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Commitments and Contingencies
 9 Months Ended
Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments And Contingencies Commitments and Contingencies
737 MAX Grounding and COVID-19 Impacts
In 2019, following two fatal 737 MAX accidents, the Federal Aviation Administration (FAA) and non-U.S. civil aviation authorities issued orders suspending commercial operations of 737 MAX aircraft. Deliveries of the 737 MAX were suspended following these orders. Deliveries in the U.S. resumed in late 2020 following rescission by the FAA of its grounding order. In addition, several other non-U.S. civil aviation authorities, including the Brazilian National Civil Aviation Agency, Transport Canada, and the European Union Aviation Safety Agency (EASA) have subsequently approved return of operations, allowing us to resume deliveries in those jurisdictions. About 175 countries have approved the resumption of 737 MAX operations. The 737 MAX remains grounded in certain non-U.S. jurisdictions, including China. Flight tests were completed in China during the third quarter of 2021, and we are continuing to work towards approval by the end of 2021, with the resumption of deliveries to follow in the first quarter of 2022.
Multiple legal actions have been filed against us as a result of the accidents. In addition, we are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including an investigation by the Securities and Exchange Commission, the outcome of which may be material. Other than as described in Note 17 with respect to our entry during the first quarter into a Deferred Prosecution Agreement with the U.S. Department of Justice, we cannot reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations and inquiries related to the 737 MAX.
In early April 2021, we notified the FAA that we recommended to operators that certain 737 MAX airplanes be temporarily removed from service to address issues that could affect the operation of the electrical power system. During the second quarter of 2021, we worked with the FAA to finalize the required actions to address the issues and resumed deliveries in May. We do not expect this matter to have a material financial impact on the 737 program.
In the first nine months of 2021, we delivered 167 aircraft. We have approximately 370 airplanes in inventory as of September 30, 2021 and we anticipate delivering most of these aircraft by the end of 2023. A number of customers have requested to defer deliveries or to cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory. In the event that we are unable to resume aircraft deliveries in certain non-U.S. jurisdictions consistent with our assumptions of regulatory approval timing, our expectation of delivery timing could be impacted.
We produced at abnormally low production rates in 2020 and expect to continue to do so through 2021. As a result, we expect to incur approximately $4.6 billion of abnormal production costs on a cumulative basis, which are being expensed as incurred, of which $2,567 was recorded during the year ended December 31, 2020 and $1,501 was recorded during the nine months ended September 30, 2021.
In addition to impacts related to the 737 MAX accidents and subsequent grounding, the 737 program continues to be significantly impacted by the COVID-19 pandemic and its effect on aircraft demand. These impacts have contributed to the lower production and delivery rate assumptions described above. We have gradually increased production rates in 2020 and 2021 and continue to expect to increase the production rate to 31 per month in early 2022, as well as implement further gradual production rate increases in subsequent periods based on market demand and supply chain capacity. The ongoing impacts of COVID-19 on market demand and timing of regulatory approvals in certain non-U.S. jurisdictions have also created significant uncertainty around the timing of deliveries of 737 MAX aircraft in inventory. We may need to recognize additional costs associated with remarketing and/or reconfiguring aircraft in inventory, which may reduce revenue and/or earnings in future periods.
We have also recorded additional expenses of $136 and $33 due to the 737 MAX grounding during the nine and three months ended September 30, 2021, and $239 and $118 during the nine and three months ended September 30, 2020. These expenses include costs related to storage, inventory impairment, pilot training, and software updates.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during the nine months ended September 30, 2021 and 2020.
20212020
Beginning balance – January 1$5,537 $7,389 
Reductions for payments made(2,040)(1,695)
Reductions for concessions and other in-kind considerations(53)(83)
Changes in estimates(1)370 
Ending balance – September 30$3,443 $5,981 
We are working with our customers to minimize the impact to their operations from grounded and undelivered aircraft. We continue to reassess the liability for estimated potential concessions and other considerations to customers on a quarterly basis. This reassessment includes updating estimates to reflect revisions to return to service, delivery and production rate assumptions driven by timing of regulatory approvals, as well as latest information based on engagements with 737 MAX customers. The liability represents our current best estimate of future concessions and other considerations to customers, and is necessarily based on a series of assumptions. It is subject to change in future quarters as negotiations with customers mature and timing and conditions of return to service are better understood. The liability balance of $3.4 billion at September 30, 2021 includes $1.3 billion expected to be liquidated by lower customer delivery payments, $1.0 billion expected to be paid in cash and $0.2 billion in other concessions. Of the cash payments to customers, we expect to pay $0.2 billion in 2021 and $0.7 billion in 2022. The type of consideration to be provided for the remaining $0.9 billion will depend on the outcomes of negotiations with customers.
The 737 MAX remains grounded in certain non-U.S. jurisdictions. The civil aviation authorities in those jurisdictions will determine the timing and conditions of return to service. Our assumptions reflect our current best estimate, but actual timing and conditions of return to service and resumption of deliveries could differ from this estimate, the effect of which could be material. We are unable at this time to
reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the timing and conditions of return to service in certain jurisdictions. For example, a significant portion of our 737 MAX inventory consists of aircraft scheduled to be delivered to customers based in China. If we are unable to resume deliveries to China consistent with our assumptions, or if further deterioration in trade relations between the U.S. and China results in unanticipated delivery delays, the continued absence in revenue, earnings, and cash flows associated with 737 MAX deliveries would materially and adversely impact our operating results. In addition, uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to the production rate, supply chain impacts, and/or the results of negotiations with particular customers, as well as any changes in our program estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows. In the event that future production rate increases occur at a slower rate or take longer than we are currently assuming, we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged production suspension or delays in planned production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce 737 program margins and/or increase abnormal production costs in the future.
Commercial air traffic and capacity have fallen dramatically due to the COVID-19 pandemic. This trend has impacted passenger traffic most severely. While recovery is accelerating, we continue to expect that it will remain uneven as travel restrictions and varying regional travel protocols continue to impact air travel. While the pandemic caused a temporary shift in air cargo dynamics, we have seen air cargo traffic return to positive growth in 2021 on economic recovery and strengthening trade. These changes are causing, and are expected to continue to cause, negative impacts to our customers’ revenue, earnings, and cash flow, and in some cases may threaten the future viability of some of our customers, potentially causing defaults within our customer financing portfolio and/or requiring us to remarket aircraft that have already been produced and/or are currently in backlog. If 737 MAX aircraft remain grounded for an extended period of time in certain non-U.S. jurisdictions, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand. Our customers may also lack sufficient liquidity to purchase new aircraft due to impacts from the pandemic. We are also observing a significant increase in the number of requests for payment deferrals, contract modifications, lease restructurings and similar actions, and these trends may lead to additional earnings charges, impairments and other adverse financial impacts in our business over time. In addition, to the extent that customers have valid rights to cancel undelivered aircraft, we may be required to refund pre-delivery payments, putting additional constraints on our liquidity. There is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises. In addition, airlines may experience reduced demand due to reluctance by the flying public to travel.
We continue to expect commercial air travel to return to 2019 levels in 2023 to 2024. We expect it will take a few years beyond that for the industry to return to long-term trend growth. There is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The COVID-19 pandemic also has increased, and its aftermath is also expected to continue to increase, uncertainty with respect to global trade volumes, which could put significant negative pressure on cargo traffic. Any of these factors would have a significant impact on the demand for both single-aisle and wide-body commercial aircraft, as well as for the services we provide to commercial airlines. In addition, a lengthy period of reduced industry-wide demand for commercial aircraft would put additional pressure on our suppliers, resulting in increased procurement costs and/or additional supply chain disruption. To the extent that the COVID-19 pandemic or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers and/or suppliers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.
Environmental
The following table summarizes environmental remediation activity during the nine months ended September 30, 2021 and 2020.
20212020
Beginning balance – January 1$565 $570 
Reductions for payments made(35)(26)
Changes in estimates99 27 
Ending balance – September 30$629 $571 
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 September 30, 2021 and December 31, 2020, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,057 and $1,095.
Product Warranties
The following table summarizes product warranty activity recorded during the nine months ended September 30, 2021 and 2020.
20212020
Beginning balance – January 1$1,527 $1,267 
Additions for current year deliveries71 50 
Reductions for payments made(182)(202)
Changes in estimates439 444 
Ending balance – September 30$1,855 $1,559 
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, 2021 have expiration dates from 2021 through 2028. At September 30, 2021 and December 31, 2020 total contractual trade-in commitments were $685 and $950. As of September 30, 2021 and December 31, 2020, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $269 and $599 and the fair value of the related trade-in aircraft was $269 and $580.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $13,311 and $11,512 as of September 30, 2021 and December 31, 2020. The estimated earliest potential funding dates for these commitments as of September 30, 2021 are as follows:

Total
October through December 2021$1,419 
20222,054 
20234,654 
20242,270 
20251,665 
Thereafter1,249 
$13,311 
As of September 30, 2021, $13,189 of these financing commitments relate 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.
Funding Commitments
We have commitments to make additional capital contributions of $256 to joint ventures over the next six years.
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 $3,885 and $4,238 as of September 30, 2021 and December 31, 2020.
United States Government Defense Environment Overview
The Omnibus appropriations acts for fiscal year 2021 (FY21), enacted in December 2020, provided FY21 appropriations for government departments and agencies, including $704 billion for the U.S. DoD, $23 billion for the National Aeronautics and Space Administration (NASA) and $18 billion for the FAA. FY21 appropriations included funding for Boeing’s major programs, such as the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System.
In May 2021, the U.S. government released the President’s budget request for fiscal year 2022 (FY22), which included $715 billion in funding for the U.S. DoD, $25 billion in funding for NASA and $19 billion for the FAA. While the President’s budget request for FY22 includes funding for a majority of Boeing’s programs, it did not include funding for F/A-18 Super Hornet, P-8 Poseidon and CH-47F Block II production aircraft. While there is some continued congressional support for F/A-18 and CH-47F Block II production aircraft for FY22, there is ongoing uncertainty with respect to these and other program-level appropriations for FY22 and future fiscal years. These programs also continue to pursue non-U.S. sales opportunities.
The Continuing Resolution (CR), enacted by U.S. Congress on September 30, 2021, continues federal funding at FY21 appropriated levels through December 3, 2021. Congress and the President must enact either full-year FY22 appropriations bills or an additional CR to fund government departments and agencies beyond December 3, 2021 or a government shutdown could result, which may impact the Company’s operations.
Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on our results of operations, financial position, and/or cash flows.
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, KC-46A Tanker, MQ-25, T-7A Red Hawk, VC-25B, 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. Moreover, our fixed-price development programs remain subject to additional reach-forward losses if we experience further production, 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 and involves highly complex designs and systems integration. Since 2016, the USAF has authorized seven low rate initial production (LRIP) lots for a total of 94 aircraft. The EMD contract and authorized LRIP lots total approximately $19 billion as of September 30, 2021.
At September 30, 2021, we had approximately $252 of capitalized precontract costs and $305 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.
Severance
The following table summarizes changes in the severance liability during the nine months ended September 30, 2021 and 2020.
20212020
Beginning balance – January 1$283 
Initial liability recorded in the second quarter of 2020$652 
Reductions for payments made(84)(395)
Changes in estimates(179)328 
Ending balance – September 30$20 $585 
During 2020, the Company recorded severance costs for approximately 26,000 employees expected to leave the Company through a combination of voluntary and involuntary terminations. The severance packages are consistent with the Company’s ongoing compensation and benefits plans. During the first quarter of 2021, we reduced the estimated number of employees expected to leave the Company through voluntary and involuntary terminations to approximately 23,000. During the second quarter of 2021, we further reduced the estimated number of employees expected to leave the Company through voluntary and involuntary terminations to approximately 19,000. As of September 30, 2021, our severance liability primarily relates to remaining severance payments to terminated employees.