Leak Inquiry Said to Focus on
Calls with the New York Times

April 12, 2008

By PHILIP SHENON

WASHINGTON Former government officials have recently been called before a federal grand jury and confronted with phone records documenting calls with a reporter who covers intelligence issues at The New York Times, according to people with detailed knowledge of the investigation.

A former official who was called before the grand jury in Alexandria, Va., said that he was shown extensive phone records that documented the date and duration of conversations with James Risen, a Times reporter in Washington, and that prosecutors were trying to identify Mr. Risen’s sources. Mr. Risen is fighting a grand jury subpoena for testimony about his sources for a 2006 book on the Central Intelligence Agency.

Justice Department officials have confirmed that prosecutors are trying to identify Mr. Risen’s sources for the book, “State of War,” and for articles he wrote for The Times about the nation’s spy agencies, to determine if his sources violated laws on the sharing of classified information.

But spokesmen for the department would not comment on details of the grand jury investigation, which is being conducted out of the federal courthouse in Alexandria.

The grand jury witness, who spoke on condition of anonymity because he did not want to draw new attention to himself, and others with knowledge of the investigation say it is unclear whose phone records were obtained by the Justice Department if they were records of calls made from Mr. Risen’s phones or from the phones of officials who may have talked to him.

The Times has not been subpoenaed for Mr. Risen’s office phone records, although there are other ways that the department could obtain them, possibly by a subpoena to phone companies without any notice to the newspaper. Department guidelines give prosecutors the ability to subpoena a reporter’s phone records if they obtain approval from the attorney general’s office.

Mr. Risen shared the 2006 Pulitzer Prize for articles that exposed the National Security Agency’s program of eavesdropping without warrants, and the Justice Department’s effort to identify the sources of those articles and of his book is one of several federal leak investigations singling out reporters and their sources.

In 2005, Judith Miller, then a reporter for The Times, was jailed for nearly three months after she initially refused to identify news sources in an investigation of leaks that identified a covert C.I.A. operative.

A freelance reporter in California, Josh Wolf, was freed from a federal prison last April after 226 days; he was imprisoned after refusing to testify before a grand jury and turn over tapes that he had made of an anarchist rally that turned violent in San Francisco.

The Justice Department is trying to block efforts in Congress to create a federal law to shield reporters from identifying their sources; a shield law exists in many states. The department has argued that a federal shield law would restrict its ability to identify government officials and others who leak classified information to reporters that might damage national security.

Joel Kurtzberg, a lawyer in New York who is representing Mr. Risen on behalf of both The Times and his book publisher, The Free Press, said he had no comment on the investigation.

Lucy A. Dalglish, executive director of the Reporters Committee for Freedom of the Press, suggested that the investigation was one of several “really egregious” efforts by the Bush administration to limit press freedoms by intimidating reporters and their sources.

Ms. Dalglish said in an interview that as a result of Mr. Risen’s case and others, the committee was recommending that reporters stop using their home and office phones to communicate with sources on sensitive topics. “Do your reporting the old fashioned way meet your sources on a park bench,” she said.

In January, Mr. Risen received a subpoena that, his lawyers said, appeared intended to force him to reveal his sources for a specific chapter in “State of War” that described efforts by the C.I.A. to infiltrate Iran’s nuclear program. None of the material from that chapter appeared in The Times. The book also expanded on Mr. Risen’s reporting on the domestic eavesdropping program.

http://www.nytimes.com/2008/04/12/washington/12leak.html?ex=1365652800&en=a265846ae10b4404&ei=5088&partner=rssnyt&emc=rss

There have been a lot of comments posted on the Seattle Post Intelligencer’s website following the articles of PI Reporter, Andrea James, in the past several weeks in response to her articles about the trial of Boeing Whistleblower, Gerald Eastman. This is a post I submitted on 4-12-08, upon viewing many of the posts submitted by said employees or retired employees of the Boeing Company.

**********************************************************************

Comments Regarding Industry, Government, Ethics, Contracting and Whistleblowing

It is quite tragic in many ways that so many Boeing employees seem to undergo such a brainwashing during their employ at the company. Perhaps in some cases it is some pangs of guilt or dismay at seeing glimmers of what their company has become. Things are not what they have been in the past. Denial is a basic human reaction to shock or dismay upon finding things are not the way your filter system allowed you to believe they are. People don’t generally want to believe the worst about the companies they work for and reply upon for more than ample salaries. Some work through it and steel themselves to deal with reality; others flail about trying to out-shout the often lone voices of truth which pop up from time to time, in an attempt to silence those who threaten the illusion that all is right in the corporate vacuum, if one can call it that. There is a lot of fear and delusion in these people that they do not seem to be able to overcome, in some cases, even after retirement.

Repeating lies or half-truths, does not make them true, no matter how loudly or how long you shout them. The last post before me (zinger) is an example of this. Frankly, in my opinion, industry has shown itself totally incapable of policing itself, and the trend in the past decade toward letting industry do that has been a critical mistake.

I believe that allowing the corruption of the oversight agencies (FAA and others including many of our OIG’s) and crippling of their ability to do their oversight jobs is criminal. It has led to the conditions that have caused some employees, (usually those out working in the field, trying to make oversight work correctly), to find they have to stand up while in the course of doing their jobs both in industry and in government and attempt to right wrongs in an extremely hostile environment. They do what they believe is right, and best for our country, and their companies, only to find themselves labeled “whistleblowers” and treated in such a way that they are the recipients of record abuse, retribution, personal attack, attacks to their families, destruction of their careers and lives.

Gerald Eastman is but one example of this. Do not allow self-serving corporate voices to convince you otherwise. Do not allow them to spin this as though it is only one employee. It is not. There are many employees out there trying to do the right thing and being punished by their employers for doing so. Do not allow these companies when an example of their corruption is found out, to spin it as “just one bad apple working in isolation alone.” Investigate what is going on in the company involved, from top to bottom. There is a lot of less than ethical corporate business behavior going on. Much of the incidence of this is not common knowledge to the public for a variety of reasons. We have been going through a period of time where corporate greed and the avaricious ambitions of those in even our highest levels of government have created a remarkably corrupt and twisted environment which protects and shields the wrongdoing and wrongdoers from public scrutiny, both in industry and government. Read the news. Visit sites, which report these kinds of stories and collect them so they may be viewed not as disjointed unconnected aberrant phenomena, but as connected pieces of evidence of a larger purposefully corrupt environment.

The way to strengthen our country, and our economy is to clean up business and government contracting. Make our own U.S. companies, (if we can still legitimately call these companies that), models of true ethical business practices. Make these companies live up to their responsibilities so that their employees, the public in the communities where they do their business, and the taxpayers who pay the huge sums of our monetary resources to them, can truly be proud of them and with a clear conscience support them in their bidding for tax payer funded projects. Make these companies worthy of the loyalty of our government above international interests due to genuine quality of product, integrity in contracting, and fulfillment of contracting requirements including attention to security in protecting technology and our ‘”edge” economically and in defense. Make them models of workplace ethics and fairness, which will do more to enhance people’s work-lives and job satisfaction than anything else we can do.

It is time to clean up the mess, both in industry and in government. It is not necessary to commit unethical acts to be successful in business. It is not required to see wrongdoing and keep silent out of some misplaced sense of loyalty to a corporation. Particularly when the corporation, by the very character of the actions they are willing to commit for their skewed sense of what is necessary for the financial benefit of the stock holders and CEO’s, has shown itself not to be worthy of that trust and loyalty. Short changing quality of product particularly in cases where public safety is an issue should bring about a sharp and definitive reaction from both government oversight and the public. Compromising security and lackadaisical handing of technology and cutting edge products should be dealt with swiftly and surely, when these products are contracted by and belong to the taxpayers of the United States, and are not proprietary possessions of the corporation. It should be a part of our national paradigm to have these kinds of expectations and to firmly enforce them at every turn.

Please support government refocusing and recommitting itself to making oversight work responsibly. Help empower oversight employees and depoliticize their supervisors and work environment so they may do their jobs without fear of persecution and retribution. Write your politicians and support those who have the courage to stand up and speak exposing those who do wrong. Demand that oversight be allowed to do its job ethically. This will not be easy and it is going to take more of us speaking up, and applying pressure. But it is critically needed and well worth our effort. After all, it is essential to the security and sovereignty of this nation.

GFS

As more accounts of problems with Boeing QA, and decisions made in the past which may not have been in the best interests of public safety and American Taxpayer’s interests, I expect we’ll see more articles like this. CYA?
-GFS

Boeing sues Alcoa over parts for F-22 Raptor fighters
By Dominic Gates
Seattle Times aerospace reporter

Some of the U.S. Air Force's new F-22 Raptor fighter jets are flying with a manufacturing defect in crucial titanium supports in a section built by Boeing.
The Air Force agreed to allow the defect to stay because of the cost and delay to fix it. But the jets will require more frequent inspections because of the potential for a catastrophic failure in flight.
Details of the problem emerged late last month when Boeing sued Alcoa, the Pittsburgh, Penn.-based subcontractor that forged the titanium parts. The suit seeks more than $12 million for extra costs incurred because of the alleged shoddy manufacturing.
Boeing said the jets are safe for military operations as long as the potentially defective parts are inspected regularly.
"The Air Force has determined there is not a safety-of-flight issue here and they have not grounded the aircraft," said Boeing F-22 spokesman Doug Cantwell. "There will be more frequent inspections, making sure no cause for concern does develop. Boeing employees will keep an eye on them."
Lockheed Martin is the prime contractor on the F-22, which will replace the Air Force's aging Boeing-built F-15s and other aircraft. As a subcontractor, Boeing builds the Raptor wings and aft fuselage in Seattle.
From 2000 through 2005, Alcoa supplied Boeing with the forged titanium parts that provide structural support in a section of the aft fuselage that "connects the wings to the fuselage of the aircraft," the filing states. This section's "failure could result in the loss of the aircraft."
Each aircraft has five forged titanium supports per wing; four on each side could be affected.
During manufacturing, these eight supports must be heat-treated in a furnace under precise conditions to strengthen the metal's microstructure.
Boeing's complaint, filed in U.S. District Court in Seattle, alleges Alcoa "failed to follow required procedures" and failed to add a crucial extra 20 minutes in the furnace that was needed for proper forging.
After that was discovered in fall 2005, Boeing's testing established that the imperfect forging procedure "increases the rate of crack growth and reduces the damage tolerance life" of the parts — defined as "the length of time for a crack to propagate undetected from a manufacturing defect to cause the catastrophic failure of the aircraft."
In April 2005, Alcoa was replaced as supplier of the forgings "because of cost issues" unrelated to the defect, Boeing's Cantwell said.
By then, Alcoa had delivered 695 of the forged titanium supports, of which 384 were installed on 48 jets, 88 were installed on 11 partially assembled aircraft and 179 were at a stage where they could still be inspected and tested.
To date, a total of 459 of the forgings have been inspected and 71 have proved defective. Inspections will continue into next year.
Boeing and Alcoa attempted to develop a "reheat" procedure to fix the defective parts, but this caused metal distortion and "proved economically infeasible," the filing states.
The inspections and extra engineering required to develop the reheat procedure cost Boeing at least $5.3 million.
In addition, the Air Force withheld $27 million in payments until it reached a settlement with Boeing last June. The settlement requires Boeing to perform $6.4 million worth of extra work at no cost.
Boeing wants Alcoa to reimburse all the extra costs plus legal fees.
Alcoa spokesman Kevin Lowery downplayed the issue as a "commercial dispute" and said, "We weren't able to come to some kind of agreement. Now we're going to move the commercial dispute into another venue."
Lowery conceded "there is a defect there" but declined to discuss who was at fault.
Lockheed Martin spokesman Rob Fuller declined to comment.
In the end, Boeing, Lockheed Martin and the Air Force chose to live with the defective Alcoa forgings in the first batch of 101 aircraft, because they "may only be removed at substantial cost and disruption to aircraft-production operations," Boeing's filing said.
Boeing's filing describes the continued use of the defective forgings as "commercially reasonable."
"Discontinuing use of the Alcoa ... forgings would shut down the F-22 aircraft production line for months, exposing Boeing and Lockheed Martin to damage claims from the Air Force," the filing states.
Air Force public-affairs officer Lt. Col. Jennifer Cassidy said in an e-mail, "The Air Force would never do anything that would compromise the safety of our airmen."
This year's Air Force budget estimates put a price tag of $137 million to the F-22 Raptor. Lockheed has so far delivered 110 Raptors.
Dominic Gates: 206-464-2963 or dgates@seattletimes.com
Cutbacks likely on Army work
Budget constraints are likely to force the U.S. Army to cut back on the combat capabilities of the $159.3 billion system of vehicles, drones and communications that Boeing is developing for the service, congressional auditors said Thursday.
There are "significant technical challenges" in producing software codes and communications for the Future Combat Systems (FCS) program, the Government Accountability Office said.
Army cost estimates are based on "uncertain" data, and as the program moves to full production in 2013, it will compete for funds with the Army's need to replace equipment lost or damaged in Iraq, new weapons and continued conversion of the force into brigades from divisions, GAO Director of Acquisition Management Paul Francis told a House Armed Services Committee panel.
"The Army will likely continue to reduce FCS capabilities in order to stay within available funding limits," Francis said.
The Army wants about $3.6 billion next year for the program.
Boeing and Science Applications International are the top contractors leading the development phase.
Bloomberg News

Role of military planes declines in Boeing's defense business
By Dominic Gates
Seattle Times aerospace reporter

Boeing once built massive fleets of World War II and Cold War military planes. But right now, the world's biggest airplane builder can't boast even a single prime contract to supply the U.S. military's next generation of fighters, bombers, tankers and transport planes.
Last month's loss of the Air Force tanker contract to Northrop Grumman and its European partner, if it stands, further weakens Boeing's already diminished role in producing future warplanes.
"The Boeing Co. morphed," said Wall Street analyst Joe Campbell of Lehman Brothers. On the defense side, building airplanes "is not even what they're known for anymore," he said.
In recent years, Boeing's defense unit has shifted focus from planes to big-ticket electronic-hardware systems: satellites, missile defense, networked warfare and border-surveillance projects.
The company's commercial and defense units also have different perspectives, as the debate over the tanker loss makes apparent.
On one side, Boeing Commercial Airplanes sells most of its airplanes to international buyers and champions free trade and offshore outsourcing.
On the other, the defense division relies on the U.S. government for the vast majority of its business, and warns of the dangers of giving a European company the lead role in building the Air Force tankers.
"Where's the synergy?" asked Teal Group industry analyst Richard Aboulafia skeptically.
Increasingly, the two main divisions of the Boeing colossus — formed by a series of late-1990s mergers — look more like distinct companies with divergent interests.
"These are two legs walking in opposite directions," said defense analyst Loren Thompson of the Lexington Institute.
Almost 8,000 of Boeing's 70,000-plus employees in Washington state work in the defense division, and many of those jobs depend on the shrinking overlap between Boeing's commercial and military airplanes.
A tanker win was supposed to be a vindication of the company's "One Boeing" strategy: deploying people, technology and resources so that the commercial and defense sides complement each other.
With the loss, it's clear that more than ever there are two Boeings. One makes airplanes. The other increasingly does not.
Flying Fortress
Boeing made its first big impact in military aviation with the World War II B-17 Flying Fortress; it built 6,981, and other companies using its design built 5,745 more.
In the following decades it made large quantities of long-range bombers and fighters.
It's no accident, however, that Boeing's military division — the 71,000-employee Integrated Defense Systems (IDS) — now doesn't have airplanes in its name.
IDS delivered just 84 airplanes last year, including 16 big C-17 transport airplanes and 44 fighter jets. Boeing's commercial side, by contrast, delivered 441 airplanes.
Boeing's first jet, the 707, gained a massive advantage against its commercial competitors, thanks to military sales for the original air-refueling tankers the company built starting in the 1950s.
"The Air Force has more 707s than any airline in the world has of a single airplane type," said Campbell. "Historically, Boeing wouldn't have been Boeing without all those 707s."
But now, IDS' contracts for U.S. military jets are running out.
In 2001, Lockheed Martin beat Boeing in the landmark contest for the F-35 Joint Strike Fighter (JSF) program. That plane will replace the Navy's F/A-18 Super Hornets and the Air Force F-15s, built at Boeing's plants in St. Louis.
Though Boeing builds part of the Air Force F-22 high-tech fighter jet in Seattle, prime contractor Lockheed assembles it in Georgia.
International sales may extend some of the older programs, but not forever.
The Boeing defense plant in Long Beach, Calif., will stay open only as long as it can get new C-17 cargo-jet orders, which are expected. Without them, IDS Chief Executive Jim Albaugh said last month, the line would close around 2010.
Boeing also builds the two main helicopters for the U.S. Army and the body of the tilt-rotor V-22 Osprey, a hybrid of helicopter and turboprop plane.
The tanker loss, which Boeing challenged March 19 in a protest to the Government Accountability Office, would shut IDS out of one more big military-airplane category.
For the next generation of military planes, Boeing is the prime contractor on just one program: the Navy's P-8 submarine hunter.
Based on the 737 commercial jet, the P-8 demonstrates how the company's two divisions can collaborate, with aircraft assembly work by Boeing Commercial in Renton and high-end systems engineering by IDS employees in Seattle.
But apart from that, Boeing's defense division could wind up more a parts maker than a plane maker.
Around 2000, IDS' primary business focus shifted from building airplanes to planning and implementing a succession of hugely expensive defense programs. These included a constellation of classified intelligence satellites, a ballistic missile-defense system, a futuristic network of Army combat vehicles and a "virtual fence" along the U.S. border.
"We've grown these programs from concepts to billion-dollar franchises," said Chris Raymond, the defense unit's vice president of business development
But Boeing's experience with such contracts has been challenging and sometimes painful.
Program abandoned
Boeing burned through at least $4 billion in federal money on a secret CIA intelligence satellite program called Future Imagery Architecture, The New York Times reported, before the government abandoned the entire program in 2005.
IDS' Future Combat Systems project to outfit half the Army with networked weapons, drones and vehicles at a price tag of $160 billion is under imminent threat of severe cutbacks from Congress.
And Boeing's initial 28-mile stretch of surveillance sensors on the Arizona border with Mexico — a $200 million project that's relatively low-tech by Boeing standards — was months late and plagued by technical glitches. Plans to extend it have been effectively shelved.
Teal Group's Aboulafia says these huge and lucrative defense projects come with big risks.
"Will Congress keep funding these behemoths?" he asked. "Some are so ambitious they may die of their own technological complexity."
What's more, he said, "no one really knows what the profitability is."
Financial uncertainty
Boeing's defense division has been highly profitable since 2004, with earnings averaging more than 10 percent of revenue. But ahead, IDS faces uncertainty.
After years in which the big high-tech projects swelled IDS revenues, in 2007 they dropped slightly.
The up-and-down cycles in defense and commercial sides were truly complementary between 2000 and 2004: Boeing Commercial revenue sank from $31 billion to $20 billion, while IDS sales took exactly the reverse trajectory and grew from $20 billion to $31 billion.
Many longtime Boeing employees in the Pacific Northwest still view negatively the 1997 merger with McDonnell Douglas that created the core of IDS, and wonder how the commercial unit has benefited.
But analyst Campbell sees the balancing of revenues as enough reason to call the combination a success.
"They merged, and the defense business went through the roof," he said.
Boeing Chief Financial Officer James Bell, speaking at an IDS leadership meeting in California last month, talked up the importance of synergy between the defense and commercial units.
"It sets the stage for how we'll differentiate ourselves from our peers," he said.
Even after the tanker loss, IDS Vice President Raymond denies a divergence between the two divisions: "We're getting to be a closer company."
The defense unit taps into Boeing Commercial Airplanes' expertise in lean manufacturing, Raymond said. And it uses the global network of commercial contacts to help sell military hardware overseas.
Management talent also migrates easily between the commercial and defense units, Raymond said. The new head of the 787 Dreamliner program, Pat Shanahan, crossed from commercial to defense, then back.
Still, the benefits seem to flow more toward IDS than the commercial division.
Raymond conceded that big defense contract awards "have become few and far between," so a single competition can "alter your position significantly."
Having lost the fighters and the tankers, what's the next big hope for IDS? In January, Boeing announced it will team with Lockheed to compete for the right to build the next-generation U.S. bomber for service around 2018.
Even if Boeing wins, that aircraft won't be based on a commercial plane.
Dominic Gates: 206-464-2963 or dgates@seattletimes.com
WORLD WAR II
B-17: Boeing built nearly 7,000 of the Flying Fortress bombers crucial to winning World War II. Other companies built 5,700 more using Boeing's design. Above, workers at Seattle's Boeing Field celebrate the 5,000th B-17 on May 12, 1944.
THE COLD WAR
KC-135: Several hundred tankers built by Boeing starting in the Eisenhower administration are still refueling Air Force planes.
VIETNAM WAR
B-52: The Stratofortress, built in Seattle and Wichita, Kan., as a long-range nuclear bomber, first entered combat in Vietnam using conventional weapons.
THE PRESENT
Missile defense
Boeing leads work on U.S. defenses against long-range ballistic missiles and manages other complex technical projects, but its roster of military airplanes is shrinking. At left is an IFT-9 Interceptor, readied for launch.

SEATTLE POST-INTELLIGENCER
http://seattlepi.nwsource.com/business/358418_dreamliner10.html

Boeing confirms another 787 delay
Company is under pressure to deliver
Last updated April 9, 2008 8:53 p.m. PT
By JAMES WALLACE
P-I AEROSPACE REPORTER
After a third embarrassing delay that will push back deliveries of its 787 Dreamliner by another six months, The Boeing Co. is under the gun to finally deliver on a revised and much more conservative schedule.
"There are no technical inventions here. It's a matter of burning through the work," 787 boss Pat Shanahan said in a conference call with media and analysts to explain the latest delays.
The program is about 15 months behind schedule.
First flight, originally set for late August or September 2007, has slipped again, this time from June until sometime in the fourth quarter.
And customers won't get the first Dreamliners until the third quarter of 2009. Under Boeing's original schedule, deliveries were to begin next month.
Shanahan and Scott Carson, chief executive of Boeing Commercial Airplanes, said they are confident the new schedule can be met. It is more conservative and has built-in "margins" in case other issues come up, they said.
Boeing has nearly 900 orders for the Dreamliner.
"I believe in this airplane," Carson said. But he added that he knows Boeing will be judged by "our actions ... not on our words."
Industry analysts said Boeing must come through this time.
"This is the last chance to retain their customers' trust," said Richard Aboulafia of the Teal Group, a consulting firm. "Their credibility has taken a hit, but they can make it good if they keep to the new schedule. This is a schedule they say is conservative. If it's for real, the world will forgive them for everything."
Instead of delivering 109 jets by the end of next year, Boeing drastically cut that number to only 25.
Boeing also said it will ramp up 787 production at a slower and more traditional pace. It expects to be producing 10 planes a month at its Everett factory in 2012 rather than in 2010.
Investors reacted by sending Boeing shares to the biggest one-day gain since November 2006. Boeing shares rose $3.58 to close at $78.60.
J.B. Groh of D.A. Davidson said the announcement of only a six-month delay was "a bit of a relief." A longer delay would have signaled more serious problems. On the other hand, a shorter delay would have been viewed as unrealistic, he said.
Shanahan said progress has been made in getting the remaining work done on the first flight test plane. But two issues, he said, drove the newest delay of two months in turning on the plane's internal power, which now won't happen until June.
One involves the center wing box, the massive structure where the wings are attached to the fuselage. It must be strengthened with about 200 clips and brackets and about 500 fasteners, he said.
And doing this rework slowed critical wiring in that part of the fuselage.
The other issue has been the amount of travel work, or unexpected jobs that Boeing workers must accomplish because of work that traveled from its partner facilities to the Everett plant. Not enough progress has been made in catching up on that work, he said.
Boeing's two biggest unions, which represent engineers and the machinists who assemble its jets, quickly weighed in, blasting the company for outsourcing much of the 787 work to partners.
"Boeing outsourced everything it could to lower costs, and it's hurting this program and the company," said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace. "Employees are performing heroic efforts to get the 787 back on track, and they are getting no help from corporate leaders in Chicago who consistently ignored the truth coming from employees in engineering offices and the factory floor."
Tom Wroblewski, president of the local Machinists union, suggested that he and Carson spend a week on the 787 assembly line.
"Let's go to the plant floor and listen to the experts who have been building airplanes for 73 years," he said.
Four planes are in final assembly at the Everett plant -- two for ground tests and the first two flight test planes.
Six planes will be used for the 787 flight-test program, which will last eight months. Shanahan said all six planes should be flying by early next year.
Sections of the third flight-test plane will arrive at the end of the month, Boeing said, with sections for the fourth arriving in June. The condition of assembly of the third flight-test plane is about 75 percent better than the first plane, Boeing said.
Cai von Rumohr of Cowen and Co. said it will take awhile to know if Boeing will be able to meet the latest schedule.
"We continue to believe that the critical milestone for determining whether all the bad news is on the table is apt to be a week or two after first flight," he said in a note to investors.
He also said Boeing faces charges of more than $4 billion because of the delays and late penalty payments that will have to be made to customers. That's as much as Boeing earned in 2007.
Carson would not discuss how much Boeing will have to pay unhappy customers. He said it will be awhile before Boeing knows just how many of the nearly 900 Dreamliners that it has sold will be delivered late.
Boeing said its 2008 financial projections have not changed, and it will provide more details when it reports first-quarter earnings on April 23.
The first Dreamliner customer, All Nippon Airways of Japan, issued a harsh statement in response to the latest delay.
"We are extremely disappointed. This is the third delay in the delivery of the first aircraft, and we still have no details about the full delivery schedule," the airline said in an e-mailed statement. "We would urge Boeing to provide us with a 120 percent definitive schedule as soon as possible."
In addition to the initial 787- 8 model, All Nippon Airways and Japan Airlines are the only customers for a short-haul version called the 787-3.
That variant was to come next, but Boeing said the second model produced will be the bigger 787-9. Delivery of that plane, though, will be delayed from late 2010 until early 2012.
Boeing did not give a schedule for entry into service of the 787-3. There has been speculation that Boeing won't go ahead with its development.
John Leahy, chief operating officer for Airbus, told The Wall Street Journal he does not believe the delays will benefit Airbus unless Boeing discovers a serious design issue; Carson and Shanahan said there are none.
Airbus is developing the A350 to compete against the 787. The first variant of the Airbus plane is set to enter service in 2013. It is bigger than the 787.
Aboulafia, the Teal Group analyst, said he doubts Boeing will lose any orders because of the delays.
"It is the only game in town," he said. "There are few places for customers to defect to."

P-I aerospace reporter James Wallace can be reached at 206-448-8040 or jameswallace@seattlepi.com. Read his Aerospace blog at blog.seattlepi.com/aerospace


Thursday, April 10, 2008 - Page updated at 10:00 AM
Permission to reprint or copy this article or photo, other than personal use, must be obtained from The Seattle Times. Call 206-464-3113 or e-mail resale@seattletimes.com with your request.

MIKE SIEGEL / THE SEATTLE TIMES
These Dreamlifters sitting at Paine Field in January are modified Boeing 747s used to carry huge parts of the 787 made by the Dreamliner's suppliers to the Everett plant for final assembly.

Dreamliner delivery plans
NUMBER OF PLANES to be delivered by the end of 2009:
112
Original estimate
109
Revised
(October 2007)
25
Latest
Latest delay of Boeing 787 pushes back first delivery to third quarter of 2009
By Dominic Gates
Seattle Times aerospace reporter
Boeing now expects to deliver the 787 Dreamliner between 14 and 16 months late — yet industry analysts greeted the plan as good news, saying the company Tuesday finally gave them a schedule they could believe.
The first deliveries of the strong-selling new airplane already had been postponed twice before Wednesday's announcement of a new six-month delay. But many Boeing watchers took the latest bad news as affirmation that things were no worse than expected.
"We've just heard the last 787 delay call," said Joe Campbell, a Lehman Brothers analyst. "I think they'll make this schedule from here in. They can do this."
Boeing originally planned to deliver its first 787 next month.
According to the new schedule laid out by Boeing Commercial Airplanes Chief Executive Scott Carson, the plane won't fly until October and won't be delivered until the third quarter of next year.
Boeing also said it will build the planes more slowly, so its customers will get only 25 Dreamliners next year, rather than the 109 proposed last fall. It will ramp up production to 10 per month by 2012.
That small 2009 delivery total reassured observers because it seems more realistic than the previous forecast.
Boeing "finally came up with a number that makes sense," said another prominent Wall Street analyst who asked not to be named because his investment bank doesn't permit him to be quoted in the media.
Boeing's shares rose almost $4 on the news, closing at $78.60
Company officials had previously blamed Boeing's major supplier partners in Italy; Japan; Charleston, S.C.; and Wichita, Kan.; for the delays in finishing the first airplane, which was rolled out to great fanfare last July but is still not expected to be ready to fly for another six months.
During Wednesday's conference call, 787 program chief Pat Shanahan admitted the supply chain remains his biggest worry.
"Where do I think the inherent risk is? I think it's in the capabilities of the supply chain to do the things that we need to have done," said Shanahan "That's the untested part of this production model.... That's where our energy and attention is."
Not surprisingly, local union officials had another take on the supplier situation.
Tom Wroblewski, president of Machinists union District 751, said in a statement that it was past time for "bringing the production of components to the place Boeing has called home for more than 70 years."
"Bring work back"
Likewise, the company's white-collar engineering union, the Society of Professional Engineering Employees in Aerospace (SPEEA), called on Boeing "to correct its flawed reliance on global partners and bring the work back."
"Sending engineers around the world to help suppliers simply transfers all the aerospace knowledge to other companies in other countries," said SPEEA's executive director, Ray Goforth.
Campbell, of Lehman Brothers, in an analytical note published last week ahead of the announcement, estimated that a 14- to 16-month delay would add between $3 billion and $5 billion in extra manufacturing costs and customer contract penalties.
He said the outsourcing of 787 production creates a split: Problems arise at the suppliers, but "the program fixes and ultimately the program costs mostly reside with Boeing. It's still their airplane."
Boeing will ultimately suffer a considerable hit to its bottom line from the delay.
But the impact is obscured by its accounting method, which spreads the massive costs of a jet-development program over hundreds of aircraft and many years.
Although research-and-development costs will likely increase as a result of the schedule change, Carson said, Boeing expects no change to its 2008 profit forecast, and profit growth in 2009 should also be strong.
Meanwhile, Boeing has moved to help its suppliers financially, because they ordinarily don't get paid for their work until an airplane is delivered.
In a filing Wednesday with the Securities Exchange Commission, Spirit AeroSystems of Wichita, which makes the forward fuselage and cockpit of the 787, said Boeing has agreed to pay in advance for the 45 nose sections the supplier had originally contracted to deliver in 2008. Spirit will get about $387 million this year.
Under the original contract, Spirit wouldn't have been paid until the plane was certified.
But with the delays stretching past a year, all the major suppliers balked at Boeing's request to continue producing parts without any money coming in for the work, as if they were subsidiaries of Boeing.
"For Spirit it's great," said the Wall Street analyst who requested anonymity. "For Boeing, it keeps the supply chain going and motivated."
Help for partner
That was part of the reason Boeing last month bought out Vought's share of the Charleston 787 fuselage-assembly plant, providing financial relief to the Dallas-based partner that still builds the rear fuselage sections in Charleston.
The suppliers didn't get all the blame in Tuesday's conference call by Boeing executives, though.
Boeing recently discovered in a structural test that the center wing-box — a heavy piece that holds the wings — needed to be redesigned.
Shanahan blamed "an analysis error" for the problem, which caused a month's delay in finishing the plane's midsection.
Cai von Rumohr, an analyst with Cowen & Co., said the center wing-box error is "kind of a biggie," and that until the airplane flies, "there's still residual risk."
Shanahan said that Dreamliner No. 1 is slowly nearing completion, with the wings nearly ready and the forward fuselage progressing.
"As my boss tells me, don't confuse effort with results. Get the airplane built," he said. "I feel confident about the path forward."
Shanahan said he has built extra margin into the new schedule to cover unforeseen problems. The ramp-up of production to 10 a month will be prudent, and Boeing may increase that rate later.
Ultimately, Boeing must pay its airline customers for the 787 delays. It will take years to work out the penalty payments.
John McMahon, chief executive of Irish airplane-leasing company Genesis, said that given the looming global economic downturn, some airlines will find "it may not be such a bad thing" that their high-priced new assets are pushed out a year.
Airlines who wanted new planes for growth will be harder hit than those who want to replace older planes, whose lives can be extended, McMahon said. But all will likely complain bitterly to Boeing of the harm they are suffering.
Last chance?
Is this latest revision of the schedule Boeing's last chance to get the Dreamliner right?
In reality, no. The Dreamliner is the only midsize new airplane on the horizon. Airbus' A350 won't be delivered earlier than 2013 and likely will be later.
"It can't be a last chance," said a senior executive with an international airline that has 787s on order, speaking on condition he not be identified. "What other choices do we have to get airplanes in 2011 or 2012?"
Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Dreamliner delays

First flight First delivery
Original timeline Aug. 27, 2007 May 2008
Revised (Oct. 2007) March 2008 Nov.-Dec. 2008
Revised (Jan. 2008) June 2008 Left open
Latest (April 2008) Oct.-Dec. 2008 July-Sept. 2009

James Wallace on Aerospace
« UPDATE: 787 briefing | Main

Updated: Boeing delays 787 for third time
Boeing, as expected, on Wednesday announced the third major delay of its 787 Dreamliner.
Executives will give a detailed update on the program shortly and I'll have complete coverage afterward.
Boeing pushed back first flight by at least three months, and postponed first deliveries by about six months.
First flight won't come until the fourth quarter of this year, rather than June.
The first 787 delivery, to Japan's All Nippon Airways, will take place in the third quarter of next year.
"Our revised schedule is built upon an achievable, high-confidence plan," Boeing Commercial Airplanes Chief Executive Scott Carson said in a statement.
Boeing expects to deliver only 25 jets by the end of 2009, less than a quarter of its previous plan to deliver 109.
ANA just e-mailed me the following response:
We are extremely disappointed: this is the third delay in the delivery of the first aircraft, and we still have no details about the full delivery schedule. We would urge Boeing to provide us with a 120% definitive schedule as soon as possible."
As it is night time in Japan we will not be able to get comment from our executives until morning. Thank you for your understanding.
This is the Boeing news release:
EVERETT, Wash., April 09, 2008 -- Boeing [NYSE: BA] today announced a revised plan for first flight and initial deliveries of the 787 Dreamliner that includes additional schedule margin to reduce risk of further delays on the program.
While significant progress has been made assembling Airplane #1, first flight is being rescheduled due to slower than expected completion of work that traveled from supplier facilities into Boeing's final assembly line, unanticipated rework, and the addition of margin into the testing schedule. The new delivery schedule is based on a more conservative production plan developed with the 787 partner team. That schedule now targets approximately 25 deliveries in 2009.
First flight of the all-new airplane will move into the fourth quarter of this year rather than the end of the second quarter, and first delivery is now planned for the third quarter of 2009 instead of first quarter.
Company officials expressed confidence in the new plan and the steps being taken to accelerate program performance.
"Over the past few months, we have taken strong actions to confront and overcome start-up issues on the program, and we have made solid progress," said Boeing Commercial Airplanes President and CEO Scott Carson. "Nevertheless, the traveled work situation and some unanticipated rework have prevented us from hitting the milestones we laid out in January. Our revised schedule is built upon an achievable, high-confidence plan for getting us to our power-on and first-flight milestones. Also, while the fundamental technologies and design of the 787 remain sound, we have inserted some additional schedule margin for dealing with other issues we may uncover in testing prior to first flight and in the flight test program."
The company said in January it would be conducting a comprehensive assessment of its supply chain and production system capabilities to determine the details of the 787's flight test program and initial delivery profile. As a result of that assessment, the first-year delivery plan announced today will be followed by a more gradual ramp up to full-rate production than previously planned.
"We deeply regret the disruption and disappointment these changes will cause for our customers, and we will work closely with each of them to minimize the impact," said Carson. "We have taken significant action to improve supply chain and production system performance, such as our investment in Global Aeronautica, but based on our assessment, the prudent course is to proceed with a more gradual ramp up to full-rate production."
Pat Shanahan, 787 vice president and program manager, echoed Carson's comments about the progress being made in 787 factories.
"The work that remains to be done on Airplane #1 is well defined, and we can see our way to -- and have confidence in -- the new milestones we have set for it," said Shanahan. "We have addressed the major challenges that slowed our progress while trying to complete the primary structure -- the parts shortages, engineering changes, and manufacturing changes -- and we are well into the systems installation that is the precursor to putting power on the airplane for the first time. We have also worked closely with our partners to achieve higher levels of completion of their parts of subsequent airplanes, and we will continue to drive improvements in the supply chain and production system performance," he said.
For tracking program progress, Shanahan outlined a series of milestones that will occur before June 30: 787 static and fatigue structural test airplanes will move to their testing locations; Airplanes #3 and #4 will enter final assembly; hardware airworthiness qualifications will be complete; and power on will be achieved.
Shanahan also said the program has changed the timing of the introduction of two 787 derivatives. The 787-9, a larger variant of the airplane, will be the first derivative of the baseline 787 with delivery planned for early 2012. The 787-3, a shorter-range model previously slated to deliver in 2010, will now become the second derivative of the airplane family.
While research and development costs will likely increase as a result of the 787 schedule change, Boeing expects no change to 2008 earnings guidance. The company continues to expect strong earnings per share growth in 2009 and will provide complete 2009 financial guidance when it holds its first-quarter 2008 earnings conference call later this month. The outlook for the company's defense business and in-production commercial airplane programs remains strong.
UPDATE:
The 787 conference call with Scott Carson and Pat Shanahan just ended. Highlights:
1. "Power on" is pushed back from April until June. This was the result of still too much travel work but also the center wing tank issue. The tank must be strengthened with 200 clips and brackets and about 500 more fasteners. The tank rework, which was described as "routine," came at a bad time, when wiring was to be installed in the mid fuselage of the first flight test plane.
2. All six flight test planes should be flying by early 2009.
3. Boeing expects to have assembled 18 planes, not including the flight test planes, by the time the flight test program ends and the Dreamliner is certified.
4. 787-9 will be delivered in early 2012 rather than late 2010.
Scott Carson said Boeing continues to study the market for the short-haul 787-3, but at this point still plans to go forward with that model after the 787-9.
5. Current schedule has production hitting 10 planes a month by 2012. But Boeing can't yet say how many of the nearly 900 planes sold will be late. Carson could not discuss late penalty payments, saying there must be "complex" talks with customers.
6. Static test plane No. 2 will be out of the 787 bay by the end of the month so assembly can begin on plane No. 3.
UPDATE 2:
Here is my story:
By James Wallace
P-I aerospace reporter
After a third embarrassing delay that will push back deliveries of its 787 Dreamliner by another six months, The Boeing Co. is under the gun to finally deliver on a revised and much more conservative schedule.
"There are no technical inventions here. It's matter of burning through the work,'' 787 boss Pat Shanahan said in a conference call with media and analysts to explain the latest delays.
The program is about 15 months behind schedule.
First flight, originally set for late August or September of 2007, has slipped again, this time from June until the 4th quarter.
And customers won't get the first Dreamliners until the third quarter of 2009. Under
Boeing's original schedule, deliveries were to begin next month.
Shanahan and Scott Carson, chief executive of Boeing Commercial Airplanes, said they are confident the new schedule can be met. It is more conservative and has built-in "margins" in case other issues come up, they said.
Boeing has nearly 900 orders for the Dreamliner.
"I believe in this airplane,'' Carson said.
But Carson added that he knows Boeing will be judged by "our actions'not on our words.''
Industry analysts said Boeing must come through this time.
"This is the last chance to retain their customers' trust,'' said Richard Aboulafia of the Teal Group, a consulting firm. "Their credibility has taken a hit but they can make it good if they keep to the new schedule. This is a schedule they say is conservative. If it's for real, the world will forgive them for everything.''
Instead of delivering 109 jets by the end of next year, Boeing drastically cut that number to only 25.
Boeing also said it will ramp up 787 production at a slower and more traditional pace. It expects to be producing 10 planes a month at its Everett factory in 2012 rather than in 2010.
Investors reacted by sending Boeing shares to the biggest gain since November 2006. Boeing shares gained $3.58 to close at $78.60.
J.B. Groh of D.A. Davidson, said the announcement of only a six-month delay was "a bit of a relief.'' A longer delay would have signaled more serious problems. On the other hand, a shorter delay would have been viewed as unrealistic, he said.
Shanahan said progress has been made in getting the remaining work done on the first test flight plane. But two issues, he said, drove the newest delay of two months in turning the plane's internal power on. This important milestone won't happen until June, he said.
One of those issues, he said, involves the center wing box, which is the massive structure where the wings are attached to the fuselage. It must be strengthened with some 200 clips and brackets and about 500 fasteners, he said.
And doing this rework slowed critical wiring in that part of the fuselage.
All the wire bundles are in the plane, he said. And the installation of the plane's systems is well along.
The other issue responsible for the delay in "power on," according to Shanahan, has been the travel work, or unexpected jobs that Boeing workers must accomplish because of work that traveled from its partner facilities to the Everett plant. Not enough progress has been made in catching up on that work, he said.

Six planes will be used for the 787 flight test program, which will last 8 months. Shanahan said all six planes should be flying by early next year.
Final assembly is already underway on the second flight test plane at the Everett factory.
Sections of the third flight test plane will arrive there at the end of the month, Boeing said, with sections for the 4th plane arriving in June.
The condition of assembly of the third flight test plane is about 75 percent better than the on the first plane, Boeing said. That's up from a 50 percent improvement in the condition of assembly on the second plane.
Cai von Rumohr of Cowen and Co. said it will take a while to know if Boeing will be able to meet the latest schedule.
"We continue to believe that the critical milestone for determining whether all the bad news is on the table is apt to be a week or two after first flight," he said in a note to investors.
He also said Boeing faces charges of more than $4 billion because of the delays and late penalty payments that will have to be made to customers. That's as much as Boeing earned in 2007.
Carson would not discuss how much Boeing will have to pay unhappy customers. He said it will be a while before Boeing knows just how many of the nearly 900 Dreamliners that it has sold will be delivered late.
Boeing said its 2008 financial projections have not changed and it will provide more details when it reports first-quarter earnings on April 23.
The first Dreamliner customer, All Nippon Airways of Japan, issued a harsh statement in response to the latest delay.
"We are extremely disappointed. This is third delay in the delivery of the first aircraft, and we still have no details about the full delivery schedule,' the airline said in an e-mailed statement. "We would urge Boeing to provide us with a 120% definitive schedule as soon as possible."
In addition to the initial 787-8 model, All Nippon Airways, along with Japan Airlines, are the only customers for a short-haul version called the 787-3.
That variant was to come next, after the 787-8. But Boeing said the second model produced will be the bigger 787-9. Delivery of that plane, though, will be delayed from late 2010 until early 2012.
Boeing did not give a schedule for entry into service of the 787-3. There has been speculation that Boeing won't go ahead with its development.
John Leahy, chief operating officer for Airbus, told the Wall Street Journal he does not believe the delays will benefit Airbus unless Boeing discovers a serious design issue – Carson and Shanahan said there are none.
Airbus is developing the A350 to compete against the 787. The first variant of the Airbus plane is scheduled to enter service in 2013. It is bigger than the 787.
Aboulafia, the Teal Group analyst, said he doubts Boeing will lose any orders because of the delays.
He noted the 787 is the only all-new plane of that size.
"It is the only game in town,'' he said. "There are few places for customers to defect to.''
Posted by James Wallace at April 9, 2008 7:43 a.m.
Categories: 787 Dreamliner, Boeing

SEATTLE POST-INTELLIGENCER
http://seattlepi.nwsource.com/business/358102_dreamliner08.html

Boeing likely to reveal new 787 delay
6-month setback would be third
Last updated April 7, 2008 10:42 p.m. PT
By JAMES WALLACE
P-I AEROSPACE REPORTER
The Boeing Co. will likely announce a delay of at least six more months for the 787 Dreamliner when executives provide an update on the program this week, according to a person with knowledge of the matter.
That would push the program back some 14 months from its original schedule, which had the first Dreamliners being delivered to airlines next month.
Boeing is now approaching the same kinds of delays with the 787 that Airbus experienced with its double-decker A380, which was about 18 months late.
Another 787 delay has been widely expected. Several industry analysts as well as the biggest customer for the plane have all predicted in recent weeks that Boeing would announce a delay of anywhere from six to nine months when it next updated the 787 program.
Boeing said Monday that update, for analysts and media, will come Wednesday, during a conference call with Scott Carson, chief executive and president of Boeing Commercial Airplanes, and Pat Shanahan, vice president of the 787 program.
This will be the third major delay that Boeing has announced on the 787, and industry analysts say the company can't afford a fourth.
The update call "will be critical for Boeing to rebuild credibility," Douglas Harned of Bernstein Research said in a recent note to clients.
"It will be important for management to lay out a timeline of milestones, describe the path to meet those milestones and ensure that progress is visible to investors and customers," he wrote.
Two of those milestones are what's known as "power on" and first flight.
Boeing announced the first delay of six months in October. In January, Boeing announced another delay, this one of three months. At the time, Boeing said "power on" would probably not occur until early in the second quarter, with first flight slipping to the end of June. The 787 was originally supposed to have flown for the first time in late August or early September of 2007.
The "power on" milestone is significant because it means enough of the 787 systems and wiring have been installed so the first plane can operate under its own power.
Boeing also will provide a new 787 delivery schedule in its call Wednesday.
Since early this year, Boeing has been working closely with its 787 partners to better understand how quickly they can ramp up production.
Boeing has already acknowledged that it will not be able to deliver 109 planes as promised by the end of next year. Given another delay of at least six months, it is unlikely that Boeing will be able to deliver even half that many in 2009.
The 787 program delays are the result of mostly production-related issues, including a shortage of parts such as fasteners.
But there are also design issues. Boeing acknowledged last month, following public comments by Steven Udvar-Hazy, founder and chairman of International Lease Finance Corp. and the biggest 787 customer, that it will have to strengthen the center wing box, which is the key structure where the wings are attached to the fuselage. The center wing box also holds fuel.
But the biggest driver of the 787 delays has been Boeing's global partners. They manufacture the composite wings and fuselage of the Dreamliner, and are supposed to install wiring and systems. Boeing is mostly responsible for final assembly of those large sections at its Everett plant.
One of those partners, Vought Aircraft Industries, has had the most problems in meeting 787 production requirements. Late last month, Boeing announced it is buying out Vought's share of Global Aeronautica in Charleston, S.C. This is a joint venture with Alenia Aeronautica, another key 787 partner.
The Charleston facility is the 787 fuselage assembly hub, where fuselage sections made by Vought, Alenia and the Japanese are joined together before being flown to Everett for final assembly.
By buying out Vought's share and taking a direct role in Global Aeronautica, Boeing is betting that it will be able to get the 787 program back on track.

P-I aerospace reporter James Wallace can be reached at 206-448-8040 or jameswallace@seattlepi.com. Read his Aerospace blog at blog.seattlepi.com/aerospace.