An Indian government panel has approved a USD$2.1 billion proposal by state-owned Indian Airlines to buy 43 planes from Airbus, taking the deal a step closer to fruition.

The plan will now need the consent of the federal cabinet before orders can finally be placed.

The Public Investment Board (PIB), a panel of the finance ministry, gave its consent on Wednesday to the airline's proposal to buy 19 Airbus A319s, four A320s and 20 A321s as part of a five-year fleet renewal program.

All aircraft will be fitted with CFM-56 engines made jointly by General Electric and Snecma, a state-controlled French aerospace company.

The panel also approved the infusion of 3.25 billion rupees (USD$72.1 million) in new state equity into Indian Airlines.

The airline is one of India's three main domestic carriers and needs to boost its fleet to counter competition from booming domestic rivals Jet Airways and Air Sahara, but needs government approval before placing orders for the planes.

"The proposal has been approved the way it went to the PIB, as well as the 3.25-billion-rupee equity infusion," a government official told reporters after the meeting.

Indian Airline's board approved the purchase of 43 jets in March 2002 at an original cost of 100.89 billion rupees (USD$2.2 billion) but the cost has now declined to 94.75 billion owing partly to currency fluctuations.

Its approval was delayed partly to the airline's planned privatization and then due to a change in government in May.

NEGOTIATE PRICES FURTHER

The government said it would negotiate prices further with Airbus after receiving other necessary approvals. Ninety percent of the acquisition cost will be funded by foreign borrowings guaranteed by the government.

The new planes would allow it to retire some older jets and help it win back share of the domestic market.

India's air travel market is small, even though the country has one of the world's fastest-growing economies, because of high taxes and charges on the aviation industry which inflate air fares. So most of its billion-plus people use the subsidized rail network.

The Indian Airlines deal was crucial to both Airbus and rival Boeing, involved in a fierce battle for market share in a recovering global aviation industry. Airbus overtook Boeing as the world's biggest commercial jet maker in 2003.

Boeing, which had offered its 737-700, -800 and -900 jets to Indian Airlines, had continued lobbying to reverse the deal in the past two years and even offered a 7.0 billion-rupee discount, citing a slump in the aviation industry.

But Indian Airlines stuck to its plan to buy Airbus planes even after a review of the deal earlier this year.

(Reuters)