Seattle, Nov 2: The Boeing company is facing a class-action lawsuit in the federal court, as a consequence of the speeding up production, which the company has vowed to defend.

The lawsuit filed on Friday in the US district court in Seattle contends that Boeing officials knew of production problems as early as April but hid them from investors to maintain the company's stock price and complete the $16.3 billion purchase of rival McDonnell Douglas Corp.

``As a matter of normal practice we don't comment on the allegations in lawsuits, but we intend to vigorously defend ourselves against this suit,'' Boeing spokesman Steve Smith said on Saturday.

The lawsuit was filed on behalf of two shareholders by attorney Steve Berman, who is seeking class-action status. The lawsuit names as individual defendants Boeing chairman and chief executive officer Phil Condit, Chief financial officer Boyd Givan and commercial airplane group president Ron Woodard.

The lawsuit contends that Boeing misled shareholders about the extent of production difficulties largely to maintain its stock price before the $16.3 billion all-stock purchase of former rival McDonnell Douglas Corporation that closed in August.

According to the complaint, completion of the merger was far from certain even after directors of both companies approved it in December 1996. The deal required approval from two-thirds of McDonnell Douglas shares and was opposed by chairman John McDonnell's son James, who directly or indirectly controlled a stake of nearly 10 percent.

``It was vital that Boeing keep its share price high in order to preserve the premium paid to (McDonnell Douglas) shareholders, or they would be unlikely to approve the transaction,'' the suit contends. Boeing's stock price had doubled from just over $23 a share in early 1995 to more than $48 by the time of the merger on rising orders and the company's ambitious efforts to more than double production.

But by June 1997 Boeing executives knew that production problems were so severe that losses at a single plant exceeded $180 million, the suit contends. Such losses should have been disclosed and accounted for no later than July 21, 1997, when Boeing announced its second-quarter financial results, the lawsuit said. Instead, Boeing waited until October 22, when it shocked Wall Street with the announcement it would take $2.6 billion in pre-tax charges through the end of 1998 to pay for the production problems.

Boeing stock fell nearly 9 percent that day, knocking $4.4 billion off the company's market value. The suit also claims that Condit and Givan personally benefited from knowledge of `improper financial accounting'.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.