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| Japan’s Role in Making Batteries for Boeing | |
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| As the search for the cause of smoldering batteries in Boeing’s grounded 787 Dreamliner continues, investigators and Congressional oversight committees may want to look into a related and potentially sensitive issue: how was the Japanese company GS Yuasa chosen to manufacture the innovative but now suspect lithium-ion batteries on the 787? | As the search for the cause of smoldering batteries in Boeing’s grounded 787 Dreamliner continues, investigators and Congressional oversight committees may want to look into a related and potentially sensitive issue: how was the Japanese company GS Yuasa chosen to manufacture the innovative but now suspect lithium-ion batteries on the 787? |
| No one has claimed that GS Yuasa was chosen for the 787 on anything but merit. But Boeing has long been dogged by suspicions that in return for its awarding major contracts to Japanese companies, which also receive subsidies from Japan’s government, the country’s airlines buy Boeing aircraft almost exclusively. | No one has claimed that GS Yuasa was chosen for the 787 on anything but merit. But Boeing has long been dogged by suspicions that in return for its awarding major contracts to Japanese companies, which also receive subsidies from Japan’s government, the country’s airlines buy Boeing aircraft almost exclusively. |
| Such arrangements are banned by the World Trade Organization Agreement on Trade in Civil Aircraft, signed by the United States and Japan, which requires that aircraft purchases be made solely on the basis of “commercial and technological” factors and that procurement contracts should be entered into only on the basis of “competitive price, quality and delivery.” The agreement is intended to ensure that purchase decisions are based “strictly on technical and commercial factors,” according to the United States trade representative. | Such arrangements are banned by the World Trade Organization Agreement on Trade in Civil Aircraft, signed by the United States and Japan, which requires that aircraft purchases be made solely on the basis of “commercial and technological” factors and that procurement contracts should be entered into only on the basis of “competitive price, quality and delivery.” The agreement is intended to ensure that purchase decisions are based “strictly on technical and commercial factors,” according to the United States trade representative. |
| “The world has made tremendous progress” at eliminating political influence from the sale of aircraft and components, Richard L. Aboulafia, an aerospace and aviation analyst for the Teal Group, a consulting firm in Washington, told me this week. “And then, there’s Japan. All the normal ways of doing things are upended.” Is there a quid pro quo? “Yes, absolutely. But no one will talk about it, and no one can prove it,” he said. | “The world has made tremendous progress” at eliminating political influence from the sale of aircraft and components, Richard L. Aboulafia, an aerospace and aviation analyst for the Teal Group, a consulting firm in Washington, told me this week. “And then, there’s Japan. All the normal ways of doing things are upended.” Is there a quid pro quo? “Yes, absolutely. But no one will talk about it, and no one can prove it,” he said. |
| A former Boeing executive confirmed this when we spoke this week. After asking not to be named because of the diplomatic fragility of the topic, he said: “Let me put it this way: we knew the Japanese market would be Boeing’s in return for our selecting these Japanese partners. It was a silent understanding, and there was nothing in writing.” He added that Boeing’s Japanese suppliers had received low-interest loans from the Japanese government repayable only out of future profits. | A former Boeing executive confirmed this when we spoke this week. After asking not to be named because of the diplomatic fragility of the topic, he said: “Let me put it this way: we knew the Japanese market would be Boeing’s in return for our selecting these Japanese partners. It was a silent understanding, and there was nothing in writing.” He added that Boeing’s Japanese suppliers had received low-interest loans from the Japanese government repayable only out of future profits. |
| Although the Japanese airlines and suppliers are independent companies, “in Japan there’s a unique relationship between the airlines, the suppliers and the government,” according to the former Boeing official. “It’s cultural. The officials all went to the same schools and have close personal relationships. The government supported the airlines and the industries and they developed together. The government has enormous influence. They all work together.” | Although the Japanese airlines and suppliers are independent companies, “in Japan there’s a unique relationship between the airlines, the suppliers and the government,” according to the former Boeing official. “It’s cultural. The officials all went to the same schools and have close personal relationships. The government supported the airlines and the industries and they developed together. The government has enormous influence. They all work together.” |
| As a Boeing vice president and former Boeing Japan president, Nicole Piasecki, told the company magazine in 2008: “These aren’t just relationships with people in business. The Japanese government is a powerful and important part of all economic activity and industrial development. So part of relationship building is negotiating these two important spheres of influence in Japan and understanding it’s all tied together.” | As a Boeing vice president and former Boeing Japan president, Nicole Piasecki, told the company magazine in 2008: “These aren’t just relationships with people in business. The Japanese government is a powerful and important part of all economic activity and industrial development. So part of relationship building is negotiating these two important spheres of influence in Japan and understanding it’s all tied together.” |
| Mr. Aboulafia agreed that Japan was unique. “This is the way things used to be in the days before free trade,” he said. “Japan is the last unreconstructed believer in industrial policy writ large.” | Mr. Aboulafia agreed that Japan was unique. “This is the way things used to be in the days before free trade,” he said. “Japan is the last unreconstructed believer in industrial policy writ large.” |
| The Japanese External Trade Organization referred questions to the Japanese Ministry of Economy, Trade and Industry, which had no immediate comment. | The Japanese External Trade Organization referred questions to the Japanese Ministry of Economy, Trade and Industry, which had no immediate comment. |
| In response to my questions, Boeing declined to address the specific choice of GS Yuasa for the 787 batteries, but said, “In general, internal and external suppliers of the 787 program were selected based on their ability to do the work with the high quality, affordability and reliability that customers expect from Boeing and that Boeing demands of its partners.” Boeing added that “GS Yuasa provides the batteries under subcontract to Thales,” the French company responsible for the 787’s electrical systems, but confirmed that Boeing approved the choice and that all subcontractors had to meet Boeing’s quality standards. | In response to my questions, Boeing declined to address the specific choice of GS Yuasa for the 787 batteries, but said, “In general, internal and external suppliers of the 787 program were selected based on their ability to do the work with the high quality, affordability and reliability that customers expect from Boeing and that Boeing demands of its partners.” Boeing added that “GS Yuasa provides the batteries under subcontract to Thales,” the French company responsible for the 787’s electrical systems, but confirmed that Boeing approved the choice and that all subcontractors had to meet Boeing’s quality standards. |
| Nonetheless, there’s circumstantial evidence to support suspicions that quality and price may not be the only factors affecting the choice of Boeing’s Japanese partners. Japan’s market for commercial aircraft is dominated by Boeing to a degree unrivaled by any other country. Over the last decade, Boeing supplied over 80 percent of the aircraft ordered by Japanese customers. The nation’s flagship airline, Japan Airlines, has never ordered a plane from Airbus, Boeing’s rival. The Japanese carrier All Nippon Airways flew the 787’s maiden commercial flight and has placed an initial order for 50 aircraft. Boeing said that over the last 50 years, Japanese carriers had ordered 900 Boeing aircraft, making Japan one of its top markets by dollar volume. | Nonetheless, there’s circumstantial evidence to support suspicions that quality and price may not be the only factors affecting the choice of Boeing’s Japanese partners. Japan’s market for commercial aircraft is dominated by Boeing to a degree unrivaled by any other country. Over the last decade, Boeing supplied over 80 percent of the aircraft ordered by Japanese customers. The nation’s flagship airline, Japan Airlines, has never ordered a plane from Airbus, Boeing’s rival. The Japanese carrier All Nippon Airways flew the 787’s maiden commercial flight and has placed an initial order for 50 aircraft. Boeing said that over the last 50 years, Japanese carriers had ordered 900 Boeing aircraft, making Japan one of its top markets by dollar volume. |
| Airbus has struggled to gain traction in the Japanese market. Evidently taking a page from the Boeing playbook, it said it invested an estimated $4.6 billion with Japanese suppliers for its jumbo A380. But $4.6 billion is a drop in the bucket compared with Boeing’s spending over the decades. Airbus has since booked four orders for the A380 from the low-cost Japanese carrier Skymark Airlines. Airbus has long accused the Japanese government of engaging in improper subsidies to Boeing; an Airbus executive called the 787 the most heavily subsidized civil aircraft in history. | Airbus has struggled to gain traction in the Japanese market. Evidently taking a page from the Boeing playbook, it said it invested an estimated $4.6 billion with Japanese suppliers for its jumbo A380. But $4.6 billion is a drop in the bucket compared with Boeing’s spending over the decades. Airbus has since booked four orders for the A380 from the low-cost Japanese carrier Skymark Airlines. Airbus has long accused the Japanese government of engaging in improper subsidies to Boeing; an Airbus executive called the 787 the most heavily subsidized civil aircraft in history. |
| China hasn’t signed the Agreement on Trade in Civil Aircraft, and aviation analysts have been watching closely to see if it will follow Japan’s lead or embrace a free trade approach. Airbus has invested more heavily than Boeing in China, where Airbus built its first assembly line outside of Europe. But so far, its market share in the rapidly growing Chinese market has remained about the same as Boeing’s. China is also trying to develop its own domestic aircraft industry to compete with Boeing and Airbus. | China hasn’t signed the Agreement on Trade in Civil Aircraft, and aviation analysts have been watching closely to see if it will follow Japan’s lead or embrace a free trade approach. Airbus has invested more heavily than Boeing in China, where Airbus built its first assembly line outside of Europe. But so far, its market share in the rapidly growing Chinese market has remained about the same as Boeing’s. China is also trying to develop its own domestic aircraft industry to compete with Boeing and Airbus. |
| Boeing patronage has certainly brought benefits to Japan. Its three giant “heavy” industries — Mitsubishi, Kawasaki and Fuji — have been significant partners with Boeing since the development of the 767. According to Boeing, they supply major components of the 767 and 777 airframes and were closely involved in the 777’s design. The company said its Japanese partners designed and developed 35 percent of the 787 airframe structure, including the main wing box, which is the first time Boeing has ever entrusted such a critical design component to another company. Under their agreements with Boeing, they produce components almost exclusively for Boeing. Mitsubishi is now manufacturing its own regional jet thanks in part to what it learned from working with Boeing. | Boeing patronage has certainly brought benefits to Japan. Its three giant “heavy” industries — Mitsubishi, Kawasaki and Fuji — have been significant partners with Boeing since the development of the 767. According to Boeing, they supply major components of the 767 and 777 airframes and were closely involved in the 777’s design. The company said its Japanese partners designed and developed 35 percent of the 787 airframe structure, including the main wing box, which is the first time Boeing has ever entrusted such a critical design component to another company. Under their agreements with Boeing, they produce components almost exclusively for Boeing. Mitsubishi is now manufacturing its own regional jet thanks in part to what it learned from working with Boeing. |
| Boeing said that more than 65 Japanese companies were suppliers for both commercial and military products. Boeing said it directly or indirectly employed 22,000 people in Japan, or 42 percent of the country’s aerospace work force. Boeing also has close ties to Japan’s Defense Ministry, and the company said the two had “a long history of working together to meet Japan’s defense needs.” Mitsubishi built the F-4E Phantom fighter jet and Kawasaki manufactures the CH-47 Chinook helicopter, both under license from Boeing. | Boeing said that more than 65 Japanese companies were suppliers for both commercial and military products. Boeing said it directly or indirectly employed 22,000 people in Japan, or 42 percent of the country’s aerospace work force. Boeing also has close ties to Japan’s Defense Ministry, and the company said the two had “a long history of working together to meet Japan’s defense needs.” Mitsubishi built the F-4E Phantom fighter jet and Kawasaki manufactures the CH-47 Chinook helicopter, both under license from Boeing. |
| Besides pursuing aviation and aerospace, Japan announced last July, as part of its “Rebirth of Japan” strategy, that battery technology would be one of its top areas for development and investment. GS Yuasa makes no secret of the fact that its money-losing lithium-ion battery operation has received subsidies from the Japanese Ministry of Economy, Trade and Industry, most recently 318.7 billion yen (or about $3.5 billion) to begin mass production of lithium-ion batteries for hybrid electric vehicles. (Japan is hardly the only country subsidizing the battery industry. A123 Systems, a manufacturer of lithium-ion batteries based in Massachusetts, filed for bankruptcy last year despite a $249 million grant from the Energy Department.) | Besides pursuing aviation and aerospace, Japan announced last July, as part of its “Rebirth of Japan” strategy, that battery technology would be one of its top areas for development and investment. GS Yuasa makes no secret of the fact that its money-losing lithium-ion battery operation has received subsidies from the Japanese Ministry of Economy, Trade and Industry, most recently 318.7 billion yen (or about $3.5 billion) to begin mass production of lithium-ion batteries for hybrid electric vehicles. (Japan is hardly the only country subsidizing the battery industry. A123 Systems, a manufacturer of lithium-ion batteries based in Massachusetts, filed for bankruptcy last year despite a $249 million grant from the Energy Department.) |
| Landing the 787 contract was a huge boost for GS Yuasa and for Japan’s efforts in aviation technology. Though not well known outside of Japan, the company describes itself as Japan’s leading manufacturer of batteries and said it had supplied lithium-ion batteries for over 50 satellites “without anomaly or failure.” Still, this was its first effort in commercial aviation. “I had never heard of Yuasa in the aviation context,” Mr. Aboulafia said. GS Yuasa has since been chosen to supply lithium-ion batteries for the International Space Station. Although Pratt & Whitney nominally chose the company, Boeing is the prime contractor on the space station. | Landing the 787 contract was a huge boost for GS Yuasa and for Japan’s efforts in aviation technology. Though not well known outside of Japan, the company describes itself as Japan’s leading manufacturer of batteries and said it had supplied lithium-ion batteries for over 50 satellites “without anomaly or failure.” Still, this was its first effort in commercial aviation. “I had never heard of Yuasa in the aviation context,” Mr. Aboulafia said. GS Yuasa has since been chosen to supply lithium-ion batteries for the International Space Station. Although Pratt & Whitney nominally chose the company, Boeing is the prime contractor on the space station. |
| There were better-known and more experienced suppliers of lithium-ion batteries for aviation uses when GS Yuasa was chosen, including the Saft Group of France, Mr. Aboulafia said. Saft describes itself as “the premier battery supplier to the aviation industry,” and Airbus is using Saft lithium-ion batteries for its new A350 aircraft. | There were better-known and more experienced suppliers of lithium-ion batteries for aviation uses when GS Yuasa was chosen, including the Saft Group of France, Mr. Aboulafia said. Saft describes itself as “the premier battery supplier to the aviation industry,” and Airbus is using Saft lithium-ion batteries for its new A350 aircraft. |
| GS Yuasa may well have been the best choice for the 787. Still, all of this raises the question of whether GS Yuasa was chosen to design and manufacture the 787 batteries solely on the criteria of “price, quality and delivery” called for by the World Trade Organization agreement, or whether other political and commercial interests played a role. The latter “sounds all too plausible to me,” Mr. Aboulafia said. “That doesn’t mean they’re incompetent. The Japanese respect engineering expertise. You can’t argue that the Japanese heavy industries shouldn’t have played a role in the design and development of the 787. So far, their work has been very good.” | GS Yuasa may well have been the best choice for the 787. Still, all of this raises the question of whether GS Yuasa was chosen to design and manufacture the 787 batteries solely on the criteria of “price, quality and delivery” called for by the World Trade Organization agreement, or whether other political and commercial interests played a role. The latter “sounds all too plausible to me,” Mr. Aboulafia said. “That doesn’t mean they’re incompetent. The Japanese respect engineering expertise. You can’t argue that the Japanese heavy industries shouldn’t have played a role in the design and development of the 787. So far, their work has been very good.” |
| And any questions about GS Yuasa may be premature. Although the batteries are suspected in the fires that grounded the 787 fleet, no one yet knows for sure. Both Thales, the French company responsible for the broader electrical system, and Securaplane, an American subsidiary of the British engineering firm Meggitt that makes the battery chargers, are also being investigated. | And any questions about GS Yuasa may be premature. Although the batteries are suspected in the fires that grounded the 787 fleet, no one yet knows for sure. Both Thales, the French company responsible for the broader electrical system, and Securaplane, an American subsidiary of the British engineering firm Meggitt that makes the battery chargers, are also being investigated. |
| But whatever the outcome, experts said that with so many lives at stake, the design and manufacture of new aircraft should be based solely on legitimate issues of cost and quality, and the selection process for suppliers should be transparent and untainted by other commercial or political concerns. | But whatever the outcome, experts said that with so many lives at stake, the design and manufacture of new aircraft should be based solely on legitimate issues of cost and quality, and the selection process for suppliers should be transparent and untainted by other commercial or political concerns. |
| “The greatest enemy of good aircraft is people who interfere with the freedom to shop for the highest quality,” Mr. Aboulafia said. | “The greatest enemy of good aircraft is people who interfere with the freedom to shop for the highest quality,” Mr. Aboulafia said. |