By Tim Hepher
TOULOUSE France (Reuters) - Airbus (PA:AIR) successfully staged the maiden test flight on Thursday of an upgraded passenger jet on which it expects to generate hundreds of billions of dollars of revenue, buoyed by an increase in the company's jet demand forecast.
The A320neo touched down in Toulouse, southwest France, 27 years after the original A320 first took to the skies and opened up fierce competition with Boeing's medium-haul 737 in a slice of the jet market estimated at $2 trillion over 20 years.Powered by a new type of jet engine from Pratt & Whitney (N:UTX), the A320neo flew for two hours and 22 minutes, kicking off a year of flight trials. The same family of aircraft will also offer a competing engine from CFM International, a joint venture between General Electric (N:GE) and Safran (PA:SAF).
Airbus is aiming for savings of 15 percent per seat compared with the current generation of medium-haul passenger jets.
It said this gap would increase to 20 percent by 2020 thanks in part to a further two percent improvement due to be delivered by Pratt & Whitney, on top of its 12 percent contribution to the current improvement. The rest will come by adding more seats.
With airlines running on wafer-thin profit margins and spending about 40 percent of their operating costs on fuel, such savings are at the center of a huge sales battle.
Rival Boeing is bringing out its own updated version of the 737 just over a year after Airbus and the two companies face a gradual threat to their duopoly at the small end of the market from new competitors in Canada, Brazil, China and Russia.
A smooth entry to service will however cement their position as market leaders for years to come, analysts say,
Shares in both companies have risen sharply since the decision to revamp their most-sold aircraft was announced in 2010 and 2011. Airbus shares rose over 2 percent on Thursday.
Airbus has sold 3,257 A320neo aircraft and said it expects this to reach 3,500 by the end of the year. Together, Airbus and Boeing have sold well over 5,000 of the planes.
Both companies have announced increases in production as a result, and are considering further increases to lift A320 or 737 production to 50 planes a month or beyond.
Airbus Chief Executive Fabrice Bregier however said it was in "no rush" to make a further output decision.
Airbus raised its 20-year forecast for jet demand on Wednesday, citing growth in emerging markets, with China on the brink of becoming the world's aviation powerhouse.
The flight went ahead in September as planners hoped after last-minute signs of concern about the engine's readiness and the recent resumption of flight tests on Bombardier's (TO:BBDb) CSeries aircraft, which uses similar Pratt & Whitney engines.
An engine blowout in May had halted CSeries flight testing.
The companies indicated they were convinced that the Airbus version of the engine would not be affected by the same problems and that the aircraft would enter service with the same high reliability as the existing generation of small jets.
"It is a great engine that is going to change the economics of the airline industry," said Alain Bellemare, chief executive of UTC Propulsion and Aerospace Systems at Pratt & Whitney parent United Technologies (N:UTX).
"We are highly confident in the performance of these engines," he told Reuters.
(This version of the story corrects name of United Technologies unit in penultimate para)
(Editingby NatalieHuet and MarkPotter)