Japan Air Agrees to Buy 32 Mitsubishi Jets to Cut Fuel Cost

Aug 28, 2014 5:22 am ET

(Updates with comment from JAL in eighth paragraph.)

Aug. 28 (Bloomberg) -- Japan Airlines Co., the country’s second-largest airline, agreed to buy 32 planes from Mitsubishi Aircraft Corp. to make its fleet more fuel-efficient.

JAL plans to begin using the regional jets in 2021 on domestic routes, the carrier and Mitsubishi Aircraft said today in a statement. The airline, which sold shares to the public in 2012 after emerging from bankruptcy, also agreed to buy 27 planes from San Jose dos Campos, Brazil-based Embraer SA.

The agreement is Mitsubishi Aircraft’s third this year for planes the manufacturer expects to start delivering in 2017 after test flights next year. The Mitsubishi Heavy Industries Ltd. unit, which has delayed air trials for Japan’s first passenger jet three times, is challenging Embraer and has set a goal of winning half the global regional aircraft market over the next 20 years.

“The most important matter is that the first test flights of the jet next year should be successful,” said Masanori Wakae, an analyst at Mizuho Securities Co. in Tokyo. “If they can make that successful, they will have a chance to get more orders from outside Japan.”

The Mitsubishi Regional Jet reduces fuel consumption by more than 20 percent compared with regional jets currently operating, the company has said.

Order Total

The JAL order brings Mitsubishi Aircraft’s total to 400, Hideo Egawa, the planemaker’s chief executive officer, told reporters in Tokyo.

“Our sales force is very active in Europe, Southeast Asia and North America,” said Egawa, “We expect more orders as well from Latin America and Africa.”

Mitsubishi Heavy fell 0.7 percent to 642 yen as of the close in Tokyo trading, compared with a 0.5 percent decline in the Nikkei 225 Stock Average. Japan Airlines gained 0.7 percent to 5,860 yen.

List price for the Mitsubishi planes is 4.7 billion yen ($45 million) each, bringing the agreed order’s value to about 150 billion yen, Japan Airlines President Yoshiharu Ueki told reporters in Tokyo today. The airline will be flying all 32 of the aircraft within about 7 years of the first delivery.

U.S. carrier SkyWest Inc. is the biggest customer for Mitsubishi so far, with an order for 100 planes and an option for another 100. The Nagoya, Japan-based planemaker has also won orders for 25 of the jets from JAL’s bigger rival ANA Holdings Inc. and 100 from Trans States Airlines Inc.

The aircraft maker has also said it plans to sell as many as 40 regional jets to U.S. startup Eastern Air Lines Group Inc.

JAL introduced Embraer aircraft to its fleet in 2007, agreeing to buy 15 of the 170 model, which has about 78 seats. Today’s agreement covers orders for 15 Embraer planes and options to buy 12 more.

“The size of JAL’s Mitsubishi order is appropriate, given the outlook for Japan’s declining population and travel demand in rural areas,” said Masaharu Hirokane, analyst at Nomura Securities Co. “The agreement shows that Japan Airlines has been convinced Mitsubishi will deliver the aircraft on time.”

--With assistance from Yusuke Miyazawa in Tokyo.