Japan and China's Rivalry For Asia's Aviation Sector
November has been an auspicious month for Asia’s civil aviation sector, as both China and Japan debuted passenger craft launched to capitalize on Asia’s booming aviation sector.
On November 11th, Japan’s first domestically produced passenger jet in 50 years embarked on its maiden flight. The Mitsubishi Regional Jet (MRJ) from Mitsubishi Aircraft signals Japan’s efforts to restart its domestic aviation sector.
Tokyo has shouldered one third of the development costs and has nudged Japanese airlines to place 243 orders. The MRJ has also secured a 200 plane order from SkyWest, the world’s largest regional airline.
Interestingly, this test flight comes just a week after China debuted its own domestically produced liner: the C919 from Commercial Aircraft Corporation of China (Comac).
Beijing and Tokyo are both aiming to boost their economies by capitalizing on Asia’s rapidly growing civil aviation activity. Asia has become the largest growth market for the aviation sector; an industry that forecasts 41,000 new global aircraft purchases for 2015-2034, valued at $2.83 trillion.
While Boeing and Airbus maintain a global duopoly, especially on large wide-body aircraft, many smaller players, such as Embraer and Bombardier (both of whom Comac and Mitsubishi hope to unseat) are targeting the regional and narrow-body jet market, which accounts for over 60% of future growth numbers and 50% said growth’s value.
It is this target market that both the MRJ and C919 are focusing on, as regional air traffic in Asia continues its rapid growth trajectory. The main driving force behind this demand is China, which now boasts forty airlines, and a 14.1% annual airline revenue growth rate for 2009-2014, reaching $106.7 billion.
Furthermore in Q1 2015 alone, China saw a 11% increase in domestic air traffic and a staggering 57% increase in international traffic, resulting in China surpassing the 100 million passenger mark for the first time.
Tokyo eyes Chinese market, Beijing seeks domestic producer dominance
As the largest market in the fastest growing region, China is a tantalizing opportunity for Mitsubishi Aircraft. While the MRJ is smaller than the C919 (70-90 seats vs. 158-174 seats) both are targeting the Chinese market. The smaller and cheaper MRJ is hoping that pricing, lower maintenance costs, and a 20% fuel efficiency boost over current models will entice Chinese airlines. These efficiencies place the MRJ in a competitive position.
While low global oil prices are hurting the competitiveness of fuel-efficient aircraft, the greener and quieter MRJ could appeal to Chinese companies looking to capitalize on public anger regarding pollution in China. This could appeal both to environmentally conscious Chinese travellers, as well as the Chinese government. A rapidly growing aviation sector is likely to be a major polluter, so Beijing may seek to encourage Chinese firms to purchase greener aircraft to mitigate some of the ecological impact.
Conversely, Comac hopes that the larger C919 will boost domestic route passenger volume, thus generating more revenue per flight. Airlines and aircraft producers are flagship industries and sources of national pride, so Comac is likely to benefit from preferential treatment from Beijing, as the government seeks to make its debut jet liner a success. This appears to be the case as the C919 already enjoys 517 orders and options, predominately from regional Chinese airlines.
Another important factor to consider is that Chinese airlines, and Beijing in particular, are likely to have strong reservations about purchasing Japanese planes, given tensions between the two countries, and especially if said purchases come at the cost of one of China’s poster-child products.
While the MRJ and C919 are not direct competitors per se, there is potential for market overlap, depending on the growth strategies adopted by Chinese airlines. Furthermore, the MRJ does directly compete with Comac’s delayed ARJ21 (342 orders) set to be introduced in 2016, thus posing a dual threat.
Mitsubishi also has to contend with competition from Xi’an Aircraft Industrial Corporation’s MA700 (185 orders), a medium range turboprop with 70-80 seats set to be introduced in 2018. While it has a shorter range than the MRJ, its similar seating capacity and even lower operating costs could eat into potential MRJ sales, especially on the busy short and medium range routes on China’s metropolitan east coast.
Different starting points, different advantages
At first glance, China appears to have the upper-hand in the battle. Unlike Japan, which experienced a post-war domestic aircraft production moratorium, China has been developing its aircraft industry for decades. While initially producing variants of Russian military aircraft, China branched into semi-domestically produced planes in the post-Mao era.
In the mid 1990s China’s Harbin Aircraft Industry Group entered a joint venture with Embraer to produce the ERJ145. This alongside China’s home-grown military and transport planes put it far ahead in terms of product development than Japan.
That said, for all the pomp surrounding the C919, the plane is – despite its Chinese air-frame – still heavily reliant on foreign components.
On the other-hand, Japan – though lacking a commercial aviation industry – has become a major parts supplier for American producers like Boeing, building the hull of the 777 and 35% of all parts on the 787 Dreamliner including the wings.
Japan also has decades of experience producing American military aircraft under license. This experience has enabled Japan to produce large domestic military planes such as the Kawasaki C-1 and C-2 transports, and P-1 maritime patrol aircraft.
Mitsubishi Aircraft shoots Japan’s ‘risk-averse’ stereotype out of the sky
Japan’s familiarity with top-shelf American technology, robust parts ecosystem, and record of large military aircraft production will supercharge Tokyo’s efforts to create a civilian aviation sector from scratch. A good thing too, because Mitsubishi Aircraft is nothing if not ambitious, apparently having taken PM Abe’s statements against risk-averse Japanese firms to heart.
With substantial government support – as well as 10% stakes in the MRJ project from both Toyota and umbrella organization Mitsubishi Group – Mitsubishi Aircraft Corporation aims to capture 50% of the regional jet market. The company also hopes to sell some 5000 MRJs in coming years, pumping out 400 planes a year from its factory near Nagoya airport.
All this from a company that was only founded in 2008.