MHI to Reorganize Production Structure for

Presently the shipbuilding market is rapidly shrinking mainly due to the impact of the global economic crisis, accompanied by a widening gap between demand and supply of new ships. Amid this business environment MHI, looking to prepare itself for any prolongation of the current market conditions, aims to shift production to higher value-added products and establish a slim but solid business structure able to endure demand fluctuations through enhanced management efficiency. The transformation to the new structure will be progressively implemented toward a target date of mid-2012, when construction of commercial vessels already on order to the Kobe Shipyard will be completed.

Currently the commercial ship market remains stagnant due to a decline in maritime cargo transportation associated with the global economic crisis, and the prospect for a full-fledged market recovery is yet to be seen. Container carriers and tankers, segments in which MHI is strong, have been suffering considerable overcapacity, and few new vessel orders are expected over the long term. In addition, global shipbuilding capacity has been expanding significantly, mainly in China and Korea, in response to the shipbuilding "bubble" of the past several years, resulting in a wide gap between ship demand and supply.

In reflection of the current market trend, in its medium-term business plan (2010 Business Plan) for the five years beginning fiscal 2010 MHI has set down a new business strategy for its Shipbuilding and Ocean Development Business. The new strategy includes measures such as acceleration of earnings and cost structure reform activities and entry into large-scale projects and new business fields. Reorganization of the company's shipbuilding structure is based on this new strategy.

In view of various conditions including the market picture as well as facility and human resources, MHI has decided to concentrate its commercial ship construction at two shipyards. In line with this initiative, the Kobe Shipyard will establish a more efficient shipbuilding structure by specializing in specific ship types, particularly submarines.

On the back of the new reorganization, MHI will accelerate development of new business areas such as floating production, storage and offloading units for liquefied natural gas (LNG-FPSO) - which have come into the spotlight for small- and medium-scale offshore gas field development - and dedicated vessels for offshore wind-power generation system installations, in addition to large cruise ships exceeding 100,000 gross tons, for which demand is expected to be solid. In tandem with these initiatives, the company will further strengthen the competitiveness of its LNG carriers, LPG carriers, vessels for defense force and coast guard, domestic coastal ships and special-purpose vessels, while further enhancing environmental-related technologies such as "eco-ships." At the same time, the company will establish a solid operational structure by reducing fixed costs and promoting maximum utilization of human and facility resources through operation site concentration. Through these activities, MHI looks to further strengthen its competitiveness in the shipbuilding and ocean development fields in the years ahead.