Asian Aeronautics: Technology
Acquisition Drives Industry Development
(Letter Report, 05/04/94, GAO/NSIAD-94-140)
In recent years, American industries that
once enjoyed worldwide preeminence have come under
increasing economic pressure from abroad. In response,
much attention has been paid to ways in which other
countries create new technologies and bring them to
market. Recent developments--notably the emergence of
aircraft manufacturing companies in Europe and
Japan--have focused this attention on the U.S.
aeronautics industry. This report provides information on
(1) the approaches that Asian nations have taken to
develop their aeronautics industries, (2) the level of
aeronautics development each country has achieved, and
(3) the implications of this development for the U.S.
aeronautics industry.
--------------------------- Indexing Terms
-----------------------------
REPORTNUM: NSIAD-94-140 TITLE:
Asian Aeronautics: Technology Acquisition Drives Industry
Development
DATE: 05/04/94
SUBJECT:
Aerospace engineering, Aerospace research, Aerospace
industry, Aircraft industry, Defense industry,
International relations, Foreign military sales, Research
and development, International trade, Technology transfer
IDENTIFIER:
Asia, Europe, Japan, China, Indonesia, Taiwan, Boeing 767
Aircraft, Boeing 777 Aircraft, Boeing 737 Aircraft,
France, Germany, United Kingdom, Spain, Hong Kong,
Singapore, F-15 Aircraft,
**************************************************************************
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**************************************************************************
Report to Congressional Requesters
May 1994
ASIAN AERONAUTICS - TECHNOLOGY ACQUISITION DRIVES
INDUSTRY DEVELOPMENT
GAO/NSIAD-94-140
Asian Aeronautics
Abbreviations
===============================================================
ABBREV
AVIC - Aviation Industries China AVMARK - U.S. aviation
consultants GATT - General Agreement on Tariffs and Trade
IPTN - Industri Pesawat Terbang Nusantara MITI - Ministry
of International Trade and Industry NASA - National
Aeronautics and Space Administration R&D -
research and development TAC - Taiwan Aerospace
Corporation
Letter
===============================================================
LETTER
B-256707
May 4, 1994
The Honorable Tim Valentine, Chairman The Honorable Tom
Lewis, Ranking Minority Member Subcommittee on
Technology, Environment, and Aviation Committee on
Science, Space, and Technology House of Representatives
In recent years, American industries that once enjoyed
worldwide preeminence have come under increasing
competitive pressure from abroad. In response, a great
deal of attention has been paid to identifying the means
by which other nations create new technologies and bring
them to market. Recent developments--notably the
emergence of aircraft manufacturing companies in Europe
and Japan--have focused this attention on the U.S.
aeronautics industry.
This report responds to your request that we review the
aeronautics research and development (R&D)
activities of Asian countries. More specifically, we are
providing information on (1) the approaches these Asian
nations use to develop their aeronautics industries, (2)
the level of aeronautics development each country has
achieved, and (3) the implications of this development
for the U.S. aeronautics industry. This report represents
an amalgamation of many pieces of data obtained from
dozens of U.S. and foreign sources. However, because of
the nature of much of the data, we were unable to verify
its accuracy or make an independent assessment of the
extent and progress of each country's R&D
efforts.
BACKGROUND
------------------------------------------------------------
Letter :1
The aeronautics industry is diverse, ranging from large
airframe and engine manufacturers to numerous producers
of avionics, smaller aircraft, and parts. All segments
are affected by changes in the worldwide aviation market.
Due to continuing defense cuts and a weak global economy,
orders for American military and civil aircraft are
decreasing. In the large civilian aircraft market, lower
demand for the major U.S. producers--Boeing and McDonnell
Douglas--is made more severe by competition with the
European-based Airbus Industrie, which reportedly holds
about one-third of the current world backlog of firm
orders. The Department of Commerce has reported that
suppliers of aircraft structures, systems, and components
are undergoing unprecedented consolidation and that many
companies will leave the industry for good.
In this environment, U.S. companies are searching
overseas for new customers and partners. Increasingly,
they are turning to Asia, a region with great growth
potential for aviation. In the next two decades, air
traffic to, from, and within Asia is expected to account
for more than 50 percent of the world market. Asian
orders for commercial aircraft are also expected to rise
significantly, with Japan and China leading in purchases
of passenger jets. Access to Asian markets has become a
primary business objective of U.S. and European aircraft
manufacturers, and Asian aircraft buyers have responded
by demanding a measure of technology transfer with each
purchase. This has enabled some Asian companies to become
competent in newer and more advanced technologies without
incurring all of the risks of development and has allowed
U.S. companies to share development costs.
RESULTS IN BRIEF
------------------------------------------------------------
Letter :2
The four Asian nations we visited--Japan, China,
Indonesia, and Taiwan--appear intent on developing their
own aeronautics industries. These nations are acquiring
technologies developed in the West, building aeronautics
products based upon them at lower cost, and trying to
improve those products over time. In addition, these
countries are attempting to build domestic R&D
infrastructures in order to enhance acquired
technologies. Carefully applied, this approach allows
Asian nations to develop industrial and technological
capabilities in a fraction of the time needed to
cultivate them from scratch.
Each of the Asian nations we surveyed is employing a
similar method of developing its indigenous aeronautics
industry. Essentially, this method is characterized by
(1) strong government support; (2) importation of
technologies; (3) a strong emphasis on applied--as
opposed to theoretical or basic--research; and (4)
direct, synergistic links between military and civilian
aeronautics projects.
Despite the similarity of methods they apply, Asian
countries' aeronautics industries are not equally
developed and can be expected to continue to develop at
varying rates because of differences in their political
and economic environments.
In the immediate future, it appears unlikely that Asian
aeronautics companies will compete directly with American
aircraft builders. Some form of cooperation is more
likely because (1) U.S. companies claim to zealously
guard their critical technologies, even from transfer to
their Asian "partners;" (2) Japan is the only
Asian nation capable of designing and producing jet
aircraft, but Japan appears unlikely to initiate a new
aircraft program without the cooperation of Western
companies; and (3) in the large commercial aircraft
sector, development costs are so steep that any new
programs are likely to require partnership arrangements.
Nevertheless, some industry observers are concerned that,
in the long term, cooperative aeronautics technology
transfer to Asia could help create a new competitor for
the U.S. aeronautics industry.
COMMON STRATEGY FOR INDUSTRY DEVELOPMENT EMPLOYED
------------------------------------------------------------
Letter :3
Four principal features typically characterize the state
of the Asian aeronautics industries: (1) the national
government strongly supports--and sometimes
initiates--industry development; (2) Asian countries
usually import product and process technologies, instead
of developing such technologies indigenously; (3) Asian
nations emphasize applied R&D activities over
theoretical research, and almost all research activity is
expected to yield downstream commercial benefits; and (4)
the countries use acquired technologies interchangeably
on military and civilian aeronautics projects.
Application of these features has enabled some Asian
countries to become active and competitive in some
segments of the worldwide commercial aircraft market.
Although the focus of the Asian effort is currently on
manufacturing aircraft parts, some countries--notably
Japan and Indonesia--have acquired the technology and
expertise to manufacture short-haul passenger aircraft.
GOVERNMENT SUPPORT
----------------------------------------------------------
Letter :3.1
In Asia, national governments drive and support the
process of developing aeronautics industries. Government
offices are established to draw up timetables and to
facilitate cooperation between, and award contracts to,
manufacturing corporations. In some cases, the
enterprises that import technology and design and build
aircraft are owned in part or outright by the government.
Funding to support these ventures flows from national
governments to aeronautics projects via a number of
mechanisms that are often difficult to track. Examples of
how Asian governments support their aeronautics
industries include the following:
The Japan Ministry of International Trade and Industry
(MITI) continues to plan--and in some ways direct--the
means by which Japan's largest aeronautics companies
proceed in their development. MITI brokers agreements
between those companies when they seek to build the same
components for aircraft. MITI also arranges collective
corporate agreements and favorable financial provisions
that reduce the companies' financial risk. For example,
the business plan for the Japan Research Development
Corporation, the consortium of Japanese aircraft
companies that make parts for the Boeing 767 jet, states
that the break-even point for the entire consortium shall
be the point at which all of the members are profitable.
In addition, some $350 million of Japanese companies'
development costs on the Boeing 777 project are eligible
for MITI support. MITI has also proposed a $750-million
initial allocation in its 1994 budget request to the
consortium for development of a jet engine to be used on
their regional jet aircraft project.
Taiwan Aerospace Corporation (TAC) is owned in part by
the Taiwan government. The government claims the ability
to summon enough public and private capital to support
the corporation's ambitious aeronautics design and
production agendas. Public subsidies, low-interest loans,
and tax credits totaling up to 50 percent of total costs
have already been provided to aeronautics projects in
Taiwan.
In Indonesia, the aeronautics company is state-owned. It
has relied on funding from the national budget for every
aspect of its operations and development, including
extensive consulting arrangements with Western aircraft
manufacturers.
Government support of the aeronautics industry may be
affected by changes in international trade agreements. As
part of the recently concluded Uruguay Round of the
General Agreement on Tariffs and Trade (GATT), a new
Subsidies Code, which covers civil aircraft, could
restrict governments' ability to subsidize industry, if
adopted by GATT members.
TECHNOLOGY ACQUIRED OVERSEAS
----------------------------------------------------------
Letter :3.2
All of the Asian countries we reviewed acquire product
and process technologies from the United States and
Europe. The transfer of technology is often stipulated by
Asian organizations when they negotiate to purchase
Western equipment, and can be accomplished via a number
of cooperative programs, including subcontracting,
licensed production, and codevelopment. Because the
quality assurance and quality control processes inherent
in aeronautics manufacturing are so detailed and
rigorous, all forms of cooperative agreements between
Asian and Western companies are likely to result, at the
very least, in the transfer of important process
technology from West to East. Once acquired, these
technologies can be honed and improved upon.
Consequently, what starts as a subcontract to produce
latches on cargo doors, for example, develops over time
into fuselage, wing, and avionics manufacturing. Examples
of technology transfers follow:
Japan has demonstrated consistent improvement in its
aircraft component-building capabilities, after years of
subcontracting from Western manufacturers. Japan's work
share on Boeing jets has increased markedly, from the 737
to the 767 to the 777. Furthermore, Boeing and the
Japanese aircraft makers may be planning a regional jet
project in which Boeing for the first time may play a
subordinate role to its Japanese partners.
Indonesia now produces a regional aircraft it co-designed
with a Spanish partner. The design experience gained in
this exercise is being put to use on a follow-on
aircraft, to be designed and built within Indonesia.
U.S. aviation companies have promised to allow Taiwan to
build aircraft and engine parts, acquire U.S. technology,
and receive training and other support for its developing
aeronautics industry. These credits, totaling some $700
million, were granted in exchange for Taiwan's purchase
of American aircraft and engines. The People's Republic
of China also has obtained such agreements when it has
negotiated with Western aircraft makers for the purchase
of passenger planes. Typically, China has received the
right to build parts equal to 20 percent of the total
value of purchased aircraft.
TAC has tried to buy aircraft production capability
outright. The company has attempted to purchase
substantial stakes in British Aerospace and McDonnell
Douglas in the last 2 years.
The People's Republic of China is currently in the
process of upgrading its existing aeronautics technology
base by acquiring advanced machinery and tooling from
Western nations. China has entered into a number of
coproduction agreements with Boeing and McDonnell
Douglas, including licensed final assembly of passenger
jets for McDonnell Douglas.
Over 80 percent of the aeronautics faculty of the
National Cheng Kung University, in Taiwan, were educated
at Western universities. Other Western-educated students
have returned to lead high-technology projects in their
home countries. For example, the minister-level head of
Indonesia's aircraft company, and the top executives of
TAC, received engineering degrees in Germany and the
United States, respectively.
FOCUS ON APPLIED RESEARCH
----------------------------------------------------------
Letter :3.3
One of the most prominent features of aeronautics
R&D in Asia is its emphasis on commercial
application. At almost all of the research institutes we
visited, the emphasis was on applied technological
research with direct commercial or military applications.
Examples include the following:
The entire research budget of Taiwan's Industrial
Technology Research Institute, and the majority of
research funding for the Taiwan National Science Council,
are devoted to applied research.
According to scientists in the People's Republic of
China, requests for basic research funding must now
describe how such projects ultimately will yield
marketable products. This development marks a change from
the past, when projects were funded for longer terms and
usually had no stated commercial goals.
The research arm of the Japan Defense Agency provides
funding--up to 20 percent of total costs in some
cases--to research projects identified as critical by
Japan's private sector corporations. In this way,
Japanese companies are assisted in bringing their
technologies to market, and the Japanese military is
readily able to incorporate technological innovations
into its weapon systems.
MILITARY/CIVILIAN SYNERGIES
----------------------------------------------------------
Letter :3.4
Asian nations do not strictly separate the manufacturing
operations of their military and civilian aeronautics
projects. The ability to shift machines, tooling, and
trained personnel from military to civil production
provides a measure of flexibility to Asian aircraft
manufacturers. Examples from the countries we visited
include the following:
The plants of Japan's large aeronautics companies often
house military and civil assembly lines side by side.
Workers trained on one line are often shifted to another.
Expensive composite-material processing equipment,
purchased by the government for military projects, is
subsequently used to process parts for civil aircraft.
TAC plans to use Taiwan's principal military aircraft
facility to manufacture regional jetliners. This
facility, the Aeronautical Industry Development Center,
is regarded by experts as one of the most complete and
sophisticated aircraft production shops in Asia. Although
it currently produces only fighter planes, Taiwan
authorities told us that it could readily be converted to
regional passenger plane manufacture.
In the People's Republic of China, sophisticated
manufacturing technologies acquired through cooperative
programs with the West are being adapted for Chinese
military use. For example, flush-mounted riveting, once
observed in China only on aircraft jointly manufactured
with the West, is now seen on Chinese fighter planes that
previously lacked this degree of sophistication.
ASIAN COUNTRIES DIFFER IN THEIR LEVELS OF AERONAUTICS
DEVELOPMENT
------------------------------------------------------------
Letter :4
Despite their similar approaches, the Asian countries we
reviewed do not have equally developed aeronautics
industries. For instance, Japan, which began
systematically importing aeronautics technology in the
1970s, now leads Asia in the sophistication of its
R&D infrastructure and the capacity of its
industrial base. Indonesia, which also embarked on its
aeronautics program in the 1970s, is designing and
producing passenger aircraft now, but has not developed
the R&D infrastructure or manufacturing capacity
evident in Japan. The authorities in Taiwan, which only
recently began its foray into aeronautics, have indicated
that they are prepared to commit billions of dollars to
carry out an ambitious agenda of aeronautics industry
development. And the People's Republic of China is
embarking on a plan to modernize its aeronautics
industry, but it most likely will need financial and
technological help from other nations to eventually
succeed in supplying jet transports for its own growing
aviation market.
JAPAN
----------------------------------------------------------
Letter :4.1
Japan is now among world leaders in aeronautics subsystem
manufacturing, and appears to have the capability to
design and build passenger aircraft on its own. This is
the result of systematically importing Western
aeronautical technology after failing to successfully
market an indigenously designed and produced airplane,
the YS-11. For years Japanese aircraft companies have
acted as subordinate partners to American companies,
particularly Boeing. The Japanese work share on Western
planes has increased markedly over the years. Japan is
currently negotiating to lead the development of a
regional jet, with either Boeing, China, or European
entities acting as subordinates. Some industry observers
told us that such an arrangement would mark the emergence
of Japan as an aeronautical competitor against the United
States.
Our review indicates that Japan, with strong government
support, has created the best-developed aeronautical
research, development, and production infrastructure in
Asia. U.S. industry representatives told us that Japan's
manufactured components for American passenger airplanes
are the best in the world. Japan has heavily invested in
its infrastructure and has made enough advancements in
other areas to be recognized as a world leader in several
technological fields critical to developing new aircraft.
Examples include the following:
Japanese companies have a 23-percent share of a joint
international effort to produce a high-performance,
low-noise, low-pollution fanjet engine (the V2500) for a
150-passenger transport. The same companies also have
work shares on the General Electric 90, Pratt &
Whitney 4000, and Trent 800 engines that will be used to
power large commercial passenger jets such as the Boeing
777.
Japanese companies will invest $226 million in new and/or
upgraded facilities for their work associated with the
Boeing 777 program.
Mitsubishi Heavy Industries is developing a new aircraft
power plant, the hypersonic Liquid Air Cycle Engine.
Basic design and ground tests are scheduled to begin in
1995.
Japan's current economic recession has slowed the
development of the aeronautics industry, according to
Japanese industry representatives. The government of
Japan continues to support this industry and shield it
from a measure of financial risk, but according to
Japanese government officials, the recent change in
ruling political parties in Japan may indicate an
impending change in the relationship between government
and industry there.
In addition, Japan's sophistication and industrial
capacity are perhaps mitigated by its complex
relationship with the United States. The need to keep
trade imbalances in check, and the stated aversion of the
Japanese to compete directly against Boeing, may
temporarily keep Japan from designing and building
passenger jets. However, according to U.S. government
officials, Japan may be able to address these issues and
proceed toward indigenous capability by taking Boeing on
as a major partner in a Japanese aircraft-design project.
This sort of arrangement reportedly is being discussed by
representatives of Boeing and the Japanese aeronautics
companies.
INDONESIA
----------------------------------------------------------
Letter :4.2
Indonesia has collaborated extensively with European and
American aircraft manufacturers since the 1970s, and has
developed a sophisticated regional aircraft R&D
and production infrastructure as a result. Industri
Pesawat Terbang Nusantara (IPTN), Indonesia's state-owned
aeronautics company, is planning to produce a 64-seat
turboprop aircraft in 1995, and plans to embark on a
100-seat commuter jet program thereafter. Officials at
IPTN told us that this progress would not have been
possible without the partnerships IPTN established with
Western companies. Although IPTN's products do not
compete directly against any U.S.-manufactured aircraft,
the company is notable for the pace at which it has
developed and the cooperation with Western companies that
has facilitated that development.
In 1990, Indonesia spent $1 billion to upgrade the IPTN
facility. IPTN manufactures a variety of aircraft
components and sections, ranging from wing trailing flaps
for Boeing's 737 aircraft to cockpits, fuselage, and fin
connections for Airbus\1 aircraft. IPTN also produces
(under licensing agreements) the 35-seat CASA CN-235
aircraft and a variety of helicopters, including the Bell
412, Eurocopter B0105, and the NES-332 Superpuma. The
licensed production of the CN-235 was instrumental in
providing Indonesia the design and production technology
capability needed to proceed with the development of the
larger, 64 seater due out in 1995. Total program costs
for this aircraft, the N-250, are estimated at $1.2
billion, and the per aircraft cost is expected to be $10
million to $11 million. IPTN has taken tentative orders
for 157 N-250s, and recently opened an office in Seattle
to promote sales of the aircraft in the United States.
Indonesia has developed an aircraft engine overhaul and
repair facility at IPTN. In addition, IPTN's Universal
Maintenance Center is rapidly becoming a major competitor
in the southeast Asian engine overhaul and repair
business.
For now, political and economic conditions in Indonesia
appear favorable for continued progress toward IPTN's
goals of designing and building aircraft indigenously.
-------------------- \1 Airbus is a consortium of the
major civil aircraft manufacturers in France, Germany,
the United Kingdom, and Spain.
TAIWAN
----------------------------------------------------------
Letter :4.3
Taiwan plans to develop its aeronautical industry in two
ways: (1) manufacturing and testing of components and (2)
airframe manufacturing. Authorities in Taiwan believe
they can raise the capital needed for these ventures from
the island's privately held foreign reserves.
Taiwan's Center for Aviation and Space Technology is
coordinating the training and certification of companies
that intend to produce aircraft parts for Taiwan's
aeronautics industry. The Center disseminates research
results and is cooperating with Boeing on the
construction of a laboratory that will verify the quality
of parts produced in Taiwan. TAC intends to build
passenger jets using Western technology. TAC's plans
include the purchase of Western aircraft assembly lines
and conversion of Taiwan's military aircraft plants to
civilian use. To date, TAC has attempted to strike deals
with two foreign companies--McDonnell Douglas and British
Aerospace--but has not succeeded.
According to U.S. officials, the development of TAC
appears to have been aided by strong, one-party rule in
Taiwan. Recently, however, opposition parties have been
effective in blocking funding for large technology
infrastructure projects, such as high-speed rail. The
emergence of viable opposition politics may presage a
change in the relationship between government and
industry. Consequently, time frames once considered
feasible may slip.
Taiwan officials stated that their relative lack of
experience in civil aeronautical design and manufacture
may also slow industry development. Although apparently
capable of funding large projects, Taiwan's plans require
that a number of burdensome financial and regulatory
timetables be met. Furthermore, without British Aerospace
or McDonnell Douglas, TAC will need a new business
partner if it is to develop rapidly.
CHINA
----------------------------------------------------------
Letter :4.4
The Chinese aviation industry, which operates under the
central control of Aviation Industries of China (AVIC),
is marked by overcapacity and comparatively lower
technology. To counter this, AVIC is taking steps to
modernize the industry to enable it to operate in a
market economy. AVIC factories employ some 500,000
workers throughout China, but securing customers for
AVIC's aeronautical products and services is difficult.
To compensate for this, roughly 70 percent of AVIC's
industrial output is non-aeronautical in nature, and
includes automobiles, bicycles, motorcycles, and motor
parts. AVIC's metal-forming, composite materials, and
aircraft assembly equipment are older and less
sophisticated than analogous equipment we observed
elsewhere in Asia. Consequently, it appears that China
may be the slowest among the Asian nations we surveyed to
develop an aeronautics industry competitive with the
United States.
China's current condition notwithstanding, AVIC is taking
significant steps to develop an aircraft industry to help
fulfill the needs of China's growing air travel market.
These include a 3-year plan to make AVIC financially
self-supporting, and a number of ongoing and planned
cooperative ventures with Western aeronautics companies,
including Boeing, Aerospatiale, McDonnell Douglas, and
General Electric. We observed wing components for Boeing
and Aerospatiale aircraft being manufactured, and
McDonnell Douglas MD-82 aircraft going through final
assembly, in AVIC facilities.
China may look beyond its borders not only for
technology, but also for financing as it develops its
aeronautics industry. Several officials told us that
China, Hong Kong, Singapore, and Taiwan could pool their
capital and manufacturing capacities to fund, design, and
build passenger aircraft for the Chinese market.
The largely outmoded nature of China's aeronautical
industrial infrastructure, as well as political
obstacles--notably the lack of normalized relations
between Taiwan and China--will most likely slow the
progress of China's aeronautics industry. Still, because
the Chinese market for passenger aircraft is expected to
grow rapidly in the next 20 years, investments aimed at
meeting demand at least in part through domestic
production probably will continue. Although the
TAC-McDonnell and TAC-British Aerospace deals were never
completed, development capital earmarked for aeronautics
continues to flow into mainland China from Taiwan, Hong
Kong, Singapore, and elsewhere.
IMPLICATIONS FOR THE U.S. AERONAUTICS INDUSTRY
------------------------------------------------------------
Letter :5
The aeronautics industry in the United States is immense,
and provides direct and indirect benefits throughout the
entire economy. The industry employs roughly a million
workers and is a key exporter. Furthermore, it acts as a
technology driver, spinning off advanced process and
product technologies with applications to other
industrial sectors.
Development of Asian industries is linked to the
acquisition of Western technology, as American companies
provide already developed technology in return for Asian
business. Such technology transfer has both benefits and
drawbacks. For example, by developing the manufacturing
capabilities of Asian companies, American jet builders
add to their stable of reliable suppliers. Also, by
creating close links with Asian companies, U.S. firms
believe they stand a better chance of selling their
finished products--commercial jets in this case--in the
growing Asian market, where they face competition from
Airbus. And finally, after the proficiency of new
suppliers has advanced sufficiently, U.S. companies can
actually save a measure of new aircraft development costs
by shifting design work overseas. Cooperative ventures
involving U.S. aeronautics companies exist throughout
Asia--from engine overhaul factories in Taiwan, to final
assembly plants in China, to sophisticated computer-aided
design facilities in Japan.
This last example--saving money by sending work
abroad--has potential drawbacks. First is the
socio-economic and technology development impact on U.S.
suppliers. Foreign supplier competition has been a
contributing factor to the downsizing of the U.S.
supplier base. Such competition is forcing U.S. suppliers
to either become more competitive--without direct
government assistance--or go out of business. For
example, a Japanese firm that received technical and
manufacturing assistance from a U.S. firm to produce F-15
actuators,\2 won the contract for the actuators on the
Boeing 777 over a U.S. firm that had previously supplied
the component for Boeing aircraft.
-------------------- \2 Actuators are mechanical devices
for controlling movable surfaces on an aircraft, such as
flaps, ailerons, and landing gear.
NEAR-TERM COMPETITION FROM ASIA IS UNLIKELY
----------------------------------------------------------
Letter :5.1
For reasons of technological sophistication and politics,
it appears unlikely that any Asian aeronautics company
will compete directly against U.S. passenger jet makers
for at least several years. Indonesia, China, and Taiwan
lack the necessary experience in jet manufacturing to
successfully compete directly with the United States. And
although Japan may possess the needed experience and
sophistication to compete, Japanese officials have
expressed their desire to work cooperatively--and not
competitively--with the West for the foreseeable future.
Furthermore, Japan currently lacks the marketing and
repair infrastructure widely believed to be critical to
selling aircraft internationally.
LONG-TERM IMPLICATIONS OF ASIA'S EMERGENCE IN AERONAUTICS
IS SUBJECT TO DEBATE
----------------------------------------------------------
Letter :5.2
The long-term implications of aeronautical technology
transfer from West to East are the subject of much
debate. Industry representatives believe that global
competition in aeronautics will occur with or without
U.S.-Asian cooperation, and that such cooperation
provides both market access and a competitive edge in
price to U.S. companies. Some U.S. industry officials
said that they transfer technology primarily to ensure
continued market access in Asia, and noted that they do
not transfer their most critical process and product
technologies, or "core competencies."
Others, however, claim that this process builds
competitors in Asia and that the short-term gains brought
by technology transfers may be outweighed by
down-the-road losses in economic sectors that provide
thousands of jobs. They suggest that the success of
Japan's technology drive shows that Asian nations will
become competitive in aeronautics even if so-called
critical U.S. technologies are safeguarded. That is, the
development of domestic technology infrastructure will
allow Asian nations to become competitive, and importing
technology is merely the first, low-cost step in that
process.
These observers also suggest that American aeronautics
companies are at a marked disadvantage because they must
generate profits without direct government assistance,
which is not the case in Asia. As noted earlier, the new
GATT agreement may alter a government's ability to
subsidize its industry. Observers believe Asian forays
into aeronautics may not be motivated by profit in the
near or mid-term, but by the intention to increase a
country's baseline technology level and create jobs.
Despite the record of losses incurred by large companies
in civil aeronautics,\3 Asian countries are nonetheless
pushing into this sector. Several industry observers
suggested to us that American companies could not afford
the large capital expenditures incurred by Asian
companies for aeronautics work. The systematic way that
Asian governments shield their strategically important
industries may protect Asian companies from economic
shocks--for example, slowdowns in growth or reductions in
military orders--that have resulted in thousands of lost
jobs in the United States.
-------------------- \3 Lockheed, for example, no longer
makes regional or larger passenger jets. Furthermore,
some studies have concluded that only Boeing has produced
aircraft that have been profitable.
SCOPE AND METHODOLOGY
------------------------------------------------------------
Letter :6
To obtain information for this report, we interviewed
officials and reviewed materials at the U.S. Departments
of Commerce and State; the National Aeronautics and Space
Administration (NASA); the Aerospace Industries
Association; the National Science Foundation; the
American Institute in Taiwan; and the Washington-based
embassies for Japan, Indonesia, and the People's Republic
of China. We also traveled to Japan, Indonesia, Taiwan,
and the People's Republic of China to interview
government officials and industry representatives.
We also reviewed relevant studies, reports, and other
documents and interviewed officials of U.S. embassies,
Asian government ministries, aeronautics companies,
industry associations, and higher education
establishments. We were unable to independently verify
the accuracy of all the information. We did not have
access to pertinent strategic planning information,
contract data, and/or company financial records. As a
result, we could not make an independent assessment of
the scope and relative priority of ongoing or planned
aeronautical R&D efforts in each of the
countries. The organizations we interviewed are listed in
appendix I.
We conducted our review between January 1993 and February
1994 in accordance with generally accepted government
auditing standards. We did not obtain written comments on
the report from U.S. agencies. However, we provided
detailed country summaries on the results of our work to
appropriate government and industry officials in each
country we visited and incorporated their comments in
this report where appropriate. We also briefed NASA
officials on the content of this report.
----------------------------------------------------------
Letter :6.1
Unless you publicly announce its contents earlier, we
plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies
to the NASA Administrator, the Secretaries of State and
Commerce, and other appropriate congressional committees.
Copies will also be made available to other interested
parties upon request.
Please contact me on (202) 512-4587 if you or your staff
have any questions concerning this report. Major
contributors to this report are listed in appendix II.
David E. Cooper Director, Acquisition Policy, Technology,
and Competitiveness Issues
ORGANIZATIONS CONTACTED DURING OUR REVIEW
===========================================================
Appendix I
UNITED STATES
-------------------------------------------------------
Appendix I:0.1
Department of State Department of Commerce National
Aeronautics and Space Administration National Academy of
Sciences Aerospace Industries Association National
Science Foundation American Institute in Taiwan, Virginia
office Japan Program, Massachusetts Institute of
Technology Kennedy School of Government, Harvard
University United Technologies - Pratt & Whitney
Morgan Stanley (aviation industry analysts) Dow Jones
(industry news reporters) Embassies of the following
nations:
Japan
Indonesia
People's Republic of China
TAIWAN
-------------------------------------------------------
Appendix I:0.2
Coordinating Committee for North American Activities
Taiwan Aerospace Corporation Council for Aerospace
Industry Development Council for the Advancement of
Science and Technology Ministry of Economics Taiwan
National Science Council Air China
JAPAN
-------------------------------------------------------
Appendix I:0.3
Ministry of International Trade and Industry Japan
Defense Agency Science and Technology Agency Mitsubishi
Heavy Industries Kawasaki Heavy Industries Fuji Heavy
Industries Boeing Japan Lockheed General Electric United
Technologies - Pratt & Whitney McDonnell Douglas
U.S. Air Force
THE PEOPLE'S REPUBLIC OF CHINA
-------------------------------------------------------
Appendix I:0.4
Aviation Industries China:
Beijing headquarters
Xian Aero Engine Company
Xian Aircraft Company
Harbin Aircraft Manufacturing Company
Shanghai Aviation Industrial Company
Beijing Aerospace University Beijing Aviation Materials
Research Institute China Aviation Administrative
Committee Air China
HONG KONG
-------------------------------------------------------
Appendix I:0.5
U.S. Consulate General AVMARK (U.S. aviation consultants)
Morgan Stanley (aviation industry financial analysts)
SINGAPORE
-------------------------------------------------------
Appendix I:0.6
Ministry of Economics Singapore Aerospace Dowty-Haw Par
Industries
MAJOR CONTRIBUTORS TO THIS REPORT
==========================================================
Appendix II
NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
--------------------------------------------------------
Appendix II:1
James F. Wiggins George A. Jahnigen Katherine V. Schinasi
FAR EAST OFFICE, HONOLULU, HAWAII
--------------------------------------------------------
Appendix II:2
James L. Morrison, Conor B. O'Brien, Paula J. Haurilesko,