Brazil's Embraer mulls development of a larger jet

* Embraer may develop larger jet with more than 120 seats

* Sees demand for 875 regional jets in China over 20 years

* Shares up 2 percent despite posting 3rd-quarter loss

By Alberto Alerigi Jr.

SAO PAULO, Nov 4 (Reuters) - Brazil's Embraer (ERJ.N) (EMBR3.SA) is considering whether to develop a slightly bigger commercial plane to target a market niche in between regional jets and the larger airliners made by Boeing Co. (BA.N) and Airbus (EAD.PA), a company executive said on Tuesday.

Embraer, which was founded by Brazil's air force in 1969 to make military training and patrol planes, is the world's leading manufacturer of regional jets seating up to 120 passengers. In recent years it has also become a major producer of luxury business jets, one of the fastest growing aviation markets.

Now the company is toying with the idea of producing a larger plane that would thrust it into direct competition with the world's top two aircraft manufacturers, U.S.-based Boeing and Europe's Airbus.

"Whether we should develop a larger plane, alone or with partners, is something that we will have to decide," Antonio Luiz Pizarro Manso, Embraer's chief financial officer, said on a conference call.

"Right now, we think the market is well supplied by the existing models, the (Boeing) 737 and the (Airbus) A320," he added. "So our strategy is to wait a bit, especially to see what kind of engine can be developed for such a project."

Canada's Bombardier Inc (BBDb.TO), Embraer's archrival in the regional jet market, is already developing a larger jet in the niche that the Brazilian company is eyeing. Bombardier's CSeries plane will seat 110 to 130 passengers and hopes to poach business from the Boeing 737 and Airbus A320 families.

In a news conference in Sao Paulo on Monday, Airbus Chief Executive Thomas Enders said that the European manufacturer was open to developing a plane with Embraer in the future. Enders was scheduled to visit Embraer's main factory in Sao Jose dos Campos on Tuesday.

Asked about a potential partnership with Airbus, Pizarro Manso said Embraer is always open to new ideas.

"We're always engaged in talks, but there is nothing specific at the moment," he said, adding that Airbus's parent company, European aerospace group EADS, is already a partner in Embraer's unit in Portugal.

GLOBAL CRISIS

Embraer has not received any order cancellations because of the global financial crisis, which has restricted the availability of credit and is slowing economic growth around the world.

But Pizarro Manso said that the lack of credit is likely to force some clients to request delays on delivery.