ARJ21-700 marks China's entry into regional jet market

Posted Dec 21st 2007 5:40PM by Joseph Lazzaro
Filed under: International Markets, Other Issues, China

China introduced its first domestically manufactured regional jet Friday as the nation attempts to enter the crowded regional jet manufacturing marketplace to meet its jet needs, Reuters reported.

The ARJ21-700, or Advanced Regional Jet of the 21st Century, is being built by state-operated manufacturer AVIC I, which also makes fighter planes and bombers, Reuters reported.

Analyst C. Leonard Bauer, formerly of Prudential, told BloggingStocks on Friday that while China's introduction of the ARJ21-700 is a historic moment for Chinese aerospace development and engineering, the company and airplane manufacturing process in the world's most populous country still faces formidable hurdles.

Chief among these will be strong competition, Bauer said. Canada-based Bombardier and Brazil-based Embraer (NYSE: ERJ) are two manufacturers in the sector with demonstrated proficiency, he said, and it's unlikely that AVIC I will be able to match flight performance for at least five to seven years.

"More than likely, China's aviation officials will concentrate solely on China's market, which is what they should do, as there's not likely to be many foreign orders for the ARJ21-700 for at least a half decade," Bauer said. "Aviation is a big 'known-commodity' business, which means it will be some time before the ARJ21-700 builds a foreign order book."

Two advantages

Moreover, in any other market, an aerospace company with a business model designed for one country would be deemed customer-inadequate, but this is not a typical market. It's the enormous China market, Bauer noted, which will enable the AVIC I business model for the ARJ21-700 to develop.

"The sheer size of China literally lets AVIC I build to one customer's specifications, which is a major manufacturing advantage," Bauer said. "They also have a market in need of at least 1,700-2,000 regional jets, probably more, that's an enormous market, and that will help with the production refinement process."

Further, AVIC I has another advantage, As is the case in many other China-based manufacturing zones, Bauer said that while it sometimes is hard to discern the line between production costs and state subsidy, China's skilled labor costs are considerably lower than its competitors. That won't totally offset AVIC I's likely lower productivity, Bauer said, but it will create "a plane with lower costs than it typically would have had, if the plane was built in Europe or the U.S."

Tags: aerospace, ARJ21, ARJ21-700, Asia, Bombardier, China, commercial aviation, Embraer, ERJ, inthenews