Boeing Stock Plunges on Report of SEC Accounting Probe

USA aerospace giant Boeing’s shares dived Thursday amid speculation that regulators are investigating its accounting for its 787 and 747 aircraft.

The probe, which involves a whistleblower’s complaint, centers 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.

Boeing stock is down roughly 10% in morning trading. Boeing’s stock has plunged 28% year to date, while the Dow has lost 11%. Neither the company nor the SEC commented on the report.

The Wall Street Journal also reported this week that Boeing plans to implement a cost-cutting strategy – which will include layoffs – to address growing threats from competitors.

According to Bloomberg, the Securities & Exchange Commission (SEC) is investing Boeing Co.

Program accounting is an acceptable practice, according to the SEC, and widely used by the aerospace industry.

Boeing uses a method called program accounting for its jetliners that enables it to spread the multibillion-dollar costs of developing new airliners over many years of the jet program’s expected production. “We typically do not comment on media inquiries of this nature”, a spokesman said.

Boeing allegedly abused this accounting measure to mask unrecoverable costs for the 787 and the newest 747, which both debuted in 2011 after years of delay.

Boeing said the 787 had accumulated US$32.4 billion in deferred production costs, including tooling and other one-time charges.

Boeing’s Chief Financial Officer Greg Smith said in January the company wrote off $885 million after reducing production of the 747 to six planes a year, and that there was a risk of an overall loss on the program. To recover the $30 billion already spent, Boeing must build each of the next 700 787s for an average cost of about $91 million, says Richard Aboulafia, vice-president of analysis for the Teal Group.