Class Questions Boeing’s Accounting Methods

     CHICAGO (CN) – Shareholders claim in a federal class action that Boeing’s financial reports relied on inflated sales forecasts for its 747 and 787 Dreamliner airplanes.
     Tibuhuwan Bisht filed a class action Monday against the Boeing Company, CEO Dennis Muilenburg and CFO Gregory Smith in Northern Illinois Federal Court.
     Bisht says Boeing is being investigated by the U.S. Securities and Exchange Commission (SEC) for using an accounting method that inflated profits on its 747 jumbo aircrafts and 787 Dreamliner planes.
     “Since 2003, Boeing’s Commercial Airplanes segment has employed the program accounting method, in which the company does not attribute costs for producing a unit to that same unit, but rather divides those costs over an entire jetliner program, essentially allowing Boeing to average out costs and anticipated profits over the duration of the ‘program’ for a specific jet, a period that can last decades and encompass hundreds or even thousands of aircraft,” the 34-page complaint states.
     On Feb. 11, Bloomberg News reported that a whistleblower had given the SEC insider data on Boeing’s accounting practices, and that the agency was examining the company’s financial statements for misrepresentations that may have underestimated production costs and relied on inflated sales forecasts.
     The SEC investigation “is potentially material and now a key focus for us,” Seth Seifman, an analyst at JPMorgan Chase & Co., said in a note to clients quoted in Bloomberg’s story and Monday’s complaint.
     “If the issue here is whether Boeing should have already booked a 787 charge that many believe inevitable, that will be less damaging to the stock,” Seifman said. “If there is any impact on our 787 cash flow forecasts for the coming years, this would be more significant.”
     On this news, Boeing shares fell 6.8 percent to close at $108.44 on Feb. 11. Boeing stock bounced back from the drop, with the company’s shares closing Monday at $117.35 per share.
     Shareholders seek damages for violations of the Exchange Act. They are represented by Louis Ludwig with Pomerantz LLP in Chicago.

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