Aerospace Clusters: Local or Global Knowledge Spillovers?

Industry and Innovation, Mar 2005 by Niosi, Jorge, Zhegu, Majlinda

By the end of the 198Os and during the 199Os, international cooperation between different members of the aircraft value chain became commonplace for both American and European firms. With the "better, faster, cheaper" era of aircraft, time came when even the American giant industry could not afford either high technological and financial efforts, or market risks related to the new development programs. As Esposito (2004) demonstrates, the success of aircraft firms is based on the existence of a complex network of long-term relationships having an "evolutionary" nature where collaboration and competition exist hand in hand. Hagedoorn (2002) points out that international R&D partnering in aerospace and defence is well above the average compared to other high-tech industries. During the 1990-98 period this industry had the highest international partnering index of all sectors.

Nowadays, it is not anymore possible to overlook the global integration of the aircraft industry. The six big European and American groups emerging from an intensive industrial concentration process are pushing for more and stronger technological competition in their market segments, and at the same time are reinforcing their international R&D collaboration.

The emergence of the aerospace industry in other counties is evident. The geopolitical ambitions have strongly motivated governmental actions for the development of the aircraft industry. This will has nurtured a form of cooperation with advanced countries that have helped a few of them (Brazil, China, India, Korea) to accumulate the necessary capabilities for being successful in this sector. One of the most prominent mechanisms for technology transfers in aerospace has been the frequent use of offset agreements. Governments are usually owners of national airlines, thus they have been in a convenient position to impose their conditions on aircraft producers (Mowery, 1987; Pan, 1996; McGuire, 1997). In a first step, these countries have become part of the international aircraft supply chain. In a few years, they will acquire enough specialized technology, know-how and experience allowing them to be active players on a global scale. Few studies are concentrating on this potential competition from the outside of the three decades old USA-EU duopoly (Eriksson, 1995; Pritchard, 2002).

3. The Research

The study consists of a detailed examination of two aerospace clusters (Montreal and Toronto) and a summary comparison to two of the largest aircraft clusters during their growth and decline. The research was conducted through personal interviews with company officials and used secondary data from many different sources.

3.1. A Diversified Montreal Cluster

Montreal represents over 50 per cent of Canada's employment in the aerospace industry. It is the only city in Canada and one of the few in the world where an entire aircraft can be designed. The production of aircraft started in Montreal in the 1920s with several American, British and Canadian producers competing to produce small, regionally flown propeller aircraft. In 1944, a group of Canadian Vickers employees (the Canadian subsidiary of British Vickers, producing aircraft in Montreal) founded Canadair in Ville St-Laurent, in Montreal's north end. After World War II and the cold war, Canadair produced mostly military aircraft. Dozens of companies spun off from Canadair or were attracted to Montreal to supply parts and components for it (Pickler and Milberry, 1995). In 1976, the company acquired the exclusive rights to the blueprint of the Learjet 600, a business jet designed by William Lear, of Learjet Corporation, in Wichita, Kansas (Phillips et al., 1994). With some local adjustments, the aircraft became the Challenger 600, whose first prototype flew in 1978. In 1986, Bombardier Corporation of Montreal bought Canadair and decided to enter the regional aircraft market with a modified version of the CL600. The development of the regional jet was decided in 1987 and the first prototype flew in 1991; it was the RJ100, accommodating 50 passengers; production was launched in 1993. Several subsequent versions enlarged the regional jet up to 90 seats. In the meantime, in 1992, Bombardier had bought de Havilland in Toronto. In 1989, with the acquisition of Short Brothers by Bombardier in the UK, and that of Learjet in Wichita, Kansas, Bombardier completed a range of aircraft with between 5 and 100 seats. The regional aircraft market is now dominated by turbofan technology; Bombardier was one of the few companies to introduce it. The world market for aircraft had changed radically when, in the late 1980s, the large airlines moved from point-to-point to hub-and-spoke networks requiring large aircraft only for the service of major airports, and regional aircraft for the feeding lines around the hub. The era of regional jets had arrived. In a decade, Bombardier Aerospace, with 15,000 employees in Montreal alone and 28,000 around the globe, became the world's third largest producer of aircraft, and Montreal became a thriving aerospace RSI. In the meantime, Bombardier transferred its aircraft design capabilities for new planes to Montreal. Since these capabilities originated from scattered sites, Bombardier benefited from a new wave of major international knowledge spillovers. Canadair, and now Bombardier have become the anchor firms that created the labour pool upon which most other companies have located in the metropolitan area. Today all its families of business and regional jets are developed in Montreal. General Electric engines manufactured in the USA power most Canadian regional jets (CRJs), which use imported avionics and other major components.