NEW YORK/TOKYO — Kawasaki Heavy Industries, Mitsubishi Heavy Industries and other Japanese aerospace suppliers face an earnings risk on the horizon after Boeing said it will once again delay deliveries of its 777X passenger jet, with parts manufacturers large and small dependent on business from the U.S. aircraft maker.
Japanese companies are set to make about 20% of the wide-body aircraft’s main structural components.
But Boeing CEO David Calhoun told an earnings conference this week that the first delivery of the plane has been pushed back to the second half of 2023, three years later than the original target of 2020. The announcement did not sit well with Boeing‘s Japanese part suppliers.
“The development delay will push back several billion yen in annual revenue,” said an executive at a major heavy industry group. (1 billion yen equals $9.6 million)
Kawasaki Heavy produces fuselage components for the 777X. During the first half ended September, the company closed sales on units for six planes, the same volume as the year-earlier period.
“We’ll probably experience delays since we’re tied to Boeing‘s production plan,” said a Kawasaki Heavy representative.
Mitsubishi Heavy Industries, which also makes fuselage parts, shares a similar outlook.
“We anticipate a drop-off in the pace of production,” said a representative from Mitsubishi Heavy.
Engineering group IHI manufactures about 10% of the General Electric GE9X engine that powers the 777X.
“The 777X program was already running behind schedule, so our earnings harvest will be pushed back further still,” said an IHI representative.
Anxiety has spread to small and midsized companies as well. Tohmei Industries, an assembly subcontractor based in Aichi Prefecture — a hub for Japan’s aerospace industry — bought in 2019 Human Resource Japan Holdings, a Hiroshima-based rival with deep ties to Mitsubishi Heavy. Despite that bet, “we are getting fewer job requests,” said a Tohmei representative.
Imai Aero-Equipment Manufacturing, based in Gifu Prefecture, had recently spent about 1 billion yen on upgrading a factory in anticipation of demand from the 777X. The company, which makes wing and engine parts, plans to ride out the delay by cutting costs.
Boeing has been hit by a tighter approval process by the U.S. Federal Aviation Administration and by a plunge in air travel demand during the pandemic. Compared with narrow-body planes, “wide-body demand will remain challenged for a longer period,” Calhoun said.
Japanese Boeing-dependent part suppliers’ concerns will not end when the 777X goes into service. For the original 777 wide-body, 1,881 units were sold worldwide. Japanese manufacturers produced more than 20% of the core components for those planes, and the business heavily contributed to their earnings.
Right now, orders for the 777X wallow at just 350 units. Meanwhile, Boeing‘s European rival Airbus has secured 915 orders for the A350 family of wide-bodies.
If airlines start canceling or renegotiating orders due to the delays in delivering the 777X, the gap between Boeing and Airbus could potentially widen.
ANA Holdings, the parent of All Nippon Airways, is expected to report a group operating loss of roughly 350 billion yen for the three quarters through December, which would be a record for the period. The group has ordered 20 units of the 777X craft. Domestic rival Japan Airlines is expected to report an operating loss of about 300 billion yen operating loss for the same period.
Boeing remains in a precarious position when it comes to its commercial aircraft across the board. The 737 Max restarted deliveries in last month after being grounded in March 2019. But commercial aircraft deliveries throughout 2020 dropped 59% to 157 units. Last year, Boeing lost 1,194 aircraft orders, for a nearly $100 billion decline in its order book.
Airbus also suffered delivery delays and production cuts due to the pandemic. Deliveries last year shrank 34% to 566 units. Yet that volume nearly quadruples Boeing‘s results during the same period. Airbus’s new orders of 383 units also trumps Boeing‘s figure of 184 jets.