July 7 (Bloomberg) -- Airbus SAS, struggling to develop new models of its biggest aircraft, won an agreement from Rolls-Royce Group Plc to provide engines for its A350 jet, said three people with knowledge of the discussions.

Airbus, the world's largest commercial-plane maker, is redesigning its 300-seat A350 after it won less than a third the orders of Boeing Co.'s 787, people familiar with the plan said in May. Airbus may announce the deal with Rolls-Royce at England's Farnborough Air Show this month, said the people, who declined to be named before the agreement is announced.

Rolls-Royce competes in aircraft engines with General Electric Co., which is weighing whether to invest in the A350. Airlines are complaining about delays in Airbus jets including the A380 superjumbo. Airbus's parent, European Aeronautic Defence & Space Co., ousted two executives last week and its board meets July 14 to consider the redesigned A350, the people said.

``Failure for Airbus is not an option here,'' said Richard Aboulafia, an analyst with consulting firm Teal Group in Fairfax, Virginia. ``It really is essential to get the endorsement of an engine player because propulsion is a missing part of the equation.''

Peter Barnes Wallis, a spokesman for London-based Rolls- Royce, said the company is in talks with Airbus on offering engines for ``new wide-body aircraft.'' Airbus spokeswoman Barbara Kracht declined to comment on engine makers.

The market for long-haul planes seating 300 is worth $450 billion over 20 years, Aboulafia estimates. Airbus also may disclose an initial order for the new version of the A350 at the show, which opens July 17, said the people.

$10 Billion

EADS ousted Co-Chief Executive Officer Noel Forgeard and Airbus CEO Gustav Humbert July 2. Louis Gallois, the 62-year-old head of the French railway system, replaced Forgeard. Christian Streiff, 51, who most recently worked at Cie. de Saint-Gobain SA, got Humbert's job. EADS also made Co-CEO Tom Enders chairman of Airbus, replacing Forgeard in that position.

Airbus today said its shareholders confirmed Streiff as CEO.

The company is spending $10 billion to redesign the A350, people familiar with the decision said in May. Boeing has orders for 350 of the 787, compared with 100 for the earlier model of the A350. Customers said the Airbus plane wasn't big or fast enough.

The Rolls-Royce agreement is crucial for Toulouse, France- based Airbus because technology advances that make a plane attractive to customers, such as fuel savings, start with changes that make engines more efficient, said Doug McVitie, managing director of Arran Aerospace, a Dinan, France-based forecasting company.

New engines typically cost more than $1 billion to design, while updated existing versions can cost half that.

GE Question

Shares of Rolls-Royce, the world's No. 2 jet-engine maker behind GE, rose 1.2 percent to 417.5 pence in London today. EADS rose 3.2 percent to 21.70 euros in Paris. GE, based in Fairfield, Connecticut, declined 20 cents to $33.30 at 4 p.m. in New York Stock Exchange composite trading.

Airbus plans to offer customers a choice between two types of engine. While Airbus isn't required to offer another engine, airlines prefer a choice because if they get engine makers to compete, it brings down the price. Airlines choose between models of the planes with the different engines. Rolls-Royce had offered a version of its 787 engine for the A350.

GE had agreed to design a variant of its GEnx, used on Boeing's 787, for the original A350. Should Airbus decide to offer different sizes of the new A350, GE may have to design a new engine to handle the load, GE Aviation CEO Scott Donnelly said in an interview. GE hasn't made a final decision on whether to do it, he said.

New Family

``We have to make sure economically it makes sense for us to do be able to do it because it's a huge investment,'' Donnelly said. ``So it would be premature to announce or not announce until the plane is known.''

GE spokesman Rick Kennedy said yesterday the company remains in discussions with Airbus. GE Aviation is based in Evendale, Ohio. John Leahy, Airbus's chief commercial officer, said the jet maker expected to have engines from two companies. He declined to comment further.

``Rolls is doing what they always do: When in doubt, invest,'' Aboulafia said. GE is ``doing what everyone else is doing, which is due diligence on Airbus and their ability to create a new family.''

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Andrea Rothman in Toulouse, France, at aerothman@bloomberg.net.

Last Updated: July 7, 2006 16:12 EDT