by Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.
With demand for commercial aerospace components booming, Kawasaki Heavy Industries is adding another two factory lines to its operations. These lines will focus on component production for Boeing’s 777X. Interestingly, one of these assembly lines will be located in the United States at a Kawasaki facility in Nebraska, marking the company’s first aerospace operation in the states.
These latest moves join a growing list of factory expansions brought on by the tremendous backlog of airliner orders at both Boeing and Airbus. Previously, the company added one plant in 2006, one in 2010, and another in 2013 – all three of which focused on the 787 Dreamliner and expanded the firm’s Nagoya Works 1 campus in Japan. Kawasaki will leverage this increased capacity to boost production of the 787-8 and 787-9 Dreamliner and move development of the 787-10 Dreamliner forward.
In related moves, Boeing has retained the Japan Aircraft Development Corp (JADC) to build some 21 percent of its latest jet, the 777X. JADC is composed of KHI, Mitsubishi Heavy Industries, Fuji Heavy Industries, ShinMaywa Industries, and NIPPI Corp. The 777X will be the successor to Boeing’s popular 777 aircraft. Two models are currently on offer, the 777-8X and 777-9X, with the latter under development. Production will begin in 2017, with deliveries following by 2020.
As it seeks to diversify, the company is looking to increase its work share on Airbus programs. So far, the company has secured a contract that will see it supply components for the Rolls‑Royce Trent XWB engine used to power the new Airbus 350 XWB. In addition, the firm has signed on to develop components for Pratt & Whitney’s PW1100G-JM engine, which will power the Airbus A320neo family of aircraft. Under the auspices of Japanese Aero Engines Corp (JAEC), Kawasaki will manufacture parts of the engine’s fan and low-pressure compressor. With an order book for well over 1,000 aircraft, the A320neo program will be another steady revenue generator for the firm.
In the military aerospace sector, KHI received good news in the form of Japan’s recent defense budget hikes. For FY15/16, Japan’s defense budget increased for the third consecutive year following approval of a record JPY4.96 trillion ($42.1 billion) military spending allocation. Included in procurement funding are allocations for six Lockheed Martin F-35 Lightning II combat aircraft, five Bell/Boeing V‑22 Osprey multimission tiltrotor aircraft, and 20 KHI P-1 maritime patrol aircraft.
The support is a strong vote of confidence in KHI and its concurrent development of the P-1 and C-2 aircraft for Japan’s Ministry of Defense. The aircraft will replace Japan’s aging fleet of P-3C and C-1 aircraft. This $2.7 billion effort is Japan’s first large-scale aircraft development program for either the civil or military sector in 30 years.
Adding to its cachet, the P-1 is a possible contender to fill an emerging U.K. requirement for a new maritime patrol aircraft. However, the Japanese aircraft would likely face strong competition for this program from the Boeing P-8 and others.
Although investment in these aircraft will impact the bottom line for quite some time, KHI hopes to expand into commercial aviation markets. Kawasaki continues to study possible commercial versions of the C-2 and P-1. The C-2 variant, called the YCX, is a civil freighter. The P-1 derivative, known as the YPX, is envisioned as a family of 90-150-seat, twin-engine, narrowbody commercial airliners. Both variants are highly speculative at the moment.
Interestingly, as Japan seeks to support its defense industry, the country has begun to gradually chip away at its ban on international arms sales. The government eased the policy somewhat in 2012 to allow for some exports and, more critically, to allow firms to jointly develop new products with foreign companies. According to the new policy, sales may be allowed if they contribute to Japanese security through joint projects.
While such moves are welcomed by Japan’s sheltered defense industry, the country is expected to maintain stringent limitations that include a ban on any exports that could fuel international conflicts while maintaining strict control over the transfer of parts to third countries. The downside is that the uncompetitive nature of the domestic defense industrial base, coupled with the small-batch production for Japan’s military, will likely make products too pricey for foreign customers.
Prompted by this shift, Kawasaki has begun to proactively market its products abroad. In 2015, the company made an appearance at the Dubai Air Show and a pair of P-1s were displayed at the Royal International Air Tattoo in the U.K. The goal of these efforts is to raise awareness of the company’s aerospace capabilities and secure more aerospace component work. However, an outright purchase of defense-related products will prove difficult in the near term due to the aforementioned issues.
Overall, KHI, thanks to its widely varied industries, remains in good standing as a provider of goods and services not only to Japan and the Japanese military but also to the world.
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The focus of Forecast International’s Defense & Aerospace Companies series is on worldwide aerospace and defense prime contractors and subcontractors. Concise reports provide data on individual corporations regarding recent mergers, restructurings, and joint ventures. Also included in each report are financial and industrial segment data, snapshot coverage of major programs, and recent U.S. DoD contracts.
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