By Valerie Insinna and Tim Hepher

WASHINGTON JetZero, which has won U.S. Air Force backing to build a demonstrator for a futuristic aircraft, expects a projected 50% cut in fuel consumption to open the doors of the airline industry as well the Pentagon, its chief executive said.

The U.S. Air Force on Wednesday announced a $235 million contract for the California startup to develop a "blended wing body" demonstrator, named because its wings merge seamlessly with the curvaceous fuselage, reducing drag.

The concept has been around since the 1940s but has attracted renewed attention because of its efficient elliptical shape, saving fuel and boosting range.

The demonstrator is expected to fly in 2027 and could influence the design of future military cargo jets and aerial refuelers. The Air Force hopes to begin buying a next-generation tanker in the mid-2030s and has its eyes on designs that could offer greater range and stealth needed in the Asia-Pacific.

While military contracts could offer JetZero a chance to break into aircraft production, it also eyes a much-touted gap in the civil market between medium- and long-haul jets, where its 200-250 seat aircraft will sit, CEO Tom O'Leary said.

Boeing abandoned a "middle of the market" plane project in 2022, saying the case did not work. Airbus has focused on expanding smaller models.

In an interview, O'Leary said this would not deter JetZero and its radical design.

"We're beginning conversations with all of the airlines and finding out what their appetite is for aircraft in the middle market," he told Reuters.

"There's been universal interest and appeal because they're all interested in fuel efficiency and emissions reductions."

Two people familiar with the process said the Air Force, anxious to take advantage of higher volume and lower costs, had insisted bidders included a civil design when bidding.

NORTHROP PARTNER

JetZero's partner Northrop Grumman will manufacture the demonstrator.

That taps Northrop's pedigree in so-called flying-wing stealth bombers - an even more radical bat-wing design - though analysts say civil success depends on meeting goals of reliability very different from military jets.

Northrop's B-2, the world's first stealth bomber, fired the opening shots of the 1999 Kosovo war, while its newly-revealed B-21 successor also incorporates a bat-winged design.

The Air Force said materials and manufacturing advances have made production more attainable.

However, blended wing designs have not yet garnered significant support in civil markets. Airbus dropped the concept from candidates for a small hydrogen-powered plane for 2035. It has not ruled out another look later.

While range and payload make a blended wing body optimal for a freighter or tanker, an airliner is "trickier" because of logistical constraints at airports and difficulties of scaling families of jets, said Bank of America analyst Ron Epstein.

One thing that would not radically change is engines.

Whereas Boeing aimed to commission new engines for its abandoned project, JetZero says aerodynamic savings allow it to exploit existing models.

The demonstrator will be powered by Pratt & Whitney's Geared Turbofan used by Airbus. A decision has not been taken on eventual production models.

Capital Alpha Partners analyst Byron Callan said the decision to back JetZero suggested Air Force "frustration" with traditional aerospace companies' use of cash to favor shareholders rather than bigger developmental risks.

"One way to potentially change behaviors is to award contracts to smaller firms like JetZero," he wrote.

(Reporting by Valerie Insinna and Tim Hepher; Editing by Mark Potter)