Over 190 countries have approved the resumption of 737 MAX operations. The 737 MAX has yet to return to service in China and a small number of other countries. The Civil Aviation Administration of China issued an airworthiness directive in the fourth quarter of 2021 outlining actions required for airlines to return to service. While we expect 737 MAX deliveries to our customers in China to resume in 2022, subject to final regulatory approvals, risk remains around the timing and rate of those deliveries.

We increased the production rate to 31 per month in 2022, and expect to implement further gradual production rate increases based on market demand and supply chain capacity. We expensed abnormal production costs of $188 during the three months ended March 31, 2022.

We have approximately 290 airplanes in inventory as of June 30, 2022 and we anticipate delivering most of these aircraft by the end of 2023. We continue to work with a small number of customers who 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. Approximately half the aircraft in inventory are designated for customers in China. In the event that we are unable to resume aircraft deliveries in China and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing and our expectation regarding future gradual production rate increases could be impacted.


	2022	2021
Beginning balance – January 1	$2,940	$5,537

Reductions for payments made	(844)	(1,538)
Reductions for concessions and other in-kind considerations	(5)	(27)
Changes in estimates	17	(8)
Ending balance – June 30	$2,108	$3,964

The liability balance of $2.1 billion at June 30, 2022 includes $1.7 billion of contracted customer concessions and other liabilities and $0.4 billion that remains subject to negotiation with customers. The contracted amount includes $0.9 billion expected to be liquidated by lower customer delivery payments, $0.6 billion expected to be paid in cash and $0.2 billion in other concessions. Of the cash payments to customers, we expect to pay $0.5 billion in 2022. The type of consideration to be provided for the remaining $0.4 billion will depend on the outcomes of negotiations with customers.

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 June 30, 2022 and December 31, 2021, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,015 and $1,094.

In conjunction with signing definitive agreements for the sale of new 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. 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 June 30, 2022 have expiration dates from 2022 through 2029. At June 30, 2022 and December 31, 2021 total contractual trade-in commitments were $1,270 and $612. As of June 30, 2022 and December 31, 2021, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $349 and $283 and the fair value of the related trade-in aircraft was $346 and $283.

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $13,081 and $12,905 as of June 30, 2022 and December 31, 2021. The estimated earliest potential funding dates for these commitments as of June 30, 2022 are as follows:

As of June 30, 2022, all 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.

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 $3,410 and $3,634 as of June 30, 2022 and December 31, 2021.

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.

Substantially all contracts at BDS and the majority of contracts at BGS Government are long-term contracts. Long-term contracts that are contracted on a fixed-price basis could result in losses in future periods. Certain of the fixed-price contracts are for the development of new products, services and related technologies. This development work scope is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work by us and our suppliers. The operational and technical complexities of fixed-price development contracts create financial risk, which could trigger additional earnings charges, termination provisions, order cancellations, or other financially significant exposure.

The Company’s firm fixed-price contract for the Engineering, Manufacturing, and Development (EMD) effort on the U.S. Air Force’s (USAF) VC-25B Presidential Aircraft, commonly known as Air Force One, is a $4.3 billion program to develop and modify two 747-8 commercial aircraft. During the first half of 2022, the reach-forward loss on the contract increased by $686 driven by higher supplier costs, higher costs to finalize certain technical requirements and schedule delays. Risk remains that we may be required to record additional losses in future periods.

In 2018, we were awarded the T-7A Red Hawk program. The EMD portion of the contract is a $860 fixed-price contract and includes five aircraft and seven simulators. In the first half of 2022, we recorded earnings charges of $103 related to the T-7A Red Hawk fixed-price EMD contract, which has a reach-forward loss at June 30, 2022, primarily due to customer testing requirements, supply chain delays and hardware qualification issues. The production portion of the contract includes 11 production lots for aircraft and related services. In 2018, we recorded a loss of $400 associated with the 11 production lots and associated support options for 346 T-7A Red Hawk aircraft that we believe are probable of being exercised. The first production and support contract option is expected to be exercised in 2023. The estimated loss increased by $351 during the first half of 2022 primarily driven by ongoing supply chain negotiations which are impacted by supply chain constraints, COVID-19, and inflationary pressures. Risk remains that we may be required to record additional losses in future periods.

In the third quarter of 2018, we were awarded the MQ-25 EMD contract by the U.S. Navy. The contract is a fixed-price contract that now includes development and delivery of seven aircraft and test articles at a contract price of $890. In connection with winning the competition, we recognized a reach-forward loss of $291 in the third quarter of 2018. The period of performance runs from 2018 through 2024. During the first half of 2022, we increased the MQ-25 reach-forward loss by $225 primarily driven by additional testing and certification activities, supplier quality, and engineering design challenges. Risk remains that we may be required to record additional losses in future periods.

In 2011, we were awarded a contract from the USAF to design, develop, manufacture, and deliver four next generation aerial refueling tankers. This 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 June 30, 2022. As of June 30, 2022, we had approximately $295 of capitalized precontract costs and $866 of potential termination liabilities to suppliers. During the first half of 2022, we increased the reach-forward loss on the KC-46A Tanker program by $209 primarily reflecting higher supply chain and production disruption costs. Risk remains that we may be required to record additional losses in future periods.