TOKYO Nov 5 Japan is considering providing
low-interest loans from a state-run bank to support exports of
aircraft designed for military use, the first time such sales
are being considered since the end of World War Two, according
to officials with knowledge of the still-developing policy.
The step would mark an extension of Prime Minister Shinzo
Abe's efforts to bolster the self-reliance of Japan's military
and could open an overseas market worth tens of billions of
dollars in coming years for the country's defence contractors.
It would also mark a sharp reversal of the near-total ban on
exports of military equipment, a development that could strain
ties with China as a more assertive Japan seeks a market for
military technology in Asia and beyond.
Japan's post-war constitution, written by the U.S.-led
occupation forces, renounced war and a standing army. Major
military equipment makers moved into other fields and the
current ban did not formally take effect until the fast-growth
era of the 1960s and the evolution of Japan's Self Defense
Forces put the issue on the agenda.
Two of the initial test cases for Japan's policy shift are
likely to be the C-2 military transporter, built by Kawasaki
Heavy Industries and ShinMaywa Industries'
US-2 amphibious plane, according to three officials involved.
Both companies are looking to export civilian versions of
the aircraft, which would allow them to avoid the ban. Both
companies have also made inquiries about the Abe government's
willingness to provide financing to help close sales against
established aircraft makers.
In one partial precedent, Japan has extended overseas
development assistance (ODA) to the Philippines and Indonesia to
help those governments buy Japanese-built ships for coastal
But the rules of Japan's $17-billion annual ODA programme
forbid military support. Japan's government approved the aid
after winning assurances that the boats would be used only to
counter piracy and terrorism and after winning an endorsement
from the United States, Japan's main ally.
A more likely option for aircraft exports, according to the
three officials involved in the discussions, would be
low-interest loans from the Japan Bank for International
Cooperation (JBIC), a state-operated lender headed by former
Toyota Motor Corp chief Hiroshi Okuda, to the buyers.
The bank is funded largely by borrowing from the nation's
Foreign Exchange Fund Special Account, the pool of money
available for intervention in currency markets.
A spokesman for JBIC said the bank does not discuss any loan
applications as a matter of policy.
Masanobu Oogaki, a project manager at Kawasaki's aerospace
division helping oversee the C-2 project, said officials led by
the Ministry of Economy Trade and Industry had discussed seeking
JBIC loans for the military transporter once the company had a
potential overseas buyer.
JBIC typically charges interest of just over 1 percent on a
loan of less than five years. The bank has recently been
recruited to help Japanese companies win contracts for big
infrastructure projects. Most of its lending is linked to
securing overseas oil and gas reserves for Japan.
INDIA WEIGHS HISTORIC PURCHASE
ShinMaywa's US-2, used for search and rescue, may be the
first Japanese military-designed plane to win an overseas order.
Negotiations with India's military for what would be the first
sale are already underway, both sides say.
The plane, which could be outfitted for firefighting or as a
kind of amphibious hospital, costs an estimated $110 million per
An official at India's Defence Ministry who asked not to be
named confirmed that India has shown an interest in buying the
US-2 but said no decision had been made.
"Our policymakers are yet to take a decision as they are
still assessing how far it would be relevant to Indian
conditions," the official said.
ShinMaywa, which sees Canada's Bombardier Inc. as
its main competitor, estimates that there could be a global
market of about 100 amphibious planes for which it could
Kawasaki's Oogaki, said his company believes it can compete
for as many as 300 orders over the next decade or so with
potential customers in Asia, the Middle East and Africa.
The chief competitor to Kawasaki's twin turbofan C-2 is the
A400M military transport built by Europe's Airbus.
Similar in size and capability, the Airbus cargo plane has
racked up 170 orders in Europe at a price tag starting at around
So far, Japan's defense ministry has ordered three C-2s at
just over $200 million each in the most recent budget.
By opening export markets for military equipment makers, the
per unit cost of such equipment could fall because of the volume
of production, making it cheaper for Japan's own military as
well, a security panel that drafted recommendations for Abe said
The C-2 represents a major upgrade in the ability of Japan's
military to shift equipment and troops to far-flung locations.
Compared to its predecessor, the C-1, which is currently in
service, the new plane can lift nearly four times as much cargo
- enough to carry a mid-size helicopter, as depicted in sales
brochures drawn up by Kawasaki.
While the C-1 struggles to reach Japan's outlying islands,
the C-2 could carry a load from Tokyo to Kabul, for example.
Abe plans to release a review of Japan's military policy by
the end of the year that is expected to include a commitment to
open up military exports and arms development programs.
Mitsubishi Heavy is currently in talks over joining the
Lockheed Martin Corp led F-35 fighter jet programme as a
supplier after Japan placed an order for the aircraft.
In the meantime, Kawasaki, a major wartime maker of fighters
and bombers that has became better known for its motorcycles in
recent decades, plans to have the C-2 ready for service with
Japan's military by 2015.
The company has a team of around 10 people marketing the
C-2, which will be sold as the YCX overseas, Oogaki said.
Investors have anticipated a boon to heavy equipment makers
from a pivot in security policy under Abe and the sector has
outperformed in a rising market. Shares of Kawasaki are up 122
percent over the past year, while ShinMaywa is up 78 percent.
Mitsubishi Heavy has gained 90 percent. Over the same period,
the benchmark Topix index has gained 58 percent.