Central Japan Railway Co. plans to begin work on the 5.1 trillion yen ($52 billion) maglev line between Tokyo and Nagoya as early as April. Trials resumed today after the company spent five years building a 24-kilometer extension of a test track. The trains can run at speeds of up to 500 kilometers (310 miles) per hour.
The maglevs will whisk passengers to Nagoya, a city of 2.3 million people, from Tokyo in as little as 40 minutes for the 286-kilometer journey, from as short as 95 minutes now, according to JR Central. Faced with the challenge of tunneling under Tokyo’s skyscrapers and the Japanese Alps, the project is unlikely to be completed on time even as Japan’s population is projected to shrink, eroding travel demand.
“I think it’s going to be finished very, very late,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. “If the population projections are correct, then the use of the bullet train will go down.”
Japan’s population may fall to as little as 117 million by 2027 from 127 million now, according to projections by the National Institute of Population and Social Security Research. By 2060, the overall population may drop to 80 million.
Maglevs use magnetic power to propel trains that float above the ground, traveling at almost double the 270 kmh of current bullet trains between the two cities.
“We’re not using radically new technology for the tunnels,” said Teruyoshi Nagashima, a Tokyo-based spokesman for JR Central. “We’ll start work on it when we get permission,” he said, declining to say exactly when the building work would start.
Concerns about high construction costs and uncertain demand have fueled resistance to plans for high-speed rail in countries including the U.S. and the U.K. California is struggling to lay tracks for an $86 billion high-speed line after Congress cut off 2012 funds for such projects. The California High-Speed Rail Authority has also been working to settle lawsuits challenging the project.
London to Birmingham
The U.K. government is facing resistance to plans for a high-speed link between London and Birmingham, scheduled to open in 2026 before being extended to Manchester and Leeds. The U.K. Institute of Directors has called on the government to abandon the plans, arguing that its 50 billion-pound ($78 billion) price tag is too steep.
Unlike those projects, JR Central’s maglev line won’t depend on government financing. The company says it will use cash flow, the highest of any railway operator in the world, along with loans and bonds to fund the project.
JR Central had free cash flow, or money from operations minus capital spending, of $2.95 billion in the fiscal year ended March. That compares with $2.42 billion at Union Pacific Corp. (UNP), the largest U.S. railroad by sales, according to data compiled by Bloomberg.
The Japanese company, whose bullet trains carried more passengers last year than any airline in the world, predicts net income will rise 11 percent to 222 billion yen this fiscal year. It has made a profit every year since it was listed on the Tokyo Stock Exchange in 1997.
“JR Central’s bullet train is a cash cow,” said Shinichi Yamazaki, an analyst at Okasan Securities Group Inc. “They have access to enough money, including loans, to pay for the project. They could even build it faster, but looking at their finances, it’s better to aim for 2027.”
JR Central will issue 5-year, 10-year and 20-year bonds in equal amounts to help finance the project, according to the company. The rail operator is rated Aa3 (9022) by Moody’s Investors Service, the same as the Japanese government.
The company had 2.9 trillion yen in interest-bearing debt at the end of March and has said it plans to ensure total debt doesn’t exceed 5 trillion yen. Its debt peaked at 5.5 trillion yen in fiscal 1991.
JR Central fell 0.7 percent to 11,470 yen as the close of trade in Tokyo. The shares have climbed 64 percent this year, compared with a 29 percent gain by Japan’s benchmark Nikkei 225 Stock Average.
Worldwide, two maglev lines are already operating. In Shanghai, a train built with technology developed by Siemens AG and ThyssenKrupp AG (TKA) whisks passengers along at 431 kmh from Pudong International Airport to the outskirts of the city’s financial district. A low-speed version called Linimo, with a top speed of 100 kmh, started operations on an 8.9 km track in Nagoya in 2005.
The maglev that resumed trial runs today holds a world record for speed at 581 kmh. JR Central’s chairman and president, Japan’s transport minister and local mayors were among officials riding the train, which reached 505 kmh.
“Compared with the bullet train, there was a slightly noticeable feeling of speed,” Akihiro Ohta, the transport minister, told reporters after riding the maglev today. “At times, there was the same kind of feeling in my ears as there is when in a plane or elevator, when it goes up quickly.”
By fine-tuning the technology and accumulating experience, Japan can build trust in the train, Ohta said.
The new line may benefit from projections showing that even as Japan’s total population declines, Tokyo’s will continue to grow as more people move to the capital. The number of people living in Tokyo prefecture is predicted to increase to 13.4 million by 2020 from 13.2 million in 2010.
The greater Tokyo region’s population exceeds 35 million, making it the world’s largest metropolis. With a planned extension from Nagoya to Osaka by 2045, the maglev line would put 64 million people within commuting distance of each other, according to the train operator.
JR Central predicts a maglev service will help persuade people to fly less and reduce reliance on highways. Fares between Tokyo and Nagoya will be about 700 yen more than the current bullet train, the company has said.
“There may not be a lot of new passengers to Nagoya, but when it’s extended to Osaka there could be a significant business demand,” said Ryota Himeno, an analyst at Barclays Securities Japan Ltd. “Tokyo is becoming more expensive and crowded, and so companies might move some operations to Osaka once it opens. It all depends on the frequency and capacity of the maglev trains.”
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