(Adds comment on airframe makers in paragraphs 9 and 10)
By Chang-Ran Kim, Asia auto correspondent
TOKYO, Feb 16 (Reuters) - Honda Motor Co and General Electric Co agreed on Monday to jointly develop, produce and market a new jet engine for small business jets with the aim of becoming a major player in the growing market.
The pact marks a significant step towards the Japanese auto maker's long-standing goal of entering the aircraft business, while signifying an expansion of the U.S. technology giant's line-up of jet engines into the lightweight segment.
"We have made a significant step toward the realisation of a dream of ours that dates back to the beginning of our corporate history," Honda President Takeo Fukui told a news conference.
"Up to now, commercialisation of our aircraft-related technology had not been in the immediate picture, but this deal brings us closer to that goal," he said.
The new engine will be based on the HF118 turbofan engine, which Honda developed on its own and which was mounted on its experimental "HondaJet" small business jet. The jet successfully completed its first test flight last December.
Honda said the market for engines this size was about 150 to 200 units a year now -- with most of the demand in the United States -- and was forecast to grow to 250 over the next decade.
"After 9/11, airport security has been tight and for flights of up to three hours, small jets are very convenient," Fukui said.
"And if you look at the next 20 to 30 years, the 'air taxi' concept has huge potential in China and the Asia-Oceania region."
Under the preliminary agreement, Honda and GE will market under a joint brand a compact business jet engine with thrust of 1,000 to 3,500 pound-force (lbf) to airframe manufacturers, to be mounted on jets that carry up to 10 passengers.
David Calhoun, president of GE Transportation, the world's biggest jet engine maker with 37 engine types, said the firm had not decided which airframe makers to approach, but added: "We know them all. First we'll focus on developing the product."
Textron Inc , which builds the Cessna, Learjet-maker Bombardier and Eclipse Aviation Corp are among the world's major business jet makers.
"TWO GREAT ENGINE MAKERS"
The partners will also obtain joint certification of the HF118 engine, which they said was 10 percent more fuel-efficient than existing products made by market leaders Pratt & Whitney -- the engine-making unit of United Technologies Corp -- and unlisted Williams International.
A final agreement over details such as branding and the nature of the alliance will be signed by the end of the year.
But Fukui said the partners would probably enter a 50-50 "revenue share" agreement as is the norm in the aircraft engine business, and were unlikely to set up a joint venture or form a capital tie-up.
The two firms said they had no specific sales or market share target yet, but stressed they aimed to become a "leading" player by offering a more reliable, fuel-efficient and low-cost alternative.
"Pure and simple, Honda and GE create great engines," Calhoun said.
"The next step will be the transition of the HF118 engine from an R&D project into a mass-produced engine for future small business jets. That's the mission behind this agreement today, and that's where GE is perfectly positioned to help," he said.
GE, which traces its beginnings to Thomas Edison, was a pioneer in powering business jets in the late 1950s, and has one of the world's biggest customer and support networks in the jet engine segment.
While Fukui said it would take at least five years or so for the venture to make money, he added that he saw big profit opportunities once the business was up and running, because revenues from maintenance and servicing amounted to "several times" the cost of the engine.
In a separate deal, Honda had announced plans last year to look into the possibility of selling a next-generation piston aviation engine that it had been developing since 2000, with partner Teledyne Continental Motors Inc, a unit of U.S. electronic components maker Teledyne Technologies Inc .
It has also said it could eventually commercialise small jet aircraft with better fuel efficiency, more cabin space and longer flight range than existing models.
The announcement came during Tokyo trading hours. Shares in Honda ended flat at 4,480 yen, in line with the overall market.