Boeing had to have 7E7 help, experts say

That same year, Japan's crown prince, during a trip to the United States, visited not Seattle but Santa Monica, Calif. The visit paid off for Douglas Aircraft, when Japan ordered the new Douglas DC-6. And in 1960 it was Douglas, not Boeing, that delivered Japan's first commercial jetliner, a DC-8 for Japan Airlines.

But in the 50 years since the office of Boeing International Corp. opened in Tokyo, company executives have publicly and privately nurtured relations with the Japanese government, with the country's aerospace industry and with Japan's airlines. As a result, Boeing and Japan today have a partnership that Airbus can only envy.

Now, with Boeing facing the daunting challenge of developing and selling the 7E7 jetliner, Boeing will take that partnership with Japan even further -- much further. Industry analysts say Boeing has little choice. The company must look to Japan, and elsewhere, for help.

Next Thursday afternoon in Seattle -- the timing has been picked so it will be Friday morning in Japan -- Boeing is set to announce that Japanese industry will make the wings of its 7E7 jetliner.

The Seattle Post-Intelligencer disclosed details of Boeing's plans yesterday.

Never before has Boeing allowed a supplier to take the lead in manufacturing the wings of one of its jetliners. Japanese industry will get about 35 percent of the 7E7 airframe work, up from the 21 percent share of the 777.

The outsourcing of such critical manufacturing work is deeply troubling to Boeing's unions and many of its workers. One said yesterday, in an e-mail to the paper after reading yesterday's story, that Bill Boeing, the company's founder, must be rolling over in his grave.

But the U.S. aerospace giant must rely more on its partners than ever before if the 7E7 is to be successful, according to industry analysts and aerospace experts.

"If you went back 10 or 15 years ago, it would have been considered sacrilege to outsource components such as the wing," said Peter Jacobs of Seattle-based Ragen MacKenzie. "But given today's environment and the changing competitive landscape, Boeing doesn't have a lot of choices."

Other countries, Japan included, can do the work more cheaply than Boeing can, Jacobs said.

"If Boeing limited itself to building a lot of the components in house, it would not be able to build the plane at the price that it needs and the plane would not be built or it would fail in the marketplace," Jacobs said.

Richard Aboulafia of the Teal Group notes that Boeing must spread the 7E7 development risks.

"One of the interesting aspects of all this is that Boeing is desperate to move risk off the books for the 7E7 and also attract capital," he said. "Japan does both."

Boeing's top leaders, and Boeing's board, have imposed demanding cost targets on the 7E7 development program. Boeing has only said that the 7E7 will cost "significantly" less to design and develop than the 777. It is generally believed that the development price tag of the 777, Boeing's last new jetliner, was between $6 billion and $8 billion.

Boeing's partners on the 7E7 will help with both non-recurring and recurring development costs. Tooling, for example, represents the biggest non-recurring cost for a new airplane program.

In Japan, the government reportedly agreed to provide subsidies to help Japanese industry with the 7E7, provided the manufacturers received from 30 percent to 35 percent of the airframe work.

"The Japanese government wants the aerospace industry to grow. That's why they agree to give support," said Norio Yamanouchi, a Japanese aircraft industry expert who lives near Seattle and runs his own consulting business.

"Japanese industry needs something for the future. Right now that's the 7E7," he said in a telephone interview this week from Japan, where he is on a business trip.

The Japanese Aircraft Development Corp. has formally asked the government for financial help to support the 7E7 program. Most of the 7E7 work is going to Japan's big three heavy machinery makers -- Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy industries.

Those companies have been building parts of Boeing planes for many years, starting with the 747 in the late 1960s.

Beginning with Boeing's 767 in the 1980s, the Japanese share of the work was greatly expanded -- to 15 percent of the airframe.

Japanese industry was to have had an even bigger share of the 7J7, a new airplane program that Boeing abandoned before turning to the 777 in the early 1990.

In 2000, Boeing executives signed a broader agreement with Mitsubishi, and Boeing was prepared to give the 747X wing work to the Japanese. That program was canceled. The 747X was replaced by the Sonic Cruiser, and Boeing was working closely with the Japanese for their participation in that project.

But Sonic Cruiser also was abandoned in favor of the super-efficient 7E7.

Boeing's board is expected to give approval to begin development of the new jet next year.

"For people who complain about the Japanese industrial share of Boeing projects, think how much worse it could be if the Japanese took shares of Airbus projects," Aboulafia said.

Airbus is going all out to put its footprints in Japan.

In 2001, Airbus started a Japanese subsidiary, saying its aim was to win 50 percent of the Japanese market over the next 20 years. It has been trying, without success so far, to interest All Nippon Airways and Japan Airlines in its A380 superjumbo.

But instead of increasing market share in Japan, Airbus has lost share. This year, All Nippon ordered more than 40 737s from Boeing and said it would go to an all-Boeing fleet.

Boeing has about 80 percent of the Japanese airline market.

Japan Air Lines, which has never ordered Airbus planes, is expected to be a launch customer for the 7E7, along with All Nippon. Both are large operators of Boeing 747s and 777 widebody jets. The 7E7 will be a widebody plane.

"Japan is the last big market that is almost 100 percent Boeing widebody," Aboulafia said

Yamanouchi, who has more than 40 years experience in the Japanese aerospace industry, said the Japanese government does not pressure the airlines to buy from Boeing rather than Airbus.

But the fact that Boeing has a long and important relationship with Japanese industry, he said, gives Boeing an advantage with the airlines.

"It can be the tiebreaker, and even more than that," Yamanouchi said.

Aboulafia believes the links are much stronger.

"Right now, there is clear coordination between the government, the manufacturing industries and the airlines," he said.

And it's not just Boeing commercial airplanes that the Japanese are buying.

Japan, along with Italy, has ordered 767 tankers -- the same kind of tanker that Boeing will build for the U.S. Air Force. Japan has bought Boeing fighters and other weapon systems, such as the Apache attack helicopter.

"The Japanese put a lot of credence on the past," Larry Dickenson, Boeing's senior vice president of jetliner sales, said in a previous interview with the P-I.

He has spent much of his Boeing career helping build the company's relationship with Japan.

"Our past, our track record, is an enduring relationship of more than 40 years and it is very significant for both of us," he said

Now more than ever, as the 7E7 program gears up.

More headlines and info from Everett.