Exclusive: Mitsubishi Heavy in talks to become F-35 supplier, seeks Japan subsidy: sources

Mon Jan 27, 2014 4:02am EST
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By Tim Kelly and Nobuhiro Kubo

TOKYO (Reuters) - Mitsubishi Heavy Industries is in advanced talks to supply parts for the F-35 stealth fighter to Britain's BAE Systems, in what would be the first involvement of a Japanese manufacturer in a global weapons program, according to people with knowledge of the discussions.

Any agreement on such a groundbreaking deal hinges in part on whether Tokyo will subsidize the manufacture of components for the rear fuselage of the fighter that Mitsubishi Heavy is seeking to supply as a subcontractor, the three sources said.

Mitsubishi Heavy, which made the famous Zero fighter in World War Two, has already won a contract worth more than $620 million for final assembly for the 42 F-35 jets now on order by Japan's military.

A deal to become a second-tier supplier for the Lockheed Martin F-35 would deepen Mitsubishi Heavy's ties to a project to deliver a fighter jet that the United States and allies plan to use for decades.

It would also mark a break with Japan's self-imposed curbs on military exports at a time when Prime Minister Shinzo Abe is pushing to bolster the self-reliance of Japan's military amid rising regional tensions with China.

Japan's defense ministry and Mitsubishi Heavy declined to comment. Mark Ritson, a spokesman for BAE, said the company had been involved in discussions about "potential subcontracting" opportunities for Mitsubishi Heavy with Lockheed Martin. He said those discussions were ongoing but declined to comment on details.

People with knowledge of the discussions said BAE and Mitsubishi Heavy had largely agreed terms on what work and technology would be transferred under the potential deal.

The remaining problems are economic. Without a subsidy, Mitsubishi Heavy would struggle to make components for BAE without incurring a loss, the sources said. Under its current contract, Mitsubishi Heavy plans to complete manufacture of the first F-35 for Japan's Self-Defence Forces in 2017.   Continued...

Japan's Mitsubishi Heavy Industries' headquarters building is pictured in Tokyo December 17, 2012. REUTERS/Yuriko Nakao