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Dozens of aircraft engines held up as IHI halts servicing

Cleaning and repairs for ANA, JAL and budget airlines suspended following inspections scandal

IHI maintains aircraft engines for big airlines like All Nippon Airways and Japan Airlines as well as budget carriers.

TOKYO -- Japanese heavy machinery maker IHI has halted aircraft engine maintenance at a Tokyo plant as it looks into allegations of long-running problematic inspections, Nikkei has learned.

Dozens of engines are being held at the company's Mizuho works, unable to be returned to the airlines who sent them in for checkups, after IHI stopped work there in late February. The company faced spot checks by the transport ministry.

IHI performs routine engine overhauls for ANA Holdings' All Nippon Airways and flag carrier Japan Airlines, as well as a host of budget airlines -- foreign and domestic. If the delay hurts those carriers' operations, IHI may be forced to compensate them for the trouble, potentially dealing a blow to a field key to its growth strategy. The company is weighing outsourcing the maintenance work.

After engines were taken apart for cleaning and repairs, staff lacking ministry-approved credentials apparently performed visual checks on parts such as turbine blades, in a practice that sources close to the matter said went on for several years. Moreover, the improper checks are suspected to have been widely covered up, with certified personnel apparently signing off on relevant paperwork.

Japan's civil aviation law requires plants performing aircraft engine maintenance to seek the transport ministry's approval of their operating rules. IHI said it would deploy workers certified by the company for each part of the inspection process.

The company has been laboring to shore up profitability, selling off its construction equipment and industrial engine businesses and pulling the plug on an Aichi Prefecture works where it built ships and offshore facilities. Meanwhile, it has made high-margin aircraft engine operations a core business, helping the aerospace and defense segment to bring in over 80% of operating profit for the year through March 2018.

IHI "will need to determine the impact to growth" from the alleged improper checks, said Mie Yamazaki, an analyst with Mitsubishi UFJ Morgan Stanley Securities.

The heavy machinery maker has lost investor confidence multiple times. In 2007, it was forced to restate annual earnings, landing its shares under special supervision by the Tokyo Stock Exchange and putting it in danger of being delisted. It has downgraded its initial net profit estimate in each of the four years through March 2018.

In 2004, the company -- then known as Ishikawajima-Harima Heavy Industries -- was slapped by the transport ministry with an order to improve after allegations of doctoring data in the same aircraft engine maintenance operations currently under fire. Some in the Japanese government cast a doubtful eye on IHI's corporate practices.

IHI will "naturally face heavy criticism for its insufficient attention to governance" in the latest alleged wrongdoing, said one Japanese securities analyst, given the strict safety measures required in the aircraft maintenance field.

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