By Alwyn Scott

SEATTLE, Jan 16 (Reuters) - An escalating series of mishaps on Boeing's new 787 Dreamliner has dealt engineers pushing for a new contract a strong card to play at the negotiating table.

The engineers are considered by aviation experts to be crucial to a safety review of the 787 that the Federal Aviation Administration launched last week after a fire, fuel leaks and other failures sparked widespread fears about the new jet.

The safety concerns threatened to turn into a full-blown crisis for Boeing on Wednesday when Japan's two leading airlines grounded their 24 Dreamliner passenger jets when one of the aircraft made an emergency landing after instruments indicated a battery error and smoke. The Japanese aircraft account for nearly half the 50 Dreamliners now flying.

On Wednesday, the union made a "best and final" offer to Boeing, proposing to incorporate areas where the two sides had already agreed into the expired contract and extend it for four more years.

This would end "protracted and increasingly contentious negotiations that appear headed for a strike," the union said, and allow Boeing and its workers "to focus on reaffirming confidence and proving the 787 is the reliable and safe product employees know it to be."

Boeing said it was reviewing the offer and talks would continue Thursday.

The news came as the FAA required airlines to stop flying 787s, and Boeing CEO Jim McNerney said the company would use all of its resources to find answers to the problem quickly. [IDA:L1E9CH0EY]

The FAA action, and its review, come after an extraordinary string of mishaps, including a battery fire, two fuel leaks, three electrical faults, a cracked cockpit windscreen, an engine oil leak and brake problems that have raised safety concerns with the new carbon-plastic composite aircraft.

Experts said a walkout by engineers would impede both the safety review and Boeing's ambitious effort to double production of the 787 this year because key people with knowledge of the aircraft and the clearance to certify that production lines are meeting FAA requirements would be taken away.

"The engineers have to be involved," said R. John Hansman, a professor of aeronautics and astronautics at Massachusetts Institute of Technology. "Nobody at the FAA knows this airplane as well as the engineers who were involved in the design and testing."

STRIKE WOULD SLOW REVIEW

Boeing has said it has engineers in California and elsewhere who can work on planes if the union-represented engineers walk out. Some Boeing managers also have the necessary high-level clearance to certify aircraft, according to officials at the union and industry experts.

However, before it could use replacement engineers either for production or the review, Boeing would need to convince the Federal Aviation Administration that those workers have the same skills as the union members, Boeing and the FAA said.

Obtaining FAA approval would slow the safety review, which is already expected to take months.

"Under the rules, Boeing would need to submit a plan to the FAA to show that any replacement workers brought in to work on certification issues would be as capable as those they replaced, and the FAA would need to approve it, for the 787 review to go on," an FAA spokesperson said.

"Anytime any company has labor issues or is in bankruptcy, we would normally heighten surveillance of the compliance" with FAA certification rules.

Boeing declined to comment further on how it would handle the review or production during a strike, although industry experts said it might have more people in reserve who have the high-level FAA authorization to conduct the review or work on planes.

"We don't generally talk publicly about contingency for a strike because we are focused on getting an agreement," Boeing spokesman Doug Alder said.

For its part, the union says the safety review needs to include engineers who oversaw the original plane certification, or the review will not be credible.

"I don't see how you could do that review without having the key people present to participate," said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace, or SPEEA.

PLANE PRODUCTION MIGHT CONTINUE

Boeing may still produce aircraft if the engineers walk out. During a 40-day SPEEA strike in 2000, Boeing produced 19 planes, according to union records.

Boeing made clear last Friday that it could call on contingent workers from its wider operations, which include not just airplanes, but defense, space and security businesses.

"We are the Boeing company and I have access to significant resources across the entire corporation," Mike Delaney, a vice president of engineering and a member of Boeing's labor negotiating team, said during a news conference call.

There also is potential for the two sides to strike a deal.

Boeing made a contract offer on Friday that improved raises for the engineers to between 4 percent and 5 percent a year from 3 percent to 4.5 percent.

But SPEEA said it views the latest offer as making across-the-board pay and benefit cuts at "a time when Boeing is posting record profits and lavishing pay raises and bonuses upon its executives."

The FAA told Reuters it has started to work with Boeing to assemble teams for the safety review. The teams ordinarily would include the relatively few union-represented engineers with high-level FAA authorization to certify the plane is in compliance with FAA safety rules, the FAA said.

If those people are on strike, then the review could not call on those most familiar with the design and manufacturing of the plane. The team likely would draw on some replacement workers, who would need to be approved by the FAA, the FAA said.

Hansman, the MIT professor, who also serves on an FAA advisory committee, said replacement workers who have not dealt with the 787 before could turn to technical records and drawings.

"But that will take them a lot more time," he added.

SERIES OF FAULTS

The FAA, Boeing and SPEEA say the 787 is safe to fly and that minor problems are common when new types of jets first start operating. Airlines and analysts also back that view.

The National Transportation Safety Board has launched a separate investigation into the battery fire that occurred on a Japan Airlines jet in Boston.

The NTSB said on Wednesday it is sending a person to Japan to investigate the smoke and battery issues that grounded the fleets there.

The other incidents are considered normal by aviation experts, but their quick succession on relatively few planes has drawn attention to the problems.

Boeing stock closed down 3.4 percent at $74.34 on Wednesday.

Follow us on Twitter @ReutersLegal | Like us on Facebook