A concept demonstrator of the structural health monitoring (SHM) system was developed to autonomously detect the degradation of the mechanical integrity of the standoff carbon–carbon (C–C) thermal protection system (TPS) panels. This system enables us to identify the location of the loosened bolts, as well as to predict the torque levels of those bolts accordingly. In the process of building the proposed SHM prototype, efforts have been focused primarily on developing a trustworthy diagnostic scheme and a responsive sensor suite. In part I of the study, an attenuation-based diagnostic method was proposed to assess the fastener integrity by observing the attenuation patterns of the resultant sensor signals. The attenuation-based method is based on the damping phenomena of ultrasonic waves across the bolted joints. The major advantage of the attenuation-based method over the conventional diagnostic methods is its local sensing capability of loosened brackets. The method can further discriminate the two major failure modes within a bracket: panel-joint loosening and bracket-joint loosening. The theoretical explanation of the attenuation-based method is performed using micro-contact theory and structural/internal damping principles, followed by parametric model studies and appropriate hypothesis testing.