NEWS ANALYSIS : How Boeing’s Plans for Making 767-X Evolved : Aerospace: Since the Japanese buy most of its passenger jets, the company wanted them on the project. But fear of political criticism or pressure from U.S. rivals probably kept them from getting an equity stake, analysts say.
A tentative agreement announced by Boeing Co. last Friday to share up to 20% of the production work for its new 767-X wide-body passenger jet with three Japanese firms represents both a milestone and a setback for Japan’s aerospace industry.
It was a milestone because it underscored a continuing role for Japan’s leading aircraft manufacturers in the business of the world’s largest producer of passenger jets, despite growing fears in U.S. political circles that the Japanese are targeting aerospace for domination in the 21st Century.
But it was a disappointment because Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries were denied the equity stake in the project that they had anticipated. Instead of becoming full partners with Boeing, the three giant firms remained mere subcontractors--suppliers of fuselage panels and other parts.
Such an arrangement is nothing new. The three companies have been supplying Boeing for about two decades already, and a total of about 30 Japanese aerospace companies have ongoing subcontractor relationships with the American manufacturer. Japanese firms contribute 15% of the production work for the Boeing 767 airliner.
Japanese suppliers had been waiting years for Boeing to come through on promises of a co-development project, allowing them to delve into research and design as well as manufacturing to acquire know-how.
A plan to co-develop a 150-seat airliner called the 7J7 was abandoned only recently, ostensibly when Boeing decided it was not marketable. Hopes were then pinned on the proposed $3-billion to $4-billion 767-X, a plane that would seat 350 to 370 passengers, larger than Boeing’s 767 but smaller than its 747 jumbo jet.
As recently as December, Boeing officials stated publicly that the 767-X project might end up as a joint venture with Japanese partners. But analysts here speculated that Boeing dropped that option to evade congressional criticism.
“I think the overbearing concern was a possible politicization of the project in the way the FSX project got out of hand,” said Bruce Roscoe, an aerospace analyst for S. G. Warburg Securities in Tokyo.
The FSX, Japan’s next-generation fighter plane, is now being developed jointly by Mitsubishi Heavy Industries and General Dynamics based on technology from the latter’s F-16 fighter. A government-to-government agreement to transfer U.S. technology to Japan for the development was nearly scuttled last year when critics argued that Japanese companies would use the F-16 technology to catch up to--and overtake--the United States in the commercial aerospace industry.
Another reason for limiting Japanese participation in the 767-X project may have been pressure from rival subcontractors in the U.S. defense industry, which are hurting from Pentagon budget cuts.
“These companies are going to be increasingly dependent on the commercial aerospace sector as orders in the defense industry decline,” said Samuel Ramsey, an analyst for the French brokerage W. I. Carr. “There had to have been a lot of political pressure from Washington.”
But Boeing has little choice but to maintain significant manufacturing ties with Japanese companies because Japanese airlines buy the largest share of its passenger jets, S. G. Warburg’s Roscoe said. More than half the orders for Boeing 747 jumbo jets in the beginning of 1989 were placed in Japan, for example.
Without a de facto “offset program,” by which production contracts are awarded and technology is transfered to Japan, Boeing fears its competitors, such as the European consortium Airbus Industrie or the U.S. firm McDonnell Douglas, might be able to lure away the market, Roscoe contends.
That potential was suggested by a recent announcement from the Mitsubishi group and Daimler-Benz AG of West Germany, saying the two business combines planned to cooperate in a range of industrial sectors, including aerospace. Last year, Daimler acquired Messerschmitt-Boelkow-Blohm, a major player in the Airbus consortium.
Japan’s early history in aerospace was marked with significant achievements: Mitsubishi, for one, built the Zero fighter, which was the best war plane of its kind in the early years of World War II. Japan was temporarily barred from aerospace after its defeat, and companies got back into the industry servicing U.S. fighters and bombers during the Korean and Vietnam wars.
The industry’s first commercial development, the YS-11 turboprop transport plane, was technologically successful and still serves short-haul domestic routes. But Japan missed out on the development of the jet engine and its industry remains far behind that of the United States and Europe.
Some argue that Japan will never catch up and does not necessarily want to challenge commercial aviation giants such as Boeing.
“Japan doesn’t need to make its own airliners,” said a senior ruling party member of Parliament, who is active in international affairs. “We should be content with a subcontractor’s role.”
But the powerful Ministry of International Trade and Industry has plans that may steer the industry, which relies heavily on defense contracts, into a niche in the commercial market for small passenger jets. Last year, MITI commissioned the Japan Aircraft Development Corp., a nonprofit body, to study replacing the aging YS-11s with a 75-seat jet airliner that could also be used on international routes within Asia.
“I don’t think the Japanese have any ambition to compete with Boeing in the commercial airliner market,” said S. G. Warburg’s Roscoe. “Why would they want to? They have a guaranteed production share of every Boeing plane produced without any risk. They may have an image problem being subcontractors, but that’s as far as it goes. They’re still making a lot of money.”
