Regional jet makers eye China market boost but obstacles loom

Sun Dec 18, 2016 8:07pm EST
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By Brenda Goh, Allison Lampert and Brad Haynes

SHANGHAI/MONTREAL/SAO PAULO (Reuters) - New rules governing Chinese airline startups are fueling hopes at Embraer SA (EMBR3.SA: Quote), Bombardier Inc (BBDb.TO: Quote) and other regional jet makers for a spike in orders next year, but local competition and doubts about size restrictions still loom as major obstacles.

The new policy is aimed at encouraging fledgling carriers to boost domestic flights serving secondary markets in China rather than focusing exclusively on big cities. The three-month old policy has still not been published in its entirety, leaving the industry guessing on some key details.

But provisions include scaling back access to major hubs and a requirement that new regional carriers operate at least 25 smaller city-hopper jets before graduating to bigger aircraft, according to three industry sources familiar with the policy.

That could translate into Chinese demand for more than 250 new regional jets in the next two years, said one source familiar with a planemaker's outlook, providing a shot in the arm for a new generation of aircraft that has suffered a string of setbacks. Another source familiar with the market called the prospects more limited.

China is seen as anxious to prevent carriers from using niche markets as a back door to the main airline business by grabbing licenses to set up small regional or cargo airlines and then quickly defecting to the more lucrative big-city segment, dominated by Airbus and Boeing.

On paper, that should boost demand for regional jets including China's delayed ARJ21, developed by the state-owned Commercial Aircraft Corporation of China (COMAC).

The support for regional aviation in China should also encourage foreign market leaders such as Bombardier and Embraer, according to Yang Yang, a director at COMAC's Shanghai Aircraft Design Research Institute.

"This will potentially give them a big market to target," he said.   Continued...

An ARJ21-700, China's first domestically produced regional jet, arrives at Shanghai Hongqiao Airport after making its first flight from Chengdu to Shanghai, China June 28, 2016. REUTERS/Aly Song/File Photo