However, IA will purchase the aircraft only if the government funds the acquisition as the purchase will result in operational losses of Rs 78 crore annually to the airline.

The board also approved the joint bid by Aero Transport Regional (ATR) of France and the Bangalore-based Hindustan Aeronautics Limited (HAL) for the 50-seater aircraft deal.

The other company in the race was the Canadian Bombardier. ATR had also submitted a separate bid for the deal.

The joint ATR-HAL bid has offered the ATR-42-500 aircraft powered by PW 127E engines and fitted with HS 568F propellers.

Canada's Bonbardier had offered the Dash 8-300 powered by PW 123 engines and fitted with HS 145F propellers.

An internal report prepared by IA was submitted to the IA board. The report was concluded that the net present value of the funds generated bythe 50-seaters was negative.

The 50-seater project would require substantial enhancement of fares to achieve financial viability, the IA report said.

According to estimates prepared by IA, the operation of the six 50-seaters would result in losses of Rs 78 crore annually.

To achieve financial viability of the project, IA would have to raise fares by fares by 104 per cent on the 50-seater network (north-east and Andaman and Nicobar Islands) or 156 per cent on new routes.

Such large fare hikes would not result in the break-even factor of 75 per cent being achieved.

The IA report also states that the management is not likely to consider investment in a project which is likely to generate an annual loss of Rs 78 crore.

The IA board has, therefore, approved a request by the IA management to the Government to consider meeting the capital cost of the induction of the six 50-seater aircraft. If the Government funds the deal, the fare increase required would be 38 per cent on the 50-seater network and 56per cent on the new routes.

If the government is unable to fund the acquisition of the aircraft, the IA management will ask for an interest-free loan from the Government. It will also ask for concessions in landing charges, ATF, and sales tax for the 50-seaters.