Mitsubishi’s airplane gambit

Posted May 12, 2008

“The potential payoff is hefty enough to warrant the risk. Such key global trends as rocketing fuel prices, soaring global travel, fast growth in Asia, Latin America and the Middle East, and ongoing problems with major air carriers across the world are stoking worldwide demand for efficient, economic regional jets.” — William Patalon

by William Patalon

Baltimore – (TFN): It’s one of the biggest product-development programs in Asia right now, and it could easily determine whether Japan remains a global industrial powerhouse - or limps into the future as an international has been.

More than 30 years after Japan’s only airliner program since World War II ended as a commercial failure, the country is making a multi-billion-dollar bet that it can succeed in the jetliner market.

Japan’s Mitsubishi Heavy Industries Ltd. (MHVYF: Pink Sheets) has unveiled a plan to develop a “regional” jetliner for use by airlines all around the world. The controversial project gained global credibility in recent weeks after analysts began to speculate that Toyota Motor Corp. (TM) - the world’s No. 1 automaker by sales - would join the development team. Toyota subsequently confirmed its involvement, announcing plans to take a 10% stake in the venture and injecting $67 million to help get the initiative off the ground. The Japanese government is backing the program.

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It’s a big gamble for Mitsubishi and its partners: The regional airliner market is right now dominated by Bombardier Inc.(BBD: Toronto), of Canada, and Embraer (Empresa Brasileira de Aeronautica SA) (ERJ: NYSE) of Brazil. And firms in both Russia and China - each with a major U.S. corporation as a partner and copilot - already have targeted this market, and have a solid head start on the Mitsubishi team.

Still, the potential payoff is hefty enough to warrant the risk. Such key global trends as rocketing oil prices, soaring global travel, fast growth in Asia, Latin America and the Middle East, and ongoing problems with major air carriers across the world are stoking worldwide demand for efficient, economic regional jets. And that demand could persist until 2030, many experts predict. Read on to learn whether Mitsubishi’s project (and stock) is worth the risk.

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