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By Root 5502 0

key positions in the production process. They adapted well to such American manufacturing techniques as “total quality management,” a rigorous system of statistical measurements, problem solving, and continuous quality improvements. But it was expensive to make the kits because of the extra steps for packing and shipping. Indeed, it cost as much to produce a finished MD-82 in Long Beach as it cost to produce a kit for shipment to Shanghai. To reassure the Shanghai venture that it wouldn’t be undercut by Long Beach, McDonnell Douglas agreed not to sell finished MD-82s from Long Beach in China. Instead, it sold the kits to the Shanghai factory at a steep markup. Because Shanghai had an iron-clad agreement that the Civil Aviation Administration of China (CAAC) would buy the first twenty-five planes, it then added its own markup. Chang wasn’t worried about what it cost CAAC to buy the MD-82s. After all, from the Chinese point of view, the whole purpose of the coproduction agreement was to improve the Chinese aircraft industry, not to provide a few dozen cheap airplanes.

Cutting Costs, Courting Customers

By the late 1980s, the Chinese aviation world was changing fast as China dismantled its Soviet-designed industrial sector. The government monolith with which Chang had arranged the original MD-80 deal was splitting into pieces and dividing up responsibilities. One result was a proliferation of airlines formed by local and provincial governments. In the middle of China’s eastern seacoast, the city of Xiamen founded Xiamen Airlines in 1984. In the far northwest, Xinjiang Airlines came to life in 1985. Zhejiang province, just south of Shanghai, jumped in with Zhejiang Airlines in 1986. By the early 1990s, China had eleven separate airlines, all government owned, but each with its own bottom line.

Boeing treated the regional airlines like royalty. Indeed, without Boeing the regionals may never have been created. Boeing’s generous training programs for pilots, flight engineers, mechanics, and ground crews, as well as significant investments in parts depots and flight simulators in China, were the foundations that got the airlines off the ground. Boeing also flew the airline executives—local government bureaucrats, most of whom hadn’t traveled much in China, much less abroad—around the world to visit Boeing in Seattle to place orders. The sales trips included lengthy layovers in Hawaii and other tourist hot spots. By the end of 1989, Boeing had sold ten 707s, thirty-four 737s, thirty-three 757s, ten 767s, and three 747s to the Chinese airlines. In the same period McDonnell Douglas had produced about a dozen MD-82s in Shanghai.

Chang largely ignored the airlines, confident of the ultimate power of his backers in the Chinese leadership. The original contract required CAAC to purchase the airplanes, so CAAC was constantly twisting arms, trying to force the Chinese airlines to buy the MD-82s. But they resisted. If the aircraft was made in China, then clearly it was inferior to the American-produced Boeings. Price was an issue, too. Because of the markups that McDonnell Douglas charged the Shanghai venture and the further markups that Shanghai charged CAAC, the MD-82s from Shanghai cost several million dollars more than a comparable Boeing 737. It didn’t help that the best McDonnell Douglas could offer was a sales trip to Shanghai while Boeing took its customers hopscotching around the world.

Despite weak sales, Chang was proud of his accomplishment. The MD-82s assembled in Shanghai were every bit as solid and reliable as those produced in Long Beach. Chang figured that once the airlines realized this they wouldn’t be so reluctant to buy. Meanwhile, he was focusing on the cost advantages that McDonnell Douglas might eventually wring from its Chinese partners. His goal was to employ China’s inexpensive engineering and manufacturing talent to bring down Douglas’s production costs. It was, after all, the argument that had finally convinced the McDonnell Douglas board to go ahead with the original project.

In 1987, China asked Boeing,