By Tim Hepher
PARIS (Reuters) - Airbus turned up the heat on emerging competitors for its most popular aircraft by pledging to upgrade the A320 jetliner with state-of-the-art engines offering 15 percent fuel savings from 2016.
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The world's largest planemaker said it would invest just over 1 billion euros ($1.3 billion) in the "A320neo" project to improve efficiency and cut harmful emissions and noise.
The new planes, with upward-slanting wingtips, will look almost identical to existing aircraft but have larger and more efficient engines from either U.S. group Pratt & Whitney or CFM International, a joint venture between U.S. conglomerate General Electric and French group Safran.
Shares in Airbus parent EADS rose 1.3 percent to 17.49 euros by 1519 GMT.
The long-awaited decision, reported by Reuters on Tuesday, hits back at Canada's Bombardier whose CSeries leads a field of newcomers aiming to challenge Airbus and Boeing for a global market segment worth $1.7 trillion over 20 years.
Bombardier had no comment on the Airbus move which comes two weeks after China announced the first orders for the country's first viable home-grown commercial airliner, the C919, which it hopes to deliver from 2016.
It is also a critical move in a war between engine makers for dominance as the aviation industry climbs out of recession.
Until now, Airbus and U.S. rival Boeing, with its 737, had resisted changing winning designs that are the backbone of the global airline business and helped give birth to the low-cost sector.
Boeing dismissed the move, saying it was nothing more than an effort to catch up with Boeing's 737 airliner.
It said it was still studying whether to follow Airbus in upgrading with new engines or going for an all-new plane, which analysts say would take several years longer, but was meanwhile improving performance on aircraft currently in service.
"The 737NG is significantly more fuel efficient than the A320," a spokesman said in an emailed statement.
Airbus said the new engines would be offered as an option on A320 and derivative A319 and A321 models, while classic versions of the single-aisle aircraft family would remain on sale.
It said it saw a market potential of 4,000 A320neo family aircraft over the next 15 years and sales chief John Leahy told Reuters he expected the first 200 or so sales within a year.
Airbus had delayed a decision for months to ensure work needed on the project did not poach resources from its next all-new airliner, the mid-sized A350. The planemaker is smarting from delays to its A380 superjumbo and A400M military airlifter.
It must also ensure that sales of the new model do not drive down the value of existing aircraft, as some bankers fear.
Critics say the A320neo itself could fail to hold its value as it is fills a slim gap until new aircraft appear from 2020 or 2025.
Airbus did not announce launch customers for the enhanced model but passed on endorsements from airlines including Lufthansa and Indian carrier IndiGo, without including any commitments on numbers of aircraft.
Airbus said it was talking to several leasing companies.
"We will definitely look at it but our customers the airlines should be the ones dictating it," a spokeswoman for Singapore leasing company BOC Aviation said.
With aviation staging a fragile recovery, jetmakers are under pressure to offer savings in fuel. Bombardier's CSeries aims to drive down operating costs by using Pratt & Whitney engines similar to those now to be offered on the A320.
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.
Rolls-Royce, which partnered Pratt & Whitney on the original A320, has opted out of the upgrade project.
The decision, which was expected well before recent problems over bigger A380 engines, stemmed from doubts over whether it made sense to build a new engine now rather than invest in more radical and potentially profitable engine changes in the future.
(Editing by James Regan and David Cowell)
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