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Portfolio Quality
 6 Months Ended
Jun. 30, 2011
Portfolio Quality  
Portfolio Quality

Note 3 – Portfolio Quality

Allowance for Losses on Receivables

The following table reconciles the activity in the allowance for losses on receivables for the six months ended June 30:

 

      2011     2010  

Allowance for losses on receivables at beginning of period

    $ 87      $ 71   

Provision for (recovery of) losses

      (9 )      2   

Write-offs

      (11 )      –   

Allowance for losses on receivables at end of period

    $ 67      $ 73   
   

Allowance as a percentage of total receivables

      3.0 %      2.8 % 

Allowance for losses on receivables collectively evaluated for impairment

    $ 67      $ 73   

Credit Quality

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 rating category which was used as a factor in determining our allowance for losses on receivables:

 

      June 30, 2011      December 31, 2010  
Rating categories    Out-of-
Production
Aircraft		      In-
Production
Aircraft/Other		      Total      Out-of-
Production
Aircraft		      In-
Production
Aircraft/Other		      Total  

BBB

    $ 128       $ –       $ 128       $ –       $ –       $ –   

BB

      –         65         65         –         –         –   

B

      111         –         111         135         72         207   

CCC+

      1,245         –         1,245         –         –         –   

CCC

      384         329         713         1,658         417         2,075   

Total carrying value

    $ 1,868       $ 394       $ 2,262       $ 1,793       $ 489       $ 2,282   
   

 

At June 30, 2011, our allowance primarily related to customers with ratings of CCC+ and CCC in the table above, and we applied default rates, that averaged 41.2% 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. As of 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.

At June 30, 2011 and December 31, 2010, our receivables were primarily related to customers we believe have less than investment-grade credit.

Impaired Receivables

At June 30, 2011 and December 31, 2010, we had no impaired receivables.

For the six months ended June 30, 2010, our average recorded investment, interest income recognized and cash received on the income recognized related to the impaired receivables, all of which related to out-of-production aircraft, were $141, $3 and $3, respectively.

Past Due Receivables

At June 30, 2011 and December 31, 2010, we had no past due receivables.

Non-Performing Assets

Non-performing assets (assets not earning income on an accrual basis) consisted of the following:

 

      June 30,
2011		     December 31,
2010		  

Assets placed on non-accrual status:

     

Equipment under operating leases, net

    $ 14      $ 29   

Assets held for sale or re-lease, net(1) (2)

     24        43   
   $ 38      $ 72   
   

Percent of total non-performing assets to total portfolio

      0.9 %      1.5 % 

 

(1)  

At June 30, 2011 and December 31, 2010, assets held for sale or re-lease of $529 and $540 are not included in non-performing assets due to intercompany guarantees provided by Boeing.

 

(2)  

At June 30, 2011 and December 31, 2010, non-performing assets held for sale or re-lease of $4 and $28 had either a purchase or lease commitment.