Note 3 – Portfolio Quality

Allowance for Losses on Receivables

The following table reconciles the activity in the allowance for losses on receivables for the three months ended March 31:


	2012			2011
Allowance for losses on receivables at beginning of period	$	53		$	87
Recovery of losses		(3	)		(6	)
Allowance for losses on receivables at end of period	$	50		$	81

Allowance as a percentage of total receivables		2.2	%		3.7	%
Allowance for losses on receivables collectively evaluated for impairment	$	50		$	81

Of the $322 of financing receivables individually evaluated for impairment at March 31, 2012, $182 was classified as impaired. We recorded no allowance for losses on these impaired receivables.

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:


	March 31, 2012						December 31, 2011
Rating categories	Out-of- Production Aircraft		In- Production Aircraft/Other		Total		Out-of- Production Aircraft		In- Production Aircraft/Other		Total
BBB	$	1,277	$	–	$	1,277	$	1,316	$	–	$	1,316
BB		–		60		60		–		67		67
B		61		–		61		103		–		103
CCC		227		307		534		194		318		512
D		171		151		322		171		179		350
Total carrying value	$	1,736	$	518	$	2,254	$	1,784	$	564	$	2,348

At March 31, 2012, our recorded allowance primarily related to receivables with rating of CCC in the preceding table, and we applied default rates that averaged 47% to exposure associated with those receivables.

At March 31, 2012 and December 31, 2011, receivables of $977 and $1,032 were related to customers we believe have less than investment-grade credit.

Impaired Receivables

At March 31, 2012 we had impaired receivables with a carrying value and unpaid principal balance of $182, all of which related to out-of-production aircraft on lease to American Airlines. At December 31, 2011 we had impaired receivables with a carrying value and unpaid principal balance of $182, all of which related to out-of-production aircraft. We recorded no allowance for losses on these impaired receivables.

In the fourth quarter of 2011, American Airlines filed for Chapter 11 bankruptcy protection. We believe that our receivables from American Airlines of $322 are sufficiently collateralized such that we have not recorded an allowance for losses as of March 31, 2012 as a result of the bankruptcy. Our receivables from American Airlines include leveraged leases with a carrying value of $127 net of $269 non-recourse debt at March 31, 2012.

The following table details our average recorded investment and the related income recognized in the period of impairment on the impaired receivables for the three months ended March 31:


2012	Average Carrying Value		Income Recognized
Out-of-production aircraft	$	182	$	–

At March 31, 2011, we had no impaired receivables.

Past Due Receivables

The aging analysis of receivables past due consisted of the following at:


March 31, 2012	31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days		Total Past Due > 30 Days		Related Carrying Value		Carrying Amount > 90 Days and Accruing
Out-of-production	$	2	$	–	$	2	$	4	$	54	$	–
Total	$	2	$	–	$	2	$	4	$	54	$	–


December 31, 2011
In-production/other aircraft	$	1	$	–	$	–	$	1	$	46	$	–
Total	$	1	$	–	$	–	$	1	$	46	$	–

Non-Performing Assets

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


	March 31, 2012			December 31, 2011
Assets placed on non-accrual status:
Receivables:
Out-of-production aircraft	$	171		$	171
Equipment under operating leases, net⁽¹⁾		9			14
Assets held for sale or re-lease, net ⁽¹⁾		120	⁽²⁾		50
	$	300		$	235

Percent of total non-performing assets to total portfolio		7.2	%		5.4	%

⁽¹⁾

At March 31, 2012 and December 31, 2011, equipment under operating leases of $57 and $23 are not included in non-performing assets due to intercompany guarantees provided by Boeing. At March 31, 2012 and December 31, 2011, assets held for sale or re-lease of $390 and $471 are not included in non-performing assets due to intercompany guarantees provided by Boeing.

⁽²⁾

At March 31, 2012, non-performing assets held for sale or re-lease of $12 had either a purchase or lease commitment.