EARLY next year, a sleek and compact new airplane with two turbopropeller engines is expected to land at Noi Bai International Airport in Hanoi and make history.When the ATR 72 touches down here, it will be the first Western-built aircraft to carry the blue-and-white colors of Vietnam Airlines, the state-owned carrier. A second ATR is scheduled for delivery at the end of 1992. The European-manufactured plane promises to revolutionize air travel within Vietnam. Used on international routes, the ATR also could add to the country's steadily improving ties with neighboring Southeast Asian countries. Until now, a strict United States trade embargo has foiled Vietnam's numerous attempts to modernize its ramshackle fleet of about 30 aging Soviet-made jet and propeller planes. The sanctions prohibit any goods with even a fractional amount of American-made content from being sold or leased to Vietnam. Since most of the world's aircraft, except the Soviet models, are made in America or contain some US parts, Vietnam has been effectively barred from the market. Under pressure from Washington, giant multinational companies including Boeing, British Aerospace, and Airbus Industrie, a European consortium, have been unable to conclude deals and discussions with Vietnam. A contract to sell Vietnam two Airbus A-300s was scrapped last year due to Washington's protests. The planes use engines made in the US by General Electric Company. Vietnam is able to purchase the ATRs not because Washington has had a change of heart, but because the airplane has no American-made parts and therefore skirts the embargo. The ATR is a joint venture between France's Aerospatiale and Aeritalia of Italy, using engines made by Pratt & Whitney Canada. The technologically advanced plane, which costs about $12 million and can seat up to 74 passengers, is used worldwide for distances of less than 1,200 miles. Nguyen Hong Nhi, general director of Vietnam Airlines, said in an interview that if the ATR performs as expected, the airline would consider buying more. Mr. Nhi remained vague about how the new planes would be used. The ATR can easily handle domestic routes and the short distance to Bangkok. More importantly, the plane could fly nonstop to Hong Kong. Officials there have stalled a reciprocal landing-rights arrangement between Vietnam Airlines and Cathay Pacific, Hong Kong's flag carrier, citing safety and noise concerns about the Vietnamese carrier's antiquated jets. Flying Vietnam Airlines is an experience far removed from the luxurious pampering that distinguishes most Asian carriers. As befits the airline of a communist country, frills and separate classes are non-existent. With a monopoly on domestic flights, the airline offers passengers an uncertain experience. Changes of equipment and cancellations are common. Flights between Hanoi and Ho Chi Minh City use unsettling, Soviet-made Tupelov 134 jets, some of which have balding tires. Overhead air-conditioning vents fill the narrow cabin with a thick white haze. Printed above the emergency exits in English and Russian - but not Vietnamese - are instructions telling passengers to use an "escape rope" in the event of a forced landing. Occasionally the Tupelov is substituted for an even more outmoded Ilyushin-18 propeller plane. Known in Vietnamese as "Hang Khong Vietnam," the airline has managed a fair enough safety record, but cannot shake a reputation for being unsafe. Westerners derisively call it "Hang On" Vietnam. Indeed, when the eruption of the Philippine's Mount Pinatubo volcano covered Ho Chi Minh City with a fine coating of ash one day in June, Air France canceled its flight from Bangkok for safety reasons. But Vietnam Airlines flew in two planeloads. Vietnam Airlines has made improvements in maintenance and service over the past year, a notable endeavor for a company that survives on government subsidies. The airline competes on lucrative Bangkok flights with Thai Airways and Air France. These Western carriers are full with business travelers, particularly between Bangkok and Ho Chi Minh City. Vietnam Airlines wants a larger share of this traffic, and it has begun to understand that providing better safety and service is the only way. Flight attendants in crisp turquoise uniforms now order passengers to stow carry-on luggage and make sure seat belts are fastened. Meals are served cold on a blue plastic tray and include rolls, fruit, meat, and a packaged container of pineapple juice. On the ground, reservations agents use computers to confirm bookings, and the airline will soon join an international reservations network. Compared to how it was, this is first-class. Apparently it has helped that both Japan Air Lines and Scandinavian Airlines are instructing Vietnam Airlines staff in management, marketing, and in-flight service skills. The ruling Vietnamese Communist Party, as part of continuing economic reforms, intends to privatize lesser state industries. Vietnam Airlines, although it might benefit, is not a candidate. Nhi says the company would welcome an operating venture with a Western airline, but claims that US sanctions block such deals. "We made a joint venture with SAS, but due to the embargo this has not materialized," Nhi says. An agreement for Vietnam to lease a Scandinavian Airlines Boeing 767 has in fact been tabled, but perhaps not because of the embargo. The US Treasury Department did not object to the deal, says Robert Levine, a Treasury spokesman. SAS officials add that a Vietnamese delegation in Stockholm last May was abruptly called home without signing a contract. Some speculate that Vietnam Airlines received a better offer or decided to save the money. Hanoi does plan to spend as much as $300 million over the next decade to upgrade facilities at the country's major airports. And Vietnam Airlines will try to purchase new, Western-made planes. Long-range aircraft are the most cost-efficient choices, but the embargo keeps them from Vietnam. If sanctions are lifted and Vietnam Airlines acquires larger aircraft, its goal would be to operate a full schedule of flights across Asia.