©Niosi draft #1 November 27, 2009
Catching up in aerospace
Jorge Niosi
Professor
UQAM
Presented at the DIME / Catching Up Conference
Milan
December 10-11, 2009
First draft
Not to be circulated or cited.
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Introduction
In a recent paper, Richard Nelson suggested: “the new evolutionary growth theory that is
emerging sees economic growth as a result of the co-evolution of technologies, firm and
industry structures and supporting and governing institutions.” (Nelson, 2006: 7). The
evolution of the aircraft industry illustrates the hypothesis. But it also shows that without
such co-evolution, the catching up process will fail. This is the main addition of this paper.
In order to catch up, developing countries must update, nurture and adjust their
institutional set up, particularly in the areas of science and technology policy.
We thus argue that the government supporting institutions have been a key element, a
necessary condition, in the growth of the aircraft industry, and that defective supporting
public institutions have been a sufficient condition for the stagnation and eventual
dismembering of the industry. We also argue that the argument applies to all high-tech
industries, from biotechnology and pharmaceuticals to information technologies. Public
supporting institutions are a key component of their development. Catching up countries
need to carefully understand their dynamics and technology and tune their public
institutions to back up these industries. We argue that the many failed public sector
attempts in several countries to grow an aircraft industry were linked to a flawed
understanding of the institutional requirements of the industry in its different phases.
During the 20th century, the aircraft industry evolved towards higher complexity and risk,
large-scale manufacturing and increasing returns. At the same time, public institutions
(regulatory agencies, procurement schemes, government laboratories and university
research) became more critical, and either supported its growth or failed to do so and the
national industries collapsed.
The paper starts with a theoretical discussion (section 1) then turns to the first movers:
France, Germany, the United Kingdom and the United States (section 2), moves on to the
earliest catchers up (Canada, section 3), highlights early and more recent attempts at
catching up with the cases of Argentina and Indonesia (section 4), then recalls two cases of
recent successful trials, those of Brazil and Japan (section 5), and traces the rise of new
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competitors (China in section 6). The conclusion recalls the theoretical debate and draws
the policy implications.
1. Theory
Innovation systems are sets of institutions crafted at the national, regional or sectoral levels
that support the production, diffusion and assimilation of science and technology, as well as
the commercialization of their products. Economic development thus depends on
Two different theoretical issues are discussed in this paper. The first is; how important are
these supporting institutions and how do they evolve with technology? For at least two
decades, Nelson (1993, 1998, 2006, 2008) has been arguing that institutions are key
components of the puzzle of economic development, and particularly those institutions that
allow the acquisition and production of technical knowledge. Implicit in his recent papers is
the idea that different sets of technologies (different sectoral systems) require different
institutions. Also, technologies and institutions co-evolve.
Our hypotheses here are that (1) these institutions are key elements (necessary
conditions) of the development of any sectoral system; (2) institutions are idiosyncratic and
specific to each sector; (3) their evolution depends on both past states of the specific
institutions (institutional path dependence) and the evolution of the technology they aim to
develop; (4) Catching up, falling behind and forging ahead in any SIS depend on the
adequate crafting of the institutional basis of the sector; (5) in institutional evolution, like in
technological evolution, there is a considerable degree of uncertainty as to the adequate
institutional designs.
The second issue is the relationship between national and sectoral systems. How do they
intermingle? In what order should they be grown? Can a SIS be developed without a NIS?
Our hypotheses here are that (1) because NIS are composed of domestic sectors, NIS and
SIS must be grown simultaneously; (2) no SIS can be developed in an inadequate
institutional environment, one that is not conducive to innovation.
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2. The international aerospace industry: the co-evolution of technology and
institutions in a mature science-based sectoral system
The aerospace industry displays several key characteristics (Takashi, 2006). First
economies of scale are overwhelming; the costs of R&D are high and growing. With upfront
R&D costs over a billion dollars for business jet, and close to 15 billion for large commercial
aircraft, no doubt that such initial costs cannot be recovered without producing several
hundred copies. Also, manufacturing plants are large and costly and are part of these initial
disbursements that are required to enter the industry.
Second, the industry is risky. Hundreds of companies have been created since 1906. Few of
them survive today. And because this industry has enormous commercial and military
underpinnings, national governments often finance a high percentage of business
expenditures on R&D, well over 50%.
Third, barriers to entry have been growing in the 20th century; from an industry with low
barriers in the first three decades, to extremely high barriers at the end of the 20th century.
As argued by Niosi (2000) the industry has moved from a Mark I to a Mark II Schumpeter
sector. It may be called an increasing returns industry.
Fourth, aircraft is a set of system technologies composed by modular sets or subsystems.
The major ones are the fuselage, wings, ailerons and flaps, nacelles, engines, landing gear,
avionics, and horizontal and vertical stabilisers. These subsystems can be designed in one
location and manufactured elsewhere. Aircraft design is a highly skilled activity; production
is more routine work, yet it requires abundant process technology and skilled labour.
Fifth, escalating costs and international markets call for global alliances. Aircraft
manufacturers conduct alliances with airline companies and subsystem suppliers. In this
way, manufacturers get knowledge from users and suppliers, and foreign allies in the battle
for international markets.
Finally, the institutional framework is key. Higher education institutions are needed to train
manpower in such an applied science sector. Public institutes are also needed to conduct
R&D in expensive laboratories equipped with wind tunnels, and other costly tools. And they
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are also needed to fine tune the public financing of the industry, instituting landmarks and
benchmarking the evolution of the industry and the performance of firms.
But technology, firm competencies, industrial structures and supporting institutions coevolve. This is also true in the aircraft industry.
We may be tempted to suggest several phases in the development of the aircraft industry.
They may be as follows:
-
Early growth (1900-1935) with hundreds of entrants, simple technologies, rapid
changes in market shares and leading companies and products. In this phase, the role of
the government progressively expanded through support to R&D. In the US, the National
Advisory Committee on Aeronautics (NACA, 1915-1958) worked on problems of
aerodynamics and aeronautics for both commercial and military aircraft. In this period,
public procurement was minimal. Governmental airlines were still to come. The military
uses of aircraft were yet to be developed. In the United States, the Air Commerce Act
(1926) was a first milestone in the federal regulation of civil aviation1. The Department
of Commerce was charged with the certification of aircraft, license pilots, establishing
airways and supporting air navigation, including maintaining safety standards. In 1934,
the Aeronautics Branch of the Department of Commerce was renamed Bureau of Air
Commerce in order to increase air control. By the end of this period, a first dominant
design emerged with the Boeing 247 in 1933; this was an all-metal monoplane aircraft,
including retractable gear, two engines fixed on single wings. By WWI there were
approximately 300 US aircraft producers (Ruttan, 2006: 35). But after the War, the
industry began a rapid concentration. By the mid-1930s all the main US airframe and
engine producers had in-house R&D (Mowery, 1983). Similarly, in France, Germany and
the UK the years 1908-10 were very active in the creation of the first public research
organizations for aircraft. In Germany it took the form of Office of Flight Technology
(1908), publicly organised competitions for aircraft engines (1912), and government
wind tunnels (1913). At the same the government established the first research chairs
1
www.faa.gov/about/history/brief history
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at the university (Hirschel et al, 2001: 42). France created a Ministry of the Air in 1928
and increased its budget for public procurement of prototypes (Chadeau, 1988).
-
Consolidation: The 1935-55 period saw a rapid diffusion of new technologies including
jet engines (gas turbines), on board radar and communication equipment. The war
accelerated many technological developments in military aircraft, and these innovations
were soon transferred to commercial planes. The design, launch and commercial
production of civil airliners and military aircraft became costly and risky endeavours.
The number of producers rapidly declined. In the USA, government procurement of
military aircraft and R&D support of commercial ones became a cornerstone of the
industry (Mowery and Rosenberg, 1989, 169-202; Simonsen, 1960). In France, the
government created the ONERA (Office national d’études et des recherches
aéronautiques) in 1946, in order to support aircraft constructors in such areas as
aerodynamics, instrumentation, materials, propulsion and resistance. By the late 1930s,
public support to aerospace R&D was overwhelming and it took different forms, from
public laboratories to procurement and academic research (Ruttan, 2006). In Britain,
two large groups emerged from WWII: Vickers-Armstrong and Hawker-Siddeley
(Zeitlin, 1995). In the US, during the War, a few major companies emerged under the
very large increase of government procurement of military aircraft; they were Douglas,
Consolidated Vultee, Boeing, and North American, followed by a short row of smaller
ones (Lockheed, Curtiss, Martin, and Ford)(Simonsen, 1960). In France, the government
nationalized part of the industry in 1936-7 in order to accelerate its rearmament plan. It
also invested massively in new plants, both public and privately controlled. In Germany,
the aircraft industry was destroyed during the end of the War and reinitiated its growth
many years later.
-
The stable oligopoly: WWII had started a differentiation among aircraft
manufacturers: the companies that specialised in the bombers were those that had
developed large commercial aircraft such as Avro, Bristol, de Havilland and Vickers in
Britain, Boeing, Douglas and Martin in the USA, Dornier and Junkers in Germany.
Occupied France stopped producing aircraft in 1940. It resumed production right after
the World, with SNECMA in engines and Dassault in commercial and military aircraft.
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Japan had no large producer of commercial aircraft before the War and, like Germany,
stopped manufacturing aircraft after the War until 1952. By 1965, the number of US
commercial aircraft producers was only two (Klepper, 1997). The companies that had
specialised in fighters such as Curtiss, Lockheed and North American Aviation in the US
soon abandoned the production of commercial aircraft. Also, the large manufacturers of
commercial aircraft moved from complete production to systems integration of some
main
modules
such
as
avionics,
fuselage,
wings,
tails,
nacelles,
on-board
telecommunication equipment, landing gear, and interior finishing.
In 1970, the French Aerospatiale and the German Deutsche Airbus founded Airbus
Industrie, merging several plants that belonged to smaller French firms, as well as
Messerschmitt and Fokker. After the addition of the Spanish CASA in 1971, Airbus
launched its first plane in 1972 (A300) and soon became the main competitor to Boeing.
British Aerospace joined the consortium in 1979. Airbus has been strongly supported by
the French, German, and Spanish governments since its inception. Also, Airbus and
Boeing have been feuding over each other subsidies for 40 years now.
3. First movers (USA, Western Europe)
The industry was borne more or less simultaneously in Western Europe (Britain, France
and Germany) and the United States at the turn of the twentieth century. However, the
American aircraft industry soon gained pre-eminence against its divided and war-destroyed
European competitors. The United States had a large and affluent domestic market, and
many other industries that could provide complementary technologies such as the internal
combustion engines, and metal frames, to name a few (Mowery and Rosenberg, 1998). We
start then with the US aircraft industry.
The United States (1025 words)
Most histories of the aircraft industry design the Wright brothers’ flight in 1903 as the birth
of the industry. In the ten years following the first flight, close to a dozen companies were
founded in the United States. These were small firms, tinkering with different designs for an
almost inexistent market. Some 200 prototypes were produced between 1903 and 1913
(Zhegu, 2007). Few of them were ever manufactured. Barriers to entry were low and many
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companies tried their luck at the new industry. Among the new entrants one finds the today
familiar names of such entrepreneurs as Boeing, Curtiss, Loughead (today’s Lockheed)
Martin and Northrop. Up to 1914, only 137 airplanes had been produced in the United
States, where the governments did not invest or regulate the market.
The first World War changed the market and the institutional environment, Suddenly the
government was interested in the industry and ordered thousands of airplanes. However,
after the war, the US government lost interest and most of the plants were closed after
1918. Companies struggled in search for new markets. The Post Office was one of the first
to develop, when in 1919 Boeing flew airmail from Vancouver to Seattle. Later it was the
passenger traffic, whose feasibility was demonstrated by Charles Lindbergh NY-Paris flight
in 1927. By 1930, 640 planes were operating in the US passenger market. In the 1920
several companies became public in the stock exchange. In spite of the crisis some of the
early entrants became fairly large.
In the 1930s the technology knew great changes: metal frames replaced wooden structures;
retractable landing gear became widely adopted; one wing planes with two piston engines
were part of the first dominant design in the industry: the DC-3 produced by Douglas
Corporation since 1935, and one of the most successful planes ever. The DC-3 made
possible both coast-to-coast travel in the United States, and the development of military
versions for cargo and troop transportation. With the DC-3 Douglas produced in the
California plant became the largest US aircraft producer in the 1930s. The other major
producers were Boeing, Curtiss, Consolidated and Wright. Pratt & Whitney soon became the
largest engine manufacturer.
World War II knew a massive procurement effort from the US government and the number
of plant reached 66 in 1944 with 1.6 million employees. A year later there were only 15
companies and 16 plants with a total personnel of 138700. Towards the end of the war
appeared the next major technological innovation: the jet engine. The US received the jet
military technology from Britain, and General Electric (GE) and P&W rapidly adopted and
used it. Jet technology appeared successfully in commercial aircraft in the United States
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with the Boeing 707 in 1958. A few months later the Douglas DC-8 made its first flight, the
first commercial jet produced by the California firm. Progressively the remaining aircraft
producers specialised either in commercial aircraft (Boeing, Douglas) or in military planes
(General Dynamics, Lockheed, Martin, Northrop, United Aircraft).
The supremacy of the US industry was made possible by the continuous weakening of its
European competitors. Germany (but also and Japan) stopped producing aircraft for several
years after the War. Britain and France resumed aircraft production, but were slowed by
reconstruction. Also, the US industry benefitted from advances in other complementary
sectors such as the automobile, electronics, and metals industries.
The role of public institutions must be underlined. First, the US government financed over
80% of the industry’s R&D effort between 1945 and 1982 (Mowery & Rosenberg, 1989).
The contribution of the aircraft industry was around 15% during the period 1945-82. The
cumulative R&D expenditure on the industry was 104 billion in 1972 dollars for the same
period. This can be said to be cost of maintaining technological supremacy.
Second, the US government created national organisations for aerospace R&D. The first was
the NACA (National Advisory Committee on Aeronautics), established in 1915 to study
propulsion and structures. Over the following decades, the Air Force Research facilities
grew on 14 different locations and worked on different topics, from electronics to flight
dynamics, materials, propulsion and weapons. In the 1980s, these labs were reorganized
under four separate “super-labs” under one administration: the Air Force Research
Laboratory (AFRL). Today, the AFRL has a total annual budget of US$2.4 billion, and
employs 5400 people. Its importance can not be understated: the United States companies
and public organisations own close to 75% of the world’s aircraft patents (class 244)
granted by the USPTO in the 20th century, and US government laboratories are the main
American assignee with close to 12% of the total (2019) US patents. The largest private
sector assignee, Boeing, is second with 1077 patents (Zhegu, 2007: 226).
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Third, the government created institutions to regulate air traffic, certify the new planes, and
maintain safety standards. From 1926 on, it was the Aeronautics Branch in the Department
of Commerce, renamed Bureau of Air Commerce in 1934, transformed into an autonomous
Civil Aviation Authority in 1938, and the Federal Aviation Administration (FAA) in 1958. In
1967 a new Department of Transportation took responsibility for the FAA. The agency
duties gradually increased to include certification of airports, noise standards and increased
security norms (Bilstein, 1984).
Finally, over the years, United States universities have created over 100 graduate programs
in aerospace engineering, including those in MIT, Purdue, Stanford University and
University of Illinois, to name some of the most prestigious ones. Government research
funds allow these graduate programs to conduct advanced R&D and generate human
capital.
These institutions are key components of the innovation system in the aircraft sector.
Without them, the costly and risky aerospace R&D process would not take place. The
market would not be regulated, and the industry would be either chaotic or would have
collapsed. It is worth recalling that as the world leader in aerospace, the United States has
been obliged to innovate also in institutional matters. Academic and public research,
government subsidies for industrial R&D, certification, regulation and security are all
necessary elements of the sectoral system of innovation. Catching up countries would need
to imitate these institutions or invent new ones with similar aims.
European competitors: France (693)
If the United States became the world leader in the industry, France became a close
follower. French inventor Clément Ader claimed to have made the first flights of a machine
heavier than air and equipped with a motor in 1890 and again in 1897. Alberto SantosDumont made another flight in 1906. En 1908, another French inventor, Henry Farman flew
27 km with a Voisin-designed machine. Other famous French inventors included Louis
Blériot, Louis Paulhan and the Farman brothers. The War increased the interest of
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governments on aviation. At the end of the WWI there were 4500 French, 3500 British and
2500 German aircraft. Also, French aircraft held all world records of altitude and distance
up to WWI (McNeil, 1990: 627).
In 1929, French companies were responsible for most air traffic in Europe. However,
between the two World Wars, France fell behind both the US and Germany. WWII stopped
aeronautical development in occupied France. The industry was nationalised in 1936-37,
but it fell behind because of underinvestment, and it produced backward models. In 1937
the entire industry produced 395 aircraft under 21 different models (Chadeau, 1987). From
1940 to 1944, under German occupation, France produced 3600 aircraft and over 11200
engines for the Luftwaffe. According to Chadeau (1985), French handicap were its
institutional failures. Public research was limited by lack of funds. Engineering schools were
also scantly financed. While the United States and Germany were investing in dozens of
research centres and universities, France did not follow.
After the War, France made strong efforts to recuperate its original position as global
number two. In 1946, the government established ONERA (National Office Study and
Research in Aeronautics) and decided to build a series of modern wind tunnels, the most
advanced of which would be installed in Savoie. ONERA knew a phenomenal growth and
became the national office for aerospace. It participated in the design, launching and
improvement of civil and military aircraft, missiles, satellites, and other aerospace
equipments and programs.
The French government took a proactive attitude, and tried to catch-up. Both public and
private aircraft companies bought US licenses for engines and aircraft. In 1950, France had
a first jet engine, designed by a German engineer. In 1955, the Caravelle was the first longdistance civil jet aircraft using imported engines. In 1958, France produced its first jet
combat aircraft (made by Dassault-Mirage) and its first helicopter (Alouette, manufactured
by Sud-Aviation); both had French engines, SNECMA and Turboméca. Also, in 1958, Britain
and France started to study a first supersonic civil aircraft. The agreement for the Concorde
was signed in 1962. Prototypes flew in 1969 and ten aircraft were produced in the
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following years. Concord was a technical success and a commercial failure: only 10 copies
were manufactured, all of them for Air France and British BOAC.
Under French initiative, European collaboration in aircraft moved to another stage in 1970
with the creation of Airbus. Originally, it was a consortium of French Aérospatiale and
German Deutsche Airbus (the merger of MBB and VFW-Fokker). In 1971, CASA of Spain
joined the consortium, and in 1979 it was British Aerospace. Since 1972, Airbus multiplied
the launches of new civil aircraft: A-300 (1972), A-310 (1982), A-320 (1988), A-330-340
(1992), A-380 (2005). Soon, Airbus became the competitor of Boeing, Airbus still has its
main plants in Toulouse, France. In 2005, Airbus became an integrated firm, under control
of EADS (80%). Airbus has plants in France, Germany, United Kingdom, and Spain. It is now
producing in China in the framework of a joint venture.
The rise of Toulouse as Europe’s major regional innovation system can be explained by the
concentration of national research and teaching institutions in the area (Longhi, 2002).
Besides Airbus head office, the region hosts the National Centre for Aerospace Studies
(CNES) with 2500 researchers in the Toulouse region, the National Superior School of
Aeronautics and Space (SUPAERO), ONERA, The Normal Superior School of Aeronautic
Engineers (ENSICA), and the National School for Civil Aviation (ENAC). In the OECD, France
is the third most important investor in aerospace R&D, following the United States and the
United Kingdom, and preceding Germany. Italy and Canada. It is also the second largest
producer of aircraft in the world (Tables 1 and 2)
(Tables 1 and 2 here)
European competitors: Britain
The first British aircraft was built in 1908 at the H M Balloon Factory, renamed the Royal
Aircraft Factory (RAF) in 1911. Among its designers were Geoffrey de Havilland and Henry
Folland. These two engineers designed several of the most successful British aircraft. In
addition, the former founded in 1920 the most successful British aircraft company: De
Havilland.
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During the first years up to WWI, almost all aircraft was produced for experimental and
civil purposes. The French priority was recognized by giving to each of the different designs
the name of a French designer and pilot (Santos, Blériot, Farman). During the First War, the
RAF was converted into a military plant. It produced close to 20 different designs of
bombers, fighters and reconnaissance aircraft. After the War the military demand collapsed
and most military aircraft were useless for commercial purposes. British aircraft
production was substantially reduced and in 1920 only 13 aircraft companies subsisted
(Fearon, 1969, 1974).
Military demand between the wars substantially lagged behind those of France, Germany
and the United States (Fearon, 1974; Smith, 1977). Up to the mid-1930s, British armed
forces were still using WWI surplus aircraft. The Royal Air Force was mostly concentrated
in fighting colonial wars in Africa and Asia, where sophisticated aircraft was not required.
What was called “illusion diplomacy” towards Germany made that no major budget or
technical development was made in Britain until the war was imminent. Until the War,
British air force was still using wooden biplanes, when the superiority of all metal
monoplanes was already proved.
In spite of these lacklustre institutional and technological performances, a British inventor,
Frank Whittle, developed a jet turbine after 1935 (without public funds) and continued
after 1937 with the support of the British government. Whittle is considered, with the
German Hans von Ohain, the inventor of the jet engine. Also, Whittle travelled to the United
States and Canada during the War and explained his invention. The jet engine did not
represent a significant element during the War but the principle was proved.
After the War, the jet engine was quickly adopted for military aircraft (the American F-58
Sabre) and for civil aircraft. The British De Havilland Comet I (first flew in 1949) marked
the entry of the jet engine in the industry. Adopted by the British Overseas Airways
Company (BOAC) in 1952 it was withdrawn in 1954 and only resumed service in 1958; in
the meantime the B-707 (first flew in 1957 and introduced in 1958) had become a huge
success and the dominant design for intercontinental aircraft.
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British aircraft industry produced several famous aircraft, including the Comet I and the de
Havilland Moth. Today, the British presence in the aerospace industry is mostly through
Rolls Royce, one of the largest world producers of jet turbines, and BAE Systems, a
diversified security and aerospace corporation. However, in 2006, BAE Systems sold its
remaining civil aircraft facilities in the UK to Airbus (now EADS) where Airbus produces the
wings of most of its aircraft. Britain remains the second largest world investor in aerospace
R&D, but its share of manufacturing production lags way behind France (Table 2).
The reason for such performance is up to a certain extent institutional. The Ministry of
Defence has always mediated British government involvement in the aerospace sector, and
has supported military over civil aircraft. British commercial airlines (such as BOAC and
British European Airways, and then British Airways, resulting from the 1974 merger of the
two) were not enough source of demand for domestic airliners. In the meantime, US Boeing
B-707 and Douglas DC-8 had cornered the market. In the meantime over a dozen crashes of
British Comets and Viscounts aircraft played havoc with the civil manufacturing industry.
As a result, British employment in the aerospace industry declined from 241000 employees
in 1980 to 155,000 in 1999, and 120,000 in 2009.
European competitors: Germany (788 words)
In the late 19th century, Germany started its involvement in aerospace, due to Otto
Lilienthal and his the early prototypes of manned flight. Unfortunately, the death of the
pioneer in 1896 after a fatal crash put a brake on German aircraft research for over a
decade. Another factor that slowed German early aircraft research was the development of
another technological trajectory, the dirigible, promoted by Count Ferdinand von Zeppelin.
The first flight of a dirigible fully equipped with an engine took place in Germany in 1900.
The renaissance of aircraft tests in Germany followed the visit of Orville Wright in 1908.
Wright brought a biplane to France and Germany. Soon a German company started to
produce it under license. Several German companies were founded the same years to
compete with the Wright model. Others were trying to design light engines to power these
new aircraft. However, it must be underlined that Germany pursued two different
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technological trajectories in manned flight: the aircraft and the dirigible. The latter stopped
in 1936 after a major crash. But in the meantime, the energies and funds for aerospace
research were dispersed into two different pursuits.
The University of Gottingen took an early leading promoting aerodynamics and materials
research related to aircraft. Other universities followed suit, most notably the Institutes of
Technology at Aachen, Darmstadt and Stuttgart, and established chairs for aerospace
studies. Several of these universities built their own wind tunnels. And the first government
research laboratory was founded in 1908 as the Office of Flight Technology, studying
propellers and aerodynamics. The first wind tunnel was completed in a second government
institute in 1913 (Hirschel et al., 2004).
The War brought military orders to the small and underfunded private companies, and new
all-metals models appeared, designed by two outstanding aerospace engineers: Claude
Dornier and Hugo Junkers. The German government financed industrial research in the
growing private firms. At the end of the War, some 21000 aircraft existed in Germany.
The end of the war represented a major blow for the fledging German aircraft industry. On
one hand the military orders declined to almost zero. On the other, the Versailles Treaty
imposed a ban on research and building of military aircraft and restricted the resources
that the state could invest in the industry. Aircraft companies converted themselves to civil
aviation. Junkers designed the first civil transportation all-metal aircraft the Junkers F 13,
one that first flew in 1919. In 1924 the ban was lifted for civil and small aircraft, and
Dornier and Junkers, among others, launched new models. The two government research
labs were revamped. But also, in the meantime, the main German companies established
subsidiaries in Denmark, Italy, and Sweden in order to circumvent the ban. En 1926
Lufthansa was founded for cargo and passenger air service and used the new models that
Junkers and other manufacturers were developing. In 1928, the German Aeronautical
Research Council was found to coordinate the research activities of the public laboratories
and technical universities. The 1929 Crisis enormously reduced public support and private
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markets for German aircraft. But a new era started with the arrival of Hitler to power in
1933.
The Third Reich unilaterally lifted all bans on German aircraft industry. The Junkers
company, the largest in the country was seized in 1936. Government support arrived in
such amounts that the number of employees in the industry passed from 4000 in 1933 to
300000 in 1938. A new German Academy of Aeronautical Research was founded under the
aegis of the new State Minister of Aeronautics. A new German Research Establishment of
Aeronautics was established in Brunswick, and opened in 1936. Another one opened in
Munich in 1940. The two previous government laboratories were revamped. University
research was abundantly funded. During the War, Germany produced the first turbo-jet and
over a hundred thousand aircraft, mostly under Arado, ATG, Focke-Wulf, Heinkel, Henschel,
Messerschmitt, and Wesel designs (Kaldor, 1946; Budrass et al, 2005). Germany was at the
forefront of t technology including jet engines and aerodynamic designs.
However, after the War, Germany was forbidden to produce any type of aircraft, and its
industry fell far behind those of Britain, France and the United States. In East Germany,
where most aircraft R&D and production was concentrated, the occupation authorities
transferred people and facilities to the Soviet Union and son all activities were terminated.
In West Germany three companies emerged in 1969 to combine the remaining assets and
personnel. They were Messerschmitt-Bölkow-Blohm (MBB), Motoren und Turbinen Union
(MTU) and Vereinigte Flugtechnische Werke (VFW). The government resumed support for
the industry and it allocated funds to academic, industry and public research institutes. In
2008, Germany was again the fourth country in the world in terms of aircraft R&D.
4. Earlier catching up processes: Canada (477 words)
American, British and Canadian manufacturers started producing aircraft in Montreal and
Toronto in the 1920s. Two companies deserve special mention. In Toronto, it was de
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Havilland Canada (1924), a subsidiary of British de Havilland and in Montreal, Canadian
Vickers (1923), originally a subsidiary of British Vickers, coming under Canadian control
since 1927. In 1928, Pratt & Whitney Canada was founded in Montreal, first to overhaul and
repair aircraft engines and later to design and manufacture its own engines (since 1956-7).
During World War II, both plants (and other, smaller ones), produced aircraft for the allies.
In 1944, the Canadian Vickers Company became Canadair under joint Canadian
governmental and private control. After the War, the Montreal plant of Canadair was sold to
the US Electric Boat that became General Dynamics. The Toronto de Havilland plant stayed
in the turboprop line of aircraft, while the Montreal plant specialised in military jets under
US license. In 1976, the Canadian government bought the Montreal plant and launched the
Challenger program that produced a large business jet (1978), and then the first regional jet
in the world (1991). In 1986, Bombardier, a manufacturer of trains and metro systems
acquired the Montreal plant. Bombardier Aerospace also acquired the Toronto plant in
1992, as well as Short Brothers in the UK, and Learjet in the US to become the third largest
producer of aircraft in the world (deBresson et al, 1991; Niosi and Zhegu, 2005).
The Canadian federal government has supported the industry through a number of policies,
institutes and educational schemes. Several policies supported financially the fledging
industry either for particular programs (such as the Challenger family of jets) or to avoid
the risk of bankruptcy of the main producers. The Canadian government also involved in
the attraction of the Bell Helicopter plant to Montreal (1985) and the development of CAE,
the world largest producer of flight simulators also located in Montreal, since the 1950s.
In 1944, the government created Turbo Research Ltd in Toronto, a company that produced
jet engines, and was lately sold to the A. V. Roe Corporation, now part of Boeing Canada.
After World War II, the government created five public research laboratories under the
aegis of its National Research Council. They are the aerodynamics, aerospace
manufacturing, flight, gas turbines, and structures and materials performance laboratories.
They include wind tunnels, combustion and engine test cells, test aircraft, and other
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equipment that participated in the design of regional and business jets, satellites, flight
simulators, and other equipment.
Institutional building included also supporting advanced aerospace degrees in several
universities in Montreal (Concordia University), Ottawa (University of Ottawa) and Toronto
(University of Toronto).
For over 80 years, Canada has been catching up in aerospace, and particularly in aircraft
through a combination of foreign direct investment, domestic entrepreneurship,
government support and skilled immigration to create two large clusters of aircraft in
Montreal and Toronto, and smaller ones in Ottawa and Winnipeg.
5. Catching up, the failed attempts (Argentina, Indonesia)
During the entire 20th century, a long list of countries has tried to build a national aircraft
industry and failed, or emerged with a very small industrial sector unable to compete in
world markets. The list includes Argentina, India, Indonesia, South Korea and Turkey, to
name a few. The reasons for such failures are many, but they include organisational and
technical backwardness, but above all, institutional flaws in government policies. The cases
of Argentina and Indonesia are archetypal.
Argentina (445 words)
Argentina’s first powered flights took place in 1910, but the first manufacturing plant for
military aircraft was built in 1927 in Córdoba. The Military Aircraft Plant (FMA) started
producing aircraft and engines under license (the British AVRO 504-J and Bristol E2B, and
the French Dewoitine D21). National designs followed in alternation with imported ones
from Germany (Focke-Wulf, 1937) and the US (Curtiss-Hawk, 1940). After WWII, German
aircraft designer Kurt Tank and his team migrated to Argentina. With the support of French
engineer Emile Dewoitine, Argentinean aircraft experts designed the Pulqui I and Kurt Tank
designed the Pulqui II military jets that flew respectively in 1947 and 1950 (Hagood, 2006).
In 1953, however, the Argentinean economic crisis, the downgrading of the aircraft
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industry in the government’s plans, followed by Peron’s dismissal in 1955 stopped the
production of the plane2. The team of German engineers was dispersed. Kurt Tank migrated
to India where he designed the Hindustan Marut HAL HF-24, the first jet of the country that
flew in 1961.
In the 1950s, Argentina resumed the production of both imported designs, including the
Beechcraft Mentor B-45 (1957), the Morane Saulnier MS-760 (1958) the Cessna A-182
(1966) and the Lockheed Martin A-4AR Fightinghawk (1966). Among national designs were
the Guarani II (1963) and the Pucará (1975). None of these aircraft was produced in a large
number of copies to become profitable. Over the years, until its privatisation in 1995 to
Lockheed Aircraft, the FMA had built 1300 aircraft of 30 different designs. Lockheed
revamped the plant and resumed production of small lots of military aircraft. In December
2008, the Argentinean government renationalised the FMA.
Argentina’s aircraft industry was the victim of restricted funding, military alignment of the
country with the Axis in 1940-45, the Malvinas War with Great Britain (1982), bad planning
and too many direction changes from the national government. Also, government
corporations are not known for their marketing dynamism. Argentinean planes were sold
to the domestic military as well as (in a few copies) to the military of neighbouring
countries. Plans to join forces with the Brazilian aircraft industry (Embraer) were also
shelved (Kuhn, 2002). The production technology at FMA was outdated and the
government corporation insisted in manufacturing in-house all the subsystems and
components of its planes, with the major exception of the engines.
The institutional building was at best sketchy. The FMA served both as unique
manufacturing plant, research laboratory and test field. No university program was
established and thus no scheme for human capital creation was ever approved. Tank had
requested research installations including a wind tunnel, but his requests were not heard.
The country still has none.
2
http://www.globalsecurity.org/military/world/argentina/amc.htm
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Indonesia (335 words)
Indonesian aircraft experiment started in 1976, when the national government founded
IPTN, later renamed Indonesian Aerospace. By mid-1970s, Indonesian industrialist Jusuf
Habibie returned from Germany to his native country, after obtaining a doctoral degree in
aeronautical engineering and working for over ten years with Messerschmitt-BoelkowBlohm (MBB) (Amir, 2007). For twenty years, from mid-1970s to mid-1990s, the national
government invested USD 2 billion. To start its manufacturing projects, IPTN produced
under license MBB’ BO-105 helicopter and CASA C-212 Aviocar. Other models were
designed (CN235 with Spain’s CASA) or licensed in from France Aérospatiale and
Eurocopter, and Bell Helicopter Textron. The CN235, which first flew in 1983, was
successful only for Spain, as the Iberian prototypes were certified in the US, and sold in 250
copies to over twenty countries.. The Indonesian version was only certified in the UK and
was sol to a handful of nations. A much larger and autonomous project was the N250,
whose maiden flight took place in 1995. The N250, another military aircraft, had cost over
1.2 billion, mostly paid by the national reforestation fund, and it did not go into production.
In the end, the two domestically designed aircraft and the licensed helicopters were
produced in limited number and a few copies were exported. The restrictive factors were
infrastructure obstacles (like Argentina, Indonesia did not possess public R&D
infrastructures required to continuously upgrading the aircraft), cultural backwardness,
bureaucratic inefficiency and lack of image due to uncertified products (Steenhuis and
deBruijn, 2001). Indonesia, like Argentina, had obtained production technology, but not
R&D capabilities – a national or even a modest sectoral system of innovation – required to
innovate in the many different components of the aircraft, including materials, engines,
avionics, communication equipment and the like. Steenhuis and DeBruijn (2001) conclude
that success in catching up in the aircraft industry requires a focus on R&D from the start.
We may add that it also requires the institutional support for continuous improvement of
aircraft, as well as the permanent replenishment of the human capital pool.
Conclusion on failures
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Successful catching up requires more than simply importing engineers or scientists, and the
transfer of machinery and equipment. It requires domestic institutions able to provide a
continuous flow of human capital, research and development funds, and technology.
Neither Argentina nr Indonesia provided such regular flow of resources to their fledging
aircraft industries. In both cases, individuals moved to a developing country (Habibie to
Indonesia, Tank to Argentina) with few domestic institutions designed to provide a steady
flow of resources to such industry. Even if the community of German engineers and
technicians in Argentina was close to 60 people (Hagood, 2006) and Habibie sent hundreds
of Indonesians abroad (Amir, 2007) neither country was able to pursue the local
development of the many types of skills required to continuously upgrade the original
design and solve technical problems. Converting design into production was not easy.
Neither country sought to import production technology and to build a research
infrastructure (i.e. wind tunnels) to conduct aviation R&D. The national system of
innovation, in sum, was in both cases absent or, at best, embryonic.
6. Late catching up successful trials (Brazil)
Brazil (825)
Brazil started to invest on its aircraft industry in the mid-1960s. In 1965, French engineer
Max Holtse designed a first aircraft, the EMB-110 Bandeirante, a successful 15-21 seat plane
produced and sold in some 500 copies to both the commercial and the military markets by
Embraer, the new government corporation found in 1968. Embraer installed its plant close
to the industrial centre of Brazil, Sao Paulo, and also in the proximity of the military
institutes of aeronautical research.
Much before Embraer was founded, the Brazilian government had established several
public institutes for training and R&D at San José dos Campos, close to the Sao Paulo
agglomeration. They were the Aeronautics Technological Institute (ITA), and the General
Command for Aerospace Technology (CTA). Other institutions followed, including the
Aeronautics and Space Institute (IEA, 1954), the Institute for Advanced Studies (IEA), the
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National Institute for Space Research (INPE, 1961) and the Industrial Promotion and
Cooperation Institute (IFI).
Among these, the first and foremost is ITA, originally established in 1950. Its first rector
was MIT professor R. H. Smith, and several professors were recruited in the United States,
France and Germany. Today, ITA hosts 168 professors and researchers (70% of which have
PhD degrees), and 600 undergraduate and 800 graduate students in aeronautical
engineering. ITA has its own wind tunnel, as well as advanced manufacturing equipment for
teaching and research. Since its foundation, some 4600 engineers graduated from the
institute. Among them, one finds the names of several former Embraer CEOs.
INPE, founded in 1971 is the civilian centre for aeronautics and space research. The CTA is
the military organisation for aerospace technology. Established in 1953, it has now
authority over the ITA, IEA, IAE, and IFI. IFI carried originally the certification of Brazilian
Aircraft. This role is now within the mission of the National Civil Aviation Agency.
After its initial success, Embraer proceeded to launch other winning planes. The EMB 202
launched in 1970 is an agricultural monoplane, used for spraying crop with fertilisers,
pesticides and fungicides, as well as seed sowing. Over 1000 copies were sold since its
inception. The EMB-312 Tucano was one of the most famous training turboprops around
the world. It was produced in over 600 copies. It was launched in 1980 and is still
manufactured and sold. The EMB-120 was launched in 1985, a stretched version of the
Bandeirante. It was another successful plane, of which 200 copies were exported to the US,
Australia, Belgium, France, Germany and Russia. Its main customer is US Sky West.
In the early 1990s Embraer passed through a crisis that finally assured its long-term
profitability. Between 1985 and 1990, Argentina and Brazil had designed and built a new
high-technology turboprop, the CBA 123 Vector. The first prototype flew in 1990, and it was
a technical success. Unfortunately, the 1990-1 economic crisis, the high cost of the plane,
and political turmoil in Brazil made that the US$300 million prototype was
decommissioned. However, Embraer learned about advanced technologies. Employment
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fell from 12600 in 1990 to 3200 in 1994. That year, the company was privatised to a group
of Brazilian investors, which held 60% of the shares, while European investors took 20% of
them and the capital market absorbed the remaining 20%.
In 1989, Embraer decided to build a family of regional jets to compete with Bombardier in a
fast-growing market. Instead of trying to produce 100% of the aircraft in-house, as FMA had
done, Embraer built an international network of suppliers (Hira and de Oliveira, 2007).
Some of them would provide avionics, others engines, telecommunication equipment,
nacelles or landing gear. Embraer was to become, like most large aircraft manufacturer of
today, a designer and system integrator. Thus, adapting the most modern practices in the
industry, Embraer won its bet. The ERJ-145 launched in 1995, was a 50-seat regional jet. It
is a stretched version of the EMB-120. In its different versions it has sold over 1000 copies.
Main customers include American Eacle, Air France, Aero Mexico…
Finally, in 2000, Embraer produced a 16-seat business jet, the Legacy, of which 166 copies
were produced at September 2009, and 152 were sold. Its entry in the business jet market
was not well timed as the market knew several crisis after 2000 including the 2008-9 one.
Internationalisation followed exports. In January 2003, Embraer inaugurated a joint
venture with AVIC in China, Harbin Embraer, where it produces its ERJ-130, 140 and 145,
from 37 to 50 seats. In 2008, Embraer announced that it was building two new plants in
Evora, Portugal, in order to manufacture aircraft wings and components. The new 148
million Euros plants would be inaugurated in 2011 and 2012.
Table 1 summarizes the situation of Bombardier and Embraer, the main competitors in the
regional and business jet markets. While Bombardier Aerospace is much larger and more
diversified, Embraer has gained some advantage in the production of regional jets over the
former leader in this segment.
(Table 1 here)
When comparing Brazil with Japan, Takahashi (2006) suggests that the factors explaining
Brazilian success and Japanese failure were institutional. Brazil chose a national champion,
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while Japan relied on a consortium of companies (Mitsubishi, Kawasaki and Fuji), none of
which was crucially dependent on aircraft production. In Brazil one ministry (Aeronautics)
was responsible for the development of the sector. In Japan, several ministries spent
decades trying to control the development of the sector, including MITI, and the
Department of Transportation.
7. New competitors (China) (1282 words)
Since the early 1980s, Western aircraft producers have turned their attention to China. The
main reason of this new interest is the fast growth of the Chinese market for aircraft, as a
result of the rapid economic growth of the country. Also, the Chinese government wants to
industrialise the country, and the aircraft industry is a vital component of this process.
Up to the Sino-Russian split in 1961, China’s aircraft industry was dependent on Soviet
designs and production technology. After the new economic policy change of 1978, Western
aircraft producers from both Europe and North America started transferring technology to
Sino-Western joint ventures and outsourced the production of components and entire
subsystems to Chinese manufacturers (Dixon, 1999). Thus with the help of Airbus, Boeing,
MacDonnell Douglas, Northrop Grumman and other companies China upgraded its
technological capabilities in the industry. McDonnell Douglas (MD) contracted out final
assembly of its MD-82 in 1985, thus transferring key production capabilities to China’s
Shanghai Aviation Industrial Corporation (SAIC). Between 1985 and 1994, SAIC built 35
MD-82 and MD-83, most of them sold in China and 5 of them in the United States, due to
FAA certification of the Chinese-built plane. While the MD-82 Chinese production basically
consisted in the import of subsystems and components from the US for assembling in China,
a second major project involved the production of the Trunkliner, another MD model. The
program was cancelled when Boeing acquired MD, but SAIC could incorporate advanced
technology from McDonnell Douglas in order to modernize its new plant.
In the late 1970s, Xian Aero-Engines (XAE) had concluded an agreement with Rolls-Royce
(RR) to produce Spey engines and components for other aircraft engines, and the
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agreement allowed XAE to acquire sophisticated machinery and receive advanced training
from its European partner. Later in the 1990s, another RR-XAE partnership permitted XAE
top produce turbine blades. Later, XAE moved onto produce components for GE, P&W and
RR. Pratt and Whitney established joint ventures to manufacture engine components in
Xian, Chengdu and Changsha. Other companies are producing avionics and air data
computers, transponders and weather radar subsystems (Cliff, 2001).
Boeing has historically been the major supplier of aircraft for Chinese airlines, but up to the
late 1990s, it was wary of assembling planes or even subsystems on China. However,
governmental pressure from China increased Boeing’s outsourcing of modules to Xian
Aircraft Corporation (tail sections), Shengyan Aircraft (cargo doors and tail components).
Under Northrop subcontracting, Chengdu Aircraft has been producing empennages for the
B757.
In the late 1990s, Airbus entered the Chinese industry, by signing an agreement to
manufacture, in China, a 95 to 125-seat plane in the low end of its product line. The plane
will be produced by a joint venture of Airbus (39%), AVIC (46%) and Singapore
Technologies (15%). Airbus was chosen over Boeing because the European company
technology transfer to China was much more comprehensive than the one proposed by
Boeing. And the fact that the new plane will not mostly be sold to the Chinese market
emphasizes the fact that the Chinese are building technological capability, not promoting
import substitution. In other words, China has implemented a policy of ‘market access for
technology’ in order to beef up its domestic industrial capabilities. In September 2008,
Airbus opened its first assembly line outside Europe, in Tianjin. The first A-320 was
delivered in mid-2009. By 2011, the plant is expected to produce 4 aircraft per month. In
the meantime, Airbus and AVIC II have set up an engineering centre as a joint venture in
Beijing to perform detailed design for the A350. And in 2008, Airbus and HAIG (a subsidiary
of AVIC II) launched a joint venture (80% controlled by AVIC) to produce composite
materials for the Chinese-made A320
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Airbus has increased its penetration of the Chinese market with its range of European-made
line of products. Airbus forecasts the sale of 1800 aircraft to China from 2005 to 2025. In
2007, Airbus delivered 67 aircraft to Chinese airlines, 75 in 2008, and it plans to deliver 90
in 2009, and 100 in 2010.
Western countries were not the only providers of aircraft technology. In 1993, the Russian
Sukhoi signed an agreement to sell 150 SU-27 to China. The first 50 of them were sold off
the shelf, but the other 100 were to be manufactured in China by the Shengyang Aircraft
Corporation. The share of Chinese components would increase every year from 1996 until
the end of the agreement in 2016.
In 1984, Israel transferred designs and production technology to manufacture the Lavi
jetfighter in the Chengdu Aircraft Industry Company. Because the US had supported the
design of that fighter, it opposed the deal, and Israel suspended its cooperation with China,
but the Chengdu Company was able to pursue the development using Russian engines and
Israeli avionics. Figure 1 summarizes the learning curve of commercial aircraft production
in China.
(Figure 1 here)
In 2000, China’s AVIC II established a joint venture with Brazil’s Embraer for the creation of
a joint venture to produce regional jets in the 30-70 seats range. In 2003, Embraer’s
Chinese plant started producing the ERJ145 in the new Harbin plant. But while the plant is
able to produce 24 jets a year, only six aircraft were sold to China Southern Airlines by
2006, and five to China Eastern Airlines. However, new orders came since 2007 from other
airlines, such as Hainan Airlines, for a total of 100 regional jets, half of them manufactured
in China’s Harbin plant, and the rest imported from Brazil.
China’s aircraft industry is not confined to airplanes but includes civil helicopters. In May
2009 AVIC started the construction of a new helicopter plant in Tianjin, which is expected
to produce 300 helicopters annually, or 20% of world production by 2017. AVIC was
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formed through the merger, in November 2008, of both AVIC I, and AVIC II. China’s
Helicopter Research Institute supports the plant.
China has reformed its network of government research institutes to increase and
accelerate technology transfer and learning. Since 1985, the 5400 government research
institutes were encouraged to link themselves with specific industries, and some of them
became either part of industrial firms or became themselves industrial concerns. These
government research institutes were national, provincial or municipal (Yuan, 2005). Those
labs in the aircraft industry include today the Beijing Institute of Aeronautical Materials,
China Aero Polytechnic Establishment, Shanghai Aircraft Research Institute, Xian Flight
Automatic Control Research Institute, Chinese Radio Aeronautical Research Institute, China
Institute of Aeronautical Systems Engineering, Aircraft Design Research Institute of
Guizhou Aviation industry Corporation, Chengdu Aircraft Design Institute, Gas Turbine
Establishment of China, and China Research Institute of Aero-Accessories among others.
Table 1 summarizes some data on these institutes., most of them belonging to AVIC. In all,
AVIC encompasses 110 companies, 36 research institutes and 6 universities many of them
providing graduate degrees in aerospace engineering in collaboration with foreign
universities. Among these, Beijing University of Aeronautics and Astronautics (BUAA) is first
and the Nanjing University of Aeronautics and Astronautics (NUAA) is second3.
(Table 1 here)
Xian Aircraft Corporation of China is already producing a regional turboprop, the MA 60, a
modified version of the Antonov An-26. The plane, a 60-seat one, uses Pratt & Whitney
Canada engines. It has received over 100 orders, was certified in China in 2000 and has sold
copies to several developing countries. China’s first domestically designed aircraft, the
ARJ21-700 has applied for domestic certification, and it is expected to obtain it in 2010. The
Created in 1952, BUAA has some 1400 faculty and receive about 1000 foreign visitors and
experts every year. It enrols 23,000 students including over 6300 master and PhD
candidates. BUAA cooperates with American, British, Canadian, French, German and
Russian institutions (http://ev.buaa.edu.cn). NUAA has 23,600 students including 6,800
graduate ones, and a staff of 3,000 including 1,600 faculty and researchers. Founded also in
1952, NUAA has evolved from a teaching university into a research institution
(http://ice.nuaa.edu.cn).
3
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US Federal Aviation Administration is helping China with the certification process. The
aircraft, produced by Commercial Aircraft Corporation of China, will have GE engines. It has
already secured 208 orders, including 5 from GE in the United States.
8. Conclusion and policy implications.
In spite of three serious setbacks, the first in the 19th century (Lilienthal crash and Zeppelin
wrong trajectory), and two in the 20th century (two prolonged bans on aircraft R&D and
production by the victorious allies), Germany was able to catch up several times with the
other major European powers and the US, mainly because of its strong academic and public
research institutions.
The United States and Western European countries entered the industry when entry
barriers were low, and many companies were created in each country. In the United States
several hundred countries were created. Even in Canada one counts 66 aircraft producing
companies at different points in time. In each country, the numbers converged towards one
“national champion”. Under such conditions, the amount of trials in each country was high,
and at least one or two companies succeeded to move through the technological
discontinuities, economic fluctuations and market changes. Also, in Europe and North
America, supporting institutions for public R&D, transit regulation, aircraft certification and
public funding of private R&D evolved nicely with the technology and the industry (Table
5). Public procurement for military aircraft became permanent, programs funding private
sector aircraft R&D developed, government R&D labs became established, academic
training and R&D were created.
(Table 5 here)
Conversely, post-war developing countries will pass or fail with one company: Indonesia
with Indonesian Aerospace, Taiwan with Taiwan aerospace, Argentina with FMA, Brazil
with Embraer. Only China may have several trials at the aircraft industry due to its size and
market dynamism.
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If Brazil succeeded where Argentina and Indonesia failed, this was because Embraer was
established not simply to produce military aircraft for the local Armed Forces (as in the
other two cases). The mission of Embraer was to produce civil and military aircraft for the
local and global markets, in order to gain economies of scale, as well as market and user
knowledge. Also, the public support to Embraer, whether a public or a private enterprise,
was never put into jeopardy by government changes. In Argentina, every new government
had a different idea about FMA. In addition, Brazil built the supporting institutions and
Embraer put together an international network of suppliers, without trying to manufacture
most subsystems in-house.
China is becoming a major producer of all sorts of aircraft because it has forged alliances,
and cooperation with all major aircraft producers, and technology transfer from
manufacturers, public laboratories and universities from Europe and North America. The
failed cases did nothing of the sort. Also, China imitated the institutional environment of the
aircraft industry in advanced countries.
Conclusion: growing a high-tech sectoral system
The importance of institution building for advanced research and human capital appears as
one of the main results of this study. Our institutional hypotheses are supported by the
aircraft sector analysis. Public institutions for procurement, training, and R&D are crucial
elements in the performance of the aircraft sector (H1). These institutions are specific to
the aircraft sector; academic research and public support for venture capital (but not public
laboratories or procurement) are part of the key institutional framework in biotechnology.
Each set of institutions corresponds to different technologies and industrial structures (H2).
The evolution of institutions depends on past institutional structures: between the wars the
British government had created a large colonial empire, and used aircraft on Empire
pursuits more than as a commercial enterprise or as a means of defence against German
military expansion. In all countries, technological change (the rise of the all-metal
monoplanes, and later the jet engine) raised immensely the upfront costs of designing and
building aircraft. Public sector institutions had either to increase their investments and fine
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tune their policies, or leave the industry; under such conditions, most countries abandoned
the sector (H3 and H4). Institutional evolution in aerospace involves substantial
A high-tech SIS will not prosper without a national one being grown at the same time: NIS
and SIS need to be built together because all existing NIS are aggregates of SIS. Countries
that tried to build an aerospace industry (a SIS) without concurrently building a national
system of innovation failed. Conversely, Britain, France, Germany and the US developed at
the same time their aerospace industry and a national innovation system whose other
elements could support the fledging industry.
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Table 1: Business Expenditure in Aerospace R&D (million current USD, PPP, 2006)
Country
BERD
BERD in
aerospace
BERD in
aerospace as %
of BERD
6.6
12.8
10.1
5.0
10.9
5.8
6.6
0.4
3.1
0.8
2.4
USA
247669
16367
UK
22383
2873
France
25966
2633
Germany
47936
2377
Italy
9599
1050
Canada
13391
783
Spain
8684
576
Japan
107192
428
Sweden
8738
267
Korea
27774
222
Brazil
8170
200*
Argentina
OECD (2009): Main Science and Technology Indicators, Paris
BERD as % of
GERD
0.5
 Embraer alone executed 113 millions USD in R&D in 2006.
Table 2: Production of aerospace industry, 2003
Country
USA
France
UK
Germany
Canada
Japan
Italy
Brazil
Spain
Netherlands
Korea
Argentina
Billion of current USD, PPP
126.0
41.8
21.8
18.8
13.1
8.2
6.4
4.2 (2005)
3.2
2.2
2.1
Source: OECD (2007): Overview of the Aerospace Sector, Paris.
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Bombardier Aerospace
Embraer
Founded 1927/1986
Founded 1969
Employees: 32500
Employees: 17375
Business jets (Challenger & Learjet families)
Legacy family
Turboprops regional (Dash family)
--
Regional jets (CRJ family)
ERJ-145 family
Amphibious water bomber (415 family)
--
Sales 2008: 10 billion USD (2008)
6.3 billion USD (2008)
Regional aircraft 2006/9: 488
Regional jets delivered 2006/9: 486
Business jets delivered 2006/9: 876
Business jets delivered 2006/9: 152
Main foreign subsidiaries: UK, US and Mexico
Main foreign subsidiaries: China and Portugal
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Table 4: China’s Aircraft Research Institutes
Name (year established)
Beijing Institute of Aeronautical Materials
China Aircraft Strength Research Institute
Gas Turbine Research Institute
Beijing Aeronautical Manufacturing Technology Research Institute
Shenyang Aero-Dynamics Research Institute
Harbin Aero-Dynamics Research Institute
China Flight Test Establishment
China Aeronautics Computing Technique Research Institute
Shanghai Aeronautical Measurement-Controlling Research Institute
Beijing Chang Cheng Aeronautical Measurement and Control Technology Research
Institute
Jinan Research Institute for Special Aeronautical Composites
China Aviation Precision Machinery Research Institute
Beijing Changcheng Institute of Mecrology & Measurement
China Air to Air Missile Research Institute
Shengyang Aircraft Research Institute
Xi'an Aircraft Design & Research Institute
Shenyang Aero-engine Research Institute
China Leihua Electric Technology Research Institute
China Research Institute of Aero-Accessories
China Aviation Life-Support Research Institute
Chengdu Aircraft Design Institute
Luoyang Opto-electrotechnology Development Center
Wuxi Aero-engine Research Institute
Chinese Aeronautical Radio Electronics Research Institute
Xi'an Flight Automatic Control Research Institute
Shanghai Aircraft Research Institute (1973)
China Aero Polytechnic Establishment
China Institute of Aeronautical Systems Engineering
Aircraft Design Research institute of Guizhou Aviation Industry Co.
Chinese Helicopter Research Institute
Location
R&D personnel
Beijing
Xian
Jiangyou, Sichuan
Beijing
Harbin
Harbin
Xian
Xian
Shanghai
Beijing
1400
1100
900
800
160
488
2000
800
300
160
1
2
3
4
5
6
7
8
9
10
Jinan, Shandong
Beijing
Beijing
Luoyang, Henan
Liaoning
Xian
Liaoning
Neijiang, Sichuan
Xiangfan, Hubei
Xiangfan, Hubei
Chengdu, Sichuan
Luoyang, Henan
Wuxi, Jiangsu
Shanghai
Xian, Shaanxi
Shanghai
200
150
520
2500
1100
1600
900
ND
900
820
1400
500
250
544
ND
ND
Beijing
Guizhou
Jiangxi
110
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1400
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Table 5: the co-evolution of technology and institutions in the aircraft industry
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Figure 1: The commercial aircraft learning curve in China (1978-2000)
Indigenous development &
Production (ARJ-21)
International Co-Development
(AE-31X)
International Co-Production
(MD-80-B-737)
Parts subcontracting
B-737, B-757
Late
1970s
Late 1980s
to mid-1990s
Early to Mid-1990s
Mid-990s to early 2000
Source: Updated and adapted from Dixon, 1999.
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Figure 2: The commercial aircraft learning curve in Brazil
Production with domestic
Designs, world markets
Production with
Domestic design,
Local & foreign markets
Production on foreignmade design, local
market
Mid-1960s
Early 1970s
Since the 1990s
39