By Tim Kelly
TOKYO Oct 9 (Reuters) - For five decades Boeing Co. has awarded bigger and bigger shares of its supply contracts to Japanese firms, but that could change after Japan Airlines' shock defection to Airbus and as the planemaker seeks to win orders in China.
Boeing's carbon composite 787 is 35 percent made in Japan - as big a share as it builds in-house - but Japanese aviation insiders fear the Dreamliner could be the high water mark of the industry's partnership with the U.S company.
The close co-operation has not only benefitted Japan's industrial giants Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries - it has also enabled Boeing to dominate one of the world's biggest aviation markets with a share of more than 80 percent.
That status quo crumbled on Monday, when JAL signed a deal to buy 31 Airbus A350s, its first purchase of European jets.
In rejecting the rival Boeing 777X, JAL can only have increased the likelihood that the U.S. company's next project will be less Japanese.
"Negotiations for the 777X work share are ongoing, and that may be influenced by the JAL decision," a government official who helps oversee Japan's aerospace industry told Reuters on condition of anonymity because of the sensitivity of the talks.
Tokyo, he added, was looking to win a work share for Japanese suppliers greater than the 21 percent that Mitsubishi Heavy, Kawasaki Heavy and others build of the current 777.
The fear in Japan is that Boeing, which says the business it gives Japan adds up to 22,000 jobs accounting for around 40 percent of nation's aerospace workforce, may be tempted to shift more production to China, South Korea or elsewhere.
"If I was Boeing, I would hold their feet to the fire," said Lance Gatling, founder of aerospace and defence consultancy Nexial Research in Tokyo. "International competition for what they build can only increase."
Spokesmen for the Japanese suppliers involved and for Boeing in Japan declined to comment on the share out of work for the 777X, which Boeing has said it plans to officially launch later this year.
LURE OF CHINA
JAL's defection to Airbus stacks on top of other reasons why the Japanese may find it harder to win bigger chunks of business from their American partner.
Boeing, having faced criticism it overextended itself on the delayed 787 with an ambitious global supply chain, has said it will take a more conventional approach to the 777X, a re-engined more fuel efficient upgrade of its long-range, wide-body 777.
That, industry watchers say, could mean it builds the aircraft wings at home, after allowing the Dreamliner wings to be made overseas - in Japan - for the first time.
A longer-term worry for the Japanese is that their country, once Asia's biggest aircraft market, is no longer the goldmine that first drew Boeing to seek panel suppliers for its 747 there.
Both Boeing and European rival Airbus are now more focused on vying for business in burgeoning China. The entry price often imposed by the Chinese government is a share of the build.
Boeing, in its most recent 20-year market forecast that runs through 2032, predicts China will buy 6,000 new planes while the market in Northeast Asia, which includes Japan, North and South Korea and Taiwan, will be 1,360 aircraft.
"If the Japanese could put the arm on Boeing the Chinese have got the ability to put the arm on Boeing," said Nexial Research's Gatling. "The Chinese have cheap labour and a huge market."
He added that the Japanese were also looking over their shoulders at upcoming South Korean firms such as Korean Aerospace Industries, which Boeing in 2011 named supplier of the year.
Part of Japan's response to that challenge is the 70-90 seat Mitsubishi Regional Jet (MRJ), its first commercial aircraft since it lashed itself to Boeing.
Apart from being a bid to claim a share of the expanding market for smaller passenger jets, it is an both opportunity to showcase its skills to Boeing and provide a hedge against a fall in orders from Western manufacturers.
One lure that could keep Boeing heavily involved in Japan is government financial support for R&D that could end up in its jets.
According to the European Union, which is locked in an aircraft subsidy dispute with the United States, Boeing benefits from support from the Japanese government for development of the 787, including financing of up to 70 percent of development costs incurred by Japanese suppliers.
NEW BATTLE LOOMS
Attention in Japan has now turned to Boeing's battle with Airbus to supply JAL's rival ANA Holdings.
Boeing is widely seen as the favourite in that tussle, although some analysts think ANA will buy Airbus wide-body planes to hedge against delay and avoid getting left with older fleets while competitors fly new jets that consume less fuel.
Like JAL, ANA is looking to buy around 30 jets to retire its aging long-haul 777s and is considering the carbon composite A350 and the 777X as replacements.
A win for Boeing would offer a keen incentive for the U.S. company to stay deeply rooted in Japan, and industry sources expect a lobbying backlash as pressure from the aerospace industry's political backers comes to bear.
And at ANA, political pressure may bear more fruit. In a reversal of roles, ANA now enjoys a closer relationship with the ruling Liberal Democratic Party, a position once enjoyed by flag carrier JAL before its bankruptcy and bailout in 2010.
ANA this month won double the number of new landing slots at Tokyo's Haneda airport, prompting a rare public complaint by JAL that it had been unfairly treated.
The question remains whether ANA is willing to do something for Team Japan in return.
"Obviously it (JAL's decision) is a setback, but Boeing has been investing in Japan for decades and is not going to suddenly say from now on we don't like you," said Adam Pilarski, senior vice-president at Virginia-based aviation consultancy Avitas, on the sidelines of an aviation finance conference in Barcelona.