Mitsubishi Electric eyes F-35 missile deal with Europe's MBDA: sources

TOKYO Thu Jul 3, 2014 5:15pm EDT

The fourth U.S. Air Force F-35A Lightning II aircraft arrives at the 422nd Test and Evaluation Squadron at Nellis Air Force Base, Nevada in this April 24, 2013 handout photo released on May 8, 2013. Japan's Mitsubishi Electric has agreed to take the first step towards a partnership with European missile maker MBDA to develop a medium-range air-to-air missile for the F-35 stealth fighter, two people with knowledge of the matter said. REUTERS/Daniel Hughes/U.S. Air Force/Handout via Reuters/Files (UNITED STATES - Tags: MILITARY TRANSPORT) ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS

The fourth U.S. Air Force F-35A Lightning II aircraft arrives at the 422nd Test and Evaluation Squadron at Nellis Air Force Base, Nevada in this April 24, 2013 handout photo released on May 8, 2013. Japan's Mitsubishi Electric has agreed to take the first step towards a partnership with European missile maker MBDA to develop a medium-range air-to-air missile for the F-35 stealth fighter, two people with knowledge of the matter said.

Credit: Reuters/Daniel Hughes/U.S. Air Force/Handout via Reuters/Files (UNITED STATES - Tags: MILITARY TRANSPORT) ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS

TOKYO (Reuters) - Japan's Mitsubishi Electric (6503.T) has agreed to take the first step towards a partnership with European missile maker MBDA to develop a medium-range air-to-air missile for the F-35 stealth fighter, two people with knowledge of the matter said.

The preliminary deal marks an extension of Prime Minister Shinzo Abe's bid to launch Japan's military suppliers into the global arms market through international tie-ups, and thereby bring down costs for Japan's defense procurement.

If successful, it would represent the first time Japanese-built components had been used on a missile sold overseas, one of a string of potential international arms deals to emerge since Abe's government moved in April to end a more than four decade-old ban on military exports.

The value of the missile-development deal remains unclear. Mitsubishi Electric has agreed to start a feasibility study, one of the people said.

Mitsubishi Electric, better known for making refrigerators and vacuum cleaners, is the prime supplier of air-to-air missiles to Japan's Self Defense Forces, including a medium-range model, the AAM-4, used on its F-15 fighters and locally designed F-2 jets. It is also a leading supplier of satellites to the Japanese government.

MBDA is a pan-European company formed more than a decade ago from the missile units of BAE Systems (BAES.L), Airbus (AIR.PA) and Finmeccanica (SIFI.MI).

A spokeswoman for Mitsubishi Electric declined to comment. MBDA did not immediately respond to a request for comment.

JOINT RESEARCH AND DEVELOPMENT

MBDA's armoury includes the Meteor air-to-air missiles for the Eurofighter. Britain has considered a modified version of that missile as a candidate for the F-35s the Royal Air Force and Royal Navy plan to buy form Lockheed Martin Corp (LMT.N).

Japan has so far ordered 42 F-35 fighters, which it plans to deploy in 2017. Global orders for the F-35 are expected to exceed 3,000, with Italy, Turkey, Canada and Australia among the U.S. allies planning to purchase the plane.

The proposed missile deal would be the first major project resulting from a pact signed by Japan and Britain in July last year that created a legal framework for the two countries to do joint research and development on defense equipment. A second agreement committed the countries to guard classified information exchanged in that work.

To manage cooperation between Mitsubishi Electric and MBDA, and guide future projects, a steering committee of Japanese and British officials will meet for the first time during the week-long Farnborough Air Show, which begins on July 14, according to the sources.

Japan is also discussing a similar co-development accord with France and has committed to concluding an agreement with Australia.

OVERSEAS PUSH

The rush into international partnerships has become a plank of Abe's military industrial policy.

Including Mitsubishi Electric's partnership with MBDA, Japan is involved in, or considering, five projects with other nations to design weapons systems that could be used both in Japan and abroad.

At the center of those projects is Mitsubishi Heavy Industries (MHI) (7011.T), which built the World War Two-era Zero fighter plane. It is co-developing a missile with Raytheon (RTN.N) designed to shoot down ballistic missiles in space.

Mitsubishi Heavy and Mitsubishi Electric are separate companies, but share a common origin as part of an industrial conglomerate broken up by the United States after Japan's defeat in 1945.

In January, sources told Reuters that Mitsubishi Heavy was in talks to supply rear fuselage parts for the F-35 to Britain's BAE Systems.

More recently, Japan has moved to accelerate talks with Australia that could lead to a deal to supply it with a multi-billion dollar fleet of stealth submarines. Mitsubishi Heavy and Kawasaki Heavy Industries (7012.T) build subs for Japan's navy.

Japan's military is also seeking bids from local and foreign firms for a new transport helicopter that could be exported overseas in a test case of how it will use sales of equipment abroad to bring down procurement costs at home.

Bidders for that project include Kawasaki Heavy partnered with Airbus's helicopter unit, Fuji Heavy Industries, the maker of Subaru cars with Bell Helicopter, a unit of industrial conglomerate Textron (TXT.N), and Japanese trading company Mitsui & Co (8031.T) joined with AgustaWestland, a subsidiary of Italy's Finmeccanica.

Abe's government is looking to lower procurement costs for Japan's military, in part by giving arms suppliers the ability to sell equipment overseas. Because of the limits imposed by its build-at-home for use-at-home military sourcing, Japan has paid two or three times more than other governments for similar military equipment, analysts have said.

Exports would enable Japanese arms makers to spread their costs over a bigger production base, making them more cost efficient.

At the same time, Abe moved this week to end a ban that has kept Japan's military from fighting abroad since 1945.

The change, the most dramatic policy shift since Japan set up its post-war armed forces 60 years ago, will widen Japan's military options by ending the ban on exercising "collective self-defence", or aiding a friendly country under attack.

(Editing by Kevin Krolicki and Alex Richardson)

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