By Tim Hepher
PARIS (Reuters) - European planemaker Airbus <EAD.PA> announced plans on Wednesday to upgrade its best-selling A320 family of passenger jets with new engines to offer airlines precious fuel savings as it fends off upstart competitors.
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Airbus said deliveries of the improved "A320neo" family would begin in the spring of 2016 and that it would invest just over 1 billion euros ($1.3 billion) in the project.
The plane will look almost identical to existing medium-haul aircraft but with larger and more efficient engines from Pratt and Whitney <UTX.N> and CFM International, a joint venture between General Electric <GE.N> and France's Safran <SAF.PA>.
Airbus said that taken together with upward-slanting wingtips, which improve efficiency, the upgrade would save 15 percent in fuel costs and cut harmful emissions and noise.
The long-awaited decision, reported by Reuters on Tuesday, hits back at Canada's Bombardier <BBDb.TO>, China and Russia as they aim to challenge Airbus and Boeing <BA.N> for a segment of the global jetliner market, worth $1.7 trillion over 20 years.
It is also a critical move in a war between engine makers for dominance as the aviation industry clambers out of recession.
The new engines will be offered as an option on A320 and derivative A319 and A321 models, while classic versions of the single-aisle aircraft family will remain on sale.
Airbus said it saw a market potential of 4,000 A320neo family aircraft over the next 15 years.
The planemaker had delayed a decision for several months to ensure the work needed on the project did not poach resources from its next all-new airliner, the mid-sized A350.
"This is not really a huge investment from Airbus. We are going to be spending a little over a billion euros on this program. We are not redesigning the A320," sales chief John Leahy said in a video on Airbus' website.
Airbus did not announce launch customers for the enhanced model but a spokesman said there was "strong customer interest" including from Germany's Lufthansa <LHAG.DE>, which had agreed to study the details.
The project is expected to get a more cautious reaction from leasing companies, some of which have expressed concerns that it would drive down the resale values of older planes.
"We will definitely look at it but our customers the airlines should be the ones dictating it," said a spokeswoman for Singapore leasing company BOC Aviation.
With aviation staging a fragile recovery from recession, planemakers are under pressure to provide savings in fuel.
Until now, Airbus and Boeing have resisted changing winning designs that gave birth to the low-cost airline industry.
But they are being forced to defend their duopoly as newcomers target the biggest slice of the market by volume. To meet the threat without squandering too much cash, Airbus aims to extend the life of the 20-year-old A320 until 2025 when it believes the time will be right to develop a new plane.
Boeing has so far been more cautious about tinkering with its 737, the world's most-sold airliner, believing technology for an all-new plane may arrive sooner than Airbus reckons.
(Editing by James Regan)