tion increasingly contributes to maintaining the supplier and work skill base, and produces cost economies for companies that manufacture both civilian and military aircraft.

The critical questions for this study are whether the United States can maintain its lead in the future, and the likely impacts of U.S.-Japan technology transfer and engineering relationships, broadly defined as technology linkages.2 Japan's aircraft industry has generally been assumed unlikely to move into the ranks of the global leaders. A major purpose of this study, carried out by a committee of individuals with considerable experience in the industry and knowledge of Japan, was to reexamine that assumption and to look ahead to the future. The third in a series of studies on technology linkages organized by the National Research Council's Committee on Japan, this study, which included a committee study trip to Japan, was carried out during 1993 with support from the Defense and Commerce Departments and from the Japan-United States Friendship Commission.

A number of important contextual changes suggest that the future will be different from the past. Global competition is intensifying. Airbus rapidly increased its sales in Japan in 1991 and 1992, overtaking McDonnell Douglas.3 Industry experts predict that Asia will play a major role in global demand in the 1990s and the first decade of the next century.4 Over the next decade, or until new technology developments permit the introduction of supersonic and hypersonic transport aircraft, the committee believes that leadership in global competition will increasingly go to the firms emphasizing high-quality, low-cost manufacturing. This is precisely the area that the Japanese have made their top priority.

A major transformation is occurring in the industry as defense spending declines with the end of the Cold War. In the past, U.S. defense procurement drove R&D and capital spending in important segments of the industry and aircraft-related technologies. Today, the U.S. aircraft industry is struggling to adjust to these historic changes in a difficult context—a downturn in demand for commercial transports during the past few years. In Japan, where the U.S.-Japan alliance has formed the cornerstone of Japan's defense policy, declines in military procurement are also beginning to force hard choices.5 President

2  

Technology linkages include company-to-company activities (sales and maintenance agreements, licensed production, joint production or development, equity arrangements), as well as relationships involving governments and universities. See National Research Council, U.S.-Japan Technology Linkages in Biotechnology and U.S.-Japan Strategic Alliances in the Semiconductor Industry (Washington, D.C.: National Academy Press, 1992), for a detailed discussion of the term and approaches to analysis.

3  

These data were provided by GE Aircraft Engines. Airbus has sold to Japan Air Systems, a relatively new domestic airline. Japan Airlines (JAL) and All Nippon Airways (ANA) generally continue to purchase Boeing airplanes.

4  

Boeing Commercial Airplane Group, 1993 Current Market Outlook, March 1993, p. 3.5.

5  

Japan Defense Agency (JDA) officials emphasized this point in discussions with the committee during their trip to Japan in June 1993. For example, AWACS purchases will comprise 30 percent of Japan's aircraft procurement budget in the next few years. In August of 1993 it was reported that the



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