Airbus to upgrade A320 engines: sources

By Tim Hepher

PARIS (BestGrowthStock) – Airbus (EAD.PA: ) agreed late on Tuesday to upgrade its best-selling A320 passenger jet with new engines in a bid to offer fuel savings and fend off emerging competitors, sources familiar with the matter said.

The project, estimated at between $1 billion and $2 billion, will see the launch of an optional new version of the popular family of passenger jets called Airbus NEO with the new engines offering better fuel burn. It will be announced early on Wednesday.

The sources spoke on condition of anonymity because the decision had not yet been announced.

Airbus declined to comment.

The A320 upgrade will include the latest engines for short- and medium-haul airliners from Pratt and Whitney (UTX.N: ) and CFM International, a joint venture between General Electric (GE.N: ) and France’s Safran (SAF.PA: ), from around 2015.

The revamp is a direct response to new competitors such as Canada’s Bombardier (BBDb.TO: ), followed by China and Russia, which are challenging the supremacy of Airbus and Boeing in the market for airliners with more than 100 seats.

It also represents a move in a war between engine makers for leadership in a highly cash-generating segment of the industry.

“It is a necessary and smart move. It is not without risk, but the alternative of doing nothing and being outflanked by competitors is far worse,” said Teal Group aerospace consultant Richard Aboulafia.

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.

Boeing has been more cautious than its European rival about tinkering with its 737, the world’s most-sold civil aircraft. It believes technology for an all-new plane guaranteeing strong sales may arrive sooner than Airbus thinks.

“I think Boeing will wait and see. The customers and the market are going to make the decision,” Aboulafia said. “Boeing will listen to customers and if there are any major defections then they will no longer have the luxury of time.”

ENGINE MAKERS SPLIT

New engines — the ‘geared turbofan’ from Pratt & Whitney and LEAP-X from CFM — aim to offer fuel savings of some 12-15 percent from 2015, pending a deeper shake-up of engine design that could cut costs by up to 30 percent from 2025-27.

The upgrade move finalizes a split between Pratt & Whitney and consortium partner Rolls-Royce (RR.L: ), which has decided to go its own way and delay investment on engines of this size.

Airlines will still be able to select the basic 150-seat A320 model with earlier engines, but there have been concerns over whether such planes would maintain their resale value.

The upgrade decision came after a lengthy audit of resources ordered by Airbus Chief Executive Tom Enders to avoid poaching engineers needed for a bigger project, the next-generation A350.

A crucial piece of the puzzle fell into place earlier on Tuesday when Airbus adopted changes in the way it organizes engineering resources for the A350 aircraft program, and sources said a go-ahead on the A320 NEO then looked imminent.

Officially, the projects are unrelated. But securing the A350 against a repeat of past mishaps was seen as necessary before Airbus could risk embarking on other ventures.

The 270-350-seat A350, expected in service in 2013, is Airbus’ answer to the lightweight Boeing 787 Dreamliner.

Boeing said on Tuesday it may have to delay deliveries for a seventh time after a recent test plane fire.

Airbus to upgrade A320 engines: sources