Shenzhen Airlines and Mesa Air Group signed an agreement on Friday to create a regional airline that would be China's first Sino-foreign joint venture specializing in feeder airline service.

Shenzhen Airlines said the regional carrier would build a "highway in the air" between China's second-tier cities and connect them with the trunk lines. But it declined to specify which regions of China it would focus on.

The new airline, also the first joint-venture airline between China and the United States, is expected to start operation before the end of next year.

With 500 million yuan (US$64 million) in registered capital, the new company will be 51 per cent controlled by Shenzhen Airlines, 25 per cent by Mesa and 24 per cent by Wilmington Trust, a Delaware-based financial service provider.

The new airline will be the first overseas joint venture by Mesa, one of the leading regional airlines in the United States.

"We have been considering overseas expansion for years," said Jonathan Ornstein, chairman and chief executive officer of Mesa. "The aviation market growth of China is an attractive investment opportunity for us."

Phoenix, Arizona-headquartered Mesa operates 188 regional jets and flies to 173 cities in the United States, Canada and Mexico.

Ornstein is confident that, as China's urbanization picks up speed, there will be increasing air travel demand from small and medium-sized Chinese cities, which is an ideal market for regional aviation.

The new carrier, whose name has not been decided yet, will initially have 20 50-seat regional jets and is expected to add 20 planes annually. Its goal is to become China's largest regional carrier with 160 to 200 feeder jets, each having 50 to 90 seats.

Ornstein told China Daily that he was "very interested in using regional jets manufactured in China" to serve the expansion.

China's home-grown ARJ 21, which seats 70 to 100 passengers, will enter commercial service in 2009. The aircraft is manufactured by China Aviation Industry Corp I (AVIC I). The company plans to develop a new turboprop aircraft with 35 to 70 seats to replace the 50-seat MA60, or Xinzhou 60, launched in the 1990s.

China also produces the 50-seat ERJ 145 in Harbin, Northeast China's Heilongjiang Province, at a joint venture between AVIC II and Embraer.