Boeing Hit with Expanded Lawsuit Detailing Massive Production Problems, Dozens of Attempts to Hide Financial Losses

11/19/1997

SEATTLE – Seattle attorney Steve Berman today filed another class-action suit against The Boeing Company and several Boeing officials, expanding the claims against the aerospace giant. New charges contend that while the company experienced severe production problems in its 747 aircraft production line, its officials willfully withheld the information until a pending merger with McDonnell Douglas was complete, costing shareholders an estimated $4 billion.

The suit contends that production problems included the inability to join the cockpit with the other sections of fuselage. According to the suit, the inability to precisely join sections caused thousands of costly problems in fitting other sections of the airframe together.

According to the complaint, Boeing knew in October 1994 that parts manufactured by Boeing and subcontractors were riddled with defects caused by the age of tools and jigs and other manufacturing problems.

The suit also describes the use of "best fit" solutions, which include installing bolts of the wrong size on aircraft, pre-stressing the bolts by hammering and forcing them into misaligned holes as well as the failure to install all the bolts required in approved plans.

"The complaint alleges that Boeing knew 747 production lines were in big trouble and would cost the company millions," Berman said. "The company had an obligation to disclose that to shareholders, but we believe we will prove that they hid the information until after shareholders approved the McDonnell Douglas merger. What they didn't expect is that shareholders would find out."

The suit also charges that Boeing personnel were instructed to speed up production even when it meant using improper parts. The suit contains excerpts from internal company records detailing parts failures and failed attempts to correct the problems.

According to Berman, production costs spiraled to five times what the company budgeted for many of its orders because of massive overtime labor expenses and changes in engineering plans. At the same time, Boeing officials gave aircraft purchasers deep discounts to secure market share.

"It is our contention that Boeing was very quick to announce new sales, although the company knew increased demand would simply put more stress on an assembly process that was already teetering on upheaval," Berman noted. "Boeing officials knew that for the merger to go forward, they would have to do a good sales job with M-D. That included insuring that Boeing stock would continue to increase in price or at least stay level. I doubt that would have happened if they had painted a realistic picture for the second quarter."

The suit contains new details of Boeing problems including Boeing's attempts to address the situation by creating the Fuselage Assembly Improvement Team to hammer out production problems known within Boeing as "tooling-induced error." According to the suit, the team's work is not scheduled for completion until December 1999.

The suit also states that Chief Executive Officer and Chairman of the Board of Directors Philip M. Condit, Chief Financial Officer Boyd E. Givan and Ronald Woodard, president of the Boeing Commercial Airplane Group, were aware of these production problems, but continued to paint an unrealistically positive picture in news releases and in public appearances.

"Our research shows that Boeing had a clear picture of widespread production problems as early as May 1997 and specific information that the 737 line was losing millions as early as 1996," Berman said. "But the company chose to conceal the $183 million in losses until after it closed the merger with McDonnell Douglas.

"Like many class action suits, as soon as we filed our original complaint last month, attorneys from all over the place filed 'me-too' claims," Berman noted. "Our claims are backed up by hundreds of hours of research and volumes of documentation. None of the other suits have anywhere near the level of detailed and precise information."

Hagens and Berman's major focus is class action and multi-plaintiff litigation, representing plaintiffs in securities and investment fraud actions across the country. To date, the firm has recovered more than $1 billion. Steve Berman, managing partner of the firm recently gained national attention as legal counsel for 13 states in the landmark $368 billion tobacco settlement. Berman was also one of the chief architects of the historic Liggett tobacco settlement.

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About Hagens Berman
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with offices in nine cities. The firm has been named to the National Law Journal’s Plaintiffs’ Hot List seven times. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at @ClassActionLaw.

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