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Contract Assets and Liabilities
 12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer 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 December 31, 2020 and 2019 are as follows:
(dollars in millions)20202019
Contract assets$9,931 $4,462 
Contract liabilities(12,889)(9,014)
Net contract liabilities$(2,958)$(4,552)
Contract assets increased $5,469 million during the year ended December 31, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $5.5 billion, net of $335 million of contract asset write-offs or reclassifications related to certain precision guided munitions contracts with certain Middle Eastern customers as described below. Included in the change in contract assets was a decrease of $132 million due to the impairments and incremental credit loss reserves related to our commercial aerospace businesses, as discussed below. Contract liabilities increased $3,875 million during the year ended December 31, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $3.8 billion.
We have direct commercial sales contracts for precision guided munitions with a certain Middle East customer, for which we have not yet obtained regulatory approval. Due to the result of the U.S. presidential and congressional election, and the resulting uncertainty surrounding U.S. foreign policy on direct commercial sales for precision guided munitions with this customer, we determined that it is no longer probable that we will be able to obtain required regulatory approvals for these contracts; however, this determination could change as the U.S. government’s foreign policy views are clarified. Therefore, in the fourth quarter of 2020, we reversed $119 million of sales for work performed on these specific contracts subsequent to the date of the Raytheon Merger and through the end of the third quarter of 2020, and the related operating profit. In addition, we recognized an unfavorable profit impact of $516 million, primarily related to inventory reserves, contract asset impairments and recognition of supplier related obligations related to termination liability, which we now do not expect to be utilized or otherwise directed to other customers. In addition, we reversed $755 million of backlog on these contracts. As of December 31, 2020, our contract liabilities include $405 million of advance payments received from the customer on these contracts, which may become refundable to the customer if the contracts are ultimately terminated.
Contract assets consisted of the following at December 31: 
(dollars in millions)20202019
Unbilled$20,336 $5,211 
Progress payments(10,405)(749)
Total contract assets$9,931 $4,462 
The U.S. government has title to the assets related to unbilled amounts on U.S. government contracts that provide progress payments.
Contract assets include retentions arising from contractual provisions. At December 31, 2020, retentions were $98 million.
Total contract assets include an allowance for credit losses of $177 million as of December 31, 2020. For additional information
on the adoption of the Credit Loss Standard on January 1, 2020, see “Note 1: Basis of Presentation and Summary of Accounting Principles.” The increase in the allowance for 2020 includes incremental credit loss reserves of $132 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 2020, we recognized an impairment of $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 we recognized an impairment of $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.In 2020, 2019 and 2018, we recognized revenue of $2,763 million, $2,850 million and $2,269 million related to our contract liabilities at January 1, 2020, January 1, 2019 and January 1, 2018, respectively.