While taking the public sector carriers Indian Airlines and Air-India off the divestment list, the government has signalled that the two airlines can go ahead with their fleet expansion and modernisation plans, which are already in the final stages.

The Cabinet Committee on Divestment, chaired by Prime Minister Atal Bihari Vajpayee, approved the proposal of the civil aviation ministry to remove IA and A-I from the divestment roster, Civil Aviation Minister Shahnawaz Hussain told PTI after the CCD meeting.

When contacted, Hussain, while expressing happiness at the decision, said if the two public sector carriers were to survive the heightened competition, they should be allowed to go ahead with their fleet expansion plans, which would now be possible.

He said privatisation of the two carriers was not feasible at the present juncture as world airlines and the aviation industry at large were going through a bad patch", Hussain added.

In order to give a thrust to the process of aircraft acquisition, a meeting of the Public Investment Board is likely to take place next week, sources said.

The Cabinet panel had in 2000 decided to divest government stake in the two airlines, but the divestment ministry could not complete the process as the qualified bidders, including the Tatas and Singapore Airlines, withdrew in the final stages due to various factors.

While the IA board has recommended purchase of 43 Airbus aircraft over a five-year period between 2003-08 at a cost of Rs 10,089 crore (RS 100.89 billion), A-I plans to acquire 17 long haul aircraft costing over Rs 13,000 crore (Rs 130 billion) including ten on firm basis and the rest on option.

Ministry sources pointed out that most of the IA aircraft were about two decades old. The last decision to acquire planes for the domestic carrier was taken in 1986 and 1989 and they were inducted between 1989 and 1994.

Besides 30 A-320s inducted in this period, IA's ageing fleet also comprises of five A-300s (over 20 years old) and 11 Boeing-737s (21 years), which were transferred to its subsidiary Alliance Air on lease.

On the other hand, the private carriers - Jet Airways and Air Sahara- had expanded rapidly in the past few years and now possessed technologically advanced and a younger fleet. While Jet Airways inducted 40 aircraft between 1994 and 2002, Air Sahara got ten modern planes during the same period.

Air-India's fleet comprises four 747-200s (22.5 years), three A-300 (19.7 years), eight A-310s (14.9) and six 747-400s (7.5) and its international traffic share has declined from 33 per cent to 20 per cent in 2001, primarily due to the decline in fleet capacity.

The sources said governments in several developed countries like the United States, France, Greece and Portugal had pumped in additional capital, granted financial relief and extended loan guarantees to their national carriers to keep them afloat.

On the IA's fleet expansion plans, the sources said the Vijay Kelkar Committee, which had studied the domestic carrier, had underscored the need for the airline to acquire modern aircraft and infusion of additional funds.

Following these recommendations, the Cabinet had in 1999 decided to infuse Rs 325 crore (Rs 3.25 billion) as equity in IA towards margin money for aircraft acquisition. However, these funds could not be released due to the Cabinet decision to divest the stake in the carrier.

In October 2001, the finance ministry asked the civil aviation ministry to formulate a specific proposal for aircraft acquisition and seek approval of the PIB.

The draft PIB memorandum regarding IA's fleet acquisition was then circulated to various appraising agencies, but the finance ministry did not concur with the proposal insisting that IA be first taken off the divestment roster.

The Planning Commission had also opined that the decision on IA divestment should first be reversed by the CCD before a decision could be taken to make such a fresh and huge investment.