After months of hesitation Airbus announced that from the third quarter of 2016 it would offer "a new engine option" (NEO) for the A320 designed to reduce fuel consumption by up to 15 per cent.
The announcement boosted shares of Airbus parent company EADS, which gained 1.56 per cent by mid-day on an overall stronger Paris market.
Airbus and its suppliers plan to invest a little more than 1.0 billion euros ($1.30 billion) in the project, said Airbus commercial director John Leahy, who added that the company expected to sell at least 4,000 NEO-equipped A320s over a 15 year period.
"I think 2011 will be the big year for placing orders for the NEO," Leahy told AFP.
He said there have already been expressions of interest from German carrier Lufthansa, AirAsia of Malaysia, IndiGo of India as well as from the giant US leasing companies ILFC and GE Capital Aviation Services.
Carriers would still have the option of ordering an A320 with its current engines.
But those that favor the NEO will be able to choose between engines manufactured either by CFM International, a joint venture linking Safran of France and General Electric of the United States, or the US group Pratt and Whitney.
The NEO-equipped A320 will sell for six million dollars more than the current model, which carries a list price of $81 million.
The new engine system will also be available on the A319 and A321 models, variants of the basic A320, Airbus said.
With more than 6,700 ordered and 4,400 delivered, the A320 in its various forms has been Airbus' best-selling aircraft since it entered service in 1988.
But both Airbus and US rival Boeing are soon to face competition in the medium-range market with the arrival of the CSeries, manufactured by Bombardier of Canada, and China's C919.
The Airbus decision to offer a new engine system is expected to put pressure on Boeing and its plans for its own medium-range plane, the 737, the world's best-selling civilian airliner.
Airbus "is challenging the position of Boeing, which for the moment has shown no urgency to provide new engines for the 737," analysts at CM-CIC said.
The US manufacturer has yet to decide whether it will offer a version of the 737 equipped with new engines or opt to make an entirely new aircraft.
"We are taking the time required to make sure we do the right thing for our customers," Boeing said earlier on the issue.
"As we move into 2011 we will be conducting an intense and vital exploration of our of customers’ future business requirements."