Sustainable Enterprise Program
A program of the World Resources Institute
THE BOEING COMPANY: ENVIRONMENTAL MITIGATION COSTS
For more than a decade, WRI's Sustainable Enterprise Program (SEP) has harnessed the power of business to . create profitable solutions to environment and development challenges. BELL, a project of SEP, is focused on working with managers andacademics to make companies more competitive by approaching social and environmental challenges as unmet market needs that provide business growth opportunities through entrepreneurship, innovation, and organizational change. Permission to reprint this case is available at the BELL case store. Additional information on the Case Series, BELL, and WRI is available at: www.BELLinnovation.org.Boeing Company executives felt blindsided. After carefully analyzing where it should produce its new 777 jetliner, the company had decided to expand its existing aircraft production works at Everett, Washington. The decision brought immense relief to thousands of Boeing’s production workers in the Puget Sound region, and it represented an investment of hundreds of millions of dollars in the localeconomy. Despite all the economic benefits to the city and region, the City of Everett responded by assessing Boeing well over $50 million to mitigate the environmental and social impacts of the expansion. Now Boeing faced the additional puzzle of how to manage and account for the mitigation expenditures. Accounting standards offered little guidance because mitigation of this scope and magnitude hadlittle precedent. Should the various outlays be accounted as assets or expenses? How should they be described in financial reports? What were the tax implications? Boeing’s financial, tax, and cost accounting groups were in a quandary and could not reach a consensus. The Boeing Company and the 777 In 1992, Boeing was one of the world’s largest aerospace firms with two main industry segments:Commercial Aircraft and Defense and Space. The Commercial Aircraft group developed, produced, and marketed jets principally for commercial airlines. The Defense and Space group conducted most of its work -research, development, production, and support of military aircraft, space systems, and missile systems -- for the U.S. Government.
This case was prepared by Dr. Naomi S. Soderstrom of theUniversity of Colorado, Denver and Dr. Christopher H. Stinson of the University of Texas-Austin. Special thanks to Thomas Brucker, Don Cram, Lynn McDown, Christal M. Hood, Sarah Jackson, Steve Sefcik, and participants of the 1995 BELL Conference for their help in preparing the case. The case is intended to serve as the basis for class discussion rather than an illustration of either effective orineffective handling of an administrative situation. Copyright © 1998 World Resources Institute.
Boeing’s 1992 sales were up 3 percent from 1991 levels to $30.2 billion. Total assets were $18 billion in 1992, up from $14.6 billion in 1991. Nevertheless, in 1992, Boeing’s total stock market value was off 25 percent from 1991 levels. The equity markets were probably reacting to the fact that 1992 netincome was $1.55 billion, down from $1.57 billion in 1991 (see Appendix A, Boeing’s 1991-1995 financial data). Boeing’s 1992 profits (and projected profits) were being challenged by a slump in the passenger-airline industry and increased competition from Airbus, the European commercial aircraft consortium. The Boeing 777 aircraft seats 375-400 passengers. It was designed to fill a commercial jetmarket segment between the 767-300 and 747-400 Boeing aircraft. None of Boeing’s existing facilities was sufficient to build the new aircraft. Several cities offered Boeing tax breaks and other incentives to lure the investments, or offered lower costs of permitting and construction or generally lower costs of doing business than Everett. However, Boeing ultimately decided to expand its existing...