LONDON/PARIS - European planemaker Airbus beat its U.S. rival Boeing Co. to a hotly contested deal valued at more than $3 billion on Monday when EasyJet Plc, Europe's largest no-frills airline, said it would buy 120 Airbus jets.

EasyJet, which currently operates an all-Boeing 737 fleet, had negotiated with both manufacturers for months and said the deal had been Chicago-based Boeing's to lose.

"Boeing were complacent," the airline's ebullient founder and major shareholder Stelios Haji-Ioannou told Reuters.

The intended order, for 120 narrow-body A319 aircraft with options on another 120, loosens the U.S. manufacturer's grip on the booming European low-cost airline market.

Excluding the options, the sale is worth some $6.2 billion at list prices but the European planemaker was said by analysts and industry sources to have offered a 40-45 percent discount, which translates to about $3.6 billion.

Taking a jab at its archrival, Boeing said it had fought aggressively for the order but could not afford to offer what EasyJet wanted.

"This was an absolute must-win for Airbus," Boeing's top commercial jet salesman Toby Bright told Reuters by telephone. "From what we can tell, the difference was upwards of $500 million. We've said in the past that we are not going to do bad business."

As part of the deal Airbus will cover the extra costs related to easyJet operating a mixed fleet, such as spare parts, maintenance and separate crew training.

Toulouse, France-based Airbus' CEO Noel Forgeard told analysts in a conference call that Airbus had also agreed to buy back up to 10 of easyJet's 737s as part of the deal.

But he denied Airbus was selling its planes at a loss, saying the deal was "in line" with his company's goal to boost its operating margin to 10 percent by 2004.

"It has no dilutive effect," Forgeard said.

AIRBUS BREAKTHROUGH

Airbus has long tried to break into the European no-frills market, having already cracked the U.S. low-fare market with the sale of its A320 aircraft to newcomer JetBlue Airways Corp (JBLU.O) and nine-year-old Frontier Airlines (FRNT.O).

But no-frills carriers, which have grown rapidly as economic weakness and the aftermath of September 11 clipped the wings of major full-service airlines, usually operate a single type or family of aircraft to reduce maintenance and pilot training costs.

Until now easyJet and its newly acquired rival Go-Fly have only used Boeing 737s, with a fleet of 64 aircraft, as does its biggest European rival Ryanair (RYA.L) and most other budget airlines.

But easyJet said it had decided the benefits of the discounted deal with Airbus outweighed the challenges of having to integrate the new planes into the fleet.

Industry insiders still worried that the costs of mixing the new planes with easyJet's uniform fleet of Boeing 737s could hurt the airline's performance and easyJet stock fell.

By 1 p.m. EDT easyJet shares were trading down almost 4.86 percent at 264 pence.

Shares in Airbus majority owner EADS ended 4.43 percent lower at 9.7 euros on concerns that Airbus had cut prices too much, even to win the year's biggest order. Shares of BAE Systems, which owns 20 percent of Airbus, rose 1 percent to 200 pence, while Boeing fell 2.9 percent to close at $31.06.

"EADS is under pressure because people see that this deal required a fair amount of giveback to the customer," said Chris Mecray, an aerospace and defense analyst at Deutsche Bank Securities. "The economic terms pose a risk to Airbus down the road, the same way losing the deal hurts Boeing."

AIRBUS 'KEENER' THAN BOEING

"The bottom line is that Airbus was more keen than Boeing," Haji-Ioannou said, adding that the firms worked over the weekend and put the final touches to the announcement at dawn on Monday.

EasyJet Chief Executive Ray Webster said the fast-growing airline, serving dozens of Europe's holiday spots with garish orange planes from its hub at Luton, near London, was paying 30 percent less than it did when it bought 737s four years ago.

"This is a stunning deal. I don't think this type of deal has been done before," Webster told Reuters.

The news is a shot in the arm for European planemaking. The industry has been slashing jobs and scaling back production to cope with a slump in demand for air travel that worsened after the September 11 attacks in the United States last year.

Airbus said it was on course to deliver at least 300 aircraft a year for the next few years, which would likely be enough to overtake Boeing as the biggest jetliner maker.

Boeing has said its expects to deliver 275 to 300 jets next year, down from 527 in 2001 and a projected 380 this year. The U.S. manufacturer is due to report its latest earnings on Wednesday and analysts believe it might have to cut its production forecasts further.

"This helps Airbus shore up their production outlook for 2004," said Harry Breach, aerospace analyst at Banc of America Securities. "We believe they have about 200 firm orders in the book but they need some more to keep production at current rates."

EasyJet will begin flying its first Airbus planes in Switzerland from August 2003, Webster said.

Airbus and easyJet have 45 days to sign a contract and decide on engines, with a choice between the V2500, made by International Aero Engines (IAE), a consortium including United Technologies (UTX.N) unit Pratt & Whitney and Britain's Rolls-Royce (RR.L), and the CFM 56-5 engine made by a joint venture between General Electric Co (GE.N) and France's Snecma.