PARIS European planemaker Airbus plans to upgrade its best-selling A320 medium-haul jets from 2016 with new engines offering 15 percent fuel savings, as it fends off upstart competitors.
Airbus said on Wednesday it would invest just over 1 billion euros ($1.3 billion) in the "A320neo" project to improve efficiency and cut harmful emissions and noise.
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.
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 were up 0.8 percent to 17.3950 euros by 0900 GMT, when Safran stock was up 0.5 percent.
The long-awaited decision, reported by Reuters on Tuesday, hit back at Canadian group Bombardier, China and Russia who all aim to challenge Airbus and Boeing for a segment of the global jetliner market, worth $1.7 trillion over 20 years.
It was also a critical move in a war between enginemakers for dominance as the aviation industry climbs 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.
It 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.
"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's website.
Airbus did not announce launch customers for the enhanced model but a spokesman passed on endorsements from German carrier Lufthansa, which will study the details, and AirAsia, Airbus's largest Asian customer.
Neither airline committed to a number of planes.
The project was 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 aircraft or the more than 2,200 already sold and waiting to be delivered.
"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 from recession, planemakers have been under pressure to provide savings in fuel. Airbus and Boeing have also been trying to defend their duopoly as newcomers target the biggest slice of the market by volume. Bombardier has been offering the 110-145-seat CSeries with the Pratt & Whitney engine and China this month announced first buyers for an airliner it hopes to deliver from 2016.
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.
Analysts have said that meant Airbus ran the risk of being outflanked shortly after the A320neo comes on the market, as Boeing will come under pressure to match its rival.
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 Dan Lalor)
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