Concentration on aero-engines and a record loss from the GTF burden (2024)

The danger of a concentration not chosen but left behind

The heart of this affair lies less in the quality problem itself than in the fact that the company had no mechanism to soften its shock. Aero-engines, the business left standing after shipbuilding and the other peripheral operations were pared away, certainly possessed the advantages of high barriers to entry and long-lived earnings. But a concentration that rose not from active choice but as the consequence of tidying-up weakens the work of thinning risk across fields, and transmits a wave of costs arriving from outside straight to the company’s earnings base. The $450.2M (¥68bn) loss can be read as the record of that structure surfacing all at once.

The speed with which net profit was restored the following year to the ¥100-billion class is at once proof of the business’s resilience and the flip side of the danger that its results are tightly bound to external demand and a single program. Can a concentration left over by elimination be rebuilt into a concentration chosen on purpose? How far to thicken other pillars such as defence and decarbonization, and how to hold risk divided among them? The task left to IHI lies, it seems, less in the rights and wrongs of concentration itself than in the single point of how to design the risk management that can withstand it.