Boeing's JAL loss may bring jobs back to the US

Boeing's JAL loss may bring jobs back to the US

NEW YORK - Boeing's loss of a major Japanese airplane order to rival Airbus last week may produce a surprise US benefit - bringing aerospace work home to US companies.

Over the past 50 years, Boeing has increasingly outsourced large aircraft pieces such as wings and fuselage sections.

Its partnerships with Japanese companies carried the understanding that Japanese airlines would keep buying Boeing planes. The virtuous circle gave work to Japan's heavy industrial companies and helped Boeing keep Airbus largely out of the Japanese market.

But last Monday, Japan Airlines (JAL) appeared to shatter the alliance by ordering 31 Airbus A350s to replace 31 Boeing 777s that it will retire this decade. The US$9.5 billion JAL deal is considered by some industry experts as likely to prompt Boeing to award less supply work to Japan in the future. Boeing would send that work to other countries, including the United States.

Japanese airlines were big buyers of Boeing's 787 Dreamliner, which helped justify the large investments Japanese companies made to set up production of major components, said Ron Epstein, an analyst at Bank of America Merrill Lynch.

The 777X, the next generation of Boeing's popular wide-body jet, is supposed to have its design and building launch this year and enter service by 2020. The 787 Dreamliner is the company's latest state-of-the-art wide-body aircraft. It has been in service for two years but has encountered numerous technical problems.

Since Japan airlines are so far not big buyers of the 777X, "why would industrial policy follow the same plan?" Mr Epstein said. Many people assumed that Japan's "heavies" would be involved in the 777X, he added. "Maybe they're not going to be as big players on this." Boeing said that it is considering all options on where to build the 777X, but declined to discuss whether the JAL decision would affect its thinking.

"We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward," the company said last Monday. The launch is widely expected at the Dubai airshow next month, where industry sources say that Emirates Airline plans to order 150 wide-body planes, most likely the 777X.

However, at Mitsubishi, which is responsible for the 787 wing and would be most affected if Boeing brought wing assembly to the US, a spokesman suggested that the contract is up for grabs.

"It's a decision that Boeing will make," he said. "If we are asked to build the wing, we will do our best; if not, we will still work our hardest."

Boeing has limited options for where it can build the 777X plane and its components since only a handful of companies have the scale and certification to take on such a project reliably.

Among those considered as possible: Spirit Aerosystems in Wichita, Kansas, a former Boeing facility that already makes wing parts and fuselages for Boeing, and Triumph Group, headquartered in Berwyn, Pennsylvania, which makes wing, fuselage and structural pieces for planes, as well as composite structures, though not those used for airframes, according to the company's website.

Boeing also could bring the work in-house, either at its massive factory in Everett, Washington, or at the assembly plant in Charleston, South Carolina, where it builds some 787s.

Boeing is buying land to expand that factory. Spirit said that it is interested, and noted that it is a significant supplier to the 777, making wing, fuselage and underwing components.

South Korea and China also have been mentioned as possible sites for production of at least part of the 777X.

A person close to Boeing with knowledge of the matter said that a global cost-cutting initiative by the company would likely force suppliers in Japan to look for low-cost manufacturers in China and India, pointing to a rise in the Chinese portion of the supply chain and a reduction for Japan. Boeing's "Partnering for Success" cost-cutting programme, launched in 2012, requires 15 per cent cuts over three to four years from all suppliers including the Japanese "heavies", this person said.

Meanwhile, Boeing's former home state of Washington is making a big push to win the 777X, after 787 work went to Japan and elsewhere. Washington State governor Jay Inslee, whose state touts itself as home of the world's largest cluster of aerospace companies, recently proposed extending lucrative state tax breaks for Boeing until 2040 if the company builds the 777X and its wings in Washington. Boeing already builds the 777 in Washington, so the logic of putting future production there is strong, state officials say.

In addition, the extended breaks would apply to all Boeing production in Washington, giving the state an edge against competitors such as South Carolina and Kansas, where Boeing's production is much more limited, said Alex Pietsch, director of the Washington state governor's office of aerospace. Part of the state's pitch: The 777X's composite wing will be large and difficult to transport, so it makes sense to fabricate it near the site of final assembly, Mr Pietsch said.

State studies show that current 777 production supplies US$20 billion of some US$76 billion in annual economic activity from the state aerospace industry. A state task force is working on a proposal that could be put forth as early as next month, if a special legislative session is called in Washington, he said.

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