Boeing can be expected to update the status of its 787 when it reports on third-quarter earnings on Oct. 22.

It's unclear for now how much of a delay the strike will cause, in part because the strike is continuing even though both sides are expected to be back to the bargaining table by this weekend. But one industry analyst reported Friday that he does not see the flight test program being completed until 2010, which means the first planes could not be delivered to customers until after that.

For its part, Boeing continues to say it will reassess its 787 delivery schedule once the strike has ended. Just after the strike started, All Nippon Airways of Japan, which will receive the first batch of 787s from Boeing, announced that its first planes would be delivered starting around Aug. 15, 2009. It later acknowledged that delivery date would likely change because of the strike

Boeing had been expected to deliver 25 planes by the end of 2009, way down from the 112 planes it once thought would be delivered before the series of production-related delays set the program back at least 15 months. Even before the strike, some customers had been told some of their planes would be up to three years late.

Here is part of what David Strauss of UBS Investment Research said in his report Friday:

Watching flights into Paine Field in Everett: We are tracking movements of Boeing's modified 747 "Dreamlifter" fleet to gauge the progress of 787 production. Specifically, we are monitoring Dreamlifter flights into Snohomish County Paine Field Airport (KPAE) in Everett WA, adjacent to 787 production, to gauge the pace of shipments from the major structural suppliers. Major structural components are delivered via the Dreamlifter fleet to Boeing in Everett and include the wings from Japan, aft fuselage from Charleston SC, center fuselage from Italy (via Charleston), and forward fuselage from Wichita KS.

Strike halts already slow-paced structural deliveries: We did not track any Dreamlifter flights into Everett in September as Boeing has apparently halted all 787 deliveries from its suppliers given the ongoing Machinists strike. We continued to track some center fuselage deliveries to Charleston.

Flight test program now unlikely to complete prior to early 2010: Even prior to the Machinists strike that began in September, the slow pace of structural deliveries had led us to believe that Boeing was highly unlikely to hit its revised 787 flight test schedule. Boeing has now missed the scheduled assembly complete dates for the first three flight test aircraft and we believe the flight test program is unlikely to complete prior to early 2010.

UPDATE:

Here is my story:

BY James Wallace
P-I aeropace reporter

Although The Boeing Co. has a record backlog of orders and has been raising production rates to get more planes to customers, the world financial crisis and credit crunch will result in many of those orders being canceled or deferred, a Wall Street analyst said Friday.

And another analyst predicted that because of the on-going Machinists strike, and other factors, the first 787s won't be delivered to airlines until early 2010, rather than in the third quarter of next year.

Boeing can be expected to update the status of its 787, and provide analysts with a better understanding of the impact of the credit crunch on its customers and its delivery schedule, when it reports on third-quarter earnings on Oct. 22.

"We believe that the inability to obtain financing will cause customers to defer or cancel orders,'' Goldman Sachs analyst Richard Safran wrote in a note to clients. "As a result, we believe (Boeing) will lower production rates.''

Boeing will have to drastically cut deliveries in 2010, he predicted.

Safran lowered his estimate of how many planes Boeing will deliver in 2009 to 462, down from 489. But in 2010, he said, Boeing will deliver only 392 planes. That's well off Safran's previous estimate of 524.

In July, when Boeing announced earnings for the second quarter, the company said it planned to deliver between 475 and 480 planes this year. But that was before the Machinists strike, which delayed the delivery of about 30 planes in September. Boeing had said back in July that it expected to deliver between 500 and 505 planes in 2009. And deliveries would be even higher in 2010 as the 787 program ramped up, Boeing said at the time.

If Safran is correct, it's not clear what so many order cancellations or deferrals would mean for jobs at Boeing's Puget Sound jet plants. Boeing has been hiring to meet the backlog demand. And many of the Machinists have been working large amounts of overtime – before the strike halted production.

Since January, Boeing has added 3,000 jobs in its commercial jet business. Most, but not all, of those jobs were in the company's Puget Sound plants.

The report by Safran helped to push Boeing's already sagging stock even lower in trading on the New York Stock Exchange. At one point, Boeing shares hit $40, the lowest the stock has been since March 2004. The shares closed at $41.80, down $2.61, or nearly 6 percent.

After hitting a 52-week high last year of $107.83 a share, Boeing's stock price began to tumble after it announced in October the first of three embarrassing delays for its 787.

Safran's report runs counter to a memo from Boeing Chairman and CEO Jim McNerney late last week, in which he talked about the impact of the financial crisis on Boeing.

McNerney acknowledged that Boeing's customers may have a harder time getting financing to lease or buy new planes.

"This has raised speculation about the ability of Boeing's customers to finance airplane purchases,'' McNerney wrote.

He said Boeing is in a "strong position" to provide financing if needed.

"Thus far, we've seen minimal impact and nothing to change our fundamental assumptions for delivering our record backlog,'' he wrote. "But it's a fluid situation and we will continue to monitor it closely.''

In his report, Safran cited a Goldman Sachs analysis that 40 percent of Boeing's backlog is scheduled to be delivered to customers that have a below-investment-grade rating. The revised delivery estimate "assumes nearly all customers below investment grade will be unable to obtain financing themselves,'' Safran wrote.

"With many banks tightening on credit and leasing companies struggling, aircraft financing will likely be very difficult to obtain for many of the lower-credit-quality customers," he wrote.

Goldman Sachs cut its earnings projections to $6.45 per share from $6.80 per share for 2009 and $6.30 per share from $7.35 for 2010. It also lowered its 12-month price target for Boeing to $40 from $56.

Meanwhile, another industry analyst also had gloomy news for Boeing investors Friday.

David Strauss of UBS Investment Research said in his report that he does not believe Boeing will be able to complete the 787 flight test program until 2010, which means the first planes could not be delivered to customers until after that.

"Even prior to the Machinists strike that began in September, the slow pace of structural deliveries had led us to believe that Boeing was highly unlikely to hit its revised 787 flight test schedule,'' Strauss wrote. "Boeing has now missed the scheduled assembly complete dates for the first three flight test aircraft and we believe the flight test program is unlikely to complete prior to early 2010,'' he wrote in his report.

The strike by the Machinists union began Sept. 6. Although the company and the union have agreed to talk again, perhaps as soon as Saturday, the strike continues.

It's unclear for now how much of a delay the strike will cause the 787. Before the strike, first flight was to have taken place before the end of the year. That's likely been delayed until early 2009, although Boeing won't say. A delay in first flight, and getting the other test planes finished, will effect the test flight program. It must be successfully completed and the 787 certified to carry passengers before the first planes are delivered to customers.

Boeing continues to say it will reassess its 787 delivery schedule once the strike has ended. Just after the strike started, All Nippon Airways of Japan, which will receive the first batch of 787s from Boeing, announced that its first planes would be delivered starting around Aug. 15, 2009. It later acknowledged that delivery date would likely change because of the strike

Boeing had been expected to deliver 25 Dreamliners by the end of 2009, way down from the 112 planes it once thought would be delivered before the series of production-related delays set the program back at least 15 months. Even before the strike, some customers had been told some of their planes would be up to three years late.

After selling more than 1,000 jets each of the last three years, Boeing has a record commercial backlog of $275 billion.

Earlier this year, when oil prices were well above $100 a barrel and many airlines were in desperate financial shape, some industry analysts had estimated that Boeing and Airbus could lose as much as 25 percent or more of their respective jetliner backlogs due to deferrals or cancellations because of the industry downturn.

In July, when Boeing announced its second-quarter earnings, McNerney said Boeing had seen only a handful of jetliner deferrals, all from U.S. airlines. If there were more deferrals or even cancellations, he said, Boeing expected that other customers would quickly take those production slots in order to get their planes sooner.

Only 10 percent of Boeing's commercial backlog is from U.S. airlines, which were suffering the most because of high fuel prices.

But since then, the fuel crisis has taken a back seat to the credit crunch and financial crisis.

P-I aerospace reporter James Wallace is at Boeing's flight test and delivery center this morning, where striking Machinists are rallying following last night's news that the company and the union will return to the bargaining table. Here's his report from the scene:

BY JAMES WALLACE
P-I aerospace reporter

Several hundred striking Machinists came out Thursday morning at The Boeing Co.'s flight test and delivery center at Boeing Field, joined by pilots from Alaska Airlines, who came out to show their support.

The rally followed news Wednesday night that Boeing and the Machinists had agreed to return to the bargaining table.

The mood, according to one Machinist, was "cautiously optimistic" that there will be a breakthrough in the talks and the strike, now in its fifth week, can get resolved.

"It's a relief," said Wally Anderson, who has been with Boeing for 24 years and works in the Renton paint hangar. "It's been a struggle for everyone. It's a positive sign, but they need to put a good offer on the table or we'll be out here for a long time."

This is Anderson's fourth strike. He's been painting some houses while on strike, but when the weather turned, that work went away. Anderson, a father of two daughters, ages 9 and 11, said he doesn't have a second job right now, but his wife is working as a substitute teacher in the Renton School District.

A number of Machinists said the big issue for them remains not just benefits, but job security and outsourcing. Those are two issues that the company's expected to be reluctant to make significant changes on.

--Posted by Margaret Santjer, business editor

UPDATED:

Here is my story after spending the morning and early afternoon on the strike line.

By James Wallace
P-I aerospace reporter

On a day when the stock market continued its freefall and fears about the nation's economic crisis worsened, hundreds of Machinists who are on strike against The Boeing Co. gave their leadership a rousing show of support before they return to the bargaining table in the next day or so.

"It's time to get back to work, but only if it's a good contract," said Cliff Irvin, 57, who has worked for Boeing for 24 years.

"It's a relief," said Wally Anderson, 48, also a 24-year Boeing veteran.
"Talking is a positive step. But the company needs to put a good offer on the table."

How soon that might happen remains to be seen. No one is expecting a quick settlement to end the 34-day-old strike by some 27,000 Machinists in Washington, Kansas and Oregon. Most work in the Puget Sound area.

The biggest stumbling block to a deal will likely revolve around job security language.

"Without job security, our people lose their jobs," Mark Blondin, the union's lead negotiator, said in an interview before he and other union leaders addressed the late-morning rally from the bed of a red pickup truck in front of what used to be Boeing's corporate headquarters across from Boeing Field.

Boeing moved its headquarters from Seattle to Chicago in 2001, but the headquarters of the company's jet-making operations is still in the area. No jets are being made, however, because of the strike.

The company and the union agreed Wednesday, during a top-level meeting, to return to the bargaining table, and that could happen as soon as Friday or Saturday. A federal mediator is working with both sides to iron out the final details of when and where.

"I don't see this being a real brief meeting to solve it," said Blondin, aerospace coordinator for the International Association of Machinists and Aerospace Workers (IAM). He was president of the local union district in 2005 when it struck Boeing for 28 days, and also was president in 2002 when the company's final offer was rejected but a vote to strike fell just short of the two-thirds requirement.

It's what was in that 2002 contract – and stayed in the 2005 contract – that is one of the core issues at the root of this strike.

Outside vendors are now allowed to deliver parts directly to the floor of Boeing's jet-making factories – work previously done by the machinists.

The union wants those jobs back.

"We don't want subcontractors in our work place setting up parts distribution centers. That s our work," Blondin said in the interview.

"We will work with the company on lean activities and process improvements but the IAM has to be a partner in that," he added. "But we are not going to have suppliers come in while our members are being laid off. That's really what it is all about. That's part of job security."

Boeing knows the union's position, so the fact the company is willing to start talking again is an encouraging sign it may be willing "to move" on this issue, Blondin said. "I hope they are not wasting our time."

The other big issue that could prove difficult to reach agreement on involves outsourcing.

The union wants more opportunity to compete for work that Boeing is contracting out.

"We are not looking to shut them (Boeing) down globally," Blondin said.
But what the union will insist on in any new offer, he said, is the right to bid on future work that Boeing wants to outsource.

"We don't get a look at the work that goes out the door day to day throughout the country, much less the overseas stuff," Blondin said. "We get a very narrow slice to look at. If the company determines that it is emergent or temporary we don't get to look at it. What we are saying is that 'emergent' is not work that goes out for a year. And 'temporary' is not work that goes out for a year. If you are going to call it emergent or temporary it better be short term."

He said the union wants language in the contract that allows it to bid on that work.

"We want to be able to compete with all things considered, including material costs, labor costs, delivery costs and rework costs. The whole works," Blondin said "We want to compete and we are confident we can compete on the same playing field."

Thursday's union rally included pilots from Alaska, United and Horizon airlines, as well as flight attendants and mechanics from those carriers. They came to show support for the Boeing strikers.

"Our goal is to come back with a proposal, but they (Boeing) must make improvements," Tom Wroblewski, president of the local union, shouted from a bull horn as he stood on the bed of the red pickup truck before Blondin spoke. "The strike does not end," Wroblewski said. "But we are not going to get it done unless we are talking."

Those talks, with a federal mediator, are expected to be underway by the weekend, if not sooner, at a location that the company and union have said will not be disclosed.

Blondin said he wants the talks held somewhere in the Puget Sound area, where the union's resources will be easily available.

"I'm cautiously optimistic," said machinist Dave Amre, 51, who has worked for Boeing for 20 years, most recently on parts distribution for flight test.

"I'd like to go back to work, but only with the right conditions," he said. And that means the company must give on the critical issues of outsourcing and job security, he said.

Part of Amre's job involves parts distribution. That's why job security, he said, is his top issue.

"That directly relates to my job," he said of the language in the previous contract that allows outside vendors to deliver parts to the factory floor.

He said he understands the company's position that it must have the right to manage its business.

"Boeing needs protections, but we need protection to keep our jobs," he said.

If and when an agreement is reached and the union leadership believes the revised offer it is good enough to take to a vote, only a simple majority is needed for approval and the strike would be over.

In addition to the issues of job security and outsourcing, the union has said Boeing must improve its final offer on wages, pensions and medical benefits. That offer was rejected by 80 percent of the membership, who also voted by 87 percent to strike.

Wroblewski, the union president, said in an interview it would probably take a couple days once an agreement is reached to have the revised offer printed and distributed to the membership, who would then need time to study the offer before voting.

That assumes, of course, that the talks produce an offer by the company that is acceptable to the union leaders.

In 1989, when the union struck for 48 days, the initial offer Boeing made after talks resumed was not considered good enough to even bring to a vote.

In 1995, during a 69-day strike, the union's members rejected the first offer Boeing made after talks resumed to end the strike.

Amre echoed many of the striking machinists who said they are ready to return to work – but are also willing to remain on strike for as long as it takes to get a good offer.

"I'd like to go back to work today," said Amre, who is married. 'I'm getting too good at doing the laundry."

The Machinists union just announced it will resume talks with Boeing to end the strike, now into its second month.

Boeing confirmed it will resume talks with the union through the federal mediator, but a spokesman said a date for those talks has not been set.

"We are interested in exploring if there is a path forward to resolve the strike,'' Boeing said.

Here is the union news release:

After 33 days on the line, your solidarity brought Boeing back to the bargaining table. Tonight, District 751 President Tom Wroblewski announced that throughout the strike Union leaders have talked regularly with the mediator and had several conversations with Boeing.
Today, Tom Wroblewski and Mark Blondin met with Scott Carson and lead negotiators for Boeing to further outline your issues. At that meeting, it was agreed to return to the bargaining table. We are working out the details of the return to the table with the federal mediator.

We hope this meeting marks a major step forward. The Union will continue to do everything possible to bargain a contract that addresses the concerns our members have identified.

Boeing returned to the bargaining table because you stayed united on the picket lines. It is important as we move forward that we continue to stay strong on the picket lines. That's how we're going to secure a contract that will settle this strike.

UPDATE:
Here is my story:

BY James Wallace
P-I aerospace reporter

The Boeing Co. and its largest union have agreed to resume talks with a federal mediator to end a strike that is in its fifth week and has shut down Boeing's jetliner production.

The announcement came first from Machinists union leaders during a meeting Wednesday night with members at the union hall near Boeing Field.

Local district president Tom Wroblewski said talks with the mediator should resume soon.
"(Thursday) might be a little too quick, but if it comes together that fast, we are ready. But we should be meeting by the weekend," he said. It's up to the mediator to set a time and location.

The strike by some 27,000 Machinists in Washington, Kansas and Oregon began Sept. 6. after last-ditch talks broke down during federal mediation.

"We have gone 33 days and we have not been talking and airplanes have not been delivered," Wroblewski said in an interview. "The investors are squawking and the stock market is going down. But the strength of our members has not wavered, and that's why I'm optimistic."

The decision to start talking again came after union leaders met Wednesday with Scott Carson, chief executive of Boeing Commercial Airplanes, and Doug Kight, Boeing's vice president of human resources.

The breakthrough was set in motion over the past week when there were previously undisclosed talks between Boeing and the union. A source told the Seattle P-I that the company was represented at those meetings by Kight and Tom Easley, the company's chief negotiator.

Although both sides have been talking regularly with the federal mediator, the company previously indicated that the differences were so great that face-to-face talks would be unproductive.

"We are interested in exploring whether there is a path forward to resolve the strike," Kight said in a statement Wednesday night. "There are a number of issues to resolve, and any agreement must allow us to remain competitive and provide the flexibility to manage our business."

The International Association of Machinists and Aerospace Workers issued a statement that "solidarity" on the picket lines had brought Boeing back to the table.

"We hope this meeting marks a major step forward," the union statement said. "The Union will continue to do everything possible to bargain a contract that addresses the concerns our members have identified. Boeing returned to the bargaining table because you stayed united on the picket lines. It is important as we move forward that we continue to stay strong on the picket lines. That's how we're going to secure a contract that will settle this strike."

Wroblewski told the membership at the unio hall meeting that he and Mark Blondin, the union's lead negotiator, had made it clear to Carson earlier in the day that the company would have to make significant improvements in its last offer for there to be progress once the talks resume, said a Machinist who attended the meeting but didn't want his name used.

There was a lot of discussion at the union hall meeting about the strikes in 1989 and 1995, this person said. In both strikes, the union leadership initially rejected offers the company made after returning to the negotiating table.

Members at Wednesday's meeting unanimously agreed that Wroblewski wouldn't have to bring any subsequent offer back for a vote unless he and the union's negotiating committee thought it was good enough.

The strike has not only stopped Boeing's jetliner production and delayed the delivery of about 30 jets in September, but it has likely pushed back into at least early 2009 the first flight of the 787 Dreamliner. The program was some 15 months behind schedule before the strike started, with first flight set for November or December.

In addition to better wages and benefits, a key issue for the union is job security and outsourcing.
Earlier this week, Boeing Chairman and Chief Executive Jim McNerney had sounded less than hopeful that the strike could end soon.

"The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business," McNerney wrote to employees.

He noted that U.S. auto companies "all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands."

Blondin, the IAM's aerospace coordinator, said again Monday that the union will insist on written contract language that ensures that "jobs historically performed by Machinists union members in our factories will continue to be worked by IAM members." Since the 2002 contract with the IAM, Boeing has used outside contractors to deliver some airplane parts directly to the factory floor – a festering sore for the union.

Industry analysts have said Boeing is probably losing about $100 million a day because of the strike. Some analysts have recently wrote that they believe the strike could last well into fall, and perhaps longer.

"Our new working assumption is that the strike lasts through November," analyst Richard Safran of Goldman Sachs wrote Monday in a note to clients. "We also believe there is risk that the strike lasts into December. We do not believe there have been any new proposals put forth by either party, nor any sign of flexibility on key issues."

Harry Nourse, a Bank of America analyst who closely follows Boeing, said Monday that he now believes Boeing will only be able to deliver five Dreamliners by the end of 2009 because of the strike, rather than the planned 25. Before the delays hit the program, Boeing had expected to deliver 112 of the jets by the end of next year.

Investigators Wednesday continued to look for answers to why a Qantas A330-300, carrying 303 passengers and 10 crew, experienced a "sudden change" in altitude while on a flight Tuesday from Singapore to Perth.

The plane was diverted and remains grounded.

More than 70 passengers needed medical attention and 14 have serious injuries, including broken bones.

It was initially thought severe turbulence was to blame.
But investigators are now focused "on a potential irregularity in the flight control system" that caused a sudden nose pitch down mid-flight, according to Flight International magazine.

It was like a hurricane inside ... like a war zone," Keith Burns, from Lancashire, England, told 2UE radio. "All of a sudden it dropped like a brick, a lead balloon and then it leveled off again and a couple seconds later it fell again.

"There were screams and all the interior was breaking all over the place," he said. "It's an experience I wouldn't like to do again."

"It was horrendous, absolutely gruesome, terrible, the worst experience of my life," passenger Jim Ford, of Perth, told reporters.

The pilots received a message from the plane's monitoring system that told them there was "some irregularity with the aircraft's elevator control system", the Australian Transport Safety Bureau (ATSB) said in a statement Wednesday.

The jet was at 37,000 feet when it suddenly climbed some 300 feet. It then "abruptly pitched nose-down...during this sudden and significant nose-down pitch, a number of passengers, cabin crew and loose objects were thrown about the aircraft cabin, primarily in the rear of the aircraft," the ATSB report said.

The pilots first made a "'pan pan" emergency broadcast to air traffic control, according to the ATSB. But then they declared a "mayday."

The plane made an emergency landing in Learmonth in Western Australia.

Qantas issued this news release on Wednesday:

SYDNEY, 8 October 2008: Qantas said today that the cause of the sudden change in
altitude aboard QF72 from Singapore to Perth yesterday remained under investigation.

The Chief Executive Officer of Qantas, Mr Geoff Dixon, said Qantas was assisting the
Australian Transport Safety Bureau (ATSB) in its formal investigation.

Mr Dixon said the aircraft's flight data and cockpit voice recorders had been removed and
would undergo assessment.

"As always we will cooperate fully with the ATSB, as well as conducting our own
investigation into the incident.

"Our primary concern remains the welfare of our passengers and crew on board the flight,
and we are focused on doing everything possible to assist them," Mr Dixon said.
He said that passenger and crew information available to date indicated that:

-- injuries ranged from abrasions and contusions to fractures;

-- the condition of 14 of those on board was considered serious, requiring medical
evacuation to Perth by the Royal Flying Doctor Service, although none of the
injuries was life threatening;

-- up to 30 additional people required attendance at hospital in Perth;

-- up to 30 further passengers and crew required first aid treatment for minor
conditions;

-- all passengers requiring travel to Perth had been accommodated on two special
flights arranged by Qantas yesterday evening; and

-- the majority of passengers on board was Australian (131), followed by British (53),
Indian (40) and Singaporean (38).

"We are grateful for the assistance of the Royal Flying Doctor Service and Skywest who
came to the assistance of our passengers and crew in this remote location.

"We would also like to acknowledge the offers of assistance that we received from
CareFlight, Woodside Energy, the RAAF and others in the area

A Boeing executive told an aerospace conference in Everett Tuesday the company is worried that the state could become known as a "strike zone.'' And that could help drive the decision on where to build Boeing's planes of the future, he said.

See my previous blog entry for more on the strike and for the complete e-mail about the strike that Boeing CEO and Chairman Jim McNerney sent to employees on Monday. The union's response to the memo is also part of the earlier blog entry.

Here's my "strike zone" story:

By James Wallace
P-I aerospace reporter

'EVERETT – At a meeting of the Seattle Chamber of Commerce in September 1991, then-Boeing Chairman Frank Shrontz warned that Boeing could move its airplane production out of the state because it was not a good place to do business.

Building the company's next all-new jet after the 777 in Alabama, for example, would be as much as 30 percent to 40 percent cheaper than if it were built in the Puget Sound area, Shrontz said.

"Could Puget Sound turn into an aerospace rust belt of the 21st century, complete with padlocked factories, unemployment lines and urban blight?'' Shrontz asked. "It certainly could.''

On Tuesday, 17 years later, another Boeing executive referred to those "rust-belt" remarks by Shrontz when he told an aerospace conference in Everett, not far from where Boeing has been building widebody jets starting with the 747 in the late 1960s, that Boeing faces another serious issue that has the potential to drive its jetliner production out of town – labor unrest.

"We can't afford to become known as the strike zone,'' Fred Kiga, Boeing's vice president for government and community relations, told the Aerospace Futures Alliance of Washington, shortly after Gov. Chris Gregoire addressed the group that included local government officials, a few state lawmakers and representatives of state aerospace companies, many of which supply parts for Boeing planes.

"It's ironic that I'm speaking at a conference entitled 'Cleared for Takeoff' when at the moment we are grounded,'' he said, referring to the ongoing strike against Boeing by some 27,000 Machinists that is now into its fifth week.

After his speech, Kiga said in an interview that his "strike zone" comments were cleared by Scott Carson, president and chief executive of Boeing Commercial Airplanes. Kiga noted that he and Carson grew up in the Northwest, share a deep love of the area, and, "We'd hate to lose a treasure like Boeing.''

"It's been a great economic driver, it's been a great provider of jobs and it's a great community steward,'' Kiga said. "And I'd say that even if I didn't work at Boeing.''

He's been with Boeing about a year. Among his previous jobs was chief of staff for then-Gov. Gary Locke in 2003 when Boeing was considering other states as the final assembly site for its new 787 Dreamliner.

Alabama, which was mentioned by Shrontz in his 1991 speech to the chamber of commerce, made Boeing's final list of top three states to locate the 787 final assembly plant. In the end, Boeing's board picked Everett, but only after Locke and state lawmakers came up with a $3.2 billion tax incentive package to woo Boeing.

Kiga, in the interview, was asked if the outcome might be different the next time, when Boeing is looking for the best place to build its next all-new jet after the 787.

"I'm obviously concerned,'' he said.

"There are several factors that enter into where we build a new plane,'' he said. "We talk about the ability to compete in the world marketplace and that is vitally important to us. And work stoppages play into that.''

His appearance before the second annual aerospace summit came one day after Boeing Chairman and Chief Executive Jim McNerney, in an e-mail to Boeing employees, said the company's reputation was being hurt by repeated strikes.

"Union leadership has recommended that its members reject contract offers and go on strike four of the last five negotiations going back to 1995,'' McNerney wrote. "While we've disappointed customers for other reasons in recent years, too, we believe this track record of repeated union work stoppages is earning us a reputation as an unreliable supplier to our customers – who ultimately provide job security by buying our airplanes.''

Union leaders and workers counter that Boeing has let its customers down because of delays on the 787 that now stretch some 14 months. Some customers have been told their planes will be up to three years late.

The delays have mostly been the result of problems with Boeing's major 787 partners, who are responsible for manufacturing the composite wing and fuselage sections of the Dreamliner. Boeing is supposed to handle final assembly. The union argues that had most of the 787 manufacturing work not been outsourced, the program would not be behind schedule.

The International Association of Machinists and Aerospace Workers is generally regarded as the last powerful manufacturing union left in the U.S. A strike by the union effectively shuts down Boeing's jetliner production. The current strike, which began Sept. 6, meant that about 30 planes were not delivered to customers last month.

The two sides are still far apart on key issues such as job security and outsourcing, and no direct talks have been scheduled.

Industry analysts have estimated that Boeing is losing more than $100 million a day because of the strike. Typically, customers pay for most of the cost of a new plane when they take delivery.

The union struck Boeing for 28 days in 2005, and it came close to a strike in 2002. The membership rejected Boeing's final offer that year, but the strike vote fell just short of the two-thirds requirement. A strike in 1995 lasted 69 days, and a 1989 strike went for 48 days.

"We are not batting very effectively,'' Kiga said of relations with its biggest union, echoing McNerney's concerns in his e-mail about the frequent labor unrest.

Even though the state came through with an economic package in 2003, some senior Boeing executives were known to still favor building the 787 in a state like Alabama or North Carolina – both right-to-work states – in part because they did not want a potential future strike in the Puget Sound area to stop 787 production along with production of Boeing's other jets.

In a right-to-work state, workers don't have to join unions. But that does not mean there are no strikes in those states. About 1,000 members of the Machinists union are currently on strike at a Vought plant in Nashville, Tenn. Vought is one of Boeing's 787 partners and makes the jet's aft fuselage at a plant in Charleston, S.C.

In an interview Monday with the P-I, Richard Aboulafia, a well-known analyst with the Teal Group, an industry consulting business, said he believes there is a good chance that Boeing could either move its jetliner operations out of the state in 10 years because of its recurring labor troubles, or at the very least build its next new plane elsewhere.

That next Boeing jet to follow the 787 is likely to be a replacement for the 737. Boeing has said it will be near the end of the next decade before any new plane is ready for airlines. But a decision on where to build that plane would need to be made several years before that.

Kiga, in the interview, made it clear Boeing is not threatening to move its jetliner operations out of state. "As Jim (McNerney) said, we are becoming an unreliable supplier for our customers,'' Kiga said. "We didn't think it was a threat. It's just ominous signs on the horizon.''

Boeing CEO and Chairman Jim McNerney on Monday sent another e-mail to employees, this time specifically about the strike. It comes on a day when Boeing's stock dropped to a 4-year low on concerns the strike could last into November or December.

I'll have much more on the strike-related events later today.

Meanwhile, here is McNerney's e-mail:

Many of you responded to my column last week on the crisis in the financial markets with questions and comments about the ongoing strike in the Pacific Northwest and Kansas, which has now entered its fifth week.

I understand and share the frustration so many of you feel when we don't have the whole team together working to meet the commitments we've made to our customers and competing to win the new business that will sustain and grow Boeing jobs for years to come.

There should be no doubting our intentions at this time; we want to resolve this strike. And we want to do it in a way that fairly rewards a vital group of employees while vigilantly protecting our ability to compete and win globally-- today and tomorrow.

The issue of competitiveness as it relates to this strike is a big deal, and that's the perspective I want to share with you today. As I look ahead, I see tremendous pressure coming from old competitors and new ones. And as competitive as we are today, we cannot rest on the assumption that our past success--and past ways of doing business--will ensure our future.

Here's some more detail behind my concerns:
* New competitors are rising.
Just a few days ago, Airbus President and CEO Tom Enders reiterated a point you may have heard me make before. That is, the duopoly between Boeing and Airbus in supplying the world's large commercial jets will come to an end--probably sooner rather than later--as other competitors enter our markets.

Case in point: China. China is accelerating rapidly in pursuit of its goal to become an aerospace leader. Late last month, China became only the third nation ever to conduct a spacewalk. It is also planning a space station and a moon landing. In commercial aviation, China expects to fly its first home-designed and -built regional jet--the 90-seat ARJ21--this year, and it has set up a company to build bigger jets that will directly compete with our products. China also has the resources and indigenous market to support its aspirations.

Other nations--including Russia, Japan, Canada and Brazil--either already produce or are developing the capability to produce airliners that approach the size of Boeing's smallest and best-selling 737.

* Existing competitors are sharpening their edge.
EADS/Airbus is growing stronger, too. It is dramatically restructuring and cutting costs in response to the weak dollar, and it is quickly moving toward a lower-cost global production model that also reaches into key customer markets--including the United States. Just a week ago it opened an A320 final assembly line in China, and it has committed to buy $1 billion a year of Chinese-made components. Its plan to assemble U.S. Air Force tankers in Alabama is a move both to grab a larger share of the U.S. defense market and to establish a beachhead for producing commercial airplanes in the United States--and in a very low-cost location, too. EADS/Airbus is also expanding its presence in Northern Africa, Mexico, India, and Russia. And when the dollar rebalances with the Euro--as it inevitably will--Airbus will gain a big cost advantage if we are unable to match them through our own productivity gains.

* Labor disputes are affecting our customer relationships.
Throughout the years, Boeing has consistently provided some of the best labor contracts in the industry--and we're proud of that. As a result, our machinists' pay and benefits are tops in the industry. And yet, union leadership has recommended that its members reject contract offers and go on strike four of the last five negotiations going back to 1995.
While we've disappointed customers for other reasons in recent years, too, we believe this track record of repeated union work stoppages is earning us a reputation as an unreliable supplier to our customers--who ultimately provide job security by buying our airplanes.

We remain committed to changing this dynamic, and I am hopeful union leadership will see the benefit of doing so, too. If our collective Boeing team--with both non-union and union-represented employees--cannot reliably supply our customers, other competitors will do so--and their respective governments will provide support because the return on investment to their economies through the high-wage, high-skilled jobs of aerospace is so significant.

* Preserving our competitiveness has never been more important--or urgent.
The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business. Markets and business conditions can change quickly and dramatically. And we need to be able to react just as fast.

U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands.

The unrelenting reality is this: Jobs in today's global economy are created and sustained only through increasing productivity and customer-focused innovation. That's been our strategy, and it has worked for everyone's benefit. Since the 2005 negotiations, we've increased sales substantially and hired nearly 15,000 employees in the Puget Sound area alone, including more than 7,000 represented by the IAM and nearly 3,000 represented by

SPEEA.
For their part, our IAM-represented employees have done a great job improving our productivity and helping make us more globally competitive. I value them and the role they have played--and will continue to play--in the success of our company. And I take very seriously our commitment to reward them fairly for their contributions.

That's something I believe our contract offers have consistently reflected, and it's the mindset we brought to the start of these negotiations.

I'll repeat again: We want this strike to end. It's difficult for all our employees, our customers, our suppliers, our investors and our communities. We are committed to working with union leaders and the federal mediator to reach a settlement, but we cannot sacrifice our long-term competitiveness for expedience in a short-term agreement to end the walkout. History, and every group with a stake in our future, would judge us poorly if we were to do so.

Thank you for everything you are doing for Boeing in these dynamic and challenging times. If there's one thing we can all agree on, it is this:

Our company is strongest when all of us--union and non-union alike--are lined up together, working for our customers and against our competitors. I am hopeful those days will return again soon.

Thanks.
Jim

UPDATE: Here is Mark Blondin's complete statement.

"The IAM is not on strike to harm Boeing or its customers. However, we are on strike and our members have made it clear that protection of IAM jobs and the scope of IAM work is critical to getting a ratified agreement.

The IAM is interested in written contract language that ensures that jobs historically performed by Machinist Union members in our factories will continue to be worked by IAM members. We are not interested in outside contractors performing our work in Boeing facilities, and we seek to compete for work Boeing finds necessary to outsource.

The Union acknowledges that some offset agreements are necessary for sales of the products, and we acknowledge that Boeing has partnership arrangements with risk sharing entities. We also know that there is a vast amount of outsourced work not related to such conditions that could be done more efficiently and less costly in house by the IAM if the IAM were given the opportunity to compete for that work when ALL factors - such as skills and ability of work force, labor costs, material costs, transportation costs, process improvements, delivery (cycle time) costs, rework costs, etc. are taken into consideration. The Union currently has the ability to compete for a very narrow scope of outsourced work, and we seek to broaden that scope.

If the Company truly partnered with the IAM on this issue of outsourcing, together we could react swiftly and appropriately to changing conditions that affect our industry. The IAM position is that this strike will end at some point, but only when the needs of our members are adequately addressed."

UPDATE: Below is a much longer version of my story than what will appear in the paper or online. Note that Teal Group analyst Richard Aboulafia is predicting the possible end of Boeing jetliner production in Washington state within 10 years.

continue reading

Boeing CEO and Chairman Jim McNerney has just sent a message to Boeing employees on the country's financial crisis. (See complete message below)

His message comes at a time when the company's biggest union that represents about 27,000 machinists has been on strike for nearly a month, shutting down the company's jetliner production in Washington state. The strike enters its fourth week Saturday and no talks have been scheduled.

McNerney did not address the strike, but he did say Boeing could face some "rough patches that may require us to step up and do even more.''

This is what McNerney said:

Over the past few weeks, we've all probably seen, heard or read more news on the U.S. financial system than we ever imagined possible.

We've witnessed Lehman Brothers collapse, AIG receive a government bailout, Bank of America acquire Merrill Lynch, J.P. Morgan take over Washington Mutual, and more. The turmoil has begun to spread to Europe and may not stop there. And, of course, if you have a mortgage, a retirement-savings plan or a brokerage account, you've been living with uncertainty and potential fallout every day.

On Monday, the U.S. House of Representatives rejected a $700 billion government plan aimed to shore up the system. More attempts at a rescue plan undoubtedly will be made this week, and I am confident that Congress ultimately will pass legislation that effectively deals with the situation. But all of this has people wondering: What impact will this situation have on Boeing and its employees?

Fortunately, at this point, the crisis has had little to no impact on our day-to-day operations -- thanks to our industry-high credit rating (A+), large cash balance and conservative debt level. Our employee pension fund -- which I know many of you have expressed concerns about -- also is being managed well and remains fully funded, despite significant downward moves in the market.

That said, I do see four potential implications for Boeing that we must carefully monitor and manage:

Our commercial customers may have a harder time getting financing to lease or buy new airplanes -- and will pay more for it.

U.S. credit markets were already under pressure from the subprime lending issues that came up earlier in the year, and the situation has worsened in recent weeks. This has raised speculation about the ability of Boeing's customers to finance airplane purchases.

Thus far, we've seen minimal impact and nothing to change our fundamental assumptions for delivering our record backlog. But we stand ready to help our customers, if needed. Over the past few years we have greatly reduced financial risk at Boeing Capital Corp., which has strengthened its balance sheet substantially. So we are in a strong position to provide aircraft financing if necessary. The vast majority of our backlog (approximately 90 percent) is reserved for international customers, who have access to a wide range of financing options, including the U.S. EXIM bank. While we have seen a very slight increase recently in customers asking about the possibility of our financing their purchases, none have actually requested it yet. But it's a fluid situation, and we will continue to monitor it closely.

Our U.S. government customers may find that paying the bill for rescue legislation could crowd out some U.S. defense spending.

While most speculation about the impact of the banking-and-credit crisis centers on commercial rather than defense markets, senior Pentagon officials said this week that the cost of any financial-system rescue plan will likely have an impact on future defense budgets due to the added pressure the rescue plan will place on the federal deficit. No one really yet knows when or to what extent defense spending could be affected, but it's unrealistic to think there won't be some measure of impact. The best thing we can do for our defense customers right now is to keep delivering a best-value combination of capability and cost.

The ripple effect of the crisis could further slow the U.S. and world economies, which in turn could lead to reduced air travel worldwide.

The financial situation has heightened awareness of the softening overall global economic environment. Our airline customers already are struggling to operate profitably under volatile and high fuel prices. A reduction in business and leisure travel would further damage their fragile health and potentially impact the sales of our airplanes and services. However, the flip side of the high fuel price coin is that demand in the market for our fuel-efficient new airplanes remains high, and we have seen few order deferrals or cancellations. Nevertheless, it's really important that we keep our costs low to help customers operate efficiently as they face the risk of further economic weakness.
We need to anticipate and respond while staying focused on our customers.

The people of Boeing have been working hard to keep the company in a strong enough financial position to weather tough times, but I doubt any of us expected a crisis of the magnitude that the U.S. financial system is now facing. This could turn out to be the "rainy day" we've been saving for -- and must continue to save for.

As we monitor the situation over the coming days and weeks, we will be taking a very close look at our plans for the balance of this year and 2009. I'll be working closely with Scott Carson, Jim Albaugh, James Bell and the rest of our senior leadership team to ensure that our plans going forward are strong enough to withstand a more difficult environment than we had previously assumed, based on the risks I've highlighted above.

Let's keep our customers at the top of our minds as we work our way through this crisis. In large part because of your ongoing efforts, Boeing is well positioned to weather it -- even if our road contains some rough patches that may require us to step up and do even more. Thank you for everything you continue to do to make Boeing the best and best-integrated aerospace company in the world -- for today and tomorrow.

Thanks.
Jim

The Wall Street Journal Thursday has this story about what might happen with defense spending under a new administration.

The Machinists strike against Boeing, which will enter its fourth week Saturday, has delayed the start of V Australia, a long-distance airline being started by Virgin Blue.

The new airline was to have launched service Dec. 15, but that has been delayed until at least February because three Boeing 777-300ERs on order can't be delivered until after the strike ends.

Should the Boeing strike by some 27,000 Machinists, most of them in the Puget Sound area, be settled soon, "the airline would move swiftly to bring forward V Australia's start-up schedule,'' Virgin Blue said in a statement.

Virgin Blue said it has suspended advance ticket sales. It is also contacting customers who had booked travel from Dec. 15 to Jan. 16 to offer alternative arrangements.

Although Boeing and the IAM union are talking regularly with a federal mediator, not enough progress has been made to bring the two sides back to the negotiating table.

As of Saturday, the strike will have lasted longer than the union's 28-day work stoppage in 2005.

UPDATE::

Authorities have confirmed that wreckage found in the Mammoth Lakes area of northeastern California is that of Steve Fossett.

"It was a head-on crash into the side of a mountain, into a rock," Madera County Sheriff John Anderson told a news conference. "The plane disintegrated. We found the engine 300 feet from the fuselage." No body has been found.

PREVIOUS POST-----

It has nothing to do with Boeing or Airbus or tankers, but if you like airplane mysteries.....

Questions about what happened to aviation adventurer Steve Fossett may soon have answers. A hiker found Fossett's pilot's license and other items near the California town of Mammoth Lakes.

The number on the pilot license in a photograph sent to the Federal Aviation Administration matches the number on the pilot certificate the agency has on file.

Fossett disappeared more than a year ago in a small plane.

Here is the latest from the Associated Press;

The hiker said he found an FAA identity card, a pilot's license, a third ID and $1,005 in cash tangled in a bush off a trail just west of the town of Mammoth Lakes on Monday. He said he turned the items over to local police Wednesday after unsuccessful attempts to contact Fossett's family.

Mammoth Lakes police investigator Crystal Schafer confirmed that the department had the items, including the ones bearing Fossett's name.

Search teams led by the Madera County Sheriff's Department have been sent to the scene, and an air and ground effort was expected to be under way soon, said sheriff's spokeswoman Erica Stewart.

Fossett, whose exploits included circumnavigating the globe in a balloon, disappeared Sept. 3, 2007, after taking off in a single-engine plane borrowed from a Nevada ranch owned by hotel magnate Barron Hilton. A judge declared Fossett legally dead in February following a search for the famed aviator that covered 20,000 square miles.

Mammoth Lakes is at an elevation of more than 7,800 feet on the eastern flank of the Sierra Nevada, where peaks top 13,000 feet. This year's biggest search for Fossett focused on Nevada's Wassuk Range, more than 50 miles north of Mammoth Lakes. That search ended last month.

Fossett made a fortune trading futures and options on Chicago markets. He gained worldwide fame for more than 100 attempts and successes in setting records in high-tech balloons, gliders, jets and boats. In 2002, he became the first person to circle the world solo in a balloon. He was inducted into the National Aviation Hall of Fame in July 2007.
He also swam the English Channel, completed an Ironman Triathlon, competed in the Iditarod dog sled race and climbed some of the world's best-known peaks, including the Matterhorn in Switzerland and Mount Kilimanjaro in Tanzania.

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In other news Wednesday related to Boeing.....

Southwest Airlines said it will delay the delivery of four Boeing 737s from 2009 until 2016.

"We've told you all for some time that our plan is to keep our fleet growth relatively flat next year," Southwest Chief Executive Gary Kelly told reporters on a conference call.
"We are firmly committed with Boeing to ten 2009 deliveries -- it was 14, we deferred four of those until 2016."

Meanwhile, Delta said it will shift some Northwest jets to other routes once the merger is complete. That could mean Northwest 747s flying out of Atlanta, according to Northwest, which, along with United, are the only two U.S. airlines that still operate 747 passenger planes.

"We can move our planes around as soon as the merger is complete," Joanne Smith, Delta Air Lines Inc.'s senior vice president of in-flight service, said at a breast cancer fundraiser at a Northwest Airlines Corp. hangar on Wednesday. Delta expects to begin shifting planes during the second quarter.

Northwest and Delta have only the Boeing 757 in common. Northwest is a big Airbus A330 opertator. Delta is a big Boeing 767 and 777 customer.

It is still not clear how Delta will use the 787 on order by Northwest.

Also Wednesday, a small Alabama company just made life harder for the Air Force and Boeing. A federal judge has sided with the company in its suit to stop the Air Force from allowing Boeing to have an exclusive contract to maintain older KC-135 tankers.

The Wall Street Journal story.

A Reuters report called it a another setback for Air Force procurement -- coming in the wake of the GAO ruling that the Air Force made serious mistakes in the tanker competition.

Ron Sugar, CEO of Northrop Grumman Corp., said in an interview with Reuters on Tuesday that he would not be opposed to the Pentagon buying tankers from both Northrop and Boeing -- if that's what the next administration wants.

Read the Sugar interview.

Here's my story:

BY James Wallace
P-I aerospace reporter

With the Air Force tanker competition in limbo until after a new president and his administration takes over in January, a proposal by a powerful member of Congress that the Pentagon buy tankers from both The Boeing Co. and Northrop Grumman Corp. has received a tentative nod from an unlikely corner.

"If they go to a dual award, which would mean not splitting the award but actually ordering one a month from each company, obviously we would look at that and be supportive of whatever the government wants to do,'' Ron Sugar, chief executive of Northrop Grumman, said Tuesday in an interview with Reuters.

"Anything that gets good tankers to our airmen fast is probably a good thing,'' he added.

Rep. John Murtha, the Pennsylvania Democrat who chairs the House defense appropriations subcommittee, has proposed buying tankers from both Boeing and Northrop.

Boeing said it is not taking a position on a dual-buy option.

"We look forward to a reopening of the competition to identify the right tanker to modernize its fleet of medium-sized tankers,'' a Boeing spokesman said in an e-mailed statement.

Although a "split buy" and a "dual buy" may not be the same thing, either would probably mean added costs to the Air Force because it would have to support different planes. And that's something that Defense Secretary Robert Gates has said is not acceptable.

Gates recently said he would recommend a presidential veto of any legislation out of Congress to split the tanker buy.

Of course, Gates may not be the defense secretary for long once John McCain or Barack Obama becomes president in January.

The dual-buy option is getting more attention because of Murtha, whose appropriations subcommittee chairmanship gives him a lot of power over military spending.

Last week, Murtha disclosed that he had inserted language into the fiscal year 2009 defense appropriations bill that directs the Pentagon to study the feasibility of buying tankers from both Boeing and Northrop. Murtha said he wants to know, among other things, what the increased costs might be.

But a dual buy is the only way to get tankers to the Air Force anytime soon, Murtha said, given that another protest is likely by the loser of the next competition, which will further delay the tanker acquisition process.

"What we said was 'Look at a dual buy,''' Murtha said at a news conference. "Now, Boeing doesn't like that and I don't know if Northrop likes that. The Defense Department definitely doesn't like that. But let me tell you something, we are not going to have tankers if we don't do that, I'm convinced.''

Because the Airbus A330-based tanker offered by Northrop and its partner, EADS, the parent of Airbus, is ready to enter production, and Boeing's 767-based tanker for the Air Force is not, a dual buy likely would mean that Northrop would supply most of the early tankers to the Air Force, depending on when the first deliveries were scheduled.

The Air Force wants 179 tankers as it seeks to eventually replace its aging fleet of some 500 Eisenhower-era KC-135 tankers.

Northrop and EADS won the hotly disputed tanker competition earlier this year, but Boeing appealed, and the Government Accountability Office agreed that the Air Force made serious mistakes and ordered a rebidding. But then Boeing threatened to withdraw from the competition if it did not have at least six months to offer a bigger tanker to meet new requirements set by the Pentagon, which hoped to award a tanker contract by the end of the year. So earlier this month Gates announced that the much-delayed tanker decision will be left to the next administration because there is not enough time while George Bush is president to conduct a fair competition.

Meanwhile, Boeing is taking the next few months to evaluate which of its jets might have the best shot at winning the $35 billion Air Force tanker competition against the A330 Airbus plane that was initially picked by the Air Force. Boeing's 767-200 tanker that it offered is considerably smaller than the A330.

The possibility of a dual buy raises many questions, not the least of which is, would the Pentagon, should it agree to buying two different planes, still press ahead with a new tanker competition? Would Congress go along with a dual buy, if it meant the tanker deal would cost more?

Regardless of the talk about a dual buy, the presidential race is likely to shape the tanker outcome. If Obama wins, he is seen as being more supportive of the Pentagon buying Boeing's plane.

Even though Northrop's Sugar said in the Reuters interview he could support buying tankers from both companies, if that's what the new administration wants, he also said Northrop is prepared to compete against Boeing again … and again… and again … for the tanker contract .

"We are going to do that as many times as it takes,'' he was quoted as saying.

Chinese A320 final assembly line in Tianjin. Airbus photo.

Building A320s in China is apparently about to pay off for Airbus.

Chinese airlines plan to order up to 280 Airbus jets, John Leahy, chief commercial officer, said Monday in the Chinese city of Tianjin.

He said the order for A320s, A330s and A350s may be split into two parts, to be signed before the Lunar New Year in January 2009.

Leahy said the Chinese government may announce the first 150 of the planes before announcing the remainder.

Leahy and other Airbus executives were in Tianjin to officially open the company's first final assembly line outside of Europe. The Chinese Premier Wen Jiabao, together with the Party's Secretary of Tianjin, Zhang Gaoli, and Airbus President and CEO Tom Enders inaugurated the Airbus A320 family final assembly line in Tianjin.

Below is part of the Airbus news release about the opening:

The final assembly line is a joint venture between Airbus and a Chinese consortium comprising Tianjin Free Trade Zone (TJFTZ) and China Aviation Industry Corporation (AVIC).

"The Tianjin final assembly line for Airbus A320 Family aircraft has been set as a paradigm of Sino-European friendship and cooperation. Based on mutual trust and close-knit cooperation, the two parties have commenced the final assembly of the first aircraft within only one year and three months from the beginning of the facility construction till present and created a miracle in the history of this giant project," said Huang Xingguo, mayor of Tianjin.

"The opening of the FALC is an historic event for Airbus and for the aviation industry," said Tom Enders, President and CEO of Airbus. "The first Airbus final assembly line outside Europe highlights the importance we attach to growing our partnership with China, one of the most important aviation markets today and certainly tomorrow."

The FALC in Tianjin is based on the latest state-of-the-art Airbus single aisle final assembly line in Hamburg, Germany. The aircraft will be assembled and delivered in China to the same standards as those assembled and delivered in Europe.

The first aircraft assembled in the FALC will be delivered to Sichuan Airlines through Dragon Aviation Leasing in mid 2009. The FALC will ramp up production to four aircraft a month by 2011.

The FALC is a demonstration of Airbus' commitment to forging a long-term strategic partnership with China. Six Chinese manufacturers are already involved in manufacturing parts, such as wing components, emergency-exit doors and assembly and transportation tools for Airbus aircraft. In 2007 alone, Airbus sourced $70 million worth of high quality components and materials from Chinese companies. By 2010, Airbus purchasing from the Chinese aviation industry will almost treble to $200 million, before more than doubling again to $450 million by 2015.

By the end of August, there were 351 Airbus A320 Family aircraft in operation with 12 operators in China and over 400 on order.

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As I first reported last week, Japan Airlines has ordered nine Boeing 767-300ERS as part of its compensation package over delays to the 35 787s it has on order.

The airline announced Monday that in addition to the 767s, it is getting four more 777s from Boeing. The jets will be delivered in 2010 and 2011.

The 767 orders, from an unidentified customer, appeared last week on Boeing's orders and deliveries Web site.

JAL, which was to have taken its first 787 in August of this year, won't get its first plane until October 2009, the airline said. It will take Dreamliners through the end of 2016.

All Nippon Airways said last week in will take nine more 767-300ERs as part of a compensation deal with Boeing on its 50 787s that will be anywhere from 14 to 36 months late.

-------------------------------------------------------

Over the weekend, Boeing conducted a key ground test of the 787 that was necessary before first flight. The static test was accomplished even though the Machinists union is in the third week of a strike against Boeing.

Known as the high-blow test, it was accomplished using the 787 static test plane in the 40-23 building of the Everett factory.

During the test, the airframe reached an internal pressure of 150 percent of the maximum levels expected to be seen in service – 14.9 lbs. per square inch (1.05 kilograms per centimeter) gauge (psig). It took nearly two hours to complete the test, as pressure was slowly increased to ensure the integrity of the airplane.

Boeing said the composite fuselage stood up to the pressure with no issues. Boeing must complete two more static tests before first flight – one on the leading edges and one on the trailing edges.

"We had every confidence going into this test because of the extensive work we've done on larger and larger pieces of composite – from small coupons to fuselage sections," said Pat Shanahan, vice president and general manager of the 787 program. "Still, it's very rewarding to see a whole airplane being tested and having the results we expected.

Still no word from Boeing of if first flight is already delayed until at least early 2009 because of the on-going strike.

In an interview with me on Sept. 13, Boeing jetliner boss Scott Carson had this to say when I asked him if Boeing could still make the year-end first flight deadline:

"If the strike were over tomorrow, I think I'd tell you we have a really great shot at making it. If it drags on another week, the odds are not as good but there is still a shot. So the question is when we would absolutely miss it and I'm not smart enough to answer that right now."

787 during high-blow testing. Boeing photo

Even though the Machinists' strike against Boeing will further delay the 787, All Nippon Airways of Japan, the first customer for Boeing's 787, announced Thursday that it will take delivery of the first plane in August 2009 -- about 14 months behind the initial delivery schedule of May 2008.

This suggests that Boeing does not see the Dreamliner delivery schedule slipping further at this time, even if first flight slips into next year because of the strike.

The airline said it was standing firm on all 50 Dreamliner orders, but that it would be taking another nine 767-300s from Boeing for added lift capacity to make up for the delays. It was not immediately clear if Boeing is essentially building the 767s for ANA at a huge discounted price as compensation for being late with the 787.

Boeing would not comment about the 767-300ERs. It has been well known for months that Boeing and ANA were in talks about an arrangement in which the airline would take additional 767s as compensation and added lift for the delayed 787s. One possibility is that Boeing is leasing the jets to ANA and will take them back as the 787s arrive. Boeing could then try and resell the 767s or convert them to freighters.

All ANA would say is that it is getting the 767s at a very good price.

ANA said it would take its 787s at the rate of six planes a year until 2017, rather than the initial schedule of seven planes a year until 2015.

Delays on the 787s will range from 14 to 36 months per aircraft, with an average delay of two years, ANA said.

ANA said it would introduce the nine 767-300ER aircraft in fiscal years 2010 and 2011, to cover its capacity needs in the interim. It will also revise the retirement schedule of its present fleet and its maintenance schedule.

UPDATE: 2 p.m. Among the 24 new orders that Boeing listed Thursday on its orders and deliveries Web site, are nine 767s.

A source confirms these are NOT the 767s for ANA.

UPDATE: 5 p.m.

Here is my story:

By James Wallace
P-I aerospace reporter

Even if it never builds 767 tankers for the Air Force, The Boeing Co. is finally seeing fresh orders for that plane – from 787 customers whose Dreamliners are late.

Among 24 new jetliner orders that Boeing announced Thursday were nine 767s from an unidentified customer. And All Nippon Airways of Japan announced plans to take nine 767s to sub for some of its late 787s.

Boeing would not comment, but sources said the nine planes for the unidentified customer are 767-300ER passenger models for Japan Airlines, which has ordred 35 787s. The 767s will be used by JAL on domestic routes until some of the late 787s arrive.

ANA, the launch customer for the 787, said Thursday its board had decided to take nine 767-300ERs to help it with lift capacity because the 50 Dreamliners it has ordered will be anywhere from 14 to 36 months late. Boeing would not comment about those nine ANA 767s. They have not yet showed up on Boeing's Web site. Boeing does not post orders there until they are firm.

But an ANA spokesman said the airline will order the 767-300ERs directly from Beoing.

The ANA and JAL 767s are part of a compensation deal that Boeing and the airlines have been working on for several months. Boeing is expected to end up paying several billion dollars in late penalty fees to the more than 50 customers who have ordered some 900 Dreamliners. But those penalty payments are likely to include, where possible, cut-rate deals on other jets like the 767.

In addition to the nine pending 767 orders for ANA, the sources said Boeing will add to its 767 order book in the coming months as more deals are reached with 787 customers, many of whom need planes to substitute in their fleet for their missing 787s. Airbus is hoping to sell its A330 to some of those 787 customers that need substitute jets.

In addition to the nine new orders for the 767, Boeing won orders for four 777s and 11 737s, one of which is a business jet. Boeing now has 612 orders in 2008. It trails Airbus, however, and appears unlikely to overtake its rival before the end of the year. Boeing beat Airbus in orders in 2007 for the first time since 2000.

As of Thursday, Boeing had a backlog of 55 767s that have not yet been built or delivered. The number includes the latest nine listed for the unidentified customer.

One option that has been discussed is for Boeing to build new 767s and then lease them to 787 customers. Later, when the 787s arrive, Boeing would take back the 767s. It could sell or lease the planes to other customers or convert some of the 767s to freighters, where market demand is stronger.

The 787 is some 14 months behind schedule, mainly because Boeing's global partners fell behind with the new production system being used for the Dreamliner. Rather than focusing on final assembly, the delays have meant Boeing workers at the Everett plant must complete the work that should have been done by the partners.

First flight of the Dreamliner was originally set for late August or September of last year. After a series of delays, however, Boeing has been saying it would be abel to get that first flight accomplished by the end of this year. Buth this was before the Machinists union struck the company on Sept. 6. The strike, which enters its third week Saturday with no talks in the works, has shut down Boeing's jetliner production and may push first flight of the 787 into at leats early 2009.

All Nippon Airways said Thursday its first Dreamliner will be delivered in August of next year. The timing of the airline's announcement is curious, given the Boeing strike. A delay in first flight will mean delays in the 787 flight test schedule and eventual certification of the Dreamliner. And the strike, depending on how long it goes, could effect Boeing's plans to deliver 25 787s by the end of 2009, including that first plane to ANA.

Boeing will continue to build 787s for customers once it has completed work on the six test flight panes. But it would have to make modifications to any customer planes before delivery, depending on what problems are found during the test flight program.

An ANA spokesman could not explain why the airline is confident it will get its first Dreamliner in August despite the on-going strike.

The 787 will eventually replace the 767. Boeing needs additional 767 orders to keep that production line running once the remaining planes on order have been built. Workers are building only one 767 a month but that rate is expected to double by next year.

Still pending is a possible deal to supply the Air Force with 767 tankers. Boeing lost that tanker competition earlier this year to a team of Northrop and EADS, the parent of Airbus.

But the competition will be redone next year, once a new president and administration takes over.

Boeing has won 11 firm orders for its 767 this year. The other two planes were ordered by Azerbaijan Airlines as part of a compensation package that Boeing negotiated with the airline to make up for the 787 delays.

Although the 787 program is only about 14 months behind schedule, some of the planes will be up to three years late.

All Nippon Airways, the first 787 customer, has 50 Dreamliners on order, including 30 of the short-haul 787-3. Boeing recently decided to postpone development of the 787-3 until it has finished a larger derivative, the 787-9, in 2012. The 787-3 would then follow, unless Boeing decides not to go forward with its development.

All Nippon Airways and Japan Airlines are the only customers for the 787-3, but they are counting on the plane to expand domestic routes. JAL has ordered 13 of the 787-3 models, along with 22 787-8.

The ANA spokesman said the airline has not changed its mix of 787s and is sticking with its initial order, including the 30 787-3s

In other Boeing news, Goldman Sachs lowered its target price for Boeing's stock Thursday because of the ongoing credit crisis, which means Boeing may have to finance more planes.

"We believe that the amount of funding from traditional aircraft financing sources is shrinking and that Boeing's customers may face near-term challenges financing aircraft purchases," New York-based Goldman analyst Richard Safran wrote in a note to investors.

He cut his 12-month projection for Boeing's stock price to $56 from $60 and kept his "sell" rating on the shares.

In trading Thursday on the New York Stock Exchange, Boeing shares gained 6 cents to close $57.42.

I've been away on vacation for more than a week....

But nothing much has changed on the Boeing strike front since I left for Pensacola, Fla., on Sept. 13, the same day I wrote a Q&A with Scott Carson from an interview I did with Boeing's jetliner boss a couple of hours before I boarded my plane.

You can read the Carson interview in my previous blog post. He told me then that he hoped the two sides could be back at the bargaining table in a couple of weeks and that the strike could be over about a month after that.

But no sign yet that any direct talks are close.

On Wednesday, Boeing boss Jim McNerney told reporters, while on a business trip in Boston, that the two sides are at a "standstill.''

This is the story I filed for Thursday.

When Boeing machinists on the 787 program finally return to work after the strike, now into its second week, they will find some changes in the Everett plant – changes that should make their work easier, according to Scott Carson, president and chief executive of Boeing Commercial Airplanes.
"We are using the time to do some thoughtful reorganization in the factory to improve the way the work gets done,'' Carson told me Saturday.
I was able to talk with him when I showed up at Seattle's convention center, shortly before he gave the keynote speech at a non-Boeing event in Seattle.
"When the mechanics come back I think they will find that is a fairly significant set of improvements that will make their jobs easier and allow them to spend more time doing what they do best, which is building high quality airplanes.''
"We are working very hard to use that time productively,'' Carson said of the days that the Machinists are on strike and walking picket lines rather than in Boeing's factory building jets.
You can read online the story I filed earlier from my interview with Carson.
What follows is a detailed Q&A with the boss of Boeing's jetliner business.
I have rearranged the interview for my blog to start with questions on the 787 and the effects on the Dreamliner program by a strike that could go a month or longer.

Q: Is there a silver lining in this strike regarding 787 suppliers? Won't this allow some of them more time to catch up with work that fell behind?

A: I've been asked for several months leading into final negotiations was that really our plan – did we really want a strike?

Absolutely no.

We went through about 15 months where we have disappointed our customers with delays on the 787. The last thing I want, or wanted, was anything that might potentially further delay the airplane.

While the strike certainly was not a strategy in that regard, the supply base had been making steady progress. Mitsubishi in Japan, one of the problematic suppliers as recently as six months ago, is doing extraordinarily well. We have seen similar improvements across the globe with the supply base. We did not need a strike to catch up.

Q: Had first flight, which was widely believed to be planned for November, already slipped into December before the strike?

.A: We were working on a fourth-quarter target. On any given day you might be more or less optimistic on which day it might actually happen. We were on track, and there is still a chance, that we can make it in the fourth quarter if this doesn't drag on too long.

If the strike were over tomorrow, I think I'd tell you we have a really great shot at making it. If it drags on another week, the odds are not as good but there is still a shot. So the question is when we would absolutely miss it and I'm not smart enough to answer that right now.

Q: What about other airplane programs and how they are being affected by the strike?

A: The neatest thing we have seen is in areas where we are reaching out and touching our customers, like shipping spare parts. We have had volunteers from around the company reaching out to help us, help our customers and not let our customers down when they have an airplane that needs a part to get back into the air.

This team pulls together well in challenging times like this.

Q: Will you be able to deliver those 25 Dreamliners by the end of 2009?

A: What we do know is if first flight slips it puts pressure on the flight test program until we get the airplane certified. We are going to do our very best to not let it adversely impact our customers but there are a lot of variables in play right now. And the biggest one is getting the strike resolved.

Q: Have you heard from 787 customers about concerns the strike will further delay their planes?

A: I wrote letters Monday to all of our customers, not just 787 customers, explaining our situation and the fact that we were working with a labor disruption and that we were working very hard to deliver product that could be delivered and to mitigate schedule impacts of those aircraft that could not be.

I have received letters back from a couple dozen of the customers and I expect more next week. They said a couple of things. One, "we understand and we'd like you to resolve this as soon as you can – but it is important that it be resolved on economic terms that do not adversely effect the industry."

The second thing they have said is, "do everything you can not to affect my deliveries."

Q: Were you surprised by the union's vote on the company's best and final offer? It was 80 percent to reject the contract and 87 percent to strike?

A: I was very disappointed. There had been a lot of talk that we were looking to win just that 34 percent vote (Union rules require a two-thirds vote to strike. If 34 percent voted not to strike, the contract would go into effect by default).
The answer to that is absolutely not. We put a package on the table that we thought would be attractive to the bulk of the union members

We thought generally that this package was so good and so strong it would find broad-based acceptance. So the rejection was disappointing to me. We are going back and doing a post mortem in terms of what didn't we see that we should have seen. Are there different ways we should have presented the package? Should we have spent more time trying to make sure it was understood? And that work will continue. But I was very disappointed.

Q: What would you have done different?

A: It's still early in that process. You go through these huge cycles. Monday (two days after the strike started) was probably the most down a day as I've ever had in some 37 years with the company. As we work back through the quality of the economics, we remain convinced this was and is a world-class package that we put on the table.

But now is the time to sit and look at how we communicated that ... and that work will continue to go on for the next couple of weeks.

Q: What did you do when you returned from Orlando? (Carson flew to Orlando, with Boeing's labor negotiator Doug Kight, to talk with union leaders and a federal mediator, in a last-ditch effort to prevent a strike when the union extended the strike deadline by 48 hours.)

A: I escaped to our weekend home and spent a day working real hard just to clear my mind. Then you walk in (the office) Monday and you realize this is going to impact a lot of people. So you write that letter to customers and you hate doing that. You know you are letting them down. It's a challenging time.

But it's getting back to the basics. Was there something flawed in the package and I'm convinced there was not. The wage increases are among the best in the industry and the retirement package is clearly the best in the industry. The medical remains at the top end of what is experienced in the industry today.

There is nothing in that package, when I look back at it, that would cause me to second-guess my team and say, "Oh we should have done more here or more there." I just don't see it.

Q: This is your first strike as chief executive of Boeing Commercial Airplanes. Can you talk about the impact personally?

A: You feel bad for the employees who are out on strike. I feel bad for our customers and I feel bad for our shareholders. This is not good for anyone.

But, and this is my term, a reckless settlement – a settlement that went way over the top just to avoid a strike – would be equally bad for all those parties.
And it would be bad for a long, long time to come and that's what we could not do.

Q: Any thoughts about the strike so far, as it enters its second week?

A: It has been by and large good and professional. There has been very, very little rowdiness. I'm just proud of the entire team as we go through a difficult time.

Q: You still face tough negotiations again later this year with another union, SPEEA, which represents engineers and technical workers. Do you have to hold the line in what you can offer the Machinists because if you give away everything it will come back to bite you in talks with SPEEA?

A: You can't give away everything because it adversely affects customers who price a product or your ability to compete when you have very aggressive competitors around the world.

But you also have an obligation not to set a new standard for industries other than aerospace by doing something because this time around we are better off than some of the others. (The union has said it wants more of the $13 billion in profits Boeing made over the last few years.)

For us to set a high hurdle that would affect the airlines, that would affect industries unrelated to aerospace, would be an irresponsible thing for us to do.

Q: The union says it's ready to talk. The company says it is ready to talk. So does it come down to who blinks first before you finally start talking again?

A: The federal mediator has been in touch with both sides, looking for opportunities
that say there is some reason to meet.

As we continue to have those discussions perhaps he will find reasons for us to do it. But right now, as we said when we came back from Florida, we have worked very, very hard – both parties – to try and find an avenue but we were so far apart it just didn't make sense to continue on.

A: How far apart were you in Florida?

Q: We can't talk about that.

Q: Can you close the gap with the union on the economic issues?

A: The final offer we put on the table truly represented a world-class package. It was a best in the industry package – wages, retirement and medical benefits.

We really did put our best and final offer on the table in terms of those economics. We thought long and hard about it. We continue to believe that was the right approach for us to take. By any measure wages were far better than anything offered in the industry this year; medical package – far better than anything that's been offered in the industry. The retirement package – significantly better than the last best settlement, which was Lockheed.

We don't see tremendous motivation to go much higher.

You end up balancing affordability and competitiveness. That's the right approach for us to take. We offered a world-class package but a package that still allows us to be competitive in the markets that we have to address. And by being competitive we can create the jobs, which is the other thing they are interested in.

It continues to feel like the right approach to us.

Q: The union has been very critical of the medical package, claiming there are many takeaways from what was in the past contract, such as increased costs to members. How important is this issue for Boeing?

A: It's an important issue across the country. Everywhere in the industry health care and health care costs are an issue. We did our very best to share the increase and limit the size of the increase that our employees would have to shoulder.

On average the increase was about $6 to $7 a month – it was not a huge number. We also offered a no-cost option.

And so we had done, in our eyes, the best of both worlds in terms of what our employees expected and what we heard they were expecting.

We were flabbergasted by the reaction to the medical package.

Q: The union has said it considers cost increases to its members in the medical package as a takeaway. Is it reasonable to expect not to pay more, given the rising costs of medical care?

A: I don't think it's reasonable. Every one of us is seeing increases in our health care. I see it in my package. I'm sure you see it at the paper. When we talk to other employers in the region this is still far and away the most attractive health care package in the region. Would they (the union) like to see no increase? Sure. I'd like to see no increase when I go to the gas pump. But it's a fact of life. So we did our best to share the economics to the advantage of the employees. It's disappointing the union did not think it was enough.

Q: Let's talk about outsourcing and job security. These are very critical issues for the union. Will this be the biggest roadblock to a settlement of the strike?

A: We have repeatedly asked the union what the most critical issues are to them and repeatedly what we have gotten back is two or three pages worth of items and every one of them is as important as any other. And that really does stymie you in terms of being able to address the issues that are truly the most important to them.

We continue to ask the union, "OK, tell us what are your two or three really most critical items" to see if there are ways to adjust the package to address those. But unless they help us by limiting what they are asking for it really becomes very challenging.

Q: How much movement are you willing to make on outsourcing and the language that was inserted into the 2002 contract that allowed outside vendors to deliver parts on the factory floor?

"We've had a provision that allows the union to bid for work, if they can demonstrate . that the economics are advantageous for them doing the work inside. We are delighted to stay inside.

But what gets missed in this whole discussion about jobs is that we have added about 8,000 (IAM) jobs during this last contract and another 4,000 jobs for SPEEA. So this concern that somehow all the jobs are going away is not borne out by all the facts.

Q: The union would like some kind of language that saves jobs at perhaps current levels for the life of the contract, or ties jobs to production rates or sales.

A: What we are most interested in is maintaining our ability to manage the place. To provide job guarantees if you will – and I have heard those kinds of words from them – in an uncertain marketplace….. If you look around the world today, we just saw Alaska Airlines announce big cuts, including in jobs. This is a really uncertain world. For us to guarantee jobs really ties your hands in the long term to manage this business and make it profitable.

Q: What's been Boeing CEO and Chairman Jim McNerney's role in this? Has he set the limits on what you can offer?

A: We began a year ago studying the economics, studying the job market, studying the medical costs, and over the last eight to 10 months I had regularly briefed Jim and his team on our views of where that would go.

He allowed us to set the parameters. He fully supports both where we were and where we are today in this process. I talk every day at least once about the situation and the economics we are dealing with. To say that we are completely aligned would not be an understatement.

Q: Boeing CFO James Bell said this past week, at an analyst's conference, that he would feel pretty good if the strike lasted only a month, suggesting he thinks it could go longer. And you?

A: We would very much like to have this strike end peacefully soon. We think we put an outstanding package on the table and we think there was a fair amount of misunderstanding in terms of what the package included.

But it takes a little cooling off. There was a great deal of emotion both the night of the vote and last Friday midnight (when the strike began.) It takes time for people to calm down and to be ready to talk again.

I would hope within a couple of weeks we would be in a place where we are talking. I would certainly hope that within a month we would find a resolution. But it is important that it be resolved in a way that allows the company to remain successful and allows us to preserve the important thing to us, which is the right to manage the business.