THE TAIWAN FACTOR : Aviation-Leader Role Is Unlikely
With money from the government and a little bit of moxie, the Taiwanese have been able to achieve quick success in industries such as textiles and computers.
But building a presence in the aerospace industry presents a far stiffer challenge. And industry analysts say that even with foreign partnerships such as the one announced yesterday with McDonnell Douglas, Taiwan is unlikely to be a major player in the aviation business any time soon.
“They can become a supplier of parts,” said Lawrence Harris, a Chicago-based analyst at Kemper Securities Group. “But Taiwan isn’t going to become an assembler of (commercial) airline aircraft in this century. It’s hard to acquire business because airlines commit to certain manufacturers over long periods. Also, you can’t learn this industry overnight.”
George Podrasky, an analyst at Chicago-based Duff & Phelps, noted that if Taiwanese firms are to make a big splash in commercial aerospace, they will have to leap-frog companies such as the Japanese firms that supply some of Boeing’s parts.
“It’s pretty difficult to become an industry competitor,” Podrasky said. “The Japanese haven’t done it. I don’t see how Taiwanese can do it in a short period of time.”
Still, strong foreign partnerships combined with heavy government subsidies could allow Taiwan to make inroads in the long run. Industry observers note that Airbus Industrie, a European consortium, has become a major player in commercial airline manufacturing the last two decades largely because of government subsidies.
The Taiwanese are hoping the McDonnell Douglas deal will jump-start their fledgling industry. Taiwan Aerospace, a joint public-private venture set up by the Taiwanese government, has agreed in principle to pay as much as $2 billion to acquire up to 40% of the commercial aircraft business of McDonnell Douglas, which will be spun off into a new company.
The venture will build state-of-the-art facilities in the United States and Taiwan for production of the long-range wide-body MD-12 airliner. Initially, the Taiwanese will produce fuselage and wing parts for the new firm.
“If this project is successful, it is a great step for Taiwan’s aerospace industry,” Taiwan Aerospace President Denny Ko said Wednesday during a press conference in Taipei. “This contract will be helpful for Taiwan’s industrial future in both the short and long term.”
The Taiwanese government provided about 30% of Taiwan Aerospace’s $250-million capital fund when the new firm was officially registered last month, and the company now has about $520 million in capital. Yang Shih-Chien of Taiwan’s Ministry of Economic Affairs said the government has not decided whether to make loans or additional equity investments to help finance the McDonnell Douglas deal.
“The (Taiwanese) government considers aerospace to be a strategic industry,” said Michael Ding, a professor of economics at the National Taiwan Institute of Technology. “That means the government will provide substantial support to Taiwan Aerospace.”
Ding--also a consultant to the Chung Hua Institute, an economic think-tank that deals with government projects--said the Taipei government has the ability to attract banks and private investors to its aerospace venture. Taiwan’s $75 billion in foreign reserve holdings is among the largest in the world.
The Taiwan Aerospace management team includes industry leaders, among them David Huang, chairman and chief executive. Huang was an aerospace engineer at Rockwell International for 22 years, winning special citations from the National Aeronautics and Space Administration.
Meanwhile, the Taipei government continues to search for other joint venture partners. Industry sources said Taiwan Aerospace is close to completing a joint venture agreement with Aerospatiale, a French aviation firm. And American and French aviation companies will be in Taiwan this week for the Taipei International Aerospace Technology Exhibition, sponsored by a Taiwanese government agency.
