TOKYO (Reuters) - The Mitsubishi Regional Jet (MRJ) has been delayed five times and faces rising costs, yet its future as the vanguard of Japanese-built passenger jets seems assured by the corporate muscle behind it and a government set on reviving an aerospace industry dismantled after World War Two.
The delays - the new 90-seat plane was due to take off in 2013, but the first delivery is not now seen until 2020 - have dented its chances of commercial success as established regional jet makers, Brazil’s Embraer SA and Canada’s Bombardier Inc, catch up with its innovations, and China and Russia flex their aerospace ambitions.
But the Japanese government’s primary goal isn’t to make money for Mitsubishi Aircraft, the MRJ’s manufacturer, rather it’s to have the plane cement an industry revival that failed to take off half a century ago with Japan’s last passenger plane, the YS-11.
“Rather than a simple question of whether it makes a profit or loss, what is more important is will it over the longer term be the foundation of a strong aerospace industry,” a government source who is helping the program told Reuters. He asked not to be identified as he is not authorized to talk to the media.
Presentation documents prepared by the Ministry of Economy, Trade and Industry, seen by Reuters, see the MRJ as the first in a three-generation program stretching beyond 2060.
With the plane still awaiting U.S.-standard certification for commercial flights, signed-up customers are banking on the backing of big-name Japanese companies to see the project through.
Mitsubishi Aircraft Corp is 64 percent-owned by Mitsubishi Heavy Industries, with Toyota Motor Corp and Mitsubishi Corp each holding a 10 percent stake. Other shareholders include state-owned Development Bank of Japan, Sumitomo Corp and Mitsui & Co.
“Not a bad list,” says Jep Thornton, a partner at Aerolease Aviation in Florida which has ordered 10 of the planes. “This is coming from the government sector, the financial sector and the investor sector.”
Launch customer ANA Holdings, Japan’s biggest carrier, says it won’t walk away from its order for 15 MRJs even as it has to keep older aircraft flying and leases four Boeing 737-800 aircraft to make up for a capacity shortfall.
“We want this plane in our fleet and although we have been on stand-by for a while, we await it with anticipation,” said Yuji Hirako, who runs All Nippon Airways.
The plane’s latest delay, announced in January, can be dated back more than 20 years - six years before Mitsubishi even considered a passenger jet - when a Boeing 747 plunged into the Atlantic, killing 230 people.
Investigators blamed a short circuit that ignited a fuel tank fire, prompting the U.S. Federal Aviation Authority (FAA) to tighten wiring certification in 2007.
Mitsubishi, which had by then begun work on the MRJ, overlooked the change, said two people with knowledge of the project. “Mitsubishi was clearly aware of it but did not apply it to the design,” said one, who didn’t want to be named as he is not authorized to talk to the media.
Hundreds of engineers wiring the MRJ did so without using a common design framework incorporating the new rule. So, when asked by Japanese regulators certifying the jet to FAA standards how it complied with the stricter standard, Mitsubishi Aircraft faced a time-consuming task to explain each twist and turn in the 23,000 wires snaking through the plane’s fuselage.
“They decided it would be easier to start from scratch,” the second person said.
In response to Reuters queries, Mitsubishi Aircraft said: “We were aware of the regulation in our early phase of design, so it is not accurate to say we overlooked the regulation. Our design was made reflecting the regulations, but we made a subsequent decision to relocate certain systems for a better design. System location was the main reason for requiring wiring changes and the re-routing ensures we meet the highest safety standards.”
Four of the five delays so far have been caused to some degree by similar failures to document work for certification, forcing engineers to redo some of their work, said Yugo Fukuhara, vice president and general manager of sales and marketing at Mitsubishi Aircraft, adding the company is hiring ex-Boeing engineers and other foreign experts to help it better navigate FAA rules.
Mitsubishi Aircraft has orders for 233 MRJs, and aims to sell more than 1,000 of the planes over two decades. The company declined to say how many planes it has to sell to break even.
Based on presentations by Mitsubishi Heavy, the first four delays doubled the MRJ’s development cost, and the latest delay could add another 30 percent - taking total spending to 350 billion yen ($3.17 billion), equivalent to the value of 67 list-price MRJs.
At the average operating margin of 7.84 percent at commercial planemakers including Embraer, Boeing and Airbus over the past three years, the profit per MRJ plane would be $3.7 million, according to Reuters calculations.
At that rate of return, Mitsubishi Aircraft would need to sell more than 800 of the planes to cover its costs.
“Assume a very conservative 30 percent discount to the list price, then re-do. That probably brings us to 1,200 jets, and they’ll never get there,” said Richard Aboulafia, an analyst at Teal Group, when asked about Reuters’ estimate. A more realistic number, he says, would be 30 aircraft a year over 25 years, adding up to sales of around 750 MRJs.
“We understand that the commercial aircraft business is a long-term investment, and we expect to absorb the development costs over the long run,” Mitsubishi Aircraft told Reuters.
“We see this as the creation of a new industry, establishing supply chains and a regulatory certification process,” said Fukuhara, the sales and marketing manager, in his office at Nagoya Airport. “I don’t think it will end with the MRJ.”
(For graphic comparing regional jets, click: here)
Reporting by Tim Kelly and Maki Shiraki, with additional reporting by Allison Lampert in MONTREAL and Brad Haynes in SAO PAULO; Editing by Ian Geoghegan