Customer Financing

Customer financing consisted of the following:



	September 30 2012			December 31 2011
Financing receivables:
Investment in sales-type/finance leases		$1,893			$2,037
Notes	670			814
Operating lease equipment, at cost, less accumulated depreciation of $666 and $765	1,849			1,991
Gross customer financing	4,412			4,842
Less allowance for losses on receivables	(66		)	(70		)
Total		$4,346			$4,772

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 September 30, 2012 and December 31, 2011, we individually evaluated for impairment customer financing receivables of $658 and $854. At September 30, 2012 and December 31, 2011, $454 and $485 was determined to be impaired. We recorded no allowance for losses on these impaired receivables as the collateral values exceed the carrying values of the receivables.

The adequacy of the allowance for losses estimate 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.

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



Rating categories	September 30 2012		December 31 2011
A		$34
BBB	1,221			$1,316
BB	62		67
B	54		103
CCC	534		512
D	556		653
Other	102		200
Total carrying value of financing receivables		$2,563		$2,851

At September 30, 2012, our allowance primarily related to receivables with ratings of CCC and we applied default rates that averaged 45% 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 $556 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 September 30, 2012 as a result of the bankruptcy.

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:



	September 30 2012		December 31 2011
717 Aircraft ($470 and $480 accounted for as operating leases) ⁽¹⁾		$1,841		$1,906
757 Aircraft ($467 and $451 accounted for as operating leases) ⁽¹⁾	581		631
MD-80 Aircraft ($0 and $0 accounted for as operating leases)^{(1) (2)}	454		485
737 Aircraft ($213 and $242 accounted for as operating leases)	340		394
MD-11 Aircraft ($295 and $321 accounted for as operating leases) ⁽¹⁾	295		321
767 Aircraft ($96 and $103 accounted for as operating leases)	248		307


⁽¹⁾	Out-of-production aircraft


⁽²⁾	Disclosure omitted from 2011 financial statements