##### Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2006



OR



| ̈ |  | 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)



|                                                               |  |  |  |                                     
|-------------------------------------------------------------- |  |  |  | ------------------------------------
|Delaware                                                       |  |  |  | 95-2564584                          
|(State or other jurisdiction of incorporation or organization) |  |  |  | (I.R.S. Employer Identification No.)
|                                                              
|500 Naches Ave. SW, 3rd Floor  Renton, Washington 98057      
|(Address of principal executive offices)                       |  |  |  | (Zip Code)                          



(425) 965-4000

---

(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 if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x



Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x



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 (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.    x



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act). (Check one):



Large accelerated filer     ̈    Accelerated filer     ̈    Non-accelerated filer    x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x



No common stock is held by non-affiliates of the registrant. Common stock shares outstanding at February 12, 2007: 50,000 shares



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



DOCUMENTS INCORPORATED BY REFERENCE: None



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Table of Contents



|         |  |            |  |                                                                                                                 |  |     
|-------- |  | ---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |            |  |                                                                                                                 |  | Page
|         |  |            | 
|Part I   |  |            |  |                                                                                                                 |  |     
|         |  |            | 
|         |  | Item 1.    |  | Business                                                                                                        |  | 1   
|         |  |            | 
|         |  | Item 1A.   |  | Risk Factors                                                                                                    |  | 3   
|         |  |            | 
|         |  | Item 1B.   |  | Unresolved Staff Comments                                                                                       |  | 5   
|         |  |            | 
|         |  | Item 2.    |  | Properties                                                                                                      |  | 5   
|         |  |            | 
|         |  | Item 3.    |  | Legal Proceedings                                                                                               |  | 5   
|         |  |            | 
|         |  | Item 4.    |  | Submission of Matters to a Vote of Security Holders *                                                           |  | 5   
|         |  |            | 
|Part II  |  |            |  |                                                                                                                 |  |     
|         |  |            | 
|         |  | Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 6   
|         |  |            | 
|         |  | Item 6.    |  | Selected Financial Data                                                                                         |  | 6   
|         |  |            | 
|         |  | Item 7.    |  | Managements Narrative Analysis of the Results of Operations                                                    |  | 7   
|         |  |            | 
|         |  | Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 14  
|         |  |            | 
|         |  | Item 8.    |  | Financial Statements and Supplementary Data                                                                     |  | 14  
|         |  |            | 
|         |  | Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 38  
|         |  |            | 
|         |  | Item 9A.   |  | Controls and Procedures                                                                                         |  | 38  
|         |  |            | 
|         |  | Item 9B.   |  | Other Information                                                                                               |  | 38  
|         |  |            | 
|Part III |  |            |  |                                                                                                                 |  |     
|         |  |            | 
|         |  | Item 10.   |  | Directors, Executive Officers and Corporate Governance *                                                        |  | 39  
|         |  |            | 
|         |  | Item 11.   |  | Executive Compensation *                                                                                        |  | 39  
|         |  |            | 
|         |  | Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters *                |  | 39  
|         |  |            | 
|         |  | Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence *                                     |  | 39  
|         |  |            | 
|         |  | Item 14.   |  | Principal Accounting Fees and Services                                                                          |  | 39  
|         |  |            | 
|Part IV  |  |            |  |                                                                                                                 |  |     
|         |  |            | 
|         |  | Item 15.   |  | Exhibits, Financial Statement Schedules                                                                         |  | 40  
|         |  |           
|         |  | Signatures |  | 42                                                                                                             

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



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PART I



Forward-Looking Information is
Subject to Risk and Uncertainty



Certain statements in this report
may constitute forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. Words such as expects, intends, plans, projects, believes,
estimates, and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.
Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result,
these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our actual results and future
trends may differ materially depending on a variety of factors, including:



| |  |  | general economic conditions, which includes changes in fuel prices and business trends, particularly those affecting the airline industry (including air traffic growth
rates, the impact of bankruptcies or restructurings on certain commercial airline customers, and changes in aircraft valuations);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the sufficiency of our liquidity, including access to capital markets;
| | - |  | ----------------------------------------------------------------------



| |  |  | the impact on us of strategic decisions by The Boeing Company (Boeing), including the amount of financing provided to support the sale of Boeing products, transactional or
other financial support made available to us by Boeing and the ending of production of certain aircraft programs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to meet our contractual obligations, including all outstanding financing commitments;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | reduced lease rates as a result of competition in the used aircraft market;
| | - |  | ---------------------------------------------------------------------------



| |  |  | financial, legal, tax, regulatory, legislative, accounting changes or actions that may affect the overall performance of our business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the adequacy of coverage of our allowance for losses on receivables;
| | - |  | --------------------------------------------------------------------



| |  |  | volatility in our earnings due to the timing of, or change in our intent regarding, asset sales, as well as fluctuations in our portfolio size; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other risk factors listed from time to time in our filings with the Securities and Exchange Commission (SEC).
| | - |  | -------------------------------------------------------------------------------------------------------------



This report includes important information as to these factors in Item 1.
Business, Item 1A. Risk Factors,and in the Notes to our Consolidated Financial Statements. Additional important information as to these factors is included in Item 7. Managements Narrative Analysis of the Results of
Operations.



Item 1. Business



GENERAL



Boeing Capital Corporation together with its subsidiaries (herein referred to as
us, we, our or the Company) is an indirect wholly owned subsidiary of The Boeing Company (Boeing). Boeing Capital Services Corporation (BCSC), an inactive holding company, owns 100% of our stock and is
an indirect wholly owned subsidiary of Boeing. The Company was incorporated in Delaware in 1968. In the commercial aircraft market, we facilitate, arrange, structure and provide selective financing solutions to Boeings Commercial Airplanes
segment customers. In the space and defense markets, we primarily arrange and structure financing solutions for Boeings Integrated Defense Systems segment customers.



At December 31, 2006, our portfolio consisted of finance leases, notes and other receivables, equipment under operating leases,
investments, and assets held for sale or re-lease. At December 31, 2006, our portfolio totaled $8.0 billion, which was substantially collateralized by Boeing commercial aircraft. At December 31, 2006, we owned 307 commercial aircraft, four
C-40 aircraft and had partial ownership or security interests in an additional 74 commercial aircraft, including those owned in Enhanced Equipment Trust Certificates and other financing structures.



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RISK MANAGEMENT



We monitor the potential volatility in the value of our portfolio and the amount of capital required to support our portfolio, using internally and externally
developed statistical models. In addition, we track and analyze our exposure to potential net income fluctuations, analyze and assess transactional support and guarantees, and have enhanced our processes to assess individual transaction values
considering factors such as forecasted aircraft values and potential credit rating migrations. This analysis allows us to structure transactions that are designed to achieve our targeted balance of risks and rewards.



RELATIONSHIP WITH BOEING



We have agreements with Boeing that are significant to our operation. These agreements provide for financial support and corporate
services, among other things. At December 31, 2006, Boeing provided us with various types of partial and full guarantees, including first loss deficiency guarantees, residual value guarantees and rental loss guarantees, with a maximum potential
value of $2.7 billion related to portfolio assets totaling $3.4 billion. For further discussion of these guarantees and agreements, see Item 8. Financial Statements and Supplementary Data, Note 3.



For a further description of significant factors that may affect Boeing, see
Boeings Annual Report on Form 10-K for the year ended December 31, 2006.



COMPETITIVE CONDITIONS



The Boeing products we finance
are influenced by conditions prevailing in the aerospace and financial markets, and in business generally. The financing solutions we develop are part of overall sales campaigns and can be integral to Boeing winning orders in the commercial aircraft
and space and defense markets. During campaigns we face competition from other aerospace and defense companies also offering in-house customer financing. Customers often require a financing commitment prior to ordering aircraft. Some third party
financiers are unwilling to offer financing when orders are made since there may be a delay of several years between order and delivery. Therefore, we may provide a financing commitment when products are ordered and subsequently assist our customers
in obtaining alternative financing from third parties.



When we sell or
remarket used aircraft, we compete with other leasing companies and financial institutions primarily on the basis of pricing, terms, structure and service. The prices at which we sell aircraft or rental rates at which we lease aircraft are impacted
by the demand for suitable aircraft and the quantity and type of aircraft that are available. For further discussion on the airline industry environment, see Item 7. Managements Narrative Analysis of the Results of Operations, Business
Environment and Trends.



SIGNIFICANT CONCENTRATIONS



For a discussion of our geographic and portfolio concentrations, see Item 8.
Financial Statements and Supplementary Data, Note 15.



EMPLOYEES



At December 31, 2006, we had 180 employees, compared with 186
at December 31, 2005. While we believe that our current level of employment is adequate to support our current and projected business operations over the next year, our actual employment levels may vary from our current levels due to changes in
the needs and requirements of our business operations. No employees are covered by collective bargaining agreements. We believe our employee relations are satisfactory. As of February 12, 2007, we had 175 employees.



AVAILABLE INFORMATION



General information about us can be found at www.boeing.com. The information contained on or connected to Boeings web site is
not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC. Our current Annual Report on Form 10-K and Quarterly Report on Form 10-Q are available free of
charge through Boeings website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Our SEC filings, including any amendments, and our Current Reports on Form 8-K may be obtained at the
SECs public reference room at 450 Fifth Street N.W., Washington, DC 20549. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330.



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The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information
regarding SEC issuers, including Boeing and Boeing Capital Corporation.



Item 1A. Risk Factors



An investment
in our debt securities involves risks and uncertainties and our actual results and future trends may differ materially from our past performance due to a variety of factors, including, without limitation, the following:



A substantial deterioration in the financial condition of the commercial airline
industry may adversely impact us.



The financial
condition of the airline industry is of particular importance to us because substantially all of our portfolio consists of lease and loan financing with commercial airline customers. If future events such as terrorist attacks, a serious health
epidemic, increasing global environmental concerns or increases in oil and jet fuel price levels were to occur, there could be a material adverse effect on the airline industry resulting in significant defaults by airline customers, repossessions of
aircraft or airline bankruptcies and restructurings. If this were to occur, aircraft values or lease rates could decline. These events could have a material adverse effect on our earnings, cash flows and/or financial position.



We may be unable to obtain debt to fund our operations and contractual commitments
at competitive rates, on commercially reasonable terms or in sufficient amounts.



We are dependent, in part, upon the issuance of debt to fund our operations and contractual commitments. If we were called upon to fund all outstanding financing commitments made by us and Boeing, our
market liquidity may not be sufficient. A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global
capital markets and a decline in Boeings or our own financial performance or outlook or debt ratings. The occurrence of any or all of these events may adversely affect our ability to fund our operations and contractual commitments or financing
commitments made by us or Boeing.



Our allowance for losses on
receivables may prove to be inadequate.



Our
allowance for losses on receivables is intended to cover anticipated probable losses on notes receivable and finance leases. Unexpected adverse changes in the economy or other events adversely affecting our customers, the airline industry as a
whole, or collateral values could cause us to make additional provisions. Such additional provisions could have a material adverse effect on our earnings and/or financial position.



We may be required to recognize asset impairment charges on equipment under operating leases.



Our portfolio of equipment under operating leases is subject to
periodic review for impairment. The cumulative undiscounted cash flows expected to result from the use and eventual disposition of these assets are currently greater than their carrying value. However, the fair value of certain of these assets, as
measured by the median values from six independent appraisal reports, is less than their carrying value. Expected cash flows could be adversely affected by factors including credit deterioration of a lessee, declines in future rental rates, and
environmental factors or by a change in our intention to hold or dispose of an asset before the end of its economic useful life. If the fair value of an asset is less than the carrying value and the revised expected cash flows reflect an adverse
change, recognition of impairment charges may result, which could have a material adverse effect on our earnings and/or financial position.



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We may be unable to maintain assets on lease at satisfactory lease rates.



Our profitability is largely dependent on our ability to maintain
assets on lease at satisfactory lease rates. A number of factors can adversely affect utilization and lease rates, including, but not limited to, an economic downturn causing reduced demand or oversupply in the markets in which the company operates,
and changes in customer preferences. For example, additional bankruptcies or restructurings of our current or potential customers could lead to reduced demand for leased aircraft and reduced lease rates. If aircraft lease rates fall or if a
significant number of our aircraft were to remain idle for an extended period, there could be a material adverse effect on our earnings, cash flows and/or financial position.



We face competition which could cause us to lower our lease rates and offer terms which may adversely affect our
financial results.



Our primary competitors include
the customer financing activities of other commercial aircraft, aerospace and defense companies offering in-house customer financing as well as other finance companies. Additionally, when selling or re-leasing used aircraft, we face competition from
other leasing companies and finance companies in the used aircraft market. We compete primarily based upon pricing, terms, structure, service and type of aircraft offered. Increased competition could have a material adverse effect on our earnings,
cash flows and/or financial position.



We are an indirect wholly owned
subsidiary and therefore subject to strategic decisions of Boeing.



We are an indirect wholly owned subsidiary of Boeing and therefore are subject to a wide range of possible strategic decisions which may be made from time to time by Boeing. Such strategic decisions could include the level and
types of financing provided to support the sale of Boeing products, transactional or other financial support made available to us by Boeing and the ending of certain aircraft programs. Significant changes in Boeings overall strategy or its
relationship with us could have a material adverse effect on us.



We
may experience volatility in our earnings due to a reduced asset base.



From time to time, we may sell portions of our portfolio, including notes, leases or investments. The timing of these sales could affect our earnings due to the resulting gains or losses. If assets are sold from our portfolio
or if normal portfolio runoff or prepayments from customers occur, we may experience decreases in our income if we do not replace assets which are sold, paid off at maturity or prepaid.



We operate in a highly regulated industry and changes in laws or regulations may adversely affect us.



Certain aspects of our business are subject to regulation and require
the oversight and regulation by state, federal and foreign governmental authorities. We are also subject to various laws and judicial and administrative decisions, mostly as a result of our activities as a lender and lessor, that restrict or
regulate (a) our credit granting and financing activities, (b) the establishment of maximum interest rates, (c) financing transactions we enter into, (d) our collection, foreclosure, repossession and claims-handling procedures
and other trade practices, (e) the use and reporting of information related to a borrowers or lessees credit experience and other data collection and (f) disclosure requirements. It may not be possible to forecast changes to
legislation, regulations (including, but not limited to, taxation and accounting), judicial and administrative decisions and orders or interpretations, and these changes could have a material adverse effect on our earnings, cash flows and/or
financial position.



Circumstances and conditions may change.
Accordingly, additional risks and uncertainties not presently known, or that we currently deem not material, may also adversely affect our business operations.



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Item 1B. Unresolved Staff Comments



Not applicable.



Item 2. Properties



Our corporate
headquarters is located in Renton, Washington, where we lease our main administrative and operational facility from a third party, with additional space leased in a building owned by Boeing.



We also have offices in greater Los Angeles, California; Stockholm, Sweden; Hong Kong,
China; London, England; and Moscow, Russia.



We believe that our
properties are suitable and adequate to meet the requirements of our business.



Item 3. Legal Proceedings



Various
legal proceedings and claims are pending or have been asserted against us. We believe that the final outcome of these proceedings and claims will not have a material adverse effect on our earnings, cash flows and/or financial position.



Item 4. Submission of Matters to a Vote of Security Holders



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



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PART II



Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities



We are an indirect wholly owned subsidiary of The Boeing Company (Boeing), and accordingly, there is no public trading market for our common stock. In 2006 and
2005, we declared and paid cash dividends (including return of capital) totaling $344 million and $338 million to Boeing Capital Services Corporation (BCSC), which were ultimately paid as dividends to Boeing.



We have a covenant in our debt agreements which requires us to limit the payment of
cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments. At December 31, 2006, as well as during the year, we were in compliance with
this covenant.



Item 6. Selected Financial Data (Unaudited)



The selected consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements and with Item 7. Managements Narrative Analysis of the Results of Operations.



|                                                       |  |                          |       |      |   |       |  |      |        |      |   |        |  |   |       
|------------------------------------------------------ |  | ------------------------ | ----- | ---- | - | ----- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                       |  | Years Ended December 31,
|(Dollars in millions)                                  |  | 2006                     |       | 2005 |   | 2004  |  | 2003 |        | 2002
|New business volume(1)                                 |  | $                        | 250   |      | $ | 601   |  | $    | 606    |      | $ | 1,711  |  | $ | 2,820 
|                                                       |  |                          |       |      |  
|Statement of operations data:                          |  |                          |       |      |   |       |  |      |        |      |   |        |  |   |       
|Revenue                                                |  | $                        | 1,025 |      | $ | 966   |  | $    | 959    |      | $ | 991    |  | $ | 764   
|Income from continuing operations                      |  | $                        | 185   |      | $ | 146   |  | $    | 121    |      | $ | 73     |  | $ | 26    
|                                                       |  |                          |       |      |  
|Dividends paid to Boeing (including return of capital) |  | $                        | 344   |      | $ | 338   |  | $    | 705    |      | $ |       |  | $ | 2     
|Capital contributions from Boeing(2)                   |  | $                        | 9     |      | $ | 17    |  | $    | 9      |      | $ | 173    |  | $ | 286   
|                                                       |  |                          |       |      |  
|Balance sheet data:                                    |  |                          |       |      |   |       |  |      |        |      |   |        |  |   |       
|Cash and cash equivalents                              |  | $                        | 589   |      | $ | 297   |  | $    | 642    |      | $ | 716    |  | $ | 686   
|                                                       |  |                          |       |      |  
|Portfolio(3)                                           |  | $                        | 8,034 |      | $ | 9,206 |  | $    | 9,680  |      | $ | 10,118 |  | $ | 9,341 
|                                                       |  |                          |       |      |  
|Total assets                                           |  | $                        | 8,584 |      | $ | 9,544 |  | $    | 10,320 |      | $ | 12,836 |  | $ | 12,563
|Total debt                                             |  | $                        | 5,590 |      | $ | 6,322 |  | $    | 7,024  |      | $ | 9,177  |  | $ | 9,465 
|                                                       |  |                          |       |      |  
|Debt to equity ratio                                   |  |                          | 5.0   |      |   | 5.0   |  |      | 5.0    |      |   | 4.7    |  |   | 5.7   
|Ratio of earnings to fixed charges(4)                  |  |                          | 1.8   |      |   | 1.6   |  |      | 1.5    |      |   | 1.3    |  |   | 1.1   



|(1) |  | New business volume equals funded transactions that have been recorded as notes, leases or investments
excluding transfers from Boeing.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Capital contributions include cash and non-cash contributions from Boeing and BCSC.
|--- |  | -----------------------------------------------------------------------------------



|(3) |  | Portfolio consists of finance leases, notes and other receivables, equipment under operating leases,
investments and assets held for sale or re-lease (excluding allowance).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | For the purpose of computing the ratio of earnings to fixed charges, earnings consists of income from
continuing operations before provision for income tax and fixed charges; and fixed charges consists of interest and preferred stock dividend requirement.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7. Managements Narrative Analysis of the Results of Operations



The following should be read in conjunction with our Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.



Business Environment and Trends



Air travel growth is driven by a combination of economic growth and the increasing propensity to travel due to increased trade,
globalization and improved airline services driven by liberalization of air traffic rights between countries. Air traffic growth continues to exceed its long-term trend due to strong performance of these key drivers. Global economic growth, the
primary driver of air traffic growth, remained above the long-term trend for the third straight year in 2006. Evidence of increasing liberalization can be seen in the declining restrictions on flights between countries, increasing private ownership
of airlines and reduced regulation of competition within markets.



The
airline industry is becoming increasingly competitive resulting in airlines focusing on increasing productivity and improving service levels. Airlines are changing many aspects of their operations, including simplifying fleets, distribution, and
pricing; outsourcing non-essential operations; reducing labor costs and airport costs; increasing asset utilization; and developing new business models through innovations in network structure, fare structures, service levels and distribution
networks. Such changes are providing new opportunities for airline industry suppliers.



Worldwide, many airlines continue reporting operating profits although performance varies significantly by region and business model. Recent industry financials generally show increasing unit revenues and rising fares.
Cost-cutting initiatives and efficiency improvements are helping many airlines remain profitable despite intense competition and high fuel prices. Fuel costs now comprise one quarter of airline operating costs compared with less than 15% three years
ago. Overall, the industry is forecast to lose half a billion dollars in 2006, but return to profitability in 2007. Many airlines that are growing to meet increased demand are acquiring new capacity from manufacturers.



The industry remains vulnerable to near-term exogenous developments including disease
outbreaks (such as avian flu), terrorism, global economic imbalances, increasing global environmental concerns and fuel prices. Fuel prices are forecast to remain elevated and volatile in the near-term due to strong demand driven by economic growth
and minimal surplus capacity to cushion against supply shocks.



While
worldwide traffic levels are well above those in the past, the effects of higher fuel prices continue to impact the airline industry. At the same time, the credit ratings of some airlines, particularly in the United States, have remained at low
levels. Despite positive factors including passenger load factors at record high levels, a limited supply of economically viable used aircraft, and increasing lease rates, values as measured by reference to published reports from multiple external
appraisers for the various aircraft types that are collateral in our portfolio generally have not increased. A substantial portion of our portfolio is concentrated among U.S. commercial airline customers. Certain of our customers have filed for
bankruptcy protection or requested lease or loan restructurings. Restructure negotiations were in various stages at December 31, 2006.



Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of service. Approximately 1,850 commercial jet aircraft (9.9%
of current world fleet) continue to be parked, including both in production and out-of-production aircraft types of which over 50% are not expected to return to service. Aircraft valuations could decline if significant numbers of aircraft,
particularly types with relatively few operators, are placed out of service.



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##### Table of Contents

Overview



During 2006, we continued to focus on supporting Boeings major businesses and managing our overall financial exposures.



Our portfolio at December 31, 2006 decreased to $8.0 billion from $9.2 billion at
December 31, 2005. The following table summarizes the net change in our total portfolio for the years ended December 31:



|                                                |  |      |        |      |      |   |      |  
|----------------------------------------------- |  | ---- | ------ | ---- | ---- | - | ---- | -
|(Dollars in millions)                           |  | 2006 |        |      | 2005 |  
|New business volume                             |  | $    | 250    |      |      | $ | 601  |  
|Charge-off due to customer restructuring        |  |      | (9     | )    |      |   | (200 | )
|Transfer of assets from discontinued operations |  |      |       |      |      |   | 67   |  
|Transfer of assets                              |  |      | 43     |      |      |   |     |  
|Asset impairment                                |  |      | (53    | )    |      |   | (89  | )
|Asset run off                                   |  |      | (632   | )(1) |      |   | (382 | )
|Asset dispositions                              |  |      | (531   | )    |      |   | (228 | )
|Depreciation and amortization expense           |  |      | (240   | )    |      |   | (243 | )
|Net change in portfolio balance                 |  | $    | (1,172 | )    |      | $ | (474 | )
|                                                | 



|(1) |  | Asset run off includes $96 million, net of amortization, associated with future unearned finance lease income
and a partial settlement of guarantees with Boeing.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



At
December 31, 2006 and 2005, we had $259 million and $47 million of assets that were held for sale or re-lease, of which $253 million and $6 million had firm contracts to be sold or placed on lease. Additionally, leases with a carrying value of
approximately $144 million are scheduled to terminate in the next 12 months and the related aircraft are being remarketed or the leases are being extended.



Our net income was $194 million for 2006 compared with $139 million for 2005. For the years ended December 31, 2006 and 2005 our return on average assets
calculated on net income from continuing operations was 2.1% and 1.5%. The increase in our net income and return on average assets in 2006 compared with 2005 was primarily due to an increase in investment income, an increase in net gain on disposal
of assets, lower other expenses and lower operating expenses. Additionally, our 2006 net income was impacted by a reduction in reserve recorded as a gain on disposal of our Commercial Financial Services (CFS) business which was sold to General
Electric Capital Corporation (GECC) in 2004.



Consolidated Results of Operations



The following table presents our consolidated results of operations for the years
ended December 31:



|                                                                   |  |      |       |   |      |   |     |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | --- | -
|(Dollars in millions)                                              |  | 2006 |       |   | 2005 |  
|Revenue                                                            |  | $    | 1,025 |   |      | $ | 966 |  
|Expenses                                                           |  |      | 721   |   |      |   | 736 |  
|Minority interest income (expense)                                 |  |      | (13   | ) |      |   | 2   |  
|Income from continuing operations before provision for income tax  |  |      | 291   |   |      |   | 232 |  
|Provision for income tax                                           |  |      | 106   |   |      |   | 86  |  
|Income from continuing operations                                  |  |      | 185   |   |      |   | 146 |  
|Net gain (loss) on disposal of discontinued operations, net of tax |  |      | 9     |   |      |   | (7  | )
|Net Income                                                         |  | $    | 194   |   |      | $ | 139 |  
|                                                                   | 



8



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##### Table of Contents

Revenue



Revenue consists primarily of interest from finance lease receivables and notes, and lease income from equipment under operating leases. Revenue increased $59
million in 2006, an increase of 6% compared with 2005.



Revenue increased
primarily due to an increase in investment income of $40 million and a higher net gain on disposal of assets of $23 million in 2006. During 2006, we had an increase in investment income primarily due to $54 million of income on sale or repayment at
maturity of certain investments which had been previously written down and accounted for on a cost recovery method. During 2006, we had a decrease in investment income of $9 million due to placing certain of our investments on non-accrual status
from September 2005 through September 2006. The net gain on disposal of assets for 2006 was primarily due to the sale of 17 aircraft and the sale of certain investments in notes receivable. The net gain on disposal in 2005 was primarily due to a
gain on sale of four aircraft.



Finance lease income was $190 million in
2006 and 2005. In 2006, we had an increase in finance lease income due to an increase in finance lease rates which was offset by a decrease in the weighted average balance of finance leases as a result of normal run-off and a partial settlement of a
guarantee with Boeing which was recorded as a reduction in the carrying value of various finance leases.



Interest income on notes receivable was $181 million in 2006, an increase of 2% compared with 2005 primarily due to an increase in the underlying weighted average effective interest rate on our variable
rate notes receivable to 9.5% from 8.1%. Due to sales during the year, we had a decrease in the weighted average balance of our notes receivable portfolio.



Operating lease income was $498 million in 2006, a decrease of 1% compared with 2005 primarily due to a decrease in the weighted average balance of equipment under
operating leases due to the sale of certain aircraft during 2006.



Expenses



Expenses consist primarily of interest expense, depreciation
expense, provision for (recovery of) losses, operating expenses, asset impairment expense, and other expense. Expenses decreased $15 million, a decrease of 2% compared with 2005.



Interest expense was $353 million, a decrease of 2% compared with 2005 primarily due to a decrease in the balance of debt outstanding,
which was partially offset by an increase in the weighted average annual effective interest rate incurred on all borrowings to 5.9% in 2006 from 5.3% in 2005.



The provision for losses in 2006 was $8 million compared with a recovery of losses in 2005 of $25 million. During 2006 and 2005, we recorded a provision to
adjust the allowance for losses on loan and finance lease receivables to a level we deemed adequate to cover probable losses. Additionally, in 2005, we had a net recovery through the provision for losses primarily due to the emergence of one of our
customers from bankruptcy. See Item 1A.Risk Factors.



Operating expenses were $60 million in 2006, a decrease of 17% compared with 2005 primarily due to an $8 million decrease in share-based plans expense.



Asset impairment expense was $53 million in 2006, a decrease of 10% compared with 2005. In 2006, we wrote down the carrying value of certain aircraft by $31
million based on their reduced projected cash flows resulting from a change in our intention from holding the assets to the end of their economic useful lives to disposing of the assets before the end of their economic useful life. We also reduced
the carrying value of a CFS asset, which was not subject to the purchase and sale agreement with GECC, by $4 million which we subsequently sold. In 2005, we reduced the carrying value of certain of our investments due to an other-than-temporary
impairment of $26 million. In addition, in 2005 we reduced the carrying value of a CFS asset, which was not subject to the purchase and sale agreement with GECC, by $20 million and reduced the carrying value of certain leased and held for sale or
re-lease aircraft by $13 million due to a reduction in their projected cash flows. See Item 1A.Risk Factors.



9



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##### Table of Contents

Other expense was $6 million in 2006, a decrease of 78% compared with 2005, primarily due to lower aircraft
delivery, maintenance and modification expense.



Minority interest
expense was $13 million in 2006, an increase of $15 million compared with minority interest income in 2005 of $2 million, primarily due to our joint venture partners share of the gain on sale of certain aircraft held in a joint venture.



Provision for income tax was $106 million in 2006, an increase of 23%
compared with 2005, primarily due to an increase in pre-tax income, partially decreased by a nonrecurring tax settlement with Boeing under our intercompany tax sharing arrangement and a decrease in the effective state income tax rate.



Gain on disposal of discontinued operations, net of tax, was $9 million in 2006
compared with a loss on disposal of discontinued operations, net of tax of $7 million in 2005. In 2006, we reduced our reserve by $9 million, net of tax due to a reduction in our expected losses under our loss sharing agreement with GECC related to
the sale of certain assets of our CFS business in 2004. In 2005, the net loss on disposal of discontinued operations was due to a net increase in reserves of $10 million offset by a net gain of $3 million on the sale of certain assets of our CFS
business.



Liquidity and Capital Resources



Our total cash and cash equivalents were $589 million at December 31, 2006, an
increase from $297 million at December 31, 2005. The following is a summary of the change in our cash and cash equivalents at December 31:



|                                                     |  |      |        |   |      |   |      |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- | - | ---- | -
|(Dollars in millions)                                |  | 2006 |        |   | 2005 |  
|Net cash provided by operating activities            |  | $    | 362    |   |      | $ | 709  |  
|Net cash provided by (used in) investing activities  |  |      | 1,007  |   |      |   | (111 | )
|Net cash used in financing activities                |  |      | (1,077 | ) |      |   | (943 | )
|Net increase (decrease) in cash and cash equivalents |  | $    | 292    |   |      | $ | (345 | )
|                                                     | 



Operating activities



During 2006, net cash provided by operating activities included net income from
operations of $194 million. We had adjustments and non-cash items of $271 million, which primarily related to depreciation and asset impairment expense, partially offset by realized income from the sale or repayment at maturity of investments and
gain on disposal of assets. We also had a decrease in our net operating assets and liabilities of $111 million primarily resulting from $90 million for income taxes.



During 2005, net cash provided by operating activities included net income from operations of $139 million. We had adjustments and
non-cash items of $322 million, which primarily related to depreciation, asset impairment expense and deferred income taxes. We also had an increase in our net operating assets and liabilities of $235 million, which included $154 million for
guarantee and subsidy settlements with Boeing, $9 million for unearned lease income from Boeing and $39 million for income taxes.



Investing activities



During 2006, net cash provided by investing activities included $217 million primarily from the sale or scheduled repayment of certain of our investments, $297 million from the sale of certain notes
receivable and $279 million for the sale of certain aircraft. Net cash provided by investing activities also included $96 million from Boeing associated with future unearned finance lease income and a partial settlement of a guarantee on 24 717
aircraft. The amount recorded as unearned income will be recognized ratably over the remaining terms of the related finance leases.



During 2005, net cash used in investing activities included $178 million for the purchase of a participation in an investment and certain other rights.



10



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##### Table of Contents

Financing activities



During 2006 and 2005, we made debt repayments of $713 million and $605 million and paid cash dividends (including return of capital) to Boeing of $344 million and
$338 million.



Outstanding debt at December 31, 2006 and
December 31, 2005 was $5.6 billion and $6.3 billion. During 2006 and 2005, we did not issue any new debt and had no commercial paper borrowings outstanding. Our leverage (ratio of debt to equity) at December 31, 2006 and 2005 was 5.0-to-1.



We have liquidity requirements, primarily to fund financing commitments,
meet debt obligations and fund our operating expenses. We plan to satisfy these liquidity needs from the following sources:



| |  |  | cash from operations and other receipts from our portfolio,
| | - |  | -----------------------------------------------------------

| |  |  | issuance of commercial paper and other debt,
| | - |  | --------------------------------------------

| |  |  | asset sales and securitization, and
| | - |  | -----------------------------------

| |  |  | funding from Boeing.
| | - |  | --------------------



We believe our internally generated liquidity, together with access to external capital resources or funding from Boeing, will be sufficient to satisfy existing commitments and plans, and also provide
adequate financial flexibility to meet potential business funding requirements as they arise in the future. If this does not prove to be correct, we would be required to access other forms of liquidity, sell assets and/or limit new business volume.



We believe we have adequate borrowing capacity. We have $1.5 billion
available under Boeings committed revolving credit line agreements that serve as back-up liquidity for the issuance of commercial paper and general corporate purposes. We have a Support Agreement with Boeing that includes a liquidity
maintenance provision. Under this provision, Boeing has committed to make contributions to us if our fixed-charge coverage ratio, as defined in the Support Agreement, falls below 1.05-to-1 on a four-quarter rolling basis.



Risks that could affect our sources of liquidity include among others:



| |  |  | a severe or prolonged downturn in the economy,
| | - |  | ----------------------------------------------

| |  |  | significant restructurings, defaults or bankruptcies by airlines,
| | - |  | -----------------------------------------------------------------

| |  |  | disruptions or declines in the global capital markets, and
| | - |  | ----------------------------------------------------------

| |  |  | a decrease in our and/or Boeings credit ratings and/or financial performance.
| | - |  | ------------------------------------------------------------------------------



For a discussion of our liquidity and debt programs, see Item 8. Financial Statements and Supplementary Data, Note 9.



We continually assess our leverage, as measured by our debt to equity
ratio, in light of the risks in our business. These risks include, among others, the exposure to our portfolio from unfavorable market conditions affecting our customers or our ability to access the global capital markets.



The most restrictive covenants in our debt agreements require us to (a) limit the
payment of cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on our property to secure
indebtedness to 15% or less of consolidated assets, other than liens specifically excluded. At December 31, 2006, as well as during the year, we were in compliance with these covenants.



Credit Ratings



Our access to capital at rates that allow for a reasonable return on new business can be affected by ratings of our debt by credit
rating agencies. As a wholly owned finance company, our credit ratings are closely tied to those of Boeing due to the Support Agreement entered into between Boeing and us in December 2003 and transactional support and guarantees. Our ratings and
spreads could be impacted positively or negatively by changing perceptions of Boeing, the airline industry, the defense industry or of Boeings competitive positions in them. It is possible that these changes could affect our access to the
capital markets. We believe our access to the capital markets is adequate.



11



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##### Table of Contents

We have the following credit ratings as of the filing date of this report:



|           |  |                   |  |                          |  |              
|---------- |  | ----------------- |  | ------------------------ |  | -------------
|Debt       |  | Standard & Poors |  | Moodys InvestorsService |  | Fitch Ratings
|Short-term |  | A-1               |  | P-1                      |  | F-1          
|Senior     |  | A+                |  | A2                       |  | A+           



On March 15, 2006,
Moodys Investors Service upgraded its ratings on debt securities issued by Boeing and us. The short-term rating was changed to P-1 from P-2 and the senior rating was changed to A2 from A3.



On November 3, 2006, Standard & Poors upgraded its senior ratings
on debt securities issued by Boeing and us to A+ from A.



Off-Balance Sheet
Arrangements



We are a party to off-balance sheet arrangements as
defined by the Securities and Exchange Commission (SEC), including guarantor obligations and variable interests in unconsolidated entities. For discussion of these arrangements, see Item 8. Financial Statements and Supplementary Data, Note
13.



Disclosures About Contractual Obligations and Commercial Commitments



The following table summarizes our contractual obligations to make
future payments, as well as an estimate of the timing in which we expect to satisfy these obligations at December 31, 2006:



Contractual Obligations



|                             |  |       |       |                        |   |           |  |           |       |                   |   |       |  |   |      
|---------------------------- |  | ----- | ----- | ---------------------- | - | --------- |  | --------- | ----- | ----------------- | - | ----- |  | - | -----
|                             |  |       |       | Payments due by period
|(Dollars in millions)        |  | Total |       | Less Than1 Year        |   | 13 Years |  | 45 Years |       | More Than 5 Years
|Debt(1)                      |  | $     | 5,464 |                        | $ | 1,261     |  | $         | 1,213 |                   | $ | 1,425 |  | $ | 1,565
|Capital lease obligations(1) |  |       | 134   |                        |   | 47        |  |           | 25    |                   |   | 19    |  |   | 43   
|Interest(2)                  |  |       | 1,196 |                        |   | 302       |  |           | 482   |                   |   | 304   |  |   | 108  
|Operating lease obligations  |  |       | 1     |                        |   | 1         |  |           |      |                   |   |      |  |   |     
|Purchase Obligations(3)      |  |       | 103   |                        |   | 66        |  |           | 37    |                   |   |      |  |   |     
|                             |  | $     | 6,898 |                        | $ | 1,677     |  | $         | 1,757 |                   | $ | 1,748 |  | $ | 1,716
|                            



|(1) |  | Debt and Capital lease obligations reflect principal payments.
|--- |  | --------------------------------------------------------------



|(2) |  | Interest includes the effect of our interest rate swaps. We have assumed LIBOR forward rates at
December 31, 2006 on floating rate debt.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Purchase obligations due less than 1 year includes $26 million which is covered by our guarantees from Boeing.
|--- |  | --------------------------------------------------------------------------------------------------------------



We expect to meet our current obligations through
internally generated cash flows (which include scheduled receipts from our portfolio and sales of portfolio assets) and from future borrowings, including borrowings from Boeing.



12



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##### Table of Contents

The following table summarizes our commercial commitments outstanding as well as an estimate of the timing in which
we expect these commitments to mature at December 31, 2006:



Commercial
Commitments



|                         |  |       |     |                        |   |           |  |           |     |                   |   |    |  |   |  
|------------------------ |  | ----- | --- | ---------------------- | - | --------- |  | --------- | --- | ----------------- | - | -- |  | - | -
|                         |  |       |     | Payments due by period
|(Dollars in millions)    |  | Total |     | Less Than1 Year        |   | 13 Years |  | 45 Years |     | More Than 5 Years
|Guarantor obligations(1) |  | $     | 82  |                        | $ |          |  | $         | 54  |                   | $ | 21 |  | $ | 7
|Financing commitments(2) |  |       | 550 |                        |   | 250       |  |           | 250 |                   |   | 50 |  |   | 
|                         |  | $     | 632 |                        | $ | 250       |  | $         | 304 |                   | $ | 71 |  | $ | 7
|                        

|(1) |  | Primarily consists of residual value and credit and deficiency guarantees provided by us. For a discussion of
our guarantor obligations, see Item 8. Financial Statements and Supplementary Data, Note 13.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Represents commitments to provide leasing and other financing based on estimated earliest funding dates.
|--- |  | --------------------------------------------------------------------------------------------------------



In addition to our financing commitments of $550
million, at December 31, 2006, Boeing had unfunded commercial aircraft financing commitments of $9.6 billion, consisting of both firm and contingent contracts. These commitments are provided to give Boeing customers reasonable assurance of
financing in connection with orders of Boeing products in advance of delivery. However, customers typically seek lower cost financing from other sources prior to actual delivery. In addition, we continue to work with third party financiers to
provide alternative financing to customers and eliminate the need for our financing. Based on historical experience and anticipated capital market acceptance of Boeing aircraft covered by Boeings and our current commitments, we anticipate that
a significant portion of these commitments will not be exercised by the customer or will expire without being fully drawn upon. To the extent we are obligated to provide financing, such financing generally includes participation by engine
manufacturers which further reduces our obligation. Therefore, the reported amount of commitments does not necessarily represent a future net cash requirement. However, we expect to ultimately provide funding for those commitments which are
exercised, whether they are Boeing or our commitments. If there were requirements to fund all Boeing commitments totaling $9.6 billion, the timing in which these commitments may be funded (based on estimated earliest funding dates) is as follows:



| |  |  | up to $1.2 billion in less than one year,
| | - |  | -----------------------------------------

| |  |  | an additional $5.3 billion in one to three years,
| | - |  | -------------------------------------------------

| |  |  | an additional $3.0 billion in four to five years and
| | - |  | ----------------------------------------------------

| |  |  | an additional $0.1 billion after five years.
| | - |  | --------------------------------------------



Critical Accounting Estimates



For the discussion on our accounting policies, see Item 8. Financial Statements and Supplementary Data, Note 1 in our Consolidated Financial Statements. The more critical of these policies are
described in the following paragraphs.



Impairment Review for Equipment Under
Operating Leases and Held for Sale or Re-lease



We evaluate
equipment under operating lease or assets held for sale or re-lease for impairment when the expected undiscounted cash flow over the remaining period during which we intend to continue ownership is less than the carrying value. We use various
assumptions when determining the expected undiscounted cash flow including our intention to hold or dispose of an asset before the end of its economic useful life, the expected future lease rates, lease terms, residual value of the aircraft or
equipment, periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the remaining economic life of the asset.



When we determine that impairment is indicated for an asset, the amount of the asset impairment expense recorded is the excess of the
carrying value less residual value guarantees, if applicable, over the fair value of the asset.



13



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##### Table of Contents

Had future lease rates on these assets we evaluate for impairment been 10% lower, we estimate that no additional
impairment expense would have been recognized at December 31, 2006. We are unable to predict the likelihood of any future impairment.



Allowance for Losses on Receivables



The allowance for losses on receivables is a valuation account used to provide for potential impairment of receivables in our portfolio. The balance represents an estimate of reasonably possible and
probable but unconfirmed losses in the receivables portfolio. The estimate is based on many qualitative and quantitative factors, including historical loss experience, collateral values, intercompany guarantees and results of individual credit
reviews. Factors considered in assessing collectibility include, but are not limited to, a customers extended delinquency, requests for restructuring and filings for bankruptcy. The adequacy of the allowance is assessed quarterly. There can be
no assurance that actual results will not differ from estimates or that the consideration of these factors in the future will not result in an increase or decrease to the allowance for losses on receivables. In recognition of the uncertainty of the
ultimate loss experience and relatively long duration of the portfolio, a range of reasonably possible outcomes of the portfolios credit-adjusted collateral exposure is calculated by varying the applicable cumulative default rate by
approximately plus and minus 15%, excluding impaired customers for which the cumulative default rate is maintained at 100%. The resulting range of allowance necessary to cover credit-adjusted collateral exposure at December 31, 2006, was
approximately $90 million to $112 million.



Lease Residual Values



Equipment under operating leases is carried at cost less accumulated depreciation and
is depreciated to estimated residual value using the straight-line method over the lease term or projected economic life of the asset. Estimates used in determining residual values significantly impact the amount and timing of depreciation expense
for equipment under operating leases. For example, a change in the estimated residual values of 1% at December 31, 2006, could result in a cumulative pre-tax earnings impact of $20 million to be recognized over time.



Standards Issued and Not Yet Implemented



See Item 8. Financial Statements and Supplementary Data, Note 2.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk



A key function of a finance company is to manage market risk. One of our principal sources of market risk relates to interest rate changes. This risk is managed by matching the profile of our liabilities
with the profile of our assets. Any exposure to mismatch risk is measured and managed with the use of interest rate derivatives. We do not use interest rate derivatives for speculative or trading purposes. In addition, we may from time to time be
exposed to foreign exchange risk in which case we may use currency derivatives to manage that risk.



Every quarter we use duration-based measures and analysis to estimate the impact of changes in interest rates. Potential changes in the net fair value of assets, liabilities and derivatives are calculated
based on the amount and timing of projected cash flows. It is important to note that these measures and sensitivity analysis are estimates and tools that depend on the assumptions and parameters used in the related models. These models must be
complemented by the experience and judgment of management.



Although many
of the assets, liabilities and derivatives affected by a change in interest rates are not traded, if we had an immediate, one-time, 100 basis-point increase in market interest rates at December 31, 2006, we estimated that the tax-adjusted net
fair value of these items would have decreased by $9 million compared with a decrease of $15 million at December 31, 2005.



Item 8. Financial Statements and Supplementary Data



The following pages include our Consolidated Financial Statements as described in Item 14 (a)1 and (a)2 of Part IV herein.



14



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholder of

Boeing Capital Corporation

Renton, Washington



We have audited the accompanying consolidated balance sheets of Boeing Capital
Corporation and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders equity and comprehensive income, and cash flows for each of the three years in
the period ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.



In our opinion,
such consolidated financial statements present fairly, in all material respects, the financial position of Boeing Capital Corporation and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.



/s/ DELOITTE & TOUCHE LLP



Seattle, Washington

February 15, 2007



15



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##### Table of Contents

Boeing Capital Corporation and Subsidiaries



Consolidated Balance Sheets



|                                                                                                |  |              |       |   |      |   |       |  
|----------------------------------------------------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                                                                |  | December 31, |      
|(Dollars in millions, except par value)                                                         |  | 2006         |       |   | 2005 |  
|ASSETS                                                                                          |  |              |       |   |      |   |       |  
|Cash and cash equivalents                                                                       |  | $            | 589   |   |      | $ | 297   |  
|Receivables:                                                                                    |  |              |       |   |      |   |       |  
|Finance leases                                                                                  |  |              | 2,591 |   |      |   | 2,768 |  
|Notes and other                                                                                 |  |              | 1,679 |   |      |   | 2,181 |  
|                                                                                                |  |              | 4,270 |   |      |   | 4,949 |  
|Allowance for losses on receivables                                                             |  |              | (102  | ) |      |   | (101  | )
|                                                                                                |  |              | 4,168 |   |      |   | 4,848 |  
|Equipment under operating leases, net                                                           |  |              | 3,352 |   |      |   | 3,940 |  
|Investments                                                                                     |  |              | 153   |   |      |   | 270   |  
|Assets held for sale or re-lease, net                                                           |  |              | 259   |   |      |   | 47    |  
|Other assets                                                                                    |  |              | 63    |   |      |   | 142   |  
|                                                                                                |  | $            | 8,584 |   |      | $ | 9,544 |  
|                                                                                                | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                            |  |              |       |   |      |   |       |  
|Liabilities:                                                                                    |  |              |       |   |      |   |       |  
|Accounts payable and accrued expenses                                                           |  | $            | 122   |   |      | $ | 156   |  
|Other liabilities                                                                               |  |              | 372   |   |      |   | 384   |  
|Accounts with Boeing                                                                            |  |              | 31    |   |      |   | 147   |  
|Deferred income taxes                                                                           |  |              | 1,356 |   |      |   | 1,274 |  
|Debt                                                                                            |  |              | 5,590 |   |      |   | 6,322 |  
|                                                                                                |  |              | 7,471 |   |      |   | 8,283 |  
|Minority interest                                                                               |  |              |      |   |      |   | 5     |  
|Shareholders equity:                                                                           |  |              |       |   |      |   |       |  
|Common shares  $100 par value; authorized 100,000 shares; issued and outstanding 50,000 shares |  |              | 5     |   |      |   | 5     |  
|Additional paid-in capital                                                                      |  |              | 1,101 |   |      |   | 1,242 |  
|Accumulated other comprehensive income, net of tax                                              |  |              | 7     |   |      |   | 9     |  
|Retained earnings                                                                               |  |              |      |   |      |   |      |  
|                                                                                                |  |              | 1,113 |   |      |   | 1,256 |  
|                                                                                                |  | $            | 8,584 |   |      | $ | 9,544 |  
|                                                                                                | 



See Notes to Consolidated
Financial Statements.



16



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##### Table of Contents

Boeing Capital Corporation and Subsidiaries



Consolidated Statements of Operations



|                                                                   |  |                          |       |   |      |   |     |      |  |   |     |  
|------------------------------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                                   |  | Years Ended December 31, |      
|(Dollars in millions)                                              |  | 2006                     |       |   | 2005 |   |     | 2004 | 
|REVENUE                                                            |  |                          |       |   |      |   |     |      |  |   |     |  
|Finance lease income                                               |  | $                        | 190   |   |      | $ | 190 |      |  | $ | 227 |  
|Interest income on notes receivable                                |  |                          | 181   |   |      |   | 178 |      |  |   | 183 |  
|Operating lease income                                             |  |                          | 498   |   |      |   | 504 |      |  |   | 437 |  
|Investment income                                                  |  |                          | 73    |   |      |   | 33  |      |  |   | 29  |  
|Net gain on disposal of assets                                     |  |                          | 48    |   |      |   | 25  |      |  |   | 31  |  
|Other income                                                       |  |                          | 35    |   |      |   | 36  |      |  |   | 52  |  
|                                                                   |  |                          | 1,025 |   |      |   | 966 |      |  |   | 959 |  
|EXPENSES                                                           |  |                          |       |   |      |   |     |      |  |   |     |  
|Interest expense                                                   |  |                          | 353   |   |      |   | 359 |      |  |   | 350 |  
|Depreciation expense                                               |  |                          | 241   |   |      |   | 244 |      |  |   | 218 |  
|Provision for (recovery of) losses                                 |  |                          | 8     |   |      |   | (25 | )    |  |   | (38 | )
|Operating expenses                                                 |  |                          | 60    |   |      |   | 72  |      |  |   | 67  |  
|Asset impairment expense                                           |  |                          | 53    |   |      |   | 59  |      |  |   | 106 |  
|Debt redemption costs                                              |  |                          |      |   |      |   |    |      |  |   | 42  |  
|Other expense                                                      |  |                          | 6     |   |      |   | 27  |      |  |   | 36  |  
|                                                                   |  |                          | 721   |   |      |   | 736 |      |  |   | 781 |  
|Minority interest income (expense)                                 |  |                          | (13   | ) |      |   | 2   |      |  |   | 5   |  
|Income from continuing operations before provision for income tax  |  |                          | 291   |   |      |   | 232 |      |  |   | 183 |  
|Provision for income tax                                           |  |                          | 106   |   |      |   | 86  |      |  |   | 62  |  
|Income from continuing operations                                  |  |                          | 185   |   |      |   | 146 |      |  |   | 121 |  
|Income from discontinued operations, net of tax                    |  |                          |      |   |      |   |    |      |  |   | 10  |  
|Net gain (loss) on disposal of discontinued operations, net of tax |  |                          | 9     |   |      |   | (7  | )    |  |   | 42  |  
|Net income                                                         |  | $                        | 194   |   |      | $ | 139 |      |  | $ | 173 |  
|                                                                   | 



See Notes to Consolidated
Financial Statements.



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##### Table of Contents

Boeing Capital Corporation and Subsidiaries



Consolidated Statements of Shareholders Equity and Comprehensive Income



|                                                                                   |  |       |       |   |              |   |                          |  |   |                                            |   |  |                  |     |   |                     |   |      |   |  |   |     |  
|---------------------------------------------------------------------------------- |  | ----- | ----- | - | ------------ | - | ------------------------ |  | - | ------------------------------------------ | - |  | ---------------- | --- | - | ------------------- | - | ---- | - |  | - | --- | -
|(Dollars in millions, except statedvalue)                                          |  | Total |       |   | CommonShares |   | AdditionalPaid-InCapital |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | RetainedEarnings |     |   | ComprehensiveIncome |  
|Balance at December 31, 2003                                                       |  | $     | 1,942 |   |              | $ | 5                        |  | $ | 1,263                                      |   |  | $                | (10 | ) |                     | $ | 684  |   |  | $ | 113 |  
|Non-cash capital contributions from Boeing                                         |  |       | 9     |   |              |   |                         |  |   | 9                                          |   |  |                  |    |   |                     |   |     |   |  |   |     |  
|Cash dividends to Boeing                                                           |  |       | (705  | ) |              |   |                         |  |   |                                           |   |  |                  |    |   |                     |   | (705 | ) |  |   |     |  
|Net income                                                                         |  |       | 173   |   |              |   |                         |  |   |                                           |   |  |                  |    |   |                     |   | 173  |   |  | $ | 173 |  
|Reclassification adjustment for losses realized in net income, net of tax of $(7)  |  |       | 12    |   |              |   |                         |  |   |                                           |   |  |                  | 12  |   |                     |   |     |   |  |   | 12  |  
|Unrealized gain on derivative instruments, net of tax of $(1)                      |  |       | 1     |   |              |   |                         |  |   |                                           |   |  |                  | 1   |   |                     |   |     |   |  |   | 1   |  
|Unrealized loss on investments, net of tax of $16                                  |  |       | (28   | ) |              |   |                         |  |   |                                           |   |  |                  | (28 | ) |                     |   |     |   |  |   | (28 | )
|Balance at December 31, 2004                                                       |  | $     | 1,404 |   |              | $ | 5                        |  | $ | 1,272                                      |   |  | $                | (25 | ) |                     | $ | 152  |   |  | $ | 158 |  
|                                                                                   | 
|Non-cash capital contributions from Boeing                                         |  |       | 17    |   |              |   |                         |  |   | 17                                         |   |  |                  |    |   |                     |   |     |   |  |   |     |  
|Cash dividends to Boeing (including return of capital)                             |  |       | (338  | ) |              |   |                         |  |   | (47                                        | ) |  |                  |    |   |                     |   | (291 | ) |  |   |     |  
|Net income                                                                         |  |       | 139   |   |              |   |                         |  |   |                                           |   |  |                  |    |   |                     |   | 139  |   |  | $ | 139 |  
|Reclassification adjustment for losses realized in net income, net of tax of $(15) |  |       | 25    |   |              |   |                         |  |   |                                           |   |  |                  | 25  |   |                     |   |     |   |  |   | 25  |  
|Unrealized gain on derivative instruments, net of tax of $(1)                      |  |       | 2     |   |              |   |                         |  |   |                                           |   |  |                  | 2   |   |                     |   |     |   |  |   | 2   |  
|Unrealized gain on investments, net of tax of $(4)                                 |  |       | 7     |   |              |   |                         |  |   |                                           |   |  |                  | 7   |   |                     |   |     |   |  |   | 7   |  
|Balance at December 31, 2005                                                       |  | $     | 1,256 |   |              | $ | 5                        |  | $ | 1,242                                      |   |  | $                | 9   |   |                     | $ |     |   |  | $ | 173 |  
|                                                                                   | 
|Non-cash capital contributions from Boeing                                         |  |       | 9     |   |              |   |                         |  |   | 9                                          |   |  |                  |    |   |                     |   |     |   |  |   |     |  
|Cash dividends to Boeing (including return of capital)                             |  |       | (344  | ) |              |   |                         |  |   | (150                                       | ) |  |                  |    |   |                     |   | (194 | ) |  |   |     |  
|Net income                                                                         |  |       | 194   |   |              |   |                         |  |   |                                           |   |  |                  |    |   |                     |   | 194  |   |  | $ | 194 |  
|Reclassification adjustment for gain realized in net income, net of tax of $5(1)   |  |       | (9    | ) |              |   |                         |  |   |                                           |   |  |                  | (9  | ) |                     |   |     |   |  |   | (9  | )
|Unrealized gain on investments, net of tax of $(4)                                 |  |       | 7     |   |              |   |                         |  |   |                                           |   |  |                  | 7   |   |                     |   |     |   |  |   | 7   |  
|Balance at December 31, 2006                                                       |  | $     | 1,113 |   |              | $ | 5                        |  | $ | 1,101                                      |   |  | $                | 7   |   |                     | $ |     |   |  | $ | 192 |  
|                                                                                   | 



|(1) |  | Reclassification adjustment is related to investments sold during the year ended December 31, 2006.
|--- |  | ---------------------------------------------------------------------------------------------------



We have authorized 100,000 shares of Series A
preferred stock with no par value and a $5,000 stated value. No shares were issued and outstanding at December 31, 2006, 2005 and 2004.



See Notes to Consolidated Financial Statements.



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##### Table of Contents

Boeing Capital Corporation and Subsidiaries



Consolidated Statements of Cash Flows



|                                                                                  |  |                          |        |   |      |   |      |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                  |  | Years Ended December 31, |       
|(Dollars in millions)                                                             |  | 2006                     |        |   | 2005 |   |      | 2004 | 
|OPERATING ACTIVITIES                                                              |  |                          |        |   |      |   |      |      |  |   |        |  
|Net income                                                                        |  | $                        | 194    |   |      | $ | 139  |      |  | $ | 173    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |        |   |      |   |      |      |  |   |        |  
|Depreciation and amortization expense                                             |  |                          | 240    |   |      |   | 243  |      |  |   | 210    |  
|Net gain on disposal of discontinued operations                                   |  |                          |       |   |      |   | (3   | )    |  |   | (42    | )
|Net gain on disposal of assets                                                    |  |                          | (48    | ) |      |   | (25  | )    |  |   | (31    | )
|Provision for (recovery of) losses                                                |  |                          | 8      |   |      |   | (25  | )    |  |   | (38    | )
|Net (gain) loss on investments and derivative instruments                         |  |                          | (56    | ) |      |   |     |      |  |   | 1      |  
|Asset impairment expense                                                          |  |                          | 53     |   |      |   | 62   |      |  |   | 107    |  
|Other non-cash adjustments related to discontinued operations                     |  |                          | (9     | ) |      |   | 10   |      |  |   | 15     |  
|Change in deferred income taxes                                                   |  |                          | 83     |   |      |   | 60   |      |  |   | (40    | )
|Change in assets and liabilities:                                                 |  |                          |        |   |      |   |      |      |  |   |        |  
|Other assets                                                                      |  |                          | 2      |   |      |   | 4    |      |  |   | 22     |  
|Accrued interest and rents                                                        |  |                          | 31     |   |      |   | 5    |      |  |   | (27    | )
|Accounts payable and accrued expenses                                             |  |                          | (35    | ) |      |   | 8    |      |  |   | (7     | )
|Other liabilities and minority interest                                           |  |                          | (3     | ) |      |   | 11   |      |  |   | (41    | )
|Accounts with Boeing                                                              |  |                          | (106   | ) |      |   | 207  |      |  |   | (35    | )
|Other                                                                             |  |                          | 8      |   |      |   | 13   |      |  |   | 17     |  
|Net cash provided by operating activities                                         |  |                          | 362    |   |      |   | 709  |      |  |   | 284    |  
|INVESTING ACTIVITIES                                                              |  |                          |        |   |      |   |      |      |  |   |        |  
|Transfer of net assets from Boeing                                                |  |                          |       |   |      |   | (178 | )    |  |   | 178    |  
|Purchase of investments                                                           |  |                          |       |   |      |   |     |      |  |   | (11    | )
|Proceeds from available-for-sale investments                                      |  |                          | 217    |   |      |   | 42   |      |  |   | 21     |  
|Purchase of equipment for operating leases                                        |  |                          | (92    | ) |      |   | (165 | )    |  |   | (238   | )
|Change in capitalizable costs in process                                          |  |                          | (35    | ) |      |   |     |      |  |   |       |  
|Proceeds from held-to-maturity investments                                        |  |                          |       |   |      |   |     |      |  |   | 63     |  
|Proceeds from disposition of equipment and receivables                            |  |                          | 576    |   |      |   | 234  |      |  |   | 285    |  
|Principal payments of leases, notes and other receivables                         |  |                          | 441    |   |      |   | 357  |      |  |   | 335    |  
|Origination of leases, notes and other receivables                                |  |                          | (100   | ) |      |   | (436 | )    |  |   | (357   | )
|Proceeds from disposal of discontinued operations                                 |  |                          |       |   |      |   | 35   |      |  |   | 2,017  |  
|Adjustments relating to discontinued operations                                   |  |                          |       |   |      |   |     |      |  |   | 175    |  
|Net cash provided by (used in) investing activities                               |  |                          | 1,007  |   |      |   | (111 | )    |  |   | 2,468  |  
|FINANCING ACTIVITIES                                                              |  |                          |        |   |      |   |      |      |  |   |        |  
|Repayment of debt                                                                 |  |                          | (713   | ) |      |   | (605 | )    |  |   | (2,121 | )
|Payment of cash dividends (including return of capital)                           |  |                          | (344   | ) |      |   | (338 | )    |  |   | (705   | )
|Repayment of note payable with Boeing Capital Services Corporation                |  |                          | (20    | ) |      |   |     |      |  |   |       |  
|Net cash used in financing activities                                             |  |                          | (1,077 | ) |      |   | (943 | )    |  |   | (2,826 | )
|Net increase (decrease) in cash and cash equivalents                              |  |                          | 292    |   |      |   | (345 | )    |  |   | (74    | )
|Cash and cash equivalents at beginning of year                                    |  |                          | 297    |   |      |   | 642  |      |  |   | 716    |  
|Cash and cash equivalents at end of year                                          |  | $                        | 589    |   |      | $ | 297  |      |  | $ | 642    |  
|                                                                                  | 
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                      |  |                          |        |   |      |   |      |      |  |   |        |  
|Net transfer to (from) assets held for sale or re-lease                           |  | $                        | 711    |   |      | $ | 51   |      |  | $ | (167   | )
|Net transfer from notes receivable                                                |  | $                        | (279   | ) |      | $ | (2   | )    |  | $ |       |  
|Net transfer to (from) equipment under operating leases                           |  | $                        | (354   | ) |      | $ | 526  |      |  | $ | 177    |  
|Net transfer from finance leases                                                  |  | $                        | (15    | ) |      | $ | (508 | )    |  | $ | (10    | )
|Transfer from other assets                                                        |  | $                        | (101   | ) |      | $ |     |      |  | $ |       |  
|Transfer to investments                                                           |  | $                        | 43     |   |      | $ |     |      |  | $ |       |  
|Transfer from accounts with Boeing                                                |  | $                        | (5     | ) |      | $ |     |      |  | $ |       |  
|Transfer from discontinued operations                                             |  | $                        |       |   |      | $ | (67  | )    |  | $ |       |  
|Offsetting changes in fair value hedge derivatives                                |  | $                        | 14     |   |      | $ | 62   |      |  | $ | (21    | )
|                                                                                  | 



See Notes to Consolidated
Financial Statements.



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##### Table of Contents

Boeing Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in millions)



Note 1 Summary of Significant Accounting Policies



Organization Boeing Capital Corporation (together with its subsidiaries,
referred to as us, we, our, BCC or the Company) is an indirect wholly owned subsidiary of The Boeing Company (Boeing). Boeing Capital Services Corporation (BCSC), an inactive holding
company, owns 100% of our stock and is an indirect wholly owned subsidiary of Boeing. The Company was incorporated in Delaware in 1968. In the commercial aircraft market, we facilitate, arrange, structure and provide selective financing solutions to
Boeings Commercial Airplanes segment customers. In the space and defense markets, we primarily arrange and structure financing solutions for Boeings Integrated Defense Systems segment customers.



Principles of ConsolidationThe accompanying Consolidated Financial
Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.



Reclassifications Certain reclassifications have been made to prior periods to conform to the current years
presentation.



Use of Estimates The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements.
Significant estimates for which changes in the near term are considered reasonably possible and that may have a material impact on the financial statements are disclosed in these notes to the Consolidated Financial Statements.



Cash and Cash Equivalents Cash and cash equivalents consist of highly
liquid investments, such as time deposits and money market instruments, which have original maturities of less than three months.



Portfolio Our portfolio consists of direct finance leases, leveraged leases, notes and other receivables, equipment under operating leases (net of
accumulated depreciation), investments and assets held for sale or re-lease (net of accumulated depreciation).



Direct Finance Leases At lease inception, we record an asset (net investment) representing the aggregate future minimum
lease payments, estimated residual value of the leased equipment, and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. Residual
values, which are periodically reviewed, represent the estimated amount we expect to receive at lease termination from the disposition of leased equipment. Actual residual values realized could differ from these estimates. Declines in estimated
residual value that are deemed other than temporary are recognized in the period in which the decline occurs as a reduction to Finance lease income.



Leveraged LeasesDirect finance leases that are financed by non-recourse borrowings and meet certain criteria are classified as
leveraged leases. For leveraged leases, aggregate rental receivables are reduced by the related non-recourse debt service obligation including interest (net rental receivables). The difference of the net rental receivables and the cost
of the asset less estimated residual value at the end of the lease term is recorded as unearned income. Unearned income is recognized over the life of the lease at a constant rate of return applied to any positive net investment, which includes the
effect of deferred income taxes.



Notes and Other
ReceivablesNotes receivable are recorded net of any unamortized discounts and deferred incremental direct costs. Interest income and amortization of any discounts are recorded ratably over the related term of the note.



Equipment Under Operating Leases, Net of Accumulated
DepreciationEquipment under operating leases is recorded at cost and depreciated over the lease term or the economic useful life to an estimated residual or salvage value based on our intention to hold or dispose of equipment before the
end of its economic useful life, using the straight-line method. We periodically review our estimates of residual value and recognize forecasted decreases in residual value by prospectively adjusting depreciation expense. Revenue on the leased
equipment is recorded using the straight-line method over the term of the lease.



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Investments Available-for-sale securities including Enhanced Equipment Trust
Certificates (EETCs) are recorded at their fair values and unrealized gains and losses are reported as part of Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. Debt and equity securities are assessed for impairment
quarterly. To determine if an impairment is other-than-temporary we consider the duration of the loss position, the strength of the underlying collateral, the duration to maturity, credit reviews and analyses of the counterparties. For investments
that are deemed other-than-temporarily impaired, losses are recorded as asset impairment expense and payments received on these investments are recorded using the cost recovery method.



The fair value of publicly traded fixed income and equity securities is based on quoted prices. The fair value of
non-publicly traded securities, including certain EETCs, is based on discounted cash flows at market yield. In cases where we determine that it is probable that recovery of our investment will come from liquidation of collateral, the fair value is
based on the value of the underlying collateral.



Assets Held for Sale or Re-lease, Net of Accumulated DepreciationWhen aircraft collateral related to a finance lease or note receivable is repossessed, returned in satisfaction of the receivable or returned at the end of the
finance lease or when aircraft are made available-for-sale, the asset is carried at the lower of cost or estimated fair value less costs to sell. We calculate a median value from published collateral values from multiple external equipment
appraisers based on the type and age of the aircraft to estimate the fair value of aircraft. Under certain circumstances, we adjust values based on the attributes of the specific aircraft or equipment, usually when the features or use of the
aircraft vary significantly from the more generic aircraft attributes covered by outside publications. Aircraft assets held for re-lease are depreciated over the remaining useful life of the equipment to an estimated residual or salvage value, on a
straight-line basis.



Impairment Review for Equipment Under Operating
Leases and Assets Held for Re-leaseWe evaluate equipment under operating lease or assets held for re-lease for impairment when the expected undiscounted cash flow over the remaining period during which we intend to continue ownership is
less than the carrying value. We use various assumptions when determining the expected undiscounted cash flow including our intention to hold or dispose of an asset before the end of its economic useful life, the expected future lease rates, lease
terms, residual value of the aircraft or equipment, periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs, and the remaining economic life of the asset.



When we determine that impairment is indicated for an asset, the amount of the asset
impairment expense recorded is the excess of the carrying value less asset value guarantees, if applicable, over the fair value of the asset.



Allowance for Losses on ReceivablesWe record the potential impairment of receivables in our portfolio in a valuation account, the balance of which is
an accounting estimate of probable but unconfirmed losses in the receivables portfolio. The allowance for losses on receivables relates to two components of receivables: (a) specifically identified receivables that are evaluated individually
for impairment and (b) all other receivables.



We determine a
receivable is impaired when, based on current information and events, it is probable that we will be unable to collect amounts due according to the original contractual terms of the receivable agreement, without regard to any subsequent
restructurings. Factors considered in assessing collectibility include, but are not limited to, a customers extended delinquency, requests for restructuring and filings for bankruptcy. We determine a specific impairment allowance based on the
difference between the carrying value of the receivable and the estimated fair value of the related collateral, taking into account Boeing and other guarantees.



We review the adequacy of the allowance attributable to the remaining other receivables (after excluding receivables subject to a specific impairment allowance)
by assessing both the collateral exposure and the applicable cumulative default rate. Collateral exposure for a particular receivable is the excess of the carrying value of the receivable over the fair value of the related collateral taking into
account Boeing and other guarantees. A receivable with an estimated fair value in excess of the carrying value is considered to have no collateral exposure. The applicable cumulative default rate is determined using two components: customer credit
ratings and weighted average remaining contract term. Credit ratings are determined for each customer in the portfolio. Those ratings are updated based upon public information and information obtained directly from our customers.



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We have entered into agreements with certain customers that entitle us to look beyond the specific collateral
underlying the receivable for purposes of determining the collateral exposure as described above. Should the proceeds from the sale of the underlying collateral asset resulting from a default condition be insufficient to cover the carrying value of
our receivable (creating a shortfall condition), these agreements would, for example, permit us to take the actions necessary to sell or retain certain other assets in which the customer has an equity interest and use the proceeds to cover the
shortfall.



Each quarter, we review customer credit ratings, published
historical credit default rates for different rating categories, Boeing and other guarantees (if applicable), third party aircraft valuations, and the general state of the economy and airline industry as a basis to validate the reasonableness of the
allowance for losses on receivables. There can be no assurance that actual results will not differ from estimates or that the consideration of these factors in the future will not result in an increase or decrease to the allowance for losses on
receivables.



Non-accrual ReceivablesIncome recognition on
an accrual basis is generally suspended for leases and notes and other receivables at the date when a full recovery of income and principal, including the effect of intercompany guarantees, become doubtful. Generally, we also place accounts greater
than 90 days past due on non-accrual status. Income recognition is resumed when leases or notes and other receivables become contractually current and performance is demonstrated to be resumed.



Derivative Financial InstrumentsAll derivative instruments are recognized
in the financial statements and measured at fair value regardless of the purpose or intent for holding them. We record our interest rate swaps at fair value based on discounted cash flow analysis. For derivatives designated as hedges of the exposure
to changes in fair value of the recognized asset or liability or a firm commitment (referred to as fair value hedges), the gain or loss is recognized in Other income in the period of change together with an offsetting loss or gain on the hedged item
attributable to the risk being hedged. The effect of this accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For our cash flow hedges, the effective portion of the
derivatives gain or loss is initially reported in shareholders equity (as a component of Accumulated other comprehensive income (loss)) and is subsequently reclassified into income, as an increase or decrease to interest expense, in the
same period or periods during which the hedged forecasted transaction affects income. The ineffective portion of the gain or loss is reported in Other income immediately. We also hold certain instruments for economic purposes that do not qualify for
hedge accounting treatment. For these derivative instruments, the changes in their fair value are recorded in Other income.



Income TaxOur operations are included in the consolidated federal income tax return of Boeing. Under an agreement with Boeing, we pay or receive our
allocated share of income taxes or credits.



Federal, state and foreign
income taxes are computed at current tax rates, less tax credits. Taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax
assets or liabilities. Tax provisions include amounts that are currently payable, plus changes in deferred tax assets and liabilities that (a) arise because of temporary differences between the time when items of income and expense are
recognized for financial reporting and income tax purposes and (b) are assumed in connection with intercompany transactions with Boeing. Under this agreement, the current provision for state income tax based on an agreed upon rate is paid to
Boeing, and the state income tax deferred asset or liability is carried on Boeings Consolidated Financial Statements.



Note 2 Standards Issued and Not Yet Implemented



In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN 48). FIN 48
prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of income tax assets and
liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. This
Interpretation is effective as of January 1, 2007. We have evaluated the impact of this Interpretation, and we do not believe there will be any material adverse effect on our financial statements.



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Note 3 Relationship and Transactions with Boeing



As an indirect wholly owned subsidiary of Boeing, our mission is to arrange for the
financing of products manufactured by Boeing. When third party financing is not available, we may provide such financing directly.



We have a number of general contractual arrangements with Boeing to facilitate our operations including, among others, a support agreement, tax sharing agreement
and agreements allowing us to borrow under Boeings committed revolving line of credit.



In addition, we may require other forms of support from Boeing with respect to certain financing transactions we undertake. This support may take the form of intercompany guarantees, subsidies, remarketing agreements or other
support arrangements.



There can be no assurances that these intercompany
arrangements will not change from time to time.



Support Agreement



We have a support agreement (Support Agreement) dated December 23,
2003, with Boeing with these principal features:



| |  |  | Boeing will maintain 51% or greater ownership of us,
| | - |  | ----------------------------------------------------

| |  |  | Boeing will make contributions to us, if our fixed-charge coverage ratio falls below 1.05-to-1 on a four-quarter rolling basis, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  |  | Boeing will make contributions to us, if needed, to maintain our tangible net worth at a level of at least $50.
| | - |  | ---------------------------------------------------------------------------------------------------------------



The Support Agreement may not be modified or terminated unless (a) two-thirds of
the debt holders consent or (b) the modification or termination does not adversely affect the credit ratings of our debt. This Support Agreement is not a guarantee of any of our indebtedness, nor is it directly enforceable against Boeing by
third parties.



Intercompany Credit Arrangements



The backup credit facility between Boeing and its banks was renewed on
November 17, 2006. The 364-day line was reduced from $1,500 to $1,000; Boeing has allocated $500 of this line exclusively to us. The five-year revolving credit line expiring in 2011 was increased from $1,500 to $2,000; Boeing has also allocated
$1,000 of this line exclusively to us. At December 31, 2006, we had no amounts outstanding under these intercompany credit arrangements.



Federal Income Tax



Our operations are included in the consolidated federal income tax return of Boeing. Our tax sharing agreement, which is included in our Operating Agreement with Boeing, provides that so long as
consolidated federal tax returns are filed, Boeing will pay, or we will pay Boeing, as appropriate, an amount equal to the difference between the consolidated tax liability and Boeings tax liability computed excluding us. Under this agreement,
alternative minimum taxes are disregarded and an intercompany payable/receivable is recorded when federal income taxes are due or federal income tax benefits are generated.



Intercompany Transactions



We are the beneficiary of certain intercompany guarantees and other subsidies from Boeing in respect of specific financing transactions we undertake.



Intercompany guarantees primarily relate to residual value guarantees, first loss
deficiency guarantees and rental loss guarantees. Residual value guarantees cover 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 loss guarantees are full 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.



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Due to intercompany guarantees from Boeing, our accounting classification of certain third party leases may differ
from the accounting classification in Boeings Consolidated Financial Statements. As a result of these intercompany guarantees, the required balance for the allowance for losses on receivables and the required provision for losses we recognized
have been mitigated. Receipts under Boeing guarantees would be net of realization of underlying residual values, partial rent receipts, re-lease rental receipts or other mitigating value received. We also have subsidy agreements which typically
cover us for the difference between the contractual rate and the rate required by us.



At December 31, 2006, we were the beneficiary under $2,663 of guarantees ($2,363 for domestic airlines and $300 for foreign airlines) from Boeing which mitigates our risk with respect to portfolio assets totaling
$3,424.



Intercompany guarantee amounts by aircraft type are summarized
as follows at December 31:



|                                                    |  |                 |       |               |   |                 |  |               |       |  |   |      
|--------------------------------------------------- |  | --------------- | ----- | ------------- | - | --------------- |  | ------------- | ----- |  | - | -----
|                                                    |  | 2006            |       | 2005         
|                                                    |  | GuaranteeAmount |       | CarryingValue |   | GuaranteeAmount |  | CarryingValue
|717 (out of production)                             |  | $               | 1,859 |               | $ | 2,489           |  | $             | 1,894 |  | $ | 2,524
|Out of production twin-aisle aircraft               |  |                 | 285   |               |   | 370             |  |               | 293   |  |   | 402  
|Out of production single-aisle aircraft             |  |                 | 280   |               |   | 280             |  |               | 322   |  |   | 322  
|Other, including other Boeing and regional aircraft |  |                 | 239   |               |   | 285             |  |               | 392   |  |   | 1,096
|                                                    |  | $               | 2,663 |               | $ | 3,424           |  | $             | 2,901 |  | $ | 4,344
|                                                   



In March 2006, Boeing paid us
$96 associated with future unearned finance lease income and a partial settlement of a guarantee on 24 717 aircraft. The amount was recorded as unearned income which is included in the balance of finance leases and will be recognized ratably over
the remaining terms of the related finance leases.



At December 31,
2006 and 2005, Accounts with Boeing included $141 and $107 for deferred revenue associated with guarantee and subsidy settlements and terminations.



We recorded the following activity under the intercompany guarantee agreements for the years ended December 31:



|                                                          |  |      |     |   |      |   |      |  |   |   
|--------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- |  | - | --
|                                                          |  | 2006 |     |   | 2005 |   | 2004
|Applied to income                                         |  | $    | 34  |   |      | $ | 22   |  | $ | 28
|Payment for future unearned finance lease income          |  |      | 96  |   |      |   | 2    |  |   | 5 
|Applied to reserves                                       |  |      |    |   |      |   | 87   |  |   | 11
|Net change in deferred revenue                            |  |      | (2  | ) |      |   | 2    |  |   |  
|Write down of notes receivable                            |  |      | 29  |   |      |   |     |  |   |  
|Guarantees receivable from Boeing                         |  |      | (29 | ) |      |   |     |  |   |  
|Net cash received under intercompany guarantee agreements |  | $    | 128 |   |      | $ | 113  |  | $ | 44
|                                                         



We recorded the following
activity under the intercompany subsidy agreements for the years ended December 31:



|                                                        |  |      |    |      |   |      |  |   |   
|------------------------------------------------------- |  | ---- | -- | ---- | - | ---- |  | - | --
|                                                        |  | 2006 |    | 2005 |   | 2004
|Applied to income                                       |  | $    | 41 |      | $ | 64   |  | $ | 45
|Payment for future unearned finance lease income        |  |      |   |      |   |     |  |   | 1 
|Net change in deferred revenue                          |  |      | 36 |      |   | 85   |  |   | 2 
|Net change in payable to Boeing                         |  |      | 2  |      |   |     |  |   |  
|Net cash received under intercompany subsidy agreements |  | $    | 79 |      | $ | 149  |  | $ | 48
|                                                       



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##### Table of Contents

Additionally, under the terms of the intercompany guarantee agreements, for the years ended
December 31, 2006, 2005 and 2004, Boeing recorded charges of $22, $112, and $84, respectively, related to asset impairment, accrued expenses, loan loss provision and allowance for losses on receivables in our portfolio.



For the years ended December 31, 2006, 2005 and 2004, we recorded operating lease
income from Boeing, exclusive of guarantees and subsidies of $48, $43 and $26, respectively.



For the years ended December 31, 2006, 2005 and 2004, we recorded new business volume of $202, $322 and $530, respectively, related to aircraft and equipment recently manufactured by Boeing.



At December 31, 2006 and 2005, the carrying value of the C-40 aircraft under a
head lease structure with Boeing which has a concurrent sublease with the U.S. Government was $165 and $177.



In the third quarter of 2006, we terminated our operating lease with Boeing for a Boeing Business Jet, which we subsequently sold.



Other Intercompany Transactions



Accounts with Boeing consisted of the following at December 31:



|                                        |  |      |     |   |      |   |    
|--------------------------------------- |  | ---- | --- | - | ---- | - | ---
|                                        |  | 2006 |     |   | 2005
|Notes payable to BCSC                   |  | $    |    |   |      | $ | 20 
|Federal income tax payable (receivable) |  |      | (60 | ) |      |   | 30 
|Other                                   |  |      | 91  |   |      |   | 97 
|                                        |  | $    | 31  |   |      | $ | 147
|                                       



In May 2006, we repaid our $20
note payable to BCSC. Total interest paid to BCSC was $1, $2 and $3 for the years ended December 31, 2006, 2005 and 2004, respectively.



For the years ended December 31, 2006 and 2005, we paid cash dividends (including return of capital) totaling $344 and $338 to Boeing.



We also receive support services from Boeing. Eligible employees are members of
Boeings defined benefit pension plans, insurance plans, savings plan and executive compensation programs. Boeing generally charges us with the actual costs of these plans attributable to our employees and these expenses are reflected in
Operating expenses. For the years ended December 31, 2006, 2005 and 2004, the charges for these services totaled $11, $11 and $9, respectively.



Note 4 Investment in Receivables



The investment in receivables consisted of the following at December 31:



|                                                       |  |      |       |   |      |   |       |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                       |  | 2006 |       |   | 2005 |  
|Investment in finance leases:                          |  |      |       |   |      |   |       |  
|Direct finance leases                                  |  | $    | 2,418 |   |      | $ | 2,593 |  
|Leveraged leases                                       |  |      | 173   |   |      |   | 175   |  
|                                                       |  |      | 2,591 |   |      |   | 2,768 |  
|Notes and other                                        |  |      | 1,679 |   |      |   | 2,181 |  
|Total investment in finance leases and notes and other |  |      | 4,270 |   |      |   | 4,949 |  
|Less allowance for losses on receivables               |  |      | (102  | ) |      |   | (101  | )
|                                                       |  | $    | 4,168 |   |      | $ | 4,848 |  
|                                                       | 



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##### Table of Contents

The net investment in finance leases consisted of the following at December 31:



|                                                          |  |                       |        |   |                  |   |        |      |  |   |      |   |  |   |       |  
|--------------------------------------------------------- |  | --------------------- | ------ | - | ---------------- | - | ------ | ---- |  | - | ---- | - |  | - | ----- | -
|                                                          |  | 2006                  |        |   | 2005             |   |        | 2006 |  |   | 2005 |  
|                                                          |  | Direct Finance Leases |        |   | Leveraged Leases |  
|Minimum lease payments                                    |  | $                     | 3,621  |   |                  | $ | 3,869  |      |  | $ | 936  |   |  | $ | 1,003 |  
|Less principal and interest payable on non-recourse debt  |  |                       |       |   |                  |   |       |      |  |   | (668 | ) |  |   | (735  | )
|Estimated residual value                                  |  |                       | 712    |   |                  |   | 681    |      |  |   | 56   |   |  |   | 58    |  
|Unearned income and deferred net incremental direct costs |  |                       | (1,915 | ) |                  |   | (1,957 | )    |  |   | (151 | ) |  |   | (151  | )
|Less deferred taxes                                       |  |                       |       |   |                  |   |       |      |  |   | (278 | ) |  |   | (277  | )
|Net investment in finance leases                          |  | $                     | 2,418  |   |                  | $ | 2,593  |      |  | $ | (105 | ) |  | $ | (102  | )
|                                                          | 



Scheduled minimum lease payments
on direct finance leases and leveraged leases (less principal and interest payable on non-recourse debt) are as follows for the years ended December 31:



|               |  |      |     |      |   |      |  |      |     |      |   |            |  |   |     |  |   |      
|-------------- |  | ---- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---------- |  | - | --- |  | - | -----
|               |  | 2007 |     | 2008 |   | 2009 |  | 2010 |     | 2011 |   | Thereafter
|Finance leases |  | $    | 385 |      | $ | 273  |  | $    | 273 |      | $ | 259        |  | $ | 250 |  | $ | 2,449



At December 31, 2006 and
2005, finance lease receivables of $57 and $59 were assigned as collateral to secure senior debt. Finance lease receivables of $90 and $92 at December 31, 2006 and 2005 related to commercial aircraft leased by us under capital lease obligations
and subleased to third parties.



The investment in notes and other
receivables consisted of the following at December 31:



|                                                               |  |      |       |   |      |   |       |  
|-------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                               |  | 2006 |       |   | 2005 |  
|Principal                                                      |  | $    | 1,671 |   |      | $ | 2,177 |  
|Accrued interest                                               |  |      | 16    |   |      |   | 14    |  
|Unamortized discount and deferred net incremental direct costs |  |      | (8    | ) |      |   | (10   | )
|                                                               |  | $    | 1,679 |   |      | $ | 2,181 |  
|                                                               | 



Scheduled principal payments on
Notes and other receivables are as follows for the years ended December 31:



|                |  |      |     |      |   |      |  |      |     |      |   |            |  |   |     |  |   |    
|--------------- |  | ---- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---------- |  | - | --- |  | - | ---
|                |  | 2007 |     | 2008 |   | 2009 |  | 2010 |     | 2011 |   | Thereafter
|Notes and other |  | $    | 166 |      | $ | 300  |  | $    | 147 |      | $ | 158        |  | $ | 177 |  | $ | 723



Note 5 Allowance for Losses
on Receivables



The following table reconciles the
activity in the allowance for losses on receivables at December 31:



|                                                         |  |      |     |   |      |   |      |      |  |   |     |  
|-------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | ---- |  | - | --- | -
|                                                         |  | 2006 |     |   | 2005 |   |      | 2004 | 
|Allowance for losses on receivables at beginning of year |  | $    | 101 |   |      | $ | 240  |      |  | $ | 303 |  
|Provision for (recovery of) losses                       |  |      | 8   |   |      |   | (25  | )    |  |   | (38 | )
|Net write-offs                                           |  |      | (7  | ) |      |   | (120 | )    |  |   | (36 | )
|Allowance transferred from Boeing                        |  |      |    |   |      |   | 6    |      |  |   | 11  |  
|Allowance for losses on receivables at end of year       |  | $    | 102 |   |      | $ | 101  |      |  | $ | 240 |  
|                                                         | 
|Allowance as a percentage of total receivables           |  |      | 2.4 | % |      |   | 2.0  | %    |  |   | 4.2 | %



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##### Table of Contents

The following table reconciles, on a pro forma basis, the changes in the allowance for losses on receivables
calculated in accordance with the method discussed in Note 1 Summary of Significant Accounting Policies, if the impact of intercompany guarantees from Boeing were to be excluded. The exclusion of intercompany guarantees would increase
the applicable exposure for various receivables and would reduce the allowance for certain of our finance leases classified as operating leases by Boeing.



|                                                           |  |           |     |   |      |   |      |      |  |   |     |  
|---------------------------------------------------------- |  | --------- | --- | - | ---- | - | ---- | ---- |  | - | --- | -
|                                                           |  | 2006      |     |   | 2005 |   |      | 2004 | 
|                                                           |  | Pro Forma |    
|Allowance for losses on receivables at beginning of year   |  | $         | 274 |   |      | $ | 402  |      |  | $ | 400 |  
|Provision for losses                                       |  |           | 32  |   |      |   | 73   |      |  |   | 44  |  
|Net write-offs                                             |  |           | (52 | ) |      |   | (201 | )    |  |   | (42 | )
|Allowance for losses on receivables at end of year         |  | $         | 254 |   |      | $ | 274  |      |  | $ | 402 |  
|                                                           | 
|Allowance as a percentage of total receivables (pro forma) |  |           | 6.4 | % |      |   | 5.5  | %    |  |   | 7.1 | %



The carrying value of impaired
receivables consisted of the following at December 31:



|                                                        |  |      |       |      |   |      
|------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                        |  | 2006 |       | 2005
|Impaired receivables with specific impairment allowance |  | $    | 74    |      | $ | 47   
|Impaired receivables with no specific allowance         |  |      | 1,032 |      |   | 1,464
|Carrying value of impaired receivables                  |  | $    | 1,106 |      | $ | 1,511
|                                                       



Allowance for losses on impaired
receivables was $20 and $21 at December 31, 2006 and 2005.



Our
average recorded investment in impaired receivables, calculated on a quarterly weighted average, was $1,191, $1,196 and $1,940 in 2006, 2005 and 2004, respectively. In 2006, 2005 and 2004, we recognized income of $104, $90 and $118, respectively, on
these impaired receivables during the periods in which they were considered impaired which included $22, $1 and $9, respectively of income based on cash received.



United Air Lines, Inc. (United) emerged from bankruptcy on February 1, 2006. At December 31, 2006, $683 of Uniteds
receivables were classified as impaired until maturity since the effective interest rates for certain notes receivable that were restructured in 2003 were below market terms at the time of the restructuring. At December 31, 2005, $1,008 of
Uniteds receivables were classified as impaired. As of December 31, 2006, United is current on all payments.



Non-Performing Assets



Non-performing assets (assets either not earning income on an accrual basis or equipment without a purchase commitment or current contractual lease revenue) consisted of the following at December 31:



|                                                           |  |      |     |     |      |   |     |    
|---------------------------------------------------------- |  | ---- | --- | --- | ---- | - | --- | ---
|                                                           |  | 2006 |     |     | 2005 |  
|Assets placed on non-accrual status:                       |  |      |     |     |      |   |     |    
|Receivables                                                |  | $    | 100 |     |      | $ | 127 |    
|Equipment under operating leases, net                      |  |      | 161 |     |      |   | 246 |    
|Investments                                                |  |      |    |     |      |   | 155 |    
|                                                           |  |      | 261 |     |      |   | 528 |    
|Assets held for sale or re-lease, net                      |  |      | 6   |     |      |   | 11  |    
|                                                           |  | $    | 267 | (1) |      | $ | 539 | (1)
|                                                           | 
|Percent of non-performing receivables to total receivables |  |      | 2.3 | %   |      |   | 2.6 | %  
|Percent of total non-performing assets to total portfolio  |  |      | 3.3 | %   |      |   | 5.9 | %  



|(1) |  | At December 31, 2006 and 2005, total non-performing assets without the effect of guarantees available from
Boeing would be $267 and $1,166.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------



For the portfolio
assets that were non-performing as of and during the year ended December 31, 2006 and 2005, we recorded income of $28 and $20 based on cash received of $51 and $25.



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At December 31, 2006, we had no accrued income on receivables with amounts past due greater than 90 days.



Note 6 Equipment Under Operating Leases, Net of Accumulated
Depreciation



Equipment under operating leases, net of
accumulated depreciation, consisted of the following at December 31:



|                         |  |      |       |   |      |   |       |  
|------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                         |  | 2006 |       |   | 2005 |  
|Cost                     |  | $    | 4,106 |   |      | $ | 4,685 |  
|Accumulated depreciation |  |      | (754  | ) |      |   | (745  | )
|                         |  | $    | 3,352 |   |      | $ | 3,940 |  
|                         | 



Scheduled minimum lease payments
to be received under the non-cancelable portion of operating leases are as follows at December 31, 2006:



|                 |  |      |     |      |   |      |  |      |     |      |   |            |  |   |     |  |   |      
|---------------- |  | ---- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---------- |  | - | --- |  | - | -----
|                 |  | 2007 |     | 2008 |   | 2009 |  | 2010 |     | 2011 |   | Thereafter
|Operating leases |  | $    | 409 |      | $ | 381  |  | $    | 339 |      | $ | 299        |  | $ | 229 |  | $ | 1,208



At December 31, 2006 and
2005, equipment under operating leases of $208 and $223 were assigned as collateral to secure senior debt. At December 31, 2006 and 2005 equipment under operating leases of $47 and $108 related to commercial aircraft leased by us under capital
lease obligations and subleased to third parties.



Note 7 Investments



Available-for-sale securities consisted of the
following at December 31:



|                                                                         |  |      |     |      |   |    
|------------------------------------------------------------------------ |  | ---- | --- | ---- | - | ---
|                                                                         |  | 2006 |     | 2005
|Carrying value (estimated fair value)                                    |  | $    | 152 |      | $ | 269
|Amortized cost                                                           |  |      | 145 |      |   | 258
|Net unrealized gain carried in Accumulated other comprehensive income(1) |  | $    | 7   |      | $ | 11 
|                                                                        



|(1) |  | At December 31, 2006 and 2005, this included total unrealized gains of $7 and $26. At December 31,
2005, this included unrealized losses of $15.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



On
March 4, 2005, we completed the exchange transaction of our investment with Delta Air Lines, Inc. (Delta) in a D tranche Delta EETC for two C tranche Delta EETCs. The assets we received were recorded at their fair values and we recorded an
asset impairment charge of $2. Due to the financial difficulties of Delta, during the third quarter of 2005, we deemed these investments to be other-than-temporarily impaired. We reduced the carrying value of these investments to their fair value
and recorded an asset impairment charge of $27. This asset impairment charge was offset by the value of other collateral available to us. These investments had been accounted for using the cost recovery method. During 2006, an investment was fully
repaid at maturity for $42 and we recognized Investment income of $26. During the fourth quarter of 2006, based on a review of Deltas financial position and as a result of Delta making all contractual payments to us, we placed our investment
on accrual status effective October 1, 2006. This investment with an amortized cost of $128 at December 31, 2006, is being accreted to its face value of $135 at maturity.



As a result of the financial difficulties of Northwest Airlines, Inc. (Northwest), during the third quarter of 2005, we deemed our
investments in Northwest to be other-than-temporarily impaired. We reduced the carrying value of these investments to their fair value and recorded an asset impairment charge of $24. These investments had been accounted for using the cost recovery
method. During 2006, our investments were sold for $41 and we recognized Investment income of $28.



28



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##### Table of Contents

In addition, during 2006, we sold certain other investments for total proceeds of $97 and recognized Investment
income of $2.



At December 31, 2006, our available-for-sale
investments included one other subordinated debt investment with an estimated fair value of $17.



At December 31, 2006 and 2005, none of our investment securities were considered investment grade securities.



During 2004, we deemed a certain investment to be other-than-temporarily impaired and recorded total pre-tax non-cash charge to Asset impairment expense of $47
resulting in a reduction of the carrying value to zero.



Maturities,
based upon scheduled principal repayments, of available-for-sale debt securities were as follows at December 31, 2006:



|                           |  |                     |    
|-------------------------- |  | ------------------- | ---
|                           |  | EstimatedFair Value
|Due in one year or less    |  | $                   | 9  
|Due from one to five years |  |                     | 139
|Due from five to ten years |  |                     | 3  
|Due after ten years        |  |                     | 1  
|                           |  | $                   | 152
|                          



Note 8 Income Tax



The components of the provision (benefit) for tax on
income were as follows at December 31:



|          |  |      |     |      |   |      |  |   |     |  
|--------- |  | ---- | --- | ---- | - | ---- |  | - | --- | -
|          |  | 2006 |     | 2005 |   | 2004 | 
|Current:  |  |      |     |      |   |      |  |   |     |  
|Federal   |  | $    | 12  |      | $ | 17   |  | $ | 100 |  
|State     |  |      | 11  |      |   | 9    |  |   | 3   |  
|          |  |      | 23  |      |   | 26   |  |   | 103 |  
|Deferred: |  |      |     |      |   |      |  |   |     |  
|Federal   |  |      | 83  |      |   | 60   |  |   | (41 | )
|          |  | $    | 106 |      | $ | 86   |  | $ | 62  |  
|          | 



Temporary differences represent
the cumulative taxable or deductible amounts recorded in the financial statements that are recognized in different years for financial reporting than when recognized in the tax returns. The tax impact of temporary differences constitute our net
deferred liability. The components of the net deferred income tax liability consisted of the following at December 31:



|                                                     |  |      |        |   |      |   |        |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                     |  | 2006 |        |   | 2005 |  
|Deferred tax assets:                                 |  |      |        |   |      |   |        |  
|Allowance for losses on receivables                  |  | $    | 141    |   |      | $ | 202    |  
|Other                                                |  |      | 64     |   |      |   | 46     |  
|                                                     |  |      | 205    |   |      |   | 248    |  
|Deferred tax liabilities:                            |  |      |        |   |      |   |        |  
|Leased assets                                        |  |      | (1,546 | ) |      |   | (1,494 | )
|Other                                                |  |      | (11    | ) |      |   | (23    | )
|                                                     |  |      | (1,557 | ) |      |   | (1,517 | )
|                                                     |  |      | (1,352 | ) |      |   | (1,269 | )
|Deferred tax on accumulated other comprehensive loss |  |      | (4     | ) |      |   | (5     | )
|Net deferred tax liability                           |  | $    | (1,356 | ) |      | $ | (1,274 | )
|                                                     | 



29



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##### Table of Contents

Income tax computed at the United States federal income tax rate and the provision (benefit) for tax on income
differ as follows for the years ended December 31:



|                                                                   |  |      |     |   |      |      |   |      |   |    |   |  |      |   |  |   |    |   |  |      |  
|------------------------------------------------------------------ |  | ---- | --- | - | ---- | ---- | - | ---- | - | -- | - |  | ---- | - |  | - | -- | - |  | ---- | -
|                                                                   |  | 2006 |     |   | 2005 |      |   | 2004 |  
|Tax computed at federal statutory rate                             |  | $    | 102 |   |      | 35.0 | % |      | $ | 81 |   |  | 35.0 | % |  | $ | 64 |   |  | 35.0 | %
|State income taxes, net of federal tax benefit                     |  |      | 7   |   |      | 2.4  |   |      |   | 7  |   |  | 2.8  |   |  |   | 2  |   |  | 1.3  |  
|Foreign sales corporation/extraterritorial income tax benefit      |  |      | (5  | ) |      | (1.7 | ) |      |   | (6 | ) |  | (2.5 | ) |  |   | (7 | ) |  | (4.0 | )
|Foreign sales corporation/extraterritorial income basis adjustment |  |      | 7   |   |      | 2.4  |   |      |   |   |   |  |     |   |  |   |   |   |  |     |  
|Other                                                              |  |      | (5  | ) |      | (1.7 | ) |      |   | 4  |   |  | 1.8  |   |  |   | 3  |   |  | 1.6  |  
|                                                                   |  | $    | 106 |   |      | 36.4 | % |      | $ | 86 |   |  | 37.1 | % |  | $ | 62 |   |  | 33.9 | %
|                                                                   | 



We, as part of the consolidated
Boeing organization, have completed Internal Revenue Service (IRS) examinations, through 2001. Boeing has filed appeals with the IRS for 1998-2001. During 2006, Boeing settled the McDonnell Douglas Corporation, a subsidiary of Boeing, appeal for
1993 through 1997 which did not have a material adverse effect on our earnings, cash flows and/or financial position.



Pursuant to our tax sharing agreement with Boeing, we received a payment with respect to tax benefits from Boeing of $25 in 2005, and made payments with respect to
tax obligations to Boeing of $126 and $123 in 2006 and 2004. We made income tax payments, net of receipts from other federal, state and foreign tax agencies, of $1, $2 and $4 in 2006, 2005 and 2004, respectively.



Note 9 Debt and Credit Agreements



Debt, including the net effects of interest rate swap revaluation adjustments and
unamortized deferred debt costs, consisted of the following at December 31:



|                                                            |  |      |       |      |   |      
|----------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                            |  | 2006 |       | 2005
|3.25%  7.64% fixed rate notes due through 2017             |  | $    | 5,263 |      | $ | 5,919
|6.59%  7.14% floating rate notes due through 2023(1)       |  |      | 119   |      |   | 129  
|4.84%  7.81% non-recourse notes due through 2013(1)        |  |      | 76    |      |   | 80   
|4.12%  8.25% capital lease obligations due through 2015(1) |  |      | 132   |      |   | 194  
|                                                            |  | $    | 5,590 |      | $ | 6,322
|                                                           



|(1) |  | Interest rates on floating rate debt are the contractual interest rates at December 31, 2006.
|--- |  | ---------------------------------------------------------------------------------------------



At December 31, 2006 and 2005, we had interest
rate swaps which effectively convert $1,545 and $2,047 from fixed rate to floating rate and $92 and $189 from floating rate to fixed rate.



On February 16, 2001, we filed a public shelf registration of $5,000 of debt securities with the Securities and Exchange Commission (SEC). As of
December 31, 2006, an aggregate amount of $402 remains available for issuance. On February 22, 2002, we filed a public shelf registration of $5,000 of debt securities with the SEC. As of December 31, 2006 an aggregate amount of
$3,019 (which includes $119 of retail medium-term notes) remains available for issuance. These shelf registrations expire in November 2008. The availability of funding under these shelf registrations as a funding source is dependent on investor
demand and market conditions.



On June 6, 2002, we established a
Euro medium-term note program in the amount of $1,500. At December 31, 2006 and 2005, we had zero debt outstanding under the program such that $1,500 would normally be available for potential debt issuance. However, debt issuance under this
program requires that documentation, information and other procedures relating to us and the program be updated within the prior twelve months. In view of our cash position and other available funding sources, we determined during 2004 that it was
unlikely we would need to use this program in the foreseeable future. The program is thus inactive but available with updated registration statements.



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We have a $1,500 Commercial Paper (CP) program that serves as a potential low-cost source of short-term liquidity
subject to market conditions. Throughout 2006 and at December 31, 2006, there were no amounts outstanding under the CP program.



The most restrictive covenants in our debt agreements require us to (a) limit the payment of cash dividends to the extent that our consolidated assets would be
less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on our property to secure indebtedness to 15% or less of consolidated assets, other than liens specifically
excluded. At December 31, 2006, as well as during the year, we were in compliance with these covenants.



In 2004, we redeemed $1,000 face value of outstanding senior notes due in 2005 and 2006 and recognized a loss of $42 which consisted of a $52 prepayment penalty for early redemption offset by $10 related
to the amount by which the fair value of our hedged redeemed debt exceeded the carrying value of our hedged redeemed debt.



Maturities of principal payments for debt and capital lease obligations are as follows at December 31:



|           |  |      |       |                |   |    
|---------- |  | ---- | ----- | -------------- | - | ---
|           |  | Debt |       | Capital Leases
|2007       |  | $    | 1,261 |                | $ | 47 
|2008       |  |      | 694   |                |   | 16 
|2009       |  |      | 519   |                |   | 9  
|2010       |  |      | 637   |                |   | 9  
|2011       |  |      | 788   |                |   | 10 
|Thereafter |  |      | 1,565 |                |   | 43 
|           |  | $    | 5,464 |                | $ | 134
|          



In 2006, 2005 and 2004, interest
payments were $353, $359 and $385, respectively.



Note 10 Derivative
Financial Instruments



We manage interest rate risk
through the use of derivatives. We enter into interest rate swap contracts with a number of major financial institutions. Since we believe it is unlikely that any of our counterparties will be unable to perform under the terms of these derivative
financial instruments, we generally do not require collateral or other security.



Fair
Value Hedges



Interest rate swaps, under which we agree to pay
variable rates of interest, are designated as fair value hedges of fixed rate debt. For our fair value hedges that qualify for hedge accounting treatment we use the short-cut method and thus there are no gains or losses recognized due to hedge
ineffectiveness. Unrealized gains or losses from changes in the value of fair value hedges are offset by changes in the fair value of the hedged underlying debt. In addition, the transition adjustment related to fair value hedges that did not
qualify for hedge accounting treatment under SFAS No. 133, as amended, is being reclassified into interest income over the remaining maturity of the hedged debt.



For the years ended December 31, 2006, 2005 and 2004, we recorded $8, $12 and $14 of income related to the amortized basis
adjustment of certain terminated swaps as a reduction of interest expense, respectively.



In 2004, as part of an early debt redemption, we redeemed 50% of our senior notes due in 2006 and accordingly, 50% of the unamortized fair value adjustment related to previously terminated swaps was recognized in income,
resulting in a $10 reduction in the cost of early debt redemption.



Cash Flow Hedges



Interest rate swap contracts under which we agree to pay a fixed
rate of interest are designated as cash flow hedges of variable-rate debt obligations.



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For our cash flow hedges that qualify for hedge accounting treatment we use the short-cut method, and thus there
are no gains or losses recognized due to hedge ineffectiveness. We record unrealized gains or losses from changes in the fair value of cash flow hedges in Accumulated other comprehensive income (loss). We also reclassify into income, as an increase
or decrease to interest expense, over the remaining maturity of the hedged variable rate debt the transition adjustment related to cash flow hedges that were recorded in Accumulated other comprehensive income as they did not qualify for hedge
accounting treatment under SFAS No. 133, as amended.



The amount
expected to be reclassified to interest expense in the next 12 months is immaterial.



Other Derivative Instruments



We hold certain interest
rate swaps which do not receive hedge accounting treatment. For the year ended December 31, 2006, we did not record any gains or losses on these interest rate swaps. For the years ended December 31, 2005 and 2004, we recorded net losses of
$4 and $3 on these interest rate swaps.



For the years ended
December 31, 2005 and 2004, we held warrants which were recorded in Other assets and the changes in their fair value resulted in an addition to Other income of $5 and a reduction to Other income of $2.



Note 11 Share-Based Plans Expense



We early adopted the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004) (SFAS No. 123R), Share-Based Paymentas of January 1, 2005, using the modified prospective method.



Share-based plans expense principally relates to Performance Shares, which are stock units that are convertible to Boeing stock, on a one-to-one basis, contingent
upon the Boeing stock price performance. Share-based plans expense is included in Operating expenses since it is incentive compensation issued primarily to our executives. For the years ended December 31, 2006, 2005 and 2004 we recorded $9, $17
and $9 attributable to share-based plans expense.



For Performance Shares
granted prior to 2005, share-based plans expense was determined based upon the market price of Boeing stock at the time of the award, applied to the maximum number of shares contingently issuable based on stock price. This expense is being amortized
over a five-year period.



For Performance Shares granted in 2005, the
fair value of each award was estimated on the date of grant using a Monte Carlo simulation model instead of the grant date market price used for previous awards. We changed our valuation technique based on further clarification provided in SFAS No.
123R and the fact that our Performance Shares contain a market condition, which in accordance with SFAS No. 123R, should be reflected in the grant date fair value of an award.



Note 12 Commitments and Contingencies



Litigation



Various legal proceedings and claims are pending or have been asserted against us. We believe that the final outcome of these proceedings and claims will not have a
material adverse effect on our earnings, cash flows and/or financial position.



Restructurings and Restructuring Requests



At
December 31, 2006 and 2005, Delta accounted for $135 and $161 of our total assets. At December 31, 2006, the Delta portfolio consisted of an investment in an EETC secured by 12 aircraft. Delta retains certain rights by operating under
Chapter 11 bankruptcy protection. As of December 31, 2006, Delta has made the contractually required payments relating to the remaining EETC held by us. We do not expect that the Delta bankruptcy, including the possible return of some or all of
the aircraft financed, will have a material effect on our future earnings, cash flows and/or financial position.



32



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At December 31, 2006 and 2005, Northwest accounted for $349 and $494 of our total assets. At December 31,
2006, the Northwest portfolio consisted of notes receivable on six aircraft, and two additional notes receivable. Northwest retains certain rights by operating under Chapter 11 bankruptcy protection. On November 8, 2006, the bankruptcy court
approved the restructured terms of certain obligations relating to the notes receivable. At December 31, 2006, Northwest is current on payments relating to the notes receivable held by us. We do not expect the Northwest bankruptcy, including
the impact of any restructurings, to have a material effect on our future earnings, cash flows and/or financial position.



In addition to the customers discussed above, certain other customers have requested a restructuring of their transactions with us. We have not reached agreement on
any other restructuring requests that would have a material adverse effect on our earnings, cash flows and/or financial position.



Commitments



At December 31, 2006, we had unfunded financing commitments of $550, and Boeing had unfunded commercial aircraft financing commitments of $9,650, consisting of both firm and contingent contracts. These commitments are
provided to give Boeing customers reasonable assurance of financing in connection with orders of Boeing products in advance of delivery. However, customers typically seek lower cost financing from other sources prior to actual delivery. In addition,
we continue to work with third party financiers to provide alternative financing to customers and eliminate the need for our financing. Based on historical experience and anticipated capital market acceptance of Boeing aircraft covered by
Boeings and our current commitments, we anticipate that a significant portion of these commitments will not be exercised by the customer or will expire without being fully drawn upon. To the extent we are obligated to provide financing, such
financing generally includes participation by engine manufacturers which further reduces our obligation. Therefore, the reported amount of commitments does not necessarily represent a future net cash requirement. However, we expect to ultimately
provide funding for those commitments which are exercised, whether they are Boeing or our commitments. If there were requirements to fund all Boeing and our commitments totaling $10,200, the timing in which these commitments may be funded (based on
estimated earliest funding dates) is as follows:



|                   |  |        |       |     |   |    
|------------------ |  | ------ | ----- | --- | - | ---
|                   |  | Boeing |       | BCC
|Less than one year |  | $      | 1,250 |     | $ | 250
|One to three years |  |        | 5,300 |     |   | 250
|Four to five years |  |        | 3,000 |     |   | 50 
|After five years   |  |        | 100   |     |   |   
|                   |  | $      | 9,650 |     | $ | 550
|                  



Lease Commitments



Rent expense for office leases under operating lease agreements was $1, $1 and $4 for
the years ended December 31, 2006, 2005 and 2004, respectively. At December 31, 2006, the minimum future rental commitments under these non-cancelable leases payable over the remaining lives of the leases aggregated $1 and are due to be
funded in less than one year.



Note 13 Off-Balance Sheet Arrangements



We are a party to off-balance sheet arrangements,
including guarantor obligations and variable interests in unconsolidated entities.



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##### Table of Contents

Guarantor Obligations



The following table provides quantitative data regarding our third party guarantees at December 31, 2006 and 2005. The maximum potential payment amounts
represent a worst-case scenario, and do not necessarily reflect results that we expect. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset
our payment obligations under guarantees. The carrying value of liabilities recorded on the consolidated balance sheets reflects fees received for extending these guarantees.



|                                    |  |                            |    |                                              |   |                                  |  |   |  
|----------------------------------- |  | -------------------------- | -- | -------------------------------------------- | - | -------------------------------- |  | - | -
|                                    |  | Maximum Potential Payments |    | Estimated Proceeds from Collateral/ Recourse |   | Carrying Value of Liabilities(2)
|Residual value guarantees           |  | $                          | 75 |                                              | $ | 75                               |  | $ | 4
|Credit and deficiency guarantees(1) |  |                            | 7  |                                              |   |                                 |  |   | 
|                                    |  | $                          | 82 |                                              | $ | 75                               |  | $ | 4
|                                   



|(1) |  | This amount is indemnified by Boeing.
|--- |  | -------------------------------------



|(2) |  | This amount is included in Other liabilities.
|--- |  | ---------------------------------------------



Under these residual value guarantees, we are obligated to make payments to a
guaranteed party if the related aircraft or equipment fair values fall below a specified amount at a future time. These obligations are collateralized principally by commercial aircraft and expire in two to four years.



Under these credit and deficiency guarantees, we are obligated to make payments to a
guaranteed party if the original debtor or lessee does not make required payments. Current outstanding credit and deficiency guarantees expire within the next six years.



Variable Interest in Unconsolidated Entities



Our investments in EETCs and other Variable Interest Entities (VIEs) are included within the scope of Revised Interpretation No. 46 (FIN 46(R)),
Consolidation of Variable Interest Entities.



We have certain
investments in EETCs which were acquired between 1999 and 2005. EETCs are interests in a trust that passively hold investments in aircraft or pools of aircraft. The EETCs provide investors with a collateral position in the related assets and
tranched rights to cash flows from a financial instrument. Our investments in EETCs do not require consolidation under FIN 46(R). At December 31, 2006, our maximum exposure to economic loss from our EETCs is $152. At December 31, 2006, the
EETC investments had total assets of $559 ($3,985 at December 31, 2005) and total debt of $407 ($3,716 at December 31, 2005). This debt is non-recourse to us and includes $394 that is senior to our investments. During 2006, we recorded
investment income of $9 and received cash of $18 related to these investments.



From 1998 through 2005 we provided subordinated loans to certain VIEs. VIEs are financial structures commonly utilized by airlines, lenders and loan guarantors. These VIEs are included in the scope of FIN 46(R); however, only certain VIEs
require consolidation. VIE arrangements are utilized to isolate individual transactions for legal liability or tax purposes, or to perfect security interests or for other structuring reasons. At December 31, 2006, certain VIEs that we did not
consolidate since we were not the primary beneficiary had total assets of $96 and total debt (which is non-recourse to us) of $88. Our maximum exposure to economic loss is $8 from these VIEs. During 2006, no investment income was recorded and no
cash was received related to these VIEs.



Capital lease obligations



We have off-balance sheet items that relate to capital lease obligations for three
financing transactions each involving an MD-11 aircraft leased to us and subleased by us to our commercial aircraft customers. At December 31, 2006 these transactions included restricted cash deposits denominated in yen in an amount equivalent
to $80 and an equal amount of liabilities reflecting our obligations to purchase underlying aircraft with these deposits by 2008. These liabilities and corresponding deposits are considered defeased based upon their structure.



34



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Note 14 Fair Value of Financial Instruments



The carrying values and estimated fair values of our financial instruments were as
follows at December 31:



|                                          |  |                |        |   |            |   |        |                |  |   |            |   |  |   |        |  
|----------------------------------------- |  | -------------- | ------ | - | ---------- | - | ------ | -------------- |  | - | ---------- | - |  | - | ------ | -
|                                          |  | 2006           |        |   | 2005       |  
|                                          |  | Carrying Value |        |   | Fair Value |   |        | Carrying Value |  |   | Fair Value |  
|ASSETS                                    |  |                |        |   |            |   |        |                |  |   |            |   |  |   |        |  
|Notes and other                           |  | $              | 1,679  |   |            | $ | 1,726  |                |  | $ | 2,181      |   |  | $ | 2,241  |  
|Interest rate swaps                       |  | $              | 15     |   |            | $ | 15     |                |  | $ | 26         |   |  | $ | 26     |  
|                                          |  |                |        |  
|LIABILITIES                               |  |                |        |   |            |   |        |                |  |   |            |   |  |   |        |  
|Debt, excluding capital lease obligations |  | $              | (5,458 | ) |            | $ | (5,599 | )              |  | $ | (6,128     | ) |  | $ | (6,440 | )
|Interest rate swaps                       |  | $              | (25    | ) |            | $ | (25    | )              |  | $ | (32        | ) |  | $ | (32    | )
|                                          |  |                |        |  
|OFF-BALANCE SHEET ARRANGEMENTS            |  |                |        |   |            |   |        |                |  |   |            |   |  |   |        |  
|Guarantor obligations from us             |  | $              | (4     | ) |            | $ | (4     | )              |  | $ | (4         | ) |  | $ | (4     | )



Items not included in the above
disclosures are Cash and cash equivalents and Investments. The estimated fair value of those items approximate their fair value at December 31, 2006 and 2005 as reflected in the Consolidated Balance Sheets.



The following methods and assumptions were used to estimate the fair value of each
class of financial instruments:



Notes and other. The fair
value of our variable rate notes that reprice frequently approximate their carrying values. The fair values of fixed rate notes are estimated using discounted cash flows analysis using interest rates currently offered on loans with similar terms to
borrowers of similar credit quality.



Interest rate
swaps. The fair values of our interest rate swaps are based on standard discounted cash flow techniques or quoted market prices of comparable instruments.



Debt, excluding capital lease obligations. The fair values of debt are based on current market rates for debt of the same
risk and maturities. Our debt is generally not callable until maturity.



Financing commitments. It is not practicable to estimate the fair value of future financing commitments because the amount and timing of funding those commitments are uncertain.



Guarantees. For residual value, credit and deficiency guarantees where we
are the guarantor, the present value of the expected liability has been used to approximate fair value.



Note 15 Concentrations



Generally, each asset in our portfolio is backed by the value of the equipment that we have financed, the particular customers credit and, at times, other collateral or transactional features. Additionally, our risk on certain
transactions has been mitigated in part by transactional support provided by Boeing; that support is concentrated on financing of the 717 aircraft in our portfolio.



Portfolio carrying values for our five largest customers were as follows at December 31:



|         |  |                |       |                      |      |  
|-------- |  | -------------- | ----- | -------------------- | ---- | -
|         |  | 2006           |      
|         |  | Carrying Value |       | % of Total Portfolio |     
|AirTran  |  | $              | 1,592 |                      | 19.8 | %
|United   |  |                | 749   |                      | 9.3  |  
|American |  |                | 678   |                      | 8.4  |  
|Midwest  |  |                | 617   |                      | 7.7  |  
|Hawaiian |  |                | 434   |                      | 5.4  |  
|         |  | $              | 4,070 |                      | 50.6 | %
|         | 



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|          |  |                |       |                      |      |  
|--------- |  | -------------- | ----- | -------------------- | ---- | -
|          |  | 2005           |      
|          |  | Carrying Value |       | % of Total Portfolio |     
|AirTran   |  | $              | 1,679 |                      | 18.2 | %
|United    |  |                | 1,080 |                      | 11.7 |  
|American  |  |                | 729   |                      | 7.9  |  
|Midwest   |  |                | 552   |                      | 6.0  |  
|Northwest |  |                | 494   |                      | 5.4  |  
|          |  | $              | 4,534 |                      | 49.2 | %
|          | 



For the years ended
December 31, 2006 and 2005, AirTran Holdings, Inc. accounted for 13% of our revenue.



Portfolio carrying values were represented in the following regions at December 31:



|                 |  |                |       |                      |       |   |                |   |                      |  |       |  
|---------------- |  | -------------- | ----- | -------------------- | ----- | - | -------------- | - | -------------------- |  | ----- | -
|                 |  | 2006           |       |                      | 2005  |  
|                 |  | Carrying Value |       | % of Total Portfolio |       |   | Carrying Value |   | % of Total Portfolio | 
|United States(1) |  | $              | 6,165 |                      | 76.7  | % |                | $ | 6,783                |  | 73.7  | %
|Europe           |  |                | 1,041 |                      | 13.0  |   |                |   | 1,171                |  | 12.7  |  
|Asia/Australia   |  |                | 522   |                      | 6.5   |   |                |   | 624                  |  | 6.8   |  
|Latin America    |  |                | 191   |                      | 2.4   |   |                |   | 490                  |  | 5.3   |  
|Other            |  |                | 115   |                      | 1.4   |   |                |   | 138                  |  | 1.5   |  
|                 |  | $              | 8,034 |                      | 100.0 | % |                | $ | 9,206                |  | 100.0 | %
|                 | 



|(1) |  | United States includes assets held for sale or re-lease that may be physically located in another region.
|--- |  | ---------------------------------------------------------------------------------------------------------



Revenue from customers by geographic region was as
follows for the years ended December 31:



|               |  |      |       |      |   |      |  |   |    
|-------------- |  | ---- | ----- | ---- | - | ---- |  | - | ---
|               |  | 2006 |       | 2005 |   | 2004
|United States  |  | $    | 740   |      | $ | 622  |  | $ | 578
|Europe         |  |      | 136   |      |   | 143  |  |   | 152
|Asia/Australia |  |      | 75    |      |   | 95   |  |   | 110
|Latin America  |  |      | 60    |      |   | 92   |  |   | 108
|Other          |  |      | 14    |      |   | 14   |  |   | 11 
|               |  | $    | 1,025 |      | $ | 966  |  | $ | 959
|              



Portfolio carrying values were
represented by the following product types at December 31:



|         |  |      |       |      |   |      
|-------- |  | ---- | ----- | ---- | - | -----
|         |  | 2006 |       | 2005
|717      |  | $    | 2,590 |      | $ | 2,634
|757      |  |      | 1,171 |      |   | 1,222
|767      |  |      | 739   |      |   | 907  
|777      |  |      | 718   |      |   | 1,048
|MD-11    |  |      | 660   |      |   | 689  
|737      |  |      | 588   |      |   | 737  
|747      |  |      | 454   |      |   | 504  
|MD-80    |  |      | 382   |      |   | 412  
|Other(1) |  |      | 732   |      |   | 1,053
|         |  | $    | 8,034 |      | $ | 9,206
|        



|(1) |  | Other includes receivables, stock, equipment and aircraft. Some of these aircraft are out of production, but
are supported by the manufacturer or other third party parts and service providers.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Our aircraft portfolio by vintage, based on carrying value (excluding investments and pooled assets), are
categorized as follows at December 31:



|               |  |       |   |  |       |  
|-------------- |  | ----- | - |  | ----- | -
|               |  | 2006  |   |  | 2005  |  
|2002 and newer |  | 38.7  | % |  | 37.7  | %
|1997 - 2001    |  | 39.8  |   |  | 39.8  |  
|1992 - 1996    |  | 12.0  |   |  | 11.1  |  
|1991 and older |  | 9.5   |   |  | 11.4  |  
|               |  | 100.0 | % |  | 100.0 | %
|               | 



Note 16 Discontinued
Operations



On May 24, 2004, we entered into a
purchase and sale agreement with General Electric Capital Corporation (GECC) to sell substantially all of the assets related to our Commercial Financial Services business. The final asset sale closed December 27, 2004.



Part of the purchase and sale agreement with GECC includes a loss sharing arrangement
for losses that may exist at the end of the initial and subsequent financing periods of the transferred portfolio assets, or in some instances, prior to the end of the financing period, such as certain events of default and repossession. The loss
sharing arrangement provides that cumulative net losses (if any) are to be shared between us and GECC. The provisions effectively limit our exposure to any losses to $245. At December 31, 2006, our maximum exposure to loss associated with the
loss sharing arrangement was $218, for which we have accrued a liability of $78.



Reserve under the loss sharing arrangement, which is included in Other liabilities was as follows for the year ended December 31:



|                                      |  |      |     |   |      |   |     |  
|------------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|                                      |  | 2006 |     |   | 2005 |  
|Reserve at beginning of period        |  | $    | 81  |   |      | $ | 90  |  
|Increase (reduction) in reserve       |  |      | (10 | ) |      |   | 25  |  
|Payments received from (made to) GECC |  |      | 7   |   |      |   | (34 | )
|Reserve at end of period              |  | $    | 78  |   |      | $ | 81  |  
|                                      | 



Operating results of the
discontinued operations were as follows for the years ended December 31:



|                                                                   |  |      |    |      |   |     |      |  |   |   
|------------------------------------------------------------------ |  | ---- | -- | ---- | - | --- | ---- |  | - | --
|                                                                   |  | 2006 |    | 2005 |   |     | 2004
|Revenue                                                            |  | $    |   |      | $ | 3   |      |  | $ | 96
|                                                                  
|Income from discontinued operations                                |  | $    |   |      | $ |    |      |  | $ | 16
|Provision for income tax                                           |  |      |   |      |   |    |      |  |   | 6 
|Income from discontinued operations, net of tax                    |  | $    |   |      | $ |    |      |  | $ | 10
|                                                                  
|                                                                   |  |      |   
|Net gain (loss) on disposal of discontinued operations             |  | $    | 14 |      | $ | (12 | )    |  | $ | 66
|Provision (benefit) for income tax                                 |  |      | 5  |      |   | (5  | )    |  |   | 24
|Net gain (loss) on disposal of discontinued operations, net of tax |  | $    | 9  |      | $ | (7  | )    |  | $ | 42
|                                                                  



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Note 17 Quarterly Financial Information (Unaudited)



|                                  |  |                    |     |         |   |     |              |  |             |     |  |   |    
|--------------------------------- |  | ------------------ | --- | ------- | - | --- | ------------ |  | ----------- | --- |  | - | ---
|                                  |  | Three Months Ended
|                                  |  | March 31           |     | June 30 |   |     | September 30 |  | December 31
|2006                              |  |                    |     |         |   |     |              |  |             |     |  |   |    
|Revenue                           |  | $                  | 237 |         | $ | 243 |              |  | $           | 304 |  | $ | 241
|Income from continuing operations |  | $                  | 49  |         | $ | 41  |              |  | $           | 78  |  | $ | 17 
|Net income                        |  | $                  | 49  |         | $ | 41  |              |  | $           | 78  |  | $ | 26 
|                                  |  |                    |     |        
|2005                              |  |                    |     |         |   |     |              |  |             |     |  |   |    
|Revenue                           |  | $                  | 237 |         | $ | 261 | (1)          |  | $           | 230 |  | $ | 238
|Income from continuing operations |  | $                  | 29  |         | $ | 76  | (1)          |  | $           | 15  |  | $ | 26 
|Net Income                        |  | $                  | 29  |         | $ | 71  |              |  | $           | 13  |  | $ | 26 
|                                 



|(1) |  | Certain reclassifications have been made to conform to the current years presentation.
|--- |  | ---------------------------------------------------------------------------------------



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A. Controls and Procedures



(a)
Evaluation of Disclosure Controls and Procedures



Our principal executive
officer and principal financial officer, based on their evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K, have
concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



(b) Change in Internal Controls



There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Item 9B. Other Information



None.



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PART III



Item 10. Directors, Executive Officers and Corporate Governance



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



Item 11. Executive Compensation



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



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



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



Item 13. Certain Relationships and Related Transactions, and Director Independence



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



Item 14. Principal Accounting Fees and Services



The aggregate fees billed by Deloitte & Touche LLP, our Independent Registered Public Accounting Firm, were as follows during the years ended 2006 and 2005:



|                                               |  |      |     |      |   |    
|---------------------------------------------- |  | ---- | --- | ---- | - | ---
|Services Rendered / Fees (Dollars in millions) |  | 2006 |     | 2005
|Audit fees(1)                                  |  | $    | 2.1 |      | $ | 2.1
|                                              



|(1) |  | For professional services rendered for the audit of our annual financial statements, the reviews of the
financial statements included in our Form 10-Qs for the years ended 2006 and 2005, fees for issuance of consents related to SEC filings and other statutory audits.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a wholly owned subsidiary of The Boeing Company (Boeing), audit and non-audit services provided by our independent auditor are
subject to Boeings Audit Committee (Committee) pre-approval policies and procedures. The Committee pre-approved all services provided by, and all fees of, our independent auditor.



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PART IV



Item 15. Exhibits, Financial Statement Schedules



(a)    1.        Financial Statements:



All consolidated financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.



| | 2. |  | Financial Statement Schedule
| | -- |  | ----------------------------



None.



| | 3. |  | Exhibits
| | -- |  | --------



| | 3.1 |  | Restated Certificate of Incorporation of the Company dated June 29, 1989, incorporated herein by reference to Exhibit 3.1 to our Form 10-K for the year ended
December 31, 1993.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.2 |  | Certificate of Amendment of the Restated Certificate of Incorporation of the Company dated August 11, 1997, incorporated herein by reference to Exhibit 3(i) to our
Form 10-Q, for the period ended June 30, 1997.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.3 |  | By-Laws of the Company dated July 22, 1993, incorporated herein by reference to Exhibit 3.2 to our Form 10-K for the year ended December 31, 1993.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.1 |  | First Supplemental Indenture, dated June 12, 1995, between the Company and Bankers Trust Company, incorporated herein by reference to Exhibit 4(b) to our Form S-3
Registration Statement (File No. 33-58989).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.2 |  | Indenture, dated April 15, 1987, incorporated herein by reference to Exhibit 4 to our Form S-3 Registration Statement (File No. 33-26674).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------



| | 4.3 |  | Senior Indenture, dated August 31, 2000, incorporated by reference to Exhibit 4(a) to our Amendment No. 2 to Form S-3 Registration Statement, dated
August 30, 2000 (File No. 333-82391).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.4 |  | Subordinated Indenture, dated August 31, 2000, incorporated by reference to Exhibit 4(b) to our Amendment No. 2 to Form S-3 Registration Statement, dated
August 30, 2000 (File No. 333-82391).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.5 |  | Form of Series X Senior Fixed Rate Medium-Term Note, incorporated herein by reference to Exhibit 4(e) to our Form S-3 Registration Statement (File No. 33-58989).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.6 |  | Form of Series X Senior Floating Rate Medium-Term Note, incorporated herein by reference to Exhibit 4(h) to our Form S-3 Registration Statement (File No. 33-58989).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.7 |  | Form of Series X Senior Fixed Rate Medium-Term Note, incorporated by reference to Exhibit 4(e) to our Form S-3 Registration Statement (File No. 333-37635).
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.8 |  | Form of Series X Senior Floating Rate Medium-Term Note, incorporated by reference to Exhibit 4(g) to our Form S-3 Registration Statement (File No. 333-37635).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.9 |  | Form of Series XI Senior Fixed Rate Medium-Term Note, incorporated by reference to Exhibit 4(c) to our Form S-3 Registration Statement (File No. 333-82391).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.10 |  | Form of Series XI Subordinated Fixed Rate Medium-Term Note, incorporated by reference to Exhibit 4(d) to our Form S-3 Registration Statement (File No. 333-82391).
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.11 |  | Form of Series XI Senior Floating Rate Medium-Term Note, incorporated by reference to Exhibit 4(e) to our Form S-3 Registration Statement (File No. 333-82391).
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.12 |  | Form of Series XI Subordinated Floating Rate Medium-Term Note, incorporated by reference to Exhibit 4(f) to our Form S-3 Registration Statement (File No. 333-82391).
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, we are not filing certain instruments with respect to our
debt, as the total amount of securities currently provided for under each of such instruments does not exceed 10 percent of our total assets on a consolidated basis. We hereby agree to furnish a copy of any such instrument to the SEC upon request.



| | 10.1 |  | 364-Day Credit Agreement dated November 17, 2006, between Boeing and the banks listed therein.
| | ---- |  | ----------------------------------------------------------------------------------------------



| | 10.2 |  | Five-Year Credit Agreement dated November 17, 2006, between Boeing and the banks listed therein.
| | ---- |  | ------------------------------------------------------------------------------------------------



| | 10.3 |  | Letter agreement relating to the 364-Day Credit Agreement and the Five-Year Credit Agreement, dated November 17, 2006, between Boeing and us.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| | 10.4 |  | Operating Agreement, dated September 13, 2000, by and between us, Boeing Capital Services Corporation and Boeing, incorporated herein by reference to Exhibit 10.1 to
our Form 8-K filed September 19, 2000.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.5 |  | Operating Agreement, dated September 13, 2000, by and between Boeing Capital Services Corporation and Boeing, incorporated herein by reference to Exhibit 10.2 to our
Form 8-K filed September 19, 2000.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.6 |  | Support Agreement, dated December 23, 2003, by and between us and Boeing, incorporated herein by reference to Exhibit 99.1 to our Form 8-K filed December 24,
2003.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.7 |  | Purchase and Sale Agreement dated May 24, 2004, among Boeing Capital Corporation, BCC Equipment Leasing Corporation, McDonnell Douglas Overseas Finance Corporation,
Boeing Capital Loan Corporation and General Electric Capital Corporation, incorporated herein by reference to Exhibit 10.1 to our 8-K dated June 24, 2004.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.8 |  | Amendment and Joint Waiver dated May 31, 2004, among Boeing Capital Corporation, BCC Equipment Leasing Corporation, McDonnell Douglas Overseas Finance Corporation,
Boeing Capital Loan Corporation and General Electric Capital Corporation, incorporated herein by reference to Exhibit 10.2 to our Form 8-K dated June 24, 2004.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 |  | Computation of Ratio of Earnings to Fixed Charges.
| | -- |  | --------------------------------------------------



| | 23 |  | Consent of Independent Registered Public Accounting Firm.
| | -- |  | ---------------------------------------------------------



| | 31.1 |  | Certification of President pursuant to Rules 13a-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.2 |  | Certification of Chief Financial Officer pursuant to Rules 13a-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.1 |  | Certification of President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document is being
furnished in accordance with Securities and Exchange Commission Release Nos. 33-8212 and 34-47551.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document
is being furnished in accordance with Securities and Exchange Commission Release Nos. 33-8212 and 34-47551.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Signatures



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                  |  |                                                                                                             
|----------------- |  | ------------------------------------------------------------------------------------------------------------
|                  |  | Boeing Capital Corporation                                                                                  
|                  | 
|February 16, 2007 |  | /s/ RUSSELL A. EVANS                                                                                        
|                  |  | Russell A. Evans                                                                                            
|                  |  | Vice President and Chief Financial Officer (Principal Financial Officer)
and Registrants Authorized Officer
|                  | 
|February 16, 2007 |  | /s/ KEVIN J. MURPHY                                                                                         
|                  |  | Kevin J. Murphy                                                                                             
|                  |  | Controller (Principal Accounting Officer)                                                                   



Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                  |  |                                                                          
|----------------- |  | -------------------------------------------------------------------------
|                  |  | Boeing Capital Corporation                                               
|                  | 
|February 16, 2007 |  | /s/ JAMES A. BELL                                                        
|                  |  | James A. Bell Chairman and Director                                      
|                  | 
|February 16, 2007 |  | /s/ JAMES C. JOHNSON                                                     
|                  |  | James C. Johnson Director                                                
|                  | 
|February 16, 2007 |  | /s/ R. PAUL KINSCHERFF                                                   
|                  |  | R. Paul Kinscherff Director                                              
|                  | 
|February 16, 2007 |  | /s/ WALTER E. SKOWRONSKI                                                 
|                  |  | Walter E. Skowronski President and Director (Principal Executive
Officer)



42