The 4th Quarter announcement we have been expecting.....
PARIS (Reuters) - Airbus (Paris: NL0000235190 - news) turned up the heat on Boeing Co (NYSE: BA - news) and emerging competitors for its most popular aircraft by pledging to upgrade its best-selling A320 jetliner with state-of-the-art engines offering 15 percent fuel savings.
The world's largest planemaker said on Wednesday it would invest just over 1 billion euros (833 million pounds) in the "A320neo" project to improve efficiency and cut harmful emissions and noise. Now, the aviation world awaits word from archrival Boeing on whether it will upgrade its competing 737 narrowbody.
"Boeing really needs to watch this," said Richard Aboulafia, an aerospace analyst with the Teal Group. "They might have to play catch-up if they start losing customers."
The new Airbus planes, with upward-slanting wingtips, will look almost identical to existing aircraft but have larger and more efficient engines from either Pratt & Whitney, a unit of U.S. manufacturer United Technologies Corp , or CFM International, a joint venture between U.S.-based General Electric Co and French group Safran SA (Dusseldorf: 829036.DU - news) .
First (FSTC.OB - news) delivery of the overhauled jet would come in 2016.
Shares in Airbus parent EADS (EADSF.PK - news) rose 1.3 percent in Paris, while shares of United Technologies (NYSE: UTX - news) shot up 3.3 percent and GE rose 2.3 percent amid a broader U.S. market rally. Boeing was up 2.5 percent on the New York Stock Exchange.
The long-awaited Airbus decision, reported by Reuters on Tuesday, hits back at Canada's Bombardier Inc , whose CSeries leads a field of newcomers aiming to challenge Airbus and Boeing for a global market segment worth $1.7 trillion (1.08 trillion pounds) 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. Analysts said the Airbus work could boost Pratt's share in the narrowbody market.
Until now, Airbus and Boeing 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 Airbus move, saying it was nothing more than an effort to catch up with the 737, its best-selling model.
"This doesn't mean anything different for Boeing. We continue to improve the Next Generation 737," said Boeing spokeswoman Vicki Ray. "We have a 2 percent performance improvement package that will go into service in mid-2011."
Boeing said it was 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.
DELTA AIR LINES (NYSE: DAL - news) 'ENCOURAGED'
Airlines eager for the savings offered by more fuel-efficient aircraft were positive on the Airbus decision to re-engine.
"We are encouraged by Airbus' launch of the A320neo," U.S. carrier Delta Air Lines Inc said in an emailed statement.
"Delta (DELTACORP.BO - news) is satisfied with the more than 150 Airbus aircraft we operate today, and we will study the new Airbus offering very closely to determine if it merits a role in our domestic fleet in coming years," it added.
Airbus did not announce launch customers for the enhanced model but passed on endorsements from airlines including Germany's Deutsche Lufthansa AG (Xetra: 823212 - news) and Indian carrier IndiGo, without including any commitments on numbers of aircraft.
The head of AirAsia Bhd , Asia's largest budget carrier by fleet size, told Reuters he would discuss buying it.
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.
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 fills a slim gap until new aircraft appear from 2020 or 2025.
COST PRESSURE
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.
Rolls-Royce Plc , which partnered with 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.