Report: Auditor critical of Boeing; '97 cost overruns raised Deloitte's concerns

CHICAGO — Boeing's use of so-called program accounting to spread out costs for building planes over several years was criticized by auditor Deloitte & Touche, BusinessWeek reported on its online site yesterday.

The company should have taken charges against earnings in the first half of 1997 because production lines were behind schedule, the magazine reported, citing accountants. Boeing said most of the planes were shipped on time.

Deloitte, which said it acted properly in the matter, wrote in a 1997 paper that cost overruns should have been charged in the first half of that year, the magazine reported, citing a memo. Boeing's accord to purchase McDonnell Douglas may have been scuttled if investors had known earlier about the production problems, the magazine said.

"Boeing did not hide its production problems ," Boeing spokesman Larry McCracken said last night. "(The charges) were appropriately recorded in the proper quarter."

The BusinessWeek story, McCracken said, relied on "sound bites and snippets of untested allegations in a lawsuit that never went to trial."

Boeing agreed to pay $92.5 million in September to settle a class-action lawsuit alleging the company concealed the production difficulties from shareholders to keep its stock price aloft and preserve the McDonnell Douglas deal.

Boeing made no admissions of liability or wrongdoing as part of the settlement, and insurance covered the settlement fees.

"There is a big surprise coming, and I think we owe the Street a heads-up," Boeing's then-president Harry Stonecipher wrote in an e-mail Oct. 8, 1997, several weeks before the company said it would write off $2.6 billion to cover the costs of solving its production problems, according to BusinessWeek.

"We have an unmitigated disaster on our hands and need some very candid damage control."

Seattle Times aerospace reporter David Bowermaster contributed to this report.