Wednesday, September 06, 2006

Japan on the highs - success from auto, now to aircrafts...

BW Uncut

The Japanese government is planning on building the country's first passenger jet in a JV with Mitsubishi Heavy Industries Ltd. This is Japan's first entry into the lucrative commercial aircraft market primarily dominated today by U.S based Boeing and Europe's Airbus, although Japanese manufacturers have been supplying Boeing with aircraft parts now for decades. It is another classical case of forward integration in the value chain, that Japan is entering into, as it did a few years back in the auto industry.

Here are some details of the proposed airliner -
* 72 and 92 seat versions
* enter service in 2012
* Led by Japan's Ministry of Trade, Economy and Industry
* Project costs $1.03 billion estimated, to start with I guess
* Aims for 20% more fuel efficiency
* Between 50 and 100 aircrafts are expected to be manufactured and sold each year
* Mitsubishi believes that they need to sell around 350 - 600 aircrafts to be profitable

A few questions to ask at this point are -

* The Japs can definitely build it in a more cost efficient manner than the U.S and Europe counterparts - this has been proved time and again in the auto industry, but by how much here?
* Will their advantage of non-unionized work force hold good even here, becuase that is one of the chief issues faced in the U.S today
* Each passenger jet deals with carrying around 70 lives - will a new entrant achieve credibility, if so how soon? I think it is difficult and might take a lot of time for them to turn profitable hence.
* My most serious concern, what will the be the adoption rate, i.e., how many airlines will want to stop usage of their historical A380s and Boeing 747s to invest in the new Japanese passenger jets, although an NPV calcualtion taking into account the fuel economization, would favor the Jap jets
* How will Boeing and Airbus react to this? They've been the two 800 pound gorillas in this industry and there's been severe competition between them already.

We all know very well what happened to the GMs and Fords of the U.S after the entry of Toyota. Are we in for something similar? Well, let's wait and see.



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