A dark cloud is hanging over the future of the Mitsubishi Regional Jet (MRJ). Japan’s first homegrown passenger jet is expected to find itself in intensifying competition following two tie-ups between its competitors and Western aerospace giants, as MRJ’s fuel efficiency edge weakens with the lull in the rise of crude oil prices.
In late December last year, it came to light that U.S.’s Boeing and major Brazilian small passenger aircraft manufacturer Embraer were negotiating a tie-up. A senior official of Mitsubishi Heavy Industries (MHI), the developer of the MRJ, deplored, “I was surprised. [An alliance between these two companies] could have a major impact. We will watch the situation closely.”
Leading Canadian small aircraft maker Bombardier also announced in October last year that its small jet business will go under the umbrella of Europe’s Airbus. Boeing and Airbus dominate the mid- and large-sized jet markets, and Embraer and Bombardier control roughly 80% of the small jet market in the aircraft industry. The planned tie-ups may consolidate the aircraft industry into two groups.
The MRJ is poised to make inroads into the small jet market with an eye to avoiding competition with big Western aircraft makers. But if its two competitors join hands with leading Western aircraft companies, the MRJ will be forced to fight an uphill battle because the partnerships will allow the two small jet manufacturers to take advantage of their parent companies to lower parts procurement costs and expand sales networks. A senior official of Japan’s Ministry of Economy, Trade and Industry (METI) worries, “The MRJ won’t be able to compete especially in terms of marketing.”
The MRJ received an order from All Nippon Airlines (ANA) for 25 aircraft in 2008. It later signed a contract with U.S.’s SkyWest, which ordered up to 200 of the aircraft, and Japan Airlines (JAL), which asked for 32 planes, securing orders for 447 units (including basic agreements).
But the delivery of the MRJ has been delayed five times and the first delivery to ANA, originally planned for 2013, was delayed more than seven years and is expected to take place in mid-2020. Prolonged development has prevented the MRJ from receiving new orders since July 2016. The jet touts it uses at least 20% less fuel than conventional aircraft. But crude oil is currently trading at $50 to $60 per barrel, a decline of about 50% from what it was from 2011 to 2014.
Amid that situation, Eastern Air Lines of the U.S., which placed an order for up to 40 MRJs, was bought out by compatriot Swift Air in June 2017 due to a slump in business. Swift has announced its intention to use only large-sized aircraft. MHI President Shunichi Miyanaga says, “(The contract with Eastern) will probably be rescinded,” suggesting a cancellation. He denied the possible cancellation would have spillover effects on other contracts. But one aviation consultant takes a harsh view of the situation, saying, “Currently there are not many cancellations because customers receive a payment from their contract counterpart if delivery is delayed.” (Abridged)