Paul Lewis/TOKYO

JAPAN'S AEROSPACE industry fears that the collapse of the US dollar against the yen is beginning to have an impact on profit margins and competitiveness, potentially threatening the future of civil and military aircraft ventures in Japan.

The currency fluctuation, which has seen the US dollar sink by 20% over recent months, has raised serious doubts about Japanese plans to design and build the proposed YS-X regional passenger jet airliner, in partnership with Boeing. Its future success hinges on development and production costs being kept to a minimum so that it can be offered in competition with other similar-sized aircraft.

Japanese hopes for the YS-X have already suffered a setback because of the recent launch of the 108-seat Boeing 737-600. Japan Aircraft Development, instead of relying on a high degree of commonality with the 737 to reduce costs, is now having, to incorporate newer, more efficient, technology into the YS-X design. This is likely to include a composite-material wing, which will further inflate development costs.

Work-share discussions between Mitsubishi and Lockheed Martin for the FS-X support fighter have also been affected by the currency distortion. US industry is guaranteed a 40% share of production on the basis of the fighter's value. Japanese attempts to change this to a 40% share of content are being resisted by the USA.

Mitsubishi, together with Fuji and Kawasaki Heavy Industries, are reliant on US civil-aircraft subcontracting work, including a joint 20% stake in the Boeing 777's airframe production. The high value of the yen has wiped out profit margins on Japanese-built 777 fuselage subassemblies supplied to Boeing.

Boeing is understood to have refused to raise the price of the 777 or to cut its own profit margin to accommodate Japanese manufacturers. The three "heavies" are instead starting to subcontract work to other Asian countries, including China, to reduce costs.

Japanese airlines are also warning that the dollar's slide could affect their long-term competitiveness against international rivals, although, in the short term, the fall has boosted outbound foreign air-travel.

"Overseas travel is cheaper and this is reflected in increased traffic figure," says Japan Airlines (JAL). "The long-term result tells another story. Foreign carriers will be able to undercut Japanese carriers in the home market, as their costs are offshore."

Gains from cheaper-dollar aircraft purchases have failed to materialise, because of currency-hedging contracts taken out before the collapse. JAL, in particular, has futures contracts dating back ten years when the US dollar was trading at around '200. Over the past year it has been as low as '80.

Source: Flight International