For the nine or 10 people besides me that follow China’s commercial aerospace sector, Reinhardt Krause posted an excellent summary on how China’s plan to build its first big passenger plane promises to reshape its fast-growing aviation market and what’s at stake for suppliers. Here’s my take on how it impacts Boeing and Airbus.

The Sino Sitch

–China’s aviation market is booming, with passenger traffic growing 20% a year, aggressive capacity and fleet expansion and a whirlwind of consolidation activity.

–Airline stocks, such as Hong Kong-listed Air China, China Southern and China Eastern, have rebounded strongly in 2010.

–The country will open 10 new airports this year, according to the Civil Aviation Administration of China. The CAAC expects 250 airports by 2020, up from 176 at year-end.

Boeing and Airbus in China

–Boeing delivered its 800th airplane to China in July, and has an order backlog of nearly $30 billion from China. (Almost 60% of aircraft in China’s fleet is made by Boeing.)

–China is Boeing’s biggest export market. “Not by a little, but by a lot,” says Boeing Chief Executive James McNerney.

–If I had to guess, Airbus has delivered exactly 601 airplanes to China. Plus or minus 100. (Airbus doesn’t share info like Boeing does.

–That said, Chinese airlines will account for 20% of all Airbus planes delivered in 2010, compared with 3.5 percent a decade ago. (Opening a final assembly facility in Tianjin last year helps.)

Enter the C919

I’ve written a little about China’s homegrown jets before, but the next gen of indigenous aircraft promises to be a potential ball-buster for current airframe kingpins Boeing and Airbus. China’s next big thing, the home-grown C919, will be the first all new narrowbody in almost 30 years. Seating up to 190 passengers, the single aisle airliner packs a wallop on the status quo.

–The C919 is a direct challenger to the Airbus A320 and the Boeing 737 families, dominant airline favorites even with their aging designs.

–The C919 will likely have the latest and greatest technology from offshore suppliers that are willing to put their IP at risk.

–Among other things, the C919 should be at least 15%-18% more fuel efficient, with a faster cruising speed (Mach 0.785) and longer range. It will also be wider than the 737 and A320.

–For pilots, the C919 will have basically the same fly-by-wire flight control system as Boeing’s upcoming 787, courtesy of Honeywell. (For the layman, fly-by-wire systems replace manual flight control. At the risk of offending the only commercial pilot reading this, in Airbus jets, which feature fly-by-wire, the computer flies the plane. In Boeings, the pilot flies the plane; the only current exception is the 777. Yes, I know I’m over-simplifying.)

The magnitude of the C919’s market entry and potential impact can’t be understated. The 737 series is the best selling jet airliner in history. According to FlightGlobal, there are on average 1,250 737s airborne at any given time, with one departing or landing somewhere every five seconds. The last time I looked it up (about five seconds ago), there were over 4,500 currently in service, with 2,016 orders yet to be filled.

The Airbus A320, with almost 3,400 in service (Boeing’s 737 family has a 20-year headstart), is the plane that hero Capt. Chesley “Sully” Sullenberger landed in the Hudson River last year after both engines choked on a flock of geese and went kaput. Sully, with no engines working and a computer-aided assist, skillfully dropped an 80-ton missile into a freezing body of moving water. All 150 passengers and 5 crewmen lived. Nuff said.

Will Anyone Buy the C919?

With the C919, China aims to satisfy some of its domestic demand and boost exports, initially in Asia. State-owned Commercial Aircraft Corp. of China (Comac) expects to sell 2,509 C919s over 20 years.

Over the same period, Boeing estimates China to be a 3,770 aircraft, $400 billion market. More than 2,600 of those are forecast to be narrowbody aircraft (uh, like the A320, 737 and C919). You do the math.

In my book, the C919 will be as close to a sales slam dunk as you can get, at least in China. State-owned Air China, China Eastern and China Southern are expected to order the C919 as they have ready-access to bank financing as well as injections of government cash when needed. China’s other 15 or so domestic airlines will likely follow suit. (Like I said earlier, carrier consolidation is going nuts so it’s hard to keep track of who owns who. At the beginning of this year there were 20 Chinese domestic airlines. I think.)

As for offshore carriers, they have ready access to Chinese financing as well, with many already taking advantage–Southwest Airlines, British Airways, Qantas, Lufthansa, Air France and Virgin Blue to name a few. In addition, both Boeing and Airbus have deals with Chinese institutions for customer financing support to help fill the void left by the exit of many U.S. and European banks. China Construction Bank, China Development Bank, Bank of China, the Industrial and Commercial Bank of China (ICBC), and the Export-Import Bank of China are among China’s financial institutions offering global capital financing for airplane purchases.

Globally, Airbus A320 and Boeing 737 sales are smoking hot, for example, dominating bookings at the recent Farnborough Air Show. Deliveries to date are cooking as well, with 159 737s and 140 A320s delivered at the half year mark. Both Boeing and Airbus are ramping up monthly production.

In China, new orders for the 737 and A320 are brisk. Air China, the world’s largest carrier by market cap, bought 20 more 737s in June, and followed that up with an order for 20 A320s in July. (The airline’s current fleet includes 55 Airbus A320 and 118 Boeing 737 family aircraft. Is this too much detail for you?) Capital Airlines, Beijing’s first local carrier, plans to buy 20 to 30 A320s in 2011.

Only If It Flies

This conversation is moot, of course, if the C919 can’t get off the ground. Honestly, no one expects COMAC to get the C919 right on the first try, $30 billion in development costs notwithstanding.

On the calendar, the C919 is slated to fly in 2014 and enter service in 2016. (Good luck with that.) There will be inevitable integration delays that even the OEMs can’t handle (see Boeing 787 and Airbus A380).

But when it does fly, we’re talking shake up, not necessarily of apocalyptic magnitude but certainly big enough to hurt both Boeing and Airbus. Global demand for narrowbodies over the coming two decades will be 21,160, according to Boeing estimates. That’s $1.7 trillion worth of aircraft that, at present, Boeing and Airbus would expect to snag more than 90% of the orders.

There’s no doubt that Chinese airlines will snub the 737 and A320 for a homegrown jet, even if only to support China’s aerospace manufacturing ambitions. My sources in Beijing, who spoke on condition of anonymity because they are not authorized to speak on the record, say that they will pump as many additional dollars into the C919 program as necessary. China wants to be a major airframe player, and with the successful launch of the C919, they stand a solid chance of skating by Embraer (Brazil) and Bombardier (Canada), pretty much in a blink of an eye to play with the big boys.

Again, read Reinhardt Krause’s post to see what’s at stake for suppliers. They face some tough decisions on what to sell to whom.