Greedy Engineering- GE to Transfer Top Aviation Technology to the Chinese

We have heard this lie before:


…"For the most part, Western aviation executives say the Chinese are simply too far behind in both civilian and military airplane technology to cause any real fears anytime soon — although it does put pressure on Boeing and Airbus to continue to innovate and stay technologically ahead of China"…

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G.E. to Share Jet Technology With China in New Joint Venture

By DAVID BARBOZA, CHRISTOPHER DREW and STEVE LOHR

Published: January 17, 20 NY Times

As China strives for leadership in the world’s most advanced industries, it sees commercial jetliners — planes that may someday challenge the best from Boeing and Airbus — as a top prize.

And no Western company has been more aggressive in helping China pursue that dream than one of the aviation industry’s biggest suppliers of jet engines and airplane technology, General Electric.

On Friday, during the visit of the Chinese president, Hu Jintao, to the United States, G.E. plans to sign a joint-venture agreement in commercial aviation that shows the tricky risk-and-reward calculations American corporations must increasingly make in their pursuit of lucrative markets in China.

G.E., in the partnership with a state-owned Chinese company, will be sharing its most sophisticated airplane electronics, including some of the same technology used in Boeing’s new state-of-the-art 787 Dreamliner.

For G.E., the pact is a chance to build upon an already well-established business in China, where the company has booming sales of jet engines, mainly to Chinese airlines that are now buying Boeing and Airbus planes. But doing business in China often requires Western multinationals like G.E. to share technology and trade secrets that might eventually enable Chinese companies to beat them at their own game — by making the same products cheaper, if not better.

The other risk is that Western technologies could help China play catch-up in military aviation — a concern underscored last week when the Chinese military demonstrated a prototype of its version of the Pentagon’s stealth fighter, even though the plane could be a decade away from production.

The first customer for the G.E. joint venture will be the Chinese company building a new airliner, the C919, that is meant to be China’s first entry in competition with Boeing and Airbus.

For the most part, Western aviation executives say the Chinese are simply too far behind in both civilian and military airplane technology to cause any real fears anytime soon — although it does put pressure on Boeing and Airbus to continue to innovate and stay technologically ahead of China.

G.E., which said it had briefed the commerce, defense and state departments on details of the deal, acknowledges that pairing up with a Chinese firm is a delicate dance. But because the commercial aircraft market in China is expected to generate sales of more than $400 billion over the next two decades, it is not a party the company is willing to miss.

Eventually, G.E. executives say, China will become a potent player in the commercial jetliner market, and the company wants to be a major supplier to the emerging Chinese producers.

“They are committed for the long term and they have every probability of being successful,” said John G. Rice, vice chairman of G.E. “We can participate in that or sit on the sidelines. We’re not about sitting on the sidelines.”

Mr. Rice also said that the Chinese joint venture partner — the aerospace design and equipment manufacturer Aviation Industry Corporation of China, or Avic — has supplied G.E. with some parts for jet engines for years. And he said he had personally known Avic’s president for a decade.

“This venture is a strategic move that we made after some thought and consideration, with a company we know,” Mr. Rice said. “This isn’t something we were forced into” by the Chinese government.

G.E.’s new joint venture in Shanghai will focus on avionics — the electronics for communications, navigation, cockpit displays and controls. G.E. will be contributing its leading-edge avionics technology — a high-performance core computer system that operates as the avionics brain of Boeing’s new 787 Dreamliner.

The joint venture has a ready customer in the C919’s builder, the Commercial Aircraft Corporation of China, which is also a government-owned enterprise. The plane will be a single-aisle airliner, carrying up to 200 passengers, intended to compete with Boeing 737s and Airbus 320s. Although the Chinese hope to begin deliveries in 2016, analysts say the schedule may well slip.

With or without the C919, the Chinese market for commercial airliners is already huge and growing fast — a big market for G.E. jet engines and other systems, as well as Boeing and Airbus planes. But if the C919 grabs any significant slice of that market, it would represent a new, expanded opportunity for G.E. The company has already been chosen to supply engines for the Chinese plane, through its long-standing partnership with Snecma of France. Though the world’s largest producer of jet engines, G.E. has trailed other suppliers of avionics in overall sales, behind Honeywell, Rockwell Collins and Thales, all of whom competed for the C919 business.

Several other American companies have also been chosen as suppliers for the C919 aircraft, providing power generators, fuel tanks, hydraulic controls, brakes, tires and other gear. The roster of United States suppliers includes Rockwell Collins, Honeywell, Hamilton Sundstrand, Parker Aerospace, Eaton Corporation and Kidde Aerospace.

In fact, the corporate competition for contracts on the C919 became a “frenzy,” said Mark Howes, president of Honeywell Aerospace Asia Pacific. The Chinese government, he said, had made it clear to Western companies that they should be “willing to share technology and know-how.”

But the G.E. avionics joint venture, analysts say, appears to be the deepest relationship yet and involves sharing the most confidential technology. And G.E.’s partner, Avic, also supplies China’s military aircraft and weapons systems.

G.E. executives would not comment on the details of the joint venture. But a person involved in the talks said the 50-50 venture is for 50 years. G.E., the person said, is putting in technology and start-up capital of $200 million. Avic will initially contribute $700 million, the person said, including the cost of a new research and development lab already under construction.

To address American government security concerns, the joint venture in Shanghai will occupy separate offices and be equipped with computer systems that cannot pass data to computers in Avic’s military division, G.E. executives say. And anyone working in the joint venture must wait two years before they can work on military projects at Avic, they added.

While Boeing and Airbus would probably rather not see their suppliers help the Chinese so much, both those companies must also constantly balance the risks and rewards of operating in China.

Boeing has subcontracted parts work to China for many years, and it is expanding a joint venture in Tianjin that makes parts with composite materials for several of its planes. And Airbus has built a factory that assembles A320s in the same city.

Boeing has “opted to accept the reality of both partnering and competing with China,” Boeing’s chief executive, W. James McNerney Jr., said in a speech last year.

Indeed, China’s push into the commercial aircraft industry will probably increase exports from American aviation equipment manufacturers for years to come, according to industry analysts. Whether China succeeds or fails, the state-owned companies will keep investing, generating sales for the suppliers.

The real concern lies further head, according to a study of China’s strategy included in a report published in November by a bipartisan Congressional advisory group, the United States-China Economic and Security Review Commission.

The group concluded that China’s huge state subsidies for its own industry, its requirements that foreign companies provide technology and know-how to gain access to the Chinese market, along with the close ties between its commercial and military aviation sectors all raise concerns and “bear watching.”

The big aviation equipment makers say that, by now, they are experienced at grappling with matters of technology transfer in China. In Cedar Rapids, Iowa, Kent L. Statler, an executive vice president for commercial aviation at Rockwell Collins, observes that his employees often ask whether the company is trading its future for immediate sales in China.

“I think you’re naïve if you don’t take into account that you could be standing up a future competitor,” Mr. Statler said. Any company in a global business is in a race, he added, and staying ahead is the only defense. “At the end of the day, our technologies and processes have to continue to improve,” Mr. Statler said. “It comes down to who can innovate faster.”