Customer Financing

Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following at December 31:



	2013			2012
Financing receivables:
Investment in sales-type/finance leases		$1,699			$1,850
Notes	587			592
Operating lease equipment, at cost, less accumulated depreciation of $564 and $628	1,734			2,038
Gross customer financing	4,020			4,480
Less allowance for losses on receivables	(49		)	(60		)
Total		$3,971			$4,420

The components of investment in sales-type/finance leases at December 31 were as follows:



	2013			2012
Minimum lease payments receivable		$1,731			$1,987
Estimated residual value of leased assets	543			544
Unearned income	(575		)	(681		)
Total		$1,699			$1,850

Operating lease equipment primarily includes large commercial jet aircraft and regional jet aircraft. At December 31, 2013 and 2012, operating lease equipment included $83 and $354 of BCC equipment available for sale or re-lease. At December 31, 2013 and 2012, we had firm lease commitments for $57 and $266 of this equipment.

Financing receivable balances evaluated for impairment at December 31 were as follows:



	2013		2012
Individually evaluated for impairment		$95		$616
Collectively evaluated for impairment	2,191		1,826
Total financing receivables		$2,286		$2,442

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 December 31, 2013 and 2012, we individually evaluated for impairment customer financing receivables of $95 and $616. We determined that none of these were impaired at December 31, 2013 and $446 were impaired at December 31, 2012. We recorded no allowance for losses on these receivables as the collateral values exceed the carrying values of the receivables.

The average recorded investment in impaired financing receivables for the years ended December 31, 2013, 2012 and 2011, was $376, $466 and $517, respectively. Income recognition is generally suspended for financing receivables at the date full recovery of income and principal becomes not probable. Income is recognized when financing receivables become contractually current and performance is demonstrated by the customer. Interest income recognized on such receivables was $30, $6 and $0 for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, we had no material receivables that were greater than 30 days past due.

The change in the allowance for losses on financing receivables for the years ended December 31, 2013, 2012 and 2011, consisted of the following:



	2013			2012			2011
Beginning balance - January 1		($60	)		($70	)		($353	)
Customer financing valuation benefit	11			10			269
Write-offs							14
Ending balance - December 31		($49	)		($60	)		($70	)
Collectively evaluated for impairment		($49	)		($60	)		($70	)

The adequacy of the allowance for losses 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. The customer financing valuation benefit recorded in 2011 was primarily driven by changes in the internal credit rating categories assigned to our receivable balances from AirTran Holdings, LLC.

Our financing receivable balances at December 31 by internal credit rating category are shown below:



Rating categories	2013		2012
BBB		$1,091		$1,201
BB	58		63
B	585		51
CCC	457		511
D			524
Other	95		92
Total carrying value of financing receivables		$2,286		$2,442

At December 31, 2013, our allowance primarily related to receivables with ratings of CCC and we applied default rates that averaged 46% to the exposure associated with those receivables.

In 2011, American Airlines, Inc. (American Airlines) filed for Chapter 11 bankruptcy protection. On December 9, 2013, American Airlines emerged from bankruptcy. Upon emergence from bankruptcy, the parent of American Airlines merged with US Airways Group, Inc., the parent of US Airways, to form American Airlines Group Inc., and American Airlines assumed all of the BCC financing agreements and underlying leases.

Customer Financing Exposure Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and overall market conditions and may be subject to reduced valuation with market decline. 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 is primarily collateralized by out-of-production aircraft. The majority of customer financing carrying values are concentrated in the following aircraft models:



	2013		2012
717 Aircraft ($444 and $465 accounted for as operating leases)⁽¹⁾		$1,674		$1,781
757 Aircraft ($402 and $454 accounted for as operating leases)⁽¹⁾	453		561
MD-80 Aircraft (Accounted for as sales-type finance leases)⁽¹⁾	411		446
747 Aircraft ($183 and $221 accounted for as operating leases)	286		221
787 Aircraft (Accounted for as operating leases)	273		286
MD-11 Aircraft (Accounted for as operating leases)⁽¹⁾	220		269
737 Aircraft ($138 and $193 accounted for as operating leases)	210		316
767 Aircraft ($60 and $63 accounted for as operating leases)	207		223


⁽¹⁾	Out-of-production aircraft

Charges related to customer financing asset impairment for the years ended December 31 were as follows:



	2013		2012			2011
Boeing Capital		$67		$73			$109
Other Boeing	14		(15		)	(36		)
Total		$81		$58			$73

Scheduled receipts on customer financing are as follows:



Year	2014		2015		2016		2017		2018		Beyond 2018
Principal payments on notes receivable		$216		$131		$41		$42		$45		$112
Sales-type/finance lease payments receivable	243		234		230		206		195		623
Operating lease equipment payments receivable	464		181		114		71		52		77