Airbus studies engine revamp of A330 jet: sources

By Tim Hepher

PARIS (Reuters) - After dramatically improving sales of its A320 jet by revamping it with newer and more efficient engines, Europe's Airbus is studying whether to apply the same formula to the larger A330, industry sources and analysts said.

Sales of the 20-year-old A330 have enjoyed an unexpected boom in recent years after three years of delays in Boeing's radically new 787 Dreamliner drove many airlines to invest in the cheaper and proven Airbus model.

But momentum is fading and analysts say Airbus faces questions over whether it can maintain current A330 production rates in the second half of the decade without something else to offer airlines trying to contain their high fuel bills.

"They have been doing fine with the A330 because Boeing was late, but it is becoming painfully obvious that Boeing has newer technology than the A330," said Adam Pilarski, senior vice president at U.S.-based aviation consultancy Avitas.

Officially, Airbus is happy with the way sales of its most popular big jet are holding up, following a steady pattern of design tweaks that have increased range and capability. Last month it sold 25 A330s worth $6 billion to AirAsiaX .

But behind the scenes, suppliers and industry experts say Airbus is looking seriously at whether to re-engine the A330 to cut fuel consumption, something AirAsiaX is also pushing for.

"It is being discussed. It is one of the options in the mix," said an industry source briefed on the plans.

Airbus said it had nothing to add to recent comments made by a senior marketing executive, Crawford Hamilton, who told Air Insight website there was no immediate pressure to revamp the A330. Airbus holds its annual news conference on Monday.

The idea of a facelift for A330 is not new. Airbus originally planned to compete with the 787 with such a maneuver but abandoned it for a bolder and costlier carbon-fiber A350, which is due to enter service this year.

Now, after a turbulent period of ambitious and challenging plane developments, the world's largest aircraft manufacturers are once again focusing on derivatives of existing models.

Since the A350 is on its way, a revamped A330 would now address a smaller market niche.

Still, the decision could have an impact on the broader battle between planemakers. Fresh competition from the A330 could, at least for a while, sap margins for the 787 by forcing Boeing to offer bigger discounts. For Airbus, it could provide profits that keep open a lifeline of cash for other projects.

CONCERNS OVER RESOURCES

The proposal must first overcome concerns about scarce engineering resources and satisfy Airbus bosses that it can generate an adequate return without drawing away sales from the

A350.

With execution risk uppermost in the minds of investors, Airbus is heavily focused on testing and preparing the A350 for first delivery, expected in the last quarter of this year.

At the same time, it needs to decide whether to add a bigger version to the A350 series to compete with Boeing's new 406-seat 777X mini-jumbo. The A350-1000 will seat 350 people.

Some industry experts said that on paper, Airbus could tackle a A330 re-engining project and a larger A350, informally nicknamed A350-1100, at the same time as engineers start to come off other the main A350-900 version.

But the business case would have to stack up first. After a decade of costly developments and rollercoaster share prices, Airbus has pledged to focus on doubling its margins by 2015.

Shares in parent EADS, recently renamed Airbus Group, have doubled in the past year on the success of the re-engined A320 but the wide-body market is fragmented and harder to navigate.

Analysts say an A330 engine upgrade would cost at least $1 billion, much of which could be picked up by engine makers Rolls-Royce or General Electric . Modifications needed to carry the latest engines, which need more room and weigh more while using less fuel, could treble the cost.

The industry source briefed on the situation said Airbus was not expected to make a decision for at least a year.

That might leave time for Airbus to resolve yet another dilemma - what to do about the smallest member of the A350 family which lies closest to the 250-300-seat A330. Airlines are steadily ditching the A350-800 for the next-largest model.

But some analysts say Airbus cannot afford to wait.

"The most likely entry to service date (for a re-engined A330) would be 2018, but for that they would need to make a decision pretty soon," said Leeham Co analyst Scott Hamilton, who has blogged actively about the A330 re-engining idea.

"A re-engining would give the A330 another 10 years of life but it would accelerate the demise of the A350-800 which is likely to fall away as customers upgrade," he said.

(Editing by Peter Graff)

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