The Second World War left Japan's aviation industry in ashes. Ever since, Japanese business leaders have dreamed of its rebirth. The latest sign is a state-of-the-art factory near Nagoya City on the same site where workers once assembled the famed Zero fighter. Mitsubishi Heavy Industries Ltd. has poured billions of dollars into this plant, which currently turns out carbon-fiber wings and other parts for Boeing Co.'s (BA) new 787 Dreamliner. Next spring, if all goes according to plan, the factory will start building a 70- to 90-seat commercial passenger plane called the MRJ, or Mitsubishi Regional Jet.
This small plane carries a lot of symbolic freight. Japan is the birthplace of world-beating brands such as Sony Corp. (SNE) and Toyota Motor Corp. (TM), but it has never been able to parlay its technological and manufacturing might into successful commercial aircraft. The U.S. and Europe dominate the global market for large planes, while Canada's Bombardier Aerospace and Brazil's Embraer (ERJ) have locked up the market for smaller regional jets.
Many Japanese say the time is right for Mitsubishi to take to the skies. The company already supplies parts to top aircraft makers, and boasts a rock-solid reputation for quality. Boeing, meanwhile, isn't likely to put up much resistance as long as Mitsubishi's aerospace dreams are limited to small jets. The American company has even said it might allow Mitsubishi to piggy-back on its global sales and servicing network, which would yield huge savings.
A regional jet would suit Japan's aspirations. Single-aisle planes make up more than 70% of the airliner market, and are likely to remain the hottest segment for years to come, says research firm Frost & Sullivan Inc. Mitsubishi estimates carriers worldwide will add 5,000 jets to their fleets over the next two decades, as Asia grows wealthier, more people start flying, and airlines swap older planes for more fuel-efficient jets. To gauge demand for the new plane, Mitsubishi showed off its first full-sized mock-up of the aircraft cabin to about 30 potential customers at the Paris Air Show in June, and said the reception was positive.
For years, the MRJ's prospects didn't seem very bright. The project struggled to win political backing, and some industry watchers questioned whether Mitsubishi would be able to muster the necessary financing on its own. But in recent months, Tokyo has grown increasingly worried about China's plans to start building small jets. The government is now offering to foot up to a third of the estimated $1 billion development tab for the MRJ through 2013. That's a good start, but analysts in Tokyo estimate Mitsubishi will need nearly three times that amount to achieve the scale necessary to be profitable.
And Mitsubishi faces plenty of competition. By the time MRJ takes to the skies around 2012, there's a good chance China's AVIC and Russia's Sukhoi Co. will have launched their own planes. For Mitsubishi, being a distant fourth or fifth "may not be worth it," says Kazuki Sugiura, an industry expert and author.
But if Japan makes commercial aviation a priority, it can probably clear those hurdles. For example, big orders could quickly flow from national carriers Japan Airlines Corp. and All Nippon Airways. If the company can line up orders for 400 aircraft, it will recoup as much as $3 billion of its investment, Mitsubishi Heavy Chairman Takashi Nishioka recently told Nikkei, a financial daily. And that means the venture could be in the black by the end of the next decade.