STILL CLIMBING IN ASIAN SKIES: BOEING
Aug. 8 is a day of good luck on the Chinese calendar, and for Boeing Co. that's certainly the case. On that date, the giant planemaker announced a $100 million plan to build a major presence in China, complete with a new headquarters, a large spare-parts facility, extra training programs for Chinese air crews, and a deal to buy fuselage sections for the 737 from local manufacturers.
Boeing is upping the ante in Asia, the fastest-growing market for aircraft in the world. Last year, Asian carriers bought Boeing planes worth $8.7 billion, 34% of its total revenue, up from 18% in 1991. Boeing predicts that 40% of future air-traffic growth will come from Asia-Pacific travel, and it wants those passengers to fly on Boeing jets.
So the planemaker is wooing the Chinese and Japanese with joint-manufacturing deals, offering special assistance in training Chinese crews, and even discussing the prospects for a jointly designed and built American-Japanese-Chinese plane--all to lock out any European, American, or even Asian threat to its hegemony.
Boeing's Asian market share already surpasses 60%. But it has seen its archrival, Airbus Industrie, grab away share in Europe and the U.S., and it's not waiting for that to happen in the Pacific Rim. The competition is already heating up. Although Airbus has sold only 35 jets to China so far, vs. 167 for Boeing, it plans to invest $25 million in maintenance, training, and spare-parts facilities in China. In June, Airbus won a $1.8 billion order from Singapore Airlines Ltd., and Hong Kong's Cathay Pacific Airways Ltd. has become a big buyer of its A340 jumbo jets. "Asia is becoming critically important for Airbus," says John J. Leahy, Airbus North America's president, who will soon head the parent company's worldwide sales and marketing.
Then there's the potential threat from the Asians themselves. True, no Asian aerospace company can compete with Boeing or Airbus yet. But the Chinese are building and selling 50-seat commuter jets, and the Japanese have the technology knowhow to construct even bigger airframes.
HEAVY METAL. To keep the fate of Asian aerospace in its hands, Boeing is steadily broadening its relationship with Japan's three major players, Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Fuji Heavy Industries. The Japanese "heavies" make 15% of the airframe of the Boeing 767 and 20% of Boeing's newest plane, the 777. Europeans believe the Boeing strategy helped to ensure its dominance in Japan, where Airbus has landed only 60 orders, from two airlines and a leasing firm.
In China, Boeing has also grabbed the lion's share of the market, but it has been slower to help China's aircraft industry. McDonnell Douglas Corp. jumped in early on, agreeing in 1985 to produce 25 narrowbodies jointly in Shanghai. In 1992, Boeing competed for a project to build planes for regional routes but lost to McDonnell.
But Boeing has kept at it, gradually building close relations with two state-owned factories in Xian and Shenyang. Since 1980, Boeing has bought more than $100 million in parts from China, starting with doors and working up to more complicated tail fins. Now, Boeing has placed its biggest order yet: 100 rear-body sections to be built by Xian for the 737, currently built by Boeing in Wichita.
LOCAL SUPPORT. The deal should widen Boeing's lead in the China market, which already purchases 25% of its production of 737s. "There's no question, in many countries, there's a need to show a willingness to support their industries," says Richard Albrecht, Boeing's executive vice-president for sales and marketing.
By working so closely with the Japanese and Chinese, Boeing is taking a risk that it may be helping to develop future competitors. Yet so far, the Japanese have been satisfied with the role of partner, and the Chinese have a long way to go before they could be serious rivals.
Such concerns haven't stopped Boeing from entering a potentially bigger phase of cooperation with the Asians: co-developing an all-new plane. Since May, Boeing has been holding intensive discussions with Japanese and Chinese suppliers about designing and producing an 80- to 100-seat jet to serve short-haul markets. China would be a huge market for such planes, since it is building or upgrading airports in 30 cities, and air traffic recently has been growing close to 30% a year.
The talks are in an early phase, and the Japanese have also been discussing development of a 70- to 100-seat plane with the French-Italian aerospace consortium ATR. Japanese officials insist that the Europeans are not out of the race, but an ATR spokesperson admits that Boeing appears to have the edge. So far, Boeing's luck in Asia is holding.
BOEING'S ASIAN PUSH
Boeing is outsourcing the production of big parts of the 737, 767, and 777 to China and Japan. It may develop a 100-seater with both countries.
Boeing is building a large new spare-parts center in Beijing, increasing service bases in China from 6 to 16, and training Chinese air crews.
Boeing estimates Japan and China will buy $136 billion worth of aircraft from all suppliers through 2014.
DATA: COMPANY REPORTS, BUSINESS WEEKDori Jones Yang in Seattle, with Stewart Toy in Paris and bureau reports