TOKYO (Reuters) — After three decades building an airplane from scratch, Michimasa Fujino, 56, chief engineer of the HondaJet, might have to reach a ripe old age to see Honda Motor Co.’s pet aviation project recoup its development costs.
Honda has declined to reveal the costs, but the automaker has been researching aircraft development since 1986, and Richard Aboulafia, vice president of analysis at aerospace consulting firm Teal Group, thinks it has likely spent roughly $1 billion on the jet program since the early 2000s — more than double the $400 million typical for similar jets.
A five-year delivery delay and developing its own engine bumped up the bill.
The company that gave the world the Honda Civic, which revolutionized compact cars in the United States in the 1970s, is betting its $4.5 million, six-seater light business jet, the first aircraft developed by an automaker since World War II, will expand the fuel-efficient private jet market.
The jet began deliveries in late 2015 and is priced slightly higher than competitors in the conservative light business jet segment.
“The biggest mistake people make when getting into the aircraft business is [thinking] that the cash hemorrhaging ends once you start delivering aircraft,” said Aboulafia.
“But very often, it increases,” he said, citing marketing and production ramp-up costs.
Fujino, CEO of Honda Aircraft Co., has said he expects it will take at least five years to start generating profits, and Aboulafia thinks it could take much longer to recoup sunk costs.
“If they, miraculously, can generate $1 million in profit on each aircraft, then they need to sell 1,000 planes, after they build the [first 100 or so] aircraft that are unprofitable,” he said.
The project has depended on Honda’s deep pockets. The automaker’s net profit for the 2016 financial year was around $3 billion, more than triple that of Textron, maker of the rival Cessna Citation M2 jet.
Honda hopes the project will have intangible benefits — varnishing its brand image to claw back automobile market share in North America, which has slipped below 10 percent in the past few years, and leveraging jet-engineering skills to raise the efficiency and performance of future car models. … (read more)
Source: The Yomiuri Shimbun – Reuters