Japan considers cheap-loans plan to support military aircraft exports

PUBLISHED : Tuesday, 05 November, 2013, 10:36pm
UPDATED : Wednesday, 06 November, 2013, 5:56am

Japan is considering providing low-interest loans from a state-run bank to support exports of aircraft designed for military use.

It is the first time such sales are being considered since the end of the second world war, according to officials with knowledge of the proposed 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.

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 have also enquired about the Abe government's willingness to provide finance to help close sales against established aircraft makers.

In one partial precedent, Japan has extended overseas development assistance to the Philippines and Indonesia to help them buy Japanese-built ships for coastal patrols.

But the rules of Japan's US$17 billion annual oversease development assistance 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.

A more likely option for aircraft exports, according to the officials, would be low-interest loans from the Japan Bank for International Co-operation (JBIC) to the buyers.

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 firm had a potential overseas buyer.

JBIC typically charges interest of just over 1 per cent on a loan of less than five years.

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 under way.

The plane, which could be outfitted for firefighting or as a kind of amphibious hospital, costs an estimated US$110 million per unit. An official at India's Defence Ministry confirmed that India has shown an interest in buying the US-2 but said no decision had been made.

"Our policy-makers are still assessing how far it would be relevant to Indian conditions," the official said.