The dispute is being splashed across the columns of specialist industry magazines in a series of negative ads as the world's dominant aircraft makers battle to maintain their share of the $100 billion a year commercial airliner market.

In the latest exchange, Airbus ran an advertisement in Aviation Week on Monday accusing its rival of "exaggerating the capabilities" of both the 737 and the latest 747 models.

The ad featured a Boeing aircraft with an elongated nose in the style of Pinocchio under the headline: "Why is our competitor stretching the truth?"

Airbus sales chief John Leahy said the European aircraft maker had chosen the Pinocchio theme in response to recent Boeing advertisements claiming a massive advantage for Boeing aircraft.

"They are blatantly misrepresenting the truth by orders of magnitude," Leahy told Reuters. "What is going on is just over the top."

Boeing defended its advertising.

"We believe in - and history has shown - the superior performance of our products and services. We stand behind our performance claims," said Boeing Commercial Airplanes spokesman Marc Birtel.

"Ultimately, our customers will decide based on their experience and analysis relative to their needs."

The exchange is the latest evidence of tensions that have escalated steadily since both companies took a gamble by tweaking their most popular models to offer fuel savings.

The decisions triggered an avalanche of orders, first for the revamped Airbus A320neo and then the Boeing 737 MAX. But industry sources say that has not prevented prices from coming under pressure as each side fights for market share.

With oil prices representing about 40 percent of airline operating costs, every litre of fuel saved represents potentially valuable business for aircraft and engine makers.

"This is an industry that thrives on producing incremental products, where just a couple of percentage points in performance can make a dramatic difference," said aerospace analyst Richard Aboulafia of Virginia-based Teal Group.

"There is no prize for being second."

CONTRADICTORY CLAIMS

The Boeing 737 is the U.S. company's most popular aircraft and competes with the Airbus A320 in the largest segment of the aircraft market, estimated at $2 trillion over 20 years.

Both planemakers are bringing out revamped versions of these roughly 150-seat jets from around the middle of the decade.

Boeing says its 737 MAX 8 will cost 8 percent less to operate per seat than the revamped A320neo. Airbus says the Airbus aircraft has a 3.3 percent cost advantage per seat.

Much of that discrepancy is due to a basic disagreement over the relative merits of the existing generation of aircraft.

Boeing says its 737 is already 8 percent more efficient per seat than the current A320. Airbus says the roughly 50/50 market split in recent years indicates the aircraft are comparable.

"I will claim an extra couple of percent better for mine and they should be claiming a couple of percent better for theirs, and if you talk to most airlines, they say they come out about equal," Leahy said in a telephone interview.

Such contradictory claims are also being made for some of their largest aircraft.

Boeing's 747-8 is a stretched 467-seat version of its legendary jumbo jet and is designed to compete with the 525-seat Airbus A380 superjumbo, the world's largest airliner.

In ads, Boeing says the total trip costs of the 747-8 are 26 percent less than an A380. Airbus says the 747-8 has 10 percent lower trip costs, but that the A380 is 30 percent bigger, allowing airlines to gain by filling up the extra seats.

Rivalry between Airbus and Boeing comes as no surprise, but rhetoric has sharpened as Boeing looks set to recover the top spot in the industry by out selling Airbus this year. Airbus says its rival is merely catching up after a record European year in 2011.

Industry analysts and executives say competition has also intensified since Ray Conner stepped up from being Boeing sales chief to become president of the commercial division in June.

Rivalries in aerospace are fierce and Leahy has himself been accused by Boeing executives of overstepping boundaries at airshow appearances, but detailed attacks are rare.

Monday's Airbus advertisement is not Pinocchio's first appearance in the take no-prisoners world of aviation.

At the Farnborough Airshow in 1994, the head of Boeing's jetliner unit compared an Airbus executive to Pinocchio in a spat over market share, according to Flight International.

In 2010, Ryanair Holdings Plc (RYA.I) Chief Executive Michael O'Leary apologised and paid damages to top European rival Stelios Haji-Iouannou for depicting the easyJet Plc (EZJ.L) founder as Pinocchio and suggesting he was lying about on-time performance. (Reporting by Tim Hepher. Editing by Andre Grenon)

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