Contract Assets and Liabilities (Notes)

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Contract Assets and Liabilities

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of September 30, 2020 and December 31, 2019 are as follows:


(dollars in millions)	September 30, 2020		December 31, 2019
Contract assets	$	9,617	$	4,462
Contract liabilities, current	(12,208)		(9,014)
Contract liabilities, non-current (included within Other long-term liabilities)	(120)		—
Net contract liabilities	$	(2,711)	$	(4,552)

Contract assets increased $5.2 billion during the nine months ended September 30, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $5.3 billion. Contract liabilities increased $3.3 billion during the nine months ended September 30, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $3.5 billion. We recognized revenue of $480 million and $2,288 million during the quarter and nine months ended September 30, 2020, respectively, related to contract liabilities as of January 1, 2020 and $770 million and $2,308 million during the quarter and nine months ended September 30, 2019, respectively, related to contract liabilities as of January 1, 2019.

Our contract assets and liabilities also include amounts related to foreign government direct commercial sales contracts for precision guided munitions to certain Middle Eastern customers for which we have not yet obtained regulatory approval and licenses. We had approximately $1.2 billion of total contract value, recognized approximately $400 million of sales for work performed through the date of the Raytheon Merger and approximately $150 million of sales subsequent to the date of the Raytheon Merger through September 30, 2020, and received approximately $450 million in advances as of September 30, 2020 on these contracts. On a contract-by-contract basis, we had $200 million of net contract assets and $100 million of net contract liabilities related to these contracts pending the U.S. government approvals.

Total contract assets include an allowance for credit losses of $169 million as of September 30, 2020. For additional information on the adoption of the Credit Loss Standard on January 1, 2020 see “Note 1: Basis of Presentation and Accounting Principles.” The increase in the allowance for the nine months ended September 30, 2020 includes incremental credit loss reserves of $127 million related to a number of airline customers that have filed for bankruptcy and additional reserves due to the current economic environment primarily caused by the COVID-19 pandemic. In addition, in the nine months ended September 30, 2020, we impaired $111 million of contract assets at Collins Aerospace due to the impact of lower estimated future customer activity principally driven by the expected acceleration of fleet retirements of a commercial aircraft, and in both the quarter and nine months ended September 30, 2020, we impaired $129 million of contract assets as a result of an unfavorable EAC adjustment related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney.