Insight: Will Dreamliner drama affect industry self-inspection? By Peter Henderson and Alwyn Scott and Tim Hepher SAN FRANCISCO/SEATTLE/PARIS (Reuters) - Eight years ago, U.S. regulators substantially increased their dependence on the aircraft industry to help keep flying safe. The U.S. Federal Aviation Authority (FAA) said it would no longer directly manage routine inspection of design and manufacturing. Instead, it would focus on overseeing a self-policing program executed by the manufacturers themselves through more than 3,000 of their employees assigned to review safety on behalf of the FAA. These so-called designees had existed for decades, but the FAA had vetted and controlled them. Under the new system, companies chose and managed them, to the point where the FAA even had trouble rejecting those they felt were unsuitable for the job, according to one government watchdog. As the drama of the overheating lithium-ion batteries on the Boeing 787 Dreamliner unfolds, that relationship is coming under intense scrutiny. No evidence has surfaced that the designee system is responsible for the battery problem that has prompted regulators to temporarily ban the plane from the skies. The story has raised the question, however, whether the regulator hands over too much power to the industry. "This is an occupation with a built-in conflict of interest," said Gordon Mandell, a retired FAA certification engineer. With Boeing doing about 95 percent of its own inspections, adds Mary Schiavo, former Department of Transportation inspector general, "it's kind of do-it-yourself." The situation was not unique to Boeing, she said. There are places around the world that saw an FAA inspector once, maybe five years ago, and that's it. Boeing's new ultra-modern carbon-composite jet has been grounded around the world for six weeks as the National Transportation Safety Board leads an investigation into two battery incidents, joined by the FAA. Both agencies are also looking into the 787 certification process. "We need to understand what tests were done and who was certifying those tests, and again how they were verified - not just by Boeing, but by the regulator as well," NTSB Chairman Deborah Hersman said on February 8, referring to the battery and other key parts made in a long, global supply chain. At the broadest level, even some supporters of the designee process are asking whether the FAA is up to the task of effectively overseeing the system. Among them is Ken Mead, another former DOT inspector general and a veteran of investigating the FAA. The questions I'd want answers to are: Does the FAA have the right people with the right expertise to make sure the FAA is in a position to critically second-guess? And have they critically reviewed the approval process so this does not happen again?" he said. The FAA's defense of its abilities and approach is unwavering. Some have asked the question whether the FAA has the expertise needed to oversee the Dreamliner's cutting edge technology. The answer is yes, we have the ability to establish rigorous safety standards and to make sure that aircraft meet them," FAA Administrator Michael Huerta said in an industry speech on January 23. The way to enhance safety is to keep the lines of communication open between business and government. The FAA and Boeing both say the FAA is better off managing the system and picking out high-risk areas on which to concentrate. It lacks the resources to manage every individual and inspect every part, they say, and industry has a strong incentive to cooperate - unsafe products jeopardize business. They point out that FAA staff invested more than 200,000 hours over eight years certifying the 787 on top of work done by designees. Perhaps their biggest defense is that there have been no fatal crashes of scheduled commercial flights in the United States for four years. The FAA's inability to expand its budget in line with an increasingly large, complex and global aviation industry played a major role in the 2005 decision to expand the delegation system. Certification work increased fivefold between the 1940s and 1990s and has only become more complex since. "By shifting our inspection focus from reviewing test results to overseeing the designation program, we will be able to more efficiently use our resources while extending our oversight coverage, thereby increasing safety," the FAA said in the official announcement of the program, printed in the Federal Register on October 13, 2005. It added, however, that "More than one commenter states that the FAA should be hiring more inspectors, not spending its limited resources creating an organizational designee system." Public comments from opponents of the new system outnumbered supporters 14 to 11, it noted. While the agency still signs off on a new plane and key steps along the way, the bulk of the interim work - often 90 percent or more - is done by the designees at the manufacturers. As of 2010 there were about 1,000 FAA engineers and inspectors devoted to design review and inspection, compared with 3,655 designees working for companies on the FAA's behalf, according to government data. Boeing has set up a separate group within the company to do the FAA work. Those employees approve the design of the planes except for the key steps and the final "type certificate" for new aircraft, which needs a stamp from FAA officials. The jobs command respect and draw veterans who are more likely to stand up to pressure from their employers and won't risk losing their "ticket" - the FAA designee status - by cutting corners, people in the industry say. Candidates choose specializations and typically must pass written and oral exams meant to check their understanding of what a designee, also known as a "designated engineering representative" (DER), does and the limits of their powers. "I've never seen it where a company's pressure on the DER was strong enough for them to bend from their loyalty to the FAA," said Richard Lukso, the former president of Securaplane, the company that made the chargers for the 787 batteries. They have unique insight into how companies work, he added, since they come from the inside. In 2011, the DOT's Office of Inspector General criticized the FAA for losing control of its oversight and risking safety. It cited one company designee, acting on behalf of the FAA, who took his employer's view in a dispute over whether an aircraft fuel system met agency standards. The manufacturer took a year to suspend the employee from FAA duty. The company was not identified in the report. The FAA and the inspector general do not agree on how to weed out unwanted designees. The FAA says it is creating a new database of employees removed from consideration because of "misconduct"; the inspector general's office wants a broader set of employees to be included. The FAA has been criticized beginning early in the Dreamliner program for skimping on supplier visits, as well. In the first four years of the Dreamliner program, between 2003-2007, FAA officials visited only 1 percent of suppliers at Boeing and other major engine and planemakers, and left unchecked thousands of factories that would go on to make parts for the 787, according to another report by the same Office of Inspector General, this one from 2008. All parts for U.S. planes must be FAA certified at some point, but that can happen as part of the final assembly of a plane rather than at the factories where they are made. The same report described how a worker at one factory - it is unclear if it was a supplier to Boeing or another planemaker - used a piece of paper, instead of a ruler, to measure parts. Another used a tool marked "uncalibrated." One supplier made a part fit by grinding away an edge, without permission from the manufacturer, and training overall was deemed inadequate. The FAA made a number of changes in response to the report, but it only raised the minimum number of supplier visits at major manufacturers to nine a year from four, a spokesman for the inspector general told Reuters. All FAA inspectors are based in the United States, even though much of the 787 airframe and many key components like the battery are made outside the country, raising the question of whether distance might make them less likely to visit. Inspectors travel when necessary, the FAA said. In its own statement, Boeing said that "in addition to requiring frequent and detailed progress reporting, during the development and design phase we regularly had people on site with our suppliers and they had people on site with Boeing." No full description of the process by which Boeing engineered and tested its lithium-ion battery has been disclosed, but emerging details show how regulators relied heavily on Boeing to do most of the work on what the FAA acknowledged from the start would be a potentially dangerous technology. The FAA approved "special conditions" for the 787 battery in 2007, acknowledging risks including "Flammability of Cell Components." "Safe cell temperatures and pressures must be maintained during any foreseeable charging or discharging condition and during any failure of the charging or battery monitoring system not shown to be extremely remote," the first condition reads. "Extremely remote" is FAA code for once in 10 million flight hours. Special conditions do not include specific tests, so Boeing itself proposed them to the FAA. Designees could approve the design of tests and monitor the tests themselves, though the FAA told Reuters its staff also had approved the testing program and observed testing. A Boeing presentation in February described "baking the battery to induce overheating, crush testing and puncturing a cell with nail to induce short circuit." At the same time the FAA approved the special conditions in 2007, FAA staff and the aircraft manufacturing industry, including Boeing, were devising lithium-ion battery tests that included all the details the special conditions lacked. Published in 2008 and adopted by the FAA three years later, the standard known as RTCA DO-311 gave precise instructions for tests. The worst-case-scenario test required turning off all failsafe electronics, short-circuiting the battery and watching for flames for three hours. Boeing did not run those tests. "The RTCA standards were not designed for the 787," and Boeing provided extensive testing to show the 787 met the special conditions, spokesman Marc Birtel said. The FAA acknowledged the batteries were potentially flammable in the special conditions approved. Said former Inspector General Schiavo, "They knew they had problems. They just said 'OK.' Additional reporting by Mari Saito, James Topham and Tim Kelly in Tokyo, Andrea Shalal-Esa in Washington, Deepa Seetharaman in Detroit, Bill Rigby in Seattle and Karen Jacobs in Atlanta; editing by Martin Howell and Prudence Crowther