On Air Now

Tune in to Listen

99.9 FM Hibbing, MN

Weather

Current Conditions(Hibbing,MN 55746)

More Weather »
54° Feels Like: 54°
Wind: WSW 3 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Tonight

Mostly Clear 39°

Tomorrow

Partly Cloudy 68°

Wed Night

Partly Cloudy 43°

Alerts

  • 0 Severe Weather Alerts
  • 0 Cancellations

Analysis: Boeing's JAL loss may bring work back to the U.S

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young
The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

By Alwyn Scott and Tim Kelly

NEW YORK/TOKYO (Reuters) - Boeing Co's loss of a major Japanese airplane order to rival Airbus this week may produce a surprise U.S. benefit - bringing aerospace work home to U.S. companies.

Over the past 50 years, Boeing has increasingly outsourced large airplane 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 on Monday, Japan Airlines Co Ltd <9201.T> appeared to shatter the alliance by ordering 31 Airbus A350s to replace 31 Boeing 777s that it will retire this decade.

The $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 widebody 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 widebody 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?" Epstein said.

Many people assumed 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 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 in a statement on Monday.

Officials at Mitsubishi Heavy Industries <7011.T>, Kawasaki Heavy Industries <7012.T> and Fuji Heavy Industries <7270.T> also declined to comment on their potential work on the 777X until after the new plane is formally launched.

The launch is widely expected at the Dubai airshow in November, where industry sources say Emirates Airline plans to order 150 widebody 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 United States, a spokesman suggested 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."

LIMITED OPTIONS

Boeing has limited options for where it could 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; 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 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 it is interested, and noted it is a significant supplier to the 777, making wing, fuselage and underwing components. Triumph did not respond to requests for comment.

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 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 supply chain and a reduction for Japan.

Boeing's "Partnering for Success" cost-cutting program, launched in 2012, requires 15 percent cuts over three to four years from all suppliers including the Japanese "heavies," this person said.

TAX INCENTIVES

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, last week 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, Pietsch said.

State studies show that current 777 production supplies $20 billion of some $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 November, if a special legislative session is called in Washington, he said.

If so, that may just coincide with Boeing's long-awaited launch of the 777X in Dubai.

"I'd love to have them come out in Dubai and say they're going to build the 777X in Washington," Pietsch said.

(Additional reporting by Norihiko Shirouzu in Beijing; editing by Matthew Lewis)

Comments