Back to GetFilings.com

United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-K

ý Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        For the fiscal year ended December 31, 2003

OR

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        For the transition period from              to             

        Commission File Number 0-10795

BOEING CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

500 Naches Ave., SW, 3rd Floor • Renton, Washington 98055
(Address of principal executive offices)

(425) 393-2914
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $100 per share

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

        No common stock is held by non-affiliates of the registrant. Common stock shares outstanding at March 4, 2004: 50,000 shares

        Registrant meets the conditions set forth in General Instruction I(1)(a), (b) and (c) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

Table of Contents

*Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

2

Part I

Item 1. Business

GENERAL

        Boeing Capital Corporation (together with its subsidiaries, referred to as "us", "we", "our" or the "Company") is an indirect wholly owned subsidiary of The Boeing Company ("Boeing"). We were incorporated in Delaware in 1968. Our primary operations at December 31, 2003 included two principal financial reporting segments: Aircraft Financial Services and Commercial Financial Services. Our portfolio consists of financing leases, notes and other receivables, equipment under operating leases (net of accumulated depreciation), investments and equipment held for sale or re-lease (net of accumulated depreciation).

        In November 2003, we announced a significant change in our strategic direction, moving from a focus on growing the portfolio to a focus on supporting Boeing's major operating units and managing overall corporate exposures. For the commercial aircraft market, this means we will be facilitating, arranging and selectively providing financing to Boeing's Commercial Airplane customers. For our defense and space markets, this means we will be primarily engaged in arranging and structuring financing solutions for Boeing's Integrated Defense Systems government customers. This new strategic direction is likely to include the sale or wind-down of our Commercial Financial Services business or portfolio. In addition, we will be enhancing the risk management activities to reduce exposures associated with the current portfolio. In conjunction with this change in our strategic direction, our parent, Boeing, has realigned and reduced our Board of Directors to four members, which as of the filing date consists of our President, Walter E. Skowronski, and three Boeing officers, James A. Bell (our Chairman of the Board), Paul Kinscherff and James C. Johnson. We expect to satisfy any external funding needs through access to our traditional capital market funding sources.

        Historically, we competed in the commercial equipment leasing and finance markets, primarily in the United States, against a number of large-ticket competitors, mainly larger leasing companies and banks. Commercial Financial Services' portfolio encompasses multiple industries and a wide range of equipment, including corporate aircraft, machine tools and production equipment, containers and marine equipment, chemical, oil and gas equipment and other equipment types. Contract terms are generally between three and ten years, and current average transaction size is $12 million. At December 31, 2003, 18.4% of our portfolio was related to commercial equipment leasing and financing activities. On January 15, 2004, we announced that we have retained Credit Suisse First Boston, LLC to explore strategic options for the future of our Commercial Financial Services business. The options being examined include a sale of the operation itself, sale of the portfolio or a phased wind-down of the existing portfolio.

New Business Volume

        The following table shows the new business volume for each of our segments. New business volume excludes transfers from Boeing, unless new financing occurred in the year of transfer. The Other segment is comprised of Space and Defense Financial Services, which provides lease and loan financing and advisory services for military-related products and commercial space systems.

3

Portfolio Balances

        The following table shows the portfolio balances for each of our segments:

        The following table summarizes the net change in our total portfolio over the last three years:

⁽¹⁾

Excludes $360 million in 2001, which we accounted for as new business volume.

AIRCRAFT FINANCIAL SERVICES SEGMENT

        Aircraft Financial Services arranges or provides financing to facilitate the purchase or lease of new Boeing commercial aircraft. At December 31, 2003, Aircraft Financial Services represented 80.1% of our total portfolio.

Current Commercial Aircraft Market Conditions

        Commercial aviation has been impacted by an economic downturn that began in 2001 and has continued through 2003. In addition, the industry suffered a severe shock from the terrorist attacks of September 11, 2001. Air travel worldwide has not recovered to the level seen in 2000, which is negatively impacting profitability for many airlines. Overall, in 2003, the industry produced another year of losses led by full service airlines in the U.S. In contrast, certain low cost carriers in the U.S. and in Europe are reporting positive financial results and are growing. European network airlines are expected to show better results than their U.S. counterparts for the fiscal period ending in March 2004. Likewise, Asian airlines are expected to fare better overall than their U.S. counterparts since traffic to and from Asia has nearly rebounded to pre-Severe Acute Respiratory Syndrome ("SARS") levels.

        Our estimated timetable for industry recovery has been delayed. We presently see the recovery in air traffic that started in 2003 resulting in renewed demand for capacity in 2004. Overall, airlines are expected to report another year of losses in 2003 before producing a small profit in aggregate for 2004. The major uncertainty facing the industry is the impact of any additional unforeseen exogenous shocks similar to the 2003 SARS outbreak and the Iraq War. The industry could also face unexpected consequences of events that have already occurred, such as the terrorist attacks of September 11, 2001.

        Aircraft values and lease rates are also impacted by the number and type of aircraft that are parked and currently out of service. Slightly over 2000 aircraft (12% of world fleet) have been parked

4

for most of 2003, including in production aircraft types. In years prior to 2001, the parked fleet was approximately 4% to 6% of the world fleet, and was comprised mainly of out of production aircraft. Aircraft values and lease rates should improve as parked aircraft are returned to service.

        The downturn in the airline industry and the resulting decline in the fair values of aircraft and airline credit ratings, as well as additional bankruptcy filings by certain airline customers included in our portfolio, were primarily responsible for our recognition of non-cash charges in the first quarter of 2003 to strengthen the allowance for losses on receivables and recognize impairments on certain assets. Any additional impacts may be dependent upon the duration of the current economic and airline industry decline, or any significant defaults, repossessions or restructurings at a time when depressed aircraft values and lease rates make it difficult to sell or redeploy aircraft. Aircraft valuations could decline materially if significant numbers of aircraft, particularly types with relatively few operators, are idled on account of further airline bankruptcies or restructurings.

        Aircraft that we own or finance may become significantly less valuable due to the discontinuation of existing aircraft models or the introduction of new aircraft models that may be more economical to operate, the aging of particular aircraft or technological obsolescence. For a discussion of the B-757 and B-717 programs, see Item 7, "Business Environment and Trends."

        For a discussion of specific customers within our Aircraft Financial Services portfolio, see "Significant Customer Concentrations and Customer Restructurings."

Factors Affecting Aircraft Financial Services Volume

        At December 31, 2003, our Aircraft Financial Services segment had unfunded commercial aircraft commitments totaling $10 million. All of these commitments were utilized in early 2004.

        Additionally, Boeing and Boeing Capital Services Corporation (see "Relationship with Boeing and Boeing Capital Services Corporation") had unfunded commercial aircraft financing commitments at December 31, 2003 of $1.5 billion. Based on historical experience, we do not anticipate that we will fund all of these commitments. However, if we were required to fund all unfunded commitments:

•

up to $473 million may be funded in less than one year,



•

an additional $912 million may be funded in one to three years, and



•

an additional $100 million may be funded in four to five years.

        We expect to ultimately fund a portion of these unfunded commitments. The portion that we fund may require credit enhancements or other guarantee support from Boeing as necessary to allow us to meet our underwriting and investment criteria.

        We generally enter into agreements or commitments to purchase commercial aircraft only when such aircraft are subject to a signed lease contract or signed commitment letter from an airline.

5

        The following table lists information on new business volume by product type for our Aircraft Financial Services segment. New business volume excludes transfers from Boeing, unless new financing occurred in the year of transfer.

Aircraft Financial Services Portfolio

        Our Aircraft Financial Services portfolio consisted of the following aircraft types at December 31:

6

⁽¹⁾

Includes owned aircraft and aircraft collateralizing receivables, some of which are subordinated.

⁽²⁾

Out of production, but currently supported by Boeing with respect to parts and other services.

⁽³⁾

Some of these aircraft are out of production, but are supported by the manufacturer or other third party part and service providers.

⁽⁴⁾

Represents aircraft and equipment collateralizing enhanced equipment trust certificates ("EETCs"), equipment trust certificates ("ETCs") and other trust-related interests and other investments that we hold.

⁽⁵⁾

Investments are supported by asset pools secured by various commercial aircraft types.

⁽⁶⁾

Represents investments in mandatorily redeemable preferred stock, common stock and bonds.

7

        In addition to the aircraft in our Aircraft Financial Services portfolio, we had corporate aircraft in our Commercial Financial Services and Other portfolios of $947 million, $1.0 billion and $866 million at December 31, 2003, 2002 and 2001, respectively.

        At December 31, 2003, we owned 337 commercial aircraft and had partial ownership or security interest in an additional 222 commercial aircraft, including those owned in joint ventures, EETCs and other investment transactions.

        At December 31, 2003, $8.9 billion (95.6%) of our Aircraft Financial Services portfolio, excluding investments, was collateralized by Boeing products.

        At December 31, 2003, our Aircraft Financial Services portfolio (excluding investments) was comprised of the following aircraft vintages:

Aircraft Financial Services Portfolio by Product Type and Location

8

Aircraft Financial Services Guarantees

        At December 31, 2003, we were the beneficiary under $2.6 billion of guarantees, primarily issued by Boeing, with respect to our Aircraft Financial Services portfolio transactions totaling $4.3 billion. See "Relationship with Boeing and Boeing Capital Services Corporation" for further discussion. Any guarantee calls that we make would be net of realization of underlying residual values, partial rent payments, re-lease rental payments or other mitigating value received.

        The guarantees in our favor are either full or partial and include residual value guarantees, first loss deficiency guarantees and rental guarantees. Residual value guarantees provide a specified asset value at the end of a lease agreement in the event of a decline in market value of the financed aircraft. First loss deficiency guarantees cover a specified portion of our losses on aircraft that we finance in the event of a loss upon disposition of the aircraft following a default by the lessee. Rental guarantees are whole or partial guarantees covering us against the lessee's failure to pay rent under the lease agreement or our inability to re-lease these aircraft at or above a specified rent level.

        The following table summarizes our guarantees at December 31, 2003:

⁽¹⁾

Excludes guarantees made by entities affiliated with the primary obligor.

        Guarantee amounts by aircraft type at December 31, 2003 are summarized as follows:

        During the year ended December 31, 2003, we recognized income of $56 million under these guarantees, all of which were from Boeing.

Significant Customer Concentrations and Customer Restructurings

        A substantial portion of our total portfolio is concentrated among our Aircraft Financial Services customers. Four of our Aircraft Financial Services customers each accounted for more than 5.0% of our total Company portfolio at December 31, 2003. One of our customers accounted for more than 10% of our revenues for the year ended December 31, 2003.

9

        The following table includes the five largest Aircraft Financial Services customers at December 31, 2003, with their related portfolio balances at December 31, 2002: