News from Japan today highlights the struggles at Mitsubishi Aircraft. The parent company has taken a much firmer hand at the MRJ program. Even though customers have either kept quiet or made encouraging noises, the program is not in great shape. The test fleet at Moses Lake continues to build hours. But these aircraft do not represent what the aircraft delivered to customers will be. So while certain tests can be completed and Mitsubishi can gain insight from them, additional testing will be required with the final production version for certification.
The program initially seemed quite promising. The MRJ gave Pratt & Whitney a launch customer for their GTF engine. The engine went on to be selected by five different aircraft programs. Ironically, that launch customer could well be the last of the five to actually deliver an aircraft to a customer.
The MRJ is, on paper, a fine aircraft. But Mitsubishi has not executed well. The company has suffered five program delays. As a result, the program looks neither robust nor especially credible.
Yet the aircraft has all the right accouterments – a new generation engine, a great design, and attractive economics. But by the time the MRJ reaches entry into service, the commercial aerospace world will have moved on, potentially making the MRJ seem less attractive.
Timing is everything in aircraft development programs, as we have seen with A380, A350, 787 and C Series. If an OEM misses its timing, market conditions can change. Often what was an originally strong case for an aircraft can become a significantly weaker case. Five delays have placed the MRJ program in a wobbly and teetering position, at best.
Some of the challenges are not their fault. The MRJ has substantial orders in the US from two large regional airlines. But a lack of scope clause relief in the latest airline pilot contracts means that the MRJ90 and competing Embraer E175-E2 will not be able to be flown by US regional airlines. As a result, the two regionals airlines with MRJ orders are likely to seek smaller aircraft, potentially from Bombardier or Embraer. This only makes the hill to climb even steeper for Mitsubishi. The chances of a US network airline buying the MRJ90 for network use are quite low, given higher crew costs of majors versus regionals.
The table lists aircraft that are in the competitive set with seat counts for a two-class cabin.
We understand that Mitsubishi has started to work on its next model, the MRJ70 that will fit into the US scope clause. Because the US accounts for about 70% of global regional jet orders, any OEM trying to do business in the regional space must ensure their offering works within US scope clauses. That aircraft has significant market potential in the US and could replace the MRJ90 orders with its two large US customers, SkyWest and TransStates.
But the MRJ70 will face tough competition from the existing Bombardier CRJ900 and Embraer E-175. US regionals operate in an increasingly tighter margin environment. The Mitsubishi is likely to be too expensive, in capital terms, when compared with the existing models.
Will Mitsubishi need to offer “special pricing?” As we have recently seen, OEMs don’t like competing with aircraft that are “subsidized,” and the incumbents will howl. It might be best for Mitsubishi to forget the regional market altogether.
What might Mitsubishi do to ensure there is a market for its MRJ? Whichever direction the company takes, it will see stiff competition.
The MRJ70 will need to offset higher capital costs with superior operating economics. But it is also possible to stretch the MRJ90 into a 110-seat version that would compete with the Embraer E190-E2 and Bombardier CS100. The current E190 is the best-selling version of the Embraer EJets, demonstrating that a market niche exists in that seat size. Since this is network airline territory, there are no scope clause aberrations.
Irrespective of the model Mitsubishi focuses on, the time period between now and a 2020 entry into service needs flawless execution without even a hint of a hiccup. Only that will restore the credibility of the program with potential customers.