Under the production arrangement in which production was split 65:35 between Saab and Fairchild, Saab constructed the all-aluminum fuselage and vertical stabilizer along with final assembly of the aircraft in Linköping, Sweden, while Fairchild was responsible for the wings, empennage, and wing-mounted nacelles for the two turboprop engines.

However, sales of the type declined due to intense competition within the regional aircraft market.

[4] Accordingly, in January 1980, it was announced that Saab had entered into a partnership arrangement with US manufacturer Fairchild Aircraft to develop and produce the upcoming regional airliner.

In 1989, an improved version of the airliner, the second generation 340B, introduced more powerful engines and wider horizontal stabilizers; later production 340Bs also featured an active noise control system.

In 1994, the final third generation version, the 340B Plus, was delivered for service and incorporated improvements that were being introduced at the same time upon the larger Saab 2000, itself a derivative of the 340.

[10][11] On 24 December 1997, Saab announced that it had decided to terminate production of the 340, which it claimed had lost SKr3 billion ($386.4 million) in the previous three years.

According to Eliasson, the decision to power the type using turboprop engines rather that jet engines had been provided as one of the reasons for Saab deciding to close down the project; another major factor had been the increasingly competitive and politicized regional airliner market in which various competing airlines were alleged to have substantially benefited from government subsidies, while the Swedish government were unwilling to make such commitments to Saab's civil projects.

[14] According to authors Sören Eriksson and Harm-Jan Steenhuis, while the 340 had been faster than jet-powered competitors such as the Fokker 100 and British Aerospace 146, it had no clear advantage in terms of payload or range; as the regional airliner market became increasingly crowded, newer types such as the Bombardier CRJ200 and Embraer ERJ 145 family, which did have an advantage over the 340, had led to diminished sales.

A specialized variant of the aircraft, designated as the 340 MSA, was mooted; the proposed patrol aircraft is to be equipped with various sensors and combat systems to be capable of performing both anti-surface and anti-submarine warfare, as well as signals intelligence and long range search and rescue operations.

[5] During 1989, US regional airline American Eagle placed a large order for the type, procuring a total of 50 340Bs along with options for an additional 50 aircraft.

[18] However, business conditions and demand for turboprop-powered regional airliner transformed dramatically during the 1990s; this can be perhaps best summarized by AMR Eagle's decision in October 1999 to announce its intention to phase out its 340 fleet.

In July 2001, the company announced that it had launched a new partnership with service provider Piedmont Hawthorne to remarket used regional 340s to corporate customers.

[20] In April 2002, it was announced that Canadian company Field Aviation had been contracted by Saab to produce a freighter version of the 340, initially focusing on conversions of the earlier 340A model.

[25] By late 2010, Saab was evaluating the option of extending the certified lifespan of the 340 which, under the Maintenance Review Board program, is typically limited to 60,000 hours; the company believes the maintenance program could be extended to accommodate up to a 75,000 hour limit.

A systematic and logical design process resulted in an aircraft with a pressurized cabin, three-abreast seating and two turboprop engines on a low wing.