First Japan-Built Airliner in 50 Years Delayed for Sixth Time

(Bloomberg) -- Mitsubishi Heavy Industries Ltd. delayed the debut of its regional jet for the sixth time, raising questions whether years of investment in the SpaceJet was worth the effort.

Deliveries of the aircraft, which had been slated for the middle of this year, will be pushed back until after the fiscal year ending March 2022, the manufacturer said Thursday. It also wrote down 496.4 billion yen ($4.5 billion) for the program.

The SpaceJet represents Mitsubishi’s effort to take on Embraer SA and capitalize on growing demand for short-haul flights. The plane, the first Japan-built airliner since the 1960s, accommodates about 90 passengers. ANA Holdings Inc., the planned launch customer, has already indicated that it will seek compensation for the postponements, adding to the pressure on Mitsubishi Chief Executive Officer Seiji Izumisawa to start deliveries and recoup more than 600 billion yen in investments.

“The program has been plagued by delays from the moment they first launched it,” said Shukor Yusof, Singapore-based founder of Endau Analytics, a consultancy group that focuses on aviation. “It would be best if they just stopped the entire program and admit that they’ve failed.”

Mitsubishi Heavy said it no longer expects any profit from its business activities, and cut its forecast for net sales to 4.15 trillion yen from 4.3 trillion yen. The company is also replacing management of the aircraft division, with Takaoki Niwa taking over as president of Mitsubishi Aircraft from Hisakazu Mizutani.

Izumisawa said Mitsubishi Heavy will stick with the SpaceJet program. “The market environment for regional jets remains solid,” he said at a news conference in Tokyo. “We will continue to actively invest in research and development.”

The plane had already been deferred five times from its originally planned 2013 introduction. Mitsubishi bought Bombardier Inc.’s regional-jet business this year to bolster maintenance and marketing operations in support of SpaceJet.

But the initial model ran afoul of U.S. scope clauses, which govern the size of planes allowed to be used on certain routes. Trans States Holdings recently canceled an order for as many as 100 SpaceJets because of the clauses. Mitsubishi has said it will build a smaller, 76-passenger version, with deliveries scheduled to begin as early as 2023.

Mitsubishi is seeking certification of the plane at an uncertain time in the aviation world. The crisis over Boeing Co.’s 737 Max, which has been grounded since March following two fatal crashes, has raised questions about regulatory oversight and whether reform is needed in the way aircraft are certified.

One question is whether the delay in the 90-seater has a ripple effect that pushes back the SpaceJet 100. Ordinarily, delays of a few months wouldn’t matter a huge amount. “But we’re talking about an aircraft that has been pushed back a number of times” said George Ferguson, a Bloomberg Intelligence analyst. “The more time it takes you to get to market, the more customers will worry the 100 will have further delays. You leave Embraer out there as the only offering in the space.”

Ferguson wasn’t as downbeat about the SpaceJet’s prospects. “There’s a need for 100-seaters and 90-seaters around the world,” he said. “But that’s a smaller market than scope-clause compliant aircraft in the U.S.,” he said. “I would expect it to be much more fuel efficient, a nice product. That could be an advantage, but you have to give customers a sense the aircraft is coming.”

--With assistance from Bruce Einhorn.

To contact the reporter on this story: Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Reed Stevenson, Will Davies

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