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The Competitive Status of the U. S. Civil Aviation Manufacturing ~nclustry A Study of the influences of Technology in Determining international ~nclustria~ Competitive Aclvantage Prepared by the U. S. Civil Aviation Manufacturing Industry Panel, Committee on Technology and International Economic and Trade Issues of the Office of the Foreign Secretary, National Acaclemy of Engineering and the Commission on Engineering and Technical Systems, National Research Council Frederick Seitz, Chairman Lowell W. Steele, Rapporteur NATIONAL ACADEMY PRESS WASHINGTON, DC 1985
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NATIONAL ACADEMY PRESS · 2101 Constitution Avenue, NW · Washington, I:)C 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the Councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Research Council was established by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and of advising the federal government. The Council operates in accordance with general policies determined by the Academy under the authority of its congressional charter of 1863, which establishes the Academy as a private, nonprofit, self-governing membership corporation. The Council has been the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in the conduct of their services to the government, the public, and the scientific and engineering communities. It is administered jointly by both Academies and the Institute of Medicine. The National Academy of Engineering and the Institute of Medicine were established in 1964 and 1970, respectively, under the charter of the National Academy of Sciences. This project was supported by the National Aeronautics and Space Administration and administered under Master Agreement No. 79-02702 between the National Science Foundation and the National Academy of Sciences. Library of Congress Catalog Card Number 84-62636 International Standard Book Number 0-309-03399-3 Printed in the United States of America
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Participants at Meetings of the U.S. Civil Aviation Manufacturing industry Panel, Committee on Technology and international Economic and Trade Issues Panel FREDERICK SEITZ (Chairman), Past President, National Academy of Sciences; President Emeritus, The Rockefeller University WILLIAM J. ABERNATHY, Professor, Harvard University Graduate School of Business Administration JOHN S. BLIVEN, Senior Vice-President, Bankers Trust Company IRVING BLUESTONE, Professor of Labor Studies, Wayne State University FREDERICK W. BRADLEY, Senior Vice-President, Citibank, N. A. W. PERRY CRADDOCK, Manager, Market Development, Bell Helicopter Textron HUGH S. CRIM, Vice-President, Market Assessment and Strategy, Pratt and Whitney Aircraft Company WOLFGANG H. DEMISCH, Vice-President, Equity Research Department, The First Boston Corporation JAMES J. FOODY, Vice-President, Product Development, Fairchild Industries, Inc. CHARLES W. GEORGE, Vice-President and General Manager, Aircraft Equipment Division, General Electric Company (retired) DOUGLAS GINSBURG, Professor, Harvard University Law School COLIN J. GREEN, Vice-President, Planning and Services, Sikorsky Aircraft WILLIS M. HAWKINS, Senior Advisor, Lockheed Corporation PAUL JOHNSTONE, Vice-President of Operations, Eastern Airlines (retired) SIDNEY JONES, American Enterprise Institute JOHN N. KERR, President, JNK Associates, Inc. RAY MAJERUS, Secretary-Treasurer, International Union, United Auto Workers DAVID C. MOWERY, Assistant Professor of Economics and Social Science, Carnegie-Mellon University . . .
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MICHAEL G. NEUBURGER, Vice-President, International Division, Beech Aircraft Corporation JOHN NEWHOUSE, Guest Scholar, The Brookings Institution JAMES BRIAN QUINN, Professor, Amos Tuck School of Business Administration, Dartmouth College NATHAN ROSENBERG, Professor, Department of Economics, Stanford University ROGER D. SCHAUFELE, Vice-President Engineering, Douglas Aircraft Company, McDonnell Douglas Corporation RICHARD S. SHEVELL, Professor, Department of Aeronautics and Astronautics, Stanford University MONTGOMERIE C. STEELE, Senior Chief Engineer, Technical Support, Garrett Turbine Engine Company JOHN STEINER, Vice-President, Corporate Product Development, The Boeing Company (retired) ALAN R. STEPHEN, Vice-President, Operations, Regional Airlines Association of America WILLIAM W. WINPISINGER, President, International Association of Machinists and Aerospace Workers, AFL-CIO Rapporteur LOWELL W. STEELE, Consultant-Technology Planning and Management Additional Participants SALLY BATH, Aerospace Trade Specialist, Office of International Sector Policy, U.S. Department of Commerce SAMUEL COLWELL, Director, Market Research, Fairchild Industries, Inc. ROBERT V. GARVIN, Manager, International Strategic Planning, Aircraft Engine Business Group, General Electric Company CHARLES H. IDE, Manager, Engineering Resources, Aircraft Equipment Division, General Electric Company JACK L. KERREBROCK, Former Associate Administrator, Aeronautics and Space Technology, NASA; R.C. Maclaurin Professor and Head, Department of Aeronautics and Astronautics, MIT VIRGINIA LOPEZ, Director, Aerospace Research Center, Aerospace Industries Association of America LOUISE MONTLE, Manager, Industry and Technical Policy, The Boeing Company 1V
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LOUIS T. MONTULLI, Senior Policy Analyst, Deputy to the Assistant Director for National Security, Office of Science and Technology Policy, Executive Office of the President ROBERT NYSMITH, Deputy Director, Office of Aeronautics and Space Technology, National Aeronautics and Space Administration ROLF PIEKARZ, Senior Policy Analyst, Division of Policy Research and Analysis, Scientific, Technological, and International Affairs, National Science Foundation W. STEPHEN PIPER, Coordinator, Aerospace Trade Policy, Office of Industrial Trade Policy ALAN RAPOPORT, Policy Analyst, Division of Policy Research and Analysis, Scientific, Technological, and International Affairs, National Science Foundation THEODORE W. SCHLIE, Director, Office of Competitive Assessment, U.S. Department of Commerce ALLEN SKAGGS, Vice-President, Civil Aviation, Aerospace Industries Association of America JOHN SLOWIK, Vice-President, Citibank, N. A. JOSEPH SNODGRASS, Director, Aviation Programs, Civil Aviation Division, Aerospace Industries Association of America EDWARD STIMPSON, President, General Aviation Manufacturers Association RON SWANDA, Manager, System Operations, General Aviation Manufacturers Association JOHN WARD, Manager, Rotorcraft Office, Office of Aeronautics and Space Administration, National Aeronautics and Space Administration GEORGE WHITE, Professor, Graduate School of Business Administration, Harvard University ROGER L. WINDBLADE, Manager, Subsonic Aircraft Office, Office of Aeronautics and Space Technology, National Aeronautics and Space Administration Staff HUGH H. MILLER, Executive Director, Committee on Technology and International Economic and Trade Issues MARLENE R.B. BEAUDIN, Study Director, Committee on Technology and International Economic and Trade Issues BERNARD MAGGIN, Project Manager, Committee on Technology and International Economic and Trade Issues STEPHANIE ZIERVOGEL, Secretary, Committee on Technology and International Economic and Trade Issues v
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Committee on Technology and international Economic and Trade issues (CTIET~) Chairman N. BRUCE HANNAY, National Academy of Engineering Foreign Secretary and Vice-President, Research and Patents, Bell Laboratories (retired) Members WILLIAM J. ABERNATHY, Professor, Harvard University Graduate School Qf Business Administration and Chairman, CTIETI Automobile Panel (deceased) JACK N. BEHRMAN, Luther Hodges Distinguished Professor of International Business, University of North Carolina CHARLES C. EDWARDS, President, Scripps Clinic and Research Foundation and Chairman, CTIETI Pharmaceutical Panel W. DENNEY FREESTON, JR., Associate Dean, College of Engineering, Georgia Institute of Technology and Chairman, CTIETI Fibers, Textiles, and Apparel Panel JERRIER A. HADDAD, Vice-President, Technical Personnel Development, IBM Corporation (retired) MILTON KATZ, Henry L. Stimson Professor of Law Emeritus, Harvard University Law School RALPH LANDAU, Chairman, Listowel Incorporated* and Vice-President, National Academy of Engineering JOHN G. LINVILL, Professor, Department of Electrical Engineering, Stanford University and Chairman, CTIETI Electronics Panel *Retired Chairman, Halcon-SD Group, Inc. V1
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RAY McCLURE, Program Leader, Precisions Engineering Program, Lawrence Livermore Laboratory and Chairman, CTIETI Machine Tools Panel BRUCE S. OLD, President, Bruce S. Old Associates, Inc. and Chairman, CTIETI Ferrous Metals Panel MARKLEY ROBERTS, Economist, AFL-CIO LOWELL W. STEELE, Consultant-Technology Planning and Management* MONTE C. THRODAHL, Vice-President, Technology, Monsanto Company ~ _ . *Formerly Staff Executive, Corporate Technology Planning' General Electric Company . . V11
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Preface In August 1976 the Committee on Technology and Inter- national Economic and Trade Issues examined a number of technological issues and their relationship to the potential entrepreneurial vitality of the U.S. economy. The committee was concerned with: · Technology and its effect on trade between the United States and other countries of the Organization for Economic Cooperation and Development (OECD); · Relationships between technological innovation and U.S. productivity and competitiveness in world trade; impacts of technology and trade on U.S. levels of employment; · Effects of technology transfer on the development of the less-developed countries (LDCs) and the impact of this transfer on U.S. trade with these nations; and · Trade and technology exports in relation to U.S. national security. In its 1978 report, Technology, Trade, and the U.S. Economy,* the committee concluded that the state of the nation's compet- itive position in world trade is a reflection of the health of the domestic economy. The committee stated that, as a consequence, the improvement of our position in international trade depends primarily upon improvement of the domestic economy. The committee further concluded that one of the major factors affecting the health of our domestic economy is the state of industrial innovation. Considerable evidence was presented during the study to indicate that the innovation process in the United States is not as vigorous as it once was. The committee recom- mended that further work be undertaken to provide a more *Available from the National Academy Press, 2101 Constitution Avenue, N.W., Washington, DC 20418. i: .x
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detailed examination of the U.S. government policies and prac- tices that may bear on technological innovation. The first phase of study based on the original recommenda- tions resulted in a series of published monographs that addressed government policies in the following areas: · The International Technology Transfer Process.* · The Impact of Regulation on Industrial Innovation.* · The Impact of Tax and Financial Regulatory Policies on Industrial Innovation.* · Antitrust, Uncertainty, and Technological Innovation.* This report on the civil aircraft manufacturing industry is one of seven industry-specific studies, conducted as the second phase of work by this committee. The other panels set up by the com- mittee addressed automobiles, electronics, ferrous metals, machine tools, pharmaceuticals, and fibers, textiles, and apparel. The objectives of these studies were to (1) identify global shifts of industrial technological capacity on a sector-by-sector basis, (2) relate those shifts in international competitive industrial advantage to technological and other factors, and (3) assess further prospects for technological change and industrial development. As part of these studies, each panel developed (1) a brief historical description of the industry, (2) an assessment of the dynamic changes that have occurred and are anticipated in the next decade, and (3) policy options and scenarios to describe alternative futures for the idustry. The primary charge to the panel was to develop a series of policy options for consideration by public and private policymakers. The methodology of the studies included a series of panel meetings involving discussion between (1) experts named to the panel, (2) invited experts from outside the panel, and (3) govern- ment agency and congressional representatives presenting current governmental views and deliberations. The drafting work on this report was done by Lowell S. Steele, formerly of General Electric and now a private consultant. Bernard Maggin was responsible for assisting Dr. Steele by providing research and resource assistance as well as assisting in producing drafts of report material, based on the panel deliberations, that were reviewed and critiqued by the panel members at their meetings. *Available from the National Academy of Engineering, 2101 Constitution Ave., N.W., Washington, D.C. 20418. x
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Contents SUMMARY 1 OVERVIEW OF THE U.S. CIVIL AVIATION MANUFACTURING INDUSTRY The Industry and Its Importance to the Economy, 19 Economics of the Industry, 21 Technology Base, 22 Contribution of the Industry to National Security, 24 Reasons for Past Success of the Industry, 26 THE PRESENT ENVIRONMENT Changes in U.S. Air Transportation, 29 Financial Status of the Airlines, 37 Emergence of Foreign Competition, 43 Growing Importance of International Markets, 54 Escalating Risk, 58 Internationalization of Aircraft Manufacturing, 61 Financial Performance of the Industry, 67 Management Challenges, 68 Preserving Human Resources, 70 3 GROWING GOVERNMENT INVOLVEMENT IN TRADE Impact of Government Involvement, 75 Implications for International Trade Agreements, 77 Financing, 81 Strengthening Eximbank's Role, 90 4 INTERNATIONAL TRADE, TECHNOLOGY TRANSFER, NATIONAL SECURITY, AND DIPLOMACY Controlling Technology Transfer, 92 Synergy Between National Security and Civil Aviation, 100 x 1 18 29 75 92 Hi
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COMPETITIVE ASSESSMENT OF TECHNOLOGY Airframe and Fully Assembled Aircraft, 106 Propulsion Technology, 121 Maintaining Momentum in Research and Development, 134 6 KEY POLICY ISSUES Trade Policy, 142 Balancing Economic and Security Interests in Technology Transfer, 146 Maintaining Momentum in R&D, 147 Achieving Synergy Between National Security and Civil Aviation, 148 Managing in the New Environment, 149 Managing Human Resources, 151 . . X11 105 141
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The Competitive Status of the U. S. Civil Aviation Manufacturing ~nclustry
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