CHICAGO (CN) -Boeing inflated its share price by concealing a structural defect in its “eagerly awaited” 787 Dreamliner, misrepresenting the plane’s test results and the company’s ability to meet deadlines for the maiden flight and commercial delivery, shareholders say in a federal class action.
When Boeing finally revealed the truth, its stock price dropped by 12 percent in two days, the class claims.
The shareholders say Boeing had suffered scheduling problems and canceled orders, but issued a misleading press release to forestall more cancellations as orders for the competing Airbus A380 were growing.
The class claims that Boeing concealed problems with the 787’s design that would delay the maiden flight and delivery. It issued the allegedly misleading press release so it could “make a positive presentation concerning the test results for the 787 and the schedule for the first flight and delivery of the 787 at the Paris Air Show” in June 2008, where it would compete for orders with Airbus, according to the complaint.
The press release had its desired effect, the class claims, and the price of Boeing common stock rose immediately by 2.4 percent, to close at $41.77.
The stock price continued to rise as Boeing touted “steady progress” toward a maiden flight and completion of the intermediate “gauntlet phase” of testing, which simulates flight conditions and multiple systems failures.
Boeing also claimed final assembly had begun on the first plane destined for delivery, and continued to veil the defect and its repercussions, the complaint alleges.
When it suddenly, and belatedly, disclosed the defect and delays, and confessed prior knowledge of the problems, its “lack of timely candor” and lack of a revised schedule caused an immediate drop in its stock price, shareholders say.
A key paragraph in the 27-page complaint states: “As the date for the maiden flight of the 787 approached, defendants made a series of misleading statements to the market concerning the results of the testing process for the 787 and Boeing’s ability to meet the schedule for the first flight and the delivery of the 787. Defendants made these false and misleading statements in an effort to: (a) forestall further cancellations of orders for the 787, particularly as the orders for its competition, the A380, were gaining ground; (b) conceal from the market the material fact, known to defendants, that the 787 had a structural problem in its design that would prevent the first flight of the 787 by June 30, 2009, and delivery in the first quarter of 2010; and (c) enable Boeing to make a positive presentation concerning the test results for the 787 and the schedule for the first flight and delivery of the 787 at the Paris Air Show, scheduled for June 15-18, 2009, at which Boeing hoped to receive additional orders for the 787 and beat out the showing made by Airbus for its A380.”
The class accuses Boeing and its executives W. James McNerney, Jr. and Scott E. Carson of securities violations. They seek class certification, compensatory damages and costs, and are represented by Marvin Miller.
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