APRIL 23, 2013 — Japanese media report that Kawasaki Heavy Industries Ltd. and Mitsui Engineering & Shipbuilding Co. are close to starting talks on integrating their business operations.

A merger would create a shipbuilding and heavy engineering giant with, according to newspaper Asahi Shimbun, "1.8 trillion yen ($18 billion) in revenue, putting it in second place behind industry leader Mitsubishi Heavy Industries Ltd."

Business integration may be the only way for the two companies to survive fierce competition from South Korean and Chinese rivals, some sources said.

The shipbuilding operations of both companies are under severe competitive pressure.

Asahi Shimbun reports that in its financial statement for the fiscal year ended March 31, Mitsui Engineering is expected to report a one-time charge to correct the value of over-valued assets in its domestic shipbuilding yards and, as a result, will likely report a net loss for the first time in 11 years. The newspaper says that Kawasaki Heavy "has been also struggling in its shipbuilding business."

Both companies are reportedly discussing the issue of business integration with their main creditor banks.