Canada's Bombardier is in talks with AirAsia about a more densely packed 160-seat version of its CSeries jet, in a surprise bid to loosen the stranglehold on Asia's largest low-cost carrier held by European giant Airbus.

AirAsia founder and Formula One boss Tony Fernandes discussed the proposal with Bombardier's chief executive Pierre Beaudoin during preparations for Sunday's British Grand Prix at Silverstone, the two company leaders told Reuters on the eve of the Farnborough Airshow.

"We've got Pierre Beaudoin as a guest of mine. He's brought us a very interesting product for a 160-seat Bombardier and we're looking at that," Fernandes said.

Bombardier wants to break into the lower end of the jet market dominated by Airbus and Boeing but has so far concentrated on appetite for aircraft up to 130 seats. The 160-seater would be a denser configuration of its CS300 aircraft.

Asked how optimistic he was of breaking a record run of Airbus orders by Fernandes, Beaudoin told Reuters, "He had no choice before, but now he has a better product to look at."

But, speaking to Reuters in his Caterham team motorhome in the rainy Silverstone paddock, Fernandes said talks were also continuing with Airbus over the purchase of at least 50 more A320 jets as the two sporting and aerospace events overlap.

"Whether we can finalise it by Farnborough I'm not sure because there's quite a lot to be done. Airbus is coming to see me. The clock's against them to try ... and I've got to get board approval," Fernandes said.

The potential new US$4 billion Airbus order, first reported by Reuters in May, concerns the current edition of the 150-seat A320. AirAsia is interested in more of the jets as it waits for the more efficient A320neo which is being developed for 2015. It placed a record 200-jet order for these last year.

Asked about the deal's volume, Fernandes said, "I still think we need 100. But we'd probably do 50 and 50 options."

AirAsia is not talking to Boeing, he added.

Airbus declined to comment.

"We Are Not Bait"

Fernandes entered Formula One in 2010 as principal of Lotus Racing, a team that has twice changed its name and now races as Caterham - the niche British-based sportscar maker Fernandes purchased after falling out with Lotus Group.

The racetrack summit between Fernandes and Beaudoin suggests Bombardier is still nipping at the heels of the two largest planemakers, despite failing so far to make significant inroads into their core single-aisle markets.

Its efforts to snag one of Airbus's most important clients come as the European planemaker is itself locked in a deepening market share battle with Boeing.

Airbus moved swiftly to dismiss the Bombardier threat.

"I do not see how a CSeries aircraft would economically fit into the AirAsia fleet," sales chief John Leahy told Reuters.

Fernandes would not say whether any deals could be completed at Farnborough but said he would visit the July 9-15 event to pick up an airline award and announce a components deal.

AirAsia targets growth in Indonesia and particularly Japan.

Bombardier dismissed any suggestions that AirAsia, one of Airbus's largest customers, was using the CSeries or the timing of the sports and aerospace calendars to lower the Airbus price.

"We are not concerned about being used as bait - on the contrary, we are being seen as a lower risk alternative to the A320 family," Benjamin Boehm, vice president of Bombardier Commercial Aircraft, said in a telephone interview.

The 160-seat proposal brings Bombardier into the middle of a market well defended by Airbus and Boeing, but the Canadian firm continues to see 130 as the sweet spot for its new aircraft.

"We compete with the A319. So it's a shorter version of the A320 and this is where we have a real competitive advantage," Beaudoin said.