By Giovanni de Briganti | November 1, 2004
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The Pitfalls of Tech Transfer

The funny thing about developing countries is that they do develop, even if haphazardly. As they do, they become more ambitious for their national industries. This is well illustrated in the computer industry, where China is now beginning to export PCs and other equipment, and in the automobile industry, where India is now exporting cars to Britain. This trend is now emerging in helicopters and does not bode well for the five main Western manufacturers.

Industrial cooperation with developing customers is nothing new. Eurocopter's predecessor company, Aerospatiale, sold production licenses for its Alouette helicopters to India and Romania in the 1970s. More recently Sikorsky teamed with companies across the developing world on the S-92 before backtracking when it decided it needed an "All-American" helicopter for the U.S. presidential helicopter fleet competition.


The most advanced model of this trend is Brazil's Embraer. With the help of Western partners, Embraer mutated from a smallish maker of light aircraft for its home market into the world's third-largest manufacturer of airliners. Can a similar "champion" develop in the helicopter industry, ultimately challenging today's majors?

China, for example, is gearing up to produce the Eurocopter EC-120 under license. Eurocopter is also talking to the Chinese about joint development of an entirely new and larger helicopter, which presumably would also be built in China.

The French-German company had also begun to develop the Mil Mi-38 heavy helicopter jointly with Russia before soft pedaling it when it became obvious that Russia's legal framework could not protect its industrial property rights. The difference, however, is that Russia has plenty to contribute in terms of technology and know-how, while China has nothing to offer except lower labor costs and--hopefully--a large domestic market.

But producing only for the home market is rarely enough to satisfy a developing country, nor a more advanced one wanting to develop its aerospace industry. India, for example, spent 20 years developing its Advanced Light Helicopter with technology and other assistance provided by MBB, Eurocopter's other predecessor company. Now, in addition to national sales, Hindustan Aeronautics Ltd. has teamed with Israel Aircraft Industries to market worldwide the ALH, derived from a German design, fitted with a French engine (supplied by Turbomeca), built in India at Indian labor costs and equipped with Israeli-made avionics. And because its mix of low cost, good technology and respected components makes it an attractive proposition, it just might win over more expensive Western designs in Chile and similar markets.

By itself, this sort of arrangement is not necessarily a bad thing. It could even be argued that it is in the natural scheme of things, since fewer countries are likely to be content to spend millions of dollars to buy helicopters without wanting to obtain the technology on which they are based.

The problem is that this sort of arrangement works only as long as there is a big difference in technological know-how between supplier and customer. Transferring technology to a partner that could ultimately become a competitor means that the supplier has to constantly maintain its head-start, so it is always developing technology that is more modern that it transfers. And here is the rub.

New technology is so expensive to develop that it is generally funded through major programs paid for by governments. This, for example, is how Bell-Boeing is funding the V-22 and BA-609 tilt-rotor and how Agusta and Eurocopter developed fly-by-wire controls for the European NH-90.

But such government programs are few and far between, especially in the helicopter field. So government R&D funding will dry up. How then can established manufacturers maintain the technological edge on which their industry--and their export business model--is based? This is what should be keeping industry executives awake at night, even though it does not appear to be an immediate problem.

Not everyone in the aerospace industry takes this view, of course. Boeing is allowing Japanese partners to design and develop the wings of its 7E7 Dreamliner in exchange for the money they will contribute to the program. And Sikorsky did not worry too much about parts of the S-92 being designed and built in various parts of the world before it had to backtrack for the VXX program.

But in the long term, the technology and know-how will shift abroad, leaving these two companies at the mercy of their partners. What could either of these companies do, for example, if one of their foreign partners suddenly doubled its prices for a component for which it is the program's single source? Tricky, indeed, especially as simple currency variations can increase prices by 50 percent over a couple of years.

What could Eurocopter do if, in a few years, a state-owned Chinese manufacturer undercuts its prices to sell the same Eurocopter-designed aircraft to a foreign customer?

Transferring technology abroad is often what clinches an export sale, and as a byproduct can also create a lower-cost source of components. But unless manufacturers find very serious amounts of money to pour into their R&D, technology transfer risks being no more than a temporary silver bullet for Western aerospace industry.

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