If successful, it will become the first to fly a budget airline on China's domestic routes.

The move to start a no-frills carrier will likely be a joint venture with at least one Chinese company because although foreigners may invest in China's civil aviation sector, they are allowed only a 49-per-cent stake in such partnerships.

While the identity of the applicant has not been revealed, market watchers have pointed to A-Sonic Aerospace as the most likely candidate.

On Monday night, the company requested for a halt in trading on Tuesday "pending an announcement to be made".

Over the past six months, the aircraft and avionics retrofitting company had also indicated a strong interest in Asia's fledgling budget travel market.

Its statement in July said: "The growth of LCC in Asia is anticipated to be good, in line with the expected increase in air passenger traffic."

Besides its recent expansion into aircraft sale and leaseback, A-Sonic is also bidding to buy into Australian LCC Skywest, by undertaking to invest $5.6 million for a 32-per-cent stake in the budget carrier's single largest shareholder, investment firm Captive Vision Capital (CVC).

With a 30.2-per-cent stake, CVC is engaged in a hostile takeover bid for the rest of Skywest that it does not own.

A-Sonic chief executive Janet Tan said earlier this month that with its stake in CVC, A-Sonic would be "in a position to tie up Skywest with other players in China to enable it to spread its wings overseas".

A-Sonic derives more than half its revenues and earnings from clients such as Air China, China Eastern Airlines and Southern China.

Standard and Poor's Asia MarketScope editor Shukor Yusof said that with LCCs "all the rage", it was not surprising that A-Sonic, with its links to China, would be interested in setting up a budget airline there. However, he doubted that a deal could be completed before the year-end.

"There's a huge potential for an LCC in China, but it's a huge country and logistics will be a challenge," he told Today.

"The aviation business in China is still undergoing a lot rationalisation and consolidation between big and small carriers, and the phasing out of unprofitable carriers."

A-Sonic shares gained 2 cents, or 5.1 per cent, to close at 41 cents on Monday. - TODAY