Japanese industrial giant Mitsubishi Heavy Industries (MHI) said it will slow development of its new regional airliner, the SpaceJet, as the plane’s near-term prospects are dimmed by the coronavirus-driven aviation downturn.
Further delay of the ambitious SpaceJet, already eight years behind schedule, puts on hold the project’s future and hundreds of jobs in Washington state, where the initial model of the jet, the M90, was being flight tested.
Announcing MHI’s financial results Monday for the fiscal year ended March 31, CEO Seiji Izumisawa said a detailed review of the SpaceJet schedule is under way.
“Because of the COVID-19, we are not quite sure. We do not have the final plan for that,” he said.
He indicated even more uncertainty around a planned second model, the M100, sized smaller for the U.S. market.
The development of the still-on-the-drawing-board M100 model was expected to keep flight tests going at Moses Lake for many more years. After that, there was a possibility of a U.S. manufacturing plant for the M100, with Moses Lake a potential site.
But the Japan Times reported Izumisawa said at the briefing that M100 development is now suspended and under review — with Mitsubishi facing the prospect of many airlines being reluctant to buy new planes for years to come.
Jeff Dronen, a spokesman for Mitsubishi Aircraft Corp., the MHI subsidiary developing the SpaceJet, said via email that since Monday’s presentation in Tokyo, SpaceJet’s “program leadership have been busy determining the effect on company and program operations, and evaluating our options.”
“We hope to have a clearer picture soon,” he added.
The results disclosed Monday show the Space Jet draining MHI’s money, with development costs of $1.3 billion in the last fiscal year, plus a $1.1 billion write-off to cover the building of additional prototypes and flight testing after a major redesign of wiring systems. The year before, the project’s development costs were $792 million.
To stanch the bleeding, Izumisawa said “it is important to set an appropriate budget (for the SpaceJet) considering the challenging financial headwinds for MHI Group as a whole.”
Setbacks and delays
At the Paris Air Show in June just last year, Mitsubishi had great hopes for revamping its fledgling jet program. It announced a complete structural redesign for the smaller M100 second model and the new SpaceJet branding for what was formerly the Mitsubishi Regional Jet.
However, in February, the program received another setback when certification of the initial M90 version was delayed and its entry into airline service pushed out another year.
With that, the cost of Spacejet for the year spiked to $2.4 billion. The following month, Mitsubishi suspended flight testing at Moses Lake to help contain the spread of COVID-19 and delayed the ferry flight of the sixth flight test plane from Japan.
That jet was the first one equipped with substantially redesigned systems from a wiring redesign and is crucial to completing the flight test certification.
At one point, the SpaceJet program supported 400 jobs at Moses Lake and a further 200 jobs in Seattle at Mitsubishi’s partner AeroTEC, which provides testing, engineering and certification support. The slowdown in the flight test and certification schedule has already cut many of those jobs.
In an interview, AeroTEC chief executive Lee Human said the Seattle-based engineering work is mostly complete and only about 20 of his engineers now support the program at Mitsubishi Aircraft Corp.’s U.S. headquarter in Renton.
He said he’s been expecting Mitsubishi to soon restart M100 test flights at Moses Lake, but that his firm’s work on that end has dwindled.
He said at Moses Lake, AeroTEC is instead focused on a Rolls-Royce project to refit a used 747 to carry test engines and another for startup MagniX to install an electric motor on a Cessna Caravan for an upcoming electric-powered flight.
Mitsubishi Aircraft did not respond to requests for information about the size of its own workforce at Moses Lake.
Though aerospace as a whole made up only 8% of MHI’s total revenue last year, the SpaceJet project alone wiped out all profit from its many other manufacturing sectors, including power generation and industrial infrastructure, to produce an overall loss for the fiscal year of $275 million.
For the coming fiscal year, in a separate coronavirus hit to MHI’s strained finances, Boeing’s pandemic-driven production cuts will reduce the company’s revenue from making fuselages and wings for Boeing jets by up to 30 percent, MHI projects.
In the year ahead, MHI projects spending between $1 billion and $1.2 billion more in developing the SpaceJet. That’s just down from the $1.3 billion development costs last year.
And although it plans to reduce fixed costs by more than $400 million, MHI projects a further COVID-19 hit to its overall business of $1.3 billion, that together with the SpaceJet development costs will zero its annual profit.
That’s MHI’s bleak outlook now. If the effect of the coronavirus proves longer or worse than currently hoped, further adjustments to the projections and to the future of SpaceJet may be necessary.