OM in the News: Dreamliner Woes Test Boeing’s Corporate Ties in Japan

In the Global Company Profile that opens Chapter 2, we note the important and growing role Japan suppliers have played in Boeing’s 787. But the well-discussed woes of the Dreamliner (see The Wall Street Journal, Jan.29, 2013) are beginning to strain one of the aviation world’s coziest relationships: that between Boeing and its customers in Japan. All Nippon Airways, the first and largest operator of Boeing’s new 787, cancelled 459 flights through Jan. 31 after battery fires on two Dreamliners prompted regulators to ground the planes over two weeks ago. Rival Japan Airlines, which flies 7 Dreamliners and suffered a fire, has also been hit by the plane’s stoppage. “As an airline person, it’s exasperating to think that we’ve got 17 cutting-edge planes sitting here that can’t fly,” says ANA’s VP.

It’s not just the airlines that are affected. More than a third of each 787 is built by Japanese manufacturers before being sent to the U.S. for assembly. Roughly 43% of Japanese aerospace employment is linked to Boeing projects. In other markets, the Dreamliner’s delays and problems might prompt customer defections. But Japanese companies do so much business with Boeing that their fortunes are closely linked.

ANA and Japan Airlines flaunt their allegiance to Boeing. ANA, deeply involved in the design of the jet, boasts that its “passion persuaded Boeing” to use a durable Japan-made paint on the 787 and that the Dreamliner’s composition is “Japan 35%; Boeing 35%; Others 30%.” When the Dreamliner faced big delays between 2007 and 2010, Japanese aviation exports plummeted 25%.

The ties go back to U.S. support for Japanese reconstruction after World War II. In the 1970s and 1980s, Japanese airlines became big buyers of U.S. planes, partly to help offset a huge trade imbalance. “Ever since the war, Japan’s aviation industry has been basically America,” says one trade official.

Discussion questions:

1. Why did Boeing outsource such a large percent of its jets to Japanese suppliers?

2. Why have JAL and ANA remained loyal customers?