Market promising if MHI gets regional jet off ground

Demand soaring for small, energy-efficient planes but Mitsubishi Heavy will have to compete with established industry players for sales

by Hiroko Nakata

Backed by growing global demand for small, energy-efficient aircraft, Mitsubishi Heavy Industries Ltd. officially decided last month to enter the promising market.

Analysts forecast as many as 4,500 sales of regional jets, which have 60 to 90 seats, in the next 20 years amid rising fuel costs and improving transportation among regions.

But industry sources expect Mitsubishi Heavy, a newcomer to the regional passenger jet sector, to face extremely harsh competition, especially as the market is currently dominated by Canada’s Bombardier Inc. and Brazil’s Empresa Brasileira de Aeronautica SA, better known as Embraer.

Russian and Chinese manufacturers are also planning to debut regional jets a few years ahead of Mitsubishi Heavy.

Japan’s biggest machinery maker will launch two types of jets, known as the Mitsubishi Regional Jet, in 2013 — the 70- to 80-seat MRJ70 and the 86- to 96-seat MRJ90 — with a flight range of 1,630 km to 3,630 km.

Mitsubishi Heavy said the biggest advantage of the MRJ is its fuel-efficiency.

Thanks to its energy-saving turbofan engine, designed by U.S.-based Pratt & Whitney, and the use of lightweight carbon fiber composite materials, the MRJ will be about 40 percent more efficient than the Boeing 737, according to All Nippon Airways Co. ANA announced in March it will purchase 20 Mitsubishi Heavy planes.

But ANA is the only airline operator to have officially decided to buy the MRJ so far. Other operators at home and abroad remain cautious for various reasons.

Japan Airlines Corp. says it is considering buying the MRJ but has not made a final decision. Japan’s largest airline said in February 2007 it will buy 15 regional jets from Mitsubishi’s rival, Embraer.

“We are happy to cooperate with Mitsubishi to develop the jets, but buying the jets is a different story,” said Atsuro Takazawa, a director for JAL’s corporate planning. “Aircraft are our lifeline. We will watch (the development process) until we become confident of the product.”

JAL will examine whether the MRJ is cost-efficient in terms of overall operating costs and future repair costs, as well as fuel-efficiency, Takazawa said.

Some analysts said political support is essential for a newcomer to take a share of the overseas market.

“The MRJ itself should be attractive amid rising oil prices and the growing need for fuel-efficiency. So its success will depend on marketing, meaning whether Mitsubishi Heavy will be able to gain government support,” said Masanori Wakae, a senior analyst at Shinko Securities.

“Marketing and sales power (in the global aircraft market) would be limited without any help from the government,” he said.

Indeed, state-owned Vietnam Airlines reportedly told Mitsubishi Heavy it will buy 20 MRJs if the Japanese government lends financial and insurance support.

Another big concern is uncertainty over Mitsubishi Heavy’s ability to provide adequate support for MRJ owners, specialists said.

A global network for immediate trouble-shooting is vital to airline operators to handle mechanical trouble or accidents, they said.

“Since Mitsubishi will first need to build (customer) trust, airline operators will likely wait and see for about five years” to see how it turns out, said an aviation industry official who did not want his name published.

Despite the obstacles that lie ahead, the heavy machinery maker is realizing a longtime dream to produce its own jets.

“Developing our own passenger jets has long been an earnest wish of both the private and the public sectors,” former Mitsubishi Heavy President Kazuo Tsukuda told a news conference March 28. Tsukuda became the chairman April 1.

“If we miss the chance, it would be difficult for Japan’s private sector to start developing jets on its own initiative,” Tsukuda said.

Japan has not had a domestically produced airplane since production of the YS-11 turboprop passenger plane ended in 1973.

The YS-11 was developed as a government-private sector project to revive the aircraft industry, which had thrived before and during the war but was banned until 1952 by the Allied Occupation as part of Japan’s demilitarization.

After production of the YS-11 ended, Mitsubishi Heavy produced aircraft components for Boeing and Airbus.

Other reasons for Mitsubishi’s decision to develop the MRJ may be the machinery maker’s quest for a technological edge as well as the economic stimulus its production would give the country’s other industries, analysts said.

They said aircraft production benefits makers of 3 million components — about 100 times the number of automobile components.

The MRJ project will be boosted by financial help from the government. The Ministry of Economy, Trade and Industry plans to finance about ¥50 billion of the total development costs of ¥150 billion to ¥180 billion.

Another factor pushing Mitsubishi was the large potential of the regional jet market, even if competition with Bombardier and Empresa is expected to be stiff.

The demand for regional jets is expected to increase by about 4,500 jets by the end of 2027 due to existing turboprop planes being replaced by faster and quieter jets.

Another reason is that airlines will introduce regional jets for some routes to replace large jets and improve cost-efficiency, said Nobuhiro Baba, senior general manager for marketing at Japan Aircraft Development Corporation.

The United States and Europe have a broad range of regional routes between small cities, where turboprops are still flying, he added.

The demand from China is also strong, with nearly one-fourth of the entire new demand coming from the rapidly growing nation, he said.

“The standard of living is rising and the number of people who can afford airline tickets is increasing,” Baba said. “Also, it is much easier to build airports than highways and railroads in the vast country.”

As for Japan, at least 50 jets will be required on the back of the scheduled expansion of Haneda airport in 2010. The expansion will help airlines gain more room to operate smaller jets more frequently, he added.