The SEC is reportedly investigating whether Boeing misled investors in the accounting of its 747 and 787 airplanes.
Boeing is being probed for the way it details the costs and expected sales associated with its aircraft, according to a Bloomberg report that cites anonymous sources.
Shares of Boeing fell by as much as 12% on Thursday.
Both the SEC and Boeing declined to comment on whether an investigation is underway. The SEC typically keeps its probes quiet until it considers whether or not to bring charges against a company.
At issue, according to Bloomberg, is “program accounting” — a technique that allows the company to spread out its hefty upfront manufacturing costs over time.
As sales of new planes grow over time, the costs of parts goes down and profitability rises. But instead of incurring big losses up front and big profits down the road, program accounting typically has the effect of smoothing out what would otherwise be roller-coaster earnings.
Program accounting is an acceptable practice, according to the SEC, and widely used by the aerospace industry.
Bloomberg reports that the SEC is probing Boeing’s accounting: Did it misstate its sales and cost forecasts?
The latest 747 and 787 aircraft have been plagued by delays, including some embarrassing mishaps with the 787’s on-board batteries.
Boeing has delivered 363 “Dreamliner” 787s over the past three years and it has orders for 779 more. That’s a total of 1,142 orders so far. But in its accounting, Boeing has been saying it expects orders of 1,300 Dreamliners. It could still reach that number — but might it might not.
The company has also already incurred $28.5 billion in expenses for building the 787s. If it doesn’t end up selling 1,300 of them, or if its manufacturing costs don’t decline, Boeing might have to incur a hefty loss.
The 747 has been plagued by lower orders, as airlines have shown less interest in jumbo jets and freight traffic has grown more slowly than Boeing had expected. The company has delivered just 37 of the planes over the past three years, and it has slowed production of new 747s to just one every two months.
