Boeing’s High Risk Game

Toyo Keizai, one of Japan’s leading business magazines, has run a major story calling for Japan and China to cooperate in the manufacture and sale of aircraft. The article, written by an advisor to Ishikawa Harima Industries, a leading manufacturer of jet engines in Japan, points out that Asia makes up a growing share of the aircraft market and that China and Japan, together, could win a major portion of that market. China and Japan each have their own airplane development programs aimed at the market for aircraft. China’s C919 is a 150-seat to 190-seat jet expected to launch in 2016. China showed a prototype of the jet at a Hong Kong air show in September.

Meanwhile a Japanese-government backed jet, the 70-90 seat Mitsubishi Regional Jet scheduled to be completed by 2014, recently received a $4 billion order for 50 plans from the U.S, carrier Trans States. Japan’s All Nippon Airways has already agreed to buy 25 of the planes. Japan has steadily expanded it aircraft knowhow under Boeing’s tutelage. Japanese companies now make many of the most sophisticated parts of Boeing’s planes, including the wing for the 787.

Boeing’s strategy has been to spread the manufacture and engineering of its parts to partners around the globe as part of its effort to spread risk, reduce cost and lock up customers in key markets like China and Japan. In the process, Boeing has helped train a new generation of competitiors. Today they are only building planes at the lower end. But it won’t be long before they start breaking into Boeing’s core market. Toyota, after all, began by manufacturing small, cheap cars.