More from last week's IATA conference in Istanbul, including comments from Boeing's Scott Carson and John Leahy of Airbus about the timing of new jets to replace the 737 and A320 families.

By James Wallace
P-I aerospace reporter

ISTANBUL, TURKEY – Even though U.S. airlines are bleeding financially again because of record-high fuel prices, they will be buying new jets, Boeing and Airbus agree.

The two airplane makers just don't see eye to eye on the timing.

"The operators that are flying older, less fuel-efficient planes absolutely need the new aircraft,'' Scott Carson, president and chief executive of Boeing Commercial Airplanes, said in an interview last week at the International Air Transport Association's annual meeting in Istanbul, Turkey.

"At the same time,'' he added, "they are challenged financially by high fuel prices. So the two forces tend to compete with each other. We still believe we could see significant activity by the majors this year and into next year and probably the year after that as they look to how they can retire those older, less-efficient aircraft that are costing them so much more to operate.''

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Back from the IATA conference in Istanbul, where many of the world's airlines made it clear the industry is facing a major crisis because of high fuel prices. Today's announcement from Continental is further proof.

While at the IATA conference, I talked with John Leahy of Airbus. Below is my first report on what he said about the A350 and 787. I'll have more later from Leahy about the current market outlook, especially in the U.S., as well as his thoughts about when the 737/A320 replacement planes will be needed -- probably not until 2020, he says.

By James Wallace
P-I aerospace reporter

ISTANBUL, Turkey – The two biggest players in the commercial jetliner making business, The Boeing Co. and Airbus, have each been rocked with embarrassing delays in getting their latest generation of planes, the 787 Dreamliner and the A380 super jumbo, to customers.

Next time will be different, Airbus promises.

Its A350 XWB (extra wide body) will be delivered on time in 2013, vowed John Leahy, chief operating officer for Airbus and its jetliner sales chief.

He said Airbus has learned from the delays of its A380 as well as the recent problems Boeing has had with the 787. Airbus is applying those lessons learned to the A350, Leahy said.

"You don't bite off more than you can chew," Leahy said in an interview this week in Istanbul, where he was attending the annual membership meeting of the International Air Transport Association.

"I think we learned that on the A380," he added. "It was a very painful tuition. We needed to have a slower ramp-up, better program management and better coordination of the supply chain. Boeing didn't learn those lessons from us and so it's repeating the mistakes with the 787. We have been watching very carefully."

The A380, which replaced Boeing's 747 as the world's largest passenger jet when it entered service in October with Singapore Airlines, was nearly two years late because of a series of production issues that centered around the hundreds of miles of wiring in the double-decker plane. The delays are not over. Airbus recently announced that some future A380s will be from two to three months late as it transitions to more efficient production methods.

Airbus plans a much less ambitious production ramp-up on the A350 than Boeing initially proposed for the 787, Leahy said.

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At this week's IATA conference in Istanbul, Turkey, I spoke with a number of 787 customers about the delays. I have wrapped some of those interviews into my Aerospace Notebook that will be posted online in a few hours. Here is that report.

AEROSPACE NOTEBOOK by James Wallace

ISTANBUL, Turkey – Among the airline executives who came to this ancient city on the Bosporus this week for the annual meeting of the International Air Transport Association was a who's who of customers that have ordered The Boeing Co.'s 787 Dreamliner.

From Qantas and Qatar to British Airways and Northwest, they expressed concerns and serious disappointment with delays that could see some of their planes delivered as much as 30 or more months late.

But no one is canceling 787s.

The biggest single customer for the Dreamliner, leasing giant ILFC, is talking to Boeing about additional 787s. And some airlines like American that have not yet ordered the 787 are considering the fuel-efficient plane.

Boeing has about 900 orders from more than 50 customers, which has made the 787 the fastest-selling jetliner ever.

With oil prices at $130 a barrel and sky-high fuel prices robbing their industry of profits and sending some carriers out of business, airline executives said the industry needs more fuel-efficient jets like the 787 and the Airbus A350 that is under development.

"It's disappointing that the airplane has been delayed," said Douglas Steenland, president and chief executive of Northwest Airlines, which will be the first U.S. airline to operate the 787.

"Given the price of fuel the impact and consequences of the delays have gotten greater," he said in an interview on the sidelines of the two-day IATA conference that ended Tuesday. The association represents some 230 international airlines that account for about 93 percent of all scheduled international air traffic.

The record-high price of jet fuel, and the industry crisis that has resulted, was the major focus of the IATA meeting.

Northwest, which has agreed to a merger with Delta Airlines, has 18 Dreamliners on firm order with options for more.

The 787, the first large passenger jet with a light-weight composite fuselage, will be about 20 percent more fuel efficient than the Boeing 767 that it is replacing.

"One of the real values and benefits of the airplane is its fuel efficiency," Steenland said. "And when you compare the trip costs of a 787 with that of a 747-400, the 787 is even more of a compelling proposition. With fuel prices what they are today, you would like to be in a position to put the 787 into service now."

Northwest is one of only two U.S. airlines – United is the other – that still operate passenger versions of Boeing's 747.

Before Boeing announced a series of 787 delays, due mostly to production issues involving its global partners, Northwest was supposed to take delivery of its first 787s this summer. That won't happen now until late next year. The 787 program is about 15 months behind schedule. The first 787s were to have been delivered starting last month to launch customer All Nippon Airways of Japan.

At this week's IATA meeting, other 787 customers echoed Steenland's disappointment in not getting their planes on time. Some face challenges in finding other planes to put in their fleets to make up for lost capacity they had planned on with the 787. Here's what they had to say:

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Airline executives meeting in Istanbul were told Monday the high cost of fuel will rob the industry of any profits in 2008. My story on Monday's events at the annual IATA conference is below.

There is more to come from Istanbul. I'll be filing more stories Tuesday, including interviews I've done the last two days with several 787 customers. And John Leahy of Airbus had some interesting things to tell me about the A350 vs. 787.

By James Wallace
P-I aerospace reporter

ISTANBUL, Turkey – With record-high fuel prices driving the industry into the red again, the world's airlines face a crisis that has the potential to be even worse than the historic downturn that followed the Sept. 11, 2001 terror attacks, airline and industry leaders were told here Monday.

"Just as we started to recover (from 9/11) we face another crisis of potentially even greater dimension,'' Giovanni Bisignani, director general of the International Air Transport Association, said in a speech at the association's annual meeting in Istanbul. The association's 230 member airlines account for about 93 percent of the world's international traffic.

"The situation is desperate and potentially more destructive than our recent battles with all the Horsemen of the Apocalypse combined,'' he told the more than 900 delegates attending the association's two-day meeting. They included most of the member airline chief executives and a number of top industry executives, including Scott Carson, head of Boeing Commercial Airplanes and Tom Enders, chief executive of Airbus.

Last year, the industry saw its first profit since 2000, of $5.6 billion. But oil prices in 2007 averaged $73 a barrel.

Today, oil prices are around $130 a barrel.

As a result, IATA has significantly revised its 2008 financial forecast for the airline industry. If oil averages $106.5 a barrel, the industry will probably lose $2.3 billion this year, Bisignani said. That is a swing of $6.8 billion from the association's previous forecast that the industry would see a profit of $4.5 billion this year.

If oil prices were to average $135 a barrel this year, the industry could lose as much as $6.1 billion.

"It's another perfect storm,'' Bisignani said. "The spreading impact of the U.S. credit crunch is slowing traffic.... After enormous efficiency gains since 2001 there is no fat left and skyrocketing oil prices are changing everything.''

At $107 a barrel, the industry's fuel bill in 2008 will be around $176 billion, or $40 billion more than in 2007, according to IATA.

Some two dozen airlines have either gone out of business, suspended operations or filed for bankruptcy in the last six months, Bisignani noted in his speech. They include Denver-based Frontier, Oasis Hong Kong, Ohio-based Skybus, Aloha and ATA. Among those that have stopped operations are several that offered all-business class travel, such as Eos. The latest of those was UK-based Silverjet, which announced last week it had run out of money and grounded its planes.

"September 11 brought enormous change to the industry, making us tougher, leaner and more efficient,'' Bisignani said. "Now even more massive changes are needed.''

He called on governments, industry partners and labor to jointly address the current fuel crisis.

"Airlines are struggling to survive and massive changes are needed,'' he said. "Governments must stop crazy taxation, change the rules of the game and fix infrastructure. Labor must understand that jobs disappear if costs don't come down. And to our partners, the message is simple. We are in this together. Don't bite the hand that feeds you.''

At $130 a barrel, the price of oil is "reshaping the industry even as we speak,'' Bisignani said. A spot price of oil at $135 a barrel compared to $73 a barrel in 2007 would represent a $99 billion rise in fuel costs, he said.

During a panel discussion later in the day, after Bisignani's speech, airline executives were asked if oil prices will go even higher.

Tim Clark, president of Emirates Airlines, said he does not believe oil will hit $200 a barrel.

But even at $130 a barrel, he said, the industry "faces a major problem of survival.''

Among those taking part in the panel discussion was Steven Udvar-Hazy, founder and chief executive of International Lease Finance Corp., the world's biggest leasing company.

The airline industry has lost money seven of the last 10 years, Udvar-Hazy said. It's an industry that loses money, he said, but it is also one that "has a history of survival.''

In an interview Sunday night, Udvar-Hazy said the current crisis has put pressure on airlines to look at what routes are profitable and what parts of their networks make sense.

"It's a time of reflection,'' he said.

In the U.S., the airline crisis has triggered consolidation. Delta and Northwest have agreedto merge and United had been in talks with US Airways about a possible merger.

But in recent days, both United and US Airways have ruled out any merger at this time, given the current financial crisis driven by high fuel costs.

"It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world with $130 a barrel oil prices,'' US Airways Chief Executive Doug Parker said in a statement late last week.

Udvar-Hazy, in the interview, said consolidation alone won't to fix the curren financial problems. The industry must cut capacity, he said.

Some major airlines are doing just that.

American Airlines, the world's largest carrier, announced in late May that it would ground as many as 85 older, less fuel-efficient jets and cut thousands of jobs as it slashes its U.S. capacity.

The airline also said it would charge a $15 fee to check one bag. It is the first airline in the U.S. to make that move.

In response to the fuel crisis, some airlines have recently announced they are delaying taking new jets previously ordered from Boeing and Airbus. Although that's bad for the two airplane makers, it could actually help the industry because of too much capacity.

Over the last three years, Boeing and Airbus have set records for jetliner orders. Both are raising production rates to meet the demand for newer and more fuel-efficient jets. But that is also having consequences for the overall industry.

"Adding to the downward pressures on revenue growth from the U.S. recession will
be the acceleration in aircraft deliveries in 2008 and 2009,'' IATA said in its
annual report presented at a news conference in Istanbul.

In an interview with the Wall Street Journal, Robert Milton, chairman of ACE Aviation Holdings Inc., the parent company of Air Canada, said the industry is benefiting because Boeing and Airbus are late delivering their newest jets.

Boeing's 787 Dreamliner is about 15 months late and initial deliveries, which were supposed to start last month, have been pushed back until the third quarter of next year.

Airbus was nearly two years late delivering the first A380 last year and recently announced more delays of about three months to some customers.

"For the industry, it's great that the 787 and the A380 are late because it means less capacity," Milton told the Journal. Air Canada has ordered 37 787s.

I'm in Istanbul, Turkey, for the annual membership meeting of the International Air Transport Association, or IATA. Many of the CEOs of the 230 or so airlines represented by IATA are here, as are Boeing and Airbus executives.

The two-day meeting begins Monday.

I'll have interviews to follow with Steve Udvar-Hazy of ILFC and others.

Here is my first story, based on an interview I did Sunday evening with Boeing's Scott Carson.

By James Wallace
P-I aerospace reporter

ISTANBUL, Turkey – Although sky-high aviation fuel prices have thrown a scare into the airline industry not seen since the horrendous 9/11 downturn that resulted in massive layoffs at The Boeing Co., the leader of the company's jetliner business said here Sunday that the aerospace giant will be able to manage its way through the current crisis without much impact – at least for now.

"In terms of the impact on us, it is all very manageable right now,'' Scott Carson, president and chief executive of Boeing Commercial Airplanes, said in an interview on the eve of the industry's biggest airline conference.

"It is all consistent with patterns we have seen in the past and we have provided for those patterns,'' added Carson, who is in Istanbul for the annual membership meeting of the International Air Transport Association, or IATA, which represents some 230 of the world's top international airlines.

"We are seeing no adverse impact but we are concerned about the condition of the airlines and we continue to work with them to find ways to allow them to be successful,'' Carson said

Boeing has won orders for more than 1,000 of its planes in each of the last three years.

Rather than cutting production as it did after 2001, Boeing continues to slowly boost production to get those new jets to customers. Airbus is also raising production rates.

Both airplane makers have won record orders since 2005, but with oil prices at more than $130 a barrel, the price of jet fuel has rocked the airline industry and some carriers have recently announced they will delay taking some of those new jets from Boeing and Airbus.

Last Friday, low-cost AirTran Airways said it had reached agreement with Boeing to put off taking delivery of 18 737-700s for up to five years.

AirTran, based in Orlando, Fla., was supposed to receive the new jets starting next year and continuing through 2010. Instead, it will take delivery of the planes in 2013 and 2014.

The airline has estimated that it will spend $1.31 billion on fuel this year, or 63 percent more than it spent last year. And AirTran has some of the industry's lowest non-fuel costs.

Only days before the AirTran announcement, low-cost operator JetBlue postponed delivery of 21 Airbus planes for four or five years because of soaring fuel costs.

Airbus also recently said orders this year for the A380, the world's biggest passenger plane, will be about a third less than it previously predicted because of higher fuel prices and an economic slowdown that is hurting demand for air travel.

Oil prices have more than doubled over the last year.

At the Berlin Air Show last week, Airbus sales chief John Leahy told reporters he expects more jetliner postponements and even some cancellations, especially of the single-aisle A320 family.

The price of fuel and the impact on the world's airlines will be a major topic of discussion and concern during the two-day IATA conference that starts Monday in Istanbul. The top executives of many of the world's international airlines are here for the conference.

John Heimlich, chief economist for the Air Transport Association, which represents U.S. airlines, described what's happening with airline fuel costs as the "worst crisis" since 9/11 in 2001. What followed the terror attacks was the worst downturn in the history of the airline industry.

"This downturn has the potential to be orders of magnitude worse than it was after 9/11 and more pervasive,'' Chris Tarry, chairman of the Centre for Asia Pacific Aviation, told Airline Business Daily over the weekend.

"It is a very challenging time,'' agreed Boeing's Carson.

"The deferrals (of Boeing and Airbus jets) are tied to all the uncertainty around traffic and the price of oil and the general condition of the economy,'' Carson said. "And I suspect we will continue to see that kind of dynamic play out in the market place.''

Carson did not say if Boeing is talking with other airlines about deferring delivery of jets they have already ordered. But he did say that Boeing is seeing good market response to its jetliner product offering, despite the challenges.

Carson also said he remains confident that even hard-hit U.S. airlines will order new, more fuel-efficient jets.

"Operators that are flying older, less fuel efficient airplanes absolutely need newer ones,'' he said.

"At the same time, they are challenged financially by the high fuel prices. So the two forces tend to compete with each other. We still believe, however, that we will see significant activity by the majors, possibly this year and into next year and probably the year after that as they look to retire those older less efficient aircraft that are costing them so much more to operate.''

American Airlines, for example, recently said it was slashing capacity and would retire as many as 85 older planes because of high fuel costs and slowing traffic.

In an interview here Sunday evening, during a Boeing-sponsored reception and dinner for airline executives and media as part of the IATA event, American Chief Executive Officer Gerard Arpey said the airline continues to be interested in Boeing's fuel-efficient 787 Dreamliner.

Loren Thompson, the well-regarded defense analyst with the Lexington Institute think tank, has taken heat from Boeing backers over his reports about the Air Force tanker decision.

But in his latest report, Thompson echoes many of Boeing's concerns about the decision.

UPDATE: Analyst Scott Hamilton, who first reported on Thompson's apparent change of position on the tanker debate, speculates about why. You can read Scott's comments here.

Here is my report:

By James Wallace
P-I aerospace reporter

It's time for the U.S. Air Force to explain in far greater detail than it has why The Boeing Co. lost the tanker competition to the team of Northrop and EADS, a noted defense expert said Tuesday.

"Something is not quite right here,'' Loren Thompson, defense analyst with the private Lexington Institute, a think tank, said in an interview.

In the past, Thompson has been widely criticized by Boeing supporters for being pro-Northrop on the tanker controversy.

But Thompson insisted he has only been reporting what Air Force sources have been telling him and he had not taken sides in the dispute over whose tanker is better. Thompson said he's had three months since the tanker announcement to understand the issues and listen to all sides, and his latest report, which was posted on the Lexington Institute's Web site late Tuesday, represents the "conclusions I have come to.''

The tanker selection process was hardly as "transparent" as the Air Force has claimed, wrote Thompson, who has close contact with senior Air Force officers.

"Whatever else this process may have been, it definitely was not transparent,'' he wrote.
Boeing had been widely expected to win the Air Force competition with its 767 tanker, but instead the Air Force earlier this year picked Northrop and EADS, the parent of Airbus, to supply it with 179 tankers based on the far bigger and heavier Airbus A330 jetliner.

Boeing has filed a protest of the Air Force decision with the Government Accountability Office, the watchdog agency for Congress. The GAO has a mid-June deadline to decide the merits of Boeing's protest. It would be highly unusual for the protest to be upheld.

But Thompson said even if the GAO finds that only small mistakes were made by the Air Force, given Boeing's contention the competition was very close, such a finding might be enough for Boeing's supporters in Congress to force the Air Force to hold another tanker competition.

Boeing claims the Air Force changed its tanker requirements to help the bigger Airbus plane win the competition. Boeing has argued the competition was "seriously flawed."

Northrop has mounted an aggressive public relations campaign, issuing almost daily statements about why its tanker is better than Boeing's. And Northrop has sharply criticized Boeing for suggesting the competition was unfair.

Previously, Thompson said Air Force leaders believe Boeing "is willfully misstating the facts in a bid to obscure the inferior performance of the plane it proposed.''

In the interview Tuesday, Thompson said he has been waiting for the Air Force to make a "slam dunk" case to him about why Northrop and EADS won. But The Air Force has not been able to make such a case, he said.

"I never really got what I would consider an analytical explanation for the outcome, so what do we really know about what happened?'' he said. "It just doesn't look good.''

In his latest report, Thompson said the Air Force has failed to answer "even the most basic questions about how the decision was made.''

"Whatever it finds,'' he wrote of the GAO review of Boeing's protest, "the Air Force has some explaining to do.''

Thompson made the following points in his report and the interview that he said raise serious questions about the Air Force decision:

-- The Air Force claims it would cost roughly the same amount to develop, manufacture and operate 179 tankers regardless of whether they are based on Boeing's 767 or the Airbus A330. But the Airbus plane is 27 percent heavier than Boeing's and burns a ton more fuel per flight hour, Thompson said. "With fuel prices headed for the upper stratosphere, how can both planes cost the same amount to build and operate over their lifetimes?'' Thompson said.

--The Air Force claims it would be equally risky to develop the Boeing and Airbus tanker. But the Airbus tankers will be built at plants in Alabama that do not yet exist, Thompson noted. Boeing's tanker would be built on its long-running 767 assembly line.

It doesn't make "common sense," Thompson said, that the Northrop-EADS tanker production plan would not have greater risk than Boeing's.

"This is not plausible,'' he said.

--The Air Force has said the Northrop-EADS team received higher ratings on past performance than the Boeing team. But Thompson noted that Boeing has built all 600 of the tankers in the Air Force fleet and Northrop and EADS have never delivered a single tanker equipped with the refueling boom the Air Force requires.

"How can Northrop and Airbus have superior performance?'' Thompson said.

--The Air Force has said a computer simulation of how the competing tankers would function in an actual wartime scenario strongly favored the larger Airbus plane. But the simulation assumed longer runways, stronger asphalt and more parking space than actually exists at forward bases, Thompson said, and the simulation failed to consider the consequences of losing bases in wartime.

"How can such unrealistic assumptions be relevant to the selection of a next-generation tanker?" Thompson said.

He also wrote in his report that the Air Force refused to consider Boeing cost data based on 10 million hours operating the commercial 767, and instead substituted repair cost on the 50-year-old KC-135 tanker. The Air Force also had said early on that it would not award extra points for exceeding key performance objectives, but then proceeded to award extra points, according to Thompson.

"Even now, neither of the competing teams really understands why the competition turned out the way it did,'' Thompson wrote. "It would be nice to hear from the Air Force about how key tradeoffs were made, because at present it looks like a double standard prevailed in the evaluation of the planes offered by the two teams.''

Updated 2:

On Wednesday, Washington state's U.S. Sen. Patty Murray weighed in on Thompson's latest report. This was the news release just issued by the senator's office:

(Washington, D.C.) – Today, U.S. Senator Patty Murray (D-WA) released the following statement after Dr. Loren Thompson, Chief Operating Officer of the Lexington Institute and a leading Defense contracting expert, published a series of outstanding questions he feels the Air Force must answer about their decision to outsource a $35 billion aerial refueling contract to Airbus. Mr. Thompson initially hailed the Air Force selection process, but as his recent article reveals, he has since joined Murray in raising serious questions regarding how the Air Force made their decision.

In Senate hearings since the Air Force's decision was announced in February, Senator Murray has asked Pentagon officials including the Pentagon's Comptroller, military construction officials, and Defense Secretary Gates for answers on concerns related to cost overruns, diminished capability, the safety of the Airbus plane, national security implications and job losses. Murray has received very little or no feedback from Pentagon officials to her questions.

"The more I find out about this contract, the more concerned I am about how it was awarded. While early reports attempted to validate this decision, it has becoming increasingly clear to the American people that the Defense Department did not award this contract fairly or transparently and they cannot justify what they have done.

"When I've asked why the Defense Department would ask Congress to pay for a tanker that is more expensive, less efficient, and less safe no one can give a straight answer. And when Dr. Thompson asks his friends in the DOD to provide a sound basis for awarding this contract on key issues like cost, risk, and past performance, it seems they can't offer him an answer either.

"Congress and the American taxpayer need to know how and why the Department of Defense reached its decision to award this contract to Airbus. And we need those answers now."

Guy Norris of Aviation Week magazine has a report out this week that Boeing and Airbus are further pushing back their respective time line for a single-aisle replacement plane.

Boeing is abandoning its long-running effort to devise a successor to the 737, driven back to the drawing board by the lack of existing technology that can deliver the huge leap in performance airlines want for a next-generation single-aisle aircraft.

The decision to disband the 737RS (replacement study) design project, because it fell short of critical performance targets, has implications beyond Boeing. It will likely influence how Airbus moves forward on its A320 replacement effort, the A30X. For airlines, it means an even longer wait until a 737 or A320 follow-on hits the market.

For Boeing, the focus now switches to more fundamental research into aerodynamics, composites and other advanced alloys and hybrid materials, systems and propulsion in the hope that concepts will emerge to meet the challenge.

The manufacturer openly admits the change of strategy, saying, "We know customers are demanding really high targets for this aircraft, and we know that with the state of technology, we're not going to get there anytime soon." As a result, Boeing adds, "We're focusing on technology efforts and reducing the aircraft design effort while the technology matures."

The transformation of the 737RS project into a more sweeping technology study effort is sparking industry speculation that this will inevitably push any prospective development of a 737 successor toward 2017-19. Boeing declines to be more specific on the impact of the decision or the potential for further slippage. It simply says, "We expect the rate of this technology development to be available in the latter part of next decade, and we've said this will be no earlier than 2015."

I talked with Guy Monday at Boeing's media tour for the 787. This was the report I filed on what we got to see and hear about the progress on getting the 787 production system working as it was designed. We also have a 787 photo gallery.

UPDATED: I spoke with Boeing on Wednesday and the company insisted it is not "abandoning" its 737 replacement study. A spokeswoman said Boeing is simply "refocusing" its efforts on the break through technologies that will be required in that next new plane. "We are still very much in the business of looking at a replacement plane,'' she said.

Even though investigators have a complete plane to examine, they still have not been able to determine why a British Airways 777-200ER lost power in both engines and crashed just short of a Heathrow runway in January.

The UK's Air Accidents Investigation Branch this week issued an update of its investigation of the January 17 accident. You can find the report here.

"This is a great mystery, and I never expected this accident to be this difficult to solve, given the state-of-art tools on the plane and the fact that the aircraft was largely intact," Bill Voss, president of the Flight Safety Foundation, told the Washington Post this week. "This has potentially broad implications that go beyond this one airplane, depending on what they find."

From the Post story:

As the hulking passenger jet approached London's busiest airport after a long flight from China, the inexplicable happened: Both of the plane's engines sputtered and essentially died.

There was little the British Airways pilots could do to keep the Boeing 777 in the air. Within seconds, the twin-engine jet pancaked spectacularly to the ground. The plane was wrecked beyond repair.

Although no one was killed in the Jan. 17 crash, investigators are facing extreme pressure to determine what brought down the 777 in an accident that has quickly become one of aviation's modern mysteries.

The wide-body 777 is one of the world's most popular long-haul jets, ferrying tens of thousands of passengers a day across the globe. The crash has also raised questions about how airlines operate an increasing number of long flights over remote and harsh areas of the world.

British authorities have not said much publicly about the accident. They released a report yesterday saying they suspected that the plane's fuel flow became restricted somewhere between the engines and the fuel tanks. They did not indicate what they thought caused the blockage. Ice collecting in or near an engine component has emerged as the prime suspect, according to sources familiar with the investigation who spoke on condition of anonymity because they were not authorized to discuss the probe.

It is ironic, outside experts said, that investigators have not figured out what caused the jet to crash about 1,000 feet short of a runway at Heathrow Airport. Investigators expected a quick resolution because they have obtained more data and information about the accident than any they can recall in aviation history, according to sources and outside experts.

They have interviewed passengers and crew members. They recovered every key part of the plane, allowing them to test the jet's components. They retrieved the plane's flight data recorder, cockpit voice recorder and a separate data recorder installed by British Airways.

Spirit AeroSystems in Wichita, Kan., will be supplying Airbus with a large section of the A350 fuselage, the companies announced Wednesday.

Here is my story:

By James Wallace
P-I aeropace reporter

Underscoring the global nature of the aerospace business, a key Boeing Co. partner on its 787 program has been picked to manufacture a large chunk of the fuselage for a competing Airbus plane.

Spirit AeroSystems in Wichita, Kan., announced Wednesday that it had signed a contract with Airbus, worth nearly $3 billion over 20 years, to produce a 65-foot-long composite fuselage structure for the A350 XWB (extra wide body), which Airbus is developing to challenge the 787 Dreamliner.

Spirit is the world's largest independent supplier of large components and assemblies for commercial aircraft. It manufactures the 43-foot-long nose and forward fuselage section of the Dreamliner in Wichita.

The company said firewalls will be in place to make sure that the A350 and 787 work is kept separate and that there is no transfer of technology or top-secret manufacturing processes.

Both the 787 and the A350 will have mostly composite airframes, although Boeing and
Airbus have taken different approaches to manufacturing the composite fuselage of their respective jets.

"We are bound by our contracts to make sure that never happens," a Spirit spokeswoman said when asked how the company will make sure that what it has learned in helping Boeing develop cutting-edge composite manufacturing processes for the 787 do not find their way to Airbus.

"It's incredibly important to keep everything separate," she added.

Boeing has said before that it was not concerned that any of its 787 partners might end up working on the A350. Alenia, the Italian company that makes part of the 787 fuselage, has also sought a work share on the A350 program.

Spirit has already produced composite nose sections for the six 787s that will be used for the upcoming test flight program as well as two more for ground-test planes. Three of those test flight planes are in final assembly at the Everett plant, as are the two ground-test planes.

Manufacturing has not yet started on the A350, which won't enter airline service until at least 2013.

The first 787s are expected to be carrying passengers next year.

Ironically, the A350 work won by Spirit will be done at a new plant to be built in North Carolina, at a technology park near Kinston that several years ago made Boeing's short list as a possible final assembly site for the 787.

Boeing eventually decided to assemble the Dreamliner at its widebody jet factory in Everett.

"We're proud to have won this contract through a global competitive bid process, and will begin work on the design phase of the program immediately," Dan Wheeler, Spirit's A350 program director, said in a statement.

Spirit's operations in Wichita were once part of Boeing Commercial Airplane's Wichita division, which had built parts for Boeing's jetliners since the 707 at the dawn of the jet age.

But several years ago, Boeing decided to shed its once vast manufacturing capabilities and focus on large-scale systems integration, design and final assembly. Boeing sold its Wichita division in 2004 to Onex Corp. of Canada, which renamed it Spirit.

Under the new ownership, Spirit executives have sought to expand the business far beyond Boeing. Spirit made a strong pitch to Airbus for the A350 work.

The Airbus move to award the A350 work to Spirit will help the Toulouse, France-based jet maker offset the weak U.S. dollar, which is hurting its profits. Airbus sells planes in dollars, but much of the company's cost base is in euros. Transferring production work to non-euro countries such as the U.S. will help Airbus financially.

Debbie Gann, a spokeswoman for Spirit, said construction of the North Carolina plant for the A350 work will begin next year and be up and running by 2010. The plant will be in the Global TransPark near Kinston, which was designed to attract new business to Eastern North Carolina. Spirit will be the park's fist major tenant. Nearby is an 11,500-foot runway.

The site was among the three finalists in 2003 when Boeing held a nationwide competition to find a final assembly site for its 787 Dreamliner. Gann said Spirit selected the Kinston site after a global search that considered 25 locations. The two other finalists were Wichita and another site on the East Coast, which she would not identify.

The North Carolina plant will initially employ about 500 people, according to Spirit, but that number could grow to more than 1,000 within five years.

The A350 fuselage section that the plant will manufacture for Airbus will be 65 feet long and nearly 20 feet wide. It is known as section 15 and will be the center fuselage frame.
The 787 section that Spirit manufactures in Wichita is known as section 41. It is about 18 feet in diameter and some 43 feet long.

Boeing is using a much different manufacturing process on the 787 than Airbus will use on the A350. The A350 will have composite fuselage panels. The 787 fuselage consists of large, one-piece composite barrels that must be baked in giant autoclaves. No one in the industry has ever made such large composite pressure vessels before. Boeing and Airbus each argue that its way is best.

As expected, Airbus has finally acknowledged there will be further delays with its A380, which was nearly two years late when the first plane was delivered to Singapore Airlines last year.

Here's the report from The Associated Press.

UPDATE:

Below is is my Aerospace Notebook for Wednesday, which leads with the A380 delays and also updates the tanker appeal.

Also, the Dallas Morning News Tuesday ran and a story about Vought's 787 production problems, which Vought executives say in the article have pretty much been fixed.

By James Wallace
P-I aerospace reporter

"Thirteen years ago Thursday, The Boeing Co. delivered the first 777 to United Airlines – on schedule to the very day it had been promised years earlier.

But meeting schedules for the next generation of jets from Boeing and Airbus, with all the advanced technology and new production methods, has proved impossible.

Boeing's 787 Dreamliner, which was supposed to be delivered this month to the first customer, All Nippon Airways of Japan, is already 15 months late, and some airlines won't get their planes for up to 30 months or more after they were promised. The Dreamliner is the first large commercial jet with a composite airframe.

It remains to be seen if Airbus learns from Boeing's mistakes with the 787 and delivers its competing composite plane, the A350, on schedule in 2013. For now, Airbus continues to have problems meeting its delivery commitments for the A380, a plane that is already hauling passengers.

As expected, Airbus announced Tuesday that deliveries of its A380 will slip again, though only by an average of two-and-a-half to three months. Still, this follows a delay of nearly two years in getting the first A380 to Singapore Airlines in last September.

"I have to say, as CEO of Airbus, that I regret this very much," Airbus boss Tom Enders said in a conference call with media and analysts.

Airbus had said in 2006, after the extent of what became an 18-month delay was fully know, that it planned to be building four of the double-decker planes a month in a few years.

Enders said in the call that is no longer "fully achievable," at least within the time frame once hoped. It is now building about one A380 a month.

The latest delays will affect planes that are delivered in 2009 and 2010. These are what Airbus calls its "Wave 2" A380s, in which new automated production methods will be used that will eventually streamline the production process. The first 25 A380s are essentially being wired by hand, and problems with the wiring bundles caused the earlier major delays.

Production, rather than technical issues, has also been the main reason why Boeing's 787 is so far behind schedule. Boeing recently cut its 787 production forecast from 112 planes delivered by the end of 2009 to only 25, and said it would be 2012 rather than 2010 before it could reach its initial target of building 10 Dreamliners a month.

For Airbus, the latest news is not nearly that bad.
Instead of delivering 13 of the super jumbos this year, Airbus said it will only deliver 12. It expects to deliver 21 next year rather than the planned 25. And deliveries in 2010 will range from 30 to 40 planes rather than 45, Enders said.

Boeing has announced three major delays on its 787. That's one less delay than Airbus has had to announce for the A380.

"We are in a four-year recovery program," Enders said on the conference call. "We have to make some progress but we are not back to square one."
---------
Alabama's tanker. Assuming Boeing loses, as expected, its appeal next month of the Air Force tanker decision, winner Northrop Grumman plans to move quickly to build its tanker plant in Mobile, Ala.

The Government Accountability Office, the watchdog agency for Congress, is supposed to decide by around mid-June whether Boeing made its case that the tanker competition was seriously flawed and that it should be re-bid.

Northrop announced Tuesday that it plans to break ground at its tanker plant in Mobile on June 28. By then, the GAO should have made its decision.

"We anticipate a favorable decision and look forward to starting construction on this historic facility," Ronald Sugar, Northrop's chairman and chief executive officer," said in a statement. "We're committed to transforming Mobile into the centerpiece of an expanding aerospace corridor."

Northrop and partner EADS plan to construct two plants adjacent to each other at Mobile's Brookley Field. Large sections of the A330 would be transported from Europe to one plant for final assembly of the plane, which would then be moved into the second plant for the military and tanker modifications.

Northrop noted that the ground-breaking ceremony is planned just a few days after the 60th anniversary of the start of the Berlin Airlift. Brookley Field was the base from which C-54 transport aircraft supported the airlift.

Northrop Grumman's facility is scheduled for completion and initial operation late next year – unless Boeing's appeal is upheld.

Pending the GAO ruling, the Air Force ordered Northrop to stop all work on the tanker program.

In a conference call with analysts and media to report earnings, Air Canada says Boeing has told the airline that its 787s will be up to 30 months late.

Montie Brewer, chief executive of Air Canada, said Thursday that initial deliveries of the 37 Dreamliners the airline has ordered ordered won't begin until early 2012 -- about 24 months late. And some of the 787s will be up to 30 months late, he said.

And ILFC, the biggest single customer for the 787, said in an SEC filing Thursday its planes will be at least 27 months late.

The Dreamliner program is about 15 months behind schedule, and the first planes that were supposed to be delivered this month have slipped until the third quarter of 2009. Boeing has said it is working with individual airlines about new delivery dates.

Brewer said Air Canada will be seeking compensation from Boeing over the delays.

Air Canada had been an Airbus customer for its long-haul needs until switching to Boeing's 777 a few years ago. It then ordered the 787.

The 777-200, according to Air Canada, burns about 15 percent less fuel per seat than the Airbus A340 it replaced.

UPDATE:

Here is my story, which will be posted online soon.

BY James Wallace
P-I aerospace reporter

Although The Boeing Co.'s 787 Dreamliner may be only 15 months or so behind schedule, delivery delays will be as much as twice that long for some customers that bought the fuel-efficient composite jet.

The extend of the delivery delays, which likely will cost Boeing several billion dollars in penalty payments, became more apparent Thursday when two important 787 customers disclosed just how late their planes will be.

In a filing with the Securities and Exchange Commission, the parent of International Lease Financial Corp., the single biggest customer for the 787 with 74 on order, disclosed that its planes will be delayed "an average in excess of 27 months per aircraft and span across ILFC's entire order."

The leasing giant, one of Boeing's most important customers, was supposed to have taken delivery of its first Dreamliners in 2010, but does not expect the first planes to be available until at least 2012.

Also Thursday, Air Canada said its 787s will be anywhere from 24 to 30 months late.

In a conference call with media and analysts to report earnings, Air Canada Chief Executive Montie Brewer said Boeing recently informed the airline about its new 787 delivery schedule. Air Canada has 37 Dreamliners on order.

The airline probably won't get its first Dreamliner until January 2012, rather than in 2010 as initially promised, Brewer said.

For airlines, late delivery of the 787 means they must find other planes for their networks to make up for the 787 capacity they were counting on. And with fuel prices at record highs, airlines will end up paying more for fuel because the fuel-efficient 787 won't be in their fleets.

Brewer said in the conference call that Air Canada was fortunate because it has been taking delivery of new 777s from Boeing. It has a younger fleet than many airlines.

"Just imagine if we were like other carriers that haven't brought in a new efficient fleet to weather this storm,'' he said. Still, Air Canada will park some of its older, fuel-guzzling jets, he said.

The 777, according to Air Canada, burns about 15 percent less fuel than the four-engine Airbus A340 that the airline previously operated.

Brewer said Air Canada will demand compensation from Boeing because of the 787 delays. He did not give a figure. But he did say Air Canada will experience capacity issues in 2010 when the 787s don't show up.

Some industry analysts are forecasting that the 787 delays could end up costing Boeing as much as $4 billion or more in penalty payments. Boeing has said it does not yet know those costs. But the issue is complex. All Nippon Airways, the initial launch customer for the 787, is reportedly in talks with Boeing about using new 767s to meet its interim lift needs until its 787s start showing up. Those 767s could be a substitute for actual penalty payments, according to a person with knowledge of the matter.

Boeing has said it is in talks with a number of airlines about how to help them meet capacity requirements because of the 787 delays.

All Nippon Airways was supposed to take delivery of its first Dreamliner this month. Boeing recently said first deliveries won't begin until the third quarter of 2009.

But Boeing is also drastically cutting 787 production, which accounts for why some customers won't get their planes for two years or more from the original delivery date.
Boeing had planned to delivery 112 Dreamliners by the end of 2009. Instead it will deliver just 25. Boeing is also ramping up production much more slowly than first planned. Rather than hitting a production goal of 10 planes a month in 2010, that won't happen until 2012.

In a conference call last month to report on earnings , Boeing Chairman and Chief Executive Jim McNerney was asked how many of the 900 Dreamliners that Boeing has sold will be late. "We are still working through what the impact will be,'' McNerney said then. "But we don't see a scenario where all 900 would be delivered late.''

Despite three delays that have pushed first flight of the plane from late August of 2007 until the fourth quarter of this year, the cutting-edge jet continues do well in the market place. Boeing has sold 79 Dreamliners this year and said it expects to have more than 1,000 orders by the time the first planes are delivered.

Boeing updates its order totals every Thursday, and while it did not have any new 787 orders in the last week, it did have 32 more orders for other models – 26 737s as well as six 777s.

For the year, Boeing has 378 net orders. The net figure includes cancellations. That puts Boeing only slightly behind Airbus, which through April 30 had won net orders for 397 planes.

Capped by a record 2007, Boeing has sold more than 1,000 planes each of the last three years. Boeing won gross orders for 1,423 planes last year. That was 373 more than it sold in 2006, which had been its best year ever.

Boeing had 1,413 net orders in 2007. But Boeing is predicting a more normal sales year in 2008, as is Airbus. Boeing has said orders could be half what they were in 2007, though that still would be considered a good year.

Airbus has said it expects to sell around 700 jets in 2008. Airbus beat Boeing in gross sales last year, but its net total was 1,341 planes.

Boeing beat Airbus in orders in 2006 for the first time since 2000.

5th Dreamliner now in final assembly. Boeing photo.

After moving the static test plane out of the factory earlier this week, Boeing announced Thursday it has started final assembly on the fifth 787, whch will be the third of the flight test planes.

Below is the Boeing news release.

EVERETT -- Final assembly began today on the third flight-test airplane for the all-new Boeing 787 Dreamliner.

This is the fifth Dreamliner to be loaded into the first position of the 787 production system. The static test airframe moved April 25 from the Final Assembly to its test rig in another bay of the Everett, Wash.-based factory. Both the fatigue test airframe and the second flight-test airplane have advanced to the next position in production, where assembly and systems installation work continues.

"We are receiving assemblies that are much more complete," said Jack Jones, vice president of 787 Final Assembly and Change Incorporation. Jones replaces Steve Westby, who retired from Boeing yesterday after a 31-year career. "The second flight-test airplane had a 50 percent reduction in the amount of incomplete work as compared to the first airplane. 'Traveled work' on this airplane is 65 percent less than on the first."

After assembly is complete, this airplane will be fitted with an interior as part of the comprehensive flight-test program and certification process.

"When that happens this summer, it will be the first time we'll see the 787 in what is close to a final delivery configuration," Jones said.

The first airplane to fly is on track for "power on" in June.

Around the world, 25 airplanes are in various stages of production. This number includes the static and fatigue airframes, which will not be delivered to customers. Since its launch in April 2004 the 787 Dreamliner has amassed nearly 900 firm orders valued at $151 billion from 58 airlines.

Admid rumors that Airbus won't deliver as many A380s this year
as expected, Airbus has announced that it is conducing a "a major review" of its delivery schedule.

Here is part the Associated Press report.

Speaking at a company site in the United Arab Emirates, CEO Thomas Enders acknowledged that the goal of delivering four A380s per month by 2010 won't be easy.

The review is "standard practice" at this stage in the plane's development, he said.

"We're currently conducting a major review" of the program, Enders said at the opening of an Airbus material and logistics center in Dubai, headquarters of A380 customer Emirates Airlines.

His comments were relayed by Airbus spokesman Stefan Schaffrath. The spokesman withdrew earlier comments saying Airbus is "confident more than ever" about the program that he had attributed to Enders.

Airbus has previously said it is committed to handing over 13 A380s in 2008, 25 in 2009, and 45 in 2010.

Airbus is reviewing whether workers and suppliers are ready for the change from individual plane production to full industrialization, and whether the delivery schedule can be maintained, Schaffrath said.

Airbus has delivered the first four of six superjumbos destined for Singapore Airlines. The European plane maker will have to redesign cabins and electrical layouts for Emirates Airlines and Qantas.

Enders said in October that increasing A380 production is Airbus' greatest challenge for the coming years. The workload of making one A380 is equivalent to eight of the single-aisle A320, Airbus' most popular jet.

I was at Boeing's annual meeting in Chicago Monday, where afterwards I asked Boeing Chairman and CEO Jim McNerney about reports the Air Force is upset with Boeing over its harsh words about the tanker competition.

Here is my story:

CHICAGO – Boeing Chairman and Chief Executive Jim McNerney knows a thing or two about rough play. He played hockey in college and still enjoys mixing it up on the rink with friends.

But Boeing will try and avoid throwing any "needless sharp elbows" in its disagreement with the U.S. Air Force over the tanker decision, McNerney said here Monday.

He made it clear, though, that he is not backing away from his belief that the tanker selection process was flawed and Boeing was right to protest.

Speaking to reporters after Boeing's annual meeting, McNerney was asked about a recent meeting the Air Force called with him and Northrop CEO Ron Sugar. Northrop, which teamed with Airbus parent EADS, won the competition to supply the Air Force with air-refueling tankers.

The Air Force met with McNerney and Sugar out of concern about the nasty tone of the public debate since the February decision.

Boeing had been widely expected to win the competition with its 767 tanker, and it has protested the Air Force decision with the General Accountability Office.

"The meeting was about reminding us that we are all going to be friends when this is over," McNerney said. "We are still going to be dependent on each other. And I thought it was a very appropriate meeting. Sometimes sharp elbows happen in the midst of competition and a protest of a competition."

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Static test plane being moved. Boeing photo.

Boeing announced Friday evening it has moved the 787 static test airframe from its final assembly bay in Everett to its structural test rig, which is located about 1,000 feet away.

Here is part of the Boeing news release:

Some assembly remains to be completed on the static airframe. That work will be completed concurrently with test set-up. Test set up is expected to begin immediately, with tests commencing this summer.

"During static tests we apply loads to the airplane structure to simulate both normal operation as well as extreme flight conditions," said Randy Harley, vice president of Engineering & Technology for the 787 program. "We monitor the airplane to confirm analytical predictions and make sure the structure holds up to these conditions."

Movement of the static airframe clears the way to begin assembly of the third 787 to enter the flight test program. Most pieces of the third airplane arrived in Everett earlier this month. All assemblies for Airplane #3 are now in Everett, and the airplane will be loaded into the first position of Final Assembly early next week.