By Tim Kelly
TOKYO, Oct 9 (Reuters) - For five decades Boeing Co. has awarded bigger and bigger shares of its supply contracts toJapanese firms, but that could change after Japan Airlines' shock defection to Airbus and as theplanemaker 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 aviationinsiders fear the Dreamliner could be the high water mark of theindustry's partnership with the U.S company.
The close co-operation has not only benefitted Japan'sindustrial giants Mitsubishi Heavy Industries, KawasakiHeavy Industries and Fuji Heavy Industries -it has also enabled Boeing to dominate one of the world'sbiggest aviation markets with a share of more than 80 percent.
That status quo crumbled on Monday, when JAL signed a dealto buy 31 Airbus A350s, its first purchase of Europeanjets.
In rejecting the rival Boeing 777X, JAL can only haveincreased the likelihood that the U.S. company's next projectwill be less Japanese.
"Negotiations for the 777X work share are ongoing, and thatmay be influenced by the JAL decision," a government officialwho helps oversee Japan's aerospace industry told Reuters oncondition of anonymity because of the sensitivity of the talks.
Tokyo, he added, was looking to win a work share forJapanese suppliers greater than the 21 percent that MitsubishiHeavy, Kawasaki Heavy and others build of the current 777.
The fear in Japan is that Boeing, which says the business itgives Japan adds up to 22,000 jobs accounting for around 40percent of nation's aerospace workforce, may be tempted to shiftmore production to China, South Korea or elsewhere.
"If I was Boeing, I would hold their feet to the fire," saidLance Gatling, founder of aerospace and defence consultancyNexial Research in Tokyo. "International competition for whatthey build can only increase."
Spokesmen for the Japanese suppliers involved and for Boeingin Japan declined to comment on the share out of work for the777X, which Boeing has said it plans to officially launch laterthis year.
LURE OF CHINA
JAL's defection to Airbus stacks on top of other reasons whythe Japanese may find it harder to win bigger chunks of businessfrom their American partner.
Boeing, having faced criticism it overextended itself on thedelayed 787 with an ambitious global supply chain, has said itwill take a more conventional approach to the 777X, a re-enginedmore fuel efficient upgrade of its long-range, wide-body 777.
That, industry watchers say, could mean it builds theaircraft wings at home, after allowing the Dreamliner wings tobe 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 goldminethat first drew Boeing to seek panel suppliers for its 747there.
Both Boeing and European rival Airbus are now more focusedon vying for business in burgeoning China. The entry price oftenimposed by the Chinese government is a share of the build.
Boeing, in its most recent 20-year market forecast that runsthrough 2032, predicts China will buy 6,000 new planes while themarket in Northeast Asia, which includes Japan, North and SouthKorea and Taiwan, will be 1,360 aircraft.
"If the Japanese could put the arm on Boeing the Chinesehave got the ability to put the arm on Boeing," said NexialResearch's Gatling. "The Chinese have cheap labour and a hugemarket."
He added that the Japanese were also looking over theirshoulders at upcoming South Korean firms such as KoreanAerospace Industries, which Boeing in 2011 named supplier of theyear.
Part of Japan's response to that challenge is the 70-90 seatMitsubishi Regional Jet (MRJ), its first commercial aircraftsince it lashed itself to Boeing.
Apart from being a bid to claim a share of the expandingmarket for smaller passenger jets, it is an both opportunity toshowcase its skills to Boeing and provide a hedge against a fallin orders from Western manufacturers.
One lure that could keep Boeing heavily involved in Japan isgovernment financial support for R&D that could end up in itsjets.
According to the European Union, which is locked in anaircraft subsidy dispute with the United States, Boeing benefitsfrom support from the Japanese government for development ofthe 787, including financing of up to 70 percent of developmentcosts incurred by Japanese suppliers.
NEW BATTLE LOOMS
Attention in Japan has now turned to Boeing's battle withAirbus 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-bodyplanes to hedge against delay and avoid getting left with olderfleets while competitors fly new jets that consume less fuel.
Like JAL, ANA is looking to buy around 30 jets to retire itsaging long-haul 777s and is considering the carbon compositeA350 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 sourcesexpect a lobbying backlash as pressure from the aerospaceindustry's political backers comes to bear.
And at ANA, political pressure may bear more fruit. In areversal of roles, ANA now enjoys a closer relationship with theruling Liberal Democratic Party, a position once enjoyed by flagcarrier JAL before its bankruptcy and bailout in 2010.
ANA this month won double the number of new landing slots atTokyo's Haneda airport, prompting a rare public complaint by JALthat it had been unfairly treated.
The question remains whether ANA is willing to do somethingfor Team Japan in return.
"Obviously it (JAL's decision) is a setback, but Boeing hasbeen investing in Japan for decades and is not going to suddenlysay from now on we don't like you," said Adam Pilarski, seniorvice-president at Virginia-based aviation consultancy Avitas, onthe sidelines of an aviation finance conference in Barcelona.