China forms company to make regional, jumbo jets

By Kirby Chien

BEIJING (Reuters) - China has established a company to build regional commercial jets, with an eye to eventually reducing the country's reliance on Boeing (BA.N) and Airbus (EAD.DE) for jumbo jets, official media said on Sunday.

Commercial Aircraft Corp of China is capitalized at 19 billion yuan ($2.72 billion), with 6 billion yuan coming from the state-owned Assets Supervision and Administration Commission, giving it the single largest stake at 30 percent, Xinhua said.

A consortium made up of the municipal government of Shanghai -- where the ARJ21 regional jet is being developed -- and China's two state aircraft makers, AVIC I and AVIC II, will have a 25 percent share for 5 billion yuan, it said.

The 90-seat ARJ21-700 was unveiled late last year, China's first domestically developed regional jet which will be test flown later this year and is scheduled to begin deliveries sometime late next year.

But many analysts have expressed skepticism 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 Corp (000768.SZ), developed the ARJ21. AVIC II's Hafei Aviation Industry Co (600038.SS) makes the ERJ-145 regional jet in partnership with Brazil's Embraer (ERJ.N)(EMBR3.SA).

General Electric's (GE.N) 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 (PH.N) 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.