Boeing Co (NYSE:BA) just announced major new deal with supplier, Toray Industries Inc (TYO:3402). The Japan-based Toray Industries will continue to be one of the top suppliers to Boeing after Monday’s agreement to buy $2.6 billion in carbon fiber material that will be used in an upcoming new model of the Boeing 777. Toray already supplies Boeing with the necessary materials for its Boeing 787 jet under long term contract that is worth $6 billion. Toray is also the largest producer of carbon fiber material in the world.
Boeing’s strategic partnership with Toray
This strategic partnership developed as Boeing Co (NYSE:BA) decided that it wanted to lighten up the plan, making it cheaper on fuel and other costs. Boeing approached Toray to help replace metal components throughout the plane with carbon fiber. In fact, the new 787 Dreamliner by Boeing is 50% carbon fiber. The increasing demand for carbon fiber in the aerospace industry, in particular, has made Toray announce plans to open a 100 billion yen carbon fiber plant in South Carolina by 2020.
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Mitsubishi Heavy Industries Ltd (TYO:7011) is another Japanese supplier to Boeing, in which the supplier builds wing boxes for Boeing 787. Additionally, much like Toray Industries Inc (TYO:3402), Mitsubishi has seen a pick up in orders to supply the aerospace industry, particularly with Boeing. The company has announced measures to open a new plant in Japan to meet the increasing demand and orders flowing in.
Japan an aerospace and manufacturing powerhouse
Japan has really turned into an aerospace and manufacturing powerhouse, as demand for Japanese goods increases and building of new factories and plants is increasing. Another Japanese aerospace supplier, Teijin Ltd (TYO:3401) (OTCMKTS:TINLY), is another huge carbon fiber supplier to Boeing Co (NYSE:BA) rival, Airbus Group. Japanese producers are confident that its competitiveness with US and European factories, as they believe they have a much more efficient and cheaper model to fill orders.
Despite a pick up in factory orders and manufacturing, Japan effectively entered a recession on Sunday night, after third quarter preliminary GDP came in at -0.4%, compared to a consensus of 0.5% gain in economic growth, another contraction below economists’ expectations. Japan recently ramped up its QE programs to help get inflation and growth churning in the country, however, there still is a lot of work to do. President Abe’s plan to increase sales tax appears to have stalled for now and will likely be put off until economy is more stabilized. The Nikkei is off -305 points or -1.71%, while the Japanese Yen remains the second strongest performing currency today, behind US dollar. There is certainly a bit of “risk off” attitude in the markets today after the news broke, but can Boeing Co (NYSE:BA) and the rest of the aerospace industry help keep Japan’s factory growth stable and help aid recession fears in the country?