Can Asia Compete for Regional Airplanes?

The year 2017 is shaping up to be a banner year for commercial airplane makers. Boeing and Airbus, makers of the “big jets,” will introduce new models this year, as will the two big makers of “regional” airliners Brazil’s Embraer and Canada’s Bombardier. Into this busy mix come two Asian aircraft manufacturers, one in China and one in Japan, looking to find profitable niches.

Japan’s entry is the Mitsubishi Regional jet (MRJ), the first passenger jet that Japan has designed and built in more than 40 years. Its makers hope to be able to compete in a market that has traditionally been dominated by the duopoly of Canada’s Bombardier and the Brazilian Embraer airplane makers.

However, both of the regional jet makers have shown interest in moving out of the 90-seat regional market to higher levels. Brazil’s new model has 132 seats, while Bombardier’s new jet seats 160, nearly twice as many Mitsubishi and the Chinese ARJ-21. That provides opportunities for new entrants.

Regional passenger jets are those seating 100 passengers and flying routes that do not require more than a couple hours of flying time. When Mitsubishi moved four jets to the US for inspection last fall, each plane had to make three refueling stops on the route from Nagoya to Moses Lake, a town in an arid part of Washington state that has been used by Japanese airlines for many years as a training base because it has so many clear days.

The Mitsubishi Regional Jet (MRJ) is undergoing stringent safety tests in Washington, seeking a certificate from the Federal Aviation Administration, which would allow Mitsubishi to sell airplanes in the US, certainly the world’s most desirable market for aircraft.

The only other entry into the regional jetliner market is the ARJ-21, which made its maiden flight in June, flying from the central China city of Chengdu to Shanghai. Unfortunately, the only way to fly on a Chinese aircraft is to go to China and find one of a handful of routes that the ARJ-21 now services. Very few orders have come from outside China, since it has only been certified safe in China itself. Potential export clients have been limited to a handful of Asian countries such as Laos and Myanmar that accept China’s certification.

So far Mitsubishi has collected a respectable number of outright orders and options, starting with its launch carrier, the Japanese All Nippon Airways (ANA), which has remained loyal to Mitsubishi even as delays have put off the date to operate the jet as far back as 2020.

The Chinese entry is ahead of that count, but it doesn’t provide much competition even through it is the cheaper of the two jets, selling for US$30 million versus US$47 million for the Mitsubishi plane. But Mitsubishi has potential access to a much wider market for jetliners once it can be certified to meet the FAA’s rigid safety requirements.

Japan used to be innovator in aviation. The locally designed Zero was considered the world’s best fighter until the last stages of World War II. For a time the American occupation forces banned Japan from making any kind of aircraft, even peaceful passenger liners. That ban was not lifted until the occupation ended in 1952.

Japan hasn’t built its own airplanes for 50 years, when it did produce a small passenger plane, which was one of the last planes powered by turboprops instead of jet engines. They stopped making them some 40 years ago.

For Japan the MRJ is not just another aircraft. It is a symbol of national pride, proof that Japan Inc. can still make world-beating airplanes in the same way they made world-beating automobiles and electronics.

The Japanese companies do have a long history of manufacturing sophisticated parts that go into the making the planes of major foreign airlines, such as Boeing, with which Japan Inc. has had long partnership. It has considerable expertise, for example, in making good, lightweight composite materials that help lower fuel consumption and costs.

But making parts to be assembled into working aircraft abroad wasn’t satisfying enough. “We want to take things further to become a real jet maker,” said Yuji Sawamura, a spokesman for the Mitsubishi Aircraft Company.

So far the new jetliner hasn’t raised the wrath of America’s protectionist new administration in the same way as Japan’s automobile makers did. These days all major Japanese companies are scratching heir heads to show that they can invest in jobs-producing enterprises in the US.

The president of Mitsubishi Heavy Industries, the parent company of the airline maker, said at the Davos conference that his firm wants to increase its American workforce to 20 percent of its total. “We won’t hesitate to invest more money in the US,” said Mitsubishi president Hideaki Omiya.

Mitsubishi Heavy Industries makes and sells every thing from forklifts to steam turbines. US sales accounted for 17 percent of revenues as of March 2016 compared with 9.4 percent the previous year, he said.

For years, though, Mitsubishi has been plagued by delays and cost overruns. The first test flight took place in 2015, three years behind schedule. The first delivery has been scheduled for early 2014 is now expected to take place in 2020. Development costs have tripled to more than $5 billion.

Mitsubishi’s customers have remained loyal despite the more recent delays.

“We remain confident of the benefits that the MRJ will bring to the ANA fleet,” said the company in a statement.

Despite the delays, Mitsubishi has built a fairly impressive order book. ANA was the first customer and the largest is the American SkyWays airline, which has ordered 100 with options for 100 more. Iran, eager to upgrade its commercial airline industry, following years of sanctions, and frozen bank accounts, has also indicated interest in the MRJ.

Mitsubishi has booked 447 orders, sales and options so far. If selling 1,000 aircraft to be the benchmark for success in the airplane business, it would seem that Mitsubishi, despite the delays, is already halfway there.