TOKYO -- Ailing shipbuilder Mitsui E&S Holdings has reached out to peer Mitsubishi Heavy Industries about forming a tie-up in light of a massive loss that has necessitated a business restructuring, sources close to both companies told Nikkei.
As South Korean and Chinese shipbuilders opt for major mergers to bolster their competitiveness, Japanese counterparts have lagged behind in such efforts. Mitsui E&S hopes to regain an edge in a partnership that would defy traditional zaibatsu conglomerate lines.
Potential collaboration would involve the two companies jointly taking on orders to build combat vessels for the Japan Maritime Self-Defense Force. Surface ships for the Defense Ministry are currently built by Mitsui, Mitsubishi Heavy or Japan Marine United. The Mitsui-Mitsubishi alliance would shrink the number of players to two.
"I wish to accelerate business collaborations at home and abroad and strengthen our competitive advantage," Mitsui E&S President Ryoichi Oka told reporters Monday, without mentioning the tie-up plan.
They will plan to maintain the current number of shipyards. One proposal involves the division of labor between Mitsui's shipyard in Okayama Prefecture and Mitsubishi Heavy's Nagasaki's plant, with each site producing different types of ships.
Mitsui E&S also plans to turn its segment responsible for designing commercial ships into an independent entity.
A business with historical ties to the Mitsui conglomerate seldom seeks a partnership with the Mitsubishi camp. The Mitsui group often has partnered with the Sumitomo group, as shown in the megabank Sumitomo Mitsui Banking Corp.
Founded as Mitsui & Co.'s shipbuilding business, the company, previously known as Mitsui Engineering & Shipbuilding, had been a formidable player in the domestic market.
But in light of the headwinds facing the shipbuilding industry, overseas peers are seeking scale. China State Shipbuilding Corp., which ranks second globally, is merging with fellow powerhouse China Shipbuilding Industry. In South Korea, global leader Hyundai Heavy Industries is combining with third-ranked Daewoo Shipbuilding & Marine Engineering.
Yet Japan remains home to more than 10 shipbuilders. Mitsui E&S tried to negotiate a merger with Kawasaki Heavy Industries, but talks collapsed in 2013.
Mitsui E&S entered into tie-ups with domestic peer Tsuneishi Shipbuilding and China's Yangzijiang Shipbuilding. But the company decided that further action was needed given the shipbuilding segment's 8.1 billion yen operating loss during fiscal 2018.
Mitsui E&S formally announced Monday that it will relocate about 1,000 jobs within the group as part of restructuring efforts. About 600 to 700 of these employees will end up outside the group as Mitsui E&S divests business units.
The turnaround plan involves selling unit Mitsui E&S Plant Engineering to JFE Engineering. The solar power generating business is also on the chopping block.
Mitsui E&S will auction the shipyard in Chiba and switch to leasing. The group will exit wind power and biomass electricity generation, as these businesses require copious investments.
These steps will contribute about 70 billion yen ($640 million) toward profit within the fiscal year ending March.
"We are considering various capital strategies," Vice President Keigo Matsubara said.
Mitsui E&S reported a net loss of 66.4 billion yen for the first half ended in September, worse than the loss of 47.8 billion yen from a year earlier. The company anticipates a full-year loss of 88 billion yen due mainly to charges booked from a thermal power plant project in Indonesia stung by delays.
That projected loss would mark a third straight year of red ink. Consolidated shareholders' equity to total assets stood at 8.4% at the end of September, nearly half the ratio posted at the end of March.