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. There is uncertainty regarding timing of return to service and resumption of deliveries in China which are still subject to final regulatory approvals. 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.

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 270 airplanes in inventory as of September 30, 2022. Due to ongoing uncertainties the program is facing including uncertainty regarding timing of resumption of deliveries to Chinese customers, we now anticipate delivering most of these aircraft by the end of 2024. We have approximately 140 aircraft in inventory that are designated for customers in China. We are exploring options to remarket some of these aircraft to other customers. In the event that we are unable to resume aircraft deliveries in China or remarket those aircraft 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	(959)	(2,040)
Reductions for concessions and other in-kind considerations	(29)	(53)
Changes in estimates	(16)	(1)
Ending balance – September 30	$1,936	$3,443

The liability balance of $1.9 billion at September 30, 2022 includes $1.6 billion of contracted customer concessions and other liabilities and $0.3 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 $0.1 billion in other concessions. Of the cash payments to customers, we expect to pay $0.1 billion in 2023 and $0.5 billion in 2024. The type of consideration to be provided for the remaining $0.3 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 September 30, 2022 and December 31, 2021, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,066 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 September 30, 2022 have expiration dates from 2022 through 2029. At September 30, 2022 and December 31, 2021 total contractual trade-in commitments were $1,262 and $612. As of September 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 $310 and $283 and the fair value of the related trade-in aircraft was $309 and $283.

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $16,495 and $12,905 as of September 30, 2022 and December 31, 2021. The estimated earliest potential funding dates for these commitments as of September 30, 2022 are as follows:

As of September 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 and security agreements. Contingent liabilities on outstanding letters of credit and surety bonds aggregated approximately $4,850 and $3,634 as of September 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 nine and three months ended September 30, 2022, we increased the reach-forward loss on the contract by $1,452 and $766 driven by higher costs to incorporate certain technical requirements, increases to factory modification labor and support engineering, schedule delays and higher supplier costs. The increase in the third quarter of 2022 was primarily driven by increases to cost estimates associated with factory modification labor and support engineering resources due to labor shortages and inefficiencies that we now estimate will persist longer than previously anticipated, higher supplier cost estimates based on ongoing supplier negotiations and higher levels of engineering design changes due to technical requirements which are driving increased rework and schedule delays. Risk remains that we may 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 as well as priced options for 13 annual production lots totaling 179 aircraft. This EMD contract is a fixed-price incentive fee contract and involves highly complex designs and systems integration. Since 2016, the USAF has authorized eight low rate initial production (LRIP) lots for a total of 109 aircraft. The EMD contract and authorized LRIP lots total approximately $21 billion as of

During the nine and three months ended September 30, 2022, we increased the reach-forward loss on the KC-46A Tanker program by $1,374 and $1,165 primarily reflecting higher production and supply chain costs partially driven by labor shortages and supply chain disruption. The increase in the reach-forward loss in the third quarter of 2022 is primarily driven by factory unit time performance expectations that assume continued production disruption due to labor shortages and supply chain disruption. Factory unit time estimates also reflect reduced benefits from prior investments in productivity enablers and higher factory unit time to produce aircraft for the remaining life of the program. The third quarter charge also reflects increased estimated change incorporation costs for flight test aircraft as well as schedule delays to complete the Remote Vision System. Risk remains that we may 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. During the nine and three months ended September 30, 2022, we increased the MQ-25 reach-forward loss by $576 and $351 primarily driven by higher manufacturing and engineering support costs, additional testing and certification activities, supplier quality, and engineering design challenges. The increase in the third quarter of 2022 is primarily driven by higher than anticipated costs to manufacture the EMD units reflecting recent performance which is resulting in additional factory resources and increased engineering costs to address design and supplier quality issues. We also increased costs associated with flight test support this quarter. Risk remains that we may 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. During the nine and three months ended September 30, 2022, we recorded earnings charges of $203 and $100 related to the T-7A Red Hawk fixed-price EMD contract, which has a reach-forward loss at September 30, 2022, primarily due to supply chain, hardware qualification issues and schedule delays and customer testing requirements. The increase in the reach-forward loss in the third quarter of 2022 was primarily driven by delays in achieving Military Flight Release and additional cost growth to resolve technical issues and other engineering design changes that were identified during the third quarter. EMD aircraft flight testing is now estimated to start in 2023.

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 2024. We increased the estimated reach-forward loss by $536 and $185 during the nine and three months ended September 30, 2022 primarily driven by ongoing supply chain negotiations (which are impacted by supply chain constraints and inflationary pressures), and design revisions. The increase in the reach-forward loss in the third quarter of 2022 was primarily driven by cost growth as a result of engineering and design changes as well as an increase in the number of expected units in the initial production lots. Risk remains that we may record additional losses in future periods.

National Aeronautics and Space Administration (NASA) has contracted us to design and build the CST-100 Starliner spacecraft to transport crews to the International Space Station. During the second quarter of 2022 we successfully completed the uncrewed Orbital Flight Test. A crewed flight test is now expected to be completed in 2023. During the nine and three months ended September 30, 2022, we