The prototype B-17, with the Boeing factory designation of Model 299, was designed by a team of engineers led by E. Gifford Emery and Edward Curtis Wells , and was built at Boeing's own expense. It combined features of the company's experimental XB-15 bomber and 247 transport. The B-17's armament consisted of five 7.62 mm machine guns , with a payload of up to 2,200 kg of bombs on two racks in the bomb bay behind the cockpit. The aircraft was powered by four Pratt & Whitney R-1690Hornet radial engines , each producing 750 hp (600 kW) 2,100 m.
The first flight of the Model 299 was on 28 July 1935 with Boeing chief test pilot Leslie Tower at the controls. Richard Williams, a reporter for the Seattle Times , coined the name "Flying Fortress" with his comment, "Why, it's a flying fortress!" when the Model 299 was rolled out bristling with multiple machine guns. The most unusual mount in the nose, which allowed the single machine gun to be fired toward almost any frontal angle.
Boeing was quick to see the value of the name and had it trademarked for use. Boeing also claimed in some of the early press releases that Model 299 was the first combat aircraft that could continue its mission if one of its four engines failed. On 20 August 1935 , the prototype flew from Seattle to Wright Field in nine hours and three minutes at an average cruising speed of 252 miles per hour (406 km/h), much faster than the competition.
At the fly-off, the four-engine Boeing's performance was superior to those of the twin-engine DB-1 and Model 146. Major General Frank Maxwell Andrews of the GHQ Air Forcebelieved that the long-range capabilities of four-engine large aircraft were more effective than shorter-ranged, twin-engine aircraft, and that the B-17 was better suited to new, emerging USAAC doctrine. His opinions were shared by the air corps procurement officers, and even before the competition had finished they suggested buying 65 B-17s.
Development continued on the Boeing Model 299, and on 30 October 1935, Army Air Corps test-pilot Major Ployer Peter Hill and Boeing employee Les Tower took the Model 299 on a second evaluation flight. The crew forgot to disengage the "gust locks", a system of devices integral to the design that held the bomber's movable control surfaces in place while the aircraft was parked on the ground. After takeoff, due to the failure to manually disengage all of the gust locks, the aircraft entered a steep climb, stalled, nosed over, and crashed, killing Hill and Tower (other observers survived with injuries).
The crashed Model 299 could not finish the evaluation and, while the air corps was still enthusiastic about the aircraft's potential, army officials were daunted by the much greater expense per aircraft (Douglas quoted a unit price of $58,200 based on a production order of 220 aircraft, compared with a price of $99,620 from Boeing), and as the competition could not be completed Boeing was legally disqualified from consideration for the contract. Army Chief of Staff Malin Craig cancelled the order for 65 YB-17s, and ordered 133 of the twin-engine Douglas B-18 Bolo instead.