Boeing's plans to outsource parts for its new 787 jet to China have hit political turbulence as the Bush administration scrutinizes the...
Boeing’s plans to outsource parts for its new 787 jet to China have hit political turbulence as the Bush administration scrutinizes the deal.
Though Boeing already has approval to use airframe suppliers in Japan, Korea, France and Italy, it still needs a federal OK to share technology with a Chinese company tagged to build the 787 tail rudder. Boeing wants to use the supplier, based in Chengdu, to encourage airplane sales in China.
The issue of restricting technology exports will probably come up when Chinese President Hu Jintao travels to the U.S. to meet President Bush next week. He’s expected to visit a Boeing factory when his U.S. tour begins in Seattle on Labor Day.
If Boeing fails to get an export license for Chengdu, it will have to build the 787 rudder elsewhere, perhaps in-house in its Frederickson plant in Pierce County or with a different supplier. As part of its scrutiny, the Commerce Department is examining Boeing’s conduct in previous technology transfers to China.
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But Boeing downplayed the delay and said it is working with Commerce to ensure that all export-license requirements are met.
“The U.S. government is being very careful about the licensing and wants to fully understand what we’d like to have China do on the rudder,” said Walt Gillette, who is in charge of the 787 program. “We’re having very thorough discussions with the government.”
All economic and technology deals with China are now under intense scrutiny from the Bush administration.
China’s president visits the U.S.
This is President Hu Jintao’s first visit to the U.S. since becoming president in 2003. The 12-day tour includes stops in Mexico, Canada and the United Nations.
Monday: Arrives at Boeing Field in the morning and spends the afternoon in Redmond where he will meet Bill Gates and tour Microsoft.
Tuesday: Tours Boeing plant in Everett before giving major policy address at lunch at the Westin.
Wednesday: Meets President Bush at the White House.
Sept. 14: Attends the World Summit and other activities in New York in celebration of the 60th anniversary of the United Nations.
“There is a debate going on within the administration and within Congress,” said William Clements, a partner with law firm Foley & Lardner, who advises U.S. businesses on export control and who held senior regulatory positions on the issue in the Clinton administration. “There are those who see China as a threat and that taints their entire attitude toward normalized commerce with China. Others see China as a significant commercial opportunity.”
The China hawks within the Beltway seem to have the upper hand lately.
Last month political opposition in Washington, D.C., killed a major bid by a state-controlled Chinese company, CNOOC, to buy the American oil company Unocal. That further strained already tense U.S. economic relations with China.
In June, Peter Lichtenbaum, acting undersecretary for Industry and Security in the Commerce Department, testified before a congressional commission that China poses a problem because of concerns about modernization of its military and the risk of using U.S. technology to do so.
Boeing last year announced deals with Chinese suppliers worth more than $600 million, including one with Chengdu Aircraft Industry, part of a state-owned aerospace group, to supply the 787 rudder. Chinese airlines subsequently ordered 60 of the new jets, the largest aggregate order to date.
The 787 rudder, like the rest of the airframe, is to be made from advanced carbon-fiber composite plastic. This material, while commonly used in military airplanes and missile applications, is increasingly used in commercial jets. It also has many nonaerospace commercial applications, from bridge reinforcement to golf clubs.
In his June testimony, Lichtenbaum mentioned the Chengdu company and its potential to produce “composite-based parts, components, and sections (e.g., rudders) for commercial aircraft.”
He said applications to license composite materials “will be denied if there is sufficient information to indicate the items could be diverted to military end-users or third countries.”
Boeing’s past behavior is also under inspection. The State Department has already prepared charges that the company violated export-control law in the 2003 foreign sales of 737s containing a gyroscopic chip classified as a defense item.
And internal company documents obtained by The Seattle Times show that the Commerce Department is looking into whether Boeing has already provided restricted technology to Chengdu — without an export license.
In addition, Commerce is examining whether Boeing has violated the terms of earlier export licenses for BHA Aero Composite Parts, a plant in Tianjin that opened in 2001, which is a joint venture with Hexcel and state-run China Aviation Industry.
BHA produces about 200 parts for Boeing, including the 737 trailing edge, interior panels for the 777, and the wing-to-body fairing panels and tail cone for the 737.
Commerce officials visited Boeing’s composite-manufacturing center in Frederickson near Tacoma in July to assess the 787 rudder manufacturing plan and had plans to travel to Chengdu and other Chinese facilities last month.
A spokesman at Commerce said the agency is “statutorily prohibited” from commenting about its review process.
Boeing’s strategy is to push ahead while withholding from Chengdu all technology requiring a license until it gets clearance.
Nelson Dong, a partner with law firm Dorsey & Whitney with expertise in export-control regulations, sees no reason for alarm in the Boeing license delay.
Advanced-technology-license applications to China routinely take longer to process than those for other countries, he said.
He said he read Lichtenbaum’s remarks about Chengdu as a display of the requisite toughness from a public official appearing before a relatively hawkish and conservative commission.
In general, he thinks the Bush administration is walking a fairly balanced line on China.
And how sophisticated is the technology transfer in question?
Gillette said Chinese engineers won’t learn anything they don’t already know, if allowed to build the Boeing rudder.
“I’ve seen documents that show indigenous Chinese programs make some very complex composite structure, that they have figured out how to do on their own, that is much more complex than a rudder,” he said.
Gillette said there is no need at this stage to line up an alternative supplier, as manufacture doesn’t start for some time.
The rudder is a single, long piece that attaches on hinges to the vertical tail fin and helps steer the airplane. “We’re not talking about a supercomputer here. It’s a rudder,” said Loren Thompson, a senior defense analyst with the Lexington Institute. “The rudder is not a particularly challenging aerostructure.”
He said other countries will step in to supply such technology to China if this country doesn’t. “Sometimes the U.S. government is its own worst enemy,” Thompson said.
Flight International reported last month that Airbus is considering China as a supplier for the entire tail of its A350 — the rival jet to Boeing’s 787. This would likely also be made from advanced composites.
Dominic Gates: 206-464-2963 or email@example.com
Kristi Heim contributed
to this report.