Airbus is leaning toward a decision to upgrade its narrow-body aircraft, its main source of revenue, with new engines and expects Boeing will follow suit, according to sales chief John Leahy.

But the world's largest planemaker will not complete studies on the move -- seen as one of the most significant decisions that both Airbus and rival Boeing face in coming years -- before end-September as it juggles engineering resources.

A new engine would offer airlines fuel savings of about 15 percent from 2015, pending more radical improvements in engine technology which Airbus does not expect for at least 15 years but which Boeing appears to believe could come sooner.

Planemakers must decide whether to offer the engine upgrade soon, and risk undermining large backlogs of planes already sold with older engines, or wait for a further leap in technology and build an all-new plane and engine costing well over $10 billion.

Airbus's top salesman favors going for the interim step.

We think that is way to go and that Boeing will be behind us before end of year, Leahy said of the re-engining project.

Let's make sure we have engineering resources in place, he said, adding that the same plane with new engines and fuel-saving wingtip devices known as Sharklets would meet strong demand.

We are running those tracklines through. By the end of September we will have whole thing put together ... Assuming that it works I would like to think we would be out there in the fourth quarter, he said, adding the proposals would have to be approved by the EADS board before Airbus could offer the plane.

He was speaking at a briefing before the Farnborough Airshow where he expects further evidence of a rebound in jet orders.

We had 131 firm orders at the end of June and I have a bet with Louis (Gallois) here that we will more than double that by the end of the air show, he said, referring to the chief executive of Airbus parent EADS, sitting at the same briefing.

Airbus and Boeing between them have more than 4,000 A320 single-aisle short- and medium-haul planes on their backlog.

Aircraft engine makers CFM International, co-owned by General Electric and France's Safran , and Pratt & Whitney, owned by United Technologies , have each brought out designs to burn 15 percent less fuel by mid-decade.

A step up to 25 percent in fuel efficiencies demanded by some airlines would need a new generation of engines, possibly using open rotors rather than fans housed in metal casing, which most industry analysts say will not be ready before next decade.


The timing is crucial for all companies involved as it would determine whether investments of several billion dollars in a re-engined Airbus A320 or Boeing 737 make financial sense.

Executives at CFM said on Saturday that they would need a production run of at least 10 years on their proposed new Leap-X engine in order to make their latest project profitable.

Leahy in turn said resale values of existing aircraft could be hit if the upgrade and completely new design were too close.

If the next generation is coming in 2019 then it would have a big impact on residual values, but if it is 2026-27, then it is a much longer run.

Residual values are important for leasing companies which have considerable sway over the commercial jet market.

Airbus plans to offer the interim new engine as an option.

The European planemaker oversaw the creation of a consortium called International Aero Engines as one of the alternative power sources for its now well-established A320 family.

IAE contains Pratt & Whitney, whose partners have not said whether they will join it in offering its Geared Turbo Fan engine from within the consortium as Airbus wants.

IAE member Rolls-Royce is a leader in open-rotor engines which could power the next generation after that.

Leahy said re-engining by the big planemakers would damage the 110-130 seat Bombardier C Series, a recent entrant to the market which boasts better fuel consumption and aims to encroach on the size range dominated by Airbus and Boeing.

If we don't re-engine, then Boeing probably won't, and then there will be a niche for the C Series ... but with re-engining there is no case for it, Leahy said.

Leahy also said he expected one or two extra A380 orders this year after Airbus sold 32 to Emirates airline last month.

(Editing by Jeremy Laurence)