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JAMES FLANIGAN

Japan's Ambition vs. Boeing's Achievement

April 18, 1990|JAMES FLANIGAN

A huge--but shortsighted--sigh of relief greeted Boeing's announcement last weekend that Japanese subcontractors would have less participation in its new jetliner than was previously suggested.

Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries will work on 20% of the new plane, which will be dubbed the 777 if Boeing gets a couple of big orders and decides to go ahead. And that's more work than those same subcontractors have had on the 767 and other Boeing jets.

But by mutual agreement with Boeing, Mitsubishi and the others will not take an equity stake in the project by putting up 25% of the $3 billion to $4 billion in development costs. Nor will they get close-up lessons in how the Seattle company coordinates such a massive project, or markets planes to the world's airlines.

That lesser role for Japan is being hailed as protecting Boeing's technology--and by extension U.S. leadership in the world aircraft industry.

But that's too narrow a view. It misunderstands technology, business, world markets and how a great company stays ahead in a major industry.

Shutting Japanese subcontractors out of Boeing won't shut Japan out of the aerospace business. Nor will it preserve Boeing's leadership.

The companies--all of them sizable and well financed--have other ways to learn the ropes. They can work with McDonnell Douglas on its planned MD-12 jetliner, for one thing. In fact, their help would be welcomed by cash-short McDonnell, which has worked with Mitsubishi Heavy Industries on the F-15 and F-4 fighter planes. "We've had a long history of collaboration," says a McDonnell Douglas spokesman. "They're fine people."

Or they can work with Europeans. Mitsubishi is already discussing joint development, with Daimler-Benz of West Germany, of a commuter jet. "It could be through that venture that they will develop a supersonic plane in this decade," says John Harbison, aerospace expert at Booz Allen Hamilton consultants.

The market is simply too attractive to leave alone. Boeing estimates that 9,935 jetliners will be sold by all aircraft makers in the next 15 years. That's a $40-billion-a-year business worldwide, and an industry moreover that creates high-skilled jobs and opportunities for hundreds of subcontractors to advance the state of the art in everything from reclining seats to computerized navigation systems.

Small wonder that talk of the 777 has raised expectations in U.S. aerospace. "We hope there's more Boeing in our future," says a spokeswoman for Grumman, which has subcontracted on Boeing planes back to the 727.

So how does Boeing stay on top in such a business? It takes risks. Over a decade ago, when it had less than $2 billion in equity capital, Boeing spent $2.6 billion to bring out two planes at once, the 757 and 767. Why two? To make sure it covered all the passenger capacity ranges in the market, from the 146-seat 737 through the 400-plus passenger 747.

It's doing something of the same today, risking $3 billion to launch the 350-seat 777, even though McDonnell Douglas and Europe's Airbus Industrie already have orders for similar-sized jets and will be in production before Boeing.

Another company might leave that market segment to competitors and concentrate on another niche--arguing that such a policy maximizes profits, not merely market share. Not Boeing. "It will count on the economies of using two new engines and other technical advances to be able to offer more plane for less money," says analyst Wolfgang Demisch of UBS Securities, the brokerage arm of Union Bank of Switzerland.

Then it will market the plane as one that can help an airline make money. Boeing isn't known for making pretty airplanes--sleek tubes of metal like the French Caravelle years ago. Rather, it designs seat configurations and other elements to make profit for the operator. Airlines appreciate that, which is why Boeing has a 65% share of the world market--and remains the largest U.S. exporter.

It plays a subtle game. Its invitation to Japanese subcontractors to participate in the 777, for example, was a move to cement business with Japan Air Lines and All Nippon Airways, big Boeing customers and transportation leaders of the fast-growing Asian market.

It may also have been a ploy to keep potential competitors from developing a plane too quickly on their own--or a move to lay the groundwork for future collaboration on a supersonic plane--that could cost $30 billion to develop. Only Boeing knows for sure.

In any event, the collaboration never came off. Both sides hesitated, say analysts, because of political reactions, especially in Congress, where some members fear that foreign collaborations give away U.S. technology.

Boeing's technology? It can't be given away. What it boils down to is that Boeing keeps the target moving, a strategy that recalls some of the best lines ever written on how to succeed in business. They come not from a textbook but from "The Mary Gloster," Rudyard Kipling's poem about a 'cussed old shipbuilder dying in Scotland and trying to explain it to his son:

They asked me how I did it, and I gave 'em the Scripture text,

'You keep your light so shining a little in front o' the next!'

They copied all they could follow, but they couldn't copy my mind,

And I left 'em sweating and stealing a year and a half behind .

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