Portfolio Quality

9 Months Ended

Sep. 30, 2011

Portfolio Quality [Abstract]

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 nine months ended September 30:

	2011			2010
Allowance for losses on receivables at beginning of period	$	87		$	71
Provision for (recovery of) losses		(20	)		11
Write-offs		(11	)		(1	)
Allowance for losses on receivables at end of period	$	56		$	81
Allowance as a percentage of total receivables		2.4	%		3.3	%
Allowance for losses on receivables collectively evaluated for impairment	$	56		$	81

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:

	September 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	$	121	$	–	$	121	$	–	$	–	$	–
BB		1,231		67		1,298		–		–		–
B		107		–		107		135		72		207
CCC		382		411		793		1,658		417		2,075
Total carrying value	$	1,841	$	478	$	2,319	$	1,793	$	489	$	2,282

At September 30, 2011, our allowance primarily related to receivables with ratings of BB and CCC in the preceding table, and we applied default rates that averaged 11% and 49% to exposure associated with those receivables. 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. AirTran Holdings, LLC (AirTran) became the successor to AirTran Holdings, Inc. We concluded that AirTran's subsidiary relationship with Southwest warranted an increased weighting in determining the internal rating category. As of September 30, 2011, we assigned the internal rating category of BB to the receivables with AirTran for the purpose of assigning default rates discussed above. We had previously assigned an internal rating category of CCC as of December 31, 2010, and CCC+ as of June 30, 2011. As a result of the improved rating, the allowance for losses on receivables was reduced by $13 and $16 for the three-month and nine-month periods ended September 30, 2011.

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

Impaired Receivables

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

For the nine months ended September 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 $117, $8 and $8, respectively.

Past Due Receivables

At September 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:

	September 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)		20			43	(2)
	$	34		$	72
Percent of total non-performing assets to total portfolio		0.8	%		1.5	%

⁽¹⁾  At September 30, 2011 and December 31, 2010, assets held for sale or re-lease of $521 and $540 are not included in non-performing assets due to intercompany guarantees provided by Boeing.

⁽²⁾  At December 31, 2010, non-performing assets held for sale or re-lease of $28 had either a purchase or lease commitment.