UPDATE: 6 p.m.

The union said it could be Friday before it responds to Boeing's final offer. Here's my story.

BY James Wallace
P-I aerospace reporter

Hoping to prevent a second strike of its biggest union in three years, The Boeing Co. on Thursday offered the machinists who assemble its commercial jetliners what the company's lead negotiator called "the best contract offer in America" this year.

The International Association of Machinists and Aerospace Workers was studying the 300-page offer Thursday evening and had not yet said if it would recommend the offer be accepted or rejected by the union's 27,000 members, who will vote Wednesday. A strike would begin just after midnight Thursday and would essentially shut down Boeing's jetliner factories in Renton and Everett.

Connie Kelliher, a spokeswoman for the union, said it could be Friday before the union leadership responds to the offer. "They're still going through it, every detail, line by line," she said.

After more than four months of talks on a new three-year contract, Boeing's offer would raise pension benefit rates by more than 14 percent, the company said, and provide bonuses that could total at least $5,000 for each member, along with a general wage increase of 11 percent over the three years of the contract.

Doug Kight, Boeing's lead labor negotiator, said the "best and final" offer is just that – as good as it will get.

If the contract is approved, he said, Boeing machinists would have the "best contract" in the aerospace industry.

"It's an outstanding economic offer by any measure," he told reporters at an afternoon news conference at the Doubletree Hotel across from Sea-Tac Airport, where his labor team and the union's leaders have been meeting around the clock for a week to try to reach a new labor accord. He said it was good for employees and would also allow Boeing to remain competitive.

"This is, as we told the union leadership this morning, our best shot," Kight said. "It is our best and final offer and one that we are very proud of."

On the shop floor in Everett, one longtime machinist said the general reaction to the offer was negative.

"If you are flipping burgers at McDonald's, you would call this a great offer," said the worker, who did not want to be quoted by name. "But for a company that has made $13 billion in profits the last few years, this is not a generous offer."

On average, a Machinist makes a base wage of about $27 an hour, or about $56,000 a year without overtime, according to Boeing.

Kight said the offer had the backing of Boeing's board, Chairman and Chief Executive Jim McNerney and his leadership team in Chicago, as well as Scott Carson, head of Boeing Commercial Airplanes, and his leadership team in Seattle.

"We have thought long and hard about its content," Kight said when asked if the offer might be improved later in the event of a strike.

In 2005, when the union last struck Boeing before agreeing to the current contract, the company eventually made a better offer to settle the dispute.

"We have listened very, very carefully to the union leadership. 5 We have listened to our employees," Kight said. "This has been carefully, carefully thought through. 5 We are all together. We are all aligned. This is our best and final offer. We are giving it our best shot."

District Lodge 751 of the IAM Workers represents about 25,000 Boeing employees in the Seattle area, some 1,800 in Wichita, Kan., and 800 in Portland.

The union had made it clear that it wanted much more this time, after what it considered subpar contracts in 2002 and again in 2005. The union's motto during the contract talks was, "It's our time this time."

Tom Wroblewski, president of the local district of the Machinists union, was not immediately available for comment on Boeing's final offer.

"We have the leverage now that the company had in 2002 and in 2005, and we are going to use it," Mark Blondin, lead negotiator for the union, had told the Seattle P-I in a recent interview. Blondin, now aerospace coordinator for the national IAM, had Wroblewski's job during the 2002 and 2005 contract talks.

Blondin said it was "payback time" for the union this time around.

"They are going to have to pay up to get an agreement from this membership. A lot of our members have it in their gut that it's payback time."

Even if a majority of the union members reject Boeing's final offer, it does not mean there will be a strike. The only way a strike can be called is if a majority of union members vote to reject Boeing's final offer Wednesday, and then, on a separate ballot, at least 66 2/3 percent vote to go on strike.

In 2002, Boeing's final offer was rejected by about 62 percent, but the union could not muster the two-thirds vote required for a strike and the contract took effect by default.

If more than a third of the union members who vote on Boeing's final offer this time don't approve a strike, the contract will also take effect by default.

Union leaders have accused the company of just such a strategy. In a recent statement on its Web site, the union had this to say:

"Remember, thanks to you, they (Boeing) have made 13 billion dollars recently and have plenty of cash on hand. They may attempt to throw just enough of this money at the contract to appeal to just one third of the membership."

Kight said it would be deeply disappointing if the union rejected the final offer.

He urged employees to study the proposal over the long Labor Day weekend, and to talk about it with their family, friends and co-workers and then to vote "in their own best interests."

"We believe this is the best contract offer in America this year," he told reporters at the Doubletree news conference. "We believe it will probably be the best contract offer in America next year and maybe the year after."

Boeing and the Machinists union kicked off negotiations May 9 on the new labor accord, with the union saying it wanted its members to have a bigger share of the company's profits, which have soared along with Boeing's jetliner backlog.

The company's final offer came after a week of around-the-clock talks on the always tough economic issues began at the Doubletree Hotel. The company had said when the hotel talks started that it wanted to have its final offer ready before the start of the long Labor Day weekend so that union members would have enough time to study the proposal carefully.

On average, according to Boeing, the offer would provide employees with $34,000 in additional pay over the three years of the contract. That's up from $24,000 in the company's initial offer made last week.

Other highlights:
--Workers would receive a general wage increase of 11 percent over three years, up from 6.5 percent in the company's initial offer and 9 percent in a revised offer.
--The pension rate would be increased to $80 a month for each year of service. That's up from $70 a month in the current contract and up from $78 in the revised offer.
--Workers could receive a bonus of at least $5,000 if the contract is approved by Sept. 3. This would come in the form of two payouts: A lump sum payment of 6 percent of the worker's annual wage, including overtime, or $2,500 – whichever is greater; a "ratification bonus" of $2,500 would be paid if the contract is approved by Sept. 3. But Kight said the ratification bonus will only be paid if at least 50 percent of the union's members vote to approve the contract Wednesday. If the contract is turned down, but the vote to strike falls short, the bonus would not be paid, he said.
--Boeing said it had withdrawn a remaining proposal that the union had described as a "deal breaker." This would have discontinued early retiree medical benefits for persons hired after Jan. 1, 2010.
-- Union members would, for the first time, receive an incentive pay plan. They could earn up to 20 extra days of pay a year. Boeing said it would continue to develop specific details of the pay plan in talks with the IAM. The first potential payout of the plan would be in the 3rd year of the contract.
--The minimum pay rate for Machinists would be raised $2.28 an hour, effective Sept. 5.
Even before the final offer, Boeing had withdrawn three other proposals that the union had said would result in a strike. Boeing had sought to switch retirement plans for new hires to one based on benefits from a 401(k) plan. It also wanted to negotiate a separate agreement with the IAM's members in Wichita. Boeing had also proposed a change in the current contract that would have allowed it to outsource work from its facilities maintenance.

Boeing and its Machinists have a long history of bad blood and occasional strikes. The union has struck Boeing six times since 1948. A strike in 1989 lasted 48 days. In 1995, a 69-day strike lasted well into December. The last strike in 2005 lasted a month before an agreement was reached on the current contract. The four-week strike cost Boeing about $1.5 billion in revenue when it had to push back the delivery of 30 jets. During that strike, Boeing returned to the negotiating table and made several concessions to end the dispute. It raised the monthly pension payment by nearly 17 percent and backed away from several issues that the union had called unacceptable, including one that would have raised the monthly premiums union members pay for their medical coverage.

In a note to clients Thursday, industry analyst Peter Jacobs of Seattle-based Ragen MacKenzie said a strike would likely not have a long-term impact on Boeing's stock price.

"From a long-term perspective, work stoppages have not had a material impact on the stock price or Boeing's earnings power, although clearly a strike would interrupt aircraft deliveries and the near-term earnings outlook. In the past, investors have typically overlooked the near-term financial implications."

But he went on to say that a strike "would further delay the production and first flight of the 787 (scheduled for later this year), which would clearly be a negative. Perhaps partially offsetting that would be some additional breathing room for suppliers to catch up on behind-schedule work. The company would not incur additional financial penalties for delays caused by a strike."

Although Boeing typically would have to make a penalty payment to a customer for delivering a plane late, that's not the case if the delivery delay is caused by a strike.

Howard Rubel, an analyst with Jefferies & Co. in New York, estimated a strike would cost Boeing about $120 million a day in deferred revenue.

Peter Arment, an analyst with American Technology Research Inc., put the figure at about $100 million per day in deferred revenue because of delays in delivering jetliners. Customers pay most of the costs of a new jet when the plane is delivered.

When the same union struck Boeing for a month in 2005, before the current contract was settled, Boeing pushed back the delivery of 30 jets – a $1.5 billion hit.

But this time, there is more on the line for Boeing than just a slip in delivery schedules.
Its production would be stopped when it has a record backlog of planes that need to be built. A strike would likely delay the first flight of the company's new 787 Dreamliner. That flight is supposed to happen in the fourth quarter, probably in November.

Any strike of more than a week or two would likely mean that maiden flight would not take place until next year.

The 787 program is already 14 months behind schedule and any delay in the test flight program could have a ripple effect and possibly result in further 787 delivery delays, which already stretch more than two years for many customers.

ON THE WEB
For more on Boeing's offer, see boeing.com/2008negotiations.
For the union's response, see iam751.org/contract08.htm.

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Below is my initial post from earlier today.

The Machinists union just announced, shortly before 11 a.m. Thursday, that Boeing has made its best and final offer on a new three-year contract.

The union "is currently reviewing it line by line to see ALL
changes and how they impact our members. We will be making a statement later today,'' the union said in a statement.

Boeing upped the general wage hike from 9 percent in a revised offer to 11 percent over three years in the final offer. It will also give a cost-of-living adjustment that it says would amount to about 3 percent more.

Union members would receive a lump sum payment of 6 percent of their annual pay or $2,500 -- whichever is greater. In addition, workers would receive a "ratification bonus" of $2,500 if the contract is approved on or before Sept. 3.

The monthly pension rate would be increased to $80 a month for each year of service.

On average, according to Boeing, the offer would provide employees with $34,000 in additional pay over three years.

Boeing said it had backed off issues the union had said it would strike over, incuding a plan to eliminate early retiree medical for persons hired after Jan. 1, 2010.

The union will vote on the contract Sept. 3. Depending on that vote, a strike could begin just after midnight next Thursday. It would require that two-thirds of those voting on the contract also vote to go on strike.

I'll have details throughout the day as they break.

HIGHLIGHTS of the company's final offer.

Continue reading to see Boeing's news release below.

continue reading

Alaska Airlines plans a special media event at Sea-Tac airport Thursday to officially retire the last of its MD-80 jets. They made the final passenger flights this past weekend.

To mark the occasion, and its commitment to Boeing, one of Alaska's 737-800s will be unveiled Thursday in the Boeing livery that was first designed for the 787. The jet has Alaska's trademark logo of a native Alaskan on the tail fin.

The below picture of the 737-800 with its special paint job was taken by Andrew Sieber, who has an aviation photo Web site. His photo was taken of the plane last week at Boeing Field.

For my aerospace notebook, I wrote about the end of Alaska's MD-80 and of the father and daughter pilot team who flew them.

To see the story, continue reading below. (The PI photo will be posted with my story online.)

continue reading

Boeing made a revised offer Tuesday morning to the Machinists union, which called the company's first offer "insulting.''

Read the offer here.>

In a major concession to the union, Boeing withdrew its proposal to change the traditional retirement plan for new hires to one based on a 401(k) plan. The union had said this was a strike issue. But the latest offer still would stop offering early retirement medical coverage for persons hired after Jan. 1, 2010. The union has said this is also a strike issue.

The latest offer would give Machinists a general wage hike of 9 percent over the three years of the contract -- that 's up from 6.5 percent in the company's initial offer.

The basic benefit pension would be raised to $78 per month for each year of credited service.

Rather than a $2,500 lump sum bonus when the contract is signed, the new offer would pay a bonus of 5 percent based on gross pay earned between Aug. 31, 2007, and Sept. 4, 2008. The average wage of a Machinist in the Puget Sound area is about $56,000 a year, so the average bonus would be around $2,800.

In a statement, the company said:

Since presenting our first offer, we've spent a great deal of time meeting with the IAM to focus on their contract priorities. We have made substantial movement in pay, pension and health care. We've withdrawn key proposals that were important to the company but of concern to the union. We have been negotiating for more than four months, we've had a thorough discussion of all of the issues, and we are near the point of presenting a best and final offer that rewards Boeing employees for their great work while allowing the company to sustain our success in the future.

The union was told that Boeing's latest offer would be "close" to the best and final offer that the company has said it plans to put on the table before the start of the upcoming Labor Day weekend, which means it could come either Thursday or Friday. The union will vote on that final offer Sept. 3, and depending on the outcome, a strike could begin just after midnight Sept. 4.

A response to the company's latest offer will be coming later today, and will be available for reading at the IAM Web site.

UPDATE: Since the 5 percent bonus is based on the annual wage plus OT, Boeing says the average signing bonus will total about $3,300.

UPDATE2:
3 p.m.

The union just issued the below statement, saying there are still "deal breakers" in the latest company offer.

"The company needs to get serious about these issues or they are going to have a work stoppage on their hands,'' the union said in its statement.

On the Company's Latest Proposal

The fact is Boeing should not have brought ANY takeaway offers to the table during this round of bargaining given their record profits and backlogs. While we acknowledge the Company pulled the proposal to carve the Wichita unit out of the agreement and to eliminate guaranteed pensions for future hires, these should never have been on the table to begin with.

There are still deal breakers on the table – eliminating retiree medical for future hires and rehires who have been gone longer than 6 years and zero improvements on job security.

Boeing is touting a big move for pulling back two takeaways. The end result of pulling those two proposals was a zero increase or benefit for workers. The starting point for this round of contract bargaining is the current 2005 agreement; it should not have begun with regressive bargaining in the first place.

The remainder of Boeing's proposal is still far below the expectations of our members.

Job Security
Despite strong messages at every bargaining session that job security is a top issue, Boeing continues to ignore job security proposals. We surveyed thousands of our members over the past 24 hours and a resounding 90% said they would strike for improvements in the Articles and Letters of Understanding covering our members' job security.

The survey pointed out this issue has many facets:

LOU 2 Facilities Maintenance Subcontracting – These are the members who take care of the Company's buildings and machinery (such as electricians, carpenters, millwrights, plumbers, factory service etc.) As these members retire they are not being replaced. Ironically, the Company then claims they do not have enough people to do the work and must subcontract the work.

LOU 37 Material Delivery Process – The Company currently outsources some material delivery to vendors who deliver parts to the airplane inside Boeing factories. This affects many members in jobs such as stores, QA, forklift drivers and the rest of our MPRF's.

Article 21.7 Subcontracting – covers ALL other work done inside the company. Although we have site reps for each location to offer up alternatives, the company watered down this language in the 2002 and 2005 contract.

Tooling subcontracting – The company is claiming tooling is part of 21.7 but per this Article, if work is considered "emergent", it is not eligible for an alternative proposal and can be subcontracted immediately.

The Company needs to get serious about these issues or they are going to have a work stoppage on their hands.

WAGES: Aerospace industry trends have consistently offered between 9 to 13% for wage increases over a three-year agreement. Considering Boeing's profits and the fact that we haven't had a wage increase since 2004, our members expect to be at the top of this trend.

HEALTH CARE: On health care, they are still looking to shift additional costs to members in the form of monthly premiums. While they talk about minor improvements, they fail to mention the many additional out-of-pocket expenses our members will pay in addition to the increased monthly premiums. These expenses include increased deductibles on TMP, higher office visit co-pays, a new $250 hospital inpatient confinement copay for those choosing Selections or Group Health. In addition, they introduced a mandatory generic prescription drug program. Even if the treating physician prescribes the name brand formulary drug for health purposes, you will still pay the difference from the generic co-pay to the brand name drug cost.

PENSIONS: The pension increase of $8 is less than the increases received in the past. Keep in mind not one penny was put into our pension plan in the last year reported (2006), yet $522 million was put in the Executive Plan. Our members also expect improvements in the alternate formula

INCENTIVE PLAN:
Rather than including us in the existing Employee Incentive Plan that regularly pays out, Boeing's new proposal eliminates one year of potential payout AND you must ACHIEVE the as yet undetermined goals to get ANY payout. Boeing's previous proposal would have paid out at varying levels - for below, at and above target metrics. The Union remains adamant this must have guaranteed, negotiated metrics before you vote. At this point, it is still a zero dollar value to our members and could remain that way.

There are no meaningful changes or improvements for any additional paid leave such as vacation, sick leave, holidays, bereavements.

The Union will be working through the night and will present a full counter proposal to the Company Wednesday.

Keep up the great work, but it's time to turn up the volume on the messages your sending on the shop floor. The Company is still not listening, but with your help we can make them listen. It's Our Time This Time!

In Solidarity,
Your Union Negotiating Team

UPDATE3:

Below is my story

BY James Wallace
P-I aerospace reporter

The Boeing Co. sweetened its offer to the Machinists union Tuesday, but it was quickly rejected with a warning that time is running out to avoid a costly strike that would shut down Boeing's jetliner factories in the Puget Sound area, possibly delay the critical first flight of the 787 Dreamliner and put about 27,000 employees on picket lines.

"The company needs to get serious about these issues or they are going to have a work stoppage on their hands," the union said in a statement a few hours after Boeing made its revised offer that included a bigger wage hike, better pension benefits and also removed two key issues that the union had said would result in a certain strike.

But the Machinists union said there are "still deal breakers on the table." It planned to present Boeing with a counter proposal Wednesday morning.
Boeing has said it will make its best and final offer before the start of the long Labor Day weekend, which will give union members time to carefully consider the contract before they vote Sept. 3. A strike would begin shortly after midnight the next day.

People familiar with the company's thinking said that final offer is likely to be made Thursday.

They also said the revised company offer Tuesday was "close" to what the final offer will be.

Boeing offered the union a three-year contract that it said will earn machinists an additional $28,000 over the life of the agreement, from higher wages and a first-ever incentive pay plan for the union. That compares with an estimated $24,000 in the first offer the company made late last week.

The general wage increase was upped from 6.5 percent in the first offer to 9 percent over three years in the latest offer.

The basic pension rate was increased to $78 a month for each year of service, up from $75 in the initial offer and $70 now.

Union members would receive a 5 percent bonus, based on their annual salary plus overtime, when the contract is signed. Boeing said a machinist making the average yearly wage of about $56,000 would receive a bonus of about $3,300.

In the revised offer, Boeing dropped one of its key issues – switching retirement plans for new hires to one based on benefits from a 401(k) plan. But the revised offer would still eliminate early retiree medical benefits for new hires – an issue the union has said it will strike over.

Boeing also dropped a proposal in its first offer that would have allowed the company to outsource work from its facilities maintenance. The union had called this a "deal breaker."

The company said it listened to the union and its latest offer was a very good one. It said the pension rate hike to $78 a month for each year of credited service would be the best in the aerospace industry.

"Since presenting our first offer, we've spent a great deal of time meeting with the IAM to focus on their contract priorities," Boeing said in a statement. "We have made substantial movement in pay, pension and health care. We've withdrawn key proposals that were important to the company but of concern to the union. We have been negotiating for more than four months, we've had a thorough discussion of all of the issues, and we are near the point of presenting a best and final offer that rewards Boeing employees for their great work while allowing the company to sustain our success in the future."

But the latest offer fell way short of what union leaders said they need to see to prevent a strike.

The union said the 9 percent wage hike is too little for a company that made $13 billion in profits over the last several years and which has not rewarded its machinists with a general wage increase since 2004.

It also said eliminating medical benefits for new hires who retire early remains a "deal breaker."

The lack of job security in the revised offer is also a deal breaker, the union said.

And Boeing is still shifting too much of the cost of health care to its members, the union said.

"The company is still not listening," the union said in its statement.

A strike would shut down Boeing's jetliner factories in Renton and in Everett at a time when Boeing is increasing production after three years of booking record orders. A strike would also further delay its 787 Dreamliner. The first flight of the 787, which was to have taken place by September 2007, has been delayed until the fourth quarter, probably in November.

A further slip in the 787 test flight program could mean additional delivery delays, which already stretch more than two years for many unhappy customers.

District Lodge 751 of the International Association of Machinists and Aerospace Workers represents about 25,000 Boeing employees in the Seattle area, some 1,800 in Wichita, Kan., and 800 in Portland.

The Machinists union has struck Boeing six times since 1948.

In 2002, union members rejected Boeing's final offer but could not muster the 66 percent approval needed for a strike. In 2005, the union walked. The four-week strike cost Boeing about $1.5 billion in revenue when it had to push back the delivery of 30 jets.

For more on the company's offer, see Boeing's Web site: boeing.com/2008negotiations .
For the union's response, see the IAM's Web site: http://www.iam751.org/contract08.htm

The Boeing Co. made its first full offer on key economic issues to the Machinists union Friday, providing for an increase in pensions and a general wage increase for each year of a new three-year contract.

"This offer reflects our commitment to rewarding employees for contributing to the company's success while addressing head on the challenges we face in managing long-term costs so that we can continue providing great pay and benefits," Boeing said in a statement. "When the company succeeds we all succeed.''

But the union has already said it will not accept several elements contained in the initial offer, including a change in benefits for new hires that would replace the traditional pension plan with a 401(k) plan. The union says this is a strike issue.

The company said its proposal would provide about $24,000 in additional wages and incentive payments over the three-year agreement.

These are the main points of Boeing's offer:

The Boeing Co. says it needs at least six months to submit a new tanker bid. And it may pull out of the tanker competition if the Pentagon insists on awarding the tanker contract by the end of the year.

Boeing's threat was sounded by Jim Albaugh, chief executive of Boeing's military business, in an interview with the Wall Street Journal.

Albaugh told the paper Thursday that Boeing has carefully studied the latest requirements and decided that its 767-200 tanker does not carry enough gas to meet the new requirements.

The Pentagon has said it expects to issue a final RFP (request for proposals) for a new Air Force tanker next week, perhaps as early as Monday.

"I think the option we would have if we were not given the six months, there is a really high likelihood that we would no-bid the program," Albaugh told the paper.

According to people familiar with the situation, the government is leaning toward adding another 15 days for Boeing and rival Northrop Grumman Corp. to respond to the latest request for proposals, giving the competitors a total of 60 days to submit a new bid. Because Boeing would have to figure out how to convert a larger airplane into a flying gas station, the Chicago aerospace company said it needs an additional four months to prepare a competitive proposal.

"This is an airplane that's going to be in the inventory 40 years," said Mr. Albaugh. "What we're asking for is an additional 4 months to have a meaningful competition."

continue reading

Boeing and its Machinists union began around-the-clock talks Thursday that will determine if the union walks out on Sept. 4, further delaying the 787 program and stopping production of the company's other jets.

Below is my story that will be posted soon.

BY James Wallace
P-I aerospace reporter

Tom Wroblewski, president of the local district of the Machinists union, did not mince words when he was asked to describe The Boeing Co.'s latest incentive pay plan for the union's 27,000 members, most of them in the Puget Sound area.

Boeing publicly released details of the incentive plan earlier this week.

"It's a crock,'' Wroblewski said.

Tough talk. But his words cut to the heart of just how far apart Boeing and its powerful union are as the two sides begin a final push to try and reach a new three-year contract – and avert a costly strike that will shut down Boeing's jetliner factories in Renton and in Everett at a time when Boeing is increasing production after three years of record orders.

And a strike would further delay its 787 Dreamliner.

The first flight of the 787, which was to have taken place by September of last year, has been delayed until the fourth quarter, probably in November. A further slip in the 787 test flight program could mean additional delivery delays, which already stretch more than two years for many unhappy customers.

"Any strike lasting more than a week and you can kiss first flight this year good bye,'' said Scott Hamilton of Leeham Co., a consulting group.

Harry Nourse, an analyst with Bank of America Securities, puts the odds of a strike at around 70 percent.

Not a bad prediction, given that the union has been talking tough about getting some "pay back" for the last two contracts in 2002 and 2005 that did not go down very well with the rank and file.

Mark Blondin had Wroblewski's job in 2002 and in 2005, when the last two contracts were negotiated. In 2002, union members rejected Boeing's final offer but could not muster the 66 percent approval needed for a strike. In 2005, the union walked. The four-week strike cost Boeing about $1.5 billion in revenue when it had to push back the delivery of 30 jets – 21 from September 2005 during the strike and nine more from the fourth quarter.

This time around, Blondin is aerospace coordinator for the International Association of Machinists and Aerospace Workers, or IAM. He is the union's top negotiator in the current contract talks with Boeing.

"We have the leverage now that the company had in 2002 and in 2005, and we are going to use it,'' Blondin said in a recent interview with the P-I newspaper. "They are going to have to pay up to get an agreement from this membership. A lot of our members have it in their gut that it's payback time.''

The Machinists union has struck Boeing six times since 1948.

District Lodge 751 represents about 25,000 Boeing employees in the Seattle area, around 1,800 in Wichita and 800 in Portland. The average Boeing machinist earns $27 an hour or about $56,000 a year. That's without overtime.

Although the company maintains that "good progress" has been made in contract talks that began in early May, it has come down to this: The two sides checked in to the Sea-Tac Doubletree Inn Thursday, where they will remain until Boeing drops its best and final offer, probably by the end of next week. The union is already predicting a strike if the company does not "get serious'' and share in the more than $10 billion in profits Boeing has made since 2004.

The Machinists union will vote on Boeing's final offer Sept. 3. Depending on that vote, a strike would begin just after midnight Sept. 4, when the current contract ends.

"This company is acting like a company that is in bankruptcy,'' Wroblewski said in an interview before checking in to the hotel for the around-the-clock bargaining sessions. "The company needs to get serious and come forward with serious proposals and not just talk.''

Boeing is likely to make early proposals on key economic issues, including more money for pensions and a general wage hike for each year of the contract.

"We have about a week. That's not much time to dance around the issues,'' said Doug Kight, Boeing's chief labor negotiator.

Agreement has already been reached on about half the contract, he said. But what remains are the tough economic issues such as compensation, pensions and medical.

"We will get down to the numbers pretty quick,'' Kight said in an interview.

The union's members have not had a general wage hike, other than a cost-of-living increase, since 2004. "We appreciate that,'' Kight said. "We will have good conversations with the union about that this next week.''

One of the big battles to be fought in the coming days will be over Boeing's proposal to have an "enhanced" 401(k) plan that would replace a defined benefit plan for new hires.

The union rejected such a pension change during the 2005 contract talks and will do so again, Wroblewski said. Kight said that other unions have agreed to similar contract changes and that Boeing's plan would be of greater value to the new workers.

"This is a key issue for us,'' Kight said. "Those reasons are not going to change.''

For Boeing, it must weigh the consequences of a strike against holding the line on mounting pension and health insurance costs.

Boeing and the IAM exchanged their preliminary proposals about 45 days earlier than in the past. This was to give the negotiating process more time.
Given the early start, Wroblewski said he was "disappointed" that more progress has not been made heading into the final round of talks at the Doubletree Inn.

"The company has had record profits and a huge backlog,'' he said. "It's our time to make improvements.''

He's sounding the union's negotiating theme for 2008: "It's our time this time.''

Asked about Wroblewski's remarks that he thought there would be more progress by this point, Kight had this to say: "It takes two to tango.''

That tango officially began Thursday at the Doubletree Inn, where the union has called for a huge rally of its members starting at 12:30 p.m. Sunday. It's billed as a "final countdown" to what will either be the union's second strike in three years… or a new labor accord that both sides agree will be tough to reach in the time that remains.

Emirates 777-300ER. Boeing photo.

It's a long way from Dubai, but if you see an Emirates 777-300ER flying low and slow over the TPC Snoqualmie Ridge golf course just east of Seattle Friday around noon, it's not because Emirates has added Seattle to its destinations. The jet is there to officially start play of the Boeing-sponsored Champions Tour event. The 777-300ER will be delivered to the airline after Friday's flight.

Emirates has ordered 40 of the 777-300ERs. Nine have been delivered, not including the one that heads to Dubai after its golf course fly-over.

I wrote this feature on the retiring Boeing test pilot, Jim Metcalfe, who will be flying the 777-300ER Friday.

Jim Metcalfe in cockpit of 777-300ER. Boeing photo.

Although the Pentagon was expected to issue its final tanker request for proposals this week, a spokesman now says it is more likely to be next week.

"We are still talking to the companies about the draft," Pentagon spokesman Bryan Whitman told reporters Wednesday. He said the "current projection" is for the final bid request to be issued next week, according to a report from Bloomberg News.

The Boeing Co. is vying with a team of Northrop Grumman Corp. and EADS to build 179 aerial refueling tankers for the Air Force. Northrop initially won the contract, but Boeing protested, and the GAO found errors in the competition.

Boeing and Northrop met separately Wednesday with Pentagon officials to talk about the drfat RFP. It was the third such meeting.

Boeing said it will wait to see the final RFP before deciding on a course of action. Options include another protest, which the GAO would consider. This would delay the tanker competition into a new administration. Or Boeing could drop out and not bid. If it stays and competes, Boeing must decide whether to stick with its smaller 767-200 tanker or offer the bigger 767-400 or even the huge 777.

It is getting close to crunch time for Boeing and its powerful Machinists union. The two sides will retire to an airport hotel next Thursday to try to work out a new contract and avert a posisble strike that would halt Boeing's jetliner production and further delay the 787.

This is a story I wrote that will be posted online shortly.

BY James Wallace
P-I aerospace reporter

A week before The Boeing Co. and leaders of its Machinists union hunker down in a SeaTac hotel to try to hammer out the tough economic details of a new three-year labor contract, both sides held contrasting events in the Everett jetliner plant Wednesday.

A strike, which union leaders have said is likely if the company's position on certain economic issues does not change, would shut down jetliner production at the Everett plant, as well as in Renton, where Boeing's 737 is assembled.

In the morning, an estimated 2,000 or more machinists paraded through the Everett factory starting at the 787 production line. They made their way past the 777 and 747 assembly lines before exiting the factory near the 767 line. They held signs and made noise as they marched – and made sure the company gets the union's message that "It's our time this time.''

A few hours later, in a speech from the same plant to some 6,500 Boeing managers who gathered at a dozen company locations in Washington and in Oregon, Scott Carson, chief executive of Boeing's jetliner business, said the company will put a good and fair offer on the table, according to a Boeing spokesman. Media were not allowed to listen to Carson's brief speech.

Carson, along with Doug Kight, Boeing's top labor negotiator, also told managers the company will present its best and final offer to the union by the Friday before the long Labor Day weekend to give employees extra time to study the proposal over the holiday weekend, said Tim Healy, Boeing's labor spokesman.

Carson spoke for about five minutes and then he and Kight took questions for about 20 minutes, Healy said.

Managers were told to talk to their employees about the key issues, and to advise their employees that when it is time to vote on the company's final offer, to make sure they vote in their own best interest, Healy said.

In response to one question, Carson and Kight made it clear that Boeing will not improve on its best and final offer if there is a strike, according to Healy

The Machinists union will vote on the final offer on Sept. 3. Depending on that vote, a strike would begin just after midnight Sept. 4.

Union leaders have said over the last several weeks that talks with Boeing have not gone well and have warned of a possible strike.

One Boeing machinist who took part in the march through the Everett factory said the union's burn barrels will be taken out of storage in the next day or two. Those barrels are used on picket lines to keep workers warm if there is a strike.

A strike would not only cripple Boeing's jetliner production in the Puget Sound area, but would further delay the 787 Dreamliner, which is already some 14 months or more behind schedule. The plane's first flight is expected in the fourth quarter. A strike would also stop work on other 787s in production at the Everett plant that will be needed as part of the 787 test flight program.

Boeing has said it hopes to hammer out an agreement on all of the noneconomic issues by Aug. 21, when both sides will pack their bags and take rooms at the SeaTac Doubletree Inn for the final round of talks on the remaining economic issues. They will not leave the hotel until Boeing makes its best and final offer.

Boeing and the Machinists union kicked off negotiations May 9 on the new labor accord, with the union saying it wants its 27,000 members to have a bigger share of the company's profits, which have soared along with Boeing's jetliner backlog.

The Machinists union has struck Boeing six times since 1948, the most recent a monthlong walkout before the current contract was reached in 2005.

In 2002, union members rejected Boeing's final offer but could not muster the 66 percent approval needed for a strike.

Last month, thousands of Boeing machinists who assemble the company's jetliners met at KeyArena in Seattle and voted by about 99 percent to authorize their union to strike if a new labor contract can't be reached. Union leaders are demanding a much bigger share of the company's success of the past three years.

As is always the case, wages, medical benefits and pensions are key issues. The union is seeking a general wage increase for every year of the contract. One of the biggest battles is over Boeing's proposal to have an "enhanced" 401(k) plan that would replace a defined benefit plan for new hires.

The union's motto during contract talks is: "It's our time this time.''

"It's payback time,'' one union leader, Mark Blondin, recently told the P-I. He is the union's lead negotiator.

Blondin said the union will hold firm on pensions and medical benefits and a good wage increase for each year of the contract.

"We have the leverage now that the company had in 2002 and in 2005," he said in last month's interview. "And we are going to use it. They are going to have to pay up to get an agreement from this membership. A lot of our members have it in their gut that it's payback time."

Boeing must also negotiate a new labor contract with the Society of Professional Engineering Employees in Aerospace (SPEEA), the union that represents Boeing engineers and technical workers. The current SPEEA contract ends in early December.

It is getting close to crunch time for Boeing and its powerful Machinists union. The two sides will retire to an airport hotel next Thursday to try and work out a new contract and avert a posisble strike that would halt Boeing's jetliner production and further delay the 787.

This is a story I wrote that will be posted on line shortly.

BY James Wallace
P-I aerospace reporter

A week before the Boeing Co. and leaders of its Machinists union hunker down in a SeaTac hotel to try and hammer out the tough economic details of a new three-year labor contract, both sides held contrasting events in the Everett jetliner plant Wednesday.

A strike, which union leaders have said is likely if the company's position on certain economic issues does not change, would shut down jetliner production at the Everett plant, as well as in Renton where Boeing's 737 is assembled.

In the morning, an estimated 2,000 or more machinists paraded through the Everett factory starting at the 787 production line. They made their way past the 777 and 747 assembly lines before exiting the factory near the 767 line. They held signs and made noise as they marched – and made sure the company gets the union's message that "It's our time this time.''

A few hours later, in a speech from the same plant to some 6,500 Boeing managers who gathered at a dozen company locations in Washington and in Oregon, Scott Carson, chief executive of Boeing's jetliner business, said the company will put a good and fair offer on the table, according to a Boeing spokesman. Media were not allowed to listen to Carson's brief speech.

Carson, along with Doug Kight, Boeing's top labor negotiator, also told managers the company will present its best and final offer to the union by the Friday before the long Labor Day weekend to give employees extra time to study the proposal over the holiday weekend, said Tim Healy, Boeing's labor spokesman.

Carson spoke for about five minutes and then he and Kight took questions for about 20 minutes, Healy said.

Managers were told to talk to their employees about the key issues, and to advise their employees that when it is time to vote on the company's final offer, to make sure they vote in their own best interest, Healy said.

In response to one question, Carson and Kight made it clear that Boeing will not improve on its best and final offer if there is a strike, according to Healy

The Machinists union will vote on the final offer on Sept. 3. Depending on that vote, a strike would begin just after midnight Sept. 4.

Union leaders have said over the last several weeks that talks with Boeing have not gone well and have warned of a possible strike.

One Boeing machinist who took part in the march through the Everett factory said the union's burn barrels will be taken out of storage in the next day or two. Those barrels are used on picket lines to keep workers warm if there is a strike.

A strike would not only cripple Boeing's jetliner production in the Puget Sound area, but would further delay the 787 Dreamliner, which is already some 14 months or more behind schedule. The plane's first flight is expected in the fourth quarter. A strike would also stop work on other 787s in production at the Everett plant that will be needed as part of the 787 test flight program.

Boeing has said it hopes to hammer out an agreement on all of the noneconomic issues by Aug. 21, when both sides will pack their bags and take rooms at the SeaTac Doubletree Inn for the final round of talks on the remaining economic issues. They will not leave the hotel until Boeing makes its best and final offer.

Boeing and the Machinists union kicked off negotiations May 9 on the new labor accord, with the union saying it wants its 27,000 members to have a bigger share of the company's profits, which have soared along with Boeing's jetliner backlog.

The Machinists union has struck Boeing six times since 1948, the most recent a month-long walkout before the current contract was reached in 2005.

In 2002, union members rejected Boeing's final offer but could not muster the 66 percent approval needed for a strike.

Last month, thousands of Boeing machinists who assemble the company's jetliners met at the Key Arena in Seattle and voted by about 99 percent to authorize their union to strike if a new labor contract can't be reached. Union leaders are demanding a much bigger share the company's success of the past three years.

As is always the case, wages, medical benefits and pensions are key issues. The union is seeking a general wage increase for every year of the contract. One of the biggest battles is over Boeing's proposal to have an "enhanced" 401(k) plan that would replace a defined benefit plan for new hires.

The union's motto during contract talks is: "It's our time this time.''

"It's payback time,'' one union leader, Mark Blondin, recently told the P-I. He is the union's lead negotiator.

Blondin said the union will hold firm on pensions and medical benefits and a good wage increase for each year of the contract.

"We have the leverage now that the company had in 2002 and in 2005," he said in last month's interview. "And we are going to use it. They are going to have to pay up to get an agreement from this membership. A lot of our members have it in their gut that it's payback time."

Boeing must also negotiate a new labor contract with the Society of Professional Engineering Employees in Aerospace (SPEEA), the union that represents Boeing engineers and technical workers. The current SPEEA contract ends in early December.

Boeing told me Tuesday that it could offer a bigger tanker to the Air Force than its 767-200, given that the Pentagon is saying it will give extra credit to the tanker that can offload more fuel.

In that case, Boeing's options would appear to be either the 767-400 or 777-200LR -- assuming it does not rebid the 767-200. Or, as I wrote Monday, Boeing may decide not to bid at all. Or it may first protest the final RFP that is expected to be issued soon by the Pentagon.

Here is my story, which will be posted shortly.

By James Wallace
P-I aerospace reporter

After meeting for the first time Tuesday with Defense Department officials to go over a draft proposal that spells out the new requirements the Pentagon wants in an Air Force tanker, The Boeing Co. suggested it could decide to offer the military a bigger plane than its 767-200.

Boeing also said it wants "continuing dialogue" with the Defense Department as it seeks more information about how the tanker requirements have been changed.

Boeing is concerned because the Pentagon said last week it will give extra credit to the tanker than can offload more fuel, a development that would favor the bigger Airbus plane offered by Northrop Grumman for the $35 billion contract to supply the Air Force with 179 tankers.

After an initial meeting with Defense Department officials at Wright-Patterson Air Force Base in Dayton, Ohio, Boeing said it is "exploring configuration options."

The company did not elaborate, but the implication is that it is at least studying the possibility of offering the Air Force a plane bigger than its 767-200 tanker. Its only options would appear to be either a tanker based on the 777, or one based on the 767-400, which is a much bigger version of the 767-200. The 767-400 is about the same size as the Airbus A330-200 offered by Northrop, and which has already won the tanker competition once – until Boeing protested earlier this year and its protest was upheld by the Government Accountability Office. The Pentagon subsequently agreed to a partial do-over of the controversial tanker competition.

"It is clear that the USAF is placing value on more offload, so we will be exploring configuration options for this new RFP amendment,'' Dan Beck, chief spokesman for Boeing's military programs, told the Seattle P-I.

Beck's comments came after the P-I requested any information from Boeing about a tanker based on its 767-400. In 2006, Boeing provided a detailed media briefing about a 777 tanker, but the company has never publicly detailed a possible 767-400 tanker.

Boeing decided to offer the 767-200 to the Air Force because Boeing believed that plane best met the service's requirements, and that the Air Force did not want a bigger plane.
Instead, the Air Force picked the much bigger A330-200 offered by Northrop and its partner, EADS, the parent of Airbus. The Air Force said bigger was better. Boeing complained in its protest that it was misled by the Air Force. The GAO agreed. In upholding Boeing's protest, the GAO found that the request for proposals issued by the Air Force made it clear that extra credit would not be given for additional fuel offload capability.

As it prepares the RFP to comply with the GAO findings, the Pentagon has made it clear that this time extra credit will indeed be given for exceeding the minimum requirements for fuel offload capability.

Boeing had once considered offering the Air Force a tanker based on its popular 777, but decided the smaller 767-200 was better suited as a replacement for the aging KC-135s operated by the Air Force.

In briefing papers prepared in 2006, Boeing touted the "strategic capability" of a 777 tanker vs. the "operational flexibility" of the 767-200 tanker.

In addition to carrying much more fuel than the KC-767, a 777 tanker could carry up to 37 cargo pallets, compared with 19 for the 767. The 777 tanker also could be converted into a transport for up to 320 passengers. The 767-200 tanker can carry up to 200 passengers.

The 777 tanker would be based on Boeing's long-range 777-200LR, which entered airline service in 2006. It is the world's longest-range passenger plane. Boeing used the 777-200LR design as the basis for its 777 freighter, which is now in flight testing.

The 777 tanker would be 209 feet long with a wingspan of 212 feet, 7 inches. That's the same size as the 777-200LR commercial jet. It would be able to carry far more fuel, cargo and passengers than the Airbus A330-200 tanker.

The A330-200 tanker is 192 feet long with a wingspan of nearly 198 feet. The 767-200 tanker is 159 feet long with a wingspan of 156 feet. The 767-400 is 201 feet, 4 inches long with a wingspan of 170 feet, 4 inches.

The fuel offload capability of the 777, according to Boeing, would be more than 220,000 pounds after flying 500 nautical miles. That's nearly 100,000 pounds more fuel than the 767-200 can offload at that range. The 777 tanker would be able to deliver 200 percent more fuel after flying 1,000 nautical miles than the current KC-135s, according to Boeing.

But there are serious issues for Boeing should it offer the 777 as a tanker. Its 777 production line in Everett is flush with commercial orders. Where could it find production slots to build 179 tankers for the Air Force? On the other hand, the 767 commercial program is winding down because that plane is being replaced by the 787.

Also, Boeing faces a time problem in developing either the 777 or the 767-400 as tankers. But it has already developed the 767-200 as a tanker for Italy and Japan, even though those planes are late. Northrop has repeatedly made the case in ads touting its plane over Boeing's 767-200 that the A330-200 tanker is already flying – and that the advanced 767-200 tanker for the Air Force is still a "paper" plane. The version of the 767-200 for the Air Force would be different than the eight tankers built for Italy and Japan.

Boeing said in 2006 that it would take about three years to modify the 777 into a tanker.

After its meeting Tuesday with the Defense Department, Boeing issued a brief statement that it wanted additional talks.

"The Boeing tanker team met with DoD officials to discuss our comments on the draft RFP and gain further clarity in how the requirements and evaluation criteria have changed since the initial competition. We hope that it was just the beginning of a continuing dialogue as we move toward a final RFP that prescribes the right aircraft and gives appropriate weight to all of the capabilities that will be required for the evolving mission over the next several decades.''

It was not immediately clear if there will be additional talks.

"We feel the lines of communication remain open,'' said Beck, Boeing's tanker spokesman.

The Defense Department also met separately with Northrop, which described the meeting as "productive" and indicated it expects the final RFP to be issued soon. The Pentagon has said it wants to issue the final tanker proposal by the middle of August, which would be Friday.

"Today's meeting was a productive review of the draft amendment and the process that will be undertaken going forward,'' Paul Meyer, Northrop's tanker vice president, said in a statement.

"We had a frank and open dialogue and are confident that the final amendment will clearly outline the requirements that are expected to be met and the evaluation criteria that will be used to select the most capable tanker for the warfighter at the best value for the American taxpayer.''

He went on to say that the Defense Department met the concerns raised by the GAO, and "addresses those concerns by clarifying, but not altering the tanker requirements and specifications.''

Boeing is still weighing its options on how to proceed when the Pentagon issues its final proposal on the Air Force tankers. Sources told me Monday that Boeing could decide not to make a bid and drop out of the competition, but the sources disagreed with a report by Aviation Week that the company is leaning toward this option. It is just under consideration, they said.

You can read my report here.

Boeing and Airbus are facing a serious shortage of such jetliner parts as toilet seats and galleys, according to a report Friday in the Wall Street Journal. Suppliers have not been able to keep up with the production needs of both airplane makers.

The lack of more-mundane components is disrupting production lines at both aviation giants, increasing their manufacturing costs. It is also slowing millions of dollars in payments from aircraft customers, which normally fork over a significant part of a jetliner's price on delivery, following installment payments during production.

The problem stems from small suppliers that have overcommitted to build equipment and didn't gear up production fast enough to deliver it. The suppliers' struggle to deliver certain items -- like cooking galleys customized with rice cookers and espresso makers -- is taking a toll.

Airbus hasn't had any cancellations because of the delays, but it has come close, said Tom Williams, Airbus executive vice president for programs. "It's also cost a ton of money," he said, adding, "We've done some horrendous somersaults" to get planes delivered.

You can read the Journal story here.

Boeing has lost its first 787 order since it announced the series of program delays.
Azerbaijan Airlines said it will take only two of the three 787s it ordered. But it will get two 767-300ERs.

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

By James Wallace
P-I aerospace reporter

The Boeing Co. has lost its first 787 order since the company announced a series of costly and embarrassing delays last October.

Azerbaijan Airlines, which ordered three 787s in early 2007, will take only two, Boeing and the airline announced Thursday. As part of a compensation package that Boeing negotiated with the airline to make up for the 787 delays, the airline has ordered two 767-300ERs. One of those will substitute for the canceled 787. The airline also ordered two 737-900ERs.

Jahangir Askerov, president of Azerbaijan Airlines, said in a statement that the 767-300ER "is the economical and logical choice to fulfill our interim capacity needs.''

Although the 787 program is only about 14 months behind schedule, some of the nearly 60 customers that have ordered more than 900 of the fuel-efficient jets will experience delivery delays of as much as 30 or more months.

Boeing has not said how much it will pay those customers for missing delivery dates, but industry analysts have estimated the figure will run at least several billion dollars. As part of contractual penalty payments, Boeing is talking with 787 customers about taking other Boeing planes, such as the 767-300ER. It is close in size to the 787 and can help an airline meet capacity needs until the 787s arrive.

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

Even if Boeing does not win an ongoing competition to supply a 767-based tanker to the Air Force, Boeing will boost the 767 production rate to two planes a month next year, according to people familiar with the company's plans. Although Boeing has a 767 backlog of only 45 planes, that could grow as Boeing makes deals with airlines to make up for delays on the 787.

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

All Nippon Airways, the first 787 customer, has 50 Dreamliners on order, including the short-haul 787-3. Not only are ANA's 787-8s delayed, but Boeing recently decided to postpone development of the 787-3 until it has finished a larger derivative, the 787-9, in 2012. The 787-3 would then follow, unless Boeing decides not to go forward with its development.

All Nippon Airways and Japan Airlines are the only customers for the 787-3, but they are counting on the plane to expand domestic routes. Boeing is now talking with both about the 767.

Boeing has several other ongoing campaigns to sell or lease more 767s.

Although Boeing has not lost a 787 customer – and only the one firm order – because of the program delays, industry analysts are worried that Boeing, as well as Airbus, could lose a significant chunk of their overall order backlog as airlines cut back on capacity to save money on record-high fuel prices and cancel or defer orders.

So far, Boeing has had only a few order deferrals, and all from U.S. airlines, which account for only 10 percent of that backlog. But Boeing Chairman and Chief Executive Jim McNerney said last month that some customers might cancel their orders. But he said other customers would quickly take any delivery slots that open in order to get more efficient jets sooner.

Boeing this year has won 553 gross orders for its jets. Among those are orders for two 767s and 78 Dreamliners. Airbus, which lost the order battle to Boeing last year, won orders for 711 jets through July.

The Pentagon Wednesday issued its revised draft RFP to Boeing and Northrop Grumman for 179 Air Force tankers, and Reuters reports the RFP ranks aerial refueling as more important than survivability, airlift and operational utility.

On first read, the revised draft RFP would favor the bigger Airbus A330 over Boeing's 767, at least for fuel off-load capability -- which is now a key requirement.

A Pentagon news conference is scheduled to start soon.

Here is part of that Reuters report, based on information from Congressional aides.

In a briefing for lawmakers, Pentagon officials said the revamped competition would also give more credit for an aircraft's ability to offload fuel beyond the required amount, a decision that could favor the larger A330-based plane offered by the Northrop team, said two congressional aides.

"There is additional value to the government for the additional fuel offload amount above threshold," the revised document now reads.

Boeing had argued in its protest that the Air Force wrongly gave Northrop credit for exceeding the threshold requirement, even after assuring Boeing officials that no extra credit would be given. Now the military is stating its wishes more clearly.

The change "appears to justify a bigger aircraft with greater fuel offload capability," said an aide to Rep. Norman Dicks, a Washington state Democrat who has strongly backed Boeing.

Northrop's A330-based plane can hold about 250,000 pounds of fuel, compared to 205,000 pounds for a Boeing 767.

At the same time, the revised request for proposals will measure life cycle costs over 40 years not 25, which could help Boeing with its smaller 767 airplane, said a second congressional aide briefed on the proposed changes.

On a scale of 1 to 3, aerial refueling was rated most important, while operational utility, survivability and airlift capability were overall rated a 2. Operational utility includes factors such as the ability to land on a 7,000-foot runway, which was rated a 3, said one of the aides.

Under aerial refueling, the Pentagon said the aircraft's ability to deliver fuel through various means, including a boom, probe and drogue, were given a priority of 1, while the size of the boom envelope was rated 2, and efficiency was 3.

Company officials said they were poring over the documents, but had no immediate comment on their content. Pentagon officials are due to meet with officials from Boeing and Northrop next Tuesday. The companies have until Sunday to respond to the draft, according to congressional aides.

Update1: Boeing has issued this statement:

Boeing has received the amended Request for Proposals (RFP) for the KC-X tanker competition. Given the very narrow window for commenting on this draft, our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria. We also need to see how the document addresses the strong concerns the Government Accountability Office identified in sustaining our protest.
Despite the fact that the first competition appropriately addressed the aircraft's intended mission, until we receive the final RFP it is too early to offer any details about Boeing's path forward.
Boeing remains committed to providing the most capable tanker to the warfighter and the best value for the American taxpayer.

This is what Northrop had to say:

"Northrop Grumman applauds the Defense Department for recognizing the urgency of replacing the Eisenhower-era refueling tankers via a thorough yet speedy revised acquisition process. We are reviewing the draft RFP with an eye toward ensuring that it addresses the issues raised by the GAO in a way that facilitates a fair and non-political evaluation of the competing bids. It is vital that this effort leads to the selection of the aerial refueling tanker that provides the most capability to our men and women in uniform at the best value to the American taxpayer.

"We intend to provide the Department of Defense our comments on the draft in short order."

U.S. Sen. Patty Murray, D-Wash., a strong Boeing supporter, said the revised RFP raises serious concerns.

"After going round after round on one of our military's most important and critically needed procurements, this draft RFP changes the rules of the game in overtime.

"While it will take time to analyze this document, there are several issues that already raise red flags.

"For example, the draft RFP and Pentagon officials have said that the Pentagon is going to give extra credit to fuel offload but has not specified how much.

"They have also split the evaluation of full life cycle costs with the cost of the aircraft which is a disingenuous way of addressing very serious GAO finding.

"I am also concerned that the timeline put on new submissions is simply unrealistic.

"We need to ensure that our men and women in uniform have the equipment that best suits the stated mission at the best price for the taxpayer. I expect the Pentagon to explain in detail how it is correcting each of the GAO findings and how this draft RFP ensures a fair and transparent competition."

Meanwhile, U.S. Rep. Jo Bonner, the Republican from Alabama, where the Airbus tanker would be assembled, had this take:

"By releasing the draft RFP a few days ahead of schedule, Secretary Gates has once again underscored the importance of this procurement and the importance of building tankers. I am hopeful that this draft RFP, while addressing the concerns of the GAO, will maintain a level playing field for both competitors, and I look forward to seeing the Northrop Grumman tanker reaffirmed as the more modern, more capable aircraft."

Update2:

My story, below, will be on line soon.

The Boeing Co.'s prospects of winning a second competition to supply the Air Force with 179 air-refueling tankers built at its Everett plant may have been dashed Wednesday when the Pentagon announced its revised requirements.

A key change – giving extra credit for fuel offload capability – favors the bigger Airbus plane that will be offered by Northrop Grumman.

"This looks like what card players would call a stacked deck,'' said Loren Thompson, a noted defense expert with the Lexington Institute, a think tank in Arlington, Va.

The Pentagon said it wants final bids in 45 days and expects to pick a winner by New Year's Eve. That does not give Boeing nearly enough time to revise its previous proposal for a tanker based on the 767-200 and instead offer a bigger plane such as the 777, Thompson said.

Whatever Boeing does next, the company is keeping its strategy close to the vest.

In a statement, Boeing said it would not discuss its "path forward" until the Pentagon has issued a final request for proposals on the tankers.

Thompson said the changes in requirements made by the Pentagon, as well as the tight timetable, are an "open invitation" to another appeal by Boeing.

Either Northrop or Boeing can appeal the final proposal from the Pentagon if they believe it is biased. Whoever loses the competition can appeal that decision, too.

An appeal of the final request for proposals would effectively delay the tanker competition until after a new administration takes over in late January.

Boeing backers in Congress were quick to jump on the revised draft from the Pentagon.

"After going round after round on one of our military's most important and critically needed procurements, this draft RFP changes the rules of the game in overtime,'' U.S. Sen. Patty Murray, D-Wash., said in a statement.

"While it will take time to analyze this document, there are several issues that already raise red flags,'' she said. "For example, the draft RFP and Pentagon officials have said that the Pentagon is going to give extra credit to fuel offload but has not specified how much.''

She also said the fast track set by the Pentagon is "unrealistic.''

U.S. Rep. Norm Dick, D-Wash., said the changes in the revised proposal favor a bigger plane.

He questioned why the Pentagon would give extra credit to fuel off load, given that the existing Air Force KC-135 tankers typically offload only about a third of their total fuel.

He also said it is "unimaginable that the government would launch a $40 billion procurement with final proposals due in 45 days.''

Another member of Washington state's congressional delegation, Sen. Maria Cantwell, said she will block Senate action on President Bush's nomination of Michael Donley to be Air Force secretary until she is satisfied the Air Force and Pentagon will conduct a fair tanker competition. Under Senate rules, any senator can block a nomination.

The contract for 179 tankers is the first of three deals potentially worth up to $100 billion to replace the Air Force's entire tanker fleet over the next 30 years.

Earlier this year, Boeing lost the heated and closely watched tanker competition to Northrop and its partner, EADS, the Europe-based parent of Airbus. Boeing was heavily favored, but the Air Force said the Northrop and EADS tanker, based on the Airbus A330-200, better fit its needs than Boeing's smaller 767-based tanker.

Boeing appealed, arguing the Air Force made serious mistakes.

The Government Accountability Office, the nonpartisan investigative arm of Congress, subsequently sustained Boeing's appeal, saying that Boeing would have had a "substantial chance" of winning if the service had not made significant errors in reaching its decision.

Defense Secretary Robert Gates subsequently announced that a limited competition would be held to reconsider eight areas where the GAO found serious flaws. Gates also stripped the Air Force of having the final say on the new contract. Replacing the service in the tanker decision-making process will be a Pentagon review team led by John Young, the undersecretary for acquisitions.

Boeing has long argued that the Airbus A330 offered by Northrop was too big and did not meet the original requirements spelled out by the Air Force.

In its draft proposal issued Wednesday, the Pentagon left little doubt about what it wants.

"We now have highlighted and made very clear to (Boeing and Northrop) what the relative importance of each mission capability area is and…. the relative importance of our requirements, ''Shay Assad, director of defense procurement and acquisitions policy, said at a Pentagon briefing for the media.

He said Young's team that will pick the winning tanker will give extra credit for the plane that can carry more fuel.

The revised draft proposal says "There is additional value to the government for additional fuel offload amount above the threshold.''

That threshold was as least as much fuel as the existing KC-135 tanker can carry, Both the 767 and A330 easily met that requirement. But the Airbus A330 can carry about 250,000 pounds of fuel. The 767 can carry just over 200,000 pounds.
Assad said the extra fuel offload capability does not represent a change in the tanker requirements.

'It was always our intention to give positive consideration" for exceeding the requirements, he said.

Not so, according to Thompson, the defense analyst.

"The Air Force never indicated that would be its intention,'' he said.

The revised draft proposal does make one important change. Boeing and Northrop must make cost estimates based on their tankers having a 40-year life span rather than 25 years. The longer time would appear to help Boeing because the 767 burns much less fuel than the bigger and heavier A330. The so-called 'lifecycle costs" for the 767 would be considerably less than the A330 over 40 years.

But any advantage this change might give Boeing's 767 could be mitigated because the Pentagon will separate lifecycle and acquisition costs, and it will give more consideration to the near-term acquisition costs.

Murray, the U.S. senator from Washington state, complained that "splitting the evaluation of full life cycle costs with the cost of the aircraft is a disingenuous way of addressing a very serious GAO finding.''

Boeing issued a brief statement on the draft proposal.

"Given the very narrow window for commenting on this draft, our team is focused on identifying and understanding any changes that may have been made to the original requirements and evaluation criteria. We also need to see how the document addresses the strong concerns the Government Accountability Office identified in sustaining our protest. Despite the fact that the first competition appropriately addressed the aircraft's intended mission, until we receive the final RFP it is too early to offer any details about Boeing's path forward.''

The Northrop statement was more upbeat.

"Northrop Grumman applauds the Defense Department for recognizing the urgency of replacing the Eisenhower-era refueling tankers via a thorough yet speedy revised acquisition process. We are reviewing the draft RFP with an eye toward ensuring that it addresses the issues raised by the GAO in a way that facilitates a fair and non-political evaluation of the competing bids. It is vital that this effort leads to the selection of the aerial refueling tanker that provides the most capability to our men and women in uniform at the best value to the American taxpayer. We intend to provide the Department of Defense our comments on the draft in short order."