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Kawasaki Heavy weighs exit from money-losing train business

US troubles cut into full-year forecast as company posts first-half loss

Kawasaki Heavy Industries builds trains for U.S. cities including New York and Washington.

TOKYO -- Kawasaki Heavy Industries plans to restructure rolling-stock operations amid heavy losses, exploring such options as quitting the business and teaming up with other companies.

While the overseas rail market looks promising, the company has been waging fierce competition for orders with rivals that have grown in scale through consolidation. Japanese peers like Hitachi are likewise struggling abroad amid numerous mishaps.

Kawasaki Heavy said on Tuesday that it will draw up an outline on train business restructuring this fiscal year. The announcement came the same day it reported a 3.5 billion yen ($31 million) net loss for the half ended September, down from the year-earlier 10.8 billion yen profit.

The company cut its full-year net profit forecast by 16 billion yen to 31 billion yen. The rolling-stock business' operating profit forecast was slashed 16.5 billion yen, largely on losses for projects in the U.S.

One factor hitting profits for Kawasaki Heavy was lower-than-expected additional orders on a 2013 order for commuter trains received from the state of New York's Metropolitan Transportation Authority. Quality inspections on trains for the Washington Metropolitan Area Transit Authority turned up wiring issues that led to the equivalent of 3 billion yen in repair costs. And prototype rolling stock in the U.S. derailed during transport.

"I keenly feel my responsibility" in the matter, said President Yoshinori Kanehana, who hails from Kawasaki Heavy's rolling-stock business, in a Tuesday news conference. Such factors as the difficulty of procuring labor render the North American market harder to make headway in than elsewhere, Kanehana said, citing obstacles including complex interpretations of written specifications, as well as a requirement to use U.S. suppliers even if they are not up to par.

Kanehana said Kawasaki Heavy "took on too much risk" in rolling-stock operations. He will head a committee on determining how to approach restructuring the business.

Though growth is expected for rail-related exports, such projects are prone to the whims of the governments that order them. Malaysian Prime Minister Mahathir Mohamad said in May that he would call off a high-speed rail link between Kuala Lumpur and Singapore worth about 20 billion Singapore dollars ($14 billion) -- of which companies including East Japan Railway hoped for a piece -- before Malaysia and Singapore reached an agreement to defer the project instead.

Changes in design are also far from infrequent. For Thailand's Purple Line train route, which opened in 2016, rolling-stock supplier Japan Transport Engineering -- a unit of JR East -- was forced to revise plans for its cars after being asked for changes to cooling systems it had designed for installation to Japanese specifications.

Hitachi's Class 800 trains suffered trouble the day of their British debut in October 2017, with fluid dripping from air conditioning. Hitachi blamed a difference in practices between factory workers in Japan and the U.K. Certain fine-tuning tasks were apparently not carried out at British facilities because there was no manual, while Japanese technicians performed them by unspoken understanding.

"There is certainly a future for rail operations," Kanehana said, adding that "we can go on the offensive in North America and Asia if we bring our strength to bear." 

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