Mitsubishi proposes to build 777X wings in Japan -source

Reuters

* Possible Plan B emerges on eve of Seattle union vote

* Japan co would build 777X wings next to 787 plant-source

* Proposes to build five ships to ferry wings to US-source

* Boeing says would consider Japan if workers reject deal

By Tim Kelly and Kentaro Sugiyama

TOKYO, Nov 12 (Reuters) - Japan's Mitsubishi Heavy has suggested a cost-saving way to build the wings of BoeingCo's newest jet that could offer the planemaker a "PlanB" should its own workers reject a labour deal, a person withknowledge of the proposal said.

Details of the unsolicited proposal to make the wings inJapan emerged on the eve of a crucial vote by 31,000 Boeingworkers on a contract that may determine whether the 777X isbuilt in Washington state, its historic plane-building hub.

Boeing has said that if its machinists reject a proposedeight-year pact it will open talks on alternative locations forthe assembly of the jet's fuselage and composite wings - thelongest ever designed for a U.S.-manufactured airliner.

With Seattle-area workers given a first chance to vote onplans for a new jetliner, discussions between Boeing and otherpotential partners have not yet started and no concrete offer ison the table, several people close to the process said.

But Mitsubishi Heavy Industries, which already makes wingsfor the 787 Dreamliner, has outlined to Boeing in detail how anew plant could be built alongside its existing 787 wingfacility in the port city of Nagoya, the person told Reuters.

It has also presented a detailed blueprint that sets outsignificant cost savings by transforming the way in which theadvanced carbon-composite wing panels are transported.

The person with knowledge of the plan said Mitsubishi hasproposed building a fleet of five "Roll On-Roll Off" cargo shipscapable of transporting sections of the 777X wing.

This would be cheaper than the outsized "Dreamlifter" planesused to transport 787 wing panels, the source said.

Compared with the cost and lead times needed for transportplanes, the source said the new maritime freight network couldbe up and running relatively quickly. Boeing's European rivalAirbus also runs a shipping network for plane parts.

Further potential savings would come from the consolidationof some of the 787 and 777X wing work at adjacent sites.

"It is a detailed and carefully thought-through proposalthat builds on the current 787 wing manufacturing system," theperson said.

Mitsubishi and Boeing both declined to comment.

WAITING FOR BOEING DECISION

Two sources in Tokyo with knowledge of Mitsubishi Heavy'saerospace business said no concrete proposal had been made toBoeing and no discussion was underway on 777X buildingcarbon-composite wings in Japan.

"It is a blank sheet," said one of the sources on conditionhe wasn't identified.

Both, however, said Mitsubishi, which along with otherJapanese suppliers builds 36 percent of the 787 and 21 percentof the 777, would be interested in the new jet's wings.

"Of course we want to proceed with the 777X ... We want toproceed if at all possible, but we're not yet in a position ofhaving heard what the other side (Boeing) intends," one sourcefamiliar with the company's position said.

Boeing's main Japanese partner however sees its chance ofwinning the wing work as poor, expecting the machinists' unionto agree to Boeing's package, another source noted.

Rather than win the one-third share that Mitsubishi won forthe 787, its goal instead is for about 20 percent of the 777X,roughly in line with the original 777, he said.

Speaking in Tokyo, a senior Boeing executive said it hopedmachinists would back the contract to secure production of the777X in Washington state, but would look at alternativesincluding Japan if the deal were rejected.

"If not ratified we will consider all other alternatives,"Chief Technology Officer John Tracy told a news briefing withsuppliers, adding that included putting 777X wings in Japan.

News of an existing proposal - handed to Boeing severalweeks ago - could raise the temperature of Wednesday's vote,with many vowing to reject Boeing's offer.

Frank Larkin, national spokesman for the InternationalAssociation of Machinists, said the union was not aware of theMitsubishi proposal. He declined to speculate on how it mightaffect the voting and said Boeing had pledged not to consideralternatives until after IAM members had had a chance to vote.

Besides outlining an alternative production plan, theproposal offers a glimpse of potential production capacity forthe new 400-seat jet, which Boeing is expected to launch at nextweek's Dubai Airshow with first delivery due around 2020.

Under Mitsubishi's proposal, the new manufacturing andtransportation system would be capable of delivering 7 shipsetsa month, rising later to 10 a month, the source said, asking notto be named because the proposal remains confidential.

Boeing currently produces 8.3 current-model 777s per month.

It has acknowledged it was too ambitious in outsourcing the787 Dreamliner which suffered a three-year production delayfollowed by numerous glitches once it had entered service.

Analysts say Boeing would prefer to group large processesfor the 777X together in Washington state to focus the supplychain and take advantage of existing skills and facilities.

But in the event of a "no" vote, Japan is expected to arguethat placing the advanced wing production alongside the 787plant would lower development risk and smooth the "learningcurve," meaning less waste and a faster decline in unit costs.

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