To Recoup Jet Costs, Honda Faces Long Haul

In order to see Honda Motor Co’s pet aviation project recoup its development costs, Michimasa Fujino, 56, chief engineer of the Hondajet, might have to reach a ripe old age after three decades building an airplane from scratch.

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 and Honda has declined to reveal the costs, but the automaker has been researching aircraft development since 1986.

But the project faced a wall due to a five-year delivery delay and developing its own engine.

The $4.5 million dollar, six-seater light business jet, the first aircraft developed by an automaker since World War Two, will expand the fuel-efficient private jet market, is the bet  that the company that gave the world the Honda Civic, which revolutionized compact cars in the United States in the 1970s, is placing its fortunes on.

Priced slightly higher than competitors in the conservative light businessjet segment, the jet began deliveries in late 2015.

“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.

Aboulafia thinks it could take much longer to recoup sunk costs and Fujino, CEO of Honda Aircraft Company, has said he expects it will take at least five years to start generating profits.

“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.

Honda’s deep pocket was important for the project. Noting the net profits of more than triple compared to Textron, maker of the rival Cessna Citation M2 jet, the automaker’s net profit for the 2016 financial year was around $3 billion.

Leveraging jet-engineering skills to raise the efficiency and performance of future car models and varnishing its brand image to claw back automobile market share in North America, which has slipped below 10 percent in the past few years are the two objectives that Honda hopes the project will deliver.

Customers, particularly first-time buyers, may need convincing, Fujino acknowledges.

“We want to show customers that even though we don’t have a history of selling aircraft, we’re in the market because we have something new to offer,” he said in an interview.

“For us that’s more important than having a track record.”

Since it would offer an upscale alternative to turbo prop jets, often used for small charter services, business jet operators have shown interest.

“The Hondajet would provide a new product for that segment, which is now mostly rattling around on old turbo props,” said Richard Hodkinson, vice president of aircraft sales and acquisitions at aircraft services operator Clay Lacy Aviation in Van Nuys, California.

“It wouldn’t be bigger than a turboprop in terms of the cabin, but it would be new, it would be quiet, it would be more efficient, and you’d be in a jet.”

(Adapted from Reuters)

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