CORRECT: GE Venture Gets Contract As China Aircraft Moves Ahead

China is close to finalizing the overseas partners for a new home-grown passenger jet project that is being closely watched as a sign of its technological prowess.

The state-owned Commercial Aircraft Corporation of China, or Comac, on Monday signed up General Electric Co. (GE) and joint-venture partner Aviation Industries of China with a letter of intent to supply avionics systems for the C919 jetliner.

The system proposed by the partners will be the "central information system and backbone" of the aircraft, hosting cockpit displays and maintenance and utility functions, GE said.

Rockwell Collins Inc. (COL) was selected to provide communications and navigation systems. The two announcements come days after Honeywell International Inc. (HON) was selected to provide wheels and brakes for the plane, which is expected to enter service in 2016.

China is investing heavily to promote the 150- to 200-seat jet and aims take a third of the market for single-aisle planes that is now divided between Airbus (ABI.YY) and Boeing Co. (BA). That target is viewed by industry executives as ambitious, but the plane's potential success could have an impact on trade balances between China and the U.S. and the European Union. Even if the plane only sells in China, it will shrink one of the industry leaders' most lucrative markets.

"China has been an extremely reliable customer [for Airbus and Boeing] through the economic cycle," said Scott Hamilton at Seattle consultant Leeham Co. LLC.

Boeing, which plans to update its long-term outlook later this week, estimates Chinese carriers will need more than 2,000 new single-aisle jets between now and 2028.

The C919 project was unveiled in 2008 amid fanfare that low manufacturing costs could make it a global competitor. The plane is due to fly by 2014 and enter service with Chinese airlines two years later.

Comac's lack of experience and infrastructure in servicing planes outside China has since tempered expectations about the C919's impact, but suppliers are keen to enter partnerships with the plane's maker and secure a share of its domestic market potential.

The GE and Honeywell contract awards tie up most of the loose ends for the C919. Comac had intended to finalize its partners by January, according to people familiar with the process. Units of Parker Hannifin Corp. (PH) and United Technologies Corp. (UTX) have also been signed up to make key components.

Completing the supplier roster will likely result in more details emerging on the C919's potential performance. While observers expect it to lag rival Airbus and Boeing planes, the jet could pave the way for a more competitive Chinese aerospace industry.

"I regard the C919 and the ARJ21 as proof-of-concept planes for better products to come," said Hamilton, referring also to a smaller Chinese jet that is under development.

GE is already a partner on the ARJ21 program, having signed up to provide the engines, and its leasing arm has ordered five of the aircraft. It also is lined up to provide engines for the C919 through its CFM International joint venture with France's Safran (SAF.FR). The engines have a list price of $14 million per two-engine plane.

The C919 deal is the first major contract for a joint venture GE is forming with AVIC to sell avionics for aircraft projects inside and outside China. The parties declined to disclose the value of the contract, but Kevin Michaels, a partner of AeroStrategy LLC, an aerospace consultancy in Ann Arbor, Mich., said it could be worth more than $1 billion over 20 years if China builds the targeted 2,300 aircraft.

"This aircraft was and is very strategic for GE," Michaels said.

Jennifer Villarreal, a spokeswoman at GE Aviation, said the conglomerate is waiting to hear on two more supply awards for the avionics on the C919, although Monday's announcement was "the major one." GE isn't troubled by delays in lining up the Comac's partners. "It takes a while to work the details out," she said.

Comac is starting to market the C919 to Chinese airlines, with the country's top three carriers widely expected to announce an initial 100-plane deal later this year.

In a sign of things to come, the first order isn't expected at the aerospace industry's main jamboree--the Farnborough International Air Show that starts at the weekend--but at the Zhuhai Air Show in November.

Michaels predicts Comac will have a tough time building the plane by 2016 and likely won't build the full 2,300. "There's a good chance of it slipping beyond 2016," said Michaels. "There's a tall order on systems integration and supply chain. There's a lot of moving parts here for them to pull something together in something they've never done before."

Later Monday, diversified industrial manufacturer Eaton Corp. (ETN) disclosed it signed a joint-venture agreement with Comac to support the aircraft program, whose value for Eaton the company put at $1.8 billion. The effort will focus on design, development and manufacturing for the global civil aviation market.

The latest announcement comes following a joint-venture framework agreement signed between Eaton and Comac in December. Comac will own a 51% interest in the effort.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

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