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Aerospace & Defense

Mitsubishi Heavy expects coronavirus to wipe out profit

Test flight for Japanese aerospace company's SpaceJet aircraft delayed

Mitsubishi Heavy's SpaceJet program has faced multiple delays as the company shifted from trying to develop a large passenger aircraft to a smaller one. (Photo Courtesy of Mitsubishi Heavy Industries)

TOKYO -- Mitsubishi Heavy Industries expects no profit this year, after the Japanese group's aviation business was hit by the novel coronavirus and plunging demand for air travel.

The company will just about break even for the year ending March 2021, Seiji Izumisawa, Mitsubishi Heavy's president, said Monday. It also fears another snag in its SpaceJet program after a U.S. flight test for the passenger jet was postponed by the coronavirus outbreak.

Izumisawa said the coronavirus alone would wipe out 140 billion yen ($1.3 billion) in operating profit in the current fiscal year. That is roughly two-thirds of the operating profit the company generated in the just-ended fiscal year, excluding one-off factors.

The Tokyo-based company makes wings for Boeing's 787 Dreamliner and the fuselage for the larger 777, and also services engines for Boeing and Airbus passenger jets.

Revenue from the aircraft structures business is expected to fall by up to 30%, while that from aircraft maintenance is forecast to slide by as much as 55%. The company expects to offset about a third of the effect of the coronavirus through cost cuts.

"We expect the aviation industry to recover in the long term, but it is difficult to predict how it will recover, as the coronavirus is expected to change people's behavior," Izumisawa said in an online news conference. "The recovery may take more time, or less, than after the Lehman crisis."

Passenger volumes in the U.S. took seven years to recover to their peak in 2008, the year the global financial crisis struck.

Since the outbreak, U.S. airlines have slashed service by 94% on international routes and by 73% on domestic routes, according to the most recent data from Airlines for America. Worldwide, more than half of passenger aircraft are grounded, according to the International Air Transport Association.

Coronavirus infections surged in the U.S., prompting a national state of emergency in March. The outbreak has subsided recently, and many U.S. states are moving to reopen their economies.

The pandemic has hit the business of Mitsubishi Heavy itself. Most of its engineers work in split shifts at offices and assembly plants.

The company's ambitious SpaceJet passenger jet program was launched in 2008. But it has been plagued by delays -- six in all -- due to shifting objectives. Mitsubishi Heavy began with a plan to build a large passenger jet for the Japanese market. Later it shifted its focus to a smaller jet aimed at the U.S.

Under Mitsubishi Heavy's current business plan, the 88-seater M90 is scheduled be certified for commercial service in early 2021, and the 76-seater M100 in 2023.

But a flight test scheduled to take place in Moses Lake, Washington, has been delayed due to the coronavirus outbreak. Izumisawa said the schedule was likely to require adjustment.

The SpaceJet project is expected to cost 110 billion to 130 billion yen in the current fiscal year, the company said, compared with 140 billion last fiscal year.

Mitsubishi Heavy said it hopes to move further into the maintenance, repair and overhaul business following its acquisition of Canadian aircraft maker Bombardier's regional jet business on May 6. The Canadian company has support bases in Canada, the U.S. and Germany, which are expected to be used to service the SpaceJet in North America.

For the year ended March, Mitsubishi Heavy reported an operating loss of 29.5 billion yen, due to a write-down in SpaceJet assets. Sales totaled 4 trillion yen, down 0.9% from the previous year.

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