Mitsubishi Heavy Industries will freeze its regional jet programme as the coronavirus crisis threatens a high-profile national project that was meant to bring Japan back to the global aviation market.
The suspension, announced on Friday, marks a painful retreat for the struggling industrial conglomerate that acquired Bombardier’s regional jet division and spent about $10bn over the past 12 years to take on Brazil’s Embraer and other international players.
By halting its SpaceJet project, the sprawling group will reallocate its capital to fund a shift to renewables in its mainstay energy business as big economies including Japan pledge carbon neutrality by 2050.
The pandemic has dealt a heavy blow to Mitsubishi, whose businesses extend beyond aerospace to shipbuilding, coal power stations and defence equipment.
MHI, which has more than 80,000 employees, said it had cut 2,000 jobs outside of Japan and planned to reallocate 3,000 of its domestic staff after its operating profit fell 62 per cent from a year earlier to ¥12.7bn ($122m) for the July to September quarter.
Analysts’ estimates of MHI’s spending on SpaceJet
As part of a new strategy, the group will sharply reduce development costs for the SpaceJet even as it continues to prepare documentation to get the 88-92 seat craft, known as the M90, certified. SpaceJet’s budget will be cut to ¥20bn over the next three years compared with the ¥370bn that the group spent over the past three years.
“We will temporarily pause while making preparations for the resumption of the business,” Seiji Izumisawa, MHI’s chief executive, said at an online news conference on Friday, adding that expanding the commercial aircraft business remained a long-term goal.
Still, Mr Izumisawa stopped short of ruling out a future exit of the business, saying that depended on the recovery of the global aerospace market. “How we take the business forward will depend on market conditions,” he said.
The M90 was originally supposed to enter service in 2013 but its targeted launch was most recently pushed back to 2021 after it faced repeated delays because of the company’s lack of industry experience and changes in leadership.
Since the project started in 2008, analysts estimate the company has spent about ¥1tn on its efforts to return Japan to an aviation market it was forced to abandon after the second world war.
But the costly project, which had struggled long before the pandemic, has been unpopular with investors. Shares in MHI jumped 6.5 per cent a week ago on reports of its decision to halt SpaceJet, but the stock fell 1.6 per cent on Friday after the group announced lacklustre second-quarter results.
MHI said it would more than double its three-year budget for new businesses using its carbon capturing and hydrogen technologies to ¥180bn.
But Citigroup analyst Graeme McDonald questioned the pace of change at the conglomerate, saying it remained hamstrung by legacy businesses such as coal.
“While the direction and strategy are not necessarily incorrect, it’s all about execution and speed of decision-making,” Mr McDonald said. “I’m not sure that investors will see this as a turning point.”
Analysts also pointed to apparent contradictions in MHI’s strategy. While it has pledged to focus more on energy transition, it agreed on Thursday to sell its stake in a joint venture with Denmark’s Vestas in offshore wind turbines for about €709m, well below the €1.25bn valuation pegged by analysts.
MHI said the deal, which also involves the acquisition of a 2.5 per cent stake in Vestas, will help the business better compete against rivals General Electric and Siemens, but investors have questioned its timing.