Commitments and Contingencies

Environmental

The following table summarizes environmental remediation activity during the nine months ended September 30, 2013 and 2012.



	2013			2012
Beginning balance – January 1		$710			$758
Reductions for payments made	(69		)	(61		)
Changes in estimates	48			65
Ending balance – September 30		$689			$762

The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios which include the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At September 30, 2013 and December 31, 2012, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $905 and $865.

Product Warranties

The following table summarizes product warranty activity recorded during the nine months ended September 30, 2013 and 2012.



	2013			2012
Beginning balance – January 1		$1,572			$1,046
Additions for current year deliveries	427			367
Reductions for payments made	(326		)	(244		)
Changes in estimates	(110		)	212
Ending balance – September 30		$1,563			$1,381

Commercial Aircraft Commitments

In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.

Trade-in commitment agreements at September 30, 2013 have expiration dates from 2013 through 2023. At September 30, 2013, and December 31, 2012 total contractual trade-in commitments were $1,500 and $1,535. As of September 30, 2013 and December 31, 2012, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $227 and $108 and the fair value of the related trade-in aircraft was $227 and $108.

Financing Commitments

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $19,095 and $18,083 as of September 30, 2013 and December 31, 2012. The estimated earliest potential funding dates for these commitments as of September 30, 2013 are as follows:



	Total
October through December 2013		$264
2014	2,774
2015	3,608
2016	3,791
2017	3,062
Thereafter	5,596
		$19,095

As of September 30, 2013, all of these financing commitments related to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.

Standby Letters of Credit and Surety Bonds

We have entered into standby letters of credit and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately $4,318 and $4,545 as of September 30, 2013 and December 31, 2012.

Commitments to ULA

We and Lockheed Martin Corporation have each committed to provide ULA with up to $527 of additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. See Note 5.

C-17

In September 2013, we decided to end production of C-17 aircraft in 2015 and recorded charges of $92, primarily for pension curtailment costs. We are currently producing C-17 aircraft at a rate of 10 per year and plan to continue producing at that rate through 2015. At September 30, 2013, our backlog included 8 international orders for C-17 aircraft that are scheduled for delivery through mid-2014. In addition, we believe it is probable that we will receive orders from international customers for 14 unsold aircraft that we are planning to produce in 2014 and 2015. We are currently incurring costs and have made commitments to suppliers related to the unsold aircraft. Should orders for the 14 unsold aircraft not materialize or no longer be considered probable we could incur charges to write-down inventory and/or record termination liabilities. At September 30, 2013, we had approximately $256 of capitalized precontract costs and $436 of potential termination liabilities to suppliers associated with the unsold aircraft.

U.S. Government Defense Budget/Sequestration

In August 2011, the Budget Control Act (The Act) reduced the United States defense top line budget by approximately $490 billion through 2021. The Act further reduced the defense top line budget by an additional $500 billion through 2021 if Congress did not enact $1.2 trillion in further budget reductions by January 15, 2012. Should Congress in future years provide funding above the yearly spending limits of The Act, sequestration will automatically take effect and cancel any excess amount above the limits. The annual spending limits of The Act will remain in place unless and until the current law is changed.

On March 1, 2013, sequestration was implemented for the U.S. government fiscal year 2013 (FY2013) and the Office of Management and Budget (OMB) issued a report to Congress listing illustrative cuts which equal a 7.8% reduction in FY2013 non-exempt defense discretionary funding and a 5.0% reduction in non-exempt nondefense discretionary funding. However, as noted in the OMB report, the effective reduction in funds would be approximately 13% for non-exempt defense programs and 9% for non-exempt nondefense programs if implemented over the seven-month period from March 1, 2013 to September 30, 2013.

On June 10, 2013, the United States Department of Defense (U.S. DoD) released its Report on the Joint Committee Sequestration for FY2013, which summarized the budgetary resources sequestered at the U.S. DoD's program, project and activity levels.

On August 20, 2013, OMB issued a Sequestration Update Report for FY2014 identifying enforcement of The Act's discretionary spending caps. Under these caps the U.S. DoD will be subject to approximately $52 billion in reductions from the totals contained in the President's FY2014 budget proposal.

The lack of agreement between Congress and the Administration to end sequestration, the OMB reports, and communications with the U.S. DoD indicate that there are likely to be reductions to our defense business. However, at this time we cannot determine how sequestration will impact specific programs and contracts at Boeing. Reductions, cancellations or delays impacting existing contracts or programs could have a material effect on our results of operations, financial position and/or cash flows. While U.S. DoD would sustain the bulk of sequestration cuts affecting the Company, civil programs and agencies could be significantly impacted as well.

BDS Fixed-Price Development Contracts

Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Airborne Early Warning and Control, Family of Advanced Beyond Line-of-Sight Terminals, India P-8I, Saudi Arabia F-15, USAF KC-46A Tanker and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could also result in lower margins or a material charge for reach-forward losses during the next 12 months.

Recoverable Costs on Government Contracts

Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S government to assess the merits of claims and where appropriate reserve for amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.

747 and 787 Commercial Airplane Programs

The development and initial production of new commercial airplanes and new commercial airplane derivatives, which include the 747 and 787, entail significant commitments to customers and suppliers as well as substantial investments in working capital, infrastructure and research and development. The 747 and 787 programs have gross margins that are breakeven or near breakeven at September 30, 2013.

Continued weakness in the air cargo market and lower-than-expected demand for large commercial passenger aircraft have resulted in pricing pressures and fewer 747 orders than anticipated. We continue to have a number of unsold 747 production positions. If market and production risks cannot be mitigated, the program could face a reach-forward loss that may be material.

The cumulative impacts of production challenges, change incorporation, schedule delays and customer and supplier impacts have created significant pressure on 787 program profitability. If risks related to this program, including risks associated with planned production rate increases, or introducing the 787-9 and 787-10 derivatives as scheduled cannot be mitigated, the program could face additional customer claims and/or supplier assertions, as well as a reach-forward loss that may be material.