By Tim Hepher

PARIS (Reuters) -Airbus on Thursday raised the stakes in a dispute with major customer Qatar Airways over grounded and undelivered A350 jets by announcing it had revoked a separate contract for 50 smaller A321neo jets the airline plans to use for new routes.

The move widens a dispute that moved closer towards a rare courtroom clash on Thursday, with a procedural hearing over Qatar’s claim for more than $600 million in compensation over A350 flaws pencilled in for the week of April 26 in London.

Airbus revealed it was walking away from the contract for A321neos in skeletal arguments presented during a scheduling session over the A350 dispute at a division of Britain’s High Court on Thursday, people familiar with the matter said.

“We confirm we did terminate the contract for 50 A321s with Qatar Airways in accordance with our rights,” an Airbus spokesman said following a filing setting out provisional arguments, reported earlier by Bloomberg News.

Qatar Airways is expected to fight the A321neo contract’s termination, having said it plans to take delivery of the jets even though it is refusing to take more A350s until a dispute over surface erosion on the larger planes has been resolved.

The airline said in a court filing that it was “working through the practical consequences” of the A321 decision, adding that Airbus was not entitled to declare a “cross-default” on the basis of Qatar’s refusal to take more A350s in the main dispute.

Qatar Airways had no immediate comment on the A321neo contract, which has its roots in an order 10 years ago worth $4.6 billion at list prices, originally for a smaller version.

Qatar Airways has said the A321s will help it launch flights to new markets where there is currently not enough demand for larger aircraft, but which are out of reach of smaller A320s.

Qatar’s first A321neo is due to be delivered in February 2023, according to the airline filing. Industry experts say the hot-selling model can easily be resold, in contrast with a drop in demand for big jets like the A350, worsened by the pandemic.

GROUNDING DISPUTE

The two companies have been locked in a row for months over A350 damage including blistered paint, cracked window frames or riveted areas and erosion of a layer of lightning protection.

Qatar Airways says its national regulator has ordered it tostop flying 21 out of its 53 A350 jets as problems appeared,prompting a bitter dispute with Airbus which has said that whileit acknowledges technical problems, there is no safety issue.

Qatar Airways is seeking $618 million in compensation for the 21 grounded jets plus $4 million a day as the row drags on. The A321 development could increase that claim.

The Gulf carrier is also asking British judges to orderFrance-based Airbus not to attempt to deliver any more of thejets until what it describes as a design defect has been fixed.

Airbus has said it will “deny in total” the complaint and has accused Qatar Airways, once one of its most highly courted customers, of mislabelling the problem as a safety concern.

It has indicated it will argue that state-owned Qatar Airways influenced its regulator to ground the jets to win compensation, while Qatar Airways has questioned the design and accuses Airbus of failing to produce studies, the people said.

Qatar Airways has said its local regulator is independently driving safety decisions and cannot evaluate the airworthiness of the affected jets without a deeper analysis from Airbus.

The European Union Aviation Safety Agency, which is responsible for the overall design but not the locally regulated airworthiness of individual planes in service, has said it has not so far found safety problems with A350s that it inspected.

Qatar is so far the only country to ground some of the jets.

But a Reuters investigation https://www.reuters.com/business/aerospace-defense/costly-airbus-paint-flaw-goes-wider-than-gulf-2021-11-29 in November revealed at least five other airlines had discovered paint or surface flaws since 2016, prompting Airbus to set up an internal task force before the Qatar row, and to explore a new A350 anti-lightning design.

(Reporting by Tim HepherAdditional reporting by Guy Faulconbridge Editing by Kirsten Donovan and Mark Potter)