Feb. 18 (Bloomberg) -- Honda Motor Co., confronting the first quarterly loss in at least 15 years, will scale back plans to make business jets and may offer voluntary retirements in the U.S. for the first time as it slashes costs.

The company will produce 70 to 80 jets a year for delivery from the end of 2010, compared with an earlier plan to make 100 planes a year, Chief Executive Officer Takeo Fukui said in an interview on Feb. 16.

Honda, Japan’s second-largest carmaker, expects a loss of 243 billion yen ($2.6 billion) in the current quarter as vehicle demand in the U.S. and Japan plummets and a stronger yen erodes overseas earnings. The worst global financial crisis since the Great Depression has cut corporate demand for jets as companies curb perks for top management.

“In this political climate, it’s hard to imagine executives jumping up and down and demanding jets to fly around in,” said Ed Rogers, chief executive officer of Tokyo-based hedge fund adviser Rogers Investment Advisors Y.K. “This is the time you focus on core businesses and particularly profitable business lines.”

Last week, Honda said it is considering postponing production of Jazz compact cars in the U.K. as vehicle sales plunge in Europe. The company is also eliminating 4,300 temporary jobs in Japan by April.

Honda gained 1.1 percent to 2,250 yen as of the close of trading in Tokyo. The shares have risen 18 percent so far this year compared with a 5 percent gain for Toyota Motor Corp. and a 12 percent drop for Nissan Motor Co.

Early Retirement

Honda, which expects an 87 percent drop in net income in the year ending in March, may offer voluntary retirements or work-sharing in the U.S. as the company cuts output, Fukui said, adding that no decision had been made. A work-share program would reduce workers’ hours and pay to avoid job cuts. The company has already cut compensation for managers in Japan by 5 percent and board members salaries by 10 percent.

Last week, Toyota, Japan’s biggest carmaker, said it will freeze wages and offer voluntary buyouts to plant workers in North America for the first time.

“We will do everything we can to generate a profit and pay taxes,” Fukui said. “On top of that, protecting jobs is very important for us.”

The Tokyo-based company has been hurt by the worst U.S. car market in 28 years and the Japanese currency’s 23 percent appreciation against the dollar last year. The carmaker expects the stronger yen to cut operating profit by 282 billion yen. Every one yen gain against the dollar cuts Honda’s operating profit by about 18 billion yen, according to the company.

Business Jets

Honda’s business jets, priced at $3.9 million, are designed to seat five or six passengers and will be produced in North Carolina. Honda has received over 100 orders since 2006, none of which have been canceled, according to the company.

Citigroup Inc., the recipient of a U.S. government bailout, scrapped a plan to buy a $50 million corporate jet after government pressure. Textron Inc., the maker of Cessna planes, has cut 6,200 jobs. Demand for smaller planes, such as the $2.7 million Cessna Mustang has not been hurt as much as for pricier models, such as the $21 million Citation X, according to Textron.

“We are not facing favorable winds” for this project, Fukui said. Still, “I expect this class of jets to be successful as a very efficient and convenient mode of transportation not only in the U.S., but in the future, also in China, other parts of Asia, and Europe.”

As a result of the scale-back in production, the company also expects it may take up to four years to recoup its investment, a year longer than originally planned, he said.

China, the world’s second-largest air-travel market, plans to spend 450 billion yuan ($66 billion) building 97 more airports by 2020 to meet demand, according to the country’s General Administration of Civil Aviation.

“Once Honda successfully gets past this crisis, they will reap the benefits,” said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net

Last Updated: February 18, 2009 01:35 EST