Analysts Weigh In On HondaJet’s Performance
Earlier in the month, the ambitious efforts on the part of Honda Motor to create its own aircraft company from the very scratch recorded two significant milestones. First, its smaller business jet got the relevant certification to fly in Japan, the home country of Honda. Secondly, the engineer who is behind Honda Aircraft Company, Michimasa Fujino handed a HondaJet to the first Japanese customer at Honda Aircraft Company’s factory located in North Carolina.
However, its output has significantly slowed down this year. Some analysts have opined that the slowdown was caused by the flaws in its decision to make the plane available for sale through a U.S-based dealership network and not to hire a sales force on its own, an approach typical for the practice of selling planes that cost several millions of dollars.
Fujino is fully behind this dealership approach and he holds the belief that it has the potential to help in generation of considerable sales in China and Japan where it expects to get certification in 2019. While speaking in an interview, he mentioned that Asia has a lot of opportunities. However, U.S. continues to be the primary centre of the market and analysts have said the company has to intensify its effort there.
Honda Aircraft has been lauded for its ability to become one of the very few new entrants that recorded success in the jet market over the last 50 years. According to Rolland Vincent, HondaJet is an airplane which is beautifully done, and its quality is unparalleled when it comes to that. However, the light jets market has become flat over the years since the company decided in the year 2006 to produce this plane. That affected the predictions given at the time and the past projections of Fujino that he would produce between 80 to 90 planes per year now appears farfetched.
The larger Japanese companies are well able to adopt a long-term approach as compared to the Western companies. However, after what analysts believe to be between $1.5 billion and $2 billion as an investment for getting the HondaJet project running, some observers have raised questions as to whether Honda is pleased with the sales it has made so far. According to Vincent, there is the chance that it is a technology showcase. However, a definite business case still has to be applied to the obtainable results.
Last year, the company was able to deliver 43 HondaJets, and it outperformed Cessna Citation M2 in the light business jet category. However, through this year’s first three quarters, its deliveries was only 21 which was about 30 percent down from one year ago. It isn’t a pleasant direction for a program which Honda Motor said recorded operating loss of about 41.8 billion yen which is approximately $380 million in the fiscal year which ended in the third month of this year after a previous loss of about 43.8 billion yen.
Causes Of Slowdown
According to Fujino, the slowdown was caused by a transitioning to the HondaJet Elite which is a more updated model. He expressed the belief that the deliveries will increase in 2019 with the inclusion of significant deliveries to its fleet customers. Fujino stated that Honda is adopting a very patient approach and currently his focus is on the creation of a product that is of high quality as well as the satisfaction of customers and not on profits. He believes that the profit will begin to flow within ten years from now. He emphasized that the company is viewing the business as one of Honda’s most important business segments in the long run.
Some analysts have stated that the slowdown could be partly attributed to the fact that the company is having to work through an order backlog which it built up before it started production (a practice which isn’t uncommon). However, that may not be the only cause. Vincent noted that there is news that some dealers have not been able to successfully sell the aircraft.
Although Honda is a victim of general demand slump for these light jets to an extent, Vincent believes that its decision to sell the airplane through dealerships is what is affecting its sales. Honda has refused to incur the expense accompanied by working with a sales team and Vincent admits that the dealers Honda chose to sell through have lengthy experience and good reputations in the market. However, it is not likely that dealers who have multiple products will be so focused on maximizing the sales of HondaJet that costs $4.9 million.
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