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Aerospace competitors everywhere

We used to be convinced that the biggest threat to our regional economic mainstay – Boeing and the aerospace sector – was centered in Toulouse, France, home of the European consortium Airbus.

Of late we’ve fretted that the biggest threat is closer to home, in North Charleston, S.C., where Boeing is building a second final-assembly line for the 787. The company also owns adjacent plants for fabrication of large assemblies, making South Carolina an attractive location for future jets.

And those who make it their business to find things to worry about have been warning that the real long-term threat is scattered around the globe, in the form of regional jet development programs in Canada, Brazil, Japan, China and Russia.

So which is it? Which of those competitive threats is the one to take most seriously?

How about all of them?

The question was a central topic of discussion at the Pacific Northwest Aerospace Alliance’s ninth annual conference last week at the Lynnwood Convention Center.

One speaker who is a skeptic about the competitive threat posed by plane development programs, especially China’s, is Richard Aboulafia, vice president of analysis at Teal Group. One of the bullet points in his presentation put his argument bluntly: “Don’t believe the emerging producer hype.”

China’s experience so far with commercial planes – the ARJ21 and the C919 – is evidence that “national planes are a seriously bad idea,” he said.

Programs like China’s come up short in several of the biggest challenges to building a successful airplane program, Aboulafia says: Freedom of sourcing – being able to buy “the best value for the money” instead of being pressured to buy what your home country produces – and protection of intellectual property.

In addition, Aboulafia believes many of these plane development programs are chasing after a market segment – single-aisle jets of up to 150 seats – that is oversaturated anyway.

In fact, Aboulafia added, member companies of the PNAA, who supply Boeing, Airbus and the major defense-sector contractors, should be thankful that China is squandering attention and resources on trying to develop its own airplane. “If they weren’t doing that, they’d be gunning for your business,” he said.

Aboulafia believes Mexico has a smarter approach to developing an aerospace sector. It offers a low-cost place for parts suppliers and subcontractors to operate, coupled with much better intellectual property protection, not to mention a geographically favorable position for supplying the U.S. market.

Considerably less sanguine about the threat of those national plane programs is Scott Hamilton of Leeham Co., a locally based and frequently quoted aerospace analyst.

The planes the Chinese have produced so far or are proposing are “no more than proof-of-concept airplanes” that will be the foundation for future generations of commercial jets, he said, and shouldn’t be taken as indicators of what’s to come. Said Hamilton, “The A300B2 (Airbus’ first product) was just an OK plane, but look at what it begot down the road.”

What’s more, China’s planes are only partially about aviation. Michel Merluzeau, managing partner at G2 Solutions, noted that the plane will be “a political tool for the Chinese government,” to build political partnerships and commercial connections with countries all over the globe, many of whom might have formerly considered Boeing and Airbus products.

Where does that leave us in soggy Puget Sound?

The threats are not just national or global but internal to the aerospace industry. Even if the region holds on to the legacy aircraft programs, even if it lands some of the next-generation work (updates or replacements for the 737 and 777), employment will be eroded over time given the trend of Boeing offloading more of the work before final assembly to its suppliers and contractors. Merluzeau said that could be partially offset by employment gains at those suppliers and contractors.

That would be good news if we’ve still got those suppliers and contractors. Whether we’ll retain them, and maybe even generate new ones, is a crucial question for the state’s economic future.

The preferred resolution for some is to keep as much of Boeing as possible, no matter the cost. To others the answer is broadening the segments and customer base of the aerospace industry to which companies located here can sell stuff.

And to others the likeliest resolution is to resign ourselves to the inevitable – the sunset of aerospace as a major economic contributor. To be replaced by – who knows? The green economy? Something will turn up.

The problem with that approach is not so much that the world will run out of something else, it’s that the world has a lot more nimble, smart and innovative people looking for them than it used to. Those people are getting unsettlingly close to being more adept at finding those something elses first.

Bill Virgin’s column on business and economics appears Sundays in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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