Economies recovered from 1998 financial crisis China and India growth continues

1. Asian Aerospace IndustryAerospace in the News Executive Symposium New Orleans, LAMarch 2, 2006Pierre A. ChaoSenior Fellow and Director Defense-Industrial Initiatives202-775-3128pchao@csis.org

2. Asian Strategic Opportunities and Issues… • Economies recovered from 1998 financial crisis • China and India growth continues • Japanese economy finally showing growth • Rest of Asia following suit • Inter-Asian trade increasing as well

3. Asian Strategic Opportunities and Issues (2)… • Central economic issues • China • Does it get rich before it gets old • Economic disparities between coast and interior • What are the politics of a Chinese middle class • India • Can it deepen the economic success • Japan • Aging demographic • South Korea • Economic implications of reunification

4. Asian Strategic Opportunities and Issues (3)… • Asia facing the same transnational threats as rest of the world • Terrorism • Pandemics • Organized crime • Piracy • Natural disasters

5. Asian Strategic Opportunities and Issues (4)… • But also a region where classical state vs state geopolitical strategic tensions are alive and well • Korean peninsula • Taiwan • Rising China • Rising India • More “muscular” Japan • Russia as an Asian power

6. Military Aerospace

7. Asian Military Market… • Growing economies allows for expanded defense budgets • China • 1990-2003 13-fold increase (5 billion RMB to 65 billion RMB) • Share of budget devoted to equipment went from 16% to 34% in same time frame • Japan • 1% of a big economy is a big absolute number ($45 bil) • India • Double digit growth since 1997

8. Japan… • Learned a lot from the F-2/FSX but still very expensive • Remains a solid market for U.S. exports • F-22? • Consolidation and restructuring of the Japanese industry still needed • Missile defense a significant issue • Will drive changes in export and technology control policy • Unleash Japan onto the export market? • Energy a strategic issue - does it drive technology innovation

9. China… • Restructuring industry, reforming acquisition processes • Russia primary source of technology • Military aviation complex • Slowly modernizing (still needs significant foreign technology inputs, Russia and Israel on the J-10 for example), 10-20 years to go • Serial production of modern aircraft hard; bombers, large transports and helicopters design beyond current capability • Improvements in engines but long way to go, reliant on Russians • Space / Ballistic Missile • Technology decades behind US and Russia, but catching up rapidly • Testing 100 ballistic missiles a year • Improving sea-launched ballistic missile capabilities • Manned program - “prestige program”

10. India… • “Opening” up for U.S. - the “big new market” • Will take time to develop relationships • It’s all about HAL • Has been trying to develop indigenous capability for some time • Russia, Europe have been key technology providers • LCA - “Last Chance Aircraft” • Sophisticated ballistic missile industry

11. South Korea… • 1998 economic crisis disrupted ambitions to develop indigenous industry • Current budget focus is O&M and “quality of life”, rising costs • Strategic goal of independent industry by 2010 not achievable • Consolidating and restructuring the industry • Ambitions scaled back • Focus on trainers, etc. • Remains a significant market for exports

12. Commercial Aerospace

13. Asian Commercial Market… • One of fastest growing regions for next 20 years • Growing economies • Increasing trade • Growing middle class/wealth • Desires for indigenous capabilities • Often not matched by resources • Will take 20 years - an Asian Airbus? • Aerospace as stimulant to broader economy is real driver

14. Japan… • Continues to be a key partner for Boeing • Increasing percentage of aircraft • Wing box for 787 • Strong capabilities in composites developing • Dampens desire for indigenous production • That being said - interest in small regionals • Interest in supersonic • The leapfrog strategy

15. China… • Primary goal - improve production and design capabilities • Build parts, components, license production • 737, 747, 757, 787, A330/340, A380 • 100-seater did not go far • Shift to license production of regional jets and development of ARJ21 • Strategic goal to get to 150-seater in next 15 years • Teaming with Chinese manufacturer does not guarantee sales to Chinese airlines (ask McDonnell Douglas)

16. India… • Potential to be a significant market • Leveraging HAL capabilities • Doors for Boeing and Airbus • Engineering and software capabilities • Aerospace 15% of outsourced engineering services market

17. About CSIS For four decades, the Center for Strategic and International Studies (CSIS) has been dedicated to providing world leaders with strategic insights on—and policy solutions to—current and emerging global issues. CSIS is led by John J. Hamre, formerly deputy secretary of defense, who has been president and CEO since April 2000. It is guided by a board of trustees chaired by former senator Sam Nunn and consisting of prominent individuals from both the public and private sectors. The CSIS staff of 190 researchers and support staff focus primarily on three subject areas. First, CSIS addresses the full spectrum of new challenges to national and international security. The Defense Industrial Initiatives Group (DIIG) is part of the CSIS International Security Program and focused on issues related to the global defense-industrial enterprise. Second, we maintain resident experts on all of the world's major geographical regions. Third, we are committed to helping to develop new methods of governance for the global age; to this end, CSIS has programs on technology and public policy, international trade and finance, and energy. CSIS is private, nonpartisan, and tax-exempt. CSIS receives funding from public and private entities. CSIS does not take policy positions, the views in this presentation are those of the author.