Liabilities, Commitments And Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Liabilities, Commitments And Contingencies

Liabilities, Commitments and Contingencies

Accrued Liabilities

Accrued liabilities at December 31 consisted of the following:

	2016		2015
Accrued compensation and employee benefit costs		$5,720		$5,624
Environmental	562		566
Product warranties	1,414		1,485
Forward loss recognition	1,385		757
Dividends payable	866		721
Income Taxes Payable	89		262
Other	4,655		4,599
Total		$14,691		$14,014

Environmental

The following table summarizes environmental remediation activity during the years ended December 31, 2016 and 2015.

	2016			2015
Beginning balance – January 1		$566			$601
Reductions for payments made	(47		)	(78		)
Changes in estimates	43			43
Ending balance – December 31		$562			$566

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 that includes 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 December 31, 2016 and 2015, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $857 and $853.

Product Warranties

The following table summarizes product warranty activity recorded during the years ended December 31, 2016 and 2015.

	2016			2015
Beginning balance – January 1		$1,485			$1,504
Additions for current year deliveries	356			421
Reductions for payments made	(309		)	(323		)
Changes in estimates	(118		)	(117		)
Ending balance – December 31		$1,414			$1,485

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 December 31, 2016 have expiration dates from 2017 through 2026. At December 31, 2016 and 2015, total contractual trade-in commitments were $1,485 and $1,585. As of December 31, 2016 and 2015, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $126 and $240 and the fair value of the related trade-in aircraft was $126 and $240.

Financing Commitments

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $14,847 and $16,283 as of December 31, 2016 and 2015. The estimated earliest potential funding dates for these commitments as of December 31, 2016 are as follows:

	Total
2017		$2,432
2018	3,500
2019	3,374
2020	2,022
2021	1,471
Thereafter	2,048
		$14,847

As of December 31, 2016, 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 $4,701 and $4,968 as of December 31, 2016 and 2015.

Commitments to ULA

We and Lockheed Martin Corporation have each committed to provide ULA with additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. As of December 31, 2016, ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120. See Note 6.

F/A-18

At December 31, 2016, our backlog included 23 F/A-18 aircraft under contract with the U.S. Navy and funding has been authorized and appropriated for an additional 12 aircraft. In addition, Kuwait has requested up to 40 aircraft. We have begun work or authorized suppliers to begin working on aircraft beyond those already in backlog in anticipation of these future orders. At December 31, 2016, we had $57 of capitalized precontract costs and $790 of potential termination liabilities to suppliers associated with F/A-18 aircraft.

Company Owned Life Insurance

McDonnell Douglas Corporation insured its executives with Company Owned Life Insurance (COLI), which are life insurance policies with a cash surrender value. Although we do not use COLI currently, these obligations from the merger with McDonnell Douglas are still a commitment at this time. We have loans in place to cover costs paid or incurred to carry the underlying life insurance policies. As of December 31, 2016 and 2015, the cash surrender value was $483 and $487 and the total loans were $456 and $456. As we have the right to offset the loans against the cash surrender value of the policies, we present the net asset in Other assets on the Consolidated Statements of Financial Position as of December 31, 2016 and 2015.

United States Government Defense Environment Overview

The new U.S. administration and key members of the 115th Congress have expressed a general desire to reverse the effects of the budgetary reductions of the past several years. However, the Budget Control Act of 2011 (The Act), which mandated limits on U.S. government discretionary spending, remains in effect through the 2021 government fiscal year causing budget uncertainty and continued risk of future sequestration cuts.

In addition, there continues to be uncertainty with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies, including the National Aeronautics and Space Administration (NASA), within the overall budgetary framework described above. Future budget cuts or investment priority changes could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company’s operations, financial position and/or cash flows.

Funding timeliness also remains a risk as the federal government is currently operating under a continuing resolution that expires on April 28, 2017. If Congress is unable to pass appropriations bills before the continuing resolution expires, a government shutdown could result which may have impacts above and beyond those resulting from budget cuts, sequestration impacts or program-level appropriations. For example, requirements to furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.

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 Commercial Crew, Saudi 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 result in lower margins or material charges for reach-forward losses. For example, during 2016, we have recorded additional reach-forward losses of $1,128 on the KC-46A Tanker program and a charge of $162 resulting from a reach-forward loss of $38 on the Commercial Crew Program. Moreover, both of these programs remain subject to additional reach-forward losses if we experience further technical or quality issues, schedule delays, or increased costs.

KC-46A Tanker

In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. This Engineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. In August 2016, the USAF authorized LRIP lots for 7 and 12 aircraft valued at $2.8 billion. At December 31, 2016, we had approximately $311 of capitalized precontract costs and $1,016 of potential termination liabilities to suppliers.

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.

Russia/Ukraine

We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.

747 Program

Lower-than-expected demand for large commercial passenger and freighter aircraft and slower-than-expected growth of global freight traffic have continued to drive market uncertainties, pricing pressures and fewer orders than anticipated. As a result, during 2016, we canceled previous plans to return to a production rate of 1.0 aircraft per month beginning in 2019, resulting in a reduction in the program accounting quantity from 1,574 to 1,555 aircraft. This reduction in the program accounting quantity, together with lower anticipated revenues from future sales and higher costs associated with producing fewer airplanes, resulted in a reach-forward loss of $1,188 in the second quarter. We previously recognized reach-forward losses of $885 and $70 during the second half of 2015 and the first quarter of 2016, respectively, related to the prior decision to reduce the production rate to 0.5 per month and lower estimated revenue from future sales due to ongoing pricing and market pressures. We reduced the rate from 1.0 to 0.5 per month in September 2016. The adjusted program accounting quantity includes 26 undelivered aircraft, currently scheduled to be produced through 2019. We continue to have a number of completed aircraft in inventory as well as unsold production positions and we remain focused on obtaining additional orders and implementing cost-reduction efforts. If we are unable to obtain sufficient orders and/or market, production and other risks cannot be mitigated, we could record additional losses that may be material, and it is reasonably possible that we could decide to end production of the 747.

787 Program

The 787 program continued to have near breakeven gross margins. The combination of production challenges, change incorporation on early build aircraft, schedule delays, customer and supplier impacts and changes to price escalation factors has created significant pressure on program profitability. We are continuing to monitor wide-body demand and if sufficient orders do not materialize during the next several quarters we may consider appropriate adjustments to planned production rates. If risks related to these challenges, together with risks associated with planned production rates and productivity improvements, supply chain management or introducing or manufacturing the 787-10 derivative as scheduled cannot be mitigated, the program could record a reach-forward loss that may be material.