The C-102 had been designed to the Trans Canada Airlines (TCA) requirement from 1946, calling for a 36 seat aircraft with a cruising speed of 425 miles per hour, a "still-air" range of 1,200 miles, an average distance between stops of 250 miles, with 500 miles as the longest leg. The difference between the still-air range and maximum airport distances were to allow for the required 45 minutes stacking and flight to a 120-mile distant alternate airport in a 20mph headwind. The aircraft also needed to be able to operate from existing 4,000ft runways.
Initial plans called for the airplane to be powered by two Rolls-Royce Avon engines, then still in early testing and known as the AJ65. However the British were not willing to release the new engines to a foreign company for a civilian airliner, after the embarrassment of the Rolls-Royce Nene engine being sold to the USSR. The decision was made to replace the two engines with four less powerful engines, at which point TCA pulled out of the program due to the increased maintenance costs. This left the design without an initial customer, nevertheless Avro continued on with its plan to build the jet, selecting the Rolls-Royce Derwent to replace the Avon.
Two years later the first prototype, CF-EJD (-X), started making taxi tests, and first flew August 10, 1949, only 25 months after the design had started and only 13 days after the first flight of the Comet. On the second flight on August 16 the gear failed to extend, and the plane had to make a belly-landing. However the damage was minor, and the plane was in the air again in three weeks.
In April 1950 the Jetliner carried the world's first jet airmail from Toronto to New York in 58 minutes, half the current record time, where its crew was welcomed with a ticker tape parade through the streets of Manhattan. So new was the concept of jet power than the plane was made to park far from the terminal, and pans were placed under the engines in case the dripped any "self-igniting fuel". The plane suffered a mysterious "cracking" sound on the trip and was forced to stay on, but this allowed it to be presented to a number of potential customers, where it was competing against considerably slower designs like the DC-6 and war-surplus DC-3s. On its return (on the back of a train) the "cracking" problem was traced to the spar area around the engines, which was made much stronger. It was later learned the problem was actually too close tollerances between the engine nacelle and the spar, simply making a looser fit would have had the same effect.
At the time, in mid-1950, the Cold War was starting and the Canadian authorities were in the midst of expanding the military. Avro was involved in designing the first dedicated jet-powered night fighter for the RCAF at the time, the Avro CF-100 Cannuck. The project was well delayed, and their work on the Jetliner caused some controversy. After the plane returned it still had no immidiate sales prospects, so CD Howe (the "minister of everything") ordered the project stopped in December 1951.
However it only a few months later that Howard Hughes first learned of the design. He leased the prototype and had it flown to Culver City in California for testing. He became a believer, imagining TWA and National delivering passengers from New York to vacation spots in Florida in half the time of the competition. He became so desperate to buy 30 Jetliners that Avro had to repeatedly turn him down due to limited manufacturing capabilities and overwork on the CF-100 project, so Hughes then started looking at US companies to build it for them. Convair proved interested and started studies on gearing up a production line, but this was stopped by the USAF who complained that Convair already had more than enough work of their own, mirroring the Jetliner's fate in Canada.
The project was almost restarted in 1953, but this never happened. In 1955 TCA ordered 51 Vickers Viscount turboprop aircraft from Vickers-Armstrong in England. These were the first turbine powered aircraft in regular service in North America. They continued in service until 1969.
The Jetliner was later used as the aerial photo platform for the CF-100 project, and construction on the partially built second prototype was abandoned. On December 10, 1956 the Jetliner was ordered destroyed, and although it was donated to the National Research Council they had no room for storage and took only the nose section for cockpit layout design. The rest of the Jetliner was cut up on December 13, 1956. The only surviving parts are the nose and cockpit section in the Canadian Aviation Museum in Ottawa.