Mitsubishi moves would make a lot of sense

By Bryan Corliss

Analysis

June 11, 2019, © Leeham News: © — A deal by Mitsubishi Heavy Industries to acquire the CRJ program from Bombardier would make abundant sense for Mitsubishi Aircraft Corp –  taking a struggling competitor off the board, acquiring hard-to-find human capital assets, and taking over an established North American American supplier network and a global product support system.

And recent unconfirmed reports that MITAC also is considering a North American final assembly site would make a lot of sense for a company that’s looking to cut production costs – and get closer to some likely key customers.

Yet while everyone in the industry is talking about the potential links between MITAC and the Montreal-based CRJ, nobody’s saying much about the company’s future in Moses Lake (WA). But overlooking Mitsubishi’s growth over the past two years there would be a mistake, because the company certainly is acting like it intends to plant roots there in the Eastern Washington farm country.

  • A North American assembly site would bring significant savings;
  • Mitsubishi and Bombardier already have close ties; and
  • Signs point to MITAC settling in at Moses Lake for the long haul.

Yen, dollars and sense

On May 29, Nikkei Asia reported that MITAC is contemplating a name -change for its proposed MRJ70 project (to “SpaceJet”), and is scouting for an increased number of US suppliers and – potentially – even a US final assembly site.

Say what you will about the rumored name, but the other two notions make a lot of sense.

Airbus is assembling A220s in Alabama because US labor costs are lower and there’s a competitive advantage in having final assembly close to major customers.

If the Nikkei Asia report is accurate, MITAC is seeing things in a similar light.

In Japan, more than a quarter of the population is older than age 65, according to the World Economic Forum. There’s a significant shortage of workers in the country, to the point that retail giant Seven-Eleven Japan has backed away from a previous commitment to keep stores open 24 hours a day, the Japan Times reports.

The worker shortage has driven wages steadily higher. As a result, Japanese aerospace engineers are paid more than 75% percent more than their US counterparts, according to our online research. Pay data wasn’t readily available for aerospace touch labor but comparing wages for automotive assembly workers shows the same result – almost 75% percent higher pay.

Canadian Loonies

The advantage is even greater if production moves to Canada, because the Loonie (C$1) is at roughly a 75%-percent exchange rate to the US dollar.

So, on labor costs alone, it makes abundant sense for MITAC to source more North American parts – and potentially have final assembly work across the Pacific as well.

In addition, US carriers make up the lion’s share of buyers for current-generation regional jets. It will make a lot of sense – particularly in the early years of the SpaceJet program – for MITAC to be close to customers.

One more thing – Bombardier may only have about 50 more CRJs on its books, but the plane could provide an interim solution to airlines who need to replace their aging regional jets now, not in 2023 when the SpaceJet enters service in any kind of numbers.

Much as Boeing offered airlines deals on 767s as “interim lift” during the early years of the 787’s teething pains, MITAC could offer airlines a combination of CRJs and MRJs in deals to address their short- and long-term fleet needs.

Connecting flights

In addition to the numbers, there are qualitative advantages to a Mitsubishi-Bombardier tie-up that may be harder to add on the spreadsheet, but would no doubt bolster the bottom line.

As many have noted, Bombardier’s CRJ program has the kind of human capital that MITAC lacks, in terms of customer fleet support, marketing and management.

Taking over the CRJ program also would jump-start MITAC’s efforts to establish a North American supply chain.  Supplier relationships already exist, making the contracting and retooling tasks that much easier.

In addition, the broader Mitsubishi already has insight into Bombardier’s culture in that it’s a Tier 1 supplier for Bombardier’s Global Challenger business jet series.

Finally, key members of MITAC’s senior management team – including Chief Development Officer Alex Bellamy and Vice President of Flight Test Operations Chris Anderson – worked at Bombardier before joining Mitsubishi. The Mitsubishi-CRJ acquisition, in that sense, would be a deal to reunite former coworkers who are some of the world’s most-experienced experts in the regional jet space

Site selection

The question would be where to put final assembly?

Obviously there will be tremendous incentive, – cash and otherwise, – to keep production at Mirabel. Last year, Bombardier announced plans to slash 3,000 Canadian jobs as part of a global restructuring of its aerospace business; over the past three years, it has eliminated more than 14,000 jobs globally.

Just yesterday, Reuters reported that Quebec’s economic ministry won’t invest in the CRJ program, but it is interested in saving jobs. If MHI buys the CRJ program, Quebec may rethink its position to provide support for a transition for an MRJ final assembly line to supersede the CRJ.

Bottom line: It would make a great degree of sense to retool the Mirabel plants to handle MRJ final assembly, utilizing the existing workforce and that aforementioned established supply chain.

Other possible locations

But speakers at last month’s I-90 Aerospace Corridor Conference in Coeur d’Alene (ID) made some compelling arguments for why their region – centered on Spokane (WA), but stretching along 300 miles of the Interstate 90 highway from central Washington to western Montana – is poised for growth in aerospace.

The region around Spokane already represents the fifth largest aerospace cluster in North America, according to Todd Woodward, the marketing director at Spokane International Airport. There are more than 100 suppliers – mostly Tier 3 and 4 shops, but also some major players like Triumph Composites and Collins Aerospace – who provide everything from interiors to aerostructures to painting.

The I-90 Corridor is close to the cluster surrounding Boeing’s plants in Puget Sound, but it’s a world apart in terms of cheap land, electricity and especially labor, Woodward said.

Average hourly pay in Spokane county is $20.73 an hour, according to the state’s Department of Employment Security, compared to an average of $31.12 an hour in King County, where Boeing Commercial Airplane has final assembly, fabrication and administrative facilities.

The region also is home to five universities that produce engineering and business school graduates that companies need, Woodward said.

Moses Lake, I-90’s western frontier

MITAC has settled in Moses Lake, the western edge of this corridor, and it’s reaping many of those benefits.

Average pay in the county surrounding Moses Lake is even lower, at $17.72 an hour, and the town is home to Big Bend Community College, which is home to a aircraft maintenance training school where flight test mechanics can earn their Federal Aviation Administration certification as airframe and powerplant technicians. It also has a school to train commercial aviation and drone pilots.

Moses Lake and the Inland Northwest also have an increasingly rare precious commodity: – wide-open airspace, said Steve Chrissman, the manager of Eastern Oregon Regional Airport at Pendleton (OR).

“Empty air space is a new diminishing natural resource,” Chrissman said. His airport (140 miles south of Moses Lake) has become a year-round flight-testing base for six drone manufacturers, including Yamaha. Six other companies sent teams to town regularly for flight tests.

There’s so much activity that the community has decided to invest $13 million to build a business park for the UAS manufacturers, Chrissman said.

“We’ve had 50 to 100 people year-round, making $50 an hour, staying at hotels, shopper and eating in restaurants,” he said. “Now, they’re starting to buy houses.”

Overall, conference speakers claimed that the I-90 region has almost all of the benefits of the Southeast United States, in terms of cost, with the added bonus of being close to Boeing and the Puget Sound cluster, and having access to the job-training pipelines established to feed workers to the aerospace giant.

Planting roots

The Pacific Northwest Aerospace Alliance recently gave MITAC the group’s annual Inspire Award, citing the company for its efforts to spark interest in the aerospace industry.

Within its first year of setting up shop in Moses Lake, MITAC had invited 600 ninth-graders to tour its facilities as part of a STEM education enrichment program. The company also is funding vocational scholarships at the community college, according to PNAA. And the company has hosted Japanese music and cultural events.

Moses Lake has a long history with Japanese aerospace, having hosted Japan Airlines flight crews training on Boeing 747s for decades. Interestingly, this 23,000-person farm town in the middle of a county that voted 65% percent for President Trump has competing sushi bars. (Locals on Yelp tend to favor Samurai Steak and Sushi. If you go, they say, try the Cowboy Roll, which is spicy crab meat and avocado wrapped in rice, topped with seared filet mignon, scallions and a mix of eel sauce, spicy mayo and sriracha – so, basically surf-and-turf with a Tokyo twist.)

What does this all add up to? Frankly, while it’s not impossible, it’s hard to see MITAC (or any other OEM) putting a final assembly site in Moses Lake. 

MITAC is gearing up for a major push to train pilots on its new MRJs, Bellamy told reporters after the company held a grand opening for its new US headquarters in Renton (WA). One simulator is in place, and a second will be installed shortly.

But Mitsubishi will likely be flight-testing in Moses Lake (first MRJ90s, then SpaceJets) for at least the next five years, and it’s easy to project that after that, the company would want to retain the Moses Lake facility as a flight crew training center, similar to the ones Boeing operates in Miami and elsewhere around the globe.

That would mean a long-term presence in the skies above eastern Washington’s farm country, and on the ground, teams of mechanics, spares and logistics personnel, simulator techs, trainers and translators, all of them buying homes and cars and Cowboy Rolls.

 

 

 

42 Comments on “Mitsubishi moves would make a lot of sense

  1. Agree.

    Taking back a step, dissolving the BBD CRJ world, firing good people, selling assets, slowly taking apart a global support network, for MHI to slowly & painfully start building it up at the same time, seems a waste of time & money. MHI fighting an uphill battle to get a slice of the regional market.. maybe buying half of it ain’t a bad idea.. concluding this we see the BBD shares / CRJ product-line price going up..

  2. Mitsubishi also does CRJ fuselage section for Bombardier
    Not surprising as they are essentially the same part on the Global business jets.

    • No they don’t since about 10 years. Rear fuselage section made by MHI has been transfered to RUAG

      • Thanks for that .
        RUAG a Swiss company, with plants mostly in Switzerland and Germany has put the small Dornier 228 ( 19 passengers) back in production from around 2010.
        Good to see a structures builder involved in full production of a small plane

  3. Is MHI (MITAC) only interested in the CRJ program? BBD has still 31% of the (CS)A220, things could get interesting.

    • You are right, but they would probably need approval of the biggest shareholder, who might not immediately hold off, but have longer term ideas on the <120 seat segment too. Interesting indeed.

    • Airbus won”t let Mitsubishi buy back the Bombardier .airbus will buy back Bombardiervas soon as posssible to have full control of the program. Plus Bombardier woudn”t want to get Airbus angry. Once Airbus take full control Bombardier will still be a tier 1 supplier for the program. They buil the cockpit and other sections of the A220 in st -laurent for plus the have workpackage for the A330 also in st-laurent forcthe last 20 years at least.

      • Airbus & MHI are not competing at this stage. Boeing Brasil/ Embraer is the biggest, strongest competitor. The MRJ and CRJ’s are below 100 seats. The A220 starts at 120. ATR is a different segment. Maybe MHI & Airbus becoming longer partners is a win win..

  4. Mitsubishi’s largest aerospace facility in North America is actually in Toronto, Ontario where they make the wings and centre section for the Bombardier Global 5000/6000 business jet assembled in Toronto and the wings for the Bombardier Challenger 350 assembled at Montreal-Dorval which were both previously made by MHI in Japan until “onshored” to Canada. The factory uses high skilled workers and is highly automated and MHI is currently increasing building a large addition to pursue new wing or fuselage work for its flexible assembly line. Most people forget that Toronto was where the wings for every Douglas DC-9/MD-80/DC-10/MD-11 and Boeing 717 were designed and built for the Long Beach assembly line.

    MHI was also the original supplier of the fuselage and tail of the Bombardier Q400 in Japan until this work was moved to AVIC iin China when it was gearing up to build the wings for the 787.
    And there has been talk of locating a MRJ service center in Toronto.

    The breakup of Bombardier Commercial Aircraft offers MHI opportunities to work be a new supplier or partner on the A220,
    Q400 or the CRJ or even become a second wing source for the A320/321.

    • Thanks Ken.

      News on an MRJ-X with 75 seats and MTOW of <86KLb and an A321XLR could be enough to make Paris 2019 worth something to look forward too.

      • Nah

        Its all just a repackaging of existing products on the shelf …unless its a carbon wing A321XLR called A322

  5. Moses Lake is also in the ashfall zone from at least 5 active volcanoes. There can be natural disasters anywhere on the North American continent but generally the aftermath is “clean up, shore up, and carry on”; 5-10 cm of volcanic ash could ruin any work in progress and render the entire area unfit for aircraft manufacturing for a long time.

    • Well where is safe?

      Fires abound, tornadoes, quakes, tsunamis etc.

      How likely is St Helens to go boom in the next 40 yrs?

      Charleston – hurricane prone

  6. How about Mitsubishi buying the shorts factory?Japanese car companies are pulling back a bit from the UK but generally they have been reliable long term investors.

    • Grubbie – ‘Japanese car companies are pulling back a bit from the UK but generally they have been reliable long term investors…’
      Yes, such has been their investment that where there used to be three airfields, there are now three Japanese car plants: Honda at South Marston (formerly Supermarine), Nissan at Sunderland (previously the municipal airport), and Toyota at Burnaston (the last licensed airfield in Derbyshire…).

  7. Airbus is getting a lot of pats on the back due to the success of the A321 and Boeing’s recent troubles. But things do not stand still in this business for very long. Look at the Raytheon and the United Tech merger for one? With Boeing looking down the road and hooking up Embraer, Airbus is just casually sitting back and possibly resting on its laurels. Instead of buying Bombardier’s commercial aerospace, their watching it being sold off in pieces to possible future competitors: the regional jets, wing factories, etc.,… Boy, are they being short-sighted.

      • I understand prudent business decisions, but Airbus might be letting the horse out of the barn, too. The whole A220 operation from the wing factory to the final assembly lines could well be worth billions of dollars. The majority of airline passengers world wide are transported by technology from the 1960s through the 1980s. That’s why Boeing was trying to kill Bombardier. If the CSeries plane was successful, Boeing would have to build an NSA for, oh, with their mismanagement style – 22 Billion???

  8. I would guess Moses Lake was planned back when Boeing was going to be the MRJ support partner. Back before Boeing wooed and won Embraer. If Mitsubishi joins up with the CRJ organization staying in Moses will be like keeping the condo in your ex’s building while your new squeeze lives across town…. you can argue it is a great investment with hardwood floors but understanding may be in short supply.

  9. I think the claim that Bombardier ex-employees brought intellectual property with them to MITAC could also be resolved by a linkup like this.

  10. Bombardier will leave or not leave commercial aviation? Why not offer a partnership to the Japanese? 60% / 40% type? It is in the nature of Alain Bellemare to reduce financial risks, first, before liquidating assets, then. Moreover, as he is very sensitive to the political nature of Quebec, the pride of Quebecers, the history of Bombardier, it would be to his advantage to keep jobs in Quebec by signing, first of all a partnership with MHI , even if it means reselling a 40% stake in a few years once MHI has culturally integrated the Bombardier CRJ sector. In addition, the Quebec government would no doubt be open to financially assisting MHI. Find intellectual capital, highly skilled workforce, capitalize on a sociopolitical network of sellers / customers, avoid hidden costs in learning curve, trial / error / experiment, in short to capitalize on competitive advantages immediately available , impossible to find anywhere else in Montreal …

  11. Whether or not buying the Bombardier CRJ sector, MHI must answer this question: 5 years or 10 years? Five years to become a regional aviation champion or ten years to be relegated to a last-ditch role when Boeing will have fully leveraged its immense sales and engineering power in Embraer’s current E2 programs. Any university student in business strategy would be able to conclude a cost / benefit analysis that the Japanese must imperatively get their hands on the CRJ program. Naturally, the answer will be long in coming because it is easy for Bombardier’s experts to make an accounting of the hidden costs saved by MHI by buying the CRJ program and therefore, tangible and intangible assets can easily exceed $ 1 billion. , everything will depend on the value given, precisely, to these immaterial assets …

    • Time is not the MRJ’s friend, can’t see it being produced in any significant numbers in the next 5 years and that could be what airlines are worried about. That’s why the CRJ900 still has life left in it.

      Many says the US scope clause/s will never change but if its does the E175E1 could be the aircraft of choice? With BA looking after its interests who knows. Maybe a 2 Tier Regional Pilot arrangement, <86Klb (CRJ's/MRJ-X) and 86-100Klb (E175E2)?

      Currently the ATR72 is doing/selling well but can't see them just sitting around. The Q400 is fading away so there is a gap in the 80-100 seat prop market but its of limited size, also the E190E2 for example is a great aircraft to replace Q400's with.

      Still believe the 50-80 seat market is big enough for a new CRJ200-700 size aircraft with new 10-12Klb engines?

      https://www.flightglobal.com/news/articles/insight-from-bombardier-climbing-fast-458811/

    • E2 is much heavier than MRJ.
      No leverage can change that when you look at the fuselage cross section. Why buy a heavier plane with the same engines, same sort of FBW, same fuselage width.
      E2 and Boeing are more interested in the 110 – 145 seater market to compete with Airbus.
      The difference this time is Bombardier and Embraer were financial minnows compared to an industrial giant like MHI- yes they make power stations, trains, tanks ,fighter jets, ships of all sorts including cruise ships and submarines as well as a big airframe parts supplier.
      They are 4 trillion yen turnover , say $36 billion.

      • The E195E2 at 41m is already longer than an A223 and 738, so they will need a new 5 or 6 abreast fuselage aircraft to go 140 seats and this could take 5+ years?

        Maybe BA could make the E195E2 with 5 abreast (15″) seats and 15″ aisle, only 1.8″ narrower than on an 3-4-3 B777, and its short haul.

        By the way, an A220 could go 3-3 with 16″ seats and 15″ aisle?

        • Embraer claim seating of 120/132/145 for 3,2,1 class respectively.
          US main carriers are really only ones doing 3 class, to be compatible with their larger planes.

          132 seats is OK for a plane of this type, especially all those existing E jet users

  12. Let’s say it again: Bombardier is about to finish an important chapter in Canadian aviation history. Paleanthologists have always told us that every form of life is doomed to extinction. What we have to celebrate is that Canada remains and will remain a powerhouse of the global aviation industry for a while, and it is to this industry that all Bombardier nostalgic people will have to turn. Therefore, if the Trudeau government is still serious about its industrial ambition to make Canada a key player in aerospace manufacturing, it must be proactive and immediately courte MHI. Without further delay. While ignoring the large number of anti-Bombardier supporters in English Canada …

    • International trade rules say they can’t just shovel buckets of money in that direction . What’s the chance of Boeing -Embraer taking legal action over that?

      • If an MRJ-X makes the US Scope clauses can see BA running to the White House very quickly?!

        • Has nothing to do with White house.
          It’s the pilots unions and airlines…if you think getting wall money by you -know- who was hard…this is harder.

          • They will try something/anything to stop the MRJ, let airlines buy the E175E1 (which is still a good aircraft).

            BA will go ballistic if the MRJ lands up being an A110, and the C929 an “AC929”?!

          • They will try something/anything to stop the MRJ, let US airlines buy the E175E1 (which is still a good aircraft).

            BA will go ballistic if the MRJ lands up being an A110, and the CR929 an “ACR900”?!

          • I think Boeing were more worried about the MC21 having a final assembly line in Brazil as the E210

  13. “Overall, conference speakers claimed that the I-90 region has almost all of the benefits of the Southeast United States, in terms of cost, with the added bonus of being close to Boeing and the Puget Sound cluster”

    Not sure how important it would be, but one thing the Southeast would give that Moses Lake wouldn’t give much of is political cloud.

    A large employer in aviation in Mobile Alabama, likely can pull some strings in Alabama, Mississippi, and possibly Florida and Louisiana because of a decent amount of employees likely to be living there and would indirectly have influence in DC (Alabama and Mississippi representatives would fight for jobs at stake)

    An equal sized employer in aviation located in Moses Lake would have near zero political cloud in DC if Boeing opposed it.

  14. Ironic that Mitsubishi is taking advantage of infrastructure that developed to serve Boeing.

    Like Airbus is in the SE US.

    Such is life.

  15. I wonder about culture difference between Japan and Montreal/Quebec, including forced education of children in French and junior jackboots looking for business signage in other than French.

    Though both fiefdoms subsidize manufacturers, and some Bombardier production is in Ontario. (Dash 8 airliner but that’s been sold to Viking Air, could speculate that Mitsubishi would be interested,

  16. In the long term currency exchange does vary, decades ago Canadian was at a large premium to US, but I don’t see that happening soon because of eco-activists conning politicians into blocking development and export of resources.

    Note Japan has long been outsourcing automotive assembly touch labour to SE Asia, while building sophisticated high-tooling fabrication items like engines and transmissions in Japan.

  17. Elsewhere, in a much smaller market type,
    https://www.avweb.com/aviation-news/business-aviation-news/daher-acquires-quest/.

    The Quest is one of several serious turboprops with high wing, often used with floats to operate from water. Big market in Alaska and perhaps in undeveloped locations around the world.

    (Missionaries like such aircraft, perhaps only a modest market of them. Fishing and sightseeing is a major use in AK and BC, Harbour Air and Kenmore Air have fleets of turbine Beaver and Otter aircraft. (The turbine really makes an airplane out of the single-engine Otter.))

  18. “Airbus is assembling A220s in Alabama because US labor costs are lower and there’s a competitive advantage in having final assembly close to major customers.”

    Airbus is assembling A220s in Alabama because Boeing played a ‘buy American’ game and Airbus already had a facility in the US because of USAF tanker politics.

    The stupids of Boeing lost, now are struggling to adopt Embraer’s airliner capability. (Oddly, does Embraer build airliners in the US? It has facilities in FL, and has business jet it recently updated. Brazil should have lower production cost but veered toward Marxism and has recently had corruption problems at high level – good to get a second facility as backup when your home is unstable.)

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