Customer Financing

Customer financing at December 31 consisted of the following:



	2012			2011
Financing receivables:
Investment in sales-type/finance leases		$1,850			$2,037
Notes	592			814
Operating lease equipment, at cost, less accumulated depreciation of $628 and $765	2,038			1,991
Gross customer financing	4,480			4,842
Less allowance for losses on receivables	(60		)	(70		)
Total		$4,420			$4,772

The components of investment in sales-type/finance leases at December 31 were as follows:



	2012			2011
Minimum lease payments receivable		$1,987			$2,272
Estimated residual value of leased assets	544			541
Unearned income	(681		)	(776		)
Total		$1,850			$2,037

Operating lease equipment primarily includes large commercial jet aircraft and regional jet aircraft. At December 31, 2012 and 2011, operating lease equipment included $354 and $521 of equipment available for sale or re-lease. At December 31, 2012 and 2011, we had firm lease commitments for $266 and $476 of this equipment.

When our Commercial Airplanes segment is unable to immediately sell used aircraft, it may place the aircraft under an operating lease. It may also provide customer financing with a note receivable. The carrying amount of the Commercial Airplanes segment used aircraft under operating leases and notes receivable included as a component of customer financing totaled $223 and $357 as of December 31, 2012 and 2011.

Financing receivable balances evaluated for impairment at December 31 were as follows:



	2012		2011
Individually evaluated for impairment		$616		$854
Collectively evaluated for impairment	1,826		1,997
Total financing receivables		$2,442		$2,851

We 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. At December 31, 2012 and 2011, we individually evaluated for impairment customer financing receivables of $616 and $854 and determined that $446 and $485 were impaired. We recorded no allowance for losses on these impaired receivables as the collateral values exceed the carrying values of the receivables.

The average recorded investment in impaired financing receivables for the years ended December 31, 2012, 2011 and 2010, was $466, $517 and $88, respectively. Income recognition is generally suspended for financing receivables at the date full recovery of income and principal becomes not probable. Income is recognized when financing receivables become contractually current and performance is demonstrated by the customer. Interest income recognized on such receivables was $6, $0 and $9 for the years ended December 31, 2012, 2011 and 2010, respectively.

As of December 31, 2012 and 2011, we had no material receivables that were greater than 30 days past due.

The change in the allowance for losses on financing receivables for the years ended December 31, 2012, 2011 and 2010, consisted of the following:



	2012			2011			2010
Beginning balance - January 1		($70	)		($353	)		($302	)
Customer financing valuation benefit/(provision)	10			269			(51		)
Reduction in customer financing assets				14
Ending balance - December 31		($60	)		($70	)		($353	)
Collectively evaluated for impairment		($60	)		($70	)		($353	)

The adequacy of the allowance for losses is assessed quarterly. Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. 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. Our rating categories are comparable to those used by the major credit rating agencies. The customer financing valuation benefit recorded in 2011 was primarily driven by changes in the internal credit rating categories assigned to our receivable balances from AirTran Holdings, LLC.

Our financing receivable balances at December 31 by internal credit rating category are shown below:



Rating categories	2012		2011
BBB		$1,201		$1,316
BB	63		67
B	51		103
CCC	511		512
D	524		653
Other	92		200
Total carrying value of financing receivables		$2,442		$2,851

At December 31, 2012, our allowance primarily related to receivables with ratings of CCC and we applied default rates that averaged 46% to the exposure associated with those receivables.

In the fourth quarter of 2011, American Airlines Inc. (American Airlines) filed for Chapter 11 bankruptcy protection. We believe that our customer financing receivables from American Airlines of $524 are sufficiently collateralized such that we do not expect to incur losses related to those receivables and have not recorded an allowance for losses as of December 31, 2012 as a result of the bankruptcy.

Customer Financing Exposure Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and may be subject to reduced valuation with market decline. Declines in collateral values are also a significant driver of our allowance for losses. Generally, out-of-production aircraft have experienced greater collateral value declines than in-production aircraft. Our customer financing portfolio consists primarily of financing receivables for out-of-production aircraft. The value of the collateral is closely tied to commercial airline performance and overall market conditions. The majority of customer financing carrying values are concentrated in the following aircraft models:



	2012		2011
717 Aircraft ($465 and $480 accounted for as operating leases)⁽¹⁾		$1,781		$1,906
757 Aircraft ($454 and $451 accounted for as operating leases)⁽¹⁾	561		631
MD-80 Aircraft ($0 and $0 accounted for as operating leases)⁽¹⁾⁽²⁾	446		485
737 Aircraft ($193 and $242 accounted for as operating leases)	316		394
787 Aircraft ($286 and $0 accounted for as operating leases)	286
MD-11 Aircraft ($269 and $321 accounted for as operating leases)⁽¹⁾	269		321
767 Aircraft ($63 and $103 accounted for as operating leases)	223		307


⁽¹⁾	Out-of-production aircraft


⁽²⁾	Disclosure omitted from 2011 financial statements

Charges related to customer financing asset impairment for the years ended December 31 were as follows:



	2012			2011			2010
Boeing Capital		$73			$109			$85
Other Boeing	(15		)	(36		)	85
Total		$58			$73			$170

Scheduled receipts on customer financing are as follows:



Year	2013		2014		2015		2016		2017		Beyond 2017
Principal payments on notes receivable		$194		$101		$57		$41		$42		$157
Sales-type/finance lease payments receivable	290		231		230		226		207		803
Operating lease equipment payments receivable	474		172		162		97		55		104