance sheet data:
Cash and cash equivalents	$	345	$	941	$	425	$	596	$	305
Portfolio (2)	$	4,066	$	4,315	$	4,694	$	5,666	$	6,023
Total assets	$	4,422	$	5,566	$	5,986	$	6,774	$	6,378
Total debt	$	2,511	$	3,400	$	3,446	$	4,075	$	3,652
Debt to Shareholder’s equity ratio		5.1		6.3		5.0		5.8		5.0
Ratio of earnings to fixed charges (3)		1.9		1.9		2.0		1.7		1.7

⁽¹⁾  New business volume consists of capitalized costs and funded transactions that have been recorded as notes, leases or investments excluding transfers from Boeing.

⁽²⁾  Portfolio consists of equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease and investments.

⁽³⁾  For the purpose of computing the ratio of earnings to fixed charges, earnings consists of income from continuing operations before provision for income tax and fixed charges; and fixed charges consists of interest.

Item 7. Management’s Narrative Analysis of the Results of Operations

The following should be read in conjunction with our Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Business Environment and Trends

Global economic growth and global trade, which are the primary drivers of air travel and air cargo growth, remained weak in 2012. Despite this, passenger traffic grew by approximately 6% in 2011 and 2012 and is

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forecast to continue at or near the long-term trend of 5% in 2013. There continues to be significant variation between regions and airline business models, with airlines operating in emerging economies and low-cost-carriers leading growth. Estimates indicate a modest decline in air cargo traffic in 2012 with continued softness in 2013. The relative weakness of the air cargo market has impacted near-term demand for new freighter aircraft and freighter conversions, and we continue to monitor the impact of this trend on our business.

Airline financial performance also plays a role in the demand for new capacity. Airlines continue to focus on increasing revenue through alliances, partnerships, new marketing initiatives, and effective leveraging of ancillary services and related revenues. Airlines are also relentlessly focusing on reducing costs by renewing fleets to leverage more fuel efficient airplanes and by employing efficiency generating service offerings in a high-fuel-price environment. Net profits for the global airline industry are estimated to total $7 billion in 2012 and the forecast shows some improvement in 2013. These profit levels reflect low profit margins for the industry, and risk remains due to ongoing economic and political uncertainty.

A substantial portion of our portfolio is concentrated among certain U.S. commercial airline customers. We provided $270 of financing for new Boeing aircraft during 2012. While we may be required to fund a number of new aircraft deliveries in 2013, overall, we expect that resiliency in air travel will ensure a healthy demand for aircraft and this will attract adequate and reasonably priced commercial financing.

Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of service. Approximately 2,200 western-built commercial jet aircraft (10.0% of current world fleet) were parked at the end of 2012, including both in-production and out-of-production aircraft types. Of these parked aircraft approximately 25% are not expected to return to service. At the end of 2011 and 2010, 9.4% and 10.5% of the western-built commercial jet aircraft were parked. Aircraft valuations could decline if significant numbers of additional aircraft, particularly types with relatively few operators, are placed out of service.

Overview

Changes to Previously Disclosed Fiscal 2011 Annual Results

The fiscal 2011 consolidated financial information has been updated within this Management’s Narrative Analysis of the Results of Operations to reflect the effects of the restatement as is more fully described in Note 1, “Immaterial Restatement” to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

During 2012, we continued to focus on supporting Boeing’s major businesses and managing our overall financial exposures.

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Our portfolio at December 31, 2012 decreased to $4.1 billion from $4.3 billion at December 31, 2011. The following table summarizes the net change in our total portfolio for the years ended December 31:

(Dollars in millions)	2012			2011
New business volume	$	364		$	239
Write-offs		–			(11	)
Transfer of assets		6			–
Asset impairment and other charges		(73	)		(117	)
Asset run off and prepayments		(362	)		(257	)
Asset dispositions		(36	)		(82	)
Depreciation and amortization expense		(148	)		(151	)
Net change in portfolio balance	$	(249	)	$	(379	)

At December 31, 2012 and 2011, we had $354 million and $521 million of assets that were held for sale or re-lease, of which $266 million and $476 million had either executed term sheets with deposits or firm contracts to be sold or placed on lease. Additionally, aircraft subject to leases with a carrying value of approximately $78 million are scheduled to be returned off lease during 2013. These aircraft are being remarketed or the leases are being extended and approximately $33 million of such aircraft had either executed term sheets with deposits or firm contracts as of December 31, 2012.

Consolidated Results of Operations

Revenue

Revenue was $436 million in 2012 compared with $520 million in 2011, a decrease of $84 million.

Finance lease income was $89 million in 2012, a decrease of $24 million compared with 2011, primarily due to the revised contractual terms of our leases with AirTran Airways, Inc., (AirTran) negotiated in conjunction with receiving a full guarantee from Southwest of those lease payment obligations in the fourth quarter of 2011.

Interest income on notes receivable was $43 million in 2012, an increase of $8 million compared with 2011 primarily due to an increase in the weighted average notes receivable balance, partially offset by a decrease in the weighted average effective interest rate.

Operating lease income was $255 million in 2012, a decrease of $81 million compared with 2011, primarily due to a decrease in the average balance of equipment under operating leases as a result of the return of aircraft and lower lease rates on re-leased aircraft. Without the support from Boeing in the form of intercompany guarantees our Operating lease income, which includes income applied to assets classified as held for re-lease, would have been $43 million and $63 million less than reported, for the years ended December 31, 2012 and 2011. For a discussion of our relationship with Boeing, see Item 8. Financial Statements and Supplementary Data, Note 2.

Net loss on disposal of assets was $1 million in 2012, compared with a net gain on disposal of assets of $16 million in 2011, primarily due to a gain recognized in 2011 upon signing a sales type lease agreement for aircraft previously held as Equipment under operating leases.

Other income was $50 million in 2012, an increase of $30 million compared with 2011, primarily due to higher aircraft maintenance reserves taken to income from expired leases and non-refundable payments received for aircraft return conditions.

Expenses

Expenses were $359 million in 2012 compared with $409 million in 2011, a decrease of $50 million.

Interest expense was $88 million in 2012, a decrease of $40 million compared with 2011, due to a decrease in the weighted average effective interest rate and in the weighted average balance of debt outstanding as a result of scheduled debt repayments.

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Depreciation expense was $147 million in 2012, a decrease of $3 million compared with 2011, primarily due to a lower depreciable balance of equipment as a result of asset dispositions, partially offset by impacts of changes to our intention to hold or sell aircraft.

The recovery of losses was $7 million in 2012, compared with $23 million in 2011, primarily due to a $19 million recovery of losses recognized in 2011 which was caused by a decrease in expected default rates resulting from a change in the internally assigned credit rating category associated with our receivables with AirTran. The decrease in our allowance through a recovery of losses in 2012 was due to the effect of run-off of our finance leases partially offset by declines in aircraft collateral value.

Asset impairment expense was $70 million in 2012, a decrease of $30 million compared with 2011. The asset impairment expense in 2012 was primarily due to the following; collateral value declines, lower expected lease rates, shorter estimated holding period before we sell or re-lease the aircraft and lower expected sales price for the aircraft. For a further discussion of our asset impairment expense, see Item 8. Financial Statements and Supplementary Data, Note 14.

Provision for income tax

Provision for income tax was $28 million in 2012, a decrease of $12 million compared with 2011, primarily due to a decrease in pre-tax income.

Loss on disposal of discontinued operations

Loss on disposal of discontinued operations, net of tax, was $1 million for 2012 due to an increase in our expected losses from claims associated with specific assets subject to the loss sharing agreement with General Electric Capital Corporation related to the sale of certain assets of our Commercial Financial Services business in 2004. This compared with a gain of $5 million, net of tax, in 2011.

Liquidity and Capital Resources

Our cash and cash equivalents balance was $345 million at December 31, 2012, a decrease from $941 million at December 31, 2011. The following is a summary of the change in our cash and cash equivalents for the years ended December 31:

(Dollars in millions)	2012			2011
Net cash provided by operating activities	$	41		$	110
Net cash provided by investing activities		331			687
Net cash used in financing activities		(968	)		(281	)
Net increase (decrease) in cash and cash equivalents	$	(596	)	$	516

Operating activities

During 2012, net cash provided by operating activities included net income from operations of $48 million. We had net adjustments for non-cash items of $81 million, which primarily related to depreciation expense and asset impairment expense partially offset by a reduction in deferred income taxes. We also had a net decrease in cash due to changes in assets and liabilities of $88 million of which $39 was due to a decrease in aircraft maintenance reserves.

During 2011, net cash provided by operating activities included net income from operations of $76 million. We had net adjustments for non-cash items of $78 million, which primarily related to depreciation expense and asset impairment expense partially offset by a reduction in deferred income taxes. We also had a net decrease in cash due to changes in assets and liabilities of $44 million.

10

Investing activities

During 2012, net cash provided by investing activities primarily included net proceeds of $300 million from short-term investment maturities and payments of leases, notes and other receivables of $354 million, partially offset by a decrease in cash of $340 million related to the origination of notes receivable.

During 2011, net cash provided by investing activities primarily included net proceeds of $600 million from short-term investment maturities and payments of leases, notes and other receivables of $262 million, primarily offset by a decrease in cash of $205 million related to the origination of notes receivable.

Financing activities

During 2012 and 2011, we made debt repayments of $879 million and $798 million and paid dividends (including return of capital) of $89 million and $228 million. In 2011, net cash provided by financing activities included $745 million of net proceeds from our debt issuances.

Outstanding debt at December 31, 2012 and 2011 was $2.5 billion and $3.4 billion, of which $648 million is due during 2013. During 2012 and 2011, we had no commercial paper borrowings outstanding. Our leverage (ratio of Debt to Shareholder’s equity) at December 31, 2012 and 2011 was 5.1-to-1 and 6.3-to-1.

We require liquidity, primarily to fund financing commitments, meet debt obligations and fund our operating expenses. Financing commitments made by us and Boeing totaled $18.1 billion as of December 31, 2012. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. However, there can be no assurance that we will not be required to fund greater amounts than historically required.

We expect that any future liquidity needs would be met by obtaining funding from Boeing. There can be no assurance that the cost or availability of funding sources to us will not be impacted in the future.

As of December 31, 2012, we had a Securities and Exchange Commission (SEC) shelf registration statement for issuance of debt securities. During the first quarter of 2012, we established under the registration statement a $1 billion medium-term notes program. We did not issue any securities under that program. On January 23, 2013, in connection with our plan to suspend our separate SEC reporting obligations, we filed an amendment to deregister the unsold securities under the shelf registration statement and the shelf registration statement is no longer available to us. We have also terminated our medium-term notes program.

As of December 31, 2012, we had a commercial paper program that served as a potential source of short-term liquidity. We also had, as of December 31, 2012, $1.5 billion available exclusively for us under Boeing’s committed revolving credit line agreements for general corporate purposes. On January 24, 2013, in connection with our plan to suspend our separate SEC reporting obligations, we terminated our commercial paper program and the arrangement with Boeing in which Boeing reserved amounts for us under Boeing’s committed revolving credit line agreements. We have a support agreement with Boeing under which Boeing has committed to make contributions to us if our fixed-charge coverage ratio, as defined in the support agreement, falls below 1.05-to-1 on a four-quarter rolling basis. In conjunction with Boeing issuing a guarantee of all of our outstanding publicly-issued debt securities, on January 23, 2013 we entered into an agreement with Boeing to terminate the support agreement. That termination will be effective February 22, 2013.

For a discussion of our liquidity and debt programs, see Item 8. Financial Statements and Supplementary Data, Note 8.

Risks that could affect our sources of liquidity include among others;

– a downturn in the economy,

– significant restructurings, defaults or bankruptcies by airlines,

– disruptions in the global capital markets, and

– a decrease in Boeing’s credit ratings,

– a decrease in our or Boeing’s financial performance.

11

We continually assess our leverage, as measured by our Debt to Shareholder’s equity ratio, in light of the risks in our business, including those set forth in Item 1A. Risk Factors.

The most restrictive covenants in our debt agreements require us to (a) limit the payment of cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on our property to secure indebtedness to 15% or less of consolidated assets, other than liens specifically excluded. At December 31, 2012, as well as at each quarter end during the year, we were in compliance with these covenants.

Off-Balance Sheet Arrangements

We are a party to off-balance sheet arrangements as defined by the SEC, consisting of variable interests in unconsolidated entities. For discussion of these arrangements, see Item 8. Financial Statements and Supplementary Data, Note 13.

Disclosures About Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations to make future payments, as well as an estimate of the timing in which we expect to satisfy these obligations at December 31, 2012:

Contractual Obligations

			Payments due by period
(Dollars in millions)	Total		2013		2014- 2015		2016- 2017		2018- Thereafter
Debt (1)	$	2,442	$	637	$	520	$	510	$	775
Capital lease obligations (1)		33		11		22		–		–
Interest (2)		287		68		91		70		58
Purchase obligations (3)		1		1		–		–		–
	$	2,763	$	717	$	633	$	580	$	833

⁽¹⁾  Debt and Capital lease obligations reflect principal payments.

⁽²⁾  Interest includes the effect of our interest rate swaps. We have assumed LIBOR forward rates at December 31, 2012 on floating rate debt.

⁽³⁾ Purchase obligations due in 2013 includes $1 million which is covered by our guarantees from Boeing.

We expect to meet our existing obligations through internally generated cash flows and from intercompany borrowings from Boeing.

The following table summarizes our commercial commitments outstanding at December 31, 2012:

Commercial Commitments

		Total Amounts Committed
(Dollars in millions)	Total	2013	2014- 2015	2016- 2017	2018- Thereafter
Financing commitments (1)	$310	$140	$42	$–	$128

⁽¹⁾  Represents our commitments to provide leasing and other financing based on estimated earliest potential funding dates.

12

In addition to our financing commitments of $310 million at December 31, 2012, Boeing had unfunded financing commitments of $17.8 billion, resulting from firm contracts, options for deliveries or proposals as part of sales campaigns. These commitments are provided to give Boeing customers reasonable assurance of financing in connection with orders of Boeing products in advance of delivery. However, customers typically seek lower cost financing from other sources prior to actual delivery. In addition, we continue to work with third party financiers to provide alternative financing to customers and eliminate the need for our financing. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. However, there can be no assurance that we will not be required to fund greater amounts than historically required. To the extent we are obligated to provide financing, such financing generally includes participation by engine manufacturers which further reduces our obligation. Therefore, the reported amount of commitments does not necessarily represent a future net cash requirement. However, we expect to ultimately provide funding for those commitments which are exercised. If there were requirements to fund all Boeing commitments, the timing in which these commitments may be funded (based on estimated earliest potential funding dates as of December 31, 2012) is as follows:

	Total
2013	$	1,201
2014		2,556
2015		3,990
2016		3,457
2017		2,796
Thereafter		3,773
	$	17,773

Critical Accounting Estimates

For the discussion on our accounting policies, see Item 8. Financial Statements and Supplementary Data, Note 1. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements. Each of these assumptions is subject to uncertainties and changes in those assumptions or judgments can affect our results of operations. The accounting policies below are those we believe are the most critical to the preparation of our financial statements and require significant judgment and estimation. Actual results may differ from these estimates.

Impairment Review for Equipment under Operating Leases and Held for Re-lease

We evaluate equipment under operating lease or assets held for re-lease for impairment at least annually, and also when events or changes in circumstances indicate that the expected undiscounted cash flow from the equipment 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 equipment subject to operating lease before we sell the equipment, expected future lease rates, lease terms, residual value of the aircraft or equipment (considering residual value guarantees, if applicable), 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. When we determine that impairment is indicated for an asset, the amount of the asset impairment expense recorded is the excess of the carrying value over the fair value of the asset.

Had future lease rates on assets evaluated for impairment been 10% lower, we estimate that we would have incurred additional impairment expense of $39 million for the year ended December 31, 2012.

Allowance for Losses on Receivables

The allowance for losses on receivables is a valuation account used to provide for potential impairment of receivables in our portfolio. The balance represents an estimate of probable but unconfirmed losses in the receivables portfolio. The estimate is based on many qualitative and quantitative factors, including historical loss experience, collateral values expected to be realized, intercompany guarantees and results of individual credit and collectability reviews. The adequacy of the allowance is assessed quarterly.

13

Three primary factors influencing the level of our allowance are customer credit ratings, collateral values and default rates. If each customer’s credit rating were upgraded or downgraded by one major rating category at December 31, 2012, the allowance would have decreased by $26 million or increased by $55 million. If the collateral values were 20% higher or lower at December 31, 2012, the allowance would have decreased by $18 million or increased by $20 million. If the cumulative default rates used for each rating category were increased or decreased by 1%, the allowance would have increased by $2 million or decreased by $2 million.

Residual Values

Equipment under operating leases and assets held for sale or re-lease are carried at cost less accumulated depreciation and are depreciated to estimated residual value using the straight-line method over the period that we project we will hold the asset for lease. Estimates used in determining residual values significantly impact the amount and timing of depreciation expense for equipment under operating leases and assets held for re-lease. If the estimated residual values declined 20% at December 31, 2012, we estimate that we would have incurred additional impairment expense of $57 million for the year ended December 31, 2012, and a future cumulative pre-tax earnings reduction of approximately $36 million recognized over the remaining depreciable periods, of which approximately $9 million would be recognized in 2013.

Direct finance leases are recorded at inception as the net investment representing the aggregate future minimum lease payments, estimated residual value of the leased equipment and deferred incremental direct costs less unearned income. Declines in estimated residual value that are deemed other than temporary are recognized in the period in which the decline occurs. If the estimated residual values declined 20% at December 31, 2012, we estimate that we would have reduced pre-tax income by $19 million for the year ended December 31, 2012.

Additional Disclosures Regarding Allowance for Losses on Receivables and Asset Impairment Expense

The following tables reconcile the changes in the allowance for losses on receivables and asset impairment expense for the years ended December 31, 2012 and 2011. Column 3 presents this information, calculated in accordance with our accounting policy (see Item 8. Financial Statements and Supplementary Data, Note 1), if the impact of intercompany guarantees from Boeing were excluded. The exclusion of the net impact of intercompany guarantees shown in column 2 would increase the applicable exposure for various receivables and would increase asset impairment expense. Management believes that the presentation of this information provides more complete information on the effect of intercompany guarantees provided by Boeing.

(Dollars in millions)	(1)		(2)		(3)
2012	Allowance for losses		Impact of intercompany guarantees from Boeing		Allowance excluding intercompany guarantees
Allowance for losses on receivables at beginning of year	$	53	$	19	$	72
Recovery of losses		(7)		(5)		(12)
Allowance for losses on receivables at end of year	$	46	$	14	$	60
Allowance as a percentage of total receivables		2.0%				2.8%
2011
Allowance for losses on receivables at beginning of year	$	87	$	266	$	353
Recovery of losses		(23)		(244)		(267)
Write-offs		(11)		(3)		(14)
Allowance for losses on receivables at end of year	$	53	$	19	$	72
Allowance as a percentage of total receivables		2.2%				3.1%

14

(Dollars in millions)	(1)		(2)		(3)
2012	Asset impairment expense		Impact of intercompany guarantees from Boeing		Impairment excluding intercompany guarantees
Asset impairment expense	$	70	$	–	$	70
2011
Asset impairment expense	$	100	$	–	$	100

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

A key function of a finance company is to manage market risk. One of our principal sources of market risk relates to interest rate changes. Exposure to this risk is managed by generally matching the profile of our liabilities with that of our assets in relation to amount and terms such as expected maturities and fixed versus floating interest rates. Interest rate derivatives are tools used to assist with this matching and are not used for speculative purposes or trading. Matching is a dynamic process affected by changes in our assets that may require adjusting our liabilities and/or derivatives.

In order to properly manage our sensitivity to changes in interest rates, we measure the potential impact of interest rate changes on our pre-tax earnings over the next 12 months. In our analysis, we include balance sheet instruments whose income or interest expense would be impacted by changes in interest rates, which consists of Cash and cash equivalents, Short-term investments, Receivables, and Debt. For the purposes of our analysis, we assume that the level of floating rate assets and debt (including the impact of derivatives) remains unchanged from year end 2012 and that these floating rate assets and debt are all subject to immediate re-pricing. As of December 31, 2012, the impact over the next 12 months of a 100 basis point immediate and sustained rise or fall, as applicable, in interest rates would be a $4 million increase or a $1 million decrease to pre-tax earnings.

This analysis does not necessarily represent our current outlook of future market interest rate movements, nor does it consider any actions management could undertake in response to changes in interest rates. Accordingly, no assurance can be given that actual results would be consistent with our sensitivity analysis.

Additional risks include credit risk and residual value risk, which are discussed in Item 7. Management’s Narrative Analysis of the Results of Operations, Critical Accounting Estimates.

Item 8. Financial Statements and Supplementary Data

The following pages include our Consolidated Financial Statements as described in Item 15 (a)1 and (a)2 of Part IV herein.

15

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

Boeing Capital Corporation

Renton, Washington

We have audited the accompanying consolidated balance sheets of Boeing Capital Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Boeing Capital Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington

February 22, 2013

16

Boeing Capital Corporation and Subsidiaries

Consolidated Balance Sheets

	December 31,
(Dollars in millions, except par value)	2012			2011
ASSETS
Cash and cash equivalents	$	345		$	941
Short-term investments		–			300
Receivables:
Finance leases		1,573			1,727
Notes and other		773			621
		2,346			2,348
Allowance for losses on receivables		(46	)		(53	)
		2,300			2,295
Equipment under operating leases, net		1,358			1,439
Investments		8			7
Assets held for sale or re-lease, net		354			521
Other assets		57			63
	$	4,422		$	5,566
LIABILITIES AND SHAREHOLDER’S EQUITY
Liabilities:
Accounts payable and accrued expenses	$	43		$	65
Other liabilities		187			256
Accounts with Boeing		80			76
Deferred income taxes		1,104			1,232
Debt		2,511			3,400
		3,925			5,029
Shareholder’s equity:
Common shares – $100 par value; authorized 100,000 shares; issued and outstanding 50,000 shares		5			5
Additional paid-in capital		507			523
Accumulated other comprehensive income (loss), net of tax		1			1
Retained earnings (deficit)		(16	)		8
		497			537
	$	4,422		$	5,566

See Notes to Consolidated Financial Statements.

17

Boeing Capital Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

	Years Ended December 31,
(Dollars in millions)	2012			2011			2010
REVENUE
Finance lease income	$	89		$	113		$	139
Interest income on notes receivable		43			35			76
Operating lease income		255			336			384
Investment income		–			–			5
Net gain (loss) on disposal of assets		(1	)		16			(2	)
Other income		50			20			37
		436			520			639
EXPENSES
Interest expense		88			128			160
Depreciation expense		147			150			200
Provision for (recovery of) losses		(7	)		(23	)		16
Operating expenses		59			49			48
Asset impairment expense		70			100			51
Other expense		2			5			12
		359			409			487
Income from continuing operations before provision for income tax		77			111			152
Provision for income tax		28			40			56
Income from continuing operations		49			71			96
Net gain (loss) on disposal of discontinued operations, net of tax		(1	)		5			(4	)
Net income	$	48		$	76		$	92
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on investments:
Unrealized gain arising during period, net of tax		–			1			4
Reclassification adjustment for gain included in net earnings, net of tax		–			–			(2	)
Other comprehensive income		–			1			2
Comprehensive income	$	48		$	77		$	94

See Notes to Consolidated Financial Statements.

18

Boeing Capital Corporation and Subsidiaries

Consolidated Statements of Shareholder’s Equity

(Dollars in millions)	Total			Common Shares		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings
Balance at December 31, 2009	$	699		$	5	$	696		$	(2	)	$	–
Non-cash capital contributions from Boeing		2			–		2			–			–
Cash dividends to Boeing (including return of capital)		(108	)		–		(16	)		–			(92	)
Net income		92			–		–			–			92
Reclassification adjustment for gain realized on investments, net of tax of $1		(2	)		–		–			(2	)		–
Unrealized gain on investments, net of tax of $1		4			–		–			4			–
Balance at December 31, 2010	$	687		$	5	$	682		$	–		$	–
Non-cash capital contributions from Boeing		1			–		1			–			–
Cash dividends to Boeing (including return of capital)		(228	)		–		(160	)		–			(68	)
Net income		76			–		–			–			76
Unrealized gain on investments, net of tax (1)		1			–		–			1
Balance at December 31, 2011	$	537		$	5	$	523		$	1		$	8
Non-cash capital contributions from Boeing		1			–		1			–			–
Cash dividends to Boeing (including return of capital)		(89	)		–		(17	)		–			(72	)
Net income		48			–		–			–			48
Balance at December 31, 2012	$	497		$	5	$	507		$	1		$	(16	)

⁽¹⁾ At December 31, 2011, the tax amount related to the unrealized gain and loss on investments was less than $1.

We have authorized 100,000 shares of Series A preferred stock with no par value and a $5,000 stated value. No shares were issued and outstanding at December 31, 2012, 2011 and 2010.

See Notes to Consolidated Financial Statements.

19

Boeing Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended December 31,
(Dollars in millions)	2012			2011			2010
OPERATING ACTIVITIES
Net income	$	48		$	76		$	92
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization expense		144			143			192
Net (gain) loss on disposal of assets		1			(16	)		2
Provision for (recovery of) losses		(7	)		(23	)		16
Net gain on investments and derivative instruments		–			–			(4	)
Asset impairment expense and other charges		73			117			85
Share-based plans expense		1			1			2
Net (gain) loss on disposal of discontinued operations, net of tax		1			(5	)		4
Decrease in deferred income taxes		(128	)		(139	)		(83	)
Other charges and credits, net		(4	)		–			–
Change in assets and liabilities:
Other assets		(8	)		15			19
Accrued interest and rents		7			7			1
Accounts payable and accrued expenses		(22	)		(21	)		5
Other liabilities		(69	)		(53	)		(41	)
Accounts with Boeing		4			8			(17	)
Net cash provided by operating activities		41			110			273
INVESTING ACTIVITIES
Purchase of investments		(3	)		–			–
Purchase of short-term investments		(300	)		(1,200	)		(1,300	)
Proceeds from maturities of short-term investments		600			1,800			900
Proceeds from available-for-sale investments		1			2			25
Purchase of equipment for operating leases		–			(34	)		–
Payment for capitalizable costs in process		(16	)		(8	)		(54	)
Proceeds from disposition of equipment		35			70			126
Payments of leases, notes and other receivables		354			262			612
Origination of leases, notes and other receivables		(340	)		(205	)		–
Net cash provided by investing activities		331			687			309
FINANCING ACTIVITIES
Proceeds from issuance of debt		–			745			–
Repayment of debt (including intercompany)		(879	)		(798	)		(645	)
Payment of dividends (including return of capital)		(89	)		(228	)		(108	)
Net cash used in financing activities		(968	)		(281	)		(753	)
Net increase (decrease) in cash and cash equivalents		(596	)		516			(171	)
Cash and cash equivalents at beginning of year	941			425			596
Cash and cash equivalents at end of year	$	345		$	941		$	425
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Net transfer to (from) assets held for sale or re-lease	$	(102	)	$	(19	)	$	324
Net transfer to notes receivable	$	–		$	193		$	24
Net transfer to (from) equipment under operating leases	$	107		$	(161	)	$	(283	)
Net transfer from finance leases	$	22		$	(40	)	$	6
Transfer from other assets	$	(27	)	$	–		$	(71	)
Release of allowance upon sale of receivables	$	–		$	11		$	–
Transfer to accounts with Boeing	$	–		$	2		$	–
Transfer to other liabilities	$	–		$	12		$	–
Transfer to accounts payable and accrued expenses	$	–		$	2		$	–
(Increase)/decrease in debt due to fair value hedge derivatives	$	3		$	(14	)	$	(26	)

See Notes to Consolidated Financial Statements.

20

Boeing Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in millions)

Note 1 – Summary of Significant Accounting Policies

Organization Boeing Capital Corporation (together with its subsidiaries, referred to as “us,” “we,” “our”, “BCC” or the “Company”) is a wholly owned subsidiary of The Boeing Company (Boeing). The Company was incorporated in Delaware in 1968. In the commercial aircraft market, we facilitate, arrange, structure and provide selective financing solutions for Boeing’s Commercial Airplanes customers. In the space and defense markets, we primarily arrange and structure financing solutions for Boeing’s Defense, Space & Security customers.

Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements. Significant estimates for which changes in the near term are considered reasonably possible and that may have a material impact on the financial statements are disclosed in these notes to the Consolidated Financial Statements.

Immaterial Restatement Subsequent to the issuance of our consolidated financial statements as of December 31, 2011 we determined that the consolidated financial statements should have reflected Finance lease receivables of $1,727, as compared to the $1,739 reported, and the difference of $12 should have been reflected as a reduction in Finance lease income for the year ended December 31, 2011. In connection with the November 2011 bankruptcy filing by American Airlines, Inc. (American Airlines), certain lease payments by American Airlines beginning in May 2012, the first scheduled payments under the relevant leases since the bankruptcy filing, are required to be allocated exclusively to various non-recourse debt holders, at higher interest rates, until all such holders are paid in full, and only thereafter to us. The reallocation of payments required us to recalculate our investment in leveraged leases for the year ended December 31, 2011. This reallocation of payments does not affect amounts payable under these leases by American Airlines. The reallocation of payments also does not alter our expectation that we will not incur any losses related to American Airlines receivables as a result of the bankruptcy.

Management believes that the effect of this recalculation is not material to our previously issued consolidated financial statements for the year ended December 31, 2011. The impact on specific line items in the accompanying December 31, 2011 consolidated balance sheet, and the consolidated statements of comprehensive income, shareholder’s equity and cash flows for the year ended December 31, 2011 are presented below:

	As of December 31, 2011
Consolidated Balance Sheets:		As Previously Reported	Restated
Finance leases		$1,739	$1,727
Total receivables, gross of allowance		2,360	2,348
Total receivables, net of allowance		2,307	2,295
Total assets		5,578	5,566
Accounts with Boeing		77	76
Deferred income taxes		1,236	1,232
Total liabilities		5,034	5,029
Retained earnings		15	8
Shareholder’s equity		544	537
Total liabilities and shareholder’s equity		$5,578	$5,566

21

	Year ended December 31, 2011
Consolidated Statements of Comprehensive Income:		As Previously Reported	Restated
Finance lease income		$125	$113
Total revenue		532	520
Income from continuing operations before provision for income tax		123	111
Provision for income tax		45	40
Income from continuing operations		78	71
Net income		83	76
Comprehensive income		$84	$77

	Year ended December 31, 2011
Consolidated Statements of Cash Flows:		As Previously Reported		Restated
OPERATING ACTIVITIES
Net income		$83		$76
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Asset impairment expense and other charges		105		117
Decrease in deferred income taxes		(135	)	(139	)
Changes in assets and liabilities:
Accounts with Boeing		$9		$8

	Year ended December 31, 2011
Consolidated Statements of Shareholder’s Equity:		As Previously Reported	Restated
Net income		$83	$76
Retained earnings		15	8
Balance at December 31, 2011		$544	$537

Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments, such as time deposits and money market instruments, which have original maturities of less than three months.

Short-Term Investments Short-term investments consist of liquid investments such as time deposits, which have original maturities greater than three months, but less than one year.

Portfolio Our portfolio consists of direct finance leases, leveraged leases, notes and other receivables, equipment under operating leases, investments and assets held for sale or re-lease.

Direct Finance Leases At lease inception, we record an asset (net investment) representing the aggregate future minimum lease payments, estimated residual value of the leased equipment, and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. Residual values, which are periodically reviewed, represent the estimated amount we expect to receive at lease termination from the disposition of the leased equipment. Actual residual values realized could differ from these estimates. Declines in estimated residual value that are deemed other than temporary are recognized in the period in which the decline occurs as a reduction to Finance lease income.

Leveraged Leases Direct finance leases that are financed by non-recourse borrowings and meet certain criteria are classified as leveraged leases. For leveraged leases, aggregate rental receivables are reduced by the related non-recourse debt service obligation including interest (net rental receivables). The difference of the net rental receivables and the cost of the asset less estimated residual value at the end of the lease term is recorded as unearned income. Unearned income is recognized over the life of the lease at a constant rate of return applied to any positive net investment, which includes the effect of deferred income taxes.

Notes and Other Receivables Notes receivable are recorded net of any unamortized deferred fees and incremental direct costs. Interest income and amortization of any fees are recorded ratably over the related term of the note.

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Equipment Under Operating Leases, Net of Accumulated Depreciation Equipment under operating leases is recorded at cost and depreciated over the period that we project that we will hold the asset to an estimated residual value, using the straight-line method. We periodically review our estimates of residual value and recognize forecasted changes by prospectively adjusting depreciation expense. Revenue on the leased equipment is recorded using the straight-line method over the term of the lease. Operating lease income may include amounts due to intercompany guarantees and subsidies, including amounts associated with equipment classified as assets held for sale or re-lease.

Investments Available-for-sale debt securities in the form of Enhanced Equipment Trust Certificates (EETCs) are recorded at their fair values, with unrealized gains and losses reported as part of Accumulated other comprehensive income (loss) (AOCI) on the Consolidated Balance Sheets. Available-for-sale equity securities are recorded at fair value, with unrealized gains (losses) recorded in AOCI.

Assets Held for Sale or Re-lease, Net of Accumulated Depreciation When aircraft collateral related to a finance lease or note receivable is repossessed, returned in satisfaction of the receivable or returned at the end of the finance lease and when aircraft are made available for sale, the asset is carried at the lower of cost or estimated fair value less costs to sell. We calculate a median collateral value from multiple third party aircraft value publications based on the type and age of the aircraft to estimate the fair value of aircraft. Under certain circumstances, we adjust values based on the attributes of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by outside publications, or based on the expected net sales price for the aircraft. Aircraft assets held for re-lease are carried at cost less accumulated depreciation and depreciated over the remaining period that we project that we will hold the asset to an estimated residual value, on a straight-line basis.

Impairment Review for Equipment Under Operating Leases and Assets Held for Re-lease We evaluate equipment under operating lease or assets held for re-lease for impairment at least annually, and also when events or changes in circumstances indicate that the expected undiscounted cash flows from the equipment may be less than the carrying value. We use various assumptions when determining the expected undiscounted cash flows including our intentions for how long we will hold equipment subject to operating lease before we sell the equipment, expected future lease rates, lease terms, residual value of the aircraft or equipment (considering residual value guarantees, if applicable), 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.

When we determine that impairment is indicated for an asset, the amount of the asset impairment expense recorded is the excess of the carrying value over the fair value of the asset.

Allowance for Losses on Receivables We record the potential impairment of receivables in our portfolio in a valuation account, the balance of which is an accounting estimate of probable but unconfirmed losses in the receivables portfolio. We have one portfolio segment that consists of direct finance leases and leverage leases (Finance leases) and notes receivable (Notes and other). The risk characteristics of this portfolio segment relate primarily to collateral exposure and can be segregated by class between out-of-production aircraft and other (including in-production aircraft). Generally, out-of-production aircraft have had greater percentage decreases in collateral value than those associated with in-production aircraft. Declines in collateral value impact our collateral exposure, a significant driver of our allowance for losses. The methods for monitoring and assessing credit risk are the same for both types of receivables. The allowance for losses on receivables relates to two components of receivables: (a) specifically identified receivables that are evaluated individually for impairment and (b) all other receivables.

We review all receivables for impairment and 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, taking into account Boeing and other guarantees. A receivable determined to be uncollectible is written-off against the allowance.

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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 taking into account Boeing and other guarantees. 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 reviewed quarterly and updated based upon public information and information obtained directly from our customers.

We have entered into agreements with certain customers that 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, Boeing and other guarantees (if applicable), multiple third party aircraft value publications, and the general state of the economy and airline industry 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.

Non-accrual Receivables Income recognition on an accrual basis is generally suspended for leases and notes and other receivables at the date when a full recovery of income and principal, including the effect of intercompany guarantees, become doubtful. We also typically place accounts greater than 90 days past due on non-accrual status. A receivable is considered past due when one or more payments are not received in full by its contractual due date. Income recognition on accrual basis is resumed when leases or notes and other receivables become contractually current and performance is demonstrated to be resumed. Cash received while on non-accrual is applied first to the principal balance due until our receivables are made current.

Derivative Financial Instruments All derivative instruments are recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. We record our interest rate swaps at fair value based on a discounted cash flow analysis. For derivatives designated as hedges of the exposure to changes in fair value of the recognized asset or liability or a firm commitment (referred to as fair value hedges), the gain or loss is recognized in earnings in the period of change together with an offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of this accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For our cash flow hedges, all of which are related to debt, the effective portion of the derivative’s gain or loss is initially reported in shareholder’s equity (as a component of AOCI) and is subsequently reclassified into income, as an increase or decrease to interest expense, in the same period or periods during which the hedged forecasted transaction affects income. The ineffective portion of the gain or loss is reported in earnings immediately. We may also hold certain instruments for economic purposes that do not qualify for hedge accounting treatment. For these derivative instruments, the changes in their fair value are recorded in Other income.

Income Tax Our operations are included in the consolidated federal income tax return of Boeing. Under an agreement with Boeing, we pay or receive our allocated share of income taxes or credits.

Federal, state and foreign income taxes are computed at current tax rates, less tax credits. Taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, plus changes in deferred tax assets and liabilities that arise because of temporary differences between the time when items of income and expense are recognized for financial reporting and income tax purposes. The current provision for state income tax is based on an agreed upon rate and paid to Boeing. The state income tax deferred asset or liability is carried on Boeing’s Consolidated Financial Statements.

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The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We record income tax related interest expense and interest income in the Provision for income tax in our Consolidated Statements of Comprehensive Income. Tax-related interest and penalties, if any, are recorded as a component of income tax expense.

Note 2 – Relationship and Transactions with Boeing

As a wholly owned subsidiary of Boeing, our mission is to arrange for the financing of products manufactured by Boeing. When third party financing is not available, we may provide such financing directly.

We have a number of general contractual arrangements with Boeing to facilitate our operations including, among others, a support agreement and a tax sharing agreement. We also have an intercompany borrowing and lending arrangement with Boeing. As described below, on January 23, 2013 Boeing issued guarantees of all of our outstanding publicly issued debt securities, and the support agreement is being terminated, effective February 22, 2013.

In addition, we may require other forms of support from Boeing with respect to certain financing transactions we undertake. This support may take the form of intercompany guarantees, subsidies, remarketing agreements or other support arrangements.

There can be no assurances that these intercompany arrangements will not be terminated or modified by us or Boeing.

Debt Guarantees

On January 23, 2013, Boeing entered into guarantees with Deutsche Bank Trust Company Americas on behalf of the holders of BCC’s outstanding debt securities issued under (i) an indenture dated as of April 15, 1987 and supplemented as of June 12, 1995 and (ii) an indenture dated as of August 31, 2000 (collectively, the “Guarantees”). The Guarantees provide for the full and unconditional guarantee of all the outstanding publicly issued debt securities of BCC.

Support Agreement

As of December 31, 2012, we had a support agreement dated December 23, 2003 with Boeing with these principal features:

– Boeing will maintain 51% or greater ownership of us,

– Boeing will make contributions to us if our fixed-charge coverage ratio falls below 1.05-to-1 on a four-quarter rolling basis, and

– Boeing will make contributions to us, if needed, to maintain our tangible net worth at a level of at least $50.

In conjunction with Boeing issuing a guarantee of all of our outstanding publicly-issued debt securities and announcing that we intend to suspend our separate SEC reporting obligations, we entered into a termination agreement with Boeing on January 23, 2013 to terminate the support agreement. That termination will be effective February 22, 2013.

Intercompany Credit Arrangements

The term of the credit facilities between Boeing and its banks was extended on October 15, 2012. As of December 31, 2012, Boeing had given us exclusive access to $750 of the 364-day line expiring in November 2013 and $750 of the $2,300 five-year revolving credit line expiring in November 2017. The 364-day facility has a one-year term out option which allows the borrower to extend the maturity of any borrowings one year beyond the aforementioned expiration date. At December 31, 2012 and 2011, we had no amounts outstanding under these credit facilities. On January 24, 2013, in connection with our plan to suspend our separate SEC reporting obligations, we terminated the arrangement with Boeing in which

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Boeing reserved amounts for us under Boeing’s committed revolving credit line agreements.

No amounts were outstanding under our intercompany borrowing and lending arrangement with Boeing at December 31, 2012 and 2011. On January 15, 2013, we borrowed $400 from Boeing under this intercompany borrowing and lending arrangement.

Federal Income Tax

Our operations are included in the consolidated federal income tax return of Boeing. Our tax sharing agreement with Boeing provides that so long as consolidated federal tax returns are filed, Boeing will pay us, or we will pay Boeing, as appropriate, an amount equal to the BCC’s taxable income or loss times the statutory tax rate applicable to Boeing. Under this agreement an intercompany payable/receivable is recorded when federal income taxes are due or federal income tax benefits are generated.

Intercompany Transactions

We are the beneficiary of certain intercompany guarantees and other subsidies from Boeing in respect of specific financing transactions we undertake.

Intercompany guarantees primarily relate to residual value guarantees, first loss deficiency guarantees and rental loss guarantees. Residual value guarantees cover a specified asset value at the end of a lease agreement in the event of a decline in market value of the financed aircraft. We typically call on intercompany residual value guarantees upon recognition of an other-than-temporary decline in residual value of direct finance leases. We recognize the benefit of the guarantee through Finance lease income. First loss deficiency guarantees cover a specified portion of our losses on aircraft that we finance in the event of a loss upon disposition of the aircraft following a default by the lessee. Rental loss guarantees are full or partial guarantees covering us against the lessee’s failure to pay rent under the lease agreement or our inability to re-lease these aircraft at or above a specified rent level.

Due to intercompany guarantees from Boeing, our accounting classification of certain third party leases may differ from the accounting classification in Boeing’s Consolidated Financial Statements. As a result of these intercompany guarantees, the required balance for the allowance for losses on receivables and the required provision for losses we recognized have been mitigated. Receipts under Boeing guarantees would be net of realization of underlying residual values, partial rent receipts, re-lease rental receipts or other mitigating value received.

At December 31, 2012, we were the beneficiary of up to a maximum of $1,481 under our guarantees from Boeing which mitigates our risk with respect to portfolio assets totaling $1,797.

Intercompany guarantee amounts by aircraft type are summarized as follows at December 31:

	2012				2011
	Guarantee Amount		Carrying Value		Guarantee Amount		Carrying Value
717 (out of production)	$	1,401	$	1,674	$	1,481	$	1,790
Out of production single-aisle aircraft		43		43		55		55
Other, including other Boeing aircraft		37		80		41		83
	$	1,481	$	1,797	$	1,577	$	1,928

At December 31, 2012 and 2011, Accounts with Boeing included $33 and $38 for deferred revenue associated with guarantee and subsidy settlements and terminations.

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We recorded the following activity under the intercompany guarantee and subsidy agreements for the years ended December 31:

	2012			2011			2010
Finance lease income (1)	$	(2	)	$	(1	)	$	19
Interest income on notes receivable		2			2			13	(2)
Operating lease income		43			63			50
Net gain on disposal of assets		–			2			9
Asset impairment expense		–			–			7
	$	43		$	66		$	98

⁽¹⁾ For the years ended December 31, 2012, 2011 and 2010, finance lease income included $(2), $(2) and $(2) for fees paid to Boeing related to guarantee agreements.

⁽²⁾ During 2010 the prepayment of third party notes receivable totaling $163 was facilitated through Boeing. Included in interest income on notes receivable is $10 attributable to this prepayment.

Additionally, under the terms of the intercompany guarantee agreements, for the years ended December 31, 2012, 2011 and 2010, Boeing recorded charges of $29, $9, and $87, respectively, related to asset impairment and accrued expenses and $(5), $(244) and $34 respectively, related to provision for (recovery of) losses.

For the year ended December 31, 2010, we recorded operating lease income from Boeing, exclusive of guarantees and subsidies of $6. During 2010, we sold a C-40 aircraft at its carrying value to Boeing at lease expiration for $26.

For the years ended December 31, 2012, 2011 and 2010, we recorded new business volume of $290, $105 and $39, respectively, related to new Boeing aircraft, equipment or services we purchased or financed.

Other Intercompany Transactions

Accounts with Boeing consisted of the following at December 31:

	2012		2011
Federal income tax payable	$	43	$	38
Other payable		37		38
	$	80	$	76

For the years ended December 31, 2012 and 2011, we paid dividends (including return of capital) totaling $89 and $228.

We also receive support services from Boeing. Eligible employees are members of Boeing’s pension plans, insurance plans, savings plan and executive compensation programs. Boeing allocates to us the actual costs of these plans attributable to our employees and these expenses are reflected in Operating expenses. For each of the years ended December 31, 2012, 2011 and 2010, the charge for these services was $25, $21, and $19.

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Note 3 – Investment in Receivables

The investment in receivables consisted of the following at December 31:

	2012			2011
Investment in finance leases:
Direct finance leases:
Minimum lease payments	$	1,436		$	1,661
Estimated residual value		512			509
Unearned income and deferred net incremental direct costs		(502	)		(570	)
Leveraged leases (1):
Minimum lease payments		542			600
Less principal and interest payable on non-recourse debt		(288	)		(376	)
Estimated residual value		32			32
Unearned income and deferred net incremental direct costs		(159	)		(129	)
Total investment in finance leases		1,573			1,727
Investment in notes and other:
Principal		777			620
Accrued interest		1			3
Unamortized deferred fees and net incremental direct costs		(5	)		(2	)
Total notes and other		773			621
Total investment in finance leases and notes and other		2,346			2,348
Less allowance for losses on receivables		(46	)		(53	)
	$	2,300		$	2,295
Receivables balance individually evaluated for impairment	$	253		$	350
Receivables balance collectively evaluated for impairment	$	2,093		$	1,998

⁽¹⁾ For the years ended December 31, 2012 and 2011, net investment in leveraged leases, less deferred income taxes of $143 and $202, was $(16) and $(75).

Scheduled minimum lease payments on Finance leases and scheduled principal payments on Notes and other receivables are as follows for the years ended December 31:

	2013		2014		2015		2016		2017		Thereafter
Finance leases (1)	$	234	$	175	$	175	$	175	$	163	$	768
Notes and other	$	382	$	98	$	57	$	41	$	42	$	157

⁽¹⁾ Includes both direct finance leases and leveraged leases (less principal and interest payable on non-recourse debt).

Note 4 – Portfolio Quality

Allowance for Losses on Receivables

The following table reconciles the activity in the allowance for losses on receivables at December 31:

	2012			2011			2010
Allowance for losses on receivables at beginning of year	$	53		$	87		$	71
Provision for (recovery of) losses		(7	)		(23	)		16
Write-offs		–			(11	)		(1	)
Recovery of write-offs		–			–			1
Allowance for losses on receivables at end of year	$	46		$	53		$	87
Allowance as a percentage of total receivables		2.0	%		2.3	%		3.8	%
Allowance for losses on receivables collectively evaluated for impairment	$	46		$	53		$	87

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Of the $253 of financing receivables individually evaluated for impairment at December 31, 2012, $174 was classified as impaired. We recorded no allowance for losses on these impaired receivables.

Credit Quality

We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available 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 following table details our receivable balance by the internal rating category which was used as a factor in determining our allowance for losses on receivables at December 31:

	2012						2011
Rating categories	Out-of- Production Aircraft		In-Production Aircraft/ Other		Total		Out-of- Production Aircraft		In-Production Aircraft/ Other		Total
BBB	$	1,201	$	–	$	1,201	$	1,316	$	–	$	1,316
BB		–		63		63		–		67		67
B		51		–		51		103		–		103
CCC		174		604		778		194		318		512
D		163		90		253		171		179		350
Total carrying value	$	1,589	$	757	$	2,346	$	1,784	$	564	$	2,348

At December 31, 2012, our recorded allowance primarily related to receivables with rating of CCC in the preceding table, and we applied default rates that averaged 46.1% to exposure associated with those receivables. As of December 31, 2012, we have not recorded an allowance on our receivables with a rating of D in the preceding table because we believe they are sufficiently collateralized.

At December 31, 2012 and 2011, receivables of $1,145 and $1,032 were related to customers we believe have less than investment-grade credit.

Impaired Receivables

At December 31, 2012 and 2011, we had impaired receivables with a carrying value and unpaid principal balance of $174 and $182, all of which related to out-of-production aircraft on lease to American Airlines. We recorded no allowance for losses on these impaired receivables.

In the fourth quarter of 2011, American Airlines filed for Chapter 11 bankruptcy protection. We believe that our receivables from American Airlines of $253 and $350 are sufficiently collateralized such that we have not recorded an allowance for losses as of December 31, 2012 and 2011 as a result of the bankruptcy. Our receivables from American Airlines include leveraged leases with a carrying value of $127 net of $231 non-recourse debt at December 31, 2012.

The following table details our average recorded investment and the related income recognized in the period of impairment on the impaired receivables for the years ended December 31:

2012	Average Carrying Value		Income Recognized
Out-of-production aircraft	$	180	$	6	(1)
2011
Out-of-production aircraft	$	198	$	–
2010
Out-of-production aircraft	$	88	$	9	(1)

⁽¹⁾ For the year ended December 31, 2012 and 2010, of the income recognized we received in cash $6 and $9.

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Past Due Receivables

At December 31, 2012, we had no receivables greater than 30 days past due. As of December 31, 2011, amounts which were 31 to 60 days past due totaled $1 associated with receivables with a principal balance of $46 and related to in-production/other aircraft, and there were no receivables greater than 60 days past due.

Non-Performing Assets

Non-performing assets (assets not earning income on an accrual basis) consisted of the following at December 31:

	2012			2011
Assets placed on non-accrual status:
Receivables:
In-production aircraft	$	265		$	–
Out-of-production aircraft		163			171
Equipment under operating leases, net (1)		21			14
Assets held for sale or re-lease, net (1)		119	(2)		50
	$	568		$	235
Percent of total non-performing assets to total portfolio		14.0	%		5.4	%

⁽¹⁾  At December 31, 2012 and 2011, equipment under operating leases of $166 and $23 are not included in non-performing assets due to intercompany guarantees provided by Boeing. At December 31, 2012 and 2011, assets held for sale or re-lease of $235 and $471 are not included in non-performing assets due to intercompany guarantees provided by Boeing.

⁽²⁾  At December 31, 2012, non-performing assets held for sale or re-lease of $31 had either a purchase or lease commitment.

Note 5 – Equipment Under Operating Leases, Net of Accumulated Depreciation

Equipment under operating leases, net of accumulated depreciation, consisted of the following at December 31:

	2012			2011
Cost	$	2,146		$	2,364
Advanced rent receipts, net (1)		(38	)		(42	)
Accumulated depreciation		(750	)		(883	)
	$	1,358		$	1,439

⁽¹⁾  Advanced rent receipts, net is the total cash received for all operating leases in excess of the total operating lease income recognized to date.

Scheduled minimum lease payments to be received under the non-cancelable portion of operating leases are as follows at December 31, 2012:

	2013		2014		2015		2016		2017		Thereafter
Operating leases	$	195	$	167	$	157	$	92	$	55	$	104

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Note 6 – Investments

Our investments in available-for-sale debt and marketable equity securities consisted of the following:

December 31, 2012	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Available-for-sale investments:
EETC	$	3	$	1	$	–	$	4
Total	$	3	$	1	$	–	$	4
December 31, 2011
Available-for-sale investments:
EETC	$	4	$	1	$	–	$	5
Total	$	4	$	1	$	–	$	5

During 2011, we sold certain available-for-sale marketable equity securities for total proceeds of $1 and recognized no investment income.

The contractual maturities of available-for-sale debt securities at December 31, 2012, were as follows:

	Cost		Fair Value
Due in one year or less	$	1	$	2
Due from one to five years		2		2
Due from five to ten years		–		–
Total	$	3	$	4

Note 7 – Income Tax

The components of the provision (benefit) for tax on income were as follows at December 31:

	2012			2011			2010
Current:
Federal	$	154		$	176		$	135
State		2			3			4
		156			179			139
Deferred:
Federal		(128	)		(139	)		(83	)
	$	28		$	40		$	56

The tax impact of temporary differences constitute our net deferred income tax liability. The components of the net deferred income tax liability consisted of the following at December 31:

	2012			2011
Deferred tax assets:
Allowance for losses on receivables	$	126		$	133
Other		16			22
		142			155
Deferred tax liabilities:
Leased assets		(1,246	)		(1,387	)
Net deferred tax liability	$	(1,104	)	$	(1,232	)

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Income tax computed at the United States federal income tax rate and the provision for tax on income differ as follows for the years ended December 31:

	2012				2011				2010
Tax computed at federal statutory rate	$	27	35.0	%	$	39	35.0	%	$	53	35.0	%
State income taxes, net of federal tax benefit		1	1.4			1	1.0			3	1.8
	$	28	36.4	%	$	40	36.0	%	$	56	36.8	%

During the first quarter of 2012 we filed an appeal with the IRS for the 2007-2008 tax years. The 2009-2010 IRS audit began in the second quarter of 2012. We are also subject to examination in major state and international jurisdictions for the 2001-2012 tax years. As of December 31, 2012 and 2011, we did not have any unrecognized tax benefits.

Pursuant to our tax sharing agreement with Boeing, we made payments with respect to tax obligations to Boeing of $152, $178 and $99 in 2012, 2011 and 2010 respectively. In 2012, 2011, and 2010 we did not receive or make income tax payments from or to other federal, state and foreign tax agencies.

For the years ended December 31, 2012, 2011 and 2010, we did not incur any income tax related interest income, interest expense or penalties.

Note 8 – Debt and Credit Agreements

The carrying value of debt, including the net effect of interest rate swap revaluation adjustments and unamortized deferred debt costs, consisted of the following at December 31:

(Interest rates are the contractual rates at December 31, 2012)	2012		2011
2.13% – 7.58% fixed rate notes due through 2019	$	2,440	$	3,283
1.54% floating rate notes due through 2023		25		25
4.12% – 4.84% non-recourse notes due through 2013		13		49
.91% capital lease obligations due through 2015		33		43
	$	2,511	$	3,400

At December 31, 2012 and 2011, we had interest rate swaps with maturities in 2013, 2014 and 2019 which effectively convert debt of $388 from fixed rate to floating rate.

During 2012, we had a Commercial Paper (CP) program that served as a potential source of short-term liquidity subject to market conditions. No amounts were outstanding under the CP program at any time during 2012. As of December 31, 2012, we had $1,500 available exclusively for us under Boeing’s committed revolving credit line agreements. See Note 2 – Relationship and Transactions with Boeing. On January 24, 2013, in connection with our plan to suspend our SEC reporting obligations, we terminated our commercial paper program and the arrangements with Boeing relating to Boeing’s credit line agreements.

The most restrictive covenants in our debt agreements require us to (a) limit the payment of cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on our property to secure indebtedness to 15% or less of consolidated assets, other than liens specifically excluded. At December 31, 2012, as well as at each quarter end during the year, we were in compliance with these covenants.

At December 31, 2012, $46 of our debt (non-recourse notes and capital lease obligations) was collateralized by portfolio assets and underlying equipment totaling $62.

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Scheduled principal payments for debt and capital lease obligations are as follows at December 31:

	Debt		Capital Lease Obligations
2013	$	637	$	11
2014		515		11
2015		5		11
2016		505		–
2017		5		–
Thereafter		775		–
	$	2,442	$	33

In 2012, 2011 and 2010, interest payments were $112, $136 and $174, respectively.

Note 9 – Derivative Financial Instruments

We primarily use derivative instruments to manage exposures to interest rate risk. We enter into interest rate swap contracts to hedge interest rate risk associated with our debt obligations. These interest rate swap contracts are designated as cash flow hedges or fair value hedges. Our contracts entered into as of December 31, 2012 do not require collateral or other security from either party.

Fair Value Hedges

Interest rate swaps, under which we agree to pay variable rates of interest, are designated as fair value hedges of fixed-rate debt. For our fair value hedges that qualify for hedge accounting treatment we use the shortcut method and thus there are no gains or losses recognized due to hedge ineffectiveness. Under shortcut hedge accounting treatment, the change in fair value of the interest rate swap is assumed to perfectly offset the change in fair value of the hedged debt.

For the years ended December 31, 2012, 2011 and 2010 gains and (losses) from changes in the fair value of $(3), $14 and $26 were recognized in interest expense with a corresponding offset due to changes in the fair value of the hedged underlying debt, resulting in no impact to interest expense.

For the years ended December 31, 2012, 2011 and 2010, we recorded $6, $10 and $12, respectively, of income related to the amortization of the adjustment to the carrying amount of hedged debt due to the termination of swaps as a reduction of Interest expense.

Cash Flow Hedges

Interest rate swap contracts under which we agree to pay a fixed rate of interest are designated as cash flow hedges of variable-rate debt obligations.

At times, we may hold cash flow hedges that qualify for hedge accounting treatment for which we use the short-cut method, and thus there are no gains or losses recognized due to hedge ineffectiveness. We record unrealized gains or losses from changes in the fair value of cash flow hedges in AOCI.

Other Derivative Instruments

At times, we may hold certain derivatives that do not receive hedge accounting treatment. These may include interest rate derivatives as well as warrants. During 2012, 2011 and 2010, we did not hold derivatives that did not qualify for hedge accounting treatment.

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The fair values of derivative instruments included in the Consolidated Balance Sheet were as follows:

December 31, 2012	Other Assets		Other Liabilities
Derivatives designated as hedging instruments – Interest rate swaps	$	26	$	–
December 31, 2011
Derivatives designated as hedging instruments – Interest rate swaps	$	29	$	–

The notional amount of our interest rate swaps is disclosed in Note 8 – Debt.

For the years ended December 31, 2012 and 2011, we did not hold any derivatives in cash flow hedging relationships, resulting in no effect to AOCI or the Statement of Operations.

Note 10 – Maintenance Payment Liability

Cash collected from lessees under the terms of the lease agreements for future maintenance of aircraft are recorded as maintenance payment liabilities, as are non-refundable payments received from lessees for aircraft return settlements. Maintenance payment liabilities are attributable to specific aircraft leases. Upon occurrence of a qualified maintenance event, the lessee requests reimbursement and upon disbursement of the funds, the liability is relieved. The balance, which is included in Other liabilities, was $98 and $137 as of December 31, 2012 and 2011.

To the extent that no maintenance payment obligation or expected maintenance work relating to an aircraft remains, the balance is recognized as Other income. For aircraft under lease that we intend to sell after lease expiration, excess non-refundable payments received from lessees for aircraft return conditions are taken to Other income over the remaining period of the lease. For the years ended December 31, 2012, 2011 and 2010 we recorded income of $46, $11 and $17, respectively.

Note 11 – Share-Based Plans Expense

Share-based plans expense principally relates to stock options. Share-based plans expense is included in Operating expenses since it is incentive compensation issued primarily to our executives. Further discussion for these plans is included in Note 16 of Boeing’s 2012 Annual Report on Form 10-K. Such note is not incorporated by reference into this report.

For the years ended December 31, 2012, 2011 and 2010 we recorded $1, $1 and $2 attributable to share-based plans expense.

Note 12 – Commitments and Contingencies

Litigation

Various legal proceedings and claims are pending or have been asserted against us. We believe that the final outcome of these proceedings and claims will not have a material effect on our earnings, cash flows and/or financial position.

Bankruptcies

On November 29, 2011, American Airlines filed for Chapter 11 bankruptcy protection. American Airlines retains certain rights by operating under Chapter 11 bankruptcy protection, including the right to reject executory contracts, such as aircraft leases. American Airlines has not rejected any of the leases related to our aircraft. At December 31, 2012 and 2011, American Airlines accounted for $253 and $350 of our total assets. We believe that our receivables from American Airlines are sufficiently collateralized such that we do not expect to incur losses related to those receivables as a result of the bankruptcy. We continue to monitor the American Airlines bankruptcy for potential impacts to our business.

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Restructurings and Restructuring Requests

In the fourth quarter of 2011, we revised the contractual terms of our leases with AirTran Airways, Inc. (AirTran) in conjunction with receiving a full guarantee from Southwest which guaranteed AirTran’s obligations to us.

From time to time, certain other customers have requested a restructuring of their transactions with us. During 2012, we did not reach agreement on any such restructuring requests that would have a material effect on our earnings, cash flows and/or financial position.

Commitments

At December 31, 2012, we and Boeing had unfunded financing commitments of $18,083, primarily resulting from firm contracts, options for deliveries or proposals as part of sales campaigns. These commitments are provided to give Boeing customers reasonable assurance of financing in connection with orders of Boeing products in advance of delivery. However, customers typically seek lower cost financing from other sources prior to actual delivery. In addition, we continue to work with third party financiers to provide alternative financing to customers and eliminate the need for our financing. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. However, there can be no assurance that we will not be required to fund greater amounts than historically required. To the extent we are obligated to provide financing, such financing generally includes participation by engine manufacturers which further reduces our obligation. Therefore, the reported amount of commitments does not necessarily represent a future net cash requirement. However, we expect to ultimately provide funding for those commitments which are exercised, whether they are Boeing’s or our commitments. If there were requirements to fund all Boeing’s and our commitments, the timing in which these commitments may be funded (based on estimated earliest potential funding dates as of December 31, 2012) is as follows:

	Total
2013	$	1,341
2014		2,591
2015		3,997
2016		3,457
2017		2,796
Thereafter		3,901
	$	18,083

We have concluded that no reserve for future potential losses are required for our financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.

Note 13 – Off-Balance Sheet Arrangements

We are a party to off-balance sheet arrangements consisting of variable interests in unconsolidated entities.

We have an investment in the form of an EETC which was acquired in 1999. EETCs are interests in a trust that passively holds investments in aircraft or pools of aircraft. EETCs provide investors with a collateral position in the related assets and tranched rights to cash flows from a financial instrument. Our investment in the form of EETC does not require consolidation. At December 31, 2012, our maximum exposure to economic loss from our EETC is $4.

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Note 14 – Fair Value Measurements

The following tables present our assets that are measured at fair value on a recurring basis and are categorized using the three levels of fair value hierarchy.

December 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds	$	299	$	299	$	–	$	–
Available-for-sale investments:
EETC		4		–		–		4
Interest rate swaps		26		–		26		–
Total	$	329	$	299	$	26	$	4
December 31, 2011	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds	$	218	$	218	$	–	$	–
Available-for-sale investments:
EETC		5		–		–		5
Interest rate swaps		29		–		29		–
Total	$	252	$	218	$	29	$	5

Money market funds. Money market funds are valued using a market approach based on the quoted market prices of identical instruments in an active market.

Enhanced Equipment Trust Certificate (EETC). The fair value of our EETC is derived using cash flows discounted at market yield derived from trading prices for comparable debt securities. Unrealized gains (losses) are recorded in AOCI.

Interest rate swaps. The fair values of our interest rate swaps are determined using cash flows discounted at market interest rates in effect at the period close.

The following tables present a reconciliation of Level 3 assets measured at fair value on a recurring basis for the years ended December 31.

2012	Fair Value Beginning of Year		Unrealized Gains Included in Income		Accumulated Other Comprehensive Income (Loss)		Purchases, Sales, and Settlements			Transfers In (Out)		Fair Value at End of Period
Assets
EETC	$	5	$	–	$	–	$	(1	)	$	–	$	4
Total	$	5	$	–	$	–	$	(1	)	$	–	$	4
2011
Assets
EETC	$	5	$	–	$	1	$	(1	)	$	–	$	5
Total	$	5	$	–	$	1	$	(1	)	$	–	$	5

We value the EETC on a recurring basis using a valuation technique of contractual cash flows discounted using the bond yield of a debt security with similar coupon and maturity, which is considered an unobservable input. As of December 31, 2012 the yield of 2.49% was used, having an inverse relationship to the fair value of the EETC.

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Certain assets are measured at fair value on a non-recurring basis using significant unobservable inputs (Level 3). The table below presents the non-recurring losses recognized for the year ended December 31, and the fair value and asset classification of the related assets as of the impairment date:

	2012					2011
	Fair Value		Total Losses			Fair Value			Total Losses
Assets
Equipment under operating leases	$	79	$	(39	)	$	132	(1)	$	(95	)
Assets held for sale or re-lease		69		(31	)		18	(1)		(5	)
Total	$	148	$	(70	)	$	150		$	(100	)

⁽¹⁾  For an asset that incurred impairments in both Equipment under operating leases and Assets held for sale or re-lease, the losses are reflected in the asset’s classification as of the time of the respective impairments while the fair value of the asset as of the date of the latest impairment is reflected only in the asset’s then current classification. As of December 31, 2011, such assets with a fair value of $10 changed classification from Equipment under operating leases to Assets held for sale or re-lease.

When an asset is determined to be impaired, the amount of the asset impairment expense recorded is the excess of the carrying value less the fair value of the asset reduced by the consideration of asset value guarantees we hold, if applicable. The fair value of the impaired asset is derived by calculating a median collateral value from a consistent group of third party aircraft value publications. The values provided by the third party aircraft value publications are derived from their knowledge of market trades or other market factors taking into account estimated revenues and costs to operate the aircraft. Management reviews the publications quarterly to assess their continued appropriateness and consistency with market trends. The responsibility of these reviews resides principally within our risk management group. Under certain circumstances, we adjust values based on the attributes and condition of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by outside publications, or based on the expected net sales price for the aircraft.

During the year ended December 31, 2012, we recognized $70 of asset impairment expense associated with eight aircraft classified as equipment under operating lease and four aircraft held for sale or re-lease. The impairment charges incurred during the year ended December 31, 2012 were primarily related to a charge of $32 for wide-body passenger aircraft as a result of collateral value declines, and a charge of $30 for wide-body freighter aircraft as a result of weakness in the freighter market. Management uses its judgment when determining the assumptions used in the recoverability analysis, taking into consideration historical data, current economic and industry trends and conditions and any changes in management’s holding period intent.

For level 3 assets that were measured at fair value on a non-recurring basis during the year ended December 31, 2012, the following table presents the fair value of those assets as of the measurement date, valuation techniques and related unobservable inputs of those assets.

	Fair Value	Valuation Techniques	Unobservable Input		Quantitative Inputs Used
Equipment under operating leases & Assets held for sale or re-lease	$148	Market approach		Aircraft value publications	$123 - $184(1) Median $151
				Aircraft condition adjustments	$(18) - $15(2) Net $(3)

⁽¹⁾  The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process.

⁽²⁾  The negative amount represents the sum for all aircraft subject to fair value measurement, of all downward adjustments based on consideration of individual aircraft attributes and condition. The positive amount represents the sum of all such upward adjustments.

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The following table presents the carrying values and estimated fair values of our financial instruments for which we did not elect the fair value option as of December 31:

	2012						2011
	Carrying Value			Fair Value Level 2			Carrying Value			Fair Value
Assets
Notes and other	$	752	(1)	$	809		$	594	(1)	$	639
Liabilities
Debt, excluding capital lease obligations	$	(2,478	)	$	(2,638	)	$	(3,357	)	$	(3,497	)

⁽¹⁾ At December 31, 2012 and December 31, 2011, net of allowance for losses of $21 and $27.

Items not included in the above disclosures are cash (Level 1), time deposits (Level 2), and accounts payable (Level 2). The carrying value of those items approximate their fair value at December 31, 2012 and 2011 as reflected in the Consolidated Balance Sheets.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Notes and other. The fair value of our variable rate notes that reprice frequently approximate their carrying values. The fair value of fixed rate notes is estimated using discounted cash flows analysis using interest rates currently offered on loans with similar terms to borrowers of similar credit quality.

Debt. A significant portion of our debt is traded in the secondary market and the fair value of such debt is based on current market yield. For our remaining debt that is not traded in the secondary market, the fair value is estimated using discounted cash flows analysis using our indicative borrowing cost derived from dealer quotes.

Financing commitments. It is not practicable to estimate the fair value of future financing commitments because the amount and timing of funding those commitments are uncertain.

Note 15 – Concentrations

A significant portion of our portfolio is concentrated among a few customers and in distinct geographic regions, particularly in the United States. Our portfolio is also concentrated by varying degrees across aircraft product types and vintages. Our concentration risk is mitigated in part by intercompany guarantees from Boeing with respect to certain portfolio assets, which primarily relate to 717 aircraft.

Portfolio carrying values for our five largest customers were as follows at December 31:

	December 31, 2012
	Carrying Value		% of Total Portfolio
AirTran/Southwest	$	1,204		29.6	%
Hawaiian		384		9.4
Continental		384		9.4
Air India		265		6.5
American		253		6.3
	$	2,490		61.2	%

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	December 31, 2011
	Carrying Value		% of Total Portfolio
AirTran/Southwest	$	1,261		29.2	%
Continental		415		9.6
Hawaiian		374		8.7
American		350		8.1
Korean		159		3.7
	$	2,559		59.3	%

For the years ended December 31, 2012 and 2011, AirTran accounted for 18% and 21% of our revenue. On July 8, 2012, BCC, Boeing, Southwest and Delta Air Lines, Inc. (Delta) reached agreement whereby 78 717 aircraft on lease to AirTran will be subleased from AirTran to Delta on a phased-in basis beginning in 2013, with the sublease scheduled for the duration of the lease term between BCC and AirTran. Delta has committed to lease these 717 aircraft from us for an additional seven-year period following the expiration of the sublease.

Portfolio carrying values were represented in the following regions at December 31:

	2012					2011
	Carrying Value		% of Total Portfolio			Carrying Value		% of Total Portfolio
United States (1)	$	2,755		67.7	%	$	3,186		73.8	%
Europe		629		15.5			693		16.1
Asia/Australia		505		12.4			241		5.6
Latin America		39		1.0			79		1.8
Other		138		3.4			116		2.7
	$	4,066		100.0	%	$	4,315		100.0	%

⁽¹⁾ United States includes assets held for sale or re-lease that may be physically located in another region.

Revenue by geographic region was as follows for the years ended December 31:

	2012		2011		2010
United States	$	291	$	322	$	409
Europe		74		123		128
Asia/Australia		36		45		45
Latin America		19		20		41
Other		16		10		16
	$	436	$	520	$	639

Portfolio carrying values were represented by the following product types at December 31:

	2012		2011
717	$	1,869	$	2,001
757		519		631
737		328		408
MD-11		278		311
787		265		–
767		231		316
747		168		225
MD-80		163		171
777		136		134
Other (1)		109		118
	$	4,066	$	4,315

⁽¹⁾ Other includes aircraft, equipment, notes and stock. Some of these aircraft are out of production, but are supported by the manufacturer or other third party parts and service providers.

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Our aircraft portfolio by vintage, based on carrying value (excluding investments and pooled assets), are categorized as follows at December 31:

	2012			2011
2008 and newer		9.9	%		3.4	%
2003 - 2007		24.7			27.4
1998 - 2002		54.6			55.4
1997 and older		10.8			13.8
		100.0	%		100.0	%

Note 16 – Discontinued Operations

On May 24, 2004, we entered into a purchase and sale agreement with General Electric Capital Corporation (GECC) to sell substantially all of the assets related to our Commercial Financial Services business. The final asset sale closed December 27, 2004.

Part of the purchase and sale agreement with GECC includes a loss sharing arrangement for losses that may exist at the end of the initial and subsequent financing periods of the transferred portfolio assets, or in some instances, prior to the end of the financing period. Such losses may result from asset sales, provisions for loss or asset impairment charges offset by gains from asset sales. The loss sharing arrangement provides that cumulative net losses (if any) are to be shared between us and GECC. At December 31, 2012, our maximum future cash exposure to losses associated with the loss sharing arrangement, which considers the impact of the portfolio reduction, was $137 for which we have accrued a liability of $32.

The following table reconciles the reserve under the loss sharing arrangement, which is included in Other liabilities for the years ended December 31:

	2012			2011
Reserve at beginning of period	$	53		$	82
Increase (decrease) in reserve		2			(8	)
Payments to GECC		(23	)		(21	)
Reserve at end of period	$	32		$	53

Operating results of the discontinued operations were as follows for the years ended December 31:

	2012			2011		2010
Net gain (loss) on disposal of discontinued operations	$	(2	)	$	8	$	(7	)
Provision (benefit) for income tax		(1	)		3		(3	)
Net gain (loss) on disposal of discontinued operations, net of tax	$	(1	)	$	5	$	(4	)

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Note 17 – Quarterly Financial Information (Unaudited)

	Three Months Ended
	March 31		June 30		September 30		December 31
2012
Revenue	$	125	$	99	$	101	$	111
Income from continuing operations	$	24	$	19	$	22	$	(16	)
Net income	$	24	$	19	$	21	$	(16	)
2011(1)
Revenue	$	143	$	147	$	126	$	104
Income from continuing operations	$	33	$	40	$	11	$	(13	)
Net income	$	31	$	39	$	18	$	(12	)

⁽¹⁾ The consolidated financial information for the quarter ended December 31, 2011 has been updated to reflect the effects of the restatement described in Note 1, “Immaterial Restatement.” Revenue, Income from continuing operations and Net Income decreased by $12, $7 and $7, respectively, from previously reported amounts.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer have evaluated our disclosure controls and procedures as of December 31, 2012 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers from Section 404(b) of the Sarbanes-Oxley Act of 2002.

(c) Changes in Internal Control over Financial Reporting

We implemented additional controls in the quarter ended December 31, 2012 regarding the monitoring and accounting for leases that are included in our portfolio. There were no other changes in our internal control over financial reporting that occurred during the fourth quarter of 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

On January 14, 2013, our Board of Directors authorized the filing of Form 15 with the SEC to (i) withdraw the Company’s common stock from registration under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Act”), and (ii) notify the SEC of the suspension of the Company’s reporting obligations arising under Section 15(d) of the Act, including filing period reports under the Act. The Company is eligible to take this action to suspend its reporting obligations because its common stock and each class of its debt securities were held by less than 300 record holders as of January 1, 2013.

The Company plans to file Form 15 after the filing of this report.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

Item 11. Executive Compensation

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

Item 14. Principal Accounting Fees and Services

The following table sets forth the aggregate fees billed to us by Deloitte & Touche LLP, our independent auditor, in 2012 and 2011:

Services Rendered / Fees (Dollars in millions)	2012		2011
Audit fees (1)	$	2.4	$	2.3

⁽¹⁾ For professional services rendered for the audit of our 2012 and 2011 annual financial statements, the reviews of the financial statements included in our Forms 10-Q for fiscal years 2012 and 2011, fees for issuance of consents related to Securities and Exchange Commission filings and other statutory audits.

As a wholly owned subsidiary of The Boeing Company, audit and non-audit services provided by our independent auditor are subject to Boeing’s Audit Committee pre-approval policies and procedures. The Committee pre-approved all services provided by, and all fees of, our independent auditor.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)    1.	Financial Statements
	All Consolidated Financial Statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.
2.	Financial Statement Schedule
	None.
3.	Exhibits
3.1	Restated Certificate of Incorporation of the Company dated June 29, 1989, incorporated herein by reference to Exhibit 3.1 to our Form 10-K for the year ended December 31, 1993.
3.2	Certificate of Amendment of the Restated Certificate of Incorporation of the Company dated August 11, 1997, incorporated herein by reference to Exhibit 3(i) to our Form 10-Q, for the period ended June 30, 1997.
3.3	By-Laws of the Company dated July 22, 1993, incorporated herein by reference to Exhibit 3.2 to our Form 10-K for the year ended December 31, 1993.
4.1	First Supplemental Indenture, dated June 12, 1995, between the Company and Bankers Trust Company, incorporated herein by reference to Exhibit 4(b) to our Form S-3 Registration Statement (File No. 33-58989).
4.2	Indenture, dated April 15, 1987, incorporated herein by reference to Exhibit 4 to our Form S-3 Registration Statement (File No. 33-26674).
4.3	Senior Indenture, dated August 31, 2000, incorporated by reference to Exhibit 4(a) to our Amendment No. 2 to Form S-3 Registration Statement, dated August 30, 2000 (File No. 333-82391).
4.4	Guaranty, dated January 23, 2013, of Boeing related to securities issued under Indenture dated as of August 31, 2000, incorporated herein by reference to Exhibit 99.2 to our Form 8-K dated January 23, 2013.
4.5	Guaranty, dated January 23, 2013, of Boeing related to Indenture dated April 15, 1987, as supplemented by First Supplemental Indenture dated June 12, 1995, incorporated herein by reference to Exhibit 99.3 to our Form 8-K dated January 23, 2013.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, we are not filing certain instruments with respect to our debt, as the total amount of securities currently provided for under each of such instruments does not exceed 10 percent of our total assets on a consolidated basis. We hereby agree to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.

10.1	364-Day Credit Agreement dated as of November 10, 2011, between Boeing and the banks listed therein, incorporated by reference to Exhibit 10.1 to The Boeing Company Form 8-K dated November 10, 2011 (File No. 001-00442).
10.2	Five-Year Credit Agreement dated as of November 10, 2011, between Boeing and the banks listed therein, incorporated by reference to Exhibit 10.2 to The Boeing Company Form 10-K dated November 10, 2011 (File No. 001-00442).
10.3	Borrower Subsidiary Letter dated November 10, 2011 relating to 364-Day Credit Agreement, incorporated by reference to Exhibit 10.3 to our Form 8-K dated November 10, 2011.
10.4	Borrower Subsidiary Letter dated November 10, 2011 relating to Five-Year Credit Agreement, incorporated by reference to Exhibit 10.4 to our Form 8-K dated November 10, 2011.
10.5	Letter agreement relating to the 364-Day Credit Agreement and the Five-Year Credit Agreement, dated November 10, 2011, between Boeing and us, incorporated by reference to Exhibit 10.5 to our Form 8-K dated November 10, 2011.

44

10.6	Letter Agreement, dated January 24, 2013, terminating letter agreement relating to 364-Day Credit Agreement and Five-Year Credit Agreement, dated November 10, 2011, between Boeing and us, incorporated by reference to Exhibit 99.1 to our Form 8-K dated January 24, 2013.
10.7	Support Agreement, dated December 23, 2003, by and between us and Boeing, incorporated herein by reference to Exhibit 99.1 to our Form 8-K filed December 24, 2003.
10.8	Termination Agreement dated January 23, 2013, between Boeing and us, related to the Support Agreement dated December 23, 2003, between Boeing and us, incorporated by reference to Exhibit 10.1 to our Form 8-K dated January 23, 2013.
10.9	Purchase and Sale Agreement dated May 24, 2004, among Boeing Capital Corporation, BCC Equipment Leasing Corporation, McDonnell Douglas Overseas Finance Corporation, Boeing Capital Loan Corporation and General Electric Capital Corporation, incorporated herein by reference to Exhibit 10.1 to our 8-K dated June 24, 2004
10.10	Amendment and Joint Waiver dated May 31, 2004, among Boeing Capital Corporation, BCC Equipment Leasing Corporation, McDonnell Douglas Overseas Finance Corporation, Boeing Capital Loan Corporation and General Electric Capital Corporation, incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated June 24, 2004.
12	Computation of Ratio of Earnings to Fixed Charges.
31.1	Certification of President pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document is being furnished in accordance with Securities and Exchange Commission Release Nos. 33-8212 and 34-47551.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document is being furnished in accordance with Securities and Exchange Commission Release Nos. 33-8212 and 34-47551.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

45

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Boeing Capital Corporation
February 22, 2013	/s/    MAURITA B. SUTEDJA
	Maurita B. Sutedja
	Vice President and Chief Financial Officer (Principal Financial Officer) and Registrant’s Authorized Officer
February 22, 2013	/s/    KEVIN J. MURPHY
	Kevin J. Murphy
	Controller (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Boeing Capital Corporation
February 22, 2013	/s/    GREGORY D. SMITH
	Gregory D. Smith
	Chairman of the Board and Director
February 22, 2013	/s/    MICHAEL J. CAVE
	Michael J. Cave
	President and Director (Principal Executive Officer)
February 22, 2013	/s/    DAVID A. DOHNALEK
	David A. Dohnalek
	Director
February 22, 2013	/s/    J. MICHAEL LUTTIG
	J. Michael Luttig
	Director

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