May 24, 2014 5:17 am JST

Aircraft parts suppliers fuel production boom in Japan

YOSHIFUMI UESAKA, Nikkei staff writer

TOKYO -- At a time when Japanese manufacturers are continuing to shift production abroad, a factory construction boom is brewing in the aircraft industry.

     IHI said Thursday that it will construct a new factory building for engine parts on the premises of its Soma plant in Fukushima Prefecture. When this reporter visited the factory, construction workers were busy installing a production line for an engine to be used in Airbus' new 320neo series of smaller aircraft. To accommodate the output increase, the company will construct its first new building in eight years by next spring.

     IHI has set aside 30 billion yen ($291 million) for capital investment through 2016, including a new structure at its group's Tomioka plant in Gunma Prefecture.

     The Tokyo-based company has won orders for the new engine it developed with Pratt & Whitney of the U.S. Boasting a 15% higher fuel efficiency, the engine will become the first to be made out of fiber-reinforced plastic and other lightweight, high-strength materials.

     "Processing and quality control will be difficult, but record levels of production will continue until 2016," says Tsugio Mitsuoka, a managing executive officer.

     IHI is not the only company in the industry busy with new business and construction.

     Compatriots Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries have received unofficial orders from Boeing for the airframe of its next-generation 777X family, to debut around 2020. Fuji Heavy has decided to spend some 10 billion yen to build a new factory building in Handa, Aichi Prefecture, for making center-wing boxes, which connect the wings to the fuselage.

     Kawasaki Heavy completed an add-on at its Seishin facility in Kobe for making engine parts. It will produce engines for Boeing's 787 midsize airliners. To handle the output expansion, the plant will take on an additional 100 workers by fiscal 2017.

     The construction rush is fueled by growing demand for passenger airliners. With airlines and low-cost carriers in emerging markets bolstering their operations, passenger aircraft demand is projected to total 34,000 airliners a year in 2030, up 80% from 2012. As Boeing and Airbus compete to churn out next-generation models, they are tapping Japanese suppliers for their quality-control skills and expertise in high-performance materials.

     The aircraft industry is different from the automobile and electronics industries, which continue to step up production abroad. Parts need to be made of expensive materials to meet strict safety standards. These components cannot be easily produced overseas at the same quality level or delivered with the same speed, says George Maffeo, president of Boeing Japan.

     Aircraft production in Japan totaled a record 1.35 trillion yen in 2013, up 14% from five years earlier.

     Hopes are high that the aircraft industry will be a key engine of Japan's economic growth at a time when other types of manufacturers make large capital investments elsewhere. The industry is far smaller than the car industry, but it encompasses a wide range of suppliers. A single airliner uses 1 million to 3 million parts -- or 120 times more than an automobile.

     Engines in particular bring benefits after a sale, says an official at Kawasaki Heavy. Since engines are used for 20 to 30 years, they require a number of parts exchanges and repairs, generating steady profits over a long period.

     Meanwhile, aircraft manufacturers are receiving funding offers from a surprise source. Canada's largest pension fund recently approached the Development Bank of Japan, offering to invest in a roughly 300 billion yen project by IHI and General Electric to jointly develop the GE9X engine for the Boeing 777X.

     The pension fund and the Japanese government-backed bank decided to jointly invest 30 billion yen to 40 billion yen. It is unusual for a pension fund to directly invest in engine development and is an indication of the project's promise.

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