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Japan Gears Up to Become Major Participant in Aircraft Industry


TOKYO — As Japanese industry struggles to adapt to the strengthening yen, Toshifumi Hirai, an official at Japan's Ministry of International Trade and Industry, has his eyes set on the 21st Century.

The economics of the strong yen will probably force Japan's currently most profitable industries--textiles, electronics, automobiles--to manufacture offshore in developing countries, said Hirai, director of the Aircraft and Ordnance Division at MITI.

"We need to find new, promising, profitable high-tech industries. . . . I think aircraft, or space, has a market in the next century."

But worldwide competition in the aircraft industry is akin to a "marathon race" in which Japan is too weak and too far behind to even dream of taking the lead, Hirai added.

"We have to keep running to see the backs of the front runners," he said. "We have no intention and no capability to pass them. But we just want to keep running the same distance or less distance behind."

Despite such modesty, Japan's efforts to develop an aircraft industry are taken very seriously by leading U.S. firms. MITI, after all, is famous for its success at nurturing industries, including steel and televisions, which later grew to devastate their American rivals.

U.S. firms, instead of seeing Japan as a threat, perceive the developments as part of the growing globalization of high technology industries and are aggressively seeking to become partners with Japanese aerospace firms--even supplying technical support.

George David, president of United Technologies Corp., the Hartford, Conn.-based maker of Pratt & Whitney aircraft engines, acknowledged during a visit to Tokyo that his firm's cooperation with Japanese companies was contributing to their technical abilities in aerospace. But he said he wasn't worried about helping to create future competitors.

"I believe they will be competitors anyway," he said. "I would much rather partner with the strongest possible competitors rather than have to meet all of them head-to-head in the marketplace."

Klaus Brauer, Boeing's chief analyst for marketing and communications, noted that aircraft design and manufacture is "an industry with very high risks." Japanese firms essentially have two choices, he said: They can "throw all their eggs in one basket" by picking a narrow niche to focus on as full-fledged competitors, or they can continue their current efforts to diversify and share risk with foreign partners.

So far, he said, the Japanese have chosen the less-risky path of partnership. "That makes perfect sense to us," he said. "We see that continuing."

U.S. occupation forces dismantled Japan's aircraft industry after World War II. The industry has staged a comeback in recent decades to record sales of $8.7 billion last year, according to the Society of Japanese Aerospace Companies.

About 75% of the industry's output is military work for Japan's Self-Defense Forces, such as production of F-15 fighter jets under U.S. licenses. Much of the commercial work consists of producing parts for the Boeing's 767 and 777 jetliners, and for Pratt & Whitney engines for those planes.

The goal is to change the ratio to about 50-50 military and commercial, said Shinya Kobayakawa, senior managing director of the Japan Aircraft Development Corp. (JADC), an umbrella organization for Japan's five key aircraft firms: Mitsubishi Heavy Industries Ltd., Kawasaki Heavy Industries Ltd., Fuji Heavy Industries Ltd., ShinMaywa Industries Ltd. and Japan Aircraft Manufacturing Co. Ltd.

A key piece of the JADC strategy is for its firms to take the leading role in the design and manufacture of a new small passenger jet the Japanese have dubbed the YSX. JADC has for several years explored building such a plane with an American or European partner, either in the 100-seat or 75-seat class.

The YSX, if built, is likely to be a multinational effort. One possible scenario is for JADC, Boeing and Chinese state-run aircraft manufacturers to cooperatively build a 100-seat airplane. Boeing, for its part, has also been interested for several years in building a jet of this size. Boeing and JADC have launched a joint feasibility study for such an airplane, but design work remains in the early stage.

The Japanese believe the YSX could satisfy a global market for passenger jets smaller than those of the Boeing 737 series, which seats 108 to 159 passengers. Estimates of expected demand over the next two decades for this kind of smaller jet range from 1,500 to 3,000 aircraft.

The Japanese industry sees the YSX as a step toward participation in even bigger multinational projects, possibly including a post-Concorde supersonic transport or a new 600-passenger jumbo jet.

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