For us at Commercial Airplanes, the CMO is a road map that tells us how people are going to travel over the next couple of decades, and what our customers needs are going to be. The CMO helps shape our decisions on what products to bring to market, and when.

What we’re seeing in the marketplace, and focusing in on with our strategy as we go forward into the future, is providing the best possible options to travelers. That includes the option to travel direct - which incidentally turns out to be the most economic and environmentally-progressive option.

So, what do travelers really want?

Well, you want to travel to where you want, when you want to:

• With a choice of convenient departure and arrival points
• At the lowest possible cost
• While being environmentally responsible
• And with reliable service
• Wherever you are in the world
• While enjoying a reduction in government-imposed restrictions, allowing you to fly direct, nonstop, or with as few stops or connections as possible on the way
• All the while experiencing a comfortable environment on board an airplane with the best amenities

Our Current Market Outlook is based upon these universal desires of air travelers and the way that airlines have and will meet those desires. When the 2008 CMO comes out next week, we’ll also be talking about passenger growth, and the more and more routes becoming available to greater numbers of the world’s population. And how the shift is not to very large airplanes, contrary to the views of our competitor.

But how about my points above regarding what the traveler of the future is going to want? Have I missed anything?

This is an interactive Website with a series of screens where you can click on each zone of the airplane for details on the Power On testing process, as well as links and videos to show you the progress we’ve made on Dreamliner #1. We think the site will help you understand how Power On relates to the overall program.

I’ve mentioned before, that Power On is a process, with a series of methodical steps. And as you’ll learn when you navigate the Website, behind the milestone we completed last week are “millions of individual design decisions made by thousands of experienced professionals, and countless hours of detailed installations made by gifted craftspeople based on the exacting instructions created by dedicated experts.”

Click on the image to go directly to the Power On Website.

This Website takes you through that process each step of the way, with video from real tests, and interviews with the real people who really did the work.

Did I mention that it’s all real? You’ll see actual scenes during testing. That’s the neat thing about this site - it allows you to get an inside look at this significant milestone in the 787 program. I hope you’ll also get a sense of what it means to the people who work here.

I think you’ll enjoy it.

As I mentioned here in the blog, Power On is a series of tasks and tests – not a single flipping of a switch. Well, we’ve now finished the full testing sequence to bring electrical power onto the airplane and get the electrical systems working.

There’s a lot of work left, but there’s no doubt this is an important achievement in keeping to our new schedule as we progress toward first flight.

Running Power On tests in the 787 flight deck are (from left) James Townsend, aviation manufacturing technician inspector; Allen Smith, test technician; Jon Stephenson, production test manufacturing engineer; and Riger Vazquez Jr., production test team leader.

The Power On test sequence lasted for just over a week and proved the functionality and installation of the airplane’s electric systems.

“Power on” actually began early this month with what we call pre-test continuity checks. These checks determine whether the airplane wiring is connected properly. Next, starting with flight deck displays, we slowly began to bring full power into the airplane systems. Once we had that power going, the team was able to use the pilot’s controls to direct the power to new systems, one area at a time.

At each step we verified that the power arrived, and that it was converted, controlled, and utilized as expected.

It’s a methodical process. But with approximately 60 miles of wiring throughout the airplane, thousands of line-replaceable units, and millions of lines of computer code, it’s important that we do it this way - so that any issues can be isolated, examined and resolved quickly.

This also helps us make sure that the airplane’s electrical power system is installed properly, and that it functions the way we designed it to. By that I mean we were able to determine that the systems do indeed function in a real airplane environment – just as they did in our laboratory tests.

Boeing test technician David Haskell plugs an external power cart into the first 787 Dreamliner as part of the Power On testing sequence.

We made the strategic decision early on to introduce new “systems architecture” to the Dreamliner – providing a more efficient electrical power system. So this is really the culmination and validation of five and a half years of designing and testing the innovative Dreamliner electrical systems.

Now the work continues – with a goal of first flight later this year.

And as I mentioned last week, check back here on Monday for some links to an interactive Website focused on Power On testing for the 787.

In response to the ruling, Boeing has released a statement from Mark McGraw, our vice president, Tanker Programs:

“Power On” is a milestone accomplished on all new airplanes. But this one is especially important because the 787 is a more-electric airplane, replacing the pneumatic, or bleed air, system with electronics.

Airplane 1, in the factory last month, getting ready to begin “Power On.”

There is a complex series of tasks and tests needed to bring power to Airplane #1 - as we begin to exercise the use of the electrical systems. Keep in mind this is a process and not a one-day event.

At each step of the process, power is allowed to flow into an additional area - and gauges are used to verify that the right level of electrical power reached the intended area.

When it’s completed, the Power On sequence will mark a major milestone on the path to first flight later this year. It’s really significant because it ensures the integrity of the airplane’s systems by verifying both that the electrical power distribution system is installed as designed, and that it functions as intended.

We’re confident that we’ll reach this point by the end of the month. And that will allow the airplane to move into ground-testing, a very familiar area for Boeing and one that we can clearly outline in terms of tasks and schedule.

When Power On is complete, we’ll have some interesting content to share with you, including insight into the actual tests, and interviews and commentary from experts and executives on the program.

Dreamlifter 3 – taking off from Taiwan Taoyuan International Airport last week. The Certificate of Airworthiness was hung on the airplane after the 2 hour, 47 minute flight.

The Dreamlifter is a specially modified 747-400 jet that transports major assemblies of the 787 Dreamliner. The first two have been in use since 2007. This Dreamlifter will enter service by early July. Modifications began on the fourth airplane in February and will conclude next year.

A second test flight took place just this week, and next, another will be performed with an Evergreen International Airlines (EIA) pilot on board for their verification flight. Evergreen is the operator of the Dreamlifter fleet.

After that, we complete the post-flight intermediate inspections and then take “re-delivery” of the airplane from Evergreen Aviation Technologies Corporation (EGAT) – which, despite the similar name is not connected to Evergreen International Airlines, by the way!. EGAT is a joint venture of EVA Air and General Electric, and is the company which has done a marvelous job transforming the 747s from passenger airplanes to one of the most unique cargo airplanes in the world.

The handover in the next few weeks would complete EGAT’s responsibilities for Dreamlifter 3. And shortly after that EIA can begin officially operating the airplane.

We plan to have a total of 4 Dreamlifters in the fleet. And now that we’re about to enter number 3 into service, we’ll not only have a backup when one of the airplanes is receiving scheduled maintenance, but we’ll also have more flexibility to deliver 787 assemblies to Everett from our partners around the world.

But my other duty did see me serving as a chaperone for my youngest son’s 5th grade class on their outdoor “learning experience” at Camp Colman just outside of Seattle. Spending 3 days and 2 nights with 75 ten and eleven year olds - believe me, there’s nothing quite as rewarding, exciting, and challenging!

Except maybe when you consider the challenges our industry is facing right now. You’ve seen the news these past couple of weeks about U.S. carriers trying to cope with high fuel prices. It’s an extraordinary time and airlines are in a difficult position, especially those in the United States. They’re moving quickly to respond to these challenges.

With fuel prices at unprecedented levels, several U.S. carriers have elected to reduce capacity later this year. What we’re seeing is the removal of the oldest and least efficient airplanes from fleets - the MD-80 series aircraft as well as “Classic” 737 airplanes (737-300, -400, and -500).

You might ask, what does this mean for Boeing and for the industry as a whole? It means that airlines will continue to have strong demand for the world’s most capable and fuel-efficient commercial airplanes - such as the Next-Generation 737.

Coming off the assembly line: the Next-Generation 737 - the most modern, most fuel-efficient airplane in its class.

The “Next-Generation” is much more efficient than older “Classic” aircraft.

When you compare a 737-800 to an MD-83, for example, the 737-800 carries about 18 more passengers, has about 720 nautical miles more range, a 17% lower fuel burn per trip, a 27% lower fuel burn per seat, 19% overall lower cost per seat, and a 50% smaller noise footprint.

This is why there are 2,200 Boeing Next-Generation 737s on order right now. So, just how efficient is the Next-Generation 737? Some argue that it is as fuel efficient (or more) as a Toyota Prius. Check out this interesting piece.

My thought - if you were really to drive from New York to Los Angeles as they suggest in the story, it would take a couple of days by car nonstop instead of just a few hours by air. As the article points out, “if you have to be somewhere and you don’t want to waste a lot of gas” and if you don’t want to leave a big carbon footprint, a Next-Generation airplane is the way to go.

But getting back to the recent challenging times for airlines - we definitely share our customers’ concerns about fuel prices. We’ll continue to be focused on staying close to them, and as their partners, provide fuel-efficient technologies and solutions.

The 787 factory in Everett, in full swing as seen on Monday.

A peek inside the fifth 787 Dreamliner in production. This will be the third airplane to enter the flight test program but the first to be outfitted with a full passenger interior from the beginning.

I want to also share with you a few 787 items I’ve been saving up. I hope they’ll give you a sense of the progress we’re making on the Dreamliner program.

The first item is a short video (3:00) depicting the composite fuselage testing we did earlier this year on a 787 section 46. This is the test where we try to determine the point at which the load on a section will cause damage to the structure. I really like this video not only because it features a bunch of engineers in retro outfits, but also because it depicts the suspense and excitement around the testing as they take it to the limit.

Click on image to go to the section 46 testing video.

A second video (:30) shows last month’s 787 static test airplane move from Final Assembly to the structural testing rig at the Everett factory. Testing on this airframe will get underway this summer. The movement of the static test airplane made way in the Final Assembly area for Airplane #3 - ZA003.

Click on image to view the static airplane move video.

Finally, many of you may already have checked this out, but for those of you who haven’t, this is going to be a treat. Boeing recently worked closely with Fortune Magazine to develop an extensive photo gallery on the production of the 787 Dreamliner at our partner sites around the world.

Fortune’s reporter also put together a kind of video diary of his visit to various Dreamliner facilities. He told our team that during his visits he found the employees to have more pride and knowledge of the product than he’s ever witnessed in his career.

But a year - even a quick one - can bring about a lot of changes. Last May we were beginning final assembly on the 787 Dreamliner. Today we’re looking forward to power on and first flight after some disappointing program delays. Across the industry last year, we saw record airplane orders. And this year while orders remain strong, we’re facing some economic uncertainty and high fuel prices. A lot can change in a year.

Where did the time go? Since last spring, we’ve blogged from London, Paris, Beijing, Sydney, Auckland, Seoul, Dubai, Stockholm, Singapore, Santiago, and Hong Kong - not to mention Seattle. So I guess I can figure out where all the time went.

One of the biggest changes or revelations for me since I stepped into this job is how the blog has enabled me to interact with people - online, and out in the world in all those cities I get to visit. Also just how many people read the blog and recognize me from it.

How do you celebrate a million visitors? With a blog cake, of course.

So it’s no surprise that we’ve also been able to enjoy a pretty special milestone recently – surpassing one million visitors to this journal.

There’s something special about the word, “million” - a certain currency to being a millionaire, or to tell someone they are “one in a million.”

You and all the other visitors to this blog are among the more than one million individuals who have checked us out since we at Commercial Airplanes started this blog a little over three years ago.

This probably doesn’t amount to a lot of visitors compared to some mega-blogs out there which may see a million visitors a month or a week. But for a corporate blog like ours, talking about products that the everyday person can’t go down to the corner and buy and drive home - well, I think it’s pretty remarkable to have hit such a milestone. It tells me that the enthusiasm and excitement for aviation out there is as great as ever.

Cutting the cake at an employee blog celebration event.

I can’t say for certain who the typical visitor to our blog might be. But I can tell you that we’ve enjoyed a mix of people from about 60 countries who’ve stopped by to read what’s new or to comment on it. So, to each of you who have visited – a big thank you!

Of course, no discussion about the blog would be complete without mentioning our friend Randy Baseler, who started this blog back in January of 2005. Some of you, no doubt, are wondering what Randy’s been up to since he retired last April. So I thought I’d let you see for yourself.

The original blogger, Randy Baseler, is enjoying life outside Boeing. Here he is in his “office” at the Copper Queen Hotel in Bisbee, Arizona during an RV tour of the desert southwest this past winter.

“Cowboy up!” Baseler back home in Seattle, just before his family delivered a “subtle hint” that it might be time to shave.

Yes, life after Boeing has been tough for Randy. He spent the winter in the desert, and also managed to squeeze in some skiing at Sun Valley, Idaho.

As Randy will tell you, the blog was born out of a time when some people were wondering out loud whether Boeing was even going to remain in the commercial airplanes business. In 2004, Boeing had recorded only 272 orders, and the media and analysts were hailing the arrival of the superjumbo A380 as the airplane of the future.

You may recall that we launched the blog right around the time the A380 rolled out. It was a chance for us to give a tip of the hat to our competitors on a big day for them, but also for us to tell our story too. Over the months that followed, this blog has been a forum for kudos as well as some good-natured sparring with the competition - but mostly focused on our world-class products and services - while having some fun in the process.

As I’ve discovered this year, that’s not as easy as it sounds. It actually takes a lot of focus – seven days a week. A schedule that Randy Baseler no longer has to concern himself with, as he enjoys a cold beverage in the sun.

Or as Randy himself puts it, for him now, “every day’s a Saturday. Except Sunday.”

As Boeing begins negotiating new contracts with the International Association of Machinists and Aerospace Workers (IAM), it’s our intention to move away from the culture of last-minute bargaining. As our V.P. of human resources, Doug Kight says, we want to make this an open and transparent process.

That’s why we’ve agreed to start discussions with the union sooner than we did in past years. We want to spend more time listening, understanding issues, and making sure our employees and their families have a grasp on the value of the contracts when members vote in September.

Clearly, the challenge as we go forward these next several months is to continue the momentum we’ve had as a company, and work together to stay competitive, keep our commitments to our customers, and to sustain good jobs for generations to come.

During the negotiations process, we’ll discuss, listen, and continue to communicate even when we disagree. The ultimate goal is to arrive at solutions that are in the best interests of our employees, and our customers and communities, as well as the company.

You can check out our 2008 labor negotiations Web site. And you can also read more about the start of contract talks here.

Typically, in my travels, one of the top 2 or 3 questions people pose is: “When are we going to see a “single-aisle” (737-size) replacement?” I think this is a good time to update you on that question.

It’s hard for me to believe, but the last time we talked about this in the blog was a couple of years back when my colleague, Mr. Baseler, shared his unique double take on the subject.

So, you might ask, has anything changed? Well, I’d say that our thinking has not so much changed, but evolved a bit.

We still believe that the Next-Generation 737 is a great product – in fact it’s the most efficient single-aisle airplane operating today, and is still the all-time best-selling commercial airliner. So, you can imagine that developing an airplane that delivers a better value is proving to be a tremendous challenge.

In Renton, the moving production line makes it easy to incorporate enhancements onto Next-Generation 737s. About 90% of 737 operators now choose to add fuel-saving, emission-reducing Blended Winglets. And Boeing will incorporate the latest announced enhancement - weight-saving carbon brakes - into the production line later this year.

We’re continuing to study the market, and learning more about what our airline customers need for the future. Obviously, a significant improvement in operating efficiency remains the common thread. And when I say significant, I mean significant. For instance, 15-20% improvement in fuel efficiency and 20-30% reduction in maintenance cost.

As I and my Boeing colleagues have said many times and in many forums, to do this is going to take real breakthroughs in every part of the airplane. We need new engine technologies, and improvements in materials and aerodynamics, as well as new aircraft systems.

Based on how technology is evolving, and what we know today, we now believe the replacement of the Next-Generation 737 will be ready late in the next decade.

In the meantime, we’ll also be studying ways to create even more value in our Next-Generation 737. We’ve steadily enhanced this airplane over the past several years, improving performance, comfort, and navigation precision. We’re looking at possible additional improvements such as interior enhancements, lower weight and drag, and improved engine efficiency.

Boeing and our partners will continue to invest in all the technologies needed for a new generation narrow-body (it may or may not have a single aisle), that will economically replace the 737 and A320 – to ensure the earliest possible entry in to the market.

I’ve always said that our product strategy is shaped by our market forecast, by technology, and most importantly by working with our customers to understand their needs and requirements.

This is a case where there’s clearly a market – more than 17,000 airplanes in the next 20 years. But just as clearly, first the technology needs to be developed in order to produce the right airplane to satisfy that huge market.

The newest Dreamliner – designated ZA003 – in first position in the 787 factory. In this view you can see all the major assemblies for the airplane (minus the wings) in the pre-integration area of Final Assembly.

It’s remarkable how the handful of large assemblies come together with the wings to form the airplane. We took this photo yesterday, just a couple of days after the first image.

When it’s completed sometime this summer, this airplane will represent the first time we’ll get a look at something close to “delivery configuration.” ZA003 is scheduled to be fitted with an interior as part of its certification and flight testing.

By the way, this is airplane number 5 on the production line, but it’s actually flight test airplane number 3 – hence the ZA003 designation. Two other airplanes are destined for static testing and fatigue testing and will not be delivered to customers. They are all among the 25 Dreamliners in various stages of production right now around the globe.

Boeing Renton employees received the first fuselage from Spirit AeroSystems earlier this month, and final assembly is underway on the first P-8A Poseidon - the multi-mission maritime aircraft that Boeing and our partners are building for the U.S. Navy

Members of the P-8A team greet the first fuselage at the Renton factory.

The historic part is the fact that with the arrival of this fuselage from Wichita, the Renton site has opened manufacturing operations on our new Final Assembly Line 3. It’s the latest chapter in Boeing’s long and successful Renton legacy – as we begin building a military derivative of the best-selling airplane in the world, the Next-Generation 737.

That legacy, our company historian reminds me, features an impressive list of Renton-built military aircraft over the years, including:

• B-29 Superfortress
• TB-50H
• KC-97 Stratofreighter
• KC-135 Stratotanker
• E-3 AWACS
• VC-137
• T-43A
• E-6
• C-32
• C-40

A depiction of the P-8A over Mount Rainier.

The P-8A Poseidon is a derivative of the 737-800. As the team puts it, the Poseidon will be a “long-range anti-submarine warfare, anti-surface warfare, intelligence, surveillance and reconnaissance aircraft” for the Navy.

And here’s a key piece of this story: the P-8A program benefits from and builds on the proven production system and performance of more than 5,655 Boeing 737s delivered to date.

First flight of sorts – as the P-8A fuselage swoops into position by crane over the factory floor.

Thanks to Commercial Airplanes and Integrated Defense Systems (IDS) teams working closely together as one Boeing team, the program has moved from “design” to “build” rapidly. Production started on the P-8A fuselage for the first test aircraft at Spirit in December, and it was completed on schedule last month. This approach enables the program to build the aircraft in a moving line - as we do with commercial versions of the 737 - with major military changes built and integrated up front as the aircraft goes through final assembly in Renton.

This is a significant change. In contrast with other business models that modify “green tail” commercial airplanes to fit military applications, the Poseidon will be ready with all provisions to “plug-and-play” its required mission systems.

Click on the image to view a short video about the arrival of the first P-8A fuselage in Renton.

One interesting side note to this story is that the opening of the P-8A line in Renton coincided with opening day for baseball in Seattle earlier this month. In fact, the fuselage, carried by rail, rolled past the sold-out crowd at Safeco Field during the bottom of the second inning of the Seattle Mariners’ opener.

BCA is scheduled to hand off the first P-8A Poseidon to IDS later this year, with subsequent mission systems installation, flight test, and delivery of the first aircraft to the U.S. Navy in 2009.

By the way, the home team won their opener. And we believe the P-8A is going to be a winner too.

You can read through a lot of the details in our first quarter earnings release. But I wanted to briefly touch upon some of the key points for Commercial Airplanes.

BCA delivered 115 airplanes this past quarter, and reported 289 orders. For the 787 Dreamliner there were 75 orders in the quarter – and the program continues its record-setting sales pace with 892 firm orders and 57 customers since launch.

As we learned earlier this month, we’ve shifted the 787’s first flight to the fourth quarter of this year, with deliveries moving to third quarter of 2009. The plan is for a more gradual ramp-up to full production. The delays have been a deep disappointment to us and to our customers. But we think the new plan reduces the schedule risk a great deal. We’re talking with our customers now about how the schedule will affect them, and how we can reduce the impact.

During the earnings call with investors and media, Jim McNerney mentioned his recent visit to the 787 factory. He saw good progress on Airplane #1 toward meeting our commitments for power on and first flight. He also mentioned that the static and fatigue airplanes are moving along, and that the condition of the assemblies we’ve gotten in Everett from our partners are noticeably improved on Airplanes #2 and #3.

Much has been said about the 787 and the problems we’ve encountered on the program. However, from this earnings report it’s clear that our core business continues to deliver improving performance. Our 737, 747, 767, 777 and services teams are executing their plans very well.

I also want to point out that we’re moving ahead on other development programs, including the 777 Freighter, and the 747-8.

Major assembly for the 777 Freighter began in the first quarter. And final assembly got underway this month. This is a view during “final body join” of the first 777F in the Everett factory.

On the guidance side of the message, we’re expecting to deliver between 475 and 480 commercial airplanes this year, and between 500 and 505 in 2009. We also expect 2010 deliveries to be higher than in 2009.

Let me also touch briefly on what we’ve heard about the U.S. economy as it affects our industry today. Capital markets have weakened and we saw some small airlines file for bankruptcy in the first quarter.

As we look at these economic conditions going forward, it’s important to note that our total backlog is strong and diverse by region, product and customer. For example, only 11% of BCA’s backlog is from airlines based in the United States. A large piece of the commercial backlog is with customers in Asia and the Middle East, where economic conditions are more favorable.

Demand globally remains strong for new, more efficient commercial airplanes due to high fuel prices and environmental concerns. So, while the market has become more volatile, as you can see from our guidance, the delivery up-cycle continues.

And, as Jim McNerney put it earlier today, if there’s a more significant downturn, we think we’re in a good position to weather it.

So a working-together initiative just signed by both companies in Geneva is a great step in increasing efficiency and reducing emissions around the globe. Read about the agreement here.