Monday, May 15, 2006

The Flight Of The Aerospace Industry

The world continues to get smaller, and whether you like it, or fear it, the relative shrinking of the planet is transforming the way everyone relates to each other, from individuals to governments, and all points in between. Business, especially, is in constant flux as it adapts to new advantages and disadvantages brought about by changes in communication and transportation, opening markets and borders, and costs of production in various places around the globe. A friend sent along this Newsweek article by Emily Lynn Vencat, on the growing globalization of the airplane building industry. Boeing and Airbus, the U.S. and European rivals and leaders in the field, are disbursing their manufacturing processes throughout the world, and creating a sort of global manufacturing campus.

The prototype of the new Boeing 787 Dreamliner is being built in a virtual factory so big, it effectively spans continents. Engineers in Japan build the wings, Koreans add the raked wingtips, Brits refine the Rolls-Royce engines, while Italians and Texans fit the horizontal stabilizer and center fuselage. Project managers in Everett, Washington, watch it all take shape with 3-D glasses that allow them to walk around the digital prototype and monitor every change made by their 6,000 workers worldwide, just as if the model were being assembled in a real factory.
According to Vencat, the moves by the two biggest airplane manufacturers to outsource production have been "quiet, but dramatic" and Asian contractors are now doing jobs that Boeing previously had refused to entrust to other companies, because of the expertise required. Apparently, that expertise has been growing in countries not previously known for their engineering prowess.

The key to collaborating globally comes down to expertise, says David McKenna, an executive in Boeing's airplane-production global-strategy unit in Seattle. "We want to have the best partners in the world in our new program ... whether they're from Italy, Sweden, France, Korea, Japan, China [or] the United States," he says. China, for instance, can handle assembling metal aircraft like Airbus's A320 or building wingboxes, but doesn't yet have the skills to craft the newest composite wings, which the 787 will debut commercially.

Japan and China are reaping a good deal of the benefits as the competing giants shift away from home-based production. The big manufacturers are farming out part of their business in the name of efficiency and profitability, and of course Japanese and Chinese companies are happy to provide their services in exchange for hard currency. However, they are also gaining something of more worth, in the long run. They are gaining more of that valuable expertise and technology that will enable them to play an even larger role in the industry in the future.

This prompts Vencat to look at the question of future competition coming from the same globally diverse companies that Boeing and Airbus are now using to to try to give themselves an advantage over each other in the current market. The governments of China and Japan would certainly not be averse to having home-grown aerospace industries of their own, and are investing to that end, but is it enough to endanger the success of the industry leaders?
It could take decades for Japan or China to pose a serious threat, analysts say. Boeing and Airbus are flying high, with record sales in 2005, and complete domination of the market for planes that carry 150 or more people. Richard Aboulafia of the Virginia-based Teal Group says that Japan simply isn't investing the massive amounts of money—billions over decades—necessary to get a full range of passenger jets off the ground. "All-American defense spend-ing is what you need for this industry, not METI's $29 million annual investment—that's corporate welfare for engineers," says Aboulafia. Indeed, the manufacturers most directly in competition with the next generation of Chinese and Japanese passenger planes are the smaller ones, like Brazil's Embraer or Canada's Bombardier.
So, the threat to Boeing and Airbus doesn't look too imminent. The people who worry about U.S. preeminence in the field of aerospace can breath a sigh of relief. Or can they? Vencat concludes her article with the following:
Of course, the whole idea of "national" aerospace giants may be doomed now that Boeing and Airbus are increasingly less American or European. "What's the point of doing it all yourself when you can do it better and more cheaply when you spread it around the world?" says one industry insider, who declined to be named because he works for a high-profile aerospace company. "In 20 years it will be impossible to distinguish what is an American, Asian or European aircraft." That's likely to be true, too, for a Boeing of Japan, or an Airbus of China, if they ever take off.

Personally, I don't find this too threatening. I've heard it said that a rising tide floats all boats. In this case, it might be said that a rising air current lifts all planes. With the increasingly interconnected nature of the world, it is to everyone's benefit for previously backward countries like China to grow in prosperity. Poor countries, it is true, do not produce airplanes and do not compete with American companies that do. However, they also do not buy airplanes, or much of anything else, for that matter. As long as there are efforts to prevent trade restrictions from hindering a mutual exchange of goods, American companies benefit from the expanded markets that come with the advancement of emerging economies. (Note that I'm not talking here about sending technological secrets to the Chinese government so that they can threaten us with impunity. Very different scenario.) If the airplane coming out of Japan or China in 15 years is a competitive threat to Boeing, or Airbus, it will be because the product is more attractive to the consumer, by virtue of quality or cost (a la Japanese cars in the 70s.) In which case, the current leaders had better work on putting out a better product. That's called progress, and is one of the big advantages that competition brings to the consumer. I don't have fears for Boeing, as long as they work on putting out the best product they can, wherever it's manufactured.

2 comments:

  1. We just better make darn sure our educational institutions in the U.S. are setting high standards so that future generations here are equipped to compete in the global economy.

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