Mitsubishi Heavy discusses U.S. armored vehicle tie up after losing sub deal

[August 31, 2016]  By Tim Kelly and Nobuhiro Kubo

TOKYO (Reuters) - Mitsubishi Heavy Industries (MHI) is in talks with an unidentified U.S. company over a possible partnership to develop an armored vehicle that for the first time could see a Japanese firm build arms for a foreign customer, a senior executive said.

MHI is moving forward in the talks in the wake of its failure, as part of a Japanese government bid, to win a $40 billion contract to sell submarines to Australia.

Prime Minister Shinzo Abe's administration had hoped that the contract would be Japan's first major export deal after ending a decades-old ban on foreign arms sales in April 2014.

A partnership with a U.S. firm may prove an easier route into overseas markets for the globally inexperienced company.

"The U.S. is the easiest overseas market for us to do business in," Hisakazu Mizutani, the head of MHI's Defense and Space Systems business told Reuters in an interview on Tuesday.

Better known as the maker of the World War Two-era Zero fighter, Japan's leading defense contractor has hitherto developed kit exclusively for the nation's Self Defense Forces (SDF), which controls the rights to that technology.

Building arms for foreign customers could give MHI more control of the intellectual property and make it easier for the firm to get approval to sell its products overseas.

Mizutani said MHI was keeping the Japanese government informed of its discussions with the U.S. company. The results of those talks may be known by the year end, he added.

"We are in talks with a U.S. company are also discussing it with Japan's Ministry of Defense," Mizutani said.

Members of a tank unit of Japan's Self-Defense Forces (SDF) riding on Type-10 armoured tanks take part in a military review during the annual troop review ceremony at Asaka Base in Asaka, near Tokyo October 27, 2013. REUTERS/Issei Kato/File Photo

"We were approached by the U.S. company," he added.

Since Japan's defeat in 1945 and the start of its close security alliance with the U.S., MHI has built partnerships with big American defense contractors including Lockheed Martin Corp, Boeing Co and Raytheon Co.

They have partnered on projects for the SDF such as its F-2 fighter, and agreed on licensed production of equipment including Patriot missile batteries, Chinook helicopters and other aircraft.

A partnership in armored vehicles would provide new avenues for MHI, the maker of Japan's main battle tank, to sell its defense technology in overseas markets.

Potential foreign partners could be attracted by MHI's armored vehicle technology, notably its heavy-duty tank engines, its gear technology and water jet propulsion systems that could be used to drive amphibious vehicles.

In its latest budget request on Wednesday, Japan's defense ministry said it will begin research on a new amphibious assault vehicle to replace the AAV7 built by the U.S. unit of BAE Systems Plc. The U.S. Marine Corp is also mulling a replacement for the 40 year old vehicle.

(Editing by Simon Cameron-Moore)

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