UPDATE 1-Airbus rules out imminent launch of new A220 jet version

(Adds details, background)

By Tim Hepher

PARIS, May 24 (Reuters) - Airbus is not looking to launch a stretched version of its A220 jetliner in the current environment, the planemaker said on Wednesday, effectively knocking down speculation of a launch at the upcoming Paris Airshow.

A larger version of the 110-130-seat small passenger plane has been on the horizon for some time and an Airbus spokesperson reiterated that it was a matter of "when not if".

"But right now, the A220-100 and A220-300 are priority and we're not looking to launch a new variant in the current environment," the spokesperson added.

Airbus Chief Executive Guillaume Faury has indicated that resolving recent industrial delays is the planemaker's top priority amid continued pressure on the supply chain.

Speculation of an imminent launch circulated on Wednesday after some media highlighted a Bank of America note suggesting Airbus would launch the so-called A220-500 version at the June 19-25 event outside Paris.

Two industry sources ruled out an air show announcement.

A larger version of the loss-making A220 program, acquired from Canada's Bombardier in 2018, would allow Airbus to renegotiate supplier contracts and lower overall production costs per aircraft, which have kept the venture in the red.

It would also mount a challenge to the Boeing 737 MAX 8.

But it would eat into a market currently served by the 150-seat A320neo, a core part of Airbus's narrow-body family that generates most of the planemaking giant's profits.

MID-DECADE

Airbus expects most demand for narrow-body jets to migrate upwards to the larger A321neo size, where it is already outselling the largest models of the Boeing 737 MAX.

Most industry sources expect an A220-500 launch to be closer to the middle of the decade, with the jet entering service around 2030 and potentially boasting new wings and engines.

Such a gamble would have wider implications on the main battlefront for sales between Airbus and Boeing.

It could herald an eventual splitting of the narrow-body market into two as Airbus replaces the A320neo first and addresses a replacement for the larger A321neo at a later stage with newer technology, according to industry analysts.

Such a decision could nonetheless erode the compatibility which is seen as a key selling point of narrow-body jets.

Airbus has suggested a new A220 version could also open up a choice of engines. It told The Air Current last year it would welcome offers from General Electric/Safran joint-venture CFM International in addition to current supplier Pratt & Whitney. (Reporting by Tim Hepher; Editing by Aurora Ellis and David Gregorio)