Mitsubishi proposes to build 777X wings in Japan: source

By Tim Kelly and Kentaro Sugiyama

TOKYO (Reuters) - Japan's Mitsubishi Heavy has suggested a cost-saving way to build the wings of Boeing Co's (BA) newest jet that could offer the planemaker a "Plan B" should its own workers reject a labor deal, a person with knowledge of the proposal said.

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

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

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

But Mitsubishi Heavy Industries, which already makes wings for the 787 Dreamliner, has outlined to Boeing in detail how a new plant could be built alongside its existing 787 wing facility in the port city of Nagoya, the person told Reuters.

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

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

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

Compared with the cost and lead times needed for transport planes, the source said the new maritime freight network could be up and running relatively quickly. Boeing's European rival Airbus (EAD.PA) also runs a shipping network for plane parts.

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

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

Mitsubishi and Boeing both declined to comment.

WAITING FOR BOEING DECISION

Two sources in Tokyo with knowledge of Mitsubishi Heavy's aerospace business said no concrete proposal had been made to Boeing and no discussion was underway on 777X building carbon-composite wings in Japan.

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

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

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

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

Rather than win the one-third share that Mitsubishi won for the 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 hoped machinists would back the contract to secure production of the 777X in Washington state, but would look at alternatives including Japan if the deal were rejected.

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

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

Frank Larkin, national spokesman for the International Association of Machinists, said the union was not aware of the Mitsubishi proposal. He declined to speculate on how it might affect the voting and said Boeing had pledged not to consider alternatives until after IAM members had had a chance to vote.

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

Under Mitsubishi's proposal, the new manufacturing and transportation system would be capable of delivering 7 shipsets a month, rising later to 10 a month, the source said, asking not to 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 the 787 Dreamliner which suffered a three-year production delay followed by numerous glitches once it had entered service.

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

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

(Reporting by Tim Kelly, Kentaro Sugiyama, Taiga Uranaka, Yoshifumi Takemoto, Tim Hepher and Alwyn Scott; Editing by Jane Baird, David Holmes and David Evans)