Boeing said to face SEC probe into costs, sales of Dreamliner and 747
THE SECURITIES and Exchange Commission is investigating whether Boeing properly accounted for the costs and expected sales of two of its best known jetliners, according to people with knowledge of the matter.
The probe centres on projections Boeing made about the long-term profitability for the 787 Dreamliner and the 747 jumbo aircraft, said one of the people, who asked not to be named because the investigation isn’t public. Both planes are among Boeing’s most iconic, renowned for the technological advancements they introduced, as well as the development headaches they brought the company. Underlying the SEC review is a financial reporting method known as programme accounting that allows Boeing to spread the enormous upfront costs of manufacturing planes over many years.
While the SEC has broadly blessed its use in the aerospace industry, critics have said the system can give too much leeway to smooth earnings and obscure potential losses.
“We typically do not comment on media inquiries of this nature,” Boeing spokesman Chaz Bickers said in an emailed statement. SEC spokesman John Nester declined to comment.
SEC enforcement officials have yet to reach any conclusions and could decide against bringing a case, said the people.
The issues involved are complex and there are few blackand-white rules governing how companies apply programme accounting, one person said.
Programme accounting has been around for decades. It was first championed by the aerospace industry to address the problem that companies’ biggest expenses are amassed upfront, as they design planes and devise manufacturing processes. Costs typically fall as the assembly becomes more efficient, making it cheaper to build the later jets than the earlier ones.
The method, which is fully compliant with Generally Accepted Accounting Principles, lets companies average out the costs and anticipated profits over the duration of the “programme” for a specific jet, a period that can last decades and encompass hundreds or even thousands of aircraft. The expected costs and sales are estimates and they must be updated – and a loss recorded – when the programme is determined to have reached a point where earnings won’t catch up to losses.
As part of the investigation, SEC enforcement attorneys are examining whether Boeing’s financial statements relied on sales forecasts that might be too optimistic, one person said. Another avenue of inquiry is whether Boeing’s estimates for declining production costs will come to fruition, the person said. — WP-Bloomberg