As I see it, the problem with Thompson's report was that it didn't match the observations made at the time of the search. That tends to impeach his credibility. He certainly wasn't the first (or last) military officer to try to cover his butt by rewriting what happened to make himself look better.
It occurred to me that if Fred did have the Phoenix Group in mind as a backup landing spot (sort of a "preventer"), it would have been prudent to let someone know about it before setting out on that leg. "If we don't show up at Howland, you might look at some islands southeast of there." On the other hand, if they ended up on Gardner it could have been a total surprise to them that there were even islands there.
From Itasca's deck log -
Deck weather observation key (as to the essential attributes appearing from 1 a.m. to 10 a.m.):
Wx type:
B = Blue sky, cloudless;
BC = Blue sky with detached clouds
Cloud form:
a cu = Alto cumulus (larger white or greyish balls, with shaded portions, in flocks or rows, often so close that edges meet);
s cu = Strato cumulus (A succession of rolls of dark cloud which frequently cover the whole sky. The characteristic cloud of storm areas, especially the forepart of those areas);
cu = Cumulus (Thick clouds whose summits are domes with protuberances, but whose bases are flat, "woolpack" clouds).
Coverage: in 10ths ("2" = 2/10's, etc.)
Visibility factor:
8 = Prominent objects not visible at 20 miles
9 = Prominent objects visible above 20 miles
Hourly deck observations from July 2, 1937 (taken verbatim from log as to hour, Wx type, cloud form, direction and coverage and visibility) -
Hour Wx type Cloud form Dir. from Amt. Coverage Vis. factor
1 B - - -
2 B - - - 8
3 B - - - 8
4 BC a cu E 2 8
5 BC cu E 2 9
6 BC s cu ENE 4 9
7 BC cu E 3 9
8 BC cu E 3 9
9 BC cu E 2 9
10 BC cu ESE 3 9
11 BC s cu NE 5 9
12 BC cu ENE 5 9
From this it can be seen that the worst local conditions reported by the deck watch on Itasca during the crucial hours of 1 a.m. through 10 a.m. (regarding Earhart's approach and loss) was a sky coverage of 4/10ths of Strato cumulus at 6 a.m., visibility 9 (prominent objects visible at greater than 20 miles).
With predominantly blue skies and broken clouds (mostly cu's) at 2 to 3/10ths coverage and visibility factor of 9 for most of the hours involved, I don't see the problem with what Commander Thompson recorded. IMO he could have well seen 'stellar' navigation conditions off to the south and east for celestial work, and large cloud masses beyond the distant horizon to the west and north.
As I review this, I certainly don't see anything that would cause me to seek to impeach his record as 'butt covering'. We at least seem to lack the smoking gun needed to discredit a ship's master.
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Added 8/28/2015 -
Example of distant weather taken from Statesboro / Savannah, GA areas on 8/28/2015 at around 6:30 p.m. - 45 miles+ distant: