Contract Assets and Liabilities

12 Months Ended

Dec. 31, 2021

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, 2021 and 2020 are as follows:

(dollars in millions)	2021		2020
Contract assets	$	11,361	$	9,931
Contract liabilities	(13,720)		(12,889)
Net contract liabilities	$	(2,359)	$	(2,958)

Contract assets increased $1,430 million during 2021 primarily due to sales in excess of billings at Pratt & Whitney and contractual billing terms on U.S. government and foreign military sales contracts at RMD. Contract liabilities increased $831 million during 2021 primarily due to billings in excess of sales at Pratt & Whitney and timing of milestone payments on certain international contracts at RMD, partially offset by $381 million of contract liability reduction related to a contract termination at Collins Aerospace.

In 2021, 2020 and 2019, we recognized revenue of $4,301 million, $2,763 million and $2,850 million related to our Contract liabilities at January 1, 2021, January 1, 2020 and January 1, 2019, respectively.

As of December 31, 2021, our Contract liabilities include approximately $430 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated.

Contract assets consisted of the following at December 31:

(dollars in millions)	2021		2020
Unbilled	$	23,652	$	20,336
Progress payments	(12,291)		(10,405)
Total contract assets	$	11,361	$	9,931

The U.S. government has title to the assets related to unbilled amounts on U.S. government contracts that provide progress payments.

Contract assets are net of an allowance for expected credit losses of $251 million and $177 million as of December 31, 2021 and 2020, respectively.

The allowance for expected credit losses activity was not material in 2021. In 2020, we recognized 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 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 certain commercial aircraft type, 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.