China forms company to make regional and jumbo jets

But many analysts have expressed scepticism about the commercial prospects of a large jet designed and manufactured entirely in China, given the country’s limited experience in big aircraft.

"They might be able to establish a presence in the business over the next 10 to 20 years," said Richard Aboulafia, an aviation analyst with Teal Group, while adding a key caveat.

"If they nurture it with government seed cash, and gradually offer shares to the private sector," he added.

The new company’s general manager, Jin Zhuanglong, gave no timetable for making larger aircraft, and said investment and cooperation were not limited to domestic companies.

China will make full use of worldwide resources to develop the aircraft, and welcomes cooperation from foreign companies, Jin told Xinhua.

NOT FIRST ATTEMPT

AVIC I, parent of Xi’an Aircraft International <000768.SZ>, developed the ARJ21. AVIC II’s Hafei Aviation Industry <600038.SS> makes the ERJ-145 regional jet in partnership with Brazil’s Embraer .

General Electric’s aircraft leasing arm said in March that it had signed a preliminary agreement to buy five ARJ21, the first order from a major foreign customer. There are total orders for about 181 ARJ21s, almost all from domestic carriers.

General Electric and Parker Hannifin supply parts for the ARJ21.

The project is not the first attempt by China to build a commercial passenger jet -- others include separate deals with McDonnell Douglas and Airbus -- but all have failed.

The technology used in the ARJ21 could also be a step behind modern jetliners that use light-weight composite materials and state-of-the-art technology to reduce fuel consumption.

"Initial specifications of the ARJ21 indicate that it’s a bit heavier than today’s" regional jets, said Aboulafia.

But China’s long-term goal is to make large passenger jets with more than 150 seats, or freighters capable of handling more than 100 tonnes of cargo, to give it a presence in the global commercial jet market.

Major state-owned Chinese firms, including the parent groups of Aluminum Corp of China (Chalco) <601600.SS>, Baoshan Iron & Steel <600019.SS> and state oil trader Sinochem International <600500.SS> will each invest 1 billion yuan in the company.

AVIC I and AVIC II both supply components to Airbus and Boeing, for the double-decker A380 jumbo jet and the 787 Dreamliner.

Chinese airlines, which Airbus projected need about 2,650 new passenger jets in the next 20 years, have been placing big orders with Boeing and its European rival in recent years to help keep pace with rapid economic growth.

Teal’s Aboulafia said Beijing can favour domestic airline companies and allow them to buy the best planes available, or the new company, by creating a captive domestic market.

"If they favour the jetliner industry, the airlines will be much less competitive on international routes," he said.

($=6.98 yuan)

(Reporting by Kirby Chien, Editing by Jacqueline Wong)