A Boeing Of Asia?

The endgame is unclear, but one obvious possibility is the emergence of an Asian rival to Airbus and Boeing. The transfer of expertise, technology and money to Japan and China is giving Asian aerospace companies the wherewithal to dream big--meaning big enough to build their own passenger jets. It's happened before. When Shanghai Automotive last month detailed plans to launch the first all-Chinese car for the international market by next year, the company said the opportunity was ripe because of technology and expertise gained from its joint ventures with Volkswagen and GM. "There is nothing impenetrable about any duopoly in this industry," says Richard J. Samuels, MIT's director of the Center for International Studies. "The Japanese government and its heavy industrial firms have openly sought to establish Japan as an aerospace power for generations."

Indeed, over the last three years Japan's Ministry of Economy, Trade and Industry (METI) has invested $76 million in three massive studies on reviving the country's capacity to build jet engines and regional jets of up to 100 seats. Led by such manufacturing giants as Mitsubishi, Ishikawajima and the Japan Aircraft Development Corporation, they are looking into everything from creating a 35-seater niche business jet to converting Kawasaki's C-X military transport into a civilian airliner with as many as 250 seats. A plane that size would compete directly with the smallest planes built by Boeing and Airbus (about 110 seats).

Thanks to the 787 wing contracts from Boeing, a Japanese company, Toray, is now the world leader in manufacturing with composite materials. Made from carbon fiber, composites are a superlight replacement for aluminum that greatly increase fuel efficiency--which is why the 787 helped Boeing retake the market lead for sales orders from Airbus last year. The Japanese contractors are also honing wing-design skills to a level that, analysts say, will soon surpass American engineering.

The early products of Japan's reviving ambition include the new HondaJet, which became the first new Japanese commercial jet in decades when it debuted last year. The Japanese Aerospace Exploration Agency recently signed a deal with France to develop supersonic technology, which could lead to a next-generation Concorde. Also last year, Japan's leading business paper, Nihon Keizai Shimbun, reported that Mitsubishi has plans to create its own 90-seat regional jet by the end of the decade.

Technologically, China remains many years behind Japan. Before China opened to global trade in the early 1980s, its aerospace industry was limited mainly to Soviet knockoffs. Afterward, its one attempt at a plane for the world market, the Y-10, based on the Boeing 707, failed to sell. The assembly work that China will do for Airbus is much less sophisticated than the wing design Japan is performing for Boeing. But Beijing's ambitions are growing again: last month, the Commission of Science, Technology and Industry announced plans to begin work on a 150-seat jetliner by 2010.

A Japanese or Chinese aerospace giant could capitalize on close political and trade ties to the booming Asia-Pacific markets. Last year, 40 percent of new aircraft orders were from Asia--compared with 17 percent from Europe and just 11 percent from North America, according to industry magazine Flight International. By 2022, China is expected to become the second largest aviation market in the world. Driven largely by emerging economies, the worldwide market for passenger jets is expected to soar threefold over the next two decades, to $1.9 trillion.