DUBAI/ABU DHABI (Reuters) - Etihad Airways is exploring options with Boeing to cancel or defer orders for 777X jets worth billions of dollars in a fresh sign of the carrier’s financial strains and potentially squeezing Boeing’s newest model, four sources familiar with the matter said.

FILE PHOTO: A 777X banner is pictured above the 777 Wing Horizontal Build Line at Boeing's production facility in Everett, Washington, U.S. June 1, 2017. Picture taken June 1, 2017. REUTERS/Jason Redmond/File Photo

Etihad, owned by Abu Dhabi, has been reviewing its fleet plans as part of a strategy overhaul launched after a nearly $2 billion loss in 2016.

The airline’s management believes it no longer needs all of the 25 777X twin-engined jets and may be willing to incur penalties for cancellations rather than be saddled with future recurring losses stemming from overcapacity, the sources said.

Etihad and Boeing declined to comment.

Etihad is a launch customer of the 777X: an upgrade to Boeing’s successful mini-jumbo series that includes plans for the world’s largest twin-engined jetliner, the 406-seat 777-9 which is due to enter service in 2020.

Cancelling or deferring orders for jets earmarked for production at such an early stage of the ambitious new program could create a headache for Boeing as it switches to the new model.

Although twinjets like the 777X have prevailed over larger and less-efficient four-engined aircraft like the A380 and Boeing 747, analysts say demand for such aircraft remains relatively thin due to cost and size. The 777-9 version has a list price of $426 million.

SHRINKING BUSINESS

Finding alternative airlines to fill Etihad’s production slots in time for the launch phase may not be easy, they say, though Boeing has said it is confident in demand for the 777X and that development of the plane is on schedule.

Rivals Emirates and Qatar Airways are also launch customers of the 777X, whose features include a sleek new wing with folding wingtips to allow it to fit in parking stands.

Other buyers include Cathay Pacific 0293.HK, Lufthansa LHAG.DE, Japan's ANA 9202.T Singapore Airlines SIAL.SI. Turkish Airlines THYAO.IS has also expressed interest.

Few details of the fleet review have been made public but Etihad’s new Group Chief Executive Tony Douglas said in April it aimed to develop in “a sustainable way”.

The airline has been shrinking its business, including cutting routes and retiring some aircraft without replacements.

Reuters reported in May that planemakers were preparing for possible changes to dozens of plane orders from Etihad as it pressed ahead with its review.

It remains unclear to what extent suppliers will be willing to accommodate such requests, with the Gulf making up a significant portion of wide-body jet demand.

Etihad has outstanding orders worth tens of billions of dollars for over 160 Airbus and Boeing aircraft, including the new 777Xs.

The bulk of the aircraft were ordered when Etihad was pursuing an aggressive expansion strategy to keep pace with Emirates and Qatar Airways.

Etihad said then that under the agreements with Airbus and Boeing it could transfer orders to airlines it had invested in.

But the airline investment strategy seemingly collapsed last year when minority-owned Air Berlin and Alitalia filed for insolvency. Etihad currently holds stakes in four other airlines, half as many as it once held.