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Accounting Turbulence At Boeing Case Solution

Solution Id Length Case Author Case Publisher
1709 1153 Words (5 Pages) Jonas Heese, Suraj Srinivasan, David Lane, James Barnett Harvard Business School : 118020
This solution includes: A Word File A Word File

Boeing is a US-based aircraft manufacturing company which has faced severe criticism and investigation from the market participants and the regulatory bodies. Boeing set up its production for 787 Dreamliner models to get an edge over its rivals. To show increased profitability, Boeing engaged in Program Accounting to spread its production cost throughout the program. The competitors of Airbus didn't follow this practice because of IFRS not allowing it. Program accounting makes it difficult to audit the financial statements as it is based on estimated calculations which may vary due to changing market conditions and make it prone to financial frauds.

Following questions are answered in this case study solution

  1. Introduction and Problem Statement

  2. Case Study Analysis

  3. Strategic Alternatives

  4. Recommended Action Plan

Case Analysis for Accounting Turbulence At Boeing Case Solution

This is a huge concern as it would affect Boeing’s reputation in the market. It would make its buyers uncertain about its financial capabilities and ability to deliver threatening it to lose its market share. Boeing failed to abide by the criteria set by AICPA to follow program accounting. It estimated incorrect sales volume for its previous programs and amended its production plan later to spread its costs further. It was even fined for a private securities fraud case. Therefore, this problem needs to be dealt with quickly. Furthermore, there is also a considerable probability that the estimates might go incorrect causing it to misprice its planes resulting in losses.

2. Case Study Analysis

The current aircraft industry has a huge potential to grow due to the growth of economies and improved living standard of people. The competition in the airline industry has also grown owing to many new airlines setting up in different areas to facilitate customers. There has been an increase in the short haul as well as long haul flights due to new routes being introduced. The competition has placed a huge pressure on the airlines' industry to increase their planes to cater to growing passengers as well as lower costs or else they would lose their customers to other airlines. Therefore, the airline companies in turn press on the aircraft manufacturers for quicker aircraft deliveries at attractive prices so that their profits do not get squeezed up.

A good strength about Boeing is that along with Airbus; it comprises of 69% of market share which shows that it could still influence its buyers. However, it should be mindful of the threat posed by Airbus whose past performance trend has been comparatively better than Boeing. This can be attributed to its transparent accounting practices with complete disclosures. Also, with the growth in tourism and the introduction of new routes by competing airlines, there has been an increase in short and long hauls. This has raised demand for aircrafts adapted route wise to ensure maximum capacity utilisation and help lower the refuelling costs for the airline industry.

It should also be considered that the production of 787 Dreamliner which is a mid-long haul plane might not work towards changing market dynamics where connecting flights have decreased to prioritise customer convenience. Therefore, for shorter distances, small aeroplanes have become common which might undermine the demand for the 787 Dreamliner causing the estimated demand to become incorrect. This could result in further problems for Boeing from the corporate governance point of view.  

An opportunity for Boeing is that the demand is expected to continue to rise in the near future. By establishing its goodwill, airline companies would be more willing to buy it as they would not question its capability in delivering orders after taking advance payments. Having negative goodwill in the market would cause a substantial problem as it would find difficult taking orders and there is a threat that it might lose its market share. Another major threat that the company faces is that by following program accounting, it has spread its production plan over a long period.

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