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Japan defence contractors get to grips with foreign military buyers

* Japan wants defence firms to pursue exports after ban lifted

* Tokyo Aerospace Show has more military flavour this year

* Japanese defence industry remains fractured, low profile

By Tim Kelly

TOKYO, Oct 14Until recently, public meetings between Japanese defence contractors and uniformed foreign military delegations would have stirred controversy in Japan, but this week's aerospace show in Tokyo saw plenty.

With the nation stepping back from decades of state pacifism amid concern over China's growing power and a deepening North Korean threat, Japanese defence companies are finally shedding their reluctance to sell arms abroad.

At the ShinMaywa Industries booth, Indonesian air force officials quizzed the company about its amphibious plane. In another corner of the Japan Aerospace 2016 show, Saudi Arabian military officers pored over military transport and patrol aircraft brochures handed out by Kawasaki Heavy Industries.

"The Indonesians are very interested in our plane," said a ShinMaywa salesmen, as one of his colleague went through US-2's specifications with the six-man Indonesian delegation. He asked not to be identified because he is not authorized to speak to the media.

The US-2 is one of the home-built military platforms that the Japanese government has identified as a candidate for foreign sales after Prime Minister Shinzo Abe in April 2014 lifted a ban on overseas arms sales.

The exhibition in Tokyo, which was last held four years ago in Nagoya, is the first major aerospace show since Abe came to power. The show drew some 800 companies as well as representatives from numerous of international militaries.

"We were visited by other foreign uniformed representatives apart from the Saudi military," a salesman for Kawasaki said, also asking not to be identified. "The exhibition is still mostly civilian, but it has more of a military feel than four years ago."

By ending seven decades of military industrial isolation, Abe is hoping to widen arms production to lower costs through greater economies of scale and share the expense of developing new weapons with other nations.

India began discussing a possible purchase of ShinMaywa's US-2 soon after restrictions on arms shipments were eased, although no agreement has yet been concluded.

Indonesian interest could provide an earlier opportunity to sell the plane abroad, but Jakarta is so far keeping its cards close to its chest.

"We are looking around at all the stalls," said an Indonesian general in the delegation, who declined to give his name.

REPUTATIONAL RISK

Japanese companies have been reluctant to highlight their arms businesses, wary of reputational damage to their other commercial businesses.

Japan's population remains sensitive to any perceived reversion to the militarism that many still blame for wrecking the country during World War Two.

Kawasaki, which is better know for making motorbikes, had models of a heavy lift military transport, the C-2, and a sub-hunting patrol plane, the P-1, both of which it makes for Japanese military. Japan's government believes both those could compete for overseas sales.

"The foreign military delegations were mostly interested in the C-2, and they most wanted to know the price," said the Kawasaki salesman.

Fuji Heavy Industries, better known for its Subaru cars, also builds military helicopters.

At the aerospace show it showed of a full-sized model of a planned new transport helicopter, dubbed the UH-X, and an experimental unmanned surveillance jet. Both have been ordered by the Japanese military.

"We haven't wanted our defense work to damage our Subaru brand. But things are changing since the change to export rules," said a Fuji Heavy official at the booth. "The foreign military delegations came by here too," he added, also asking not to be identified.

Other companies that avoid advertising their defense work include ball-bearing maker Minebea Co, which also makes 9mm pistols, and air conditioner company Daikin Industries , which has a sideline in rifle grenades.

Komatsu Ltd builds military-green armored vehicles in addition to its yellow excavators and dump trucks.

SPLINTERED INDUSTRY

After decades insulated from the competitive pressures that have forced western firms to group together into a handful of big makers, Japan's defense sector remains fractured, with work spread among hundreds of companies.

Military sales even at major defence contractors rarely amounts to more than a few percent of overall revenue.

Even at the largest contractor, Mitsubishi Heavy Industries (MHI), military sales amount to only a tenth of revenue.

Most of its booth at the aerospace show was devoted to civilian products, including space launch vehicles, models of Boeing aircraft it help builds, and a mock up of the interior of the Mitsubishi Regional Jet, which represents Japan's bid to establish itself as a regional jet maker.

MHI's defense business was confined to two small models on a small display stand at the side of the exhibition. One was a marine patrol helicopter; the other, an experimental stealth prototype that could evolve it a $40 billion project to build a new fleet of frontline fighters for Japan, and perhaps even overseas airforces.

"Foreign military representatives visited our booth," said the MHI official in charge of the display. "I think that is the first time that has happened at a show," he added. (Additional reporting by Nobuhiro Kubo; Editing by Lincoln Feast)

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