PARIS, Nov 23 (Reuters) - Brazil's Embraer is in active talks with potential partners to build a new regional turboprop and could opt for a combination of industrial and financial backing, the head of the planemaker's commercial division told Reuters.

In a bid to regain momentum after Boeing axed a $4 billion merger deal in April, the world's No. 3 planemaker is also pitching its E2 regional jet as a compact solution for carriers trying to reduce risk after the COVID-19 crisis.

"We are actively in discussions with (turboprop) partnerships, but I can't go into more details now," Commercial Aviation Chief Executive Arjan Meijer said in an interview.

"Also the type of partnership, be it industrial or financial, is wide open. We are looking at all the options, or it could be a combination of the two ... We are not ruling anyone out at this point," he added.

Analysts say such a development could cost $2 billion.

Such a move could shake up a profitable niche dominated by Europe's ATR, which before the crisis forecast 20-year demand for 3,020 turboprops worth $80 billion.

Turboprops can be more efficient than jets on short trips. But demand is in the doldrums due to a glut of used planes and the market's exposure to small operators hard-hit by COVID-19.

ATR delivered just one plane in January-September.

Turboprops are also seen as among the first to face future competition from an alternative propulsion like hydrogen.

Meijer said Embraer's design would be conventionally powered but reduce emissions and noise. But a launch decision would stretch "beyond 2021" as the industry focuses on recovery.

Countries whose industries have expressed interest in turboprops include South Korea, industry sources said.

Sweden's Saab rejected speculation by some industry officials that it could look at the venture, having stopped building civil turboprops in 1999 to focus on defense.

"Saab has no plans to restart the development and production of civil aircraft," a spokesman said, adding that its investment focus also remained defense, including strong ties with Brazil.

Embraer had previously sought to develop its turboprop as part of its tie-up with Boeing. It now says it wants only project-led alliances and the commercial unit is not for sale.

"We are a strong company and have a good cash position, so we are very confidently looking forward," Meijer said.

'SMALLER JETS, LESS RISK'

Still, analysts say Embraer has been left isolated while the rival to its flagship E2 regional jet, the Canadian-designed A220, enjoys a revival backed by new owner Airbus - a partnership Embraer had hoped to resist by teaming with Boeing.

Meijer blamed a recent E2 order slump on buyers waiting for the Boeing deal, followed swiftly by the pandemic. Longer term, however, he saw the pandemic's fallout boosting Embraer.

While most forecasts suggest a full traffic recovery by 2024-25, "for our segment below 150 seats, we believe it will recover a lot sooner," Meijer said.

"Airlines that have ability to fly smaller planes do so."

When international travel recovers, airlines serving hubs will also use smaller feeder jets, Meijer said. That puts him at odds with low-cost airlines who see hubs as outdated and slash prices to fill their bigger Airbus and Boeing models.

"We strongly believe airlines will need to focus on profitability," Meijer said.

He also said Embraer remained committed to the smallest E2, the delayed E175-E2, which is shut out of U.S. markets due to union rules on the size of jets used by some regional carriers.

Asked whether Embraer would encroach on the turf of Airbus and Boeing above 150 seats, he said, "Embraer's focus is on expanding our leadership in the up-to-150-seat segment." (Reporting by Tim Hepher Editing by David Goodman, David Evans and Dan Grebler)