Customer Financing

6 Months Ended

Jun. 30, 2011

Note 5 – Customer Financing

Customer financing consisted of the following:


	June 30 2011			December 31 2010
Financing receivables:
Investment in sales-type/finance leases	$	2,096		$	2,272
Notes		550			480
Operating lease equipment, at cost, less accumulated depreciation of $738 and $847		2,101			2,281

Gross customer financing		4,747			5,033
Less allowance for losses on receivables		(270	)		(353	)

Total	$	4,477		$	4,680

Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. A significant portion of our portfolio is also concentrated among a few individual customers and as such the credit rating of those customers can have a significant influence on the level of the allowance. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon public information and information obtained directly from our customers. We utilize these credit ratings as one of the factors in assessing the adequacy of our allowance for losses on receivables. Our rating categories are comparable to those used by the major credit rating agencies.

The following table details our receivable balances by the internal credit rating category which was used as a factor in determining our allowance for losses on receivables.


Rating categories	June 30 2011		December 31 2010
BBB	$	128
BB		65
B		111		207
CCC+		1,245
CCC		1,000		2,432
Other		97		113

Total carrying value of financing receivables	$	2,646	$	2,752

At June 30, 2011, our allowance primarily related to customers with ratings of B, CCC+ and CCC in the table above, and we applied default rates that averaged 4.7%, 42.2% and 48.7% to receivables from these customers. On May 2, 2011, Southwest Airlines Co. (Southwest) completed its acquisition of AirTran Holdings, Inc. and AirTran Holdings, Inc. became a wholly owned subsidiary of Southwest. At June 30, 2011, the internal rating category of CCC+ is assigned to the receivables with AirTran Holdings LLC (AirTran), the successor to AirTran Holdings Inc., for the purpose of assigning default rates discussed above.

Declines in collateral values are a significant driver of our allowance for losses. Generally, out-of-production aircraft have had greater percentages of collateral value declines than in-production aircraft. Our portfolio consists primarily of financing receivables for out-of-production aircraft. The value of the collateral is closely tied to commercial airline performance and may be subject to reduced valuation with market decline. Our customer financing portfolio has a concentration of various model aircraft. Customer financing carrying values related to major aircraft concentrations were as follows:


	June 30 2011		December 31 2010
717 Aircraft ($496 and $561 accounted for as operating leases)⁽¹⁾	$	1,975	$	2,070
757 Aircraft ($478 and $629 accounted for as operating leases)⁽¹⁾		677		720
737 Aircraft ($280 and $317 accounted for as operating leases)		330		366
767 Aircraft ($109 and $115 accounted for as operating leases)		339		372
MD-11 Aircraft ($315 and $327 accounted for as operating leases)⁽¹⁾		315		327

⁽¹⁾

Out-of-production aircraft