The Taiwan Aerospace-McDonnell Douglas Agreement: A Modest Expansion of the Trend toward Globalization in Aerospace

Abstract

The proposed sale by McDonnell Douglas of a portion of its commercial subsidiary to Taiwan Aerospace Corporation has provoked considerable controversy. Although the precise terms of the agreement had not been disclosed at this writing, they are likely to involve the purchase of a 40 percent share of the equity of a new corporate entity that contains Douglas Aircraft's commercial aircraft operations by a group of foreign investors that may include representatives from other East Asian nations, in addition to Taiwan. The joint venture of East Asian and U.S. firms will undertake the development and manufacture of the MD-12, a 400-seat commercial transport that will compete with the Boeing 747. In addition, this entity will manage the manufacture, marketing, and support of Douglas Aircraft's current commercial aircraft product line. A thorough analysis and evaluation of this agreement requires information on its structure and aims that is not yet available. Nevertheless, I believe that the concerns raised by critics of the agreement-most of which cite the agreement's adverse effects on U.S. technology and jobs-are exaggerated. The McDonnell Douglas agreement is a response to the new realities of global competition in the commercial aircraft industry. It may strengthen Douglas Aircraft, even as it may make life more difficult for other U.S. firms. Overall, the agreement is more a consequence of, rather than a likely contributor to, intensified foreign competition in this industry.