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The United States, Japan and the Aerospace Industry:
technological change in the shaping of a political relationship
Steven McGuire
University of Bath
School of Management
Working Paper Series
2006.05
This working paper is produced for discussion purposes only. The papers are expected to be
published in due course, in revised form and should not be quoted without the author’s
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2006
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Richard Fairchild
Does Auditor Retention increase Managerial Fraud? The Effects of Auditor Ability and Auditor Empathy.
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Richard Fairchild
Patents and innovation - the effect of monopoly
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2006.04
Paul A. Grout and Anna
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Profitability Measures and Competition Law
2006.05
Steven McGuire
The United States, Japan and the Aerospace Industry:
technological change in the shaping of a political
relationship
The United States, Japan and the Aerospace Industry: technological change in the
shaping of a political relationship
Steven McGuire
[email protected]
Abstract
In the 1980s, aerospace was identified along with computers, pharmaceuticals and advanced
materials as strategic industrial sectors whose properties justified extensive government
involvement in their development and expansion. Most famously, government support for
Airbus Industrie led to trade tensions between the US and the European Union; tensions that
were resolved by the negotiation of a bilateral, sector specific trade accord. In 2005 that
bilateral arrangement broke down, with both parties filing trade disputes with the WTO.
This second round of trade conflict, however, involves not only the US and the EU, but also
Japan. Japan has largely failed to develop an extensive aerospace industry capable of
designing and manufacturing entire aircraft. One explanation has been that the political cum
security relationship between the US and Japan precluded the development of an autonomous
aerospace industry. US firms dominated sales of both civilian and military aircraft, with
Japanese firms being offered subcontracts as compensation.
This relationship may be changing. Japan has succeeded in gaining extensive sub-contracting
work on the new Boeing 787, including technology-rich work on wing design. Indeed,
____________________________________
*Previously presented at: ‘Managing the American Medusa: The U.S.-Japan Relationship in Comparative
Perspective’, Warwick University, 29-31 March 2006
1
Boeing has never before handed this type of work to a subcontractor. In the US, there are
concerns that Boeing is outsourcing too much work to Japan and that the move is illustrative
of a general decline in the competitiveness of US aerospace. Thus, beneath the smooth
surface of Japan-US trade relations in aircraft, technological and organizational shifts are
occurring that may yet lead to conflict.
Introduction
2005 was a bumper year for the civil aircraft industry, and came as welcome relief from the
sector-wide recession caused in large part by September 11th. Boeing and Airbus saw their
order books fill as airlines sought to replace aircraft and buy new models in anticipation of
continued increases in air travel. However, renewed trade friction between the United States
and Europe loom as of this writing. Moreover, Boeing’s renewed profitability comes at a
significant cost: thousands of American aerospace jobs lost during the early part of the new
millennium have not been replaced but have instead migrated overseas. Japan is one of the
beneficiaries of this white-collar off-shoring.
Interestingly, several Japanese firms announced plans to develop their own aircraft products,
and so enter the relatively exclusive club of final assemblers. These plans, if carried through,
would represent a significant development for an industry best known for the construction of
major sub-systems. Industry stalwarts such as Mitsubishi and Kawasaki announced plans for
short-range and regional jets, and Honda expressed an interest in producing light aircraft.1
When Toyota announced strong profits for its automobile division in November 2005,
1
Asahi Shimbun, ‘Fancy for Flight’ 20 October 2005, http://www.asahi.com/english/Heraldasahi/TKY200510200111.HTML, accessed 25 November 2005.
2
speculation fastened on the suggestion that a member of the Toyoda family, Akio Toyoda,
was looking to take the firm into the aircraft engine business.2
More serious issues concern the increasing role played by the Japanese ‘heavies’ – Fuji,
Kawasaki and Mitsubishi – in the production and design of major aircraft systems. Some 35
per cent of Boeing’s new 787 will be produced in Japan. Does Boeing’s new aircraft design
simply provide the American firm with an opportunity to lower costs? Alternatively, has
Japan finally succeeded in gaining significant work share, and is this a result of policy
changes at the national level? This paper considers the interaction of policy and technology
in the Japan-US aerospace relationship. The first part of the paper provides a tour de horizon
of the central rivalry in this case: Airbus-Boeing. Section two develops a framework for
analysing the relationship between technology and policy in aerospace. The following
sections examine American and Japanese aerospace policy in light of this framework. The
final section draws conclusions.
The Airbus – Boeing rivalry
The commercial rivalry between Airbus Industrie and Boeing Airplane Company arose
almost thirty years ago, when the European consortium first made inroads into what had been
a market dominated by US manufacturers, principally Boeing. For most of the jet age,
American producers dominated the market; Boeing’s market share rarely, if ever, was less
than 50% and, that company, along with two competitors. Douglas Aircraft and Lockheed,
had almost 90% of the global market. As recently as 1991, eight out of ten aircraft large
passenger aircraft produced outside the Soviet Bloc were manufactured by either Boeing or
2
Kazuyoshi Abe, ‘New Frontiers for the World’s Biggest Automaker’, Asahi Shimbun, 16 November 2005,
http://www.asahi.com/english/Herald-asahi/TKY200511160088.html, accessed 25 November 2005.
3
McDonnell-Douglas.3 This dominance owed much to the engineering and manufacturing
excellence of American producers; US firms applied modern, scientific methods of flight
testing much earlier than their European counterparts. However, US dominance of the
industry was not merely the result of business prowess. The American aerospace industry has
been the beneficiary of arguably the most effective post WWII industrial policy of any
manufacturing sector. US government support for the industry began, as in Europe, with the
needs of the defence sector in mind. Once the potential of the airplane as a weapon was
realised, governments in both the United States and Europe poured money into the sector’s
development and used other policies to catalyse growth. In the United States, massive
government support for general and applied research, combined with military procurement,
allowed US firms to apply military technologies to the nascent civilian aircraft market.
Basic research at NASA on computational fluid dynamics (CFD) was used by Boeing to
develop the optimum position for engine nacelles on the wings of early jet airliners and the
cores of several military engines were adapted for use in civilian aircraft.4
Though Britain ushered in the jet age of civilian transport with its Comet, it was the US firms
– Lockheed, Douglas and Boeing – that ended up dominating the civilian airliner industry by
the 1960s. Sales of aircraft have been the largest contributor to the US visible trade balance
for several decades, and as other US manufacturing industries came under severe competitive
pressures, the industry’s ability to remain dominant was both a source of pride and an
important economic driver of thousands of high-skill manufacturing, research and engineering
jobs. European firms enjoyed considerable government support too, but they failed for
several reasons. First, as suggested above, European firms were too keen to develop
3
International Trade Administration, Department of Commerce, The US Jet transport Industry Competition,
regulation and Global Factors Affecting US Producers, 2005, p.27.
4
National Research Council, High-Stakes Aviation: US-Japan Technology Linkages inTransport Aircraft,
Washington: National Academy Press, 1994, P.8.
4
aerospace technologies for their own sake, rather than viewing technology instrumentally as a
means to do some other activity more cheaply or effectively. Secondly, companies in Europe
remained too fragmented in an industry where scale economies in manufacturing were
becoming important. In the US, dramatic consolidation happened with little comment, but not
so in Europe. Though national governments brokered successive mergers of national firms,
the logic of a pan-European agglomeration was politically too sensitive to contemplate.
That logic was finally accepted in 1970 with the creation of Airbus Industrie. Concorde had
been a ‘half-way’ house for European cooperation; the Franco-British alliance was
recognition of the need for scale, but the choice of project – a technological marvel – revealed
the continued over-emphasis on technology at the expense of economy. Airbus was different:
this was to be a company that made commercially viable products wanted by the airline
industry. The subsequent furore over subsidies has tended to mask the essential, commercial
focus of Airbus. It was a decisive break.
Nonetheless, government support for the project was vital. Britain, Germany, France and
Spain poured billions of dollars in support for successive aircraft lines. The rationale was
simple; American firms had benefited mightily from government largesse, and the economics
of the industry erected considerable barriers to entry. Leveling the playing field would
benefit not just the European industry but also airlines and their customers around the world.
During the 1980s, Airbus’ sales successes provoked steadily more opposition from Boeing
and McDonnell Douglas. Lockheed, it was alleged in some quarters, was unfairly forced
from the market by the European company. Though the US threatened trade retaliation on
several occasions, trade peace was eventually brokered via the negotiation of a bilateral trade
5
agreement. It is this agreement, or more accurately its demise, that brought the US to file a
complaint with the World Trade Organization in mid-2005. Europe countersued, arguing that
Boeing received illegal subsidies from federal and state governments. Japanese government
support for its firms was not subject to formal dispute procedures, though Japan is an observer
in the case. Japanese officials were careful to delay formal announcement of government aid
to its aerospace firms until after the EU-US case was decided.5
Technology and policy in aerospace
Aerospace is a highly politicised sector because of the industry’s brutal economics. It is a
sector marked by very high fixed costs in the form of plant and machinery, as well as high
research and development costs. Research and development intensity – research spend as a
percentage of turnover – is high at 4.6 per cent. Moreover, R&D intensity in aerospace has
been increasing.6 These figures understate the actual research intensity of the sector, as
aerospace draws on other technologies – such as IT hardware and software and materials – to
a much greater extent than others. Partly as a result of this research intensity, breakeven
points are far away compared with ‘normal’ businesses; the aircraft firm must therefore have
the ability to carry a loss-making programme for several years, with most production runs
taking 7-15 years to gain the cumulative output for breakeven. In fact, most product lines are
barely or not profitable: manufacturers rely on one or two hugely successful products to shore
up the portfolio.7
5
Brendan Sobie, ‘Contract Delays 787 Partners’, Flight International, 19 April 2005,
www.flightinternational.com, accessed 5 January 2006.
6
Department of Trade and Industry, R&D Scoreboard 2005, figure 4.3 and page 41. Pharmaceuticals remain in
a league of its own with R&D intensities over 15%. Other sectors with high intensities include electronics,
software and health care.
7
For both Boeing and Airbus, the key ‘cash cows’ are the short range B737 family and it s competitor, the A320
family. Both product lines have over 2500 orders. The 747-400, which has no direct competitor, has been very
profitable for Boeing, with sales of 600 aircraft.
6
Aircraft production is subject to pronounced learning effects, where overhead costs decline
dramatically as cumulative output rises.8 The learning curve for new entrants is steep; as a
result the first products are immensely costly to produce, with savings only coming with
experience. Lockheed’s L-1011 production estimated labour requirements dropped up to 40
per cent with a doubling of output.9 Thus, relatively high cumulative outputs are necessary for
profitability: sales which can only be generated by export orders. As Benkard noted, this has
implications for the organisation of the firm. The learning curve is manifest in the evolving
knowledge and skills of production workers and designers. Highly centralised production
facilities (manifest today as the huge factories in Everett, WA and Toulouse) were required to
gain the necessary scales of production to benefit from learning. Moreover, layoffs and high
staff turnover might be expected to damage learning – by quite literally leading to corporate
‘forgetting’ as new workers lack the tacit knowledge of their predecessors. The led
companies to adopt a conservative, evolutionary approach to production as the best way of
safeguarding learning benefits. But there is a further problem: diseconomies of scope.
Lockheed co-produced two, similar versions of the L-1011 in its Palmdale plant, yet analysis
by Benkard suggests that learning effects were effectively absent: both versions cost 11 per
cent more built on the same line than if they had been produced separately. Since many
aircraft families are produced in variants, Benkard’s work is not an argument against product
portfolios, but points to the fact that learning effects are more uncertain in the industry than
commonly thought.
In sum, aircraft production is immensely costly but also subject to more uncertainty than
commonly realised. As a result, barriers to entry are very high – and the incumbents are
8
For the history see, C. Lanier Benkard, ‘Leaning and Forgetting: The Dynamics of Aircraft Production’,
American Economic Review, 90(4), pp.1035-1036.
9
Steven McGuire, Airbus Industrie: Conflict and Cooperation in EC-US Trade Relations, London: Macmillan,
1997; Nina Pavcnik, ‘Trade Disputes in the Commercial Aircraft Industry’, World Economy, p.736.
7
thought to enjoy economic rents.10 The provision of subsidies by European governments to
Airbus is premised on the argument that this is a sector that cannot be entered on a
commercial basis, though externalities and spillovers justify having an indigenous aerospace
industry. In short, a public good argument is used to justify government support. The asset
specificity of aerospace – the rents generated by deploying resources to that sector relative to
what they could earn in their next alternate use – is very high. This means that firms cannot
easily shift out of aerospace in response to competitive pressures; and so have a powerful
incentive to press government for trade protection.11
From exceptional to normal: technological change in aerospace
From its inception, aerospace was regarded as an economically exceptional case, justifying
government intervention. Moreover, firms in the sector employed relatively specific assets
and technologies in product development, which spawned particular forms of economic
organization. The argument explored in this paper is that the traditional model of aircraft
production is eroding, and the 787 is merely the latest manifestation of this trend. The
emerging model differs from the old in being more decentralised, with greater emphasis on
collaboration, as well as technological underpinnings that have both shifted and become more
varied. Innovation in aerospace resulted from the interaction of engineers, scientists and
technicians from differing scientific bases, rather than a linear process of scientific
discovery.12 In terms of production processes, aerospace has come to look much more like
10
Economic rents are the ‘premium’ generated by investing in one sector in preference to another. In perfectly
competitive markets, rents are rapidly competed away. For the formal economics, see James Brander and
Barbara Spencer, ‘Export Subsidies and International Market Share Rivalry’, Journal of International
Economics, 18(1/2), February 1985, pp.83-100.
11
Nikolaos Zaharidis, ‘Asset Specificity and State Subsidies in Industrialised States’, International Studies
Quarterly, 45(2001), pp.603-616.
12
Fabio Montobbio, ‘Sectoral Patterns of Technological Activity and Export Market Share Dynamics,
Cambridge Journal of Economics, 27, 2003, p.527.
8
other manufacturing industries, with an emphasis on lean production techniques. Airbus was
a collaborative arrangement by necessity, yet the network of European firms arguably ‘fit’ the
emerging paradigm more successfully than Boeing. Boeing’s latest success lies both in its
traditional design strengths, but also in its willingness to adapt to the new model.
Element
Technological
underpinnings
Mode of production
Traditional model
Military
Prime-subcontractor
relations
Competitive assets for
primes
Competitive assets for
contractors
Pyramidal
Emphasis on scale. Few
plants, featuring large
throughput. Labour
intensive
Technological
Managerial
Technological
Price
Location in key market
(offset)
Emerging model
Varied, civilian
applications important
Networked and modular.
Lean production
techniques. Final
assembly still confined to
few sites.
Collaborative
Managerial
Technological
Managerial
Location
Aerospace technologies have changed in two important respects. First, the traditional
spillovers from military to civilian sectors have diminished; and, second, pressures for lower
weight and emissions have placed a premium on the use of new materials. Each of Japan, the
US and the EU has struggled to accommodate these pressures. In respect of the former, this
shift has affected both Europe and the United States, the two traditional powers of global
aerospace. The tight linkages between military and civilian product lines were seen most
closely in Boeing’s product development. The Boeing 747, one of the most successful
civilian airliners ever, arose partly out of Boeing’s desire to put to good use knowledge gained
in competition for a US military transport plane.
9
Technological developments have, however, restricted the flow of military spillovers in recent
years. Military programmes have concentrated on stealth technologies and, increasingly,
remotely piloted vehicles for reconnaissance and interception. Stealth technology is clearly
not an option for civilian aircraft and remote piloting is not required for civilian applications.
Remote piloting makes sense for military aircraft because, once the pilot is removed, the
plane can be made much smaller and much more manoeuvrable.
Military applications also made use of composite materials, such as carbon fibre, which were
for many years simply too expensive to be used cost-effectively in civil airliners. That,
however, has gradually changed as aircraft makers sought to shave weight and so increase
endurance and reduce emissions for newer aircraft. This trend is part of the second pressure
facing aircraft makers; incremental technological innovation in aerospace is not delivering the
increases in economy and environmental compliance that stakeholders are demanding.13
Aerospace has always drawn heavily on other technologies for its inputs, but this trend is
becoming more pronounced. In a 1983 study of the sector, the International Trade
Administration noted that the industry had one of the highest ‘embodied research intensities
of any manufacturing industry. ERI refers to the level of product inputs that are themselves
technologically intensive.14’ As demands on manufacturers have become more numerous and
complex, so has the technical challenge of making the aircraft. This process has been an
evolutionary one. Long before other industries had extensive supplier networks and complex
assembly processes, the aerospace industry had them. Generally, aircraft makers did not
assemble their own engines, instead relying on a small group of specialist companies to do
that work. In time, avionics packages and other substructures of the aircraft, such as landing
gear, became sufficiently complex that these tasks too were delegated to specialist suppliers.
13
Steven McGuire, ‘Sectoral Innovation Patterns and the Rise of New Competitors: The Case of Aerospace in
Asia’, Industry and Innovation, 6(2), December 1999, pp.153-170.
14
David Mowery The US Commercial Aircraft Industry, in Movery and Rosenberg, at note 4.
10
Mowery noted the challenges this presented to aircraft makers, namely the extent to which
Airbus and Boeing were hostage to the technical and business competence of suppliers.15It
was becoming impossible for the final assemblers to ‘know’ everything there was to know
about subsystems going into their aircraft. Increasingly, major aircraft makers act as lead
designers for the overall design and lead assemblers; all the work in between those two points
(which can be separated by 5-10 years) is the preserve of a bewilderingly complex supplier
network. Managing this network and getting it to deliver the expected outcomes is itself a
key competitive advantage held by large aerospace firms like Boeing and Airbus.16
These two trends have subtly changed the competitive landscape of aerospace. First,
commercial airliner development has become a somewhat riskier enterprise, as the research
and development costs cannot be absorbed by military contracts to the extent in the past.
Second, the drive for weight reductions and environmental compliance has reinforced the
specialisation of the supply networks. Key suppliers now take on considerable risk, not just
for product but for research and development. More importantly, increasing technological
specialisation tilts the power relationship between suppliers and the final assembler. Finally,
the importation of lean production techniques and the more general trend toward modular
production in the industry has benefited firms that have considerable exposure to nonaerospace activities. It is noteworthy that none of Japan’s ‘Big Three’ firms – Mitsubishi,
Fuji and Kawasaki – is mainly an aerospace firm. All are diversified manufacturers who are
able to leverage technology and management practices learned elsewhere to aerospace.17
15
David Mowery, The US Aircraft Industry’, in Mowery and Rosenberg,,p.170.
Keith Hayward in Sandholtz and Love, p.137
17
Diversification also allows the firms to carry their aerospace units at times of slow orders. See, Society of
Japanese Aerospace Companies, The Aerospace Industry in Japan, 2005, p.6
16
11
Another important evolutionary strand in the sector is the emergence of Asia as the key
market for new aircraft deliveries. Though aerospace is considered an archetypal global
industry, the US has enjoyed considerable influence its development for the simple reason of
being the largest market. For most of the jet age, most airliners were built in the US were
operated by US airlines or leasing companies. Airlines are historically closely involved in
product development, so US-based carriers enjoyed considerable influence in airliner design.
American transcontinental routes provided a key performance benchmark for the development
of models by each of Boeing, Airbus and McDonnell-Douglas up to the 1980s.18
The dominance of the US market has eroded gradually over 20 years, with important
implications for aircraft firms. Airbus and Boeing agree that major markets a converging in
size, with the relative growth of China and Asia and some parts of the Middle East and Latin
America outstripping mature markets in North America and Europe. Airbus forecast in 2004
that each of North America, Europe and Asia would account for 27-32 per cent of all new
airliner deliveries.19 Boeing projects that the Asian market will soon match North America in
size, with each equivalent to 20 per cent of the world market.20In 2004, the US market
accounted for 20 per cent of world traffic, well down from it historic heights.21The erosion of
market dominance has meant that US firms have had to pay greater attention to Asian carriers
in the development of their aircraft, and to Asian suppliers. Offset work, a traditional method
of supporting sales campaigns, became increasingly important to US firms as the Asian
market developed. This was another factor assisting Japanese firms in their relations with
18
The ‘wide-body, twin-engine’ design (eg. 767, 330) now prevalent in many markets owes its existence to the
demands of American Airlines’ product planners, who called for this product in the 1970s. See, McGuire,
Airbus Industrie, 1997.
19
Airbus Industrie, Global Market Forecast, 2004, www.airbus.com, p.5.
20
The Boeing Company, Global Market Outlook, 2005, p.9.
21
Airbus Industrie, Global Market Outlook, 2004, p.8.
12
Boeing. Japan Airlines operates the world’s largest fleet of 747s, whilst ANA operates more
767s than any other airline and was a key lead customer for the 787.
In sum, aerospace’s competitive dynamics are increasing the relative competitive position of
Japanese firms relative to incumbents. Technological change is increasing the importance of
non-aerospace technologies for the industry, thus rewarding firms with exposure to various
industrial sectors. The shift to modular production makes aerospace more like the automobile
sector, with large, complex supplier networks. As with technological change, this shift
undermines incumbent aerospace firms whose production know-how is extremely specialised.
At the level of policy, these changes place a premium on a national base of technologically
capable firms across several sectors – and to a technology policy emphasising horizontal
programmes of support in preference to sector-specific initiatives.
The political management of the sector
For most of its history, the political economy of aerospace moved from the perception that
aerospace was a special sector, both for its importance for national security and for its
economic impact. This, in most states with any significant aerospace activity, resulted in
aerospace being regarded as an exceptional case, requiring particular forms of government
intervention. Pressure to treat aerospace differentially came from two levels. From above
governments were concerned to retain high value-added and high skilled jobs in an important
defence-related sector. Firms, thanks to the relatively specific nature of their assets, had
powerful incentives to maintain this special treatment, as exit costs from the industry are high
and competitive assets are not easily redeployed. Though many industries and services now
orient their activities along regional lines, this is never true of aerospace. Whereas many
13
automakers, retailers or banks operate strategies that seek to exploit the growing number of
regional trade agreements, this logic never works in a global industry like aerospace. Firms
have to sell internationally to attain high cumulative output, and face significant political
obstacles such as foreign government procurement and offset requirements. Though the
sector, like any other manufacturing industry, is technically covered under the WTO,
generally the preferred method of international governance involved plurilateral or bilateral
arrangements. The former was manifest in the GATT Agreement on Trade in Civil Aircraft;
the latter is seen in the US-EU bilateral agreement on large civil aircraft. The American –
Japanese relationship did not feature formal agreements, but relied instead on a network of
companies and a supportive political environment.
As the GATT/WTO system developed, aerospace was one of only a handful of sectors that
had a dedicated code to govern its international trade. This was because of a widespread
belief that aerospace was a unique sector where underlying technologies and the resultant
economics were understood by a small group of states.22 The GATT code acknowledged the
special nature of the aerospace business – an apparent concession to the role politics plays.
More interestingly, the code, whilst regarding ‘undue’ political pressure in sales campaigns,
but the very insertion of that clause appeared to concede that government influence in aircraft
purchases was an entirely normal occurrence. In this sense, the US-EU bilateral agreement
that resolved the 1992 trade dispute was simply an extension of previous practice: aerospace
was a special sector and it was to be insulated from normal trade liberalisation measures.
The advent of the WTO in 1995 has changed this somewhat, and in doing so added new
tensions into international trade in aerospace. The new Subsidies and Countervailing
22
On the negotiation of the GATT agreement see, Steven McGuire, Airbus Industrie: Conflict and Cooperation
in EC-US Trade Relations, London: Macmillan, 1997.
14
Measures (SCM) code, sought to clarify rules for a range of government supports for industry.
The new code does not prohibit subsidies, but rather attempts to grade them according to their
potential for distorting trade. Broadly, two criteria are applied by a WTO disputes panel
hearing a case: 1) to what extent does the provision of the subsidy hinge on export sales; and
2) to what extent is the subsidy provided to specific firms or sectors.23The code’s aim is clear
enough: restrain the development of targeted, export contingent subsidies. In the highest
profile case concerning industrial subsidies, the Bombardier – Embraer dispute, both
countries were found guilty of offering export-contingent aid to their aircraft manufacturers.24
The SCM’s constraints on targeted subsidies has attracted criticism, mainly from scholars
concerned at the impact this will have on the policy options available to developing states: but
concern exists in developed states as well. In Canada, for example, both popular press and
academic work has criticised the WTO for trampling on national sovereignty and placing too
much emphasis on neo-liberal solutions.25
However, the code offers considerable scope for the provision of other types of subsidies,
most notably those related to pre-commercial research, regional development and
environmental technologies. The SCM code provides powerful incentives to create horizontal
support programmes applicable to a swathe of industries. Weiss argues that the new subsidies
rules, ‘increases the space for sponsoring the technology – or knowledge intensive –
industries that are now deemed critical to securing national prosperity.’26Though it is
uncertain whether Japan’s policies toward aerospace are informed by the new WTO
23
Steven McGuire, ‘Between Pragmatism and Principle: Legalization, Political Economy and the WTO’s
Subsidy Agreement’, International Trade Journal, 16(3), August 2002, pp. 319-343.
24
Andrea Goldstein and Steven McGuire. ‘The Poltical Economy of Strategic Trade Policy and the Brazil –
Canada Export Subsidies Saga’, World Economy, April 2004.
25
Jacqueline Krikorian, ‘Planes, Trains and Automobiles: The Impact of the WTO “Court” on Canada in Its First
Ten Years’, Journal of International Economic Law, 8(4), pp.922-926.
26
Linda Weiss, ‘Global Governance: National Strategies’, Review of International Political Economy, December
2005, p. 724.
15
regulations, new policies pursued under METI auspices have a significant horizontal focus,
with less emphasis on sector-specific policies.27The important point from a trade policy
perspective is that civil aerospace is losing its special status and is increasingly regarded as
just another – albeit important – manufacturing sector.
Japanese – American relationship
As numerous scholars have argued, Japanese economic policy, including investment and
innovation policies, have been shaped by ‘technonationalism’, a guiding principle of policy
that seeks to gain access to foreign markets and technologies, whilst keeping the domestic
market relatively uncontestable for foreign firms.28For Samuels, technonationalism comprised
three components. Nurturance refers to the infant industry support offered by government to
grow promising new products and technologies. Indigenisation involves the gradual shift
from reliance on foreign firms to domestic development of products. Finally, technology and
know-how need to be diffused through networks to related sectors in a form of spin-off. The
extent to which Japan actively pursued this technonationalism, and whether it was successful
if pursued, has featured heavily in academic and policymaking circles. More recent work has
moved the debate on somewhat, by recognising that many states, not just developmental ones
like Japan, actively support high-technology sectors like aerospace. They do so because they
are convinced that highly-skilled sectors like aerospace are relatively immune from low wage
competition, and that the sector generates important spillovers that benefit a variety of
industries and services. Such policies do not, as sometimes suggested, require nationalist
policies: it is perfectly possible to cultivate high-technology industries yet be relatively open
27
Mark Elder, ‘METI and Industrial Policy in Japan: Continuity and Change’, in Ulrike Schaede and William
Grimes (eds.), Japan’s Managed Globalization: Adapting to the 21st Century, London: M.E.Sharpe, 2003,
pp.159-190.
28
Richard Samuels, Rich Nation, Strong Army, Cornell University Press, 1992.
16
to foreign firms. Government calculations on the degree of ‘nationalist’ content in industrial
policy is partly a function of whether policymakers feel the domestic economy has a
absorptive capacity to internalise innovations.29 Recent work has shown that development of
national champions in aerospace is not incompatible with economic openness.30
For Richard Samuels, the aerospace sector is the archetypal technonationalist sector where
nationally-based policies work to produce competitive and profitable technological spin-offs.
At this stage we confront a puzzle. Goldstein notes that the traditional trajectory for a
developing domestic aerospace sector is a three stage process: first, countries begin with coproduction agreements; second, as the industry develops, a viable set of subcontractors
develops; and finally, the domestic industry is capable of putting all the pieces together and
become a final assembler of complete aircraft.31 Samuels may be right about aerospace’s
spin-offs, but the Japanese industry has not really attained the final stage of the process. The
Japanese aerospace sector has not produced leading Japanese manufacturers, unlike in the
automotive and electronics sector. Pekkanen suggests that cost and risk are the key
explanatory factors, but technological change in the sector suggests an alternative
explanation.32 In a sector where technological intensification occurs, being a highly capable
contractor is perhaps preferable to being a final assembler.
The US occupation of the Japanese home islands saw the dismantling of the aircraft industry.
The formal restrictions were severe: major aerospace firms like Mitsubishi and Nakajima
29
Marc Busch, Trade Warriors, Cambridge: Cambridge University press, 1999.
Andrea Goldstein and Steven McGuire, ‘The Political Economy of Strategic Trade Policy and the BrazilCanada Export Subsidies Saga’, World Economy, 27(4), April 2004, pp.541-567.
31
Andrea Goldstein, ‘The Political Economy of High-Tech Industries in Developing Countries: Aerospace in
Brazil, Indonesia and South Africa’, Cambridge Journal of Economics, 26(2002), pp.523.
32
Pekkanen, Picking Winners: From Technology Catch-Up to the Space Race in Japan,Stanford: Stanford
University Press, p.155.
30
17
were broken up and the industry was banned from producing aircraft or parts.33 The formal
ban on aerospace production ended in 1952. During the eight years of the ban, thousands of
aerospace engineers and technicians left the sector, diffusing important technical skills to
nascent industries like electronics and automobiles.34 However, much of the core of the
industry remained intact. The major firms of the pre-war industry were, by and large,
reconstituted under the strong interventionist management of MITI, which was determined to
cultivate a revived Japanese aerospace industry.35 The United States encouraged the
development of some indigenous aerospace capability such as overhaul and maintenance as
this facilitated US military operations in Korea and, later, Vietnam. This developed quickly
into licensed production of components and sub-structures for American military aircraft, then
destined for Japan’s Self-Defence Forces. Models produced under licence included the F-86
fighter aircraft and the T-33 trainer: both allowed the Japanese industry to gain badly needed
expertise in the area of jet-powered aircraft. Japan’s suspension from aircraft production after
1945 meant the industry missed out on the first generation of military jet aircraft.36 Beginning
in the 1960s, Japan attempted to develop a civil airliner programme designed to act as a
technology driver in much the same way as other policies for other sectors, such as memory
chips, flat panel displays or supercomputing.37Though the resulting programme, the YS-11,
was a commercial failure, it did little to temper MITI’s eagerness to support the sector.
Attention was shifted to the creation of co-production agreements with foreign partners.
Subsidies were available to participating Japanese firms in the form of soft loans payable as a
royalty on sales.38These subsidies formed the financial basis for Japanese involvement with
33
Samuels, Rich Nation, Strong Army, pp.199-200.
Samuels, ibid.
35
Pekkanen, Picking Winners, p.153.
36
Society of Japanese Aerospace Companies, The Aerospace Industry in Japan 2005, SJAC: Tokyo, 2005, p.10.
37
Fong, Glenn, Follower at the Frontier: International Competition & Japanese Industrial Policy," International
Studies Quarterly, 42(2), 1998, pp. 339-366.
38
Pekkanen, Picking Winners, p.154.
34
18
successive Boeing aircraft models. What tends to be underappreciated is the role of industrial
policies in other sectors to Japan’s growing success in aerospace.
For most of its history, the Japanese aerospace industry produced military aircraft. This is
true to the current day, with some 61 per cent of the industry’s turnover generated by military
sales – effectively procurement by Japan’s Self-Defence Forces.39 Japanese aerospace firms,
like their American counterparts, benefited greatly military procurement, both by providing
revenues from procurement but also in allowing a degree of technological development. The
development of the F-2 (FS-X) indigenous fighter is perhaps the best example of the use of a
military programme as a platform for technological development. The F-2 programme was
conceived in the 1980s as a way for Japan to lessen its dependence on the US for military
equipment. Though co-produced with Lockheed-Martin, the F-2 differs from other Japanese
military programmes in not being a licensing agreement: Japanese firms have extensive
responsibility for design, as well as production. The programme had been dogged by
controversy for years – and the first fighters only became operational in 2004. Though based
on the American F-16 fighter, the F-2 makes much greater use of composite materials in its
construction, as well as having more sophisticated computerised flight controls and an
indigenously produced source code. A key difference between the F-2 and its F-16
counterpart is the composite wing – made by Mitsubishi – which dramatically reduces weight
and aids manoeuvrability. MHI used the F-2 programme as a test bed for its composite
materials design and production processes. The programme, ‘has given MHI hands-on
experience in working through difficult composite design and production problems that will
serve it well as it undertakes the commercial assignment of producing composite wingboxes
39
Society of Japanese Aerospace Companies, Aerospace Industry in Japan, 2005, Tokyo, SJAC,
http://www.sjac.or.jp/hp_english/aerospace_industry.pdf, p.5, accessed 25 November 2005.
19
for the Boeing 787.’40The company, however, also benefited from military research and
development funding investigating the use of composite materials for large scale, load bearing
aeronautical structures.41
Though military procurement and R&D support was important to Japanese aerospace, the
limitations are also noteworthy. Japan’s constitutional limits on defence spending never
allowed the massive, military-led subsidies enjoyed by US firms during the Cold War. As
noted earlier, unlike the US industry, Japan has few specialist aerospace firms; the key firms
are all integrated manufacturers with interests in several industries. Pekkanen argues that this
affects the type of political demands made by the sector. She suggests that the Society of
Japanese Aerospace Companies, whilst a formidable lobbyist, has generally eschewed
championing sector-specific policies – at least for the civilian sector. This is partly because of
the inevitable difficulty in aggregating interests but also reflects the unwillingness of
diversified manufacturers to press for aerospace specific policies when the sector accounts for
only a fraction of turnover.42
The ‘crisis’ in American aerospace and the growing importance of Japan
Aerospace has been an American success story for several decades, but by the late 1990s, and
especially the first years of the new millennium, increased industry and political attention has
been paid to an alleged slippage in the competitive position of the US aerospace sector. The
political impact of this issue was clear enough to the White House for it to create an aerospace
industry taskforce in 2001. European aerospace firms, particularly Airbus, were seen as the
40
Michael Meacham, ‘Striking Maneuverability’, Aviation Week and Space Technology, 31 October 2005.
Meacham, ibid.
42
Pekkanen, Picking Winners, p.156. In 2004 and Q1&2 of 2005, aerospace accounted for les than 10% of
MHI’s sales, see, MHI, Financial Results First Half of FY 2005 and Forecast for FY 2005, http://www.mhiir.jp/efin/h17_10/fnancial.pdf, accessed 17 February 2006.
41
20
key competitors for finished aircraft or major sub-systems such as engines. Japan, by contrast,
was the object of attention for its increasing share of important new products for Boeing.
At its height in the 1970s, virtually 80 per cent of the world’s civil airliners were American
made; no other industry made a larger net contribution to the US merchandise trade balance.
In 2004, for example, the sector contributed $26 billion surplus to US merchandise trade,
which was almost double the next highest sector: cereals.43 The sector also had a considerable
presence in the employment of skilled manufacturing personnel, as well as scientists,
technicians and engineers. The US aerospace workforce peaked in the late 1980s, when some
1.35 million people worked in the sector: a decade later the total stood at 870,000.44
Employment in the sector has stabilised in recent years at approximately 600,000 (see Table
1). It is worlth noting (see Table 2) that this smaller workforce is responsible for increased
sales, at least in nominal terms. American aerospace exports were worth some $170 billion in
2005.
US leadership rested on what one congressman called the ‘partnership of industry, the
universities and the Federal Government…’45Arguably, no other manufacturing industry in
the United States had benefited so much from a de facto industrial policy than aerospace.
David Mowery argued that what ‘clearly distinguished’ aerospace from other sectors was the
‘structure and amount of public support for innovation’.46Thanks for the exigencies of the
Cold War, federal funds for basic and applied research flowed into aerospace. Mowery noted
43
Department of Commerce, ‘Total All Merchandise, Trade with World’,
http://tse.export.gov/NTDChartDisplay.aspx?UniqueURL=ggjdboi55kxptle3dgfjyw55-2006-1-28-6-58-49,
accessed 28 January 2006.
44
National Academy of Sciences, Trends and Challenges in Offsets, National Academy Press, 1999, p.4.
45
US Congress, ‘Statement of Congressman Bart Gordon’, The Aerospace Industrial Base, Hearings before the
Subcommittee on Space and Aeronautics, House Committee on Science, 107th Congress, 1st Session, 15 May
2001, p.6
46
Mowery in Mowery and Rosenberg, p.178.
21
that the federal government funding accounted for over three quarters of all research funding
for the sector in 1986.47In its degree of support for basic and applied research – and for the
diffusion of that research across the sector – the US government policy for aerospace is
thought to resemble the Japanese research and development programmes that, rather
ironically, were to become such a source of trade friction – though not in aerospace.48
The evolution of the sector was to undermine these relationships, however. First, the ending
of the Cold War produced unexpected consequences for the industry. US defence budgets
shrank dramatically, setting in motion a widespread consolidation. On the face of it,
consolidation ought to have produced a more productive and competitive industry – and the
sales and profitability of many firms suggest this has happened. However, as Wood noted,
‘consolidation has created higher debt/equity ratios and lower credit ratings for these
companies, which hinder their ability to raise capital.49The shrinking defence budget meant
fewer weapons systems to design and to offer for sale to the DoD, with a predictable effect on
research and development trajectories. Companies became more conservative and opted for
incremental or conservative R&D practices. Boeing cut its research and development: by the
first years of the new millennium, one study calculated that Airbus was spending three times
as much as Boeing on R&D.50 Second, the divergence of technologies in the civilian sector
from the military meant that a portion of the R&D talent in the sector had little to offer the
market in the way of product. John Douglass also noted that military requirements for
‘communications equipment, imaging and data processing’ were not necessarily areas where
47
Mowery, in Mowery and Rosenberg, p.170.
Mowery, ibid., p.188.
49
US Congress, ‘Statement of Heidi Wood’, The Aerospace Industrial Base, Hearings before the Subcommittee
on Space and Aeronautics, House Committee on Science, 107th Congress, 1st Session, 15 May 2001, p.8
50
David Pritchard and Alan MacPherson, ‘Boeing’s Diffusion of Commercial Aircraft Design and
Manufacturing Technology to Japan: Surrendering the US Aircraft Industry for Foreign Support’, Canada-United
States Trade Centre, Occasional Paper 3, March 2005. A separate study, using different methodology, paints a
somewhat different picture. The UK’s Department of Trade and Industry noted that among aerospace firms,
only Boeing and Northrop Grumman increased their patenting rate (patents per £10 million R&D spend) in the
years 2001-2004. See DTI, The 2005 R&D Scoreboard, p.79.
48
22
aerospace companies had research strength.51 Though the industry had long drawn heavily on
other high-technology sectors, the gradual evolution of the sector eroded the position of
traditional aerospace technologies. Computers replaced cables in flight control systems, flatpanel displays and the glass cockpit supplanted traditional instrument arrays; and carbon fibre
and other materials were used in preference to aluminium and steel.
Even production technologies eroded traditional aerospace competencies. Historically,
aircraft production had considerable ‘craft’ elements to it; the process was labour intensive
with the prime contractor retaining control over the virtually the entire production process.
However, a trend toward modular construction had gathered force by the 1990s. In this
model, extensive fabrication of large sub-systems was done off the main site by other
contractors: final assembly really was just about putting the pieces together. The origins of
this model are disputed. Arguably, political rivalries and nationalist sensitivities meant that
Airbus’ workshare arrangements represent the start of the process. What was once considered
Airbus’ handicap – its complex ownership and workshare arrangements – allowed for the
development of the modular process. Other work, however, identifies Embraer as the key
innovator. This Brazilian firm, once confined to being manufacturer of light military aircraft,
raced in little over a decade to become one of the key players in the booming regional aircraft
market, as well as one of Brazil’s few truly successful multinationals. It did so via a ruthless
reorganization in the early 1990s: the workforce was reduced from 12,500 to 3,900;
production costs were tightened and delivery times reduced; and risk sharing partners were
used to increasing degrees.52Irrespective of its origins, the model makes aerospace less an
51
US Congress, ‘Statement of John Douglass, President of the Aerospace Industries Association of America,
The Aerospace Industrial Base, Hearings before the Subcommittee on Space and Aeronautics, House Committee
on Science, 107th Congress, 1st Session, 15 May 2001, p.12.
52
Andrea Goldstein, ‘The Political Economy of High-Tech Industries in Developing Countries: Aerospace in
Brazil, Indonesia and South Africa’, Cambridge Journal of Economics, 26(2002), pp.521-538.
23
exception in terms of production, and in so doing offers great opportunities for firms that are
adept at efficient manufacturing.
Japanese – American commercial relations have, of course, been marked by trade friction
over several decades. Throughout the 1980s and early 1990s in automobiles, semiconductors
and steel among others American industry placed enormous pressure for varying forms of
trade protection, often through bilateral negotiated trade agreements that violated the spirit, if
not always the letter, of GATT agreements. Katzenstein noted the tendency for Japanese
policymakers to respond to external pressures for reform. Indeed, he regards US pressure on
the Japanese bureaucracy and political class as so routine as to be an ‘institutionalised’ part of
the relationship.53 Aerospace has not been marked by any of this friction, partly because the
military relationship between the two states offered a form of ‘security glue’ which simply
precluded open commercial conflict. Another reason for quiet on the trade front is that the
US enjoyed a considerable trade surplus in aerospace. Japanese airlines purchased finished
US made airliners and US military aircraft, whereas Japan shipped parts. In 2004, Japan’s
aerospace exports to the US were valued at US$ 875 billion, some 99.5 per cent of which
were aircraft parts.54 Aerospace was the only American manufacturing sector to be in surplus
with Japan, with a $4.1 billion surplus in 2004.55
53
Peter Katzenstein, ‘Regional States: Japan in Asia, Germany in Europe’, in Kozo Yamamura and Wolfgang
Streeck (eds.) The End of Diversity? Prospects for Japanese and German Capitalism, Ithaca: Cornell University
Press, 2003, p99.
54
US Department of Commerce, ‘HS-88: Aircraft, Spacecraft and Parts Thereof’,
http://tse.export.gov/NTDChartDisplay.aspx?UniqueURL=odzisufkuyhw2savcav5mfa4-2006-2-12-5-47-59,
accessed 12 February 2006.
55
US Department of Commerce, ibid.
24
US-Japan Trade in Aerospace Products (HS-88) in billion $US
6,000,000
5,000,000
4,000,000
US Exports
3,000,000
US Imports
2,000,000
Surplus
1,000,000
0
2000
2001
2002
2003
2004
Source: US Department of Commerce,
http://tse.export.gov/NTDChartDisplay.aspx?UniqueURL=odzisufkuyhw2savcav5mfa42006-2-12-11-3-34, accessed 12 February 2006.
However some attention must be given to Boeing’s extensive collaboration with Japanese
firms, which has to some extent shut out potential competitors. Sandholtz and Love drew
attention to the importance of non-market strategy – political activities by firms – in their
study of the Asian aerospace industry56. However, their work concerned lobbying activity in
sales campaigns: it did not consider whether corporate political activity would be important in
the creation and maintenance of manufacturing the product. In accessing and keeping
important Japanese firms as collaborators, Boeing has developed a first-mover advantage
based not on product strategy, but careful non-market strategies of collaboration and
consultation with Japanese firms and policymakers.57 One Pratt and Whitney manager
observed, ‘Nobody should underestimate the Boeing relationship with Japan – it is very
special’.58 Airbus does have subcontracting work in Japan, but it is miniscule in size relative
to Boeing’s presence. Several Japanese firms have refused Airbus’ offers of subcontract work
on the A350, citing their considerable workload for Boeing.59 Boeing’s success in cultivating
56
Wayne Sandholtz and William Love, ‘Dogfight Over Asia’, Business and Politics, 3(2), article 4,
George Frynas, Kamel Mellahi and Geoffrey Pigman, ‘Political Strategy as First Mover Advantage’, Strategic
Management Journal, forthcoming 2006.
58
Quoted in, Mark Pilling, ‘Dream Date’, Airline Business, 20(4), April 2004, p.36.
59
Brendan Sobie, ‘Japanese Shun A350’, Flight International, 1 November 2005, www.flightinternational.com,
accessed 5 January 2006.
57
25
this relationship, coupled with its evident success in terms of American trade, has insulated
the Japan-American relationship from the type of trade friction that features so prominently
across the Atlantic.
Japan’s involvement with Boeing dates back to the 1928, with the first purchase of a Boeing
light aircraft. In 1937, Mitsubishi Heavy Industries signed a licensed production agreement
with Boeing for the construction of the BT-9, a military training aircraft.60 It was the
beginning of a decades-long relationship between these two companies. Gradually, MHI’s
work for Boeing shifted from licensed production to sub-contracting. 1970s, when Japanese
firms gained subcontracting work on the 767, Boeing’s twin-engined, wide body response to
the A300. This early work was not particularly challenging; Japanese firms made some of the
control surfaces, such as the ailerons, and some of the empennage. Though Boeing
acknowledged that Japanese firms had become significant subcontractors, the off-loading of
production work to foreign firms was not, in itself, unusual. Offset packages were common in
military sales: so the 767 relationship was not that different.
During the 1990s, concerns were raised about the scope for Japan to turn its collaborative
relationship with the United States into a competitive one. Against the backdrop of industry
consolidation and the rise of Airbus, some American observers saw risks in the links with
Japan. ‘The security environment that justified a pattern of extensive U.S. aircraft technology
transfer to Japan is rapidly changing, and there is a need to take economic considerations into
account’.61A National Research Council report highlighted several aspects of the evolving
aerospace marketplace that could affect the competitiveness of US firms. First, the report
noted that aircraft production was evolving toward ‘high-quality, low cost manufacturing’
60
The Boeing Company, ‘Boeing in Japan’, http://www.boeing.com/companyoffices/aboutus/boejapan.html,
accessed 29 November 2005.
61
National Research Council, High-Stakes Aviation, p.63.
26
similar to other industries where Japan had competitive strength.62Second, the report drew
attention to the highly competitive Japanese firms operating in other technology sectors that
supply aerospace, particularly the electronics and materials industries. Toray, the Japanese
firm which has gone on to capture significant contacts with Boeing for the 787, was
specifically mentioned as firm whose success in carbon fibre technologies could threaten the
US supplier base.63 Interestingly, these concerns were not highlighted the 2002 presidential
commission’s report, Commission on the Future of the United States Aerospace Industry. In
that report, Japan’s strengths were seen as being a niche producer in avionics and as a riding
power in the commercial space launch and satellite sectors.64
The presidential report aside, Boeing’s linkages with Japanese aerospace have come in for
scrutiny and criticism in recent years, particularly with the commercial launch of the 787 in
2005. In both the popular and academic work, Boeing’s strategy of outsourcing increasing
amounts of work to Japan has met with criticism, both because it is thought to weaken
Boeing’s innovative capabilities and its adverse effect on US suppliers. Critics fasten upon
Boeing’s weak performance in the 1990s as evidence that the firm fell behind Airbus and now
needed Japanese help to leapfrog its European competitor.65 From the 767 programme to the
787 currently under development, Japanese involvement has steadily increased in two ways.
First, Japanese subcontractors now make more of the aircraft by value that previous: for the
777 programme, Japan’s workshare was 15 per cent whereas for the 787, some 35 per cent
will be manufactured in Japan. For ongoing Boeing lines, Japanese manufacturers have
assumed expanded responsibilities. Mitsubishi, for example, has long produced components
62
NRC, High-Stakes Aviation, p.2.
NRC, High-Stakes Aviation, p.13.
64
Office of the President of the United States, Commission on the Future of the United States Aerospace
Industry, Washington: November 2002, p.154.
65
David Pritchard and Alan MacPherson, ‘Boeing’s Diffusion of Commercial Aircraft Design and
Manufacturing Technology to Japan: Surrendering the US Aircraft Industry for Foreign Support’, Canada-United
States Trade Centre, Occasional Paper 3, March 2005
63
27
for the 747-400 model; but in 2004 it took over complete fabrication of the wing centre
section.66Second, and far more significant, has been the move from production work to
design. For most major American and European aircraft makers, ceding some production
work was an expected, if sometimes cumbersome, way of clinching an order. What did not
happen, until very recently, was to sub-contract design of a major structural component of the
aircraft. The process is not confined to the Boeing-Japan relationship. As Mitsubishi noted in
its announcement of a new collaboration with Rolls-Royce on the new Trent 1000 high-thrust
engine: ‘For MHI, its participation in the Trent 1000 development programme is an ideal
opportunity not only to secure its aero-engine business…but to strengthen its international
competitiveness of core technology for aero-engines, but joining in its development from
initial design stage.’67
Exact Japanese workshare on the new 787 are subject to some argument and public domain
figures are not entirely reliable. However, it is clear that Japanese firms are now producing
and designing important wing components, with the help of development funding from the
government. For previous programmes, such as the 777, the Development Bank of Japan
(DBJ) disbursed government support to the Japan Aerospace Development Corporation: the
corporate alliance used by Mitsubishi, Fuji and Kawasaki for their aerospace work68 As a
royalty-based scheme, Japanese funding is similar in design to the launch aid used by
European governments in support of Airbus. This is thought to have delayed the finalisation
of the contracts, in case the WTO finds against Europe in its dispute with the US.69 Wing
design and manufacture are arguably the two most technologically rich elements of building
66
Mitsubishi Heavy Industries, ‘MHI Ships First Wing Center Section for the Boeing 747’, 31 August 2004,
http://www.mhi-ir.jp/english/new/sec1/200408311013.html, accessed 25 November 2005.
67
Mitsubishi Heavy Industries, ‘MHI to Participate in the Development of Roll-Royce Aero-Eingine for Boeing
7E7 Dreamliner’, http://www.mhi-ir.jp/english/new/sec1/200409291022.html, accessed 20 January 2006.
68
No author, ‘Cash Not the Only Key’, Flight International, 22 March 2005, www.flightinternational.com,
accessed 5 January 2006.
69
Brendan Sobie, ‘Contract Delays Hit 787 Partners’, Flight International, 19 April 2005.
28
an airliner. The quest to shave weight, and so increase aircraft range, has led both Airbus and
Boeing to explore new, lighter-weight materials, principally composites such as carbon fibre,
for aircraft sections. Airbus, for example, made extensive use of composites for the tailplane
and some control surfaces. Like Boeing, it has increased the amount of advanced materials
used as a means of saving weight and increasing the usable life of the aircraft.70 The new
A350 uses some composites in the wing, bringing the total amount of the airframe composed
of composite to 60 per cent.71 Using carbon fibre for the wing, however, was not attempted
until the 787 programme.72 Japanese firms have carved out competitive positions in carbon
fibre laminates and other advanced materials. One particular type of carbon fibre PAN
(polyacrylonitrile), which is well suited to aerospace applications, was developed in the 1960s
at a Japanese government laboratory.73 Pekkanen notes that government support for the
Japanese textile industry only arose after the promise of synthetic fibres to transform
materials in a swathe of industries became apparent.74 Boeing selected the Japanese firm, the
Toray Company, to be the exclusive supplier of carbon fibre for the 787. For Toray, the
aerospace sector offered a new avenue for the exploitation of the company’s expertise in
advanced textiles and chemical treatments.
Conclusion
The US aerospace industry has come under severe competitive pressures over the past two
decades. The industrial system that served the sector so well – considerable government
70
As to the latter point, composites do not corrode, so are popular in areas prone to corrosion and other forms of
weathering.
71
Airbus Industrie, http://www.airbus.com/en/aircraftfamilies/a350/index.html, accessed 20 January 2006.
72
No author, ‘Battle of the Middleweights’, Air Transport World, March 2005, pp.26-31.
73
Toray Company, ‘The History of Carbon Fibre’, http://www.torayca.com/index2.html, accessed 12 February
2006.
74
Pekkanen, Picking Winners, p.127.
29
funding and defence procurement – has been undermined by changes in the political and
corporate environments and by technological change. In respect of the latter, technological
change in civil aerospace undermined incumbent firms by presenting them with technical
challenges they do not possess the competencies to cope with. More than ever, the sector is
drawing on technologies from adjacent areas – and in doing so rewarding firms with broad
technological bases. Boeing’s response has been to shift into more effective programme
management and, on the basis of patenting data, design leadership.
For all the acrimony in the American – European relationship caused by the rise of Airbus,
US relations with Japan have been good. This rested on both the overarching security
relationship, as well as Boeing’s careful cultivation of relations with leading Japanese
suppliers. However, the technological trends noted above may yet corrode this relationship –
at least for firms other than Boeing. The increased role of Japanese suppliers for key
elements of Boeing’s airliners may yet provoke concern in Washington.
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University of Bath School of Management
Working Paper Series
Past Papers
School of Management
Claverton Down
Bath
BA2 7AY
United Kingdom
Tel: +44 1225 826742
Fax: +44 1225 826473
http://www.bath.ac.uk/management/research/papers.htm
2005
2005.01
2005.02
Bruce A. Rayton
Catherine Pardo, Stephan
C. Henneberg, Stefanos
Mouzas and Peter Naudè
Specific Human Capital as an Additional Reason
for Profit Sharing
Unpicking the Meaning of Value in Key Account
Management
2005.03
Andrew Pettigrew and
Stephan C. Henneberg
(Editors)
Funding Gap or Leadership Gap – A Panel Discussion
on Entrepreneurship and Innovation
2005.04
Robert Heath & Agnes
Nairn
Measuring Affective Advertising: Implications of Low
Attention Processing on Recall
2005.05
Juani Swart
Identifying the sub-components of intellectual capital: a
literature review and development of measures
2005.06
Juani Swart, John Purcell
and Nick Kinnie
Knowledge work and new organisational forms: the
HRM challenge
2005.07
Niki Panteli, Ioanna
Tsiourva and Soy Modelly
Intra-organizational Connectivity and Interactivity with
Intranets: The case of a Pharmaceutical Company
2005.08
Stefanos Mouzas, Stephan
Henneberg and Peter
Naudé
Amalgamating strategic possibilities
2005.09
Abed Al-Nasser Abdallah
Cross-Listing, Investor Protection, and Disclosure:
Does It Make a Difference: The Case of Cross-Listed
Versus Non-Cross-Listed firms
2005.10
Richard Fairchild and
Sasanee Lovisuth
Strategic Financing Decisions in a Spatial Model of
Product Market Competition.
2005.11
Richard Fairchild
Persuasive advertising and welfare in a Hotelling
market.
2005.12
Stephan C. Henneberg,
Catherine Pardo, Stefanos
Mouzas and Peter Naudé
Dyadic ‘Key Relationship Programmes’: Value
dimensions and strategies.
2005.13
Felicia Fai and Jing-Lin
Duanmu
Knowledge transfers, organizational governance and
knowledge utilization: the case of electrical supplier
firms in Wuxi, PRC
2005.14
Yvonne Ward and
Professor Andrew Graves
Through-life Management: The Provision of Integrated
Customer Solutions By Aerospace Manufacturers
2005.15
Mark Ginnever, Andy
McKechnie & Niki Panteli
A Model for Sustaining Relationships in IT
Outsourcing with Small IT Vendors
2005.16
John Purcell
Business strategies and human resource management:
uneasy bedfellows or strategic partners?
2005.17
Richard Fairchild
Managerial Overconfidence, Moral Hazard, and
Financing and Investment Decisions
2005.18
Wing Yee Lee, Paul
Goodwin, Robert Fildes,
Konstantinos
Nikolopoulos, & Michael
Lawrence
Providing support for the use of analogies in demand
forecasting tasks
2005.19
Richard Fairchild and
Sasanee Lovisuth
Product Differentiation, Myopia, and Collusion over
Strategic Financing Decisions
2005.20
Steven Brammer, Andrew
Millington & Bruce
Rayton
The Contribution of Corporate Social Responsibility to
Organisational Commitment
2005.21
Richard Fairchild and
Ganggang Zhang
Repurchase and Dividend Catering, Managerial
Myopia, and Long-run Value-destruction
35