* Deal reflects opening of Chinese airspace to low flying
* Airbus Group says Chinese helicopter demand to quadruple (Adds CEO quotes, background)
By Andreas Rinke and Tim Hepher
BEIJING/PARIS, July 7 (Reuters) - Airbus Group NV's helicopter division sealed a $600 million deal on Monday to sell 123 helicopters to Chinese companies during a visit by German Chancellor Angela Merkel.
The orders, including both light single-engine helicopters from Airbus Helicopters' Ecureuil family and the light twin-engine EC135, are being placed by three Chinese general aviation service providers, the company said.
The deal is among the biggest since China recently relaxed restrictions on low-altitude flying in its mainly military-controlled airspace.
The easing of controls has fuelled projections of a sharp increase of orders to fill a gap in one of the world's major untapped markets for helicopters and general aviation.
"We think these first sizeable contracts are signals that this market is starting to take off," said Guillaume Faury, chief executive of Airbus Helicopters.
"Today there are 350 civil helicopters flying in China. In Europe there are 10,0000 and in the U.S. there are 12,000. Therefore the market potential for helicopters in China is huge," he said in a telephone interview.
China currently buys about 50 helicopters a year out of an annual global market for 800 civilian helicopters, according to estimates by Airbus Helicopters, formerly known as Eurocopter.
By 2020, its purchases are expected to quadruple to 200 a year and by then, instead of 6-7 percent of the global market, it is expected to make up 20 percent of demand, Faury said.
"This means a significant shift in the market and we will of course be open to opportunities to keep investing in China and to continue to be present, not only commercially but industrially, as the market continues to flourish," Faury said.
Airbus Helicopters, part of the Franco-German Airbus Group , co-operates with China's industry on two programmes, the EC120 light helicopter and EC175 medium helicopter.
The world's largest civil helicopter maker has a market share of 40 percent in China but expects this to rise as the country's buyers prioritise light single-engined and light twin-engined rotorcraft - two segments in which it has most sales.
Airbus Helicopters is initially targeting a Chinese market share of 50 percent, Faury said. But it is seen as facing stiff competition from Anglo-Italian rival AgustaWestland and U.S. Sikorsky, a unit of United Technologies.
China could also be ready to build its own civil helicopter from scratch by the end of the decade, Western experts say, as it seeks to strengthen its bid to become a new aviation power.
In other aviation business during Merkel's visit, Germany's Deutsche Lufthansa AG and China's flag carrier, Air China Ltd, signed a provisional deal to expand their partnership ahead of a possible commercial joint venture.
The two Star Alliance members also said they were working to offer better flight connections, particularly on China-Europe routes, and expand collaboration in maintenance and services.
But planemaker Airbus did not announce jet orders, as some in the industry had predicted, and the expected purchase of dozens of A320-family jets could now be postponed until further contacts between German and Chinese officials in October. (Reporting by Andreas Rinke and Fang Yan in BEIJING; Editing by Paul Tait, Matt Driskill and David Evans)