In a year-end deal announced just before Christmas, Mesa (MESA) said it will become the first U.S. airline to operate an airline within China.

After two years of nosing around the world's fastest growing aviation market, Mesa finally announced a joint venture with Shenzhen Airlines to create a Chinese regional airline that is expected to be launched within 12 months. Just as it did with its new go! operation, it will launch service with 50-seat regional jets on domestic routes which include flights to Shenzhen, Beijing, Chongqing, Xiamen, Nanjing, Kunming, Dalian, Shenyang, Xian, Zhengzhou and Nanning. While its press release spoke of domestic service, its SEC filing indicated the joint venture, which also includes a company called Shan Yu SRL, could include international flights as well.

Under the terms of the agreement, Mesa will assist the new airline in securing aircraft and spare part supplies from foreign suppliers and provide high level executives for the management of the joint venture. It will also supply technical support, including pilot, maintenance and operations support and training for employees of the joint venture. Each party's obligation to make capital contributions to the joint venture will be subject to the joint venture's receipt of applicable regulatory approvals and the ongoing operational requirements. Although the joint venture has received the preliminary approval of the Civil Aviation Authority of China (CAAC), commencement of the regional airline's operations remains subject to the final approval of applicable regulatory agencies in the PRC.

"We are delighted and privileged to be the first U.S. passenger airline to form a strategic alliance to operate in The People's Republic of China," siad Mesa Air Group Chair and CEO Jonathan Ornstein. "Under the leadership of President Li Kun, Shenzhen Airlines has earned an outstanding reputation in the industry. With a population of more than 1.2 billion people, China has more than 134 airports with plans to grow that number to 200 over the next 10 years. Furthermore, 40 of the 50 largest airports have expansion projects underway or planned."

China currently has just 70 regional jets in operation. The joint venture expects competition, especially from the nation's top three carriers. Even so, China's second tier markets remain vastly underserved.

The new carrier, which may be called Beijing Airlines, expects to have 20 50-seat regional jets in service prior to the Beijing Olympic Games in 2008, growing to more than 100 planes within five years, comprising a mix of 50-, 70- and 90-seat regional jet aircraft.

Shenzhen was founded in 1992 and currently operates a fleet of 45 Airbus A320 and Boeing 737 aircraft, flying 100 routes within mainland China and Southeast Asia. The company carried nearly 5.3 million passengers in 2006 and employs 6,300 people. The alliance with Mesa allows it to extend its service to smaller communities.