In 1934, a specification for a modern twin-engined aircraft capable of operating both as a high speed airliner for the German airline Luft Hansa and as a medium bomber for the nascent Luftwaffe was issued to both Junkers and Heinkel. Five prototypes were ordered from each company; the Junkers Ju 86 and Heinkel He 111. Junkers' design was a low-winged twin engined monoplane, of all-metal stressed skin construction. Unlike most of Junkers' previous designs, it discarded their typical corrugated skinning in favour of smooth metal skinning which helped to reduce drag. The craft was fitted with a narrow track retractable tailwheel undercarriage and twin fins and rudders. It was intended to be powered by the Junkers Jumo 205 diesel engines, which although heavy, gave better fuel consumption than conventional petrol engines.
The bomber aircraft had a crew of four; a pilot, navigator, radio operator/bombardier and gunner. Defensive armament consisted of three machine guns, situated at the nose, at a dorsal position and within a retractable ventral position. Bombs were carried vertically in four fuselage cells behind the cockpit. The airliner version replaced the bombload with seating for 10 passengers, with fuel tanks being moved from the fuselage to the wings.
The first prototype Ju 86, the Ju 86ab1, fitted with Siemens SAM 22 radial engines as airworthy Jumo 205s were unavailable, flew on 4 November 1934, in bomber configuration, with the second prototype, also a bomber, flying in January 1935. The third Ju 86, and the first civil prototype, flew on 4 April 1935. Production of pre-series military and civil aircraft started in late 1935, with full production of the Ju 86 A-1 bomber commencing in April 1936. Production quickly switched to the improved Ju 86D with a modified tail cone to improve stability.
Early use of the Jumo powered Ju 86 bomber in the Spanish Civil War showed that it was inferior to the He 111, with the diesel engines being unsuitable for rough treatment during combat, and production plans were cut back. One Ju 86 had already been converted to use radial engines as a testbed for possible export versions, and this showed much improved reliability. With production switched to a version powered by the BMW 132 engine, the Ju 86E; production continuing until 1938.
The "Z" designation suffix for civil variants, introduced in 1936, was allocated to three models: the Jumo-engined Z-1 (corresponding to the former B-0 or C-1), sold to Swissair (one), Airlines of Australia (one), and LAN-Chile (three); the BMW 132H-powered Z-2 for DLH (two) and the para-military Manchukuo Air Transport (five or more); and the Pratt & Whitney Hornet-engined Z-7, delivered to AB Aerotransport (ABA) of Sweden (one, for use as a mail carrier), Lloyd Aéreo Boliviano (three), and South African Airways - SAA - (17). The ABA aircraft was later transferred to the Swedish Air Force, with which it served, under the designation Tp 9, until 1958. SAA's original intention was to have its Ju 86s powered by 745 hp Rolls-Royce Kestrels. Six aircraft for SAA, flown with these engines, were refitted with Hornets before delivery, and the remainder were also Hornet-powered.
The Ju 86K was an export model, also built under license in Sweden by Saab as the B 3 with (905 hp) Bristol Mercury XIX radial engines. Several aircraft remained in service with the Swedish Air Force until 1958. A few were converted to SIGINT platforms.