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Mitsubishi jet faces another delay with Bombardier lawsuit

Canadian company accuses ex-employees of passing on aircraft secrets

The Mitsubishi Regional Jet is still waiting for takeoff.

TOKYO -- Japan's first modern passenger plane in half a century, whose final completion date has been delayed five times, risks being grounded yet again due to a lawsuit by an international competitor.

Canadian airplane manufacturer Bombardier filed a complaint against Mitsubishi Aircraft in a U.S. federal court in Seattle on Friday, alleging that the Japanese developer of the Mitsubishi Regional Jet improperly obtained trade secrets passed on by former Bombardier employees.

Before joining Mitsubishi Aircraft, the employees worked on developing Bombardier's narrow-bodied C Series jet, according to the lawsuit. Prior to their departure, the employees allegedly sent to their personal e-mail accounts confidential documents and data related to the plane. The C Series was rebranded this July as the Airbus A220 after the European aircraft maker acquired a majority stake in the program.   

Mitsubishi Aircraft stated Monday that the allegation that it hired Bombardier employees to obtain trade secrets is "without merit." "We see these proceedings as a recognition of our competitive product, and this lawsuit primarily as an attempt by Bombardier to stifle global competition," the company added.

Parent company Mitsubishi Heavy Industries says the full weight of the group will support Mitsubishi Aircraft to keep the MRJ program on track. But Mitsubishi Heavy's stock dropped as much as 3% during Monday's trading in Tokyo.

"I would like to observe closely what impact [the lawsuit] has on type certification," said an analyst at an international brokerage. A type certificate, which validates that a new aircraft design meets airworthiness standards in the issuing jurisdiction, is an essential document for an airplane developer.

Mitsubishi Aircraft originally planned to deliver its first MRJ in 2013, but design flaws and other problems have pushed the date back to mid-2020. It is those delays, in fact, that probably contributed to Bombardier's lawsuit. 

Mitsubishi Heavy President and CEO Shunichi Miyanaga, frustrated with the serial holdups, took personal control of the MRJ program in November 2016. The group also decided to relax its in-house development policy. Mitsubishi Heavy recruited several non-Japanese experts proficient in obtaining type certification. The company appointed Alex Bellamy, a one-time C Series developer, as the MRJ's chief development officer.

As of this April, Mitsubishi Aircraft directly employed about 1,800 people, of which approximately 300, or 17%, were non-Japanese. Two years earlier, foreigners made up only 6% of the head count. "A large amount of work is necessary to obtain type certification," Miyanaga said. "To efficiently execute the task, we need to let people with a wealth of experience take charge."

Because of the enormous investments involved, new aircraft development takes place about once every one or two decades. Due to that reality, industry players like Boeing, Airbus and Bombardier typically hire technicians well versed in plane design and type certification work on a provisional basis.

In Mitsubishi Aircraft's case, the company had to go abroad to hire people to fill key general manager-level positions. Japan has not developed a civilian aircraft since the propeller-driven era, so the company was lacking in native expertise. But the attempt to employ foreign talent to play catch-up has opened Mitsubishi Aircraft to allegations from a rival that it stole corporate secrets.

Another element to the court drama is the oligopoly developing in the international aircraft market. Last year, Boeing lodged an anti-dumping challenge against Bombardier and the C Series with the U.S. Commerce Department, which would have resulted in a hefty import duties had the U.S. International Trade Commission not intervened to reject the suit in January this year.

It is believed that Boeing, which is strong in jumbo and mid-sized jets, feared the approaching competition from Bombardier's narrow-body planes, a category where Boeing has a thin roster.

This time around, it appears that Bombardier is looking to hobble the MRJ just before it takes off. Mitsubishi Heavy has booked around 400 billion yen ($3.54 billion) in impairment charges on MRJ assets. Although the financial risks have been diminished, any further development delays could derail plans to recoup investments. Shareholders would not readily accept further erosion of the MRJ's profitability either.

This summer, Boeing signed a deal with Brazil's Embraer that has the U.S. company in effect taking over the latter's small passenger jet arm. Bombardier's tie-up with Airbus means the pair must reinforce their jointly held narrow-bodied aircraft operation.

While the aircraft industry landscape is being redrawn, Mitsubishi Aircraft faces uncertain support. The company partners with Boeing on after-sales services, but the MRJ is the direct competitor of Embraer's regional jet. Boeing has pledged to continue supporting both Mitsubishi Aircraft and Mitsubishi Heavy, but the apparent conflict of interest could limit how much synergy the partners can pursue.

The aircraft market enjoys long-term growth prospects as passenger traffic keeps rising.  Long-time  participants are determined to defend their turf. As Mitsubishi Aircraft stated on Monday, Bombardier's lawsuit could be taken as proof that the Canadian manufacturer sees the MRJ as a potential threat.

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