technology transfer japanese firms involved in f 15 co production docx

programs, 2 identified Japanese ‘companies participating in the F-16 copreduction program, and @ determined which of those were involved inthe development and ‘production of Boeing and D

TECHNOLOGY TRANSFER

Nelatons 554013 RELEASED

GRONSIAD 92.178

Background

Untted States General Accounting OMice

‘Washington, D.C 20548

‘National Security and

International Affaire Diiaton

246081 June 10, 1992

‘The Honorable George E Brown, J Chairman, Committee on Science, ‘Space, and Technology House of Representatives

Dear Mtr Chairman:

In response to your request concerning the impact of US, mitary aircraft

‘cooperative programs with Jape, we exaintied the Japanese aerospace Industry's production, employment, market share, and trade ‘decade We also (1) obtained information on Japanese aerospace over the past

‘companies’ participation inthe US ell jet airerat industry specifically in Boeing and Douglas Airerat Company! programs, (2) identified Japanese ‘companies participating in the F-16 copreduction program, and (@) determined which of those were involved inthe development and

‘production of Boeing and Douglas civil aera

‘weapon, communteation, or support syste

1978, the United States and Japan signed a coproduction agreement for the F-15 fighter aircraft MeDonnell Douglas Aircraft Corporation, the US prime contractor an the F-15, entered into a commercial licensed production agreement with Mitsubishi Heavy Industries, transferring

‘manufacturing and technical expertise Other US, F-15 contractors also entered into separate, individual licensing arrangements with Japanese

‘companies fo the production of numerous P-15 systems and subsystems

In 1982, we reported that through miltary aera eoproduction, the United States was assisting Japan in developing its civil aireraftindastry,

“The FEx codevelopment program highlighted U.S concerns about the

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US Suppliers’ Role in an

‘emphasis is on ultra-high performance

“The 1901 Council on Competitiveness report on aerospace deseribed the

‘world aerospace industry 3s comprised ofa few large, integroted producers that draw fromtan extensive, varied, and inereasingly

‘international supper base The report deseribed the industry structure as

‘three-tier supplier network pyramid, which inthe United States includes

an estimated 15,000 companies, Since World War I the United States has possessed a commanding lead in aerospace However, with the globalization of neospace produetion an

‘marketing, the need to spread inancial risk in the development of new civil erat ad the narrowing ofthe U.S tecnologtal lead, foreign

producers are becoming increasingly competitive with US subcontractors

‘nd suppliers In adeition, Boeing and Douglas Aiteret Company, the two Fenaiing US, prime chi jt producersfntegratoes, face serious

{international competition from the European Airbus consortium,

‘The US aerospace supplier and technology bes salvo decining Various sfovernment and academic sources report a narrowing of the US technological lead in aerospace, and event reports by the Joint Chiefs of

‘Staff and the Courcil on Competitiveness state that dhe U.S supplier hase in aerospace is sheinking

‘Although Japanese aerospace market share remains snall when compared {that ofthe United States and Europe, the Japanese aerospace industry thas grown aver the past decade in terns of production, employment, marketshare, and trade The Japanese government, in concert with Industry, is tareting aerospace for development and promotion, with particlar emphasis on incernatonal relationships and supply of|

‘components and parts inthe world market

————————-=

van GGAONSIAD-92178 sagan AeA duty

Japanese Aerospace Industry Growth Over

the Past Decade

Ban

‘We identified 32 Japanese aerospace finns participating in Boeing and Douglas cvilarcraft programs eter as partners or major subcontractors Boeing's relatonship with Japanese companies was more extensive than tat of Douglas Japanese firms have been awarded contrats to supply Heme to Boeing and Douglas civil aircraft but not always solely onthe basis

of price, delivery, andor quality competitiveness Other factors, such as Informal understandings that subcontract business would be placed in SJapan and program financing and partnerships, aso led o ei izcra

‘contract awards to Japanese suppliers Awarding contrac in this way may

‘not be unique inthe aerospace industry Eighteen ofthe 40 Japanese

‘companies we identified as being involved inF-15 coproduction are also involved in development andor production of US ii airraft

‘Many factors contribute tos company's competitiveness in supplying aeraft pants and components No single, causal relationship exis Dbebween Japanese companies’ pariipation inthe F-15 coproduction program and their involvement inthe production and development of Boeing end Douglas eli airplanes However, experience with U.S ritary and civil aieraft programs, along with evolving comnereal and fnancist relationships, has contalbuted to Japanese companies ablity to obtain contract awards in U.S, evil alrerat prograns

‘Since World War I, when the Japanese aircraft industry was forced to disband, the industry has been gradually rebuilt rough international licensing agreements and Japanese government industil targeting Although ts market share reais sal in comparison to that ofthe United States and Eazope, the Japanese aerospace industry has expanded

‘throughout the 1980s in terms of production, employment, market share, and trade

According to Japan's Ministry of international Trade and Industry (MIM),

“Japanese airraft production inereased from $1.2 bilion in 1980 t0 '35.2 bon in 1988 and to $5.5 hilion sn 1990 in current dollars (see fg TLL in app 1; and from $2.3 billion in 1980 to $4.9 bilion in 1988, in constant 1985 dolar (se fig IL2 in app I) Also, Japanese space Industry production increased fom $558 milion to $2.0 billion in current

rates A0 NHA 98118 Japree ra nutty

Continued Japanese

Government Support

dollars between 1980 and 1980 Overall, employment in the Japanese

‘airraft industry increased by ® percent from 26,373 in 1980 to 28,810 in 1090; space industry employment increased by 61 percent from 6,013 in

1980 10 9,690 in 1980 On the basis of statistics cotmplled bythe Comission of the European Communities, we calculated thatthe SJapanese aerospace marketshare increased from 1.6 percent in 1980 to

‘36 percent in 1980."

Japanese aerospace inports were primarily from the United States, which has maintained a trade surplss with Japan Inthe sector* According t MP statistics, pans alreraft imports overall increased from $1.3 billion in 1880 to $4.2 billion n 1990 in current dolas, Japanese aerospace exports were also predonninantly to the United States Exports of Japanese aircraft Droduetsinereased from $81 mllon in 1980 0 $590 milion in 1990n

‘current dollars (see fig 1.3 in app I) Between 1880 and 1989, Japenese space industry exports grew from $113 milion to $378 malion in eurrent dollars; space imports during thal same ime pertod increased from

$3110 million to $24 milion n current dolla,

“The Japanese AiveraftIndusiry Counel was formed in 1986 and subsequently established guidelines forthe aircraft industry The eounel reported these guidelines to the Ez and emphasized parseipaion in joint, International aireraft development projects to spread risk in the hgh costs

‘of aerospace development; the improvement of basic and applied research; ‘the strengthening of marketing capability, andthe collection of foreign and

‘domestic information on arerat markets and technology The counct

‘denied technology tarts for international development projets, Including alloys and composite materials, new wing designs, and electronic navigation equipment,

‘government and industry are also targeting alreraf engines,

11986, Japan’ Aircraft Industry Promotion Law of 1958 was amended to

‘encourage Intemational collaborative efforts in aerospace The amended law emphasized promoting the aireraft industry, tmproving the industry's

‘technology, and furthering international exehaige." The aw indlcates that Japan seeks to acquire state-of the art aerospace technologies through

‘ncernational joint ventures,

‘The Japanese governunent provides conditional loans to Japanese ‘aerospace fim participating overseas programs These loans are offered at below-market rates and requite repayment oni ifthe programs are successful, For example, according toa US, governunent analysis, the Sit made 8106.2 mullon avallable for Japanese companies participating in the Boeing 767; government-supported interest rates may be extended for

‘an estimated $822 milion fr loans on the Boeing 777

“apanese firms are competing with US firms as suppliers of pans and components to U.S elvilairerak A Commerce Department analysis Indicates that U.S aircraft manufucturers may increasingly select Japanese

‘over domestic subcontractors through the 1990s,

In adtion to supplying parts and components to U.S and European irratt producers, Japanese aerospace companies are involved in a variety

‘of international cooperative programs ppartilpate in cooperative ei jt and engine programs with The Boeing in serospace Japanese firms Company, General Electri, and Pratt and Whitney of the United States; SSNECMA of France; and Rolls-Royce of Great Britain Jopanese companies Ihave also engaged in aerospace research with Daimler-Benz of Germany

‘wards to Japanese supplies Awarding contracts in this Way may not be unique inthe aerospace Industry

“The Boeing Company the world’s largest producer of chet transport alreraf, has a longstanding, close, and cooperative relationship with

‘Japanese aerospace matfacturers, The Socely of Japanese Aerospace

‘Companies reported that Japanese companies supply 7 percent of the

‘pats and components furnished to Boeing by companies outside the

‘United States Japanese fuselage panes tal cones, and landing gear structures; parts and produets on Boeing planes inlude arerat

‘components for atr data itera reference systems, displays, and

‘communications systems; actuators and valves; and aluminum and lightweight composive materials Dats on major and relxier Japanese suppliers to Boeing are shown in table U1 in appendix I

Boeing representatives cited various reasons for developing and

‘malntaning thelr relationship Japanese investment of capital to share risk in the high eosts of aeplane with the Japanese, Reasons included

‘development; maintaining access vo Japan's airplane market; drawing on

“Japanese expertie a production capabilites to contribute to overall product quality; and preventing the Japanese from cooperating with Boeing's compettors Boeing noted that It had been success in galing access tothe Japanese market, One Japanese alsin purchased more Boeing 787s than any other non-US airline, aad Boeing expected Japan to contin tobe the largest non-US buyer of Boeing arerat through the

‘year 2008

‘Three of the largest Japanese aerospace firms formed a consortium to participate in the development and production ofthe Boeing 767 and 777 Jetliners, On the Boeing 767 and 777 programs, Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Ful Heavy Industries invest in, develop, and produce a certain percentage ofthe jets airframes (13

tan \GAONSIAD92.1% Jayne Aten nds

‘Company), ae designated “prime subcontractors tothe three hesvy industries on the 777 programa Other linkages have been forged between

US and Japanese companies to develop and produce Boelng alrerat systems For example, Japan Aviation Electroies supplied 80 percent of the accelerometers for Honeywell's navigation instruments on Boeing planes and was selected to partiipate in development of the 777 Liguid

‘Crystal Display Units In adition, the Japanese Fiz, Tein Seiki, has teamed with Leat-Siegler on the 777 ight control system

In 1981, more than 260 Japanese personnel wee in Seattle working on the Boeing 777 program; according to Boeing, 187 ofthese personnel were aerospace engineers, The Japanese engineers used Bocing’s ‘eompuceralded design equipment in the development of Weir designated subsystems for the Boring 777, Boeing officals stated thatthe Japanese feryaneers were restricted from access to certain clements of the computer-aided design system, At the time of our work, Boeing was establishing computer data links with the key Japanese companies participating in the 777 program, Thirty Boeing engineers were in Japan

‘working onthe Boeing 777

Generally, Boeing applies alte" competitive bidding process Boeing selects a numberof firms itkows tobe capable of meeting specifications for required components and parts and requests from these firms price ad

‘quality information on the designated components Te compa the

‘chooses a supplier fom among the bidders Boeing officials stated that they generally selected suppliers on the basis of qualty and price They ld

‘ot generally open compoutents and pasts contracts again for bids unt the supplier had provided the quantity designated in the contract,

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Douglas Aireraft Company Programs

Douglas Procurement Process

‘With respec to coniracing wih Japanese companies, the tire main 767 and 777 program participants and many ether Japanese companies supply parts and components to Boeing aireraft Japanese program participants (Cpartners" on the 777) are guaranteed contracts within the purview ofthe

167 and 777 program agreements ln other eases, Japanese companies, parteipate ina limited, competitive bidding process with other Boelng suppliers

Boeing oftcals stated that Japanese buyers of Boeing cil atecrat dd not

‘exert pressure onthe company to ensure that Japanese products were sed in the ets they purchased They added that they had never entered into an offset" arrargerent wih te Fapanese Boeing officals stated that thelr Sseleetion of Japanese suppliers was voluntary and of mutual benefit to Posing and the Japanese However, Boing ofiils would not certify that for each tem procured from Japanese companies, no U.S fir could supply the same quality tem ata lower price They speculated thet in some situations, no comparable U5 alterative existed or was available

According to company officials, Douglas generally uses limited

‘competitive bidding process in supplier selection The company surveys various suppliers to determine whether they are qualified to produce an

em according to applicable standards, After ientifping a rinimum of wo sources of equal capability, Douglas issues requests for proposals or

‘quotes While price is of primary importance in selection, qualry ad

<elvery considerations may prevail Dough officials tol us, however, {hat foreign purchasers of cv aircraft often place local content

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1 'GAONSIAD42178 depnene Ara Intetry

Japanese F-15

Coproducers in U.S

Civil Aireraft Programs

requirements” and requirements to purchase unrelated items on Douglas

‘conditions for sales

Inthe case of Japan, while there are no formal offset arrangements with

‘specific goals tobe achieved, there san understanding that Dougns will place subcontracts with Japanese fins in connection with analreraft, purchase On the bass of this understanding, Douglas sometimes executes directed procurements to Japanese suppliers ao, Japanese wtlines have requested tha speifc, ber furnished equipment produced in Japan be placed on the aircraft they purchase Finally, due to other business felationships, Douglas tres to consider Japanese suppliers whenever possible,

‘We did not systematically examine Douglas’ contract award process but

‘ound a casein which the primary reason for selecting a Japanese supplier had been a directed procurement After 8 years, however, Douglas was

‘ecompeting the contract for this item because of price and quality concerns

"We could not obtain comprehensive data on Japanese companies participation in ther evil or miltary alrera coproduction programs We denied 40 Japanese compantes participating in te F-15 coproduction program (se app IV) Eighteen of these companies ate slo involved in production andor development of Boeing und Douglas cli alrraft (see tables I and IL2, app I, Some major or frstter Japanese suppliers 10 US cli aireraf programs do not appear to have been involved in the

16 coproduetion program

‘We recognize that some technologies and performace characteristics of

"millary and envi aera systems may difer and that a variety of factors contribute toa company’s ability to compete or oherwise participate in chil aireraf programs, Nevertheless, we found 10 cases in which corresponding ites were coproduced by Japanese companies in the +], program and supplied by the same Japanese companies to US evil

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‘aubcontractor on the landing gear for Boeing eli jets Shinko Electric

‘coproduced the electric generator sytem on the F-L5 and supplies motors land generators to Boeing evi siterat,

‘The Japanese firms involved in these eases are noted in the tables in appendixes Ill and IV, Because comprehensive data ox Japanese

partieipants in the F-15 and U.S el aireaft programs were not svailable,

additional eases of corresponding items may exis

However more direct link can be drawn between copraciction of US, raltary aircraft rotary arerat parts and components A 1991 U.S Ait Force survey of and Japanese firms’ compeiiveness for producing potential U.S and Japanese suppliers fr the FS-X fighter codevelopment program showed thatthe F-15 and other US miliary aieraf

Coproduction programs contributed to the competitiveness of many

“Japanese companies for FSX subcontracts For example, Japanese firms

‘ited experience on the F-15 or other U.S eoproguction programs to show

‘they were capable of and competitive for supplying heads-up displays, brakes, actuators, generators, accelerometer assemblies, and nuữneroUs

‘determination that public disclosure ofits contents containing Licensing

information would be restricted by state

‘As arranged with your office, less you publicly announce the contents of|

‘this report earlier, we plan no further distribution until 16 days after is ise date Atha ane we wil send copies to other interested

‘congressional committees, We wil also make copies available to others upon request,

Please contact meat (202) 275-4128 f you or your staff have any questions concerning this report Major contributors were Thoms Schulz, Associate Director, asi M D'Agostino, Assistant Director atl BealustorinCharge; and Teresa M Hathaway, Evaluator, National Seeunty and InertationaAfars Division,

Sincecely yours,

Sng & kl, a

Director, Securty and International Relations Issues

mạn SADNHA0-9BAT8 Japmier Air Iduf

Scope and Methodology

Figures Ngư 1: Japanese Airerat Production: 1980-1990 Figure 2: Japanese Aref Production: 1980-1988 16 "

‘igue 3; Japanese Aircraft Trade: 1980-1990 18

‘Abbreviations

MIT Ministry of Intemational Trade and industry (Government of Japan) mạn GAORGIAD E1 sapame Aimtetlntsoy